Sanctions Force Russia to Cancel Icebreaker Order and Layoffs at Shipyards

Russia’s shipbuilding industry continues to feel the impact of Western sanctions, with the latest reports that a major icebreaker contract has been canceled. At the same time, shipyards in the Far East are also reporting layoffs due to a lack of new orders.

Russian media reports indicate that the state-owned ports operator Rosmorport has canceled a contract for two innovative icebreakers that had initially been ordered in July 2021, before the invasion of Ukraine. According to the reports, they are citing delays with the original delivery date pushed back from 2024 to December 2026, caused by the sanctions and the inability to obtain key equipment from the West. Rosmorport is reported to be demanding the return of an advance payment of $116 million.

The order had been placed with the Onega Shipyard in Russia’s Far East and was valued at approximately $200 million. The yard was to build two 95-meter (312-foot) icebreakers able to navigate through ice up to 1.5 meters (nearly 5 feet). The state-developed design was also innovative as it used dual-fuel propulsion with LNG.

Onega is reported to have subcontracted portions of the work to Turkey’s Kuzey Star Shipyard, with the reports saying the Turks were unable to proceed due to the sanctions. In addition, the design called for Azipods from France and a Wartsila generator, which were also restricted under the sanctions. Russia has said it was developing internal capabilities to cover the gaps in equipment due to the sanctions.

Reports indicate that with a lack of work, shipyards are increasing their layoffs. Onega was building commercial fishing boats, but has not won other orders from the state or the commercial industry. Analysts said one of the challenges is that the remote location in the Far East contributes to increased costs. 

Russia’s state shipbuilder, United Shipbuilding Corporation, is reporting plans for further layoffs, citing the lack of production orders. It has already reduced staffing levels at the Khabarovsk Shipbuilding Plant, one of the largest in the Far East, and is now reported to be moving to nearly close the facility. From a report of over 500 workers in 2023, employment was cut to 293 in 2024, and now 70 percent of the remaining staff will be laid off by the end of October. The report says employment will be reduced to just 90 people.

Employees at the Vympel shipyard in the Far East are also expected to be laid off. The report cites a lack of funding for fleet modernization.

While Russia officially denies the impact of the sanctions, they are believed to be a major concern for Vladimir Putin. Reports are that the Russian President will push Donald Trump to reduce sanctions in return for any concessions on the war in Ukraine during their meeting in Alaska on August 15.