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Russian Arms Trade: A New Threat

Natalya Hmelik - 12/12/2005

The Soviet Union was always preparing for war, so it's no wonder that the defense industry was the best funded and the most advanced sector. The Soviets annually transferred $20bn worth of weapons to other countries, but earned only $3m-$5m. The rest was so-called "political export" – a kind of donations to ideologically friendly regimes or gifts to militants making troubles to unfriendly ones. After the Soviet Union collapsed and Russia embraced the market, some expected the defense industry to bring enormous profits. That never happened. Former brothers in arms didn't line up with new orders that might be paid for in hard currency. Meanwhile, former Soviet satellites traditionally purchasing Russian military hardware started the process of joining the NATO and lost interest in Russian products.

At present main Russian customers are China and India, which it poses problems in the nearest future. Chinese market is virtually saturated with Russian products and now China is puttin pressure on the European Union to lift the arms embargo imposed in 1989, after crackdown against protesters in Tiananmen Square. With France and Germany eager to supply military hardware to China and aggressively lobbying for the repeal of the embargo, it is likely to be lifted within the next several years, if not sooner.

Meanwhile India is determined to become an arms exporter rather than an importer, and in the recent years, has bought Russian weapons together with production licenses or established defense joint ventures in Russia. It means that the Indian market is also shrinking.

Earlier this year, the Rosoboronexport agency, Russia's main arms dealer, reported record high sales of $5.12bn in 2004. But military experts and analysts warn that Russian arms sales are on the decline. In May, Forecast International, a Newtown-based company specializing in market intelligence and analysis in the areas of aerospace, defense, power systems and military electronics, noted that Russia's steadily declining arms export market, plagued by a poor reputation, was likely to get worse in the years ahead. "It becomes clear through an analysis of export trends that growth in the Russian defense industry is impossible without large investment," said Forecast International defense analyst Charles W. Falzone III. "Russia has been unable to break into defense markets where Western arms manufacturers are well established partly because Russian arms are not only viewed as technologically inferior, but also because the Russian defense industry has gained a poor reputation for providing follow-on support, spare parts and training for their weapons platforms", he added.

Russian arm traders are looking for creative ways to stay in Chinese and Indian markets as long as possible. Russia uses joint military exercises to demonstrate hardware it wants to sell the partners. That is why the Tupolev Tu-95 (Bear) and Tu-22M3 (Backfire) long-range bombers participated in the Peace Mission 2005 Russian-Chinese war games in August.

At the same time Russia makes efforts to advance into new markets in Asia, Africa, Latin America and Middle East. Venezuela is going to become a new consumer of Russian military hardware. Last year President Hugo Chavez, who cut Venezuela's military ties with the United States and forged a political alliance with communist Cuba, announced plans to buy large amounts of arms from Russia. By now in has already purchased 100,000 AK-47s and signed $120 million contract for 10 military and transport helicopters. Venezuela is also reported to consider Russian MiG-29 fighters as a possible replacement for its U.S.-made F-16 jets.

An important part of the Russian marketing strategy is the revival of ties with old Soviet clients especially in Africa and the Middle East. Some of those countries are conflict areas, others are sponsors of terrorism but nobody in Moscow cares.

In 2004, Russia was criticized for supplying 12 MiG-29s to Sudan where the government is believed to use the jets against its own people in the Darfur region. Earlier this year Russia caused concerns with its plans to sell Iskander mobile missiles and Igla portable missiles to Syria. The Iskander range is 180 kilometers so those missiles could be used for attacks on Israel. As for the Iglas, this year concerns echoed broader fears of portable missiles reaching terrorists who could use them attacking commercial airliners. In the case of Syria the fears was justified as it hosts the headquarters of the Palestinian militant groups Hamas and Islamic Jihad and has close ties with the Hezbollah. In April, under international pressure and the threat of the U.S. sanctions, Russia changed its mind and decided to provide Syria with Strelets missiles with the range of 4-5 kilometers. But certainly it wasn't the end of the story. This month a top Russian arms-trade official told reporters in Moscow that Russia was not going to reduce its exports of weapons to Syria. The Interfax news agency quoted Alexander Denisov, the deputy director of the Federal Service for Military and Technological Cooperation, as saying: "We should think of our national interests in the first place. In Syria, we have a large market as about 80 percent of its weaponry is Soviet-made".

"While there are no UN sanctions nothing will change," he added. "If there are sanctions, then we will think about it. The leadership of this country takes a very pragmatic approach: we should be wherever it is profitable to be". The same applies to Iran which Russia welcomes as a customer of everything including nuclear technologies and discards as a source of terrorist threat near its own border.

Another part of the arms marketing strategy is to improve the notoriously poor image of Russian defense industry with regard of the after-sale support and supply of spare parts for its already exported products. Since 2000, Russian President Vladimir Putin by a series of decrees has granted defense companies the right to make direct contracts with the customers of spare parts for products already sold abroad. Usually the exporters sign contracts with the Rosoboronexport agency which represents them in foreign markets. By now, 21 companies (out of 1047 Russian defense firms) have received the "special exporter" status and the right to work with foreign customers directly. There are plans to increase the number up to 50. It may seem to be a step toward the market economy, but there is a problem. It is easier to monitor the Rosoboronexport activities than the sales of many Russian companies known for the lack of transparency. On the other hand, Russian laws don't define the "spare parts" term. In fact it may cover virtually everything from nuts and bolts to jet engines to ammunition for missile systems. The case of the GPS jamming systems discovered in Iraq soon after the U.S-led invasion in 2003 is a prime example.

In 2000, a Kuwaiti newspaper reported that a Moscow medium firm Aviakonversiya Limited had sold to Saddam Hussein's regime GPS jammers, then-priced at $40,000. At first, Aviakonversiya director Oleg Antonov denied the deal, but after the jammers were discovered he admitted than his company supplied not the systems, but only parts not considered as military hardware. The systems were assembled in Iraq by Chinese engineers and then Russian technicians trained Iraqis to operate them.

This is a pattern independent traders in spare parts would almost certainly apply widely. With Russian government tightening grip in every strategic sector (and defense industry is surely considered as strategic) there is little doubt they would be aware of any serious export deal. However in a case of Russian weapons ending in the wrong hands, they might always blame a separate firm rather than Russia's policies for that. Generating new threats, Russia at the same time will enjoy the status of America's close ally in the war on terrorism.