Is the Mistral deal in danger of collapse?

In today’s Moscow Times, Ruslan Pukhov (the director of the Center for Analysis of Strategies and Technologies in Moscow and the publisher of the Moscow Defense Brief journal) has an excellent analysis of the problems that may stymie the Russian purchase of the Mistral ships from France. He argues that the disagreement is primarily about the transfer of sensitive technologies, especially the SIC-21 command and control system, and the total price of the ships. I have written about the price disagreement already, and it seems that little has changed on that front since early March.

I imagine that if price were the only problem, it could be resolved through negotiations. French backtracking on the extent of tech transfer is potentially a much bigger problem for the deal. Pukhov argues, and I wholeheartedly agree, that the reason Russia wants these ships is to get the advanced control systems. It doesn’t really need the ships’ “modest force projection potential.” So if France refuses to transfer the systems, Russia may well call off the deal.

Pukhov’s analysis of the root causes of the crisis is particularly interesting, so I’m going to quote it in full:

As usual, both sides have contributed to the problem. Russia has not yet built up experience in purchasing big-ticket foreign military equipment for import. Despite the popular notion that Russia is planning to re-equip its military with foreign weapons systems, the reality is that such imports total less than $100 million per year. By contrast, Russia exported $10 billion in arms in 2010, with another $16 billion in equipment purchased for domestic use. What’s more, the lion’s share of those so-called “imports” are actually systems and components that foreign clients wanted installed in Russian equipment for export, meaning that they were never intended for domestic use.

Without experience in foreign procurement deals, Russia also lacks the necessary legislation and history of cooperation between the relevant institutions. This has resulted in a less than perfect level of cooperation between the Russian military; Rosoboronexport, the country’s weapons export and import monopoly; and the defense industry.

In addition, there are powerful opponents to the deal on the Russian side, especially the domestic shipbuilding industry and its patron, Deputy Prime Minister Igor Sechin. In summer 2008, Sechin halted the ill-advised purchase of the dilapidated and unfinished Ukrainian cruiser Ukraine for 20 billion rubles (more than $670 million). The influence of the gray eminence has declined since then, but it remains strong enough to stop the Mistral purchase in one way or another. Political opponents to Defense Minister Anatoly Serdyukov and his reforms have also used the disagreements over the Mistral to boost their cause.

Pukhov goes on to note that the French Saint-Nazaire shipyard’s economic position has improved significantly since discussions about the deal began, so that France does not need the work as badly and can stand firm in the negotiations.

Pukhov also considers the role of Russian opposition to the European intervention in Libya and France’s leading role in it as a potential factor in the hardening of Moscow’s stand in the negotiation. I don’t think this is particularly relevant, especially as the timing is all wrong. Negotiations began to bog down in late February, some weeks before the start of the intervention in Libya. And the other factors Pukhov lists are more than sufficient to explain the problems.

Pukhov argues that the chances of signing a contract are becoming increasingly remote. I’m not sure I would go that far yet. Both sides have invested a lot in the deal and I think they have very strong incentives to find a way to work it out. But it certainly won’t be smooth sailing.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s