October 8, 2024: Compared to China and South Korea, Russia was never a major ship builder. Most current shipyard work in Russia is for military ships. For commercial ships, Russia depends on foreign builders, especially China, the world’s largest ship builder, and South Korea. Russian ship building efforts have long been crippled by poor management, corruption and an inadequate number of qualified workers. Another problem is that Russian shipyards never adopted modern shipbuilding techniques like computer-based design systems and the use of just-in-time delivery of prefabricated components. As a result of this mess, Russia has to import commercial ships, especially specialized ones like those to transport LNG (Liquified Natural Gas) from facilities on the north Russian coast, to international customers. Russia is one of the top five LNG producers but ten years of increasing sanctions because of aggression in Ukraine have reduced its ability to export LNG.

Despite the sanctions, a Chinese shipyard tried to quietly deliver Russia with LNG equipment Russia can’t produce for itself. This failed because China’s western trading partners found out and threatened to sanction China for allowing Chinese firms to evade the sanctions. Most of China’s foreign trade is with the United States and Europe. The western sanctions threat was potentially devastating for China while the loss of its much smaller trade activity with Russia is something China can survive. The Chinese government ordered the Chinese companies manufacturing and attempting to deliver LNG equipment to Russian firms to back off until Russia was no longer being sanctioned by western nations that are China’s major trading partners.

Russia objected but could not retaliate in any way. Their ambitious expansion of LNG production would have to wait, along with a lot of other sanctioned Russian exports, until the war in Ukraine is over. Chinese diplomats and economic experts are quietly urging Russia to settle the Ukraine war and get out of Ukraine. Now in its third year, a growing number of Russian leaders believe that their war in Ukraine is unwinnable. The problem is that Ukraine, which has been under attack by the Russians since 2014, demands that Russians leave the 27 percent of Ukraine that they occupy and allow Ukraine to reclaim its lost territory. This is a humiliation that Russian leaders are unwilling to deal with.

The Chinese point out that they have to deal with the sanctions as well and would like to resume their mutually lucrative trade with Russia. That will only happen if Russia makes peace with Ukraine. The sanctions on Russia means that even China cannot legally trade with Russia. There is some illegal trade in smuggled Russian oil and small quantities of high value components for Russian weapons and industries. Most Russian leaders realize that the invasion of Ukraine was a big mistake and an economic disaster for Russia.

Russian leader Vladimir Putin ordered the invasion and believes that withdrawing from Ukraine, no matter how much it would benefit Ukraine, would also mean that Putin would be out of his job as Russian leader. Putin’s resistance to losing his job could cause chaos inside Russia because most Russians now blame Putin for the Russian losses in Ukraine and the economic damage done by the sanctions. Russia now has a higher poverty rate and its import/export activity is much reduced. Putin still controls Russian armed forces, including the national police, but does now want to be known for triggering a civil war in Russia. Putin’s decision to invade Ukraine was a major mistake and he does not want to compound it with more economic and armed chaos inside Russia. The destruction of the Russian ship building capability and the crippling of the growing LNG industry are two more victims of the Russian instigated Ukraine War.

Be careful what you ask for because that’s what Putin did and now all he has are numerous military, economic and diplomatic problems to show for it.