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Companies in the Russian defense industry are beginning 2016 with optimism: The contracts in their portfolio exceed $50 billion, and the military campaign in Syria has been excellent advertising for Russian armaments.

In an article published last week in Kommersant–Dengi magazine, writer Ivan Safronov analyzed the internal (economic) and external factors which will impact armament exports in the new year. He also predicted which countries will buy arms from Russia in 2016, and in which quantities.

Following are excerpts from Safronov’s article:[1]

Adopting To The New Economic And Political Realities

“…According to the Federal Authority on Military Technical Cooperation (MTC),[2] the export of Russian weapons has increased dramatically during the last 11 years, from $5 billion to $11.3 billion. However, even though Russia has arms contracts with some 60 countries, most of the revenue comes from five or six major players. Although the sales figures for 2015 has not been officially announced, we know that as of December 1, $11.6 billion worth of military equipment was exported. Existing contracts for future military sales total $57 billion.

“According to Kommersant–Dengi’s source in the MTC, Russian defense enterprises in 2015 had to cope with grossly unfair competitive practices from the U.S. and NATO, as well as with ‘politically motivated sanctions.’ Simultaneously, it was the first time Russia had had to deal with a dramatically deteriorating economic reality. MTC’s contact also notes that Moscow had previously been able to provide significant loans to its customers. For example, in 2005-2007, Venezuela was given a $2 billion loan to help pay for $4 billion in contracts. Currently, it has become extremely difficult to get state or bank loans for potential customers. On the other hand, the devaluation of the ruble against the U.S. dollar and the euro was beneficial for exporters, and this led to an increase in total revenue…. Russia is now going to compete in certain markets by providing additional services (like post-sale warranties) as well as offering weapon systems which are customized for the specific needs of the client.

“The Russian Push Into Saudi Arabia

“Cooperation in the field of military technology has existed for many years. The cooperation between Russia and India is on a special level since two-thirds of all Russian arms contracts every year are with the Indian military… Negotiations with India on a wide spectrum of new contracts will be continuing this year. In particular, there are a number of significant deals on the table, including five divisions of the newest C-400 surface-to-air missile system, two diesel-electric submarines… and 48 military transport helicopters. There are also several more major projects being discussed. These include India’s lease of its second nuclear submarine in the Akula (‘Shark’) class (Project 971), and purchase of the SU-30MKI multi-functional fighter aircraft. Both sides are also discussing the joint development of the fifth generation FGFA aircraft.

“Military cooperation with Algeria will also doubtlessly continue. This began in 2000, when then-president ‘Abd Al-‘Aziz Bouteflika actively sought out Russian arms and signed contracts worth not less than $6 billion… According to the Russian Ministry of Defense officer, the performance of the SU-34 fighter aircraft, demonstrated during the Syria campaign, had a significant impact on the Algerian decision to continue military cooperation with Russia. ‘Interest in Russia’s military production is growing in geometrically,’ says Vladimir Kozhin, advisor to President Vladimir Putin on MTC matters. He added that even countries which have not cooperated with Russia for decades are now interested in Russian arms.

“Regarding cooperation with Iran, there are hopeful expectations. The disagreement surrounding the contract to deliver five S-300PMU-1 surface-to-air missile systems has been resolved… In general, according to the Kommersant source in the Ministry of Defense, the potential for arm sales to Iran is quite high. After the lifting of the sanctions on Iran, the sale of arms is expected to increase dramatically. Combat aircraft, air defense systems, and naval systems are currently in high demand, as Iran takes steps to secure its borders.

“According to the top managers of Russian military industries, the current conflicts in the Middle East will cause a dramatic increase in demand for Russian products. Saudi Arabia has always based its military cooperation on the U.S. and NATO. However, recently the Saudis have shown interest in Russian missile boats, coast guard ships, and mid-distance amphibious landing craft… According to Kommersant–Dengi sources, Russia is going to present a $10 billion proposal to Saudi King Salman on his forthcoming visit to Moscow. The draft contract will include aviation equipment, several types of the air defense systems, and other military hardware.

“In 2016, the delivery of components for the Antey-2500[3] system to Egypt (a $3.5 billion contract) will be completed, and a new $2 billion contract for 46 MIG-46 fighter aircraft will be signed. In 2014, China was the first country to acquire four divisions of the C-400 surface-to-air missile system (worth $1.9 billion), and in 2015 another contract was signed for the supply of 24 fighter aircraft, worth $2 billion. (…)

“According to a Kommersant–Dengi source close to the Rosoboronexport,[4] new Russian MTC initiatives will be focused mostly on the Asia Pacific region (Indonesia and Malaysia), as well as on solvent African countries (Angola and Uganda). According to another magazine’s high-ranking government source, the volume of military exports in 2016 will not be less than $14-15 billion, even if some negotiations fail and in spite of external and internal negative factors.”

Endnotes:

[1] Kommersant.ru, January 26, 2016.

[2] Government structure responsible for the implementation  of the Russia’s foreign policy in the field of armaments export.

[3] Antey-2500 is the antiballistic Air Defense system, Almaz-antey.ru.

[4] The Joint Stock Company Rosoboronexport, part of the Russian Technologies State Corporation, is the sole Russian state intermediary agency responsible for import/export of the full range of defense and dual-use end products, technologies, and services.