Frustrated with Europe's decision to impose sanctions on Moscow, the
Russian government no longer views military and technology cooperation
with European countries as particularly appealing. The Russian defence
sector is now trying to resolve its problems independently, but
implementing the necessary changes will take time
The decision to purchase
Mistral helicopter carriers from France was "a mistake of the previous
leadership of the Defence Ministry,” Russian Deputy Prime Minister Dmitry
Rogozin, who oversees the country's defence industry, said on Dec. 4, after
Paris apparently bowed to Western pressure and canceled the delivery of two
Mistral warships to Moscow.
The failure of France to
honor a deal that had been finalized long ago was merely the most high-profile set back among a number of blows dealt to the
Russian defence industry since the summer, as sanctions and growing tensions
between the West and Russia over Moscow’s alleged role in the conflict in
eastern Ukraine.
In late July, when the EU had just introduced its embargo
on the import and export of weapons and dual-purpose goods and technologies to
Russia, RIR looked at all the industries and projects that could be affected
by that move.
Since then, the July embargo has been complemented by a ban
on borrowing for three major Russian defence industry enterprises
(Uralvagonzavod, Oboronprom and United Aircraft Corporation), sanctions against
nine key Russian defence industry concerns and the difficulties with the Mistral
contract, which is technically unaffected by any sanctions.
With the end of the year approaching, now seems to be a
good time to assess the outcome of these: What are the costs of the sanctions to the
Russian defence industry,
and what compromises is Russia likely to have to
make in the long run?
Contracts
In September, the Russian Defence Ministry said that
"it was not worried by the sanctions," adding however that the
sanctions might affect third-party countries that purchase Russian military hardware
and equipment manufactured with the use of foreign components.
At the same time, President Putin said that "the
industry should be ready to manufacture critically important equipment,
components and materials and have the relevant industrial capacities,
technology, designs and technical basis.”
According to the Russian stare arms exporter,
Rosoboronexport, Russia's purchases of weapons from the West accounted for
no more than 1 percent and their cancelation will in no way affect Russia's
defence capability.
Sanctions, just like any law, cannot apply retrospectively.
Yet this is exactly what happened with the Mistral deal. Should we expect
similar actions in relation to contracts with third-party countries? So far
there have been no reports of problems in that area.
If problems do arise, they may affect the contract for the
supply of French Thales Catherine-FC and Sagem Matiz thermal imagers, which are
used to make targeting equipment for Russian armored vehicles. Under already-signed
contracts, Thales is expected to supply 331 Catherine-FC imagers to Russia, 130
of which are intended for Russian vehicles and 201 of which are to be installed
on hardware to be supplied to foreign customers.
These cameras are mainly installed on the export version of
the Russian T-90S tank, which is sold to Algeria and India. Will this contract
be fulfilled and what will happen next? The same applies to electronic
equipment for the export versions of the Su-30MK and MiG-29K aircraft.
Russia completely relies on imports when it comes to gas
turbine units for its frigates, corvettes and other warships. It is now
establishing the production of its own gas turbine units at the Saturn research
and production association, and of gears at the Zvezda plant.
Problems may arise with electronic equipment, as Russia is
only just starting to revive the relevant production inside the country.
However, there may also be a replacement of suppliers, all the more so since
Western partners have never provided Russia with military- and space-class
electronics anyway. Possible difficulties with third-party countries may be
resolved through European companies cooperating with those countries directly
to supply the missing components to Russian-made hardware.
Import substitution
Deputy Industry and Trade Minister Sergei Tsyb has listed
Russian sectors that offer the most potential in terms of import substitution: In
the machine tool industry, imports reach 90 percent; in heavy machine
engineering, from 60 to 80 percent; in the electronics industry, from 80 to 90
percent.
By the estimation of the Russian Industry and Trade Ministry, if the
import substitution policy is successfully implemented, Russia's reliance on
Western suppliers for the most "critical" industries can be expected to
decline from 70–90 to 50–60 percent by 2020. Complete import substitution is
impossible, so in addition to setting up equivalent domestic production, Russia
will have to look for new suppliers.
Military cooperation with the West was on the wane even
before the conflict in Ukraine began. From 2012 onward, the Russian Defence
Ministry did not sign any new large contracts for European military products.
Furthermore, in August 2013, a regulation was passed banning
the use of foreign machine tools if their Russian equivalents were available; the aim of this move was to
revive the destroyed Soviet machine tool industry and to raise the share of
Russian-made equipment to one third of the industry's requirement. Efforts
were made to gradually end the practice of repairing Russian ships at foreign
shipyards.
The import substitution program submitted by the Russian
Industry and Trade Ministry on July 25, 2014 envisages the use of domestic
equivalents to first replace Ukrainian goods and then goods from countries that
imposed sanctions against Russia. It is also proposed to expand cooperation
with the other Customs Union countries: Belarus and Kazakhstan.
In addition, Russia could further expand its cooperation
with China. Beijing could become a key supplier of electronic components to
Russia, says Vladimir Shvarev, deputy head of the Global Arms Trade Analysis
Center, adding that relevant talks are already under way.According to Russian Industry and Trade Minister Denis
Manturov, the import substitution program will allow Russian manufacturers to
create over 30 billion rubles' ($600 million) worth of additional production
annually, starting from 2015.
in.rbth