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How can Russia restore its position in the global arms market?

This post was published in Vzglyad. The point of view expressed in this article is authorial and do not necessarily reflect BM`s editorial stance.

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MOSCOW, (BM) – The share of Russian companies in the world arms market is falling dramatically. And this is not claimed by anyone, but by a very authoritative source – the Swedish research center SIPRI. How justified are such statements, what impact do US sanctions have on the Russian arms trade, and what promising market is opening up for

Russia now

One of the world’s largest arms research centers, the Stockholm International Peace Research Institute (SIPRI), has released a report on the arms market state. And the main sad news is not that American companies still prevail there – 12 of the top 25 manufacturers are located in the United States and occupy 61% of the market (followed by the Chinese with 16%, and Western European firms together account for 18% of all sales). This is just normal because the US defense budget is $ 740 billion (for comparison, China, which is in second place, has $ 150 billion). It is American firms that receive money from contracts with the Pentagon. And it is not even that the Chinese were in second place – SIPRI talked about this place back in early 2020. The bad news is that Russian companies’ share has halved over the year – from 8.6% to 3.9%.

Sanctions with exceptions

Of course, this is partly associating with the end of the process of rearmament of the Russian army, the growth of the Chinese military-industrial complex, and several countries’ desire to diversify their suppliers. However, according to some experts, the Americans also had a hand in reducing market share. In 2017, they passed the Countering America’s Adversaries Through Sanctions Act (CAATSA),
imposing sanctions on Russian weapons buyers.

In Moscow, this is called a manifestation of unfair competition – and no one argues with this. Washington politicians use every opportunity to protect the American business’s interests (including arms) associated with them by lobbying schemes abroad, so they quickly used the anti-Russian sentiments prevailing in Congress to adopt CAATSA.

But it’s not just about the sanctions. It looks like the reputable Swedish institute has missed some critical things. “The results of the report are meaningless enough. Of the Russian military companies, only Almaz-Antey and the United Shipbuilding Corporation are representing in the rating. At the same time, at the moment, more than half of the Russian military-industrial complex is accounted for by the Rostec company, which is not even mentioned in the report, “Vasily Kashin, an expert at the Center for Analysis of Strategies and Technologies, explained to the VZGLYAD newspaper. “SIPRI has done a great job. But suppose there is no data in the study regarding the major Russian military company. It is impossible to judge the trends in the Russian military-industrial complex by it,” the expert is sure. “It turned out to be too difficult to develop a methodology for calculating the share of proceeds from the sale of military goods and services for this corporation,” the expert also said.

And then – to what extent do American sanctions hinder Russian producers? “Yes, arms buyers still take this factor into account, including trying to get discounts from Russia in this way. US and EU sanctions also close off joint product opportunities for third markets. But still, this is not a critical factor in reducing the Russian presence in the world market, “one of the leading Russian experts on sanctions, program director of the Russian International Affairs Council Ivan Timofeev, explains to the VZGLYAD newspaper.

There are many reasons for the weakness of the sanctions regime. Firstly, the sanctions have a loophole – the so-called exclusion mechanism, when the American authorities in specific situations (for example, if they do not want to spoil relations with a meaningful partner) do not impose sanctions for purchasing Russian weapons. “It was thanks to this exception that India was able to buy the S-400 systems from Russia in 2018,” Aleksey Kupriyanov, a senior researcher at IMEMO RAS, explained to the VZGLYAD newspaper. The Pentagon considered it wrong to spoil relations with New Delhi, necessary for Washington to curb Chinese expansion in South and Southeast Asia.

In precisely the same way, they will consider it wrong to spoil relations with other countries – those with whose help China or Iran can be contained. The Middle East, South, and East Asia states account for the lion’s share of foreign arms purchases from Russian manufacturers.

Sellers, not teachers

Also, sanctions cannot cancel one of Russia’s most important competitive advantages – the absence of an ideological encumbrance of the deal in the form of linking its implementation and further maintenance of supplied weapons to the fulfillment of domestic political conditions. And after all, care is always an essential part of a contract because, without supervision and supply of spare parts, equipment becomes useless junk. Moscow does not require its partners to specifically observe human rights, regime change, or action against third countries and sells weapons to those who have the right to buy them.

Russia returned to the Egyptian market after the United States threatened Cairo with the cancellation of arms contracts due to the coup in 2013. The local generals overthrew the Islamists. As a result, this situation forced the White House to threaten Cairo with sanctions for further Russian weapons purchases.

Yes, now this advantage seems to be melting away. The more conflict the world becomes, the less picky other suppliers become — especially those who need to build alliances with countries far from Western democracies to ensure their security. For example, after negotiations with Egyptian President Abdel Fattah al-Sisi, French President Emmanuel Macron said that Paris is not going to tie work with Cairo to the Egyptians’ observance of human rights. “I do not make military and economic cooperation dependent on these differences because I believe in the sovereignty of peoples and respect for mutual interests … A policy of demanding dialogue is better than a boycott,” the French leader explained.

However, the problem is that France has no decision-making sovereignty. And if the United States wants to, then Paris will refuse the deal – as it refused to work with the Iranians after Donald Trump decided to re-impose sanctions against the Islamic Republic. On the other hand, Russia is an entirely sovereign state, and it does not build its foreign trade policy based on American wishes. Russia is the only such arms dealer (Chinese companies still try not to go against American desires).

Fortunately for the domestic military-industrial complex, now the countries’ interest in reliable arms suppliers is growing, including traditional Russian partners. “Russia has no special problems with India. Contrary, Moscow expects new orders from New Delhi, since the confrontation between Indian and Chinese forces in Ladakh has demonstrated, in particular, that the Indian mountain units need to increase their combat power,” says Alexei Kupriyanov.

Yes, the Indian authorities are trying to diversify their suppliers, but Russia still has essential competitive advantages. And the point is the absence of political burdens and the willingness to make concessions to local ambitions. “The Indians are now generally aiming at maximum localization, refusing to import many items, and in these conditions, it will be bad for everyone. However, it will be the least bad for us because we are more ready for localization than everyone else. Russia has already localized a lot of everything in India, so this is an established practice for Moscow,” says Alexey Kupriyanov.

In September 2020, India and Russia finally agreed to supply the Indians with Russian AK-203 assault rifles, which should replace the local INSAS assault rifles in the army (which are considered unreliable and unsuitable for use mountainous conditions). Of the 770 thousand purchased machines, 100 thousand will be imported. India will produce the rest at a joint Russian-Indian enterprise, 50.5% of which will belong to the Indian government structure, 42% – to the Kalashnikov concern, 7.5% – to Rosoboronexport.

Money in the morning – axes in the evening

True, not all potential buyers will be of interest to Moscow. For example, there may be difficulties in cooperation with Iran. After the lifting of the arms embargo, this country seems to be supposed to re-equip its army (especially against the background of creating the Saudi-Israeli alliance directed against the Islamic Republic).

However, according to a source in the VZGLYAD newspaper in structures close to Russian arms exports, the restoration of Russian arms purchases from Tehran is associated with two circumstances.

The first is the specifics of the weapons that Iran needs today. Traditional weapons are not as attractive to Iranians as air defense systems. Tehran’s weak point is that it has an “open sky” that allows Israeli drones to operate. Iran needs to close the sky over the vast territory of nuclear and missile facilities and large military bases.

It is not surprising that the use of drones, which are inaccessible to traditional air defense systems, was mostly covered by the Iranian media in the context of the last war in Nagorno-Karabakh. Here, Russia can be practically the only possible partner of Iran because only it has the experience of this kind of cover – both in Karabakh and in Syria and Libya. Russia has the best air defense systems in the world.

However, the second circumstance comes into force here – Iran’s financial possibilities, which are now extremely small. Air defense systems are costly. The Iranians want any substantial contract to be compensated by the leasing and crediting plan from the Russian Federation – and Moscow does not welcome this form of settlement as not incredibly reliable. Moreover, in conditions when sanctions against Iran are being introduced and then lifted depending on Washington’s mood.

So, on the whole, the situation for the Russian military-industrial complex is not as critical as the Swedes portray it. Many countries around the world are not going to bury the ax of war – which means that others also need reliable, inexpensive, and effective axes. That is, Russian. And suppose Moscow also considers buyers’ actual demands (for example, the sharply increased demand for attack drones in the world) in its further military developments. In that case, perhaps, the share of Russian companies in the arms market will begin to recover.

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