US-Russian arms competition will focus on India

I’ve fallen behind on reprinting my Oxford Analytica briefs. Here’s one from late January, on US-Russian competition in arms sales. This version is slightly different from the originally published version, in that I have restored some material cut due to space constraints.


SIGNIFICANCE: India is the world’s largest arms importer and its primary suppliers are Russia and the United States. Although the two suppliers largely sell their weapons to different customers globally, Russian efforts to expand to new markets to compensate for declining sales to traditional partners will lead to increased competition with the United States in many parts of the world.


  • The most likely new markets for Russian arms sales include South America, South-east Asia, Egypt and Pakistan.
  • Russian competition with the United States in arms sales will be limited to a small number of countries.
  • Defence firms offering technology transfers will have an edge in the Indian market.
  • For decades, Russia and the United States have been the largest arms exporters in the world. From 2009 to 2013, Russia accounted for 27% of total world arms sales, while the United States was just ahead with 29%.
  • Russian arms sales have been highly dependent on a few major customers, with India, China and Algeria accounting for over 60% of Russian purchases in the last five years.
  • US arms sales are far more diversified, with the top three customers (Australia, South Korea and the United Arab Emirates) accounting for under 30% of total sales.

Shifting markets for Russia

The main targets of Russian weapon sales have been shifting:


Sales to China have declined as Beijing pursues a programme of domestic manufacturing of advanced weaponry. Many Chinese designs appear to be based on reverse-engineered Russian imports, particularly in fighter aircraft.

Europe and the Middle East

Russia has already lost other markets in Europe where many former Warsaw Pact countries are shifting to NATO equipment. Conflicts in the Middle East and North Africa have halted major sales to Libya and Syria.


Russian military industry is also worried about potential declines in purchases by India, its leading customer. The Stockholm International Peace Research Institute (SIPRI) has reported that between 2009 and 2013 Russia supplied 75% of weapons imported by India. However, serious delays and cost overruns on major contracts, such as aircraft carrier Vikramaditya to India and Il-76 transport aircraft to China, have dented Russia’s reputation as a reliable partner for India.

As a result, Delhi has sought to diversify its arms purchases. India chose French Rafale fighters in its multi-billion dollar Medium Multi Role Combat Aircraft (MMRCA) fighter tender and purchased helicopters and transport aircraft, as well as ASW aircraft, from the United States. India chose the American C-130J Super Hercules transport aircraft over Russia’s Il-76 plane. Moreover, India is looking to be 75% self-reliant in defence production by 2020-25, which is likely to result in declines in foreign arms purchases from both Russia and the United States.

New markets

Russia is actively seeking to expand its arms sales in South-east Asia, particularly Indonesia and Vietnam. Both are looking towards naval expansion and have in recent years bought aircraft, combat ships and infantry fighting vehicles from Russia. It is also seeking to sell diesel submarines to Thailand and has signed a deal to supply transport helicopters to Pakistan.

Besides Asia, Russia has been actively looking for new customers for its arms in the Middle East. Russia has recently concluded significant contracts with Iraq for helicopters and air defence systems worth 4 billion dollars and Egypt for air defence systems worth 2 billion dollars. Negotiations are also under way for coastal defence systems, attack helicopters and MiG-35 fighter aircraft. Ten years after being forced out of the Iraq market by the US invasion, Russia has once again become a major supplier of air defence systems and helicopters to that country.

It has also signed an agreement expanding military cooperation with Iran, with officials discussing the possibility of restoring the agreement to sell S-300 air defence systems with a possible upgrade to the more advanced S-400 system. Such sales would not violate the existing international sanctions regime.

In Latin America, Russia has long had a reliable customer in Venezuela, which has in recent years bought missiles, tanks and armored vehicles from Russia. Russia is looking for new markets in the region and is hopeful of selling fighter aircraft to Brazil and Argentina. Russia has sold air defence systems to Brazil and hopes to develop a defence industrial partnership that might parallel its military cooperation with India.

Russian competition with the United States

Russia mostly seeks to sell arms to countries that are not able or interested in buying US weapons, either because the customer states are not partners of the United States or because the products are too expensive. Iran, Venezuela and China are not likely to become areas for competition in US-Russian arms sales. Egypt has turned to Russia in recent years because of a deterioration in relations with the United States in the aftermath of the 2013 military coup. Many African and South-east Asian countries choose Russian arms when they cannot afford US-made versions.

India, a large unaligned country with a high level of military expenditures, is an attractive target for defense companies from both countries. Russia is also hoping to make inroads into Brazil and Argentina, two countries that have traditionally bought the majority of their weapons from the United States and its NATO allies.

The sectors in which Russian weapons systems are considered equal or superior to Western equivalents include: air defence, fighter aircraft, helicopters, submarines and cruise missiles. These are the sectors in which Russia’s defence industry can compete with the most advanced Western suppliers, with weapons such as the S-300 air defence system, the Su-35 fighter jets and the Kilo class submarine being noteworthy. In other sectors, such as transport aircraft, drones, surface ships, tanks and armoured vehicles, the quality of Russian products is significantly inferior to that of the United States, and Russian exporters compete primarily on price.

US strategy.

International arms sales can offset reductions in US defence spending, helping to keep the US defence industrial base healthy. Arms sales also fit with the Obama administration’s goal of strengthening allies and partners so they can provide more security for themselves without relying on US support. The US government has revised its export control system and is trying to streamline the Arms Export Control Act to make arms transfers simpler.

The combination of high-level policymaker attention, steady reforms and a volatile international security environment has resulted in an increase in US arms sales, thereby accelerating the competition with Russia.

In fiscal year 2014, US arms sales worldwide totaled 34 billion dollars, up 4 billion dollars from the previous year and about three times greater than the pre-2006 average. By contrast, President Vladimir Putin yesterday announced that in 2014 Russia sold more than 15 billion dollars-worth of arms and that new signed orders stood at around 14 billion dollars.


The United States continues to dominate the defence trade with its traditional partners such as Saudi Arabia, the United Arab Emirates and Japan. Yet it remains committed to maintaining or expanding ties to countries that Russia is also courting, such as Brazil, Argentina, India, Indonesia, Egypt and Pakistan.

In 2014, the United States and India agreed to identify co-development and co-production opportunities as part of the US-India Defence Trade and Technology Initiative (DTTI). Industry sources report that surveillance UAVs may be the first batch of products sold.

Since these products would be of particular use to India, especially in patrolling disputed areas with Pakistan, the United States may expect to see greater competition with Israel, a major drone manufacturer, shifting the Indian market towards higher-end products, and perhaps leaving fewer areas in which the main competition is with Russia.

CONCLUSION: The Russian and US defence sectors will push for greater exports to offset constraints in the defence budgets of their own governments. India, with growing expenditures and skepticism about Russia’s reliability, appears to be opening further to the United States. Competition between the two manufacturers will also be seen in Latin America and South-east Asia, where the US ‘Asia pivot’ may help Washington win new customers.

Russian arms sales

Another Oxford Analytica piece, this one from mid-December.


Russia is the second-largest arms exporter in the world, behind only the United States. In the period 2009-13, Russia accounted for 27% of total world arms sales.

However, Russian arms sales have been highly dependent on a few major customers, with India, China and Algeria accounting for over 60% of Russian purchases in the last five years. Another 15% of Russian exports went to other Asian countries, primarily Vietnam, Indonesia and former Soviet Union states.

Russia is particularly hopeful of expanding its sales to Indonesia and Vietnam — which are both looking towards naval expansion, which have to date included systems ranging from aircraft to combat ships to infantry fighting vehicles.

The main targets of Russian weapon sales are gradually shifting. Sales to China, have been in decline for years as Beijing has pursued a programme of shifting to domestic manufacturing of advanced weaponry.


India has replaced China as Moscow’s main foreign customer. The Stockholm International Peace Research Institute (SIPRI) reported that between 2009 and 2013 Russia supplied 75% of weapons imported by India. However, serious delays such as the transfer of the modernised aircraft carrier — the Vikramaditya — have dented Russia’s reputation as a reliable partner.

Therefore, Delhi seeks a diversity of supply from sources including the United States and several European countries. This is evidenced in India’s preference for French Rafale fighters in the multi-billion dollar Medium Multi Role Combat Aircraft (MMRCA) fighter tender.

India’s MMRCA tender is for procuring 126 fighters to replace squadrons of MiG-21s. The deal will see France supply a number of aircraft fully built and ready to fly — while the remainder will be built under a technology transfer agreement by Hindustan Aeronautics.

Moreover, India is looking to be 75% self-reliant in defence production by 2020-25. It will also seek to become a weapons exporter and probably promote partnerships with Russia. The BrahMos Aerospace programme has been a particular noteworthy area of close cooperation between Russia and India with the creation of the BrahMos Supersonic Cruise Missile.


Pakistan may also provide a new opening for Russia. On November 20, Russia and Pakistan signed a military cooperation agreement, reportedly involving a deal for Moscow to supply 20 Mi-35 transport helicopters to Islamabad.

Middle East

Besides Asia, Russia has been actively looking for new customers for its arms in the Middle East. Russia has recently concluded significant contracts with Iraq for helicopters and air defence systems worth 4 billion dollars and Egypt for air defence systems worth 2 billion dollars.

Latin America

In Latin America, Russia remains hopeful of selling fighter aircraft to Brazil and Argentina. Russia has sold air defence systems to Brazil and hopes to develop a defence industrial partnership that might parallel its military cooperation with India.

Competitive sectors

The sectors in which Russian weapons systems are considered equal or superior to Western equivalents include air defence, fighter aircraft, helicopters, submarines and cruise missiles. These are the sectors in which Russia’s defence industry can compete with the most advanced Western suppliers, with weapons such as the S-300 air defence system, the Su-35 fighter jets and the Kilo class submarine being noteworthy. Russia can also be competitive in sectors such as tanks, armored vehicles, small arms, artillery, and small combat ships. These are sectors where Russian weapons are not as good as Western equivalents, but are generally significantly cheaper. This price difference has allowed them to be competitive in many countries despite lower quality and/or inferior characteristics.

Ukraine delays

However, Russian arms sales have largely depended on selling late Soviet designs, with new designs proving more difficult to manufacture. The freeze on military cooperation with Ukraine may lead to further delays as many Russian weapon systems depend on Ukrainian components and the transition to Russian domestic substitutes is expected to take two to three years.

Odessa Network: a new report on Russian arms transfer networks

I would like to highlight a truly excellent report that came out this month on shipborne Russian international arms transfers. The Odessa Network details the network of Ukraine-based companies that are responsible for transporting the bulk of Russian and Ukrainian weapons deliveries to foreign clients. These are not companies are working on behave of rogue individuals, but rather have contracts with each country’s official arms exporting agency. The report details 40+ shipments over the last decades to countries such as Venezuela, Sudan, Vietnam, Angola, Syria, China and several others. There is a particularly enlightening case study that makes an effort to document recent shipments to Syria by ships connected to participants in the network. The authors argue that their approach can be used for detecting future arms shipments to countries such as Syria, where the exporting states are looking to avoid public exposure.

The study finds that the bulk of the shipments originate in the Ukrainian port of Oktyabrsk, located near Mykolaiv. This port was the main starting point for Soviet arms exports and appears to have continued its role in the post-Soviet period. The authors trace the connections between key companies, mostly based in Odessa, that are involved in arms shipments and Russian and Ukrainian government officials. They also trace links between these companies and EU shipping companies that provide specialized services for transporting cargoes that are outside the capabilities of the Ukrainian companies. Financial services and money laundering operations for the network appear to be run by Latvian banks.

As the authors themselves note, such a report cannot provide a complete picture, as some cargoes are shipped by air while neighboring countries (especially in the FSU) receive their arms by truck or rail, rather than ship. Nevertheless, the report introduces a wealth of detail on the process through which the bulk of Russian arms are shipped to customers around the world.

The one area where I think the report could be stronger is in the political conclusions it draws. One of the main questions I had from the start was “why Ukraine?” or “why not Russia?” In other words, why does the Russian government choose to depend on Ukrainian channels for shipping such sensitive cargo. The report points to the advantageous location of Oktyabrsk vis-a-vis St. Petersburg and Kaliningrad, but this does not explain why Russian Black Sea ports, such as Novorossiisk, are not used for such shipments. Similarly, even if Oktyabrsk needed to be the port of origin, why depend on a network of firms based in Odessa, rather than on a homegrown Russian network? A network based in Russia could still ship from Oktyabrsk, after all. Finally, given the tight government control over such sensitive cargo as arms shipments, it seems odd that the relatively conflictual relations between Russia and Ukraine during the Yushchenko presidency did not lead to any disruptions of the network. I realize that answers to these questions would be more speculative than data-driven, but they would be highly interesting for Russia-watchers interested in regional political relationships and their implications.


Iran’s S-300 lawsuit against Russia may backfire

I’m resuming posting briefs I write for Oxford Analytica. This one was published in early September.

In July, news broke that Iran had filed an arbitration case in Geneva seeking a 4 billion dollar fine against Russia for cancelling its contract to sell S-300 anti-aircraft missile systems to Iran. There has been speculation that the claim is actually part of a move by the two sides to restore the contract, perhaps as part of a larger deal that would have Russia resume significant military sales to Iran. In fact, Tehran’s move has angered Moscow.


o   The presence of the S-300 systems would make Iranian nuclear installations much less vulnerable to attack by Israeli or Western forces.

o   The situation complicates Russia’s relations with Iran, and makes it harder for Moscow to maintain ambiguity on Iran’s nuclear programme.

o   It is possible that Moscow has already threatened, in private, to cease UN Security Council vetoes of anti-Iranian resolutions.

o   If it moves forward, the case in Geneva is likely to be decided in favour of Russia.

What next

Tehran’s lawsuit may result in at least a temporary cooling of Russian-Iranian relations and a corresponding opportunity to increase international pressure on Iran over its nuclear programme. Russia is less likely than ever to resume sales of weapons to Iran in a situation where such a move would be seen as caving in to Iranian pressure. Instead, Moscow will seek to pressure Tehran to withdraw the claim without preconditions, and may publicly threaten to stop vetoing anti-Iranian resolutions in the UN Security Council if Tehran does not comply.


The contract to sell five S-300PMU-1 battalions to Iran for 800 million dollars was originally signed in December 2007. The Russian government promptly became subject to a great deal of private and public lobbying by Israel, the United States and other Western countries that sought to have the deal cancelled.

Russia reverses its decision

Although the Russian government has resisted Western pressure for several years, it decided to cancel the contract in September 2010. Soon after the passage of UN Security Council Resolution 1929, which imposed sanctions banning the sale of most missile systems to Iran, then-President Dmitry Medvedev went further by announcing that Russia would stop virtually all military exports to Iran. The Russian government then returned the 167 million dollar advance it had received from Iran for the missiles. The units themselves were disassembled. The total losses to Russian arms exporters as a result of the freeze on military sales to Iran could be as a high as 1 billion dollars per year.

Iran has periodically sought to restore the contract. These efforts initially consisted of quiet diplomacy, followed by public complaints. To increase pressure on Russia, in April 2011, the Iranian government filed a case with the International Chamber of Commerce in Paris, claiming damages of around 900 million dollars from the cancellation of the contract. Iran’s argument is that the UN-mandated sanctions approved in 2010 did not apply to the S-300 missiles, since these were ground-to-air missile systems and designed primarily for defensive purposes. Observers largely agree that Russia’s move went beyond what the UN sanctions required.

The S-300 dispute generated widespread attention again this summer, as the Iranian government withdrew its case from the Paris tribunal. Tehran refiled it at the International Court of Arbitration in Geneva, and raised the damages sought to 4 billion dollars. Neither side drew attention to the lawsuit; information about the filing became public in July with the publication of the annual report of Rosoboroneksport, Russia’s state arms dealer. Since Rosoboroneksport is listed as the defendant in the claim, the potential liability was listed in the report.

Iranian officials have repeatedly noted that they are not interested in receiving the money they would get by winning their case. Iran saw Medvedev’s decree as a public humiliation that affected its pretensions to status as a regional power, in addition to reducing its ability to defend itself against possible Israeli or US air strikes.

Iran wants contract restored

The Iranian ambassador to Moscow has openly stated that should Russia agree to send the missiles, Iran would withdraw its suit. The implication is that Iran was using the suit in order to pressure Moscow to reinstate the contract. The size of the claim is equal to one-third of Rosoboroneksport’s annual revenue.

Tehran makes serious miscalculation

Tehran believes that the return of Vladimir Putin to the presidency, combined with escalating war of rhetoric on the part of Israel vis-a-vis Iran, has created a window of opportunity for Russia to reconsider its decision. It may be easier for Putin to restore the contract than it would have been for Medvedev, who signed the original decree to cancel the sale. Iranian leaders also believe that Russia wants to avoid the regional chaos that would most likely follow Israeli or US air strikes against Iranian nuclear facilities. One way of preventing such strikes is to bolster Iranian defences against air attack, which is the main purpose of S-300 missile systems.

However, if Iranian leaders believe that putting financial pressure on Russia will force them to resume arms sales, they have miscalculated. Russian leaders have already indicated that they will take a harder line against Iran’s nuclear programme if Iran does not withdraw the suit. One Kremlin official was quoted stating that if Tehran does not withdraw its claim in the near future, it will be on its own in dealing with the international community on nuclear issues.

Change of tactics

Iran appears to have recognised its error in judgment and has already begun to back off. The Iranian ambassador said that the size of the claim was increased by the court, rather than by Tehran. This seems unlikely, as even if the court chose to include punitive damages without an explicit request from Iran, the amount would have been discussed with the plaintiff in advance.

An end in sight?

Russia does not want to be seen as Iran’s pawn. At the same time, Moscow wants to maintain an ambiguous position on Iran’s nuclear programme — seeking to prevent Tehran from acquiring nuclear weapons while helping it resist Western pressure to completely shut down its nuclear programme, which Tehran insists is for peaceful purposes.

While the case is unlikely to result in a long-term shift in Russian-Iranian relations, it may damage the relationship in the short term. Iran will test the domestic Bavar 373 long-range air defence system during military exercises in October. If the system proves successful, Tehran may feel less of a need to continue seeking the S-300 and may decide to end the episode by withdrawing its claim.


New report on Russian interests in Syria, part 2: Russian arms sales

I’ve covered Russian arms exports to Syria on this blog before, but the CAST report has some useful new information on this topic. Barabanov and Aliev note that Russian arms exports to Syria were very limited until the restructuring of Soviet-era Syrian debt to Russia in 2005.  Shortly after that, the two countries signed a series of arms contracts with a total value of 4.5 billion dollars. While these contracts were not publicized, available information indicates that they included the following:

  • 8 MiG-31E interceptors. This contract was annulled in 2009, most likely because of Israeli objections. No aircraft were ever transferred.
  • 12 MiG-29M/M2 fighter jets, with an option for an additional 12. The first set of aircraft, and possibly all 12, are to be transferred towards the end of this year. No information is available on the option for an additional 12 aircraft.
  • 8 battalions of Buk-M2E missile systems (total value $1 billion). Four were shipped in 2010-11, with the rest to be transferred by 2013.
  • 12  battalions of S-125-2M Pechora-2M SAMs ($200 million). Four were shipped in 2011, and another four were shipped on the MV Alaed, which was recently forced to return to Russia after its insurance was cancelled.
  • 36 Pantsir-S1 anti-aircraft missile systems ($700 million). According to the CAST report, only 12 have been delivered so far. SIPRI, on the other hand, believes that all 36 have been delivered.
  • 2 K-300-P Bastion coastal defense systems, armed with 36 Yakhont anti-ship missiles ($250 million). Contract completed in 2011.
  • an unknown number of 9M123 Chrystanthemum self-propelled anti-tank missile systems. Most likely, none have been delivered to date.
  • an unstated number of Igla-S surface to air missiles (200 according to SIPRI). Contract completed in 2010.
  • modernization of 1000 T-72 tanks to T-72M1M level ($1 billion). Little work completed to date.

There was another set of contracts completed in 2007-08 to modernize Syria’s air force. This included the following:

  • 15 Su-24MK bombers. Work began in 2010. These are to be armed with Kh-31A anti-ship missiles, 87 of which were produced through 2010.
  • unknown number of MiG-29 fighters to SM level. (24 according to a previous CAST report). First four completed in 2011.
  • unknown number of MiG-23 fighters to MLD level. Seven completed through 2011.
  • 20 Mi-25 combat helicopters. 17 delivered so far. Last three were supposed to be delivered on the MV Alaed earlier this month.
  • 2 Ka-28 anti-submarine helicopters. Contract completed.

The most recent contract was completed in December 2011, for 36 Yak-130 trainer aircraft ($550 million). However, this contract has not yet been approved by the Russian government.

To summarize, Russia has completed about $5.5 billion worth of military contracts with Syria since 2006, primarily for air force and air defense modernization. The report notes that despite prompt payment by the Syrian side, fulfillment of many of the contracts was dragged out (and in the case of the MiG-31s, cancelled) by the Russian government. So far, Syria has received only $1 billion worth of equipment from these contracts.

The authors argue that Russia has been very cautious in selling arms to Syria, making sure that Western powers and especially Israel did not object to the equipment being provided. In particular, Russia has refused to sell Iskander ballistic missile systems and S-300 anti-aircraft missile systems to Syria. In other words, the report argues that Russia has valued its relationship with Western states and Israel more than the financial and political gains from selling more weapons to Syria. Furthermore, even if Assad’s government survives, it will not be able to afford to pay for more Russian weapons for the foreseeable future, limiting its role as a customer for the Russian defense industry.

Syria, Russia, the US, and the Implications of those Helicopters…

Josh Tucker from The Monkey Cage asked me to comment on the Russian helicopters supposedly heading to Syria. Here’s what I wrote:

Yesterday’s statement by Hillary Clinton that Russia is supplying Syria with attack helicopters has stirred up a great deal of controversy, providing more ammunition (so to speak) to US domestic opponents of the Obama administration’s policy of normalization of relations with Russia. This policy has already been damaged by Russian actions against domestic political protests, by serious disagreements over missile defense, and by the two countries’ diametrically opposed positions on the ongoing conflict in Syria. In this post, I want to quickly address the specific question of Russian arms exports to Syria and then turn to the political impact of this most recent contretemps.

I have written before on Russian arms sales to Syria. Most of the recent contracts in this sphere have involved missiles of various kinds, as well as the modernization of tanks and fighter aircraft. According to the Stockholm International Peace Research Institute (SIPRI), Russia has not sold any helicopters to Syria since the Soviet days. Although this is not evident from the SIPRI data, Russian sources indicate that a contract was concluded in 2005 for Russia to modernize Syria’s Soviet-made Mi-17 helicopters. Russian media is speculating that US intelligence confused the return shipment of Syria’s own (newly modernized) helicopters for brand new helicopters that have been sold to Syria.

While I don’t have the information to come down definitively on one side or another of this debate, I would just say that it is generally very difficult for Russian arms exporters to conclude a major contract of this type in complete secrecy. It also takes time to make the helicopters, so any such contract would have had to have been concluded at least a year or two ago, when there would have been no need for secrecy. There is I suppose some possibility that Russia is supplying Syria with helicopters from its own inventory, rather than newly built ones. But that seems relatively unlikely given the relative scarcity of good equipment in the Russian military after years of low procurement. So I would say that the most likely scenario is in fact that these helicopters are in fact modernized Syrian Mi-17s, rather than new ones secretly sold to Syria.

Regardless of the exact provenance of these helicopters, recent events and the rhetoric on both sides show that the conflict is rapidly heading in the direction of a civil war. Moreover, this would be a civil war with echoes of the proxy civil wars of the Cold War days, with Russia potentially arming the Assad regime while Western countries (and their Gulf State allies) arm the rebels. Such wars were fairly ubiquitous in the 1970s and 1980s, but have largely faded from our memory since the end of communism. At the time, both superpowers were able to compartmentalize their relations in such a way as to continue negotiations on critical issues like arms control while fighting these proxy wars and engaging in rhetorical battles over the relative virtues of communism, capitalism, Western democracy and people’s democracy. It may be that leaders on both sides will soon need to relearn those compartmentalization skills so they can continue to cooperate on issues that are important for both sides (Afghanistan, counter-terrorism, counter-piracy, dealing with the rise of China) even as they take opposite sides in a likely civil war in Syria and engage in increasingly heated rhetoric about repression of grassroots protests (or, from the Putin government’s point of view—Western efforts to foment regime change) in Russia.

UPDATE: Actually, the helicopters are modernized Mi-24s. Not sure whether the Russian media reports were mistaken and the mid-2000s modernization contract was for Mi-24s rather than Mi-17s or if there were two separate contracts.