Russia has two things that sell well in the global marketplace: natural resources (oil, gas, timber, metals) and weapons. While the former represents a much larger volume in terms of volumes and amounts, the export of weapons carries strategic importance. It helps the Kremlin build good relations with governments of other countries, and brings these nations into the Russian sphere of commercial relations, cooperation and other key areas. Another important aspect is that such activity helps domestic manufacturers stay in the business and develop critical technologies.

Natural resources and weapons both grew in export volume since Russia emerged as a sovereign country after the Soviet Union’s break-up. And while the worldwide economic crisis has an impact on arms sales, the overall business volume continues to grow despite the adverse economic environment.

In 2009, Russian arms exports (in executed deliveries) totaled $8.5 billion – which was $150 million above the 2008 level, according to estimations by the Moscow-based Center for Analysis of Strategies and Technologies (CAST). According to Russian government officials, the 2009 order book volume reached $40 billion – up $7 billion up from the 2008 level.

These figures are big, but they fade in comparison with Russia’s oil income. According to official statistics from the Federal Customs Service, in the first half of 2010, Moscow sold fossil fuels for about 130 billion dollars. Meantime, statistics from the state arms vendor Rosoboronexport say Russia’s weapons trade amounted to 6.46 billion dollars in 2006; it rose to 7.55 billion in 2007 and stabilized at 8.35 - 8.5 billion in 2008 - 2009.

Military export from Russia is centralized. All sales of ready-to-use weapons (not counting some minor items) go through Rosoboronexport, a government-run company responsible for military technical cooperation with foreigners. Separately, 21 different Russian companies (all being original equipment makers or license-holders) have governmental permission to work directly with foreign customers, but their scope of activities is limited to spare parts, repair and overhaul, training and logistics – and none holds the right to supply weapons systems independently of Rosoboronexport.

Two years ago, Rosoboronexport and more than 200 other companies were moved under control of the “Russian Technologies” state corporation – a huge structure established by the Kremlin to control state assets in the Russian military-industrial complex. On the surface, the shift of Rosoboronexport produced little effect. Perhaps the most evident change was that all Rosoboronexport representative offices outside Russia have been “re-branded,” becoming those of the Russian Technologies. This, however, does not bring much change to the everyday work. Employees continue to focus on sales and interaction with customers and end-users on technical support, modernization and upgrades, spare parts, training of personnel and logistics. The need to “change the façade” was caused by modifications in Russian law following establishment of Russian Technologies, and also was a measure to boost sales of high-tech civilian products abroad (which is one of the tasks set by the Kremlin).

In published statistics, Rosoboronexport states that its 2009 exports amounted to $7.4 billion, which is 10% more than the previous year. For new successes in the field of arms sales, Russian Technologies head Sergei Chemezov (the man who headed Rosoboronexport before receiving his new appointment) was decorated earlier this year with the Order of Friendship. “This is a testimony of the fact that the arms trade developed well so far,” commented Rosoboronexport general director Anatoly Isaikin. “We anticipate that arms trade volume this year will not be less than the previous one.” During the 2001-2009 timeframe, the volume of arms sales made through Rosoboronexport rose by 2.4 times, he added. Russia has military trade partners in 70 countries around the world. “Today, we offer not only ready-to-use systems, but also technologies, joint production of subcomponents – and sometimes even sell licenses for local production of ready-to-use weapons.” At a press conference in February, Rosoboronexport officials said new contracts signed in 2009 exceed $34 billion, bringing the backlog to $21.5 billion. It is believed that the first figure is for deals signed and already approved by responsible governmental bodies (such as the Federal Agency for Military-Technical Cooperation) and put into force. The second is a total sum for upcoming deliveries of Russian-made weapons, not counting sales of property rights, licenses, documentation etc.

“These figure make us look to the future with optimism, as the order book promises high workloads for enterprises of the Russian military industrial complex,” Isaikin commented. In addition, he said that in 2009, the sum of newly-signed contracts amounted to $15 billion. “It doesn’t mean that all of this money will actually flow into Russia during the short term…as many contracts span several years.”

In the past two years, the structure of Russian arms sales by types of weapons systems seems to have settled out. Once again, aviation is the undisputable leader, representing half of the grand total. Tactical jet fighters (Sukhoi Su-27/30 Flankers and Mikoyan MiG-29 Fulcrums), Mil helicopter gunships (Mi-24/35s) utility rotary-wing aircraft (Mi-17s) and Kamov naval helicopters (Ka-28/31s) are the best-selling items. These are widely considered world-class and expect to be in demand during the next 20 years before being superseded by a new generation of systems from the same makers.

The next three hardware types form a second category: items for anti-aircraft defense, land forces and naval applications. These types continue to “compete” against each other for the second and third places in Russian arms exports by the volume of annual sales. In 2009, equipment for land forces was in second place at 19 percent, and navy-related hardware was third at 13.9 percent, leaving anti-aircraft defenses one step lower at 13.3 percent.

While these numbers provide some perspective on the situation, the reality is more clouded. In 2008, the London-based International Institute for Strategic Studies reported that “in recent years, it has become increasingly difficult to collect and analyze meaningful data on Russia’s Federal Budget, and particularly the finances of Russian national defense, owing to a number of presentational changes.” Today, these words seem even more meaningful, as governmental financial statistics have only become less understandable. Independent analysts say that, as time goes on, they tend to experience more and more difficulty when assessing the flow of information from Russian sources. The regime of secrecy has tended to tighten, while the independent news media – badly hit by the economic slump – has largely lost interest in covering military subjects and have suffered a loss of skilled staff writers. One of the outcomes is the growing number of “undiscovered” arms deals and larger amounts of “unidentified” content in such deals. Equipment for navies and air defense units appears to be most difficult to identify in recent Russian export sales.

This is reflected in the differences between official figures and those from independent analytics, such CAST in Moscow. For instance, CAST’s own calculations found that the share of aviation equipment in new sales represented a 61 percent share (compared to 50 percent in official statistics), army equipment was at 21 percent (government figures place it at 19 percent), naval hardware was rated at 9 percent (compared to 14 percent in official statistics) and air defense at 8 percent (the government’s number is 13 percent). Such differences are expected to grow. This means that in the future, there probably will more surprises when it comes to deliveries – which are harder to keep hidden than the content of sales agreements. This also provides evidence that more and more of Russian arms exports go to countries that tend to have less transparency in military affairs – including China, Arabic nations and certain territories in Latin America. It is understood that the role of such customers in Rosoboronexport’s client base is growing.

About 1 percent of Russian arms exports is equipment for special forces, such as non-recoil or noiseless rifles, rapid-fire guns, noiseless pistols, underwater shooting devices, grenade launchers, personal self-protection suites etc. While it is a small business money-wise compared to aviation, the importance of this type of equipment should not be underestimated. There are a number of customers who buy such hardware from Russia, often without publicity. It helps in building commercial ties, as the seller and customer probably would never come together at a negotiating table otherwise. One factor in drawing this business is the unique technologies created by Russia’s military-industrial complex. Another plus for Russia is its extensive experience gained in counteracting terrorists and stopping nationalist resistance in the North Caucasus, leading to “battle-proven” hardware that is well suited to realistic scenarios of special forces’ needs. In some cases, the sales of equipment to special forces have led to strong personal relations between seller and buyer – facilitating deals in other areas. This is particularly true in case of some Arab buyers. The current head of Rosoboronexport was previously responsible for sales of special forces equipment. Anatoly Isaikin managed to establish good personal relations with certain buyers, thus opening new export perspectives for Rosoboronexport. “This is a relatively small, but a stable business,” Isaikin explained. “Many of the items we sell are unique; they are being produced in very small quantities. It is always a trade between techniques of series production and needs of special forces. Certain types are under the strictest of controls, imposed to ensure the terrorists never get them.”

The United Nation’s register of conventional weapons can serve as a good source for understanding the structure of Russian arms sales. Effectively, the register is a list of military equipment that every member country fills out under good will terms, along with the desire to promote transparency. Russia has been cooperative. In its report for 2008, Moscow acknowledged deliveries of 77 main battle tanks (the T-90 MBT series to Algeria and India), 46 armored vehicles (BPM-94 Vystrel and BTR-80 armored personnel carriers to Kazakhstan, Azerbaijan and Algeria) and 12 artillery systems (Smerch multiple rocket launcher systems to India). There were 34 combat aircraft for Algeria, Malaysia and India, Venezuela – including the last in a batch of 24 Su-30MK2V fighters, although this number does not take into account Su-30MKI kits for Hindustan Aeronautics Limited. The figures also included 32 combat helicopters (including Mi-17s to Indonesia), 921 guided missiles, and 138 portable SAM launchers with 624 missiles.

These numbers demonstrate that the United Nations register does provide a good snapshot of what Russian arms export is like these days. On the other hand, there are weaknesses in this data: for example, Russia did not include China in list of recipients for its missiles in 2008, while previous year, the given figure received by the country was 984 missiles.

It also is important to keep in mind that dozens of smaller countries produce Russian weapons. Some of them are in fact continuing to develop the Russian (Soviet) school of defense equipment design, manufacturing and after-sales support. Ukraine and Belarus are perhaps the best examples. In addition, Belarus sometimes is used as a vehicle to sell equipment to certain customers that cannot buy directly from Russia – or do not want to. This applies both to new and used equipment, and can be illustrated by the fact that Belarus exported 33 MiG-23s to Syria (without indentifying exact type of the Flogger, which may lead to some interesting findings in future). According to ex-president Victor Yushenko, Ukraine last year signed arms export contracts for $1.5 billion. Since most of the Ukrainian contracts are short term and executed quickly, they add to the grant total of “Russian” arms sales worldwide. In addition, despite 15 years of separation following the Soviet Union’s breakup, Russia still uses a lot of Ukrainian components in its weapons. This is a Soviet legacy, coming from the fact that Ukraine was home to many design houses and manufacturing plants involved in the defense programs of the Soviet Union’s military industrial complex. “There is no area in our military-industrial complex where Ukrainian components would not be used,” Isaikin commented.

With the election earlier this year of pro-Russian president Victor Yanukovich, ties between the Ukrainian and Russian defense industries are expected to grow even stronger. In particular, this brings about more hope to the long-going development of Antonov’s An-70, which effectively is the only truly next-generation airlifter currently flying in the Eastern world. On the wave of warming relations with Kiev, Russian Defense Ministry leaders – including Minister of Defense Anatoly Serdyukov – began to speak about the need to finalize a contract on delivery of 40 An-70s to the Russian air force. If this happens, such a contract may finally get this development project off the ground and open export opportunities for the aircraft. Until recently, both the Russian military and Rosoboronexport remained cautious about the An-70’s sales opportunities. But this seems to have changed. Isaikin told reporters recently: “In the today’s situation, airlifters are in demand all around the world; every air force needs or wants to have an efficient fleet of aircraft. Therefore, the An-70 has good chances in the market, provided its development is completed soon.”

Furthermore, the Russian air force made a positive assessment of Antonov’s idea to create a 15 metric ton airlifter, the An-178, which is based on the An-148 75-seat commercial passenger jetliner – which is in production within Russia (at the VASO plant in Voronezh) and in Ukraine (at Antonov’s plant in Kiev). Today, the An-148 is most modern Eastern-built airliner, and it is in service with Rossiya - Russian Airlines (operating four An-148-100Bs as of late June) and Ukraine’s Aerosvit airlines (two An-148-100Bs in service). Russia’s United Aircraft Corporation (UAC) has secured preliminary orders from five Indian airlines. This enabled UAC and Antonov to launch an An-148 type validation campaign with India’s Directorate General of Civil Aviation (DGCA) in May 2010. First deliveries to Indian airlines are planned for 2011. In addition, two aircraft were contracted by the government of Myanmar in November 2009 for delivery in 2011; the deal is a part of a bigger one also involving delivery of 20 MiG-29 fighters. So, the An-148 is on its way of becoming the first Russian-built airliner in the Indian inventory (not counting a handful of Tu-154Ms and Il-62Ms that were operated for a short period of time in late 1980s/early 1990s). UAC is talking to several Indian companies on the possibility of licensed production – which would start as “screwdriver assembly” and then move to a high degree of “Indianization.” Should the An-148 become a success story, it may prove a basis for the creation of many specialized military versions, including the An-178, and even serve as the starting point for development of the Indo-Russian Multirole Transport Aircraft (MTA).

Russia also is considering re-starting production of the Il-76 50-ton airlifter as a modernized Il-476 airlifter, as well as the super-heavy Antonov An-124 Ruslan cargo aircraft. The Kremlin has approached China, the U.S., India and certain European nations with the idea to join forces on these programs. Isaikin confirms this by saying that the Russian air force and undisclosed foreign customers have placed preliminary orders for Il-476. China is being urged to renegotiate the stalled deal on some 40 Il-76-series aircraft in favor of the more advanced Il-476. India is likely to be offered either Il-476 or An-124 if it initiates a new strategic airlifter tender. Such a tender may be launched if India does not buy the Boeing C-17 Globemaster III under a government-to-government arrangement.

Advanced airlifters add a new dimension to the sales of aviation equipment, which currently are dominated by tactical jetfighters. In the next five years, the evolving Flanker and Fulcrum series of fourth-generation fighters will be succeeded by the Fifth-Generation Fighter Aircraft (FGFA). The FGFA effectively is an exportable version of the Russian air force PAK FA combat aircraft, which has been in flight test since January 2010. Isaikin says that Russia currently has received a proposal to cooperate on joint development of fifth-generation weapons systems from one country – India. The Indian initiative was given a positive reception, and now Russia and India are working together on opportunities for both the FGFA fighter and MTA airlifter, he added.

In the area of anti-aircraft weapons, Russia’s S-400 Triumph draws most interest from overseas customers. “It is a brand-new system being developed for Russia’s Air-Defense Forces. Once the Russian customer’s needs are fulfilled, the system will be available for export,” Isaikin told reporters. “We are in consultations with Russian Defense Ministry in order to have an understanding of when we can start S-400 deliveries abroad. We are talking to our customers, but deliveries are some time off in the future.”

In the meantime, Russia will continue to sell the previous-generation S-300, which sometimes has become an issue for politicians because of its capabilities. “The S-300 is a defensive system; therefore, it poses no harm offensive to neighboring countries,” Isaikin stated. However, long-expected deliveries to Iran are unlikely to start until newly-imposed United Nations sanctions are lifted. This means Russia will have to find another customer for the already-produced systems that now are in storage following the Russian government’s June decision to join countries upholding sanctions for Iran. It may happen that these systems will find their way to China, which already operates the S-300PMU2 Favorit – the latest in the evolving S-300 series of weapons.

Isaikin also sees a new opportunity for expanding Russian sales with the introduction of a new type of armored vehicle for the army – referred to as the Machine – for the support of tanks in the battlefield. He described it as a highly protected and heavily armed vehicle that can survive threats from mines and anti-tank missiles. It would interact with main battle tanks to clear the way for mainstay forces in the battlefield, he said. “Russia has developed prototypes of such a vehicle. The use of such systems will allow a reduction in loses of personnel, and that’s the most important factor for any army.” During recent conflicts in Afghanistan, Iran and Lebanon, “classic” tanks – even the heavily-protected Abrams and Merkava – fell prey to anti-tank systems, and not even necessarily the most advanced missiles available. If the new vehicle finds customers, it will help UralVagodZavod – the largest Russian manufacturer of tanks – to survive the current business crisis that has badly hit this huge enterprise. “UVZ has orders, and talks with foreign customers are ongoing on further contracts for the plant,” Isaikin explained.

Among other weapons worth mentioning as offering export possibilities – including to customers in Asia-Pacific – is the Pantsir S1 short-range missile/gun air defense system. Reportedly, deliveries of this weapon are underway to Syria and the United Arab Emirates. The export success of Russia’s Project 636 diesel submarines could be repeated with the Project 677 Lada. The lead vessel in this series was commissioned by the Russian Navy in May 2010 after several years of sea trials. As another example, the 300-mm Smerch rocket system is now being offered in a new version on a lighter wheeled chassis that carries four containerized rockets. India is a likely launch customer for this version. Also, the Ka-31 radar picket helicopter that already is in service with the Indian navy has won additional orders from this country, along with other customers in the region.

In terms geographic, Asia-Pacific continues to serve the main selling point for Rosoboronexport. By contractual volume, Vietnam was the largest buyer of Russian weapons in 2009. It signed a contract valued at roughly $4 billion for six Project 636M diesel submarines (to be built at Admiralty Shipyards in St. Petersburg) together with infrastructure. This contract is a real breakthrough, since the purchasing nation does not operate submarines today. Another large sale there was for eight Su-30MK2 multirole aircraft (deliveries to be completed in 2011), in addition to four such aircraft purchased earlier. Hanoi has funded development of the Bastion shore-protection system using Yakhont supersonic missiles (similar to BrahMos PJ-10 co-developed by Russia and India) – with deliveries of these systems to began in 2009. With these deals, Vietnam is now among the largest Russian customers, together with India, China, Algeria, Venezuela and Syria.

Russia will continue to use foreign components in its weapon systems – both for export and internal use. Night vision systems from Thales for use on armored vehicles, along with avionics for aircraft applications already are incorporated in the latest products from Russian manufacturers. Russia’s electronics producers are not as advanced as the French in these fields, but they are catching up. “We have started producing thermal imagers – quite good ones, in fact – which is something we could only have dreamed of a few years ago,” Isaikin commented. However, Russia will continue purchasing advanced components and technologies from France and other European nations, as well as develop other means of industrial cooperation and co-development in high-tech areas.

At the same time, Russia has been renegotiating older agreements with other nations on licensed production of Russian weapons. This process is related with the protection of intellectual property rights. Isaikin says that some breakthroughs have been made in this area: for instance, China has been licensed to produce the Kalashnikov assault rifle, which has been in production there for decades without permission from its developer.

Despite this success, China’s share in Russian military export is likely to continue on a downward trend. “The fall of military trade with China is easy to explain: the local military production there develops quickly and well,” according to Isaikin. “In the past, China needed modern weapons systems because its domestic manufacturers could not fulfill the requirements of the Chinese armed forces. Today, Chinese manufacturers have improved, and they can produce more competitive systems in greater numbers for the Chinese customers. The share of Russian exports to China has gone down to 18 percent. I anticipate this may decrease further.”

In the foreseeable future weapons sales will continue to serve a major political tool in the Kremlin’s hands as an instrument of keeping its allies interested in their Russian connection. Meantime, with domestic orders rising, the Russian military industrial complex, once almost totally dependent on foreign sales to keep conventional weapons production going, will increasingly see the Defense ministry of its home country as its major customer.