Russian arms sales are collapsing. Customer base shrinks from 32 nations to 12. Sales drop by 84 percent within a decade
The Russian defense industry goes through its biggest transformation since the end of the Soviet Union
Even prior to the sanctions, Russia has produced few ready-made products to keep its fortress economy afloat.
Firstly, energy products, food, and raw materials. Secondly, cybercrime. Thirdly, weapons. Let’s have a look at the current situation and at the grim future of Russian arms exports by the end of this decade.
I promised Russia a poverty driven and crushing defeat
The Stockholm International Peace Research institute SIPRI provides detailed data on the collapsing Russian arms business. Russia’s barbaric venture in Ukraine greatly reduced Russia’s revenue and its geo-political influence.
Russia has historically played a large role in this market. Russian customers realize that these weapons are full of Western parts and not actually “made in Russia.”
There is an argument to be made that Syria and Ukraine have had an inverse impact on the interest in Russian arms. You are always only as good as your last bad days. This is true for arms sales and for medium stories.
Russian weaponry and its lackluster performance show that not all publicity is good publicity
The weaponry that made the headlines in Ukraine was artillery. Russia’s main export revenue comes from fighter jets, helicopters, bombers, air defense systems, missiles, and aviation engines.
Inconveniently for Russia’s marketing department, the Russian Air Force (VKS) had an even worse war than the ground forces
The VKS failed to obtain air superiority. The VKS failed to neutralize the much smaller and less modern Ukrainian air force. The VKS has demonstrated a concerning inability to hit dynamic targets behind the lines.
This was especially true in the early stages of the war. Russian air defense displayed a high propensity for friendly fire, which has led to a couple of high profile losses thus far.
“More than 80 percent of Russia’s armored vehicle output, tanks, and a significant part of its ammunition output is based on the refurbishment of old stock.” Perun
In the past, this was a working model. Who could possibly screw up in a war so badly that a bogged down invasion would burn through 80 years' worth of Soviet and post Cold War stockpiles? The lack of arms sales will have many detrimental effects. Let’s have a closer look at this mess, shall we?
“Contrary to Syria the war in Ukraine undermined the reputation of many Russian weapon systems often demonstrating their ineffectiveness and obsolescence.” CSIS
The Soviet Union and the Russian Federation have been major arms exporters
In the period of 2019 to 2023, this is still true. However, once we look at 2023 alone. Russia fell from rank two of global arms exports to rank six.
In 2022 and 2023, there was a decline in customers, new orders, and quantities. We will look at why these sales declined. Who is seizing the share and whether this decline even matters.
SIPRI identifies sales of tanks, jets, missiles, and other weaponry
The institute does not track small arms or artillery ammunition. The data is presented with the trend indicator value index (TIV).
This index helps to identify future trends in arms sales
In 2022, Russian exports had a 2600 trend indicator value. In 2023, the TIV fell by 50 percent to 1269 points. In 2013, the Russian TIV was sitting at 7869 points.
In 2012, 30 percent of arms export value came from Russia. In 2018, this was down to 25 percent. By 2020, the share went down to 15 percent. In 2023, Russia’s share went down to 4.4 percent.
Russia is selling fewer arms to fewer countries. The remaining ones are often pretty broke
In general, having many buyers helps to diversify the risk of these sales. For example, Venezuela bought huge amounts in the past. Due to sanctions, Venezuela is pretty broke now. Many of Russia’s buyers took a hike. The breadth of the Russian arms market has shrunk considerably.
In 2019, 31 nations bought Russian arms. In 2022, it was 15, and in 2023, Russia is down to 12 nations
There is a whole group of countries that no longer take deliveries. The combined TIV score of Vietnam’s purchases for 2022 and 2023 is 83. Compared to 2012 and 2013, sales declined by 92 percent.
India is still the largest buyer of Russian arms. In 2013, India made up 48 percent of Russia’s sales. In 2018 17 percent. In 2021 53 percent and in 2023 32 percent.
India is cutting down its imports. Everyone else cut back on Russian arms much faster
Other customers are scaling back as well. Among them are China, Belarus, Serbia, Myanmar, Kazakhstan, and Kyrgyzstan.
We must make an important distinction between orders and deliveries
In this business, it takes months, sometimes even years from placing the order to the actual delivery. Less than 12 percent of Russian orders were placed in 2022 or 2023. The others come from 2018 or even earlier.
No Indian orders are listed after the full-scale invasion of Ukraine
The majority of orders, 207 TIV points come from a 2018 S 400 air defense deal. Russia announced a delay in the delivery of S-400 systems until 2026. This won’t please India. India is refusing Russian Sovcomflot oil tankers due to fear of Western sanctions.
Most of these imports are not weapon imports but licensed production. India is honoring old contracts and pays a fee back to Russia
In 2020, SIPRI records with a TIV of 50 BMP2 licensed Indian production.
In 2021, with a TIV of 60, anti tank missiles 9M119 licensed production.
The longest legacy order dates back to 1998. The West was still selling weapons to Russia back then
The deliveries to the PRC relate to an even older base of orders than India.
Ordered in 2015, D-30KP-2 Turbofan engines with a TIV of 186
Ordered in 2004, MR90 fire control radars with a TIV of 153
In 2011, there was an order of AL31 turbofan engines.
The timeframe between orders and actual deliveries can be a very long, drawn-out process.
To get an idea of deliveries in the future, we must look at the orders made today
Things get ugly for Russia here. However, we must keep in mind that arms could be ordered and SIPRI is not aware of it. The SIPRI Trend indicator value from 1991 to 2023 tracks the average number of orders per annum of Russian arms.
The 2012 to 2014 pre-Crimea phase
TIV: 5.115
The 2015 to 2017 post Crimea phase
TIV: 4.220
The 2018 to 2021 pre full-scale invasion phase
TIV: 2.226
The 2022 and 2023 post full-scale invasion phase
TIV: 1.306
Even without a Stanford degree, anyone can spot this clear downward trend
Russian arms sales fell by 20 percent from 2015 to 2017. From 2018 to 2021, sales got halved. In 2022 and 2023, sales went down to just over a quarter compared to pre-Crimean levels. The SIPRI data shows a collapse in both deliveries and future orders.
In 2023, only 3 countries placed orders for Russian arms.
Namely, India, Iran, and Kyrgyzstan. Tehran is accounting for 65 percent of all new orders with a TIV score of 1440. This order of Russian SU 35 fighter jets has been on and off for a couple of years by now.
India comes in second with a TIV of 660 which accounts for 33 percent of the total
However, India pays a license fee to build Su30s domestically. These jets will replace India’s old Mig 21s. India pivots away from Russian arms at a slower pace than other nations.
Kyrgyzstan comes in third with a TIV of 14.5. Russia is down from dozens of countries ten years ago, to one single country Iran, which is making up all of its new orders.
The war in Ukraine makes the deliveries uncertain
This decline in sales is also driven by corruption, single buyer options, high inflation, cash poor costumers, and sanctions. Iran has a proven record of shaking down Russia on arms deliveries.
We discussed the how. Let’s look at four factors to explain the why behind this decline in Russian arms sales
- Reputation
When selling weaponry, hard data is important. Perception and marketing are even more important. Many sales are driven by how a weapon’s combat performance is perceived.
Demonstrating its effectiveness in combat goes a long way
In this war, the TB2 “Bayractar” drone and HIMARS have been capturing a lot of attention. Due to their popularity, funding to acquire them was easy to get.
Lockheed Martin likely pre sold every unit that comes off the line from now until the heat death of the universe. Perun
Bergmann, Snegaovya, Dolbaia, and Fenton from the CSIS state:
"While such military struggles may often have more to do with the poor personnel training or deficiencies with command and control. They nevertheless create the perception of a deficient Russian military system and provide more reason for prospective buyers to look elsewhere."
2. Downward pressures
Russia had to divert aviation production output to cover its immense losses. I have discussed these losses in more detail in my Ukraine is winning the air war piece.
Aircraft are leading the charge of losses in sales. Those likely broke the sound barrier on the way down. Perun
Russia has shipped more air defense to other nations in 2022 and 2023 than in 2021. Russia is being hit by drones constantly. It may have lost two or even three more warships in another Ukrainian airstrike. Selling air defense to other nations doesn’t strike me as very intelligent idea.
Russian incompetence and its greed are its worst enemy
In 2020, the aircraft category alone was larger than all of Russia’s arms exports in 2023.
In 2019, aircraft accounted for half of Russian arms exports
In 2023, that number went down to 16 percent
3. Diplomacy
Geo-politics and diplomacy are joined at the hip. Arms sales are a sign of a strong relationship between two countries. A sign of trust.
The reasons to sell arms are often diplomatic and political
The Russians have proven themselves to be expansionist, deviant, untrustworthy, and unreliable. Trust is easily lost and hard to regain. A former good customer, Serbia, has made no new orders in 2022 or 2023.
The aggression against Ukraine was condemned on the second of March 2022 by the UN
140 nations in favor
35 abstained
5 voted against
4. Diversion
Does Russia have weapons left to sell? Russian customers should ask themselves this question.
There is also a potential clash of priorities between the weapon export business and the Russian Ministry of Defense.
Russian arms customers beware! Delivery times will be extended from the current time frame until Ukraine stops blowing up Russian stuff
Customers want consistent, reliable supplies. The USA and Europe have honored all of their existing contracts since the beginning of the war. Pacts are binding.
Iran is under heavy sanctions. Iran may be happy to take the risk. India, not so much.
The war in Ukraine is great for the Russian military industrial complex and abysmal for its weapon export business. Weapon sales bring geo-political influence and a strategic advantage.
The demand for Russian arms is historically weak. Other arms companies such as Rheinmetall or Lockheed Martin, etc. increase production and make record sales and massive profits.
Former Russian customers become increasingly self-reliant. The market is becoming more competitive and diversified
Russia is undergoing a process of reverse industrialization caused by a lack of spare parts, sanctions, and skilled labor.
Russia must innovate. This is a vicious cycle
The more exports collapse, the more unlikely Russia will be catching up due to a lack of industrial scale.
In a fit of irony, Russia might have driven up the demand for its best export while not being able to meet this demand
Here is a list of the major arms exports by nation (in TIV)
- United States: 12000
2. Germany: 3500
3. PRC: 2300
4. France: 2000
5. Italy: 1800
6. Russia: 1600
Russia ranks sixth on that list, only slightly ahead of the UK
The Chinese might be a good transition for many customers. Due to various economic, political, and diplomatic reasons, this transition hasn’t happened thus far.
France ranks second in the time period of 2019 to 2023 with an 11 percent share
The biggest increase comes from Germany. Most of German sales are naval products. The Frigates orders came from Egypt and Singapore.
2021: 857
2022: 1481
2023: 3287
Those are all rookie numbers. The United States is the number one. The order book for 2022 and 2023 is crazy
2021: 11074
2022: 15592
2023: 11287
“The 2022 increase had less to do with Ukraine. Countries were hearing gun shots in their proverbial neighborhood and were rushing to Uncle Sam’s weapon shop to arm themselves to the teeth.” Perun
Ukraine has received only 6 percent of US exports in 2022 and 15 percent in 2023
The argument that the West doesn’t produce enough weaponry or doesn’t have enough to supply Ukraine is raising an eyebrow. The West produces more than enough weapons. These weapons just go somewhere else.
Russia is a nimble dwarf compared to the mightiest military and economic complex homo sapiens has ever created
However, there are specific bottlenecks such as low tech 155 mm ammo shells. These bottlenecks are being addressed as we speak.
The US has exported 2500 TIV points worth of armored vehicles, and 18 percent went to Ukraine. Over 2022 and 2023 combined, only 11 percent of all exports went to Ukraine.
Ukraine is a major consumer of ammo shells. These shells are not tracked by SIPRI
Ukraine received 30 Abrams tanks from the US. The US has 2000 to 3500 Abrams in storage. Morocco received 162 M1 Abrams, Kuwait 153 and Saudi Arabia 218. Out of 563 in total, Ukraine received roughly 5 percent.
The US supplied Ukraine, but vast amounts of weaponry went somewhere else. In general, weapon deliveries are a long-term relationship. A tail of spare parts and logistics support comes with their delivery.
Weapons have been a major tool of Russian influence
Think about Vietnam or India. The footprint of Russian arms might shrink together with Russia’s influence. Russia had delivered 1100 tons of spare parts, and repaired 5000 armored vehicles in Syria between 2015 and 2017.
The war in Ukraine leaves Russia somewhat restrained to ship spare parts by the kiloton
Low quantities of weapon production provide a barrier for future R&D and production efficiency. Low demand also affects the way a nation produces things. Instead of mega factories, Russia pursued an artisanal labor expensive, almost hand-made approach.
Russia manufactures instead of mass produce most of its weaponry
That isn’t true for low-tech ammunition production and drones. Both are in high demand. The Russian Su 75, which is supposed to be a counter to F35, is another matter, though.
For a successful export product, the producer will want to:
Get partners involved early on
Collect capital
Spread risk
Lock in sales
Next generation products will be what the world wants. Russia will struggle to be a part of this future
In the short term, not much will change. The Russian military machinery is in a growth trend. It is hard to go bankrupt when the industry has a monopoly on weapon production. The current demand is high. The profitability of these companies doesn’t matter that much as long as the Russian military budget shoulders the costs.
The current domestic demand provides the necessary scale
The risk is shared with the government. The mid to long term view isn’t good news for Russia. Russia is losing geo-political advantages, and it will be near impossible to recover its position in the future.
Change is like death. You don’t know it is happening until you are standing at its gates. Perun
There are many economic landmines ahead of Russia. The current demand puts quantity as the highest objective. The Western industrial complex gears up for an enduring demand of military products.
The Russians create an industrial base built around refurbishing old vehicles. What will Russia do once they run out of old vehicles?
Russia states, that it has recruited 500.000 new defense industry workers. As a general rule, inexperienced labor is less productive than experienced labor. New labor creates a drag down of productivity. It requires a lot of supervision.
One of Russia’s major defense plants increased its head count from in 2023 from 4800 to 19500 workers
Each experienced worker might be able to repair a vehicle using nothing more than duct tape, sheet metal, and a broken bottle. They must supervise four new recruits on average.
These recruits can be excellent or so incompetent that they might burn down the factory
Russia has increased working hours to triple shifts. This doesn’t necessarily translate 1:1 into more output. Russia will receive more overall output but less efficient output.
Summary and Conclusion
Russia produces products the export market doesn’t want
For example, loitering ammo. This is useful in Ukraine. Otherwise, it is utter trash compared to the top products on the market. Russia tries to win this war by ramping up the production of a Soviet style army.
This will likely not work out. I see three likely scenarios for the Russian arms export business.
Scenario 1: War Economy
To rebuild what Russia had before the war is a multi year project. This would require a year-long full speed ammo and missile production. Funding this will put massive strain on the budget of its war time economy.
Russia refurbishes mostly old and outdated stuff. What use will refurbished T72s, T80s and towed guns be in 2030?
Scenario 2: Re-entry
Russian Lancet, Iskander missiles, and certain drone systems might find certain export markets.
This unlikely scenario requires all sanctions to be dropped. Russia won’t continue to pay premium salaries for restoring old weaponry forever.
Scenario 3: The Soviet experience
In this scenario, Russian bankruptcy would cause a massive cut in sales. Downward pressures on prices won’t be picked up by the MoD in a collapsing economy. Russia would slip further and further down the export ladder.
Other producers would then race to fill the void and pressure Russia’s remaining market shares
US weapon exports went up by 50 percent in 2023. Washington challenges both Russia and China in the arms race. Russia will drop out of this race early on.
Dear reader, thanks for reading my story
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Take care and be well.
Russiae Imperium delendum est
Sources:
https://www.politico.com/news/2024/01/29/us-foreign-arms-sales-russia-china-00138390
https://www.thedefensepost.com/2023/12/21/singapore-formidable-class-frigates/
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