The Insiders in an opinion piece says that the ongoing conflict between Russia and Ukraine has triggered sweeping international sanctions, aiming to cripple Russia's ability to wage war by targeting crucial industries. Among these, the steel sector plays a pivotal role, as steel is essential for manufacturing military vehicles, weapons, and armor. Despite these sanctions, Italian steel equipment maker Danieli continues to supply Russia with crucial technologies for its steel production, some of which are used for military applications. This article examines how Danieli has navigated the sanctions landscape and its implications for global trade, military production, and the continued supply of materials for Russia's war effort.
Steel is not just a critical commodity in industry; it’s a fundamental component in modern warfare. Russian steel manufacturers, including Severstal, are at the forefront of producing specialized steels for military use, such as armor-plating for tanks and armored vehicles. According to reports, the cost of the steel armor in a tank can account for as much as 15% of the vehicle's total price. Therefore, the demand for high-quality, durable steel is a matter of survival in modern combat. Companies like Severstal have proudly promoted their "innovative armor steel grades" that can withstand sniper bullets and even the rigors of missile defense systems. This steel, produced using technologies that are often dependent on Western equipment, is central to Russia’s military production.
Italian steel technology, particularly from the company Danieli, has played a critical role in modernizing Russia’s steel production capabilities. Before the conflict, Danieli’s equipment was integral to the operations of several Russian steel giants, including Severstal and Magnitogorsk Iron and Steel Works. Danieli supplied Russia with state-of-the-art machinery for the production of armor steels and other specialized steel products. These machines, ranging from rolling mills to out-of-furnace steel treatment units, were vital for producing the high-performance steel needed in defense applications. Prior to the war, Danieli’s Russian business accounted for up to 30% of its total revenue, a testament to the deep integration of its technology in Russia's steel industry.
However, the onset of the war in Ukraine in 2022 and the subsequent imposition of sanctions by the European Union and other Western countries have complicated Danieli’s operations. While the company publicly declared its intention to exit the Russian market, investigations have revealed that it continued to supply equipment to Russian steelmakers well into 2023. These supplies, particularly via Danieli's Dutch subsidiary, have allowed Russian firms to maintain and enhance their steel production capabilities. This contradiction between public statements and business practices has raised concerns about the effectiveness of sanctions and the role of companies that continue to profit from trade with Russia despite the conflict.
One of the key elements in this continued trade has been Danieli’s use of a Chinese subsidiary, Danieli Metallurgical Equipment and Service. By routing supplies through China, Danieli has found a legal loophole to circumvent European sanctions, as goods produced by Chinese subsidiaries are not subject to EU embargoes. This strategy has allowed Danieli to maintain its business ties with Russian metallurgists without formally violating European laws. In 2023 alone, Danieli Volga, the company’s Russian subsidiary, imported millions of dollars' worth of equipment, including critical parts manufactured by Danieli’s Chinese facilities. This move highlights how global supply chains and the international nature of the steel industry have made it difficult to fully sever ties with Russia, even when sanctions are in place.
Despite this, Danieli has insisted that its operations in Russia are not a significant part of its overall business. In official statements, the company has downplayed the importance of its Russian subsidiary, claiming that Danieli Volga is operating with minimal cash flow and has reported losses. According to Danieli, the Russian market has been “dormant” for the company due to the impact of sanctions, and it has ceased all major contracts with Russian clients. However, the financial records of Danieli Volga tell a different story. In 2023, the subsidiary’s financial performance improved drastically, with its revenue increasing by a factor of 36. The sharp rise in financial flows raises questions about the actual impact of the sanctions on Danieli's Russian operations.
The question of whether Danieli can exit the Russian market entirely remains complicated by legal and political hurdles. In 2024, a Russian court ruling put Danieli in a difficult position, preventing the company from easily selling off its Russian assets. This is not the first time foreign companies have faced challenges in withdrawing from Russia. In some cases, Russian authorities have seized assets or forced foreign firms to leave under duress. Despite these obstacles, Danieli has reportedly been working to divest its Russian operations and find third-party buyers for its plant in Russia. The legal entanglements surrounding this process illustrate the difficulty many foreign companies face in disentangling themselves from the Russian market, especially when confronted with Russian legal and political pressures.
In addition to the legal challenges, Danieli's continued supply of equipment to Russia raises ethical concerns. The company's statements on the matter have been criticized for downplaying the role of its products in Russia’s military efforts. While Danieli claims that its Russian operations do not serve military customers directly, the fact remains that the steel produced with its equipment is integral to Russia’s military capabilities. This situation underscores the dilemma faced by many Western companies, which must balance their economic interests with the geopolitical consequences of their business activities.
In conclusion, the case of Danieli's operations in Russia reveals the complex dynamics at play in the global steel industry, where supply chains are deeply interwoven and sanctions alone may not be enough to halt the flow of critical technologies to sanctioned states. By using subsidiaries in neutral countries like China, companies can bypass the restrictions intended to curb military production and trade. As the war in Ukraine continues to reshape global trade and security policies, the challenges of enforcing sanctions and ensuring compliance by multinational companies remain a significant issue for policymakers.
