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Contact: Dan Darling, European Defense Analyst

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FOR IMMEDIATE RELEASE

Russian Arms Exports Rebounding

 

NEWTOWN, Conn. [Oct. 31, 2006] — Predictions of an imminent decline in the Russian arms export market have been premature, according to a Forecast International Military Market Report. While the long-term picture remains unclear, the “Russia Market Overview” notes that not only have Russian exports rebounded in the short term, but they have placed the country in a solid position behind only the United States in terms of total arms sales worldwide.

Russian arms sales reached a post-Soviet peak of $6.1 billion in 2005, reflecting a steady rebound from 2003 when they totaled $4.4 billion. Defense exports are expected to reach $5.5 billion in 2006, further escalating to $7 billion in 2007.

Under Russian President Vladimir Putin, the defense industry has largely been reorganized under Kremlin control, with state arms trader Rosoboronexport acting as its chief instrument. Since coming to power, Putin has been using arms sales as an aspect of the Kremlin’s newfound diplomatic and foreign policy confidence. 

Russian defense industry estimates for the coming years are increasingly optimistic, with claims of $7 billion in annual sales since 2007 and $23 billion in future orders on the books. Already, Rosoboronexport deals with 60 countries worldwide, primarily in Asia and the Middle East. Furthermore, greater efforts to penetrate markets in Africa and Latin America have been under way, in addition to the recent sales pitches that have been made to NATO member Greece.

However, heavy reliance on the Chinese and Indian arms markets may be a potential detriment to the long-term survival of Russian arms sales. Critics point out that by relying so heavily on these two markets, Russian arms trade faces possible obsolescence should these markets become saturated by other countries.

While this is true, counters Forecast International European Defense Analyst Dan Darling, it also overlooks the fact that the EU arms embargo on China is unlikely to be lifted in the immediate future. And India – which already conducts arms deals with several European nations – is unlikely to become beholden to one supplier, such has been speculated on as a result of Washington’s tighter ties with New Delhi.

“A bigger concern for Russia than facing direct market competition,” says Darling, “would be if China and India became self-sufficient within their own defense industries, thereby freezing them out of the market altogether.”

In the meantime, other markets beckon: Venezuela, Belarus, Syria, and Iran are just some of the countries that have signed arms deals with Moscow in the past year. 

“The global arms market may be drying up in some regions, but in some isolated states or conflict areas, there is still a demand for arms,” says Darling. “And where Western nations are reluctant to penetrate them, Russia is more than happy to conduct business. It is these areas that will help sustain Russia’s arms exports for the short term.” 

But the main issue underlying Russian arms sales in the future is whether Moscow will essentially underwrite its own manufacturing base through increased procurement orders. Russian equipment has steadily atrophied, with only 21 percent of current inventory in the armed forces considered contemporary. However, a new $184 billion state arms program is being implemented over the course of the next nine years, which will provide a needed jolt to an industry that has become overly reliant on exports to sustain it.

“Should the Kremlin remain true to its re-equipment pledge, then the Russian defense industry just might be able to sustain itself well into the next decade,” Darling said. “However, if the state arms program amounts to nothing more than an empty promise, then that would alter the equation entirely. Basically, the Kremlin ignores the need to supplement its own domestic defense industrial base through state orders at its own peril. The arms industry is a big business for Russia, and its collapse would have seismic effects across the country.”

Forecast International, Inc., is a leading provider of Market Intelligence and Analysis in the areas of aerospace, defense, power systems and military electronics. Based in Newtown, Conn., USA, Forecast International specializes in long-range industry forecasts and market assessments used by strategic planners, marketing professionals, military organizations, and governments worldwide.  To arrange an interview with Forecast International’s editors, please contact Ray Peterson (203-426-0800, ray.peterson@forecast1.com).