# 2, 2007 Moscow Defense Brief �

#2(8), 2007

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Cover photo: Il-96-300 - The flagship of Russia’s civil aircraft industry.

Pulkovo airport, St.Petersburg, Russia, June 2006

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© Centre for Analysis of Strategies and Technologies, 2007

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CONTENTSIndustrial PolicyThe Russian Aviation Industry: From European Option to National Strategy 2

Russian Defence Procurement in 2007 4

Russia’s Space Program in 2006: Some Progress but No Clear Direction 9

War And PeopleRussian Anti-Armour Weapons and Israeli Tanks in Lebanon 13

Arms TradeRussia on the Arms Market in 2006 16

International CooperationThe Multipolarity Trap: How Russia Should Make Friends… and With Whom? 20

Military-Technical Relations between Russia and North Korea: Past, Present and Future 25

Our Authors 27

Center for Analysis of Strategies and Technologies

# 2, 2007 Moscow Defense Brief�

Industrial Policy

The Russian Aviation Industry: From European Option to National Strategy

The Russian Aviation Industry: From European Option to National StrategyKonstantin Makienko

European ProspectsIn 2004-2006, many observers were convinced that

the best option for Russia’s civil aviation was to integrate into the European aerospace industry. The emergence of is perspective coincided with Moscow’s political rapprochement with Paris, Berlin and Rome, and broad cooperation with Europe in the energy sector. This approach also signaled an extreme skepticism regarding the capability of the national aviation industry to overcome its crisis, develop competitive products and become a serious player, at least on the domestic market.

The strategy of integration with Airbus seemed logical, given the degradation of the civilian segment of the domestic aviation industry and deteriorating political relations with the United States. The ultimate, logical result of this strategy would have been for Russia to give up its claims to be a system integrator; that is, to give up its ambition of re-emerging as an independent, major player in the world aviation industry. In this case, manufacturing aircraft components for Airbus would generate the bulk of sales. In the best case scenario, Russia could count on becoming a full participant in the development of a new generation of airliners, including the possible transfer of an assembly line to a Russian aviation plant. In the long term, Russia hoped to take part in the management of EADS and raise its stake in the corporation to 15-20%.

The “European party” of the Russian aviation industry consists mainly of the leaders of the “Irkut alliance,” which have long-standing ties with EADS. The most active figure in this party is Vice President of Irkut Corporation Valery Bezverkhny, who initiated the unsuccessful acquisition of the bankrupt Fokker company by Irkut at the beginning of the decade, and who later oversaw the sale of 10% of Irkut shares to EADS. Igor Shuvalov, Presidential advisor on economic issues, was the most active supporter of the European option in the corridors of power. Moreover, for some time President Vladimir Putin himself appeared to have toyed with the idea of Russia joining EADS.

A natural opponent of the European strategy was the “Boeing party,” led by the Sukhoi holding company, which enjoyed close ties with the American corporation on the SSJ-100 regional jet project. At that stage, when Aeroflot was holding a tender for long-range aircraft that involved

Boeing 787 and Europe’s A350, Russia’s national air carrier could also be said to have belonged to the Boeing party. Aeroflot’s top management preferred Boeing and was reluctant to purchase the A350, which lagged behind its competitor in development. There are reasons to believe that Sergei Prikhodko, a deputy head of the Kremlin administration, is the most influential supporter of the Boeing party in the corridors of power. Economic Development and Trade Minister German Gref tends to support it as well. In addition to the Boeing faction, the “national” party was also opposed the Europeans, and was represented mainly by the Ilyushin Finance leasing company, which was banking on upgrading and producing the Russian and Russian-Ukrainian Il-96, Tu-204 and An-148 aircrafts. Oddly enough, the “national” party has virtually no supporters among governmental authorities to lobby its interests.

The implementation of the “European option” manifested itself in the sale of a 10% stake in Irkut Corporation to the Europeans, Vneshtorgbank’s (VTB) purchase of a 5% stake in EADS, and most importantly, the blocking of Aeroflot’s purchase of the U.S.-made Boeing 787. Although the airline management favored Boeing, it was forced by the government to opt for the European A350. In addition, there is the project for starting a production facility for converting A320 into freighters.

Finally, the production of components for the European Airbus has begun in Irkutsk.

Crisis of the European OptionThe rapprochement between Russia and Europe was

quite intensive until about the beginning of 2006, when Angela Merkel came to power in Germany as the new Chancellor. After Gerhard Schroeder stepped down, the climate in Russian-German relations became more reserved. In bilateral relations, the new Chancellor emphasized sensitive subjects such as human rights, freedom of speech and democratic standards. Finally, it was Angela Merkel who, in September 2006, frankly and unequivocally stated that Russia could not be a full-fledged partner in EADS.

The reaction of panic and hostility in the European press to the news of Vneshtorgbank’s (VTB) purchase of a 5% stake in EADS was an important indicator of the attitude

# 2, 2007 Moscow Defense Brief �The Russian Aviation Industry:

From European Option to National Strategy

Industrial Policy

of European opinion-makers to the prospects of Russian-European aviation industry integration. And this reaction reinforced the widespread view in Russia that Europeans openly despise Russia when it is weak, and fear and hate it at the slightest sign of it growing strong.

The atmosphere of dialogue at industry level also deteriorated. Firstly, it became clear that the main priority for EADS, which was going through a deep crisis, was to resolve production problems on the A380, and not the formation of dubious and risky alliances with Russia. Secondly, Louis Gallois, the new co-CEO of the European concern, is known for his antipathy against Russians, a characteristic generally inherent in French Protestants. Russia remembers well that it was Gallois who played a key role in removing Russian companies from the ATR project.

The situation in Russia also changed. A diversification of the economy and reorientation from a reliance on raw materials was declared at the political level. The state started paying close attention to industrial policy in several machine-building sectors, including aviation. Consolidation of the aviation industry intensified in 2006. The state decided to launch and partly finance large-scale national projects from the budget: the SSJ-100 regional jet, the MS-21 short- and medium-range aircraft and the PS-12 engine.

The political and industrial positions of the national party strengthened. Large-scale state financing of the MS-21 project runs inherently counter to the European option. Part of the “Irkut alliance” consolidated around Oleg Demchenko, General Director of the Yakovlev design bureau and Irkut Corporation President; influential in both political and military circles. Finally, the reputation of EADS was badly spoiled in Russia by the crisis of A380 production and especially the overhaul of the initial A350 project, which was especially sensitive in Russia from the viewpoint of both forming the fleet of long-range airliners and possible industrial involvement in the program.

It now seems that plans for Russia’s involvement in EADS had been unrealistic from the very start, or at least premature. The European corporation is not just a manufacturer of civil aircraft, but also a dynamic military enterprise, which Russia could hardly joint in the foreseeable future, especially as the United States is the biggest market for EADS defense products after Europe.

The National StrategyThe cool stance adopted by European political and

industrial leaders leaves Russia no other alternative than to implement a purely national strategy of reviving domestic aviation, perhaps as a second-tier, but as an independent

player on the global market. Indeed, all the necessary prerequisites are in place.

First, even though the situation in civil aviation remains grave, the outlook is clearly positive. In 2001, not only old, but even new Russian aircrafts failed to meet international flight safety and environmental requirements or to be certified internationally. Only a few aircraft were being built, and the system of after-sale maintenance did not exist. Two key civilian aircraft manufacturers – Aviastar-SP and the Voronezh plant – were on the verge of bankruptcy. Air transportation plummeted. Russia had over 260 airlines, each so miniscule that none of them could afford to order new aircrafts. The profits of the entire sector totaled a mere $300 million. At 2,000 units, the aircraft fleet was redundant.

But from 2001-2006, the situation improved noticeably as the debts of key manufacturers were restructured or paid, and the production of new aircraft meeting international safety and environmental requirements revived, thanks to orders from leasing companies.

Secondly, domestic demand for new aircrafts started to soar in 2004. The combination of rapid growth of air transportation (at about 8% a year except 2005) and the massive disposal of obsolete Soviet-made aircrafts resulted in snowballing demand for modern, cost-effective airliners. Market volume over the next five years is estimated at 300 aircraft.

Thus, the basic prerequisites for a strategy to revive national production have been established.

In fact, the national choice policy boils down to three simple tasks. First, the combination of customs measures and leasing mechanisms will supply the needs of Russian airlines with upgraded Il-86 and Tu-204, as well as new SSJ-100 regional jet and An-148. Second, to unilaterally launch the MS-21 program, if the Europeans refuse to deliver a line for the assembly of the next generation A320 modification to Russia. Third, to intensify talks with China on the development of a short-and medium-range jumbo jet to replace the Il-86. It must be stressed that the “national strategy” is not tantamount to autarchy, and that in any case the new airliners will be developed on the basis of broad international cooperation, as is the case with the Sukhoi regional jet project.

The successful implementation at least one program to develop new generation aircraft – with Russia acting as a system integrator – will establish a new baseline for future talks on international alliances, be they with the Europeans or the Chinese. If the Russian aviation industry proves capable of regaining the status of a global player, on at least the scale of Embraer or Bombardier, Europe will be more inclined to regard Russia as a potential full-scale partner.

# 2, 2007 Moscow Defense Brief�Russian Defence Procurement in �007

Russian Defence Procurement in �007Andrey Frolov

In 2007 Russia’s national defence procurement (NDP) amounted to 302.7 billion rubles (app. $11.6 billion),

which marks an increase of 27.9% over 2006. Of this sum, $5.6 billion (47.9%) will be spent on purchases of new equipment, $2.3 billion (19.8%) on repairs and modernization, and $3.7 billion (32.2%) on R&D. Appropriations for purchases, repairs and modernization, and R&D grew by 25.5%, 23.6% and 34.4%, respectively.

NDP-2007 includes purchases of new equipment and the continuation of long-term programs begun in the late 1980s and early 1990s. The latter consists mostly of Navy projects, given their high cost and relatively long production cycles, when compared to the equipment of other services. Published data tends to support official statements that mass purchases of serially-produced items are planned, especially with regard to the Navy, though the scale of such purchases remains rather low.

Significant sums (41% of the sum, reserved for purchasing of the new equipment) have also been allocated to repairs and modernization. Given the Defence Ministry’s tradition of procuring new equipment for its strategic nuclear forces, most of funds assigned to repairs and modernization

will be devoted to conventional weaponry. In 2007, the strategic forces will acquire 17 land and sea-based intercontinental ballistic missiles (ICBM) – a post-Soviet record, according to published information – finance the construction of three ballistic nuclear missile submarines and acquire new strategic bomber.

There is virtually no information on purchases of weaponry, for the air force and navy above all. Taking account of the high price of modern weapons systems, which one can estimate on the basis of export contracts, it is likely that the share of such purchases in absolute and relative terms is quite large.

It is interesting to compare NDP-2007 with the State Program of Armaments for 2007-2015 (SPA-2015). The latter allocates $190 billion, of which the Defence Ministry should provide $173.5 billion, including $109.2 billion. for the purchase of new arms and equipment at constant 2006 prices. This sets appropriations for arms and equipment in 2007 at 5.1% of the overall spending planned to 2015, or about half of the proportion that would have to be spent equally over the next eight years (11.1%) to match the forecast of SPA-2015. The gap between the relative percentage allocated to purchases of new arms and equipment is evident with 63% for SPA-2015 and just 47.9% for NDP-2007. These figures could be related to the tendency to reduce “inertial” purchases, i.e., the completion of long drawn-out projects, some dating to Soviet times and requiring repairs even before the completion of construction, and the simultaneous growth of “innovative” projects, i.e., the rising number of newly-acquired weapons systems. Indeed, it is clear that purchases of arms and equipment purchases is set to increase by 2010. The number of long drawn-out projects will be also be reduced by administrative action; for example, the fitting-out of the Project 949AM cruise-missile nuclear submarine at Sevmash was rejected in 2006 and not included in NDP-2007.

Finally, NDP-2007 marks the threshold of a new practice for the arms-procurement system: from 2008 the national defence procurement will be defined for a three-year period.

The tables below show only known purchases of arms and military equipment for the Russian armed forces, not including purchases for law enforcement and security agencies like the Interior Ministry, the Federal Security Service and others. Published orders for repairs and modernization are also included, but R&D contracts are not.

Industrial Policy

Source: Russian press

Figure �. Structure of the Russian Defence Budget in �005-�007

350

300

250

200

150

100

50

02005 2006 2007

112,0

11,8

62,8

115,5

48,5

72,7

145,0

60,0

97,7

New Purchases

Repair & Modernization

R&D

Billion rubles

Year

# 2, 2007 Moscow Defense Brief 5Russian Defence Procurement in �007

Industrial Policy

Table �. Strategic Nuclear ForcesName Number of units Notes Producer

New Purchases

Topol M ICBM 7 4 silo-based and 3 mobile Votkinskiy factory

Bulava R-30 SLBM N/A For testing Votkinskiy factory

Sineva R-29PMU SLBM N/A Probably 10, considering the quantity of Topol-M ordered out of the total of 17 ICBMs purchased this year. Other publications suggest 12

Krasnoyarsk Machine-building Factory

Table �. Space Forces

Name Number of units Cost per unit, million USD Notes Producer

New Purchases

Launch vehicle 4 N/A At least one launch, that of the Soyuz-2-1B, was observed in August-September 2007

Satellite 4 N/A Possibly to include one new generation missile attack warning satellite. Launch planned for the second half of 2007

GLONASS-M satellites 5 153.8 In 2007 six satellites, including one prepared in 2006, are planned to be placed in orbit

Reshetnev Scientific-Production Association

Cosmodromes development

- 69.2

Launch pad for the Angara launch vehicle (at Baikonur)

1 N/A Production began in 2006 Zvezdochka

Voronezh-DM radar station

1 57.7 Second station in a series. Built near Armavir, Krasnodar Region

Long-Range Radio Communications Research Institute (design), NPP Piramida (producer)

Table �. Air Forces

Name Number of units Notes Producer

New Purchases

Tu-160 strategic bomber 1 Construction was to finish by the end of 2006 Gorbunov KAPO

Su-34 front-line bomber 6 NDP-2007 allocates $65.3 million, though one unit costs $33 million Chkalov NAPO

Yak-130 advanced trainer 4 NAZ Sokol

Ka-50 attack helicopter 3 NDP-2007 allocates $57.7 million AAK Progress

Ka-52 attack helicopter 1 Pilot series AAK Progress

Mi-28N attack helicopter 5 Pilot series. VK-2500 engine for the first Mi-28N to be supplied by the Ukrainian Motor-Sich

Rostvertol

Ansat light helicopter 2-3 Perhaps for the Syzran aviation school Kazan Helicopter Plant

Tu-214 passenger aircraft 1 In a VIP version; could be handed over in 2008 Gorbunov KAPO

S-400 SAM system 1 batallion

Almaz-Antey Air Defence Concern

# 2, 2007 Moscow Defense Brief�Russian Defence Procurement in �007

Name Number of units Notes Producer

Repairs and Modernization

Tu-160 strategic bomber 2 Repairs expected to be completed by the end of 2007 Gorbunov KAPO

MiG-31B fighter interceptor N/A Modernized to MiG-31BM version; equipped with Zaslon-AM air-borne radar and LCDs

NAZ Sokol, MoD RF ARZ No. 514

Su-27 fighter 6–12 Modernization and modification of the Su-27SM; probably equipped wi th Al-31F-M1 engines. Work began in 2006 on 6 planes

Gagarin KnAAPO

Su-24M front-line bomber 12 Modernization and modification of the Su-24M2. MoD concluded a 3-years contract for the modernization of the Su-24M.

Chkalov NAPO

Su-25 attack aircraft 6 Modernization and modification of the Su-25SM RF MoD Aviation Repair Factory No. 121

Beriev A-50 AWACS N/A Increase flight range. Improve radar system to direct aviation to ground targets

Beriev TANTK

Tu-22M3 long-range bomber 1 Gorbunov KAPO

Il-76MD transport plane 1 Remotoring by PS-90A-76 engine. By 2006-2009 12 aircraft should be modernized

VASO, Perm Motor Plant

Mi-24P attack helicopter N/A Modernized to Mi-24PN version. Possibly began modernization to 24PM version.

Rostvertol

Table �. Navy

Project Name Cost per unit, million USD Notes Producer

New Purchases

Project 955 Borey SSBN Yuriy Dolgorukiy N/A Laid down in 1996, launched April 2007 Sevmash

Aleksandr Nevskiy N/A Laid down in 2004

Project 955A Borey SSBN Vladimir Monomakh N/A Laid down in 2006

Project 885 Yasen SSN Severodvinsk N/A Laid down in 1993

Project 971I Irbis SSN Nerpa N/A Begun in 1986. Might be destined for Indian Navy

Amur Shipyard

Project 677 Lada SSK Sankt-Petersburg N/A Undergoing testing; hand-over to Navy in 2007

Admiralty Shipyards

Kronshtadt N/A Laid down in 2004

Sevastopol N/A Laid down in 2006

Project 20380 corvette Steregushiy 192.3 Undergoing testing; hand-over to Navy in 2007

Northern Shipyards

Soobraznitel’niy 57.7-69.2 Laid down in 2003

Boykiy 69.2 Laid down in 2005

Stoykiy 69.2 Laid down in 2006

Sovershenniy 69.2 Laid down in 2006 Amur Shipyard

Project 11540 Yastreb frigate Yaroslav Mudriy 19.2 million to be

allocated in 2007

Laid down in 1988 Yantar’ Shipyard

Industrial Policy

# 2, 2007 Moscow Defense Brief 7Russian Defence Procurement in �007

Project Name Cost per unit, million USD Notes Producer

Project 22350 frigate Admiral Gorshkov 423.1 Laid down in 2006 Northern Shipyards

Proect 18280 intelligence ship

Yuriy Ivanov N/A Laid down in 2004

Project 11661K Gepard corvette

Dagestan N/A Laid down in 1992. Hand over to Navy in 2007

Zelenodol’sk Yard

Project 11711 landing ship Ivan Gren N/A Laid down in 2004 Yantar’

Project 12441U training ship Borodino N/A Former frigate Novik, laid down in 1997

Project 23100 rescue ship Igor’ Belousov N/A Laid down in 2005 Admiralty Shipyards

Project 20180 search and transport ship

Zvezdochka N/A Laid down in 2004 Zvezdochka

Project 21630 Buyan small gunboat

Kaspiysk 9.6 Laid down in 2005 Hand-over to Navy in 2007

Almaz

Makhachkala 9.6 Laid down in 2006

Project 02668 ocean minesweeper

Vice-Admiral Zakharin’ N/A Fitting-out, launched in 2006 Sredne-Nevskiy Shipyard

Project 21820 Dyugon fast-speed small landing ship

N/A 7.7 (lead ship)

Laid down in 2006 Volga SZ

Project 436 target ship N/A N/A Order received in 2005 Amur Shipyard

Repairs and Modernization

Project 11435 aircraft carrier Admiral Kuznetsov N/A SRZ-35

Project 667BDR SSBN Ryazan’ N/A Mid-life repairs and modernization Zvezdochka

Project 667BDR SSBN N/A N/A Probably two more ships. Mid-life repairs

Zvezda

Project 667BDRM SSBN Karelia N/A Mid-life repairs and modernization, begun in November 2006

Zvezdochka

Novomoskovsk N/A

Bryansk N/A Mid-life repairs and modernization. Work began in 2002

Project 949A SSGN Irkutsk N/A Repairs. Work began in 2001 Zvezda

Project 949A SSN Probably, Nizhniy Novgorod N/A Certification for repairs began in 2005 Nerpa SRZ

Project 971 SSN Pantera N/A Mid-life repairs Sea trials began in early 2007

Sevmash

Kashalot N/A Mid-life repairs. Work de facto began in 2005

Amur Shipyards

Project 671RTMK SSN Daniil Moskovskiy N/A Mid-life repairs Nerpa SRZ

Project 877 SSK Unknown N/A Mid-life repairs and modernization Amur Shipyards

Kaluga N/A Mid-life repairs and modernization since 2002

Zvezdochka

Project 641B SSK B-380 N/A Repairs since 1992 Lazarevskoe Admiral’teystvo (Sevastopol’)

Industrial Policy

# 2, 2007 Moscow Defense Brief�Russian Defence Procurement in �007

Project Name Cost per unit, million USD Notes Producer

Project 11442 nuclear-powered battlecruiser

Admiral Nakhimov N/A Deployment of reactor’s critical zone, replacement of anti-ship missile mount, replacement of electronic systems

Sevmash

Project 956 destroyer Burniy N/A Repair. Handed over to Navy in 2007 Zvezda

Rastoropniy N/A Mid-life repairs Northern Shipyard

Project 1155 destroyer Vice-Admiral Kulakov N/A Mid-life repairs and modernization Northern Shipyard

Admiral Levchenko N/A Mid-life repairs

Armament

- Moskit anti-ship missile N/A “Production volumes for the Russian Navy equal exports to China”

AAK Progress

Table 5. Land ForcesName Number of Units Notes Producer

New Purchases

T-90 main battle tank 31 Cost of one unit in January 2007 was app. $2.23 million

Uralvagonzavod

BMPT tank combat fire support vehicle A few vehicles Delivery of pre-production batch Uralvagonzavod

BMD-4 airborne infantry fighting vehicle

10 Volgograd Tractor Plant

BMP-3 infantry fighting vehicle N/A Possibly about 40, if NDP for Kurganmashzavod maintains 2006 levels

Kurganmashzavod

BTR-80 armoured pesonnel carrier About 100 Arzamas Machine-building Plant

Tipchak unmanned tactical aerial reconnaissance system

N/A Delivery of pre-production batch Vega Concern

Iskander-M TMD 3 batallions There are 4 launch systems for each batallion, with 16 missiles each batallion

Mashinostroenie Design Bureau

KamAZ truck About 2000 KamAZ

Repairs and Modernization

T-72 main battle tank 155 Modernization; probably the T-72B2 Rogatka configuration

Uralvagonzavod

T-80 main battle tank 31 Modernization Omsk Transport Machinebuilding Plant

BMD-3 airborne infantry fighting vehicle

N/A Modernized to BMD-4 configuration with Bakhcha-U fire system

Shchelgovskiy Val Istrument Design Bureau

Table �. Distribution of NDP-�007 by select regionsRegion Volume of NDP , million USD

Nizhniy Novgorod oblast’ 500

Samara oblast’ 180

Vladimir oblast’ 175–188

Ulyanovsk oblast’ 96–138

Primorskiy krai App. 40 million higher than NDP-2006

Industrial Policy

# 2, 2007 Moscow Defense Brief �Some Progress but No Clear Direction

for Russia’s Space Program in �00�

Russia’s Space Program in �00�: Some Progress but No Clear DirectionAndrey Ionin

Russian space officials have declared 2006 a good year, even though the program is still plagued by an obsolescent

industrial base, low wages averaging 12 thousand rubles (about $450) per month, and an aging workforce (46 years on average). They prefer to highlight the following:

Annual production of the space sector, which includes over 100 firms and 250,000 employees, rose by 14%, which is 3.5 times above average for Russian industry;

Russia remains the world leader in space launches for the seventh year in a row, with 25 in 2006, compared to just 18 for its closest competitor, the USA;

Although the Americans completed three of five planned Space Shuttle missions to the International Space Station, Russia once again made the most significant contribution;

Russia’s space industry firms have begun to be consolidated into holdings;

Russia has added new international partners like Brazil, Kazakhstan and South Korea, to established relationships with the US, France and other European states.According to Roskosmos, the national space agency,

Russia is in a dead heat with the US in piloted space navigation, and comes in a firm second if one takes into account the entirety of systems in orbit, launch sites and ground control centers. However, a critical examination points to a more complex state of affairs.

Piloted Space NavigationThe construction of the International Space Station (ISS)

was originally planned to have been completed in 2004, but the deadline was extended in 2006 to the end of the decade, and the eighth and last Russian module will be attached to the ISS as late as 2011. However, a more significant problem concerns the size of the crew. According to the original schedule, there should have been six resident crew by 2005 and ten at a later stage. There are presently 2-3 resident crew, and they are fully occupied with the task of maintaining their life support systems and the station itself, with no time left over for scientific experiments – the main purpose for which the ISS was created.

It is not at all clear how this problem can be solved, especially since the US plans to terminate the Space Shuttle

program by 2010. Perhaps, by that time, private firms will step into NASA’s role and design new vehicles for delivering cargo and astronauts to the ISS. Indeed, NASA held a tender worth $485 million for this purpose, in December 2005, and announced two winners in September 2006: SpaceX and Rocketplane Kistler, both US companies. Another solution would be for other ISS partners (US, Canada, Japan and the European Space Agency) to take up Russia’s suggestion and double the rate of production starting in 2009 of the Soyuz-TMA manned spaceship, at a cost of approximately $150-200 million per year. But since it takes over two years to build these ships, and since no additional funding has yet been secured, this option could make a difference only in 2010, by which time here would no longer be any need for new orbiting modules of the ISS. After all, who would work on them, and for how long?

Another, less urgent issue, concerns the terminal date of the ISS program. The station was originally intended to be used until 2015, though Russia announced in 2006 that this term could be extended until 2025. This is, perhaps, just a technical issue, but the fact is that the USA remains the principal investor in the ISS, and without their interest and active participation no further continuation of the program is possible. And American interest in the ISS, having decreased now for several years, reached a nadir in 2006. The new National Space Strategy signed by George Bush makes no mention of the ISS whatsoever.

Russia needs new partners now. But which project would be of interest to them? Yet another international station, a joint piloted lunar program, a journey to Mars? Or should Russia pursue an independent course, including a national, high-latitude space station or its own Mars program? In brief, there are many alternatives available, but Roskosmos has not set any priorities; and until they do so there will be no progress.

The same lack of clarity bedevils the development of a replacement for the reliable, but obsolete, Soyuz spaceship. By the end of 2005, Roskosmos launched a competition to create a manned re-usable spaceship – a largely unexpected move, since the consensus for almost two years had been that Roskosmos was set on developing the Clipper reusable manned spacecraft, designed by the Rocket and Space Corporation Energia.

The submission of three competing designs and the competition itself all took place rather quickly: the results

Industrial Policy

# 2, 2007 Moscow Defense Brief�0

Industrial Policy

Some Progress but No Clear Direction for Russia’s Space Program in �00�

were to be announced on 3 February 2006 and a contract to begin work to be signed 20 days later. However, the declaration of results was postponed by six months, and then annulled. The official explanation for the Clipper’s failure was the lack of a national launch vehicle capable of putting a spaceship weighing at least 14 tones into orbit (the Russo-Ukrainian Zenit was considered unacceptable for political reasons). Similarly, the Clipper had no clear function in the Federal Space Program. But this was all-too clear long beforehand, so the only mystery concerns why the tender had to be held in the first place.

In the end, one might argue that the most illogical decision was taken: to continue the program of the deep modernization of the Soyuz launch vehicle (project Soyuz 2-3), to meet the requirements of the European Space Agency, which apparently now remains the main investor in this program. Under this scheme the development of a new spaceship (perhaps even that very same Clipper) could begin no earlier than 2012, the date by which the Clipper should already have made its first flight.

Turning to the market of space tourism, all seems well, at least at first glance. Russia enjoys a monopoly on this market, and a long list of clients that have signed up for flights to 2009, even though the price of a tour has been raised from $20 to $25 million. However, in spite of all of its natural advantages, including world-beating positions in biomedicine and rocket technologies, Russia is losing its chance to become a leader in the growing market of sub-orbital space tourism. Two American projects have taken the lead over their peers: the nine-seat SpaceShipTwo by Virgin Galactic and the six-seat Dream Chaser by SpaceDev. The inaugural flight of SpaceShipTwo is scheduled for 2008. Ticket prices start at $200,000 per head, and will decrease to $25,000 over the course of the planned decade of service. Bigelow Aerospace has even launched a space hotel project: a prototype was successfully placed in orbit by a Russian-Ukrainian Dnepr launch vehicle in July 2006. This market is not sitting still: NASA recently announced it will join forces with Virgin Galactic on a feasibility study of supersonic rockets that could take passengers form London to New York in less than two hours.

For its part, Roskosmos makes the excuse that the risks of this business are too high, and would require extraordinary insurance schemes. Everything must be checked and re-checked a thousand times, they say, and flippancy and adventurism are severely punished in space. Indeed, suborbital tourism carries its own risks and these must be dealt with, but who is in a better position to overcome these challenges than Russia, with its knowledge and experience in manned space-flight?

In any case, there was no articulation in 2006 of any kind of vision for manned programs. Inertia alone is guiding developments, and the future of the program is far from clear.

Program on Sector RestructuringThe rocket and space industry began a process of

restructuring in 2006. In July, the Russian government examined a Roskosmos program for the development of the sector to 2015. The program paints a rosy picture for the Russian space industry: for example, average annual growth for production is forecast at 8%, and the share of rocket and space technology meeting world standards is projected to grow from the current 41% to 100% during the same period.

Integration is seen as the means of reaching strategic goals. Holdings are to be formed along functional lines, as a few select large firms will absorb their suppliers and related enterprises. The transformation will take place in several steps. The first involves the incorporation of joint-stock companies, though no deadline for this process has been set. The second step, due to conclude by 2010, involves the establishment of holdings, and by 2015 the number of holdings will be consolidated to just three or four. State financing is not set to increase, but should remain within the range of existing federal programs. Foreign partners are not to participate in the formation of the holdings. This program is clearly distinct from the programs adopted for other sectors of the military-industrial complex where, for example, the formation of a single integrated structure is envisaged for each of the aviation and shipbuilding sectors.

The program has not yet been approved, but the creation of holdings has already begun:

The Khrunichev State Research and Production Space Center will be the core entity of a holding for the development of heavy-lift launch vehicles;

The Reshetnev NPO PM will be the core entity of the “Data Satellite Systems” holding for the development of communications and navigation satellites;

The Russian Institute of Space Device Engineering Science and Research Institute will be the core entity of the Russian Rocket and Space Device Engineering and Information Systems holding, and other holdings as well.There is little to suggest, however, that the formation

of these holdings will yield any long-term competitive advantages, and that bodes ill for their effectiveness on the global space market. Moreover, the level of corporate risk and the distortion effects of production monopolies are sure to increase. A successful restructuring strategy would rather adhere to the following principles:

1. The principle of “vertical integration” should guide the merger of space sector enterprises. Holdings should integrate not suppliers and related enterprises, which has no bearing on efficiency or competitiveness, but key elements of the market cycle: launch vehicles, satellites, operating services, and so on. Indeed, this is precisely how all global leaders

# 2, 2007 Moscow Defense Brief ��

in the space sector have been structured, from Lockheed Martin and Boeing to the European EADS.

2. The formation of space holdings should avoid the temptation of maximizing the share of domestically produced components. This is not an effective strategy for the modern market; where, in order to reduce delays and lower production risks, to increase the competitiveness of production and to concentrate the holding’s scarce resources on the development of key competencies, the share of foreign production should, in fact, be maximized. Following what as long become standard practice abroad, stocks of “external” components should be maintained through just-in-time production contracts, while domestic production should be expanded, as required, through transfers of licenses and technical documentation.

3. The process of restructuring should not strictly follow sectoral boundaries. A holding is unable to minimize corporate risks and diversify high technology production if it remains bound to just one military-industrial sector. Especially since the space sector is characterized by extremely high risks, space production as a share of total production should be no higher than 20-25% for a multi-sector holding. In other words, the “vertically-integrated” space enterprises should join with larger military-industrial holdings as junior partners, as is the case with such various companies as Lockheed Martin, Boeing, EADS and Saab.

4. The question of foreign participation in the ownership of space enterprises should be revisited, insofar as the creation of large multi-sector holdings will in itself facilitate control over strategic Russian assets and technologies. The broad purpose of such international cooperation should be not only to increase production, but to secure Russian access to new technologies, including the management of high technology projects, access to new markets, and the establishment of strategic alliances. Indeed, if Russia hopes to become an equal partner to Western high-tech companies like EADS, then where is the logic in shutting them out of our markets? Regulated access to our space enterprises and technologies should be used to leverage Russian participation in their production programs and structures.

The Choice of CosmodromesRussian authorities have not established a clear position

on how many cosmodromes are required, and where they should be located. A new federal targeted program for the development of Russian cosmodromes from 2006-2015 was adopted in 2005. At that time, of the two cosmodromes in service – Plesetsk, in Archangelsk oblast (in Northern Russia), and Svobodniy, in the Amur oblast (on Far East), only the first was to be maintained. However, then Defence

Minister Sergey Ivanov made a point of saying that the Russian Space Forces would not pull out of Svobodniy.

Nevertheless, in February 2007, President Putin signed a decree liquidating Svobodniy, which, founded in 1996, had served a mere eleven years. At the same time, Roskosmos noted the necessity for establishing yet another cosmodrome, probably the Kapustin Yar missile testing range in Astrakhan oblast (in South Russia), to take over manned launches from Baikonur. In this case Baikonur would be used exclusively for international commercial projects with Russian participation. But then why should Russia have signed a lease to 2050, given the fact that Baikonur, from a purely commercial point of view, is among the least competitive cosmodromes in the world? The Alkantara spaceport would seem much more suitable, but Russia’s space relations with Brazil have not yet reached that level. Russian participation is limited to important, but private contracts to upgrade the technical and commercial parameters of the Brazilian VLS-1 launch vehicle.

The decision to close Svobodniy runs counter to the government’s policy to develop the Far East, not to mention regional trends in the space sector. The Pacific is an area of high growth. Russia’s participation in China’s ambitious and fast developing program is well below potential. Japan is looking to move ahead. South Korea, with Russian assistance, is about to establish its first space launch vehicle and construct its first cosmodrome. Indonesia, together with the Makeyev Design Bureau, is developing an aerospace “airborne launch” system. But rather than reorient Svobodniy to take advantage of these strategic regional developments, they decided to close the base.

ConclusionsThe list of overdue decisions and contradictory policies

with long-term implications for Russia’s space sector could be extended. Why should this be the case? At first glance, it would seem that the sector has everything necessary for sustained and even rapid development. Space programs enjoy broad support in society, the attention of legislative and executive authorities, as well as positive coverage in the media and the expert community. State procurement is growing at a steady clip: the budget for the Federal Space Program in 2007 reached 24.4 billion rubles (942 millions USD) , which is three times higher than in 2002.

Perhaps the main problem is the absence of any concrete strategy for the development of the Russian space industry. This was hardly understandable several years ago, when the dearth of funding precluded any kind of strategy other than mere survival. But while the funding situation has changed in a cardinal manner over the past few years, there have been no new ideas to match.

Industrial Policy

Some Progress but No Clear Direction for Russia’s Space Program in �00�

# 2, 2007 Moscow Defense Brief��Some Progress but No Clear Direction

for Russia’s Space Program in �00�

A new Russian space strategy is necessary to drive development forward, and it should answer the following key questions. What benefits should Russia derive from a national space program? How will the space program benefit ordinary Russians, Russian businesses and government agencies, including those in charge of national security? What projects should the national space program focus on, and what project should be excluded? To what extent should the program participate in the global space market? Where should the line be drawn between national security and commercial space projects? Who should Russia take on as strategic partners? Does Russia need a large-scale space project? Should it pursue this project on its own or with international partners?

Industrial Policy

The USA published its fifth National Space Strategy in October 2006, which articulates the needs of American society as priorities for the national space program. This is clearly the correct approach, as the US taxpayer foots the bill for the majority of American space production. In this manner, the space policy serves to set long-term goals and allows society to exercise some oversight over the space bureaucracy, and NASA in particular.

Similarly, a Russian space policy would help to establish strategic goals and provide society with some say in how they are pursued. After all, since the bulk of the sector’s assets are owned by the state, Russian society is the main investor in the federal space programs and the main shareholder of the national space industry.

# 2, 2007 Moscow Defense Brief ��Russian Anti-Armour Weapons and Israeli Tanks in Lebanon

War And People

Russian Anti-Armour Weapons and Israeli Tanks in LebanonMikhail Barabanov

The military conflict that unfolded from 12 July – 14 August, 2006 between Israel and the Hezbollah, the

Lebanese Shiite Islamist Resistance group, marked the first time in several years that the Israeli army has confronted a well equipped opponent in a large-scale confrontation. Military observers paid particular attention to the use of Israeli armour and the outcome of battles between Israeli main battle tanks and Hezbollah’s anti-tank weaponry.

All in all, four division headquarters and 17 Israeli Army brigades (six armoured, seven infantry and four airborne) took part in battle, though not all were up to full combat strength. Over 30,000 Israeli servicemen and up to 400 main battle tanks were directly engaged in battle on Lebanese soil, and the tanks were all Merkava models made in Israel. Of the six armoured brigades, two brigades (7th and 847th) were equipped with the Merkava Mk 2 model, three brigades (188th, 434th and 673rd) with the Merkava Mk 3 model, and one brigade (401st) with the most advanced Merkava Mk 4 model. Of the seven infantry brigades, two (1st and 609th) were equipped with Achzarit heavy armoured personnel carriers, converted from Soviet T-55 tanks seized from Arab forces in the wars of 1967 and 1973.

Since 2000, Hezbollah has turned the expanse between the Israeli border and the Litani river into a heavily fortified line of defence, known as “Nasser.” Practically every settlement was equipped with temporary or permanent fortifications (including concrete bunkers, steel doors, etc), a large number of underground tunnels and heavy camouflage. However, although Hezbollah fighters made use of these fortifications, they did not engage in positional warfare, but mounted mobile military operations. Fighters were mobilized in groups of no more than 20 people (often just five or six), based, as a rule, on detachments of anti-tank missile systems. It appears their strategy was to expose the advancing Israeli units, and tank units in particular, to guided anti-tank missiles fired at a fairly long range, often changing their positions, using a network of tunnels and bunkers.

Hezbollah deployed up to 2500 fighters, of which a core of a thousand “regular” troops were well trained and equipped to the best western standards. These zealous, professional fighters were well supplied with arms, and strictly followed orders. One could not say that Israel was fighting with “partisan” formations in the conventional sense of the term, but in reality with a well equipped and organized

regular army, even if it displayed some peculiar methods of warfare.

Hezbollah made a special effort to confront Israeli armour with a huge number of anti-tank weapons, including the Soviet Malyutka anti-tank guided-missile complex (NATO code AT-3) with 9M14 series guided-missiles (including licensed Yugoslav versions and the Iranian Raad and Raad-2T tandem warhead “clones,” the Fagot (AT-5), Konkurs (AT-5, including the licensed Iranian Towsan-1 version), the French MILAN, the American TOW (including its Iranian Toophan and tandem warhead Toophan-2 copy), recoilless guns and several versions of the Soviet RPG-7 hand-held anti-tank grenade launcher. Iran and Syria were the main suppliers of these weapons, with some western systems apparently reaching the Shiites from the arsenal of the Lebanese Army.

Aside from that, Hezbollah used a small number of modern 9K115-2 Metis-M (AT-13) and 9K129 Kornet-E (AT-14) portable anti-tank guided-missile systems, and RPG-29 Vampir anti-tank rocket launchers, delivered by Russia to Syria in 1998-1999. These three new systems penetrated armour exceptionally well thanks to their tandem High-Explosive Anti-Tank (HEAT) warheads. The close-range Metis-M system have a range of up to 1500 meters and are armed with 9M131 guided-missiles weighing 13.8 kg with wire-guidance. The heavier Kornet-E fires 9M133 laser-guided missiles weighing 29 kg up to 5500 meters. Both systems are made by the Tula Instrument Design Bureau and were equipped with 1PN86V1 Mulat thermal sights. The hand-held RPG-29 Vampir anti-tank rocket launcher is one of the latest products of Moscow-based Basalt. Weighing 11.5 kg, it fires rocket-propelled grenades that weigh 6.2 kg up to 500 metres from a telescopic pipe.

Hezbollah’s defences were structured around these anti-tank weapons, which were used in great numbers. According to Israeli estimates, the fighters launched over 500 anti-tank guided-missiles in July alone, and about 1000 through the course of the conflict. Moreover, the anti-tank guided-missiles were used not only against armoured objects, but also against Israeli infantry. The fighters sought generally to employ the weapons from the maximum possible range.

On the whole, both the scale of Hezbollah’s use of anti-tank systems, as well as their possession of modern systems with superior armour penetration capability, came as a surprise to the Israeli command. Nevertheless, measures to reduce losses of armour were taken from the very beginning.

# 2, 2007 Moscow Defense Brief��Russian Anti-Armour Weapons and Israeli Tanks in Lebanon

War And People

It is indicative that on Lebanese territory the Israelis used only their heavily protected APCs on main battle tank chassis: the Achazarit (on the T-55 chassis), the Nagmahon, a few of Nemerah prototypes(on the Merkava chassis), the Puma combat engineering vehicle and the Nakpadon, all based on the old British Centurion tank chassis, while the standard M113 APCs, even those modernized with a great deal of extra protection, where hardly used at all, and then only as engineering, support and convoy vehicles.

According to various Israeli and Western sources, during the course of battle in Lebanon, between 46 and 50 Merkava main battle tanks (of the 400 deployed) and 14 APCs were hit by anti-tank weapons, including 22 incidents where tank armour and 5 cases where APC armour was penetrated. Another six tanks and at least one APC were blown up by mines and IDEs.

Of those tanks hit by anti-tank weapons, 18 were the newest Merkava Mk 4 version (from the 401st armoured brigade), and six of these had their armour penetrated. Twenty-three tank and five APC crew members were killed. A large number of anti-tank guide-missiles and RPG grenades hit the tanks, but in most cases these did little damage. It was reported that one of the Merkava Mk 4 tanks survived 23 hits from anti-tank guided-missiles before it was finally disabled and its armour penetrated. All penetrations of Merkava armour, according to Israeli statements, were achieved by the Konkurs, Metis-M and Kornet-E anti-tank guided-missiles, and the RPG-29 rocket-propelled grenades. If one considers that 22 of 50 tanks had their armour penetrated, that gives a penetration rate of 44% (and only 33% for the Merkava Mk 4). According to Israeli Army statistics, the penetration rate for tanks during the 1982 Lebanon War was 47%, and 60% during the 1973 War. The crew casualties rate was also much higher in 2006 at 0.5 crew member for each damaged tank, while the rate per disabled tank in 1973 War is one full crew member.

The number of irrecoverable tank losses among those damaged, according to recent Israeli publications, was five altogether, of which two (a Merkava Mk 2 and Mk 4) were destroyed by IDEs and three tanks were completely burned out after hits by guided anti-tank guided-missiles. This attests to the high degree of protection afforded by the most modern Merkava Mk 4 tanks, which could be damaged only by the most modern anti-tank weapons with powerful tandem HEAT warheads hitting, it would seem, weakened armoured zones.

The extremely low percentage of missile hits and the low percentage of armour penetration clearly shows that the vast majority of anti-tank guided-missiles were of the old type, most likely the completely obsolete Malyutka (and its many copies), with clumsy guidance systems (manual, on the oldest models), with no modern sights and a relatively small warhead, by modern standards.

It appears that non-modernized second generation anti-tank guided-missiles produced in the 1970s (Fagot, Konkurs, MILAN, TOW) were used in battle. The Kornet-E and Metis-M systems, with their much higher level of effectiveness, were clearly present in very small numbers, but accounted for the majority of Israeli losses. This allows one to conclude that Israel made an issue of the possession of these new systems by Hezbollah mostly for political, rather than strictly military, reasons. On the other hand, if Hezbollah had a large number of Kornet-E and Metis-M systems, the Israeli tank attack in Lebanon could have been completely repelled. Modern Russian weapons proved to be quite effective against the newest Western equipment.

The old types of anti-tank guided-missile systems have shown themselves to be extremely ineffective. And since the majority of anti-tank forces in the world are equipped with precisely this old generation of missile systems, the results of recent warfare in Lebanon should sound an alarm, and provoke considered reflection regarding the purchase of modern anti-tank weapons, such as the Kornet-E.

Nevertheless, from their experience in Lebanon the Israelis themselves concluded that armour itself cannot in principle provide full protection from anti-tank guided-missile systems, and that all of their tanks would be equipped with active protection systems such as the Rafael Trophy and the IMI Iron Fist systems.

They decided in early 2007 to equip the entire fleet of Merkava tanks and the Nemerah APCs yet to be built with Trophy active protection systems by the end of 2008. Passive electronic countermeasures are also now held in high regard. Apparently, none of the four tanks equipped with experimental electronic countermeasures system was hit by even a single anti-tank guided-missile.

However, the importance of heavy “conventional” armour (including explosive reactive armour suites) was also proven on the battlefield, and the Israelis decided to continue the production of Merkava Mk 4 main battle tanks, and to launch the serial production of heavily armoured Nemerah APCs on the chassis of these tanks. Two hundred such vehicles have been ordered.

Thus, the war in Lebanon has proven the Soviet and Russian approach to the development of protection for main battle tanks, as established in the 1970s, to be very well. In the 1980s the USSR created the first comprehensive passive (Shtora) and active (Drozd, Arena) protection systems, which are still being developed today. Israel and the West are only now catching up to Russia. Meanwhile, we can see that the newest Western tanks (included the well-protected Merkava) burn up when hit by modern anti-tank weapons in just the same way as the old Soviet T-72 tanks deployed in Chechnya and Iraq.

Russia avoided the Western fashion of dismissing heavy armour and explosive reactive armour as “unnecessary” and continued to develop a balanced configuration of armour,

# 2, 2007 Moscow Defense Brief �5Russian Anti-Armour Weapons and Israeli Tanks in Lebanon

War And People

including detachable and built-in protection, and in this turned out to be justified. The Lebanese conflict of 2006 and the war in Iraq have once again proven allegations of the obsolescence of the main battle tank to be absurd. The modern MBT with its powerful heavy armour and large combat weight will continue for some time as the core of the land forces.

As for the tactical application of armour troops, it is clear that the Israelis used their tanks in small groups almost exclusively for immediate support of line infantry. It was precisely this well equipped and trained infantry that played the decisive role in battle. Attempts to use armour troops to achieve a breakthrough without infantry support and reconnaissance inevitably led to senseless losses, as befell the forces of the 401st Israeli armoured brigade at Vadi Saluki on 9 August.

The tank battalion of this brigade, pushing forward with no infantry, fell into a fire trap of anti-tank guided-missile systems (mostly Kornet-E, according to Israeli sources), losing eleven Mk 4 Merkava tanks damaged and eight crew killed, including the battalion commander. The Israeli armour troops were clearly not well prepared for action against modern anti-tank weapons.

On the Israeli side, it is also clear that the armoured reserve units were insufficiently prepared, especially in the use of countermeasures (smoke screens, advancing fire to disturb aiming, reverse gear withdrawal, etc). As such, the quality of the training of the armour troops and the ability of the commanders to effectively combine tanks and other forces remain the key elements for the successful use of main battle tanks on the field.

# 2, 2007 Moscow Defense Brief��Russia on the Arms Market in �00�

Arms Trade

The year 2006 was Russia’s most successful on the arms market in the post-Soviet period. Records were set

in each of the four principal categories used to measure developments in the industry:

Value of executed transfers. The total price tag on good delivered amounted to $6.46 billion, up $334 million from $6.126 billion in 2005;

Volume of payments received. Revenues peaked at $8 billion, according to official figures. Data on currency receipts are not always published; for example, official figures are not publically available for 2005, the last data known is $6 bln in 2004;

The value of signed contracts, the most significant indicator, reached an unprecedented $14 billion, over twice the previous record of $6 billion set in 2004;

The current backlog of orders has reached an unprecedented $30 billion, more than double the figure at the close of 2005.The most important events of the year were the signing

of a grandiose $7.5 billion Algerian package transaction, which included writing off $4.7 billion worth Algerian debt, together with a series of contracts entered into with Venezuela. These two major deals created a qualitative shift in the structure of Russian arms exports. Previously, 70-80%

Russia on the Arms Market in �00�Konstantin Makienko, Dmitry Vasiliev

of exports went to just two countries: China and India. Now, beginning with 2007, the geographic distribution of deliveries is more balanced, with Russia boasting as many as five major clients: China, India, Algeria, Venezuela and Malaysia.

ContractsContracts worth $14 billion were signed in 2006,

which is an absolute record not just for the post-Soviet era, but probably for the whole modern history of Russia, including the Soviet period as well. In spite of the fact that it enjoys a quasi-monopoly on arms exports from Russia, Rosoboronexport accounted for just 64% of new contracts, while the independent arms exporters accounted for over one third (36% or $5 billion) of the value of new contracts.

Algeria was the indubitable leader in purchases of Rusisan arms in 2006. During President Putin’s visit in March, a grandiose package transaction worth $7.5 billion was signed (see table 1). The agreement included the forgiveness of a $4.7 billion debt to Russia. Russia’s Finance Ministry objected, but Putin’s personal intervention saved the deal, which could be characterized as the conversion of bad Algerian debt for the purchase of Russian arms.

Table �. Structure of the Algerian packageSystem Producer and Design Engineer Number Cost Notes

Su-30MKA fighter Sukhoi Corporation, Irkut Corporation

28 $1.5 billion Design based on Indian Su-30MKI and Malaysian Su-30MKM

MiG-29SMT/UBT fighter MiG 34 $1.8 billion Contract includes trade-in of Algerian MiG-29

Yak-130 advanced trainer Yakovlev Design Bureau, Irkut 16 $200 million First export contract of Yak-130

S-300PMU-2 (SA-20) SAM system Almaz-Antey Concern 8 batallions About $1 billion

T-90S main battle tank Uralvagonzavod 180 Up to $1 billion Other sources indicate 300 tanks

Pantsir-S1 (SA-22) air-defence gun-missile system

Tula Instrument Design Bureau 38 $600 million

Project 636 conventional submarine Rubin Design Bureau, Admiralty Shipyards

2 Probably $600 million

Repair and modernization of T-72 main battle tanks, BMP-2 AIFV, Project 877EKM submarines, surface warships

# 2, 2007 Moscow Defense Brief �7Russia on the Arms Market in �00�

Arms Trade

In June, during Venezuelan President Hugo Chavez’s visit to Moscow, contracts valued at over $3 billion were disclosed. Although the Venezuelan package is smaller than the Algerian, the two have much in common. First, both are considerably larger than the usual Russian export deal. Only the program for the licensed production of the Su-30MKI by India of probably $3.5 billion can compare. Second, both deals expand the traditional geographic sphere of major Russian importers, which to date has been limited essentially to China and India. And while Algeria, though it has not been a significant customer of Russian arms, did indeed import large volumes of arms from the Soviet Union, Venezuela was not a Russian arms client before this year. Third, each package contained a wide range of items, including weapons for the air force, army and very likely for the naval and air defense forces.

Russia’s traditional customers also placed large orders for arms and military equipment. China purchased a new batch of 8 batallions of S-300PMU-2 (SA-20) SAMs for $1 billion in addition to the eight batallions ordered in 2004. India signed a contract worth $1.6 billion for three new Project 11356M frigates in addition to those ships of the same class received by the Navy in 2002 and 2003. Vietnam acquired two Project 11161 Gepard-3.9 class light frigates and one Bastion (SS-N-26/SSC-5) stationary shore-based anti-ship missile system.

The overall backlog of orders reached $30 billion by the end of 2006, of which the official state arms-trading

company Rosoboronexport accounts for only $18 billion. The independent arms exporters account for $12 billion worth of contracts, primarily MiG Corporation (at least $2.5 billion at the end of 2006 and $4.5 billion as of March 2007) and the Tula Instrument Design Bureau ($4 - $4.5 billion). The composition of the national backlog as a whole is not known, but Rosoboronexport’s portfolio is made up of arms and equipment for air (42.5%), sea (23%), air defense (22%), and land forces (9%), with the remaining 3.5% for other products.

The Algerian and Venezuelan deals signal a qualitative shift in Russia’s position on the international arms market. Russia has moved beyond the plain commercial sale of individual types of arms that characterized its trade in the 1990s, to more complex, political arrangements with better heeled customers for comprehensive packages that meet their their defense and security needs. Very few states are capable of providing this kind of dependable and long-term security, and it seems clear that Russia has joined this club, along with the US, UK and France, just two or three years ago. Indeed, Venezula was looking for a comprehensive security package in 2002, but at that time Moscow decided against dealing with a regime rallying against the US. Four years later, Russia is more sure of its ability to develop military-technical relations with Carracas in spite of Washington’s disapproval and the inevitable application of State Department sanctions.

Important arms buyers now see Russia as a power at least the equal of France or the UK. Indeed, as distinct from

Table �. Structure of the Venezuelan ordersSystem Number Cost Producer and Design Engineer

Confirmed Contracts

Su-30MK2V fighter 24 $1.5 billion* Sukhoi Corporation

Mi-17 transport helicopter 3 $26 million Mil Moscow Helicopter Plant, Kazan Helicopter Plant

Transport and attack helicopters 6 Mi-17, 3 Mi-35M, 1 Mi-26

$120 million Mil Moscow Helicopter Plant, Kazan Helicopter Plant, Rostvertol

Attack helicopters 5 Mi-35M $81 million Mil Moscow Helicopter Plant, Rostvertol

Attack and transport helicopters 2 Mi-35, 2 Mi-26, 34 Mi-17

$484 million Mil Moscow Helicopter Plant, Rostvertol

AK-103 assault rifles 100 000 $54 million

Factory to producce AK-103, factory to produce 7.62 mm ammunition

$474.6 million

Possible and Future Contracts

Tor-M1 (SA-15) air defense missile system

12 $290 million Kupol

An-74 transport plane 6 $72 million Antonov ASTC, Omsk Polyot

Project 677E Amur conventional submarine

2 $600 million* Rubin Design Bureau

*estimate

# 2, 2007 Moscow Defense Brief��

Arms Trade

Russia on the Arms Market in �00�

China, which has practically no alternative supplier aside from Russia, both Algeria and Venezuela could have easily turned to European exporters to satisfy the majority of their needs. In this manner, a positive dynamic of political factors is compensating for the innovational, technological and commercial problems plaguing Russia’s defense industry. These include the increasing obsolescence of Soviet-era technology, the saturation of the Chinese market and the growth of competition on the Indian. However, the stable growth of delivery volumes and, more importantly, the growing value of contracts, suggest that Russia’s growing political and economic clout continues to balance out these negative tendencies. The value of Russia’s brand is growing, and is being successfully converted into new arms deals.

DeliveriesThe structure of Russia’s arms trade resumed its

traditional pattern in 2006, with aviation deliveries accounting for about half of all exports. Naval deliveries took the lead in 2005, but this was due to the substantial delivery of submarines and a destroyer to China. Meanwhile, there were no deliveries of heavy fighters, a traditional mainstay of Russian arms exports. Aviation deliveries returned to “normal” in 2006, at 49.9% of total exports, with 27.3% for naval deliveries, 11.4% for land forces and 9.2% for air defense. On the whole, the composition of deliveries was similar to that of 2004 (see figure 1).

The geographic distribution of deliveries has also changed. The share of the “big two” customers of Russian

arms – China and India – fell from 74% to 62% over one year, while the share of the Middle East and North Africa grew to 22%, due largely to the Algerian package. Latin America accounts for the most significant jump – from 0.5% to 7.7% of total exports – thanks to Venezuelan purchases of fighers and helicopters. In all, Russia exported arms to 64 countries, compared to 61 in 2005 and 57 in 2004.

Rosoboronexport delivered $5.3 billion worth of arms in 2006 (up slightly from $5.23 billion in 2005), accounting for 82% of all Russian deliveries. Deliveries from MiG Corporation grew substantially from $306 million to $390 million, as did those from the Tula Instrument Design Bureau (from $230 million to about $320 million).

Independent exporters, including the Reutov Machine-Building Scientific & Production Organization and the Kolomna Machine-Building Design Bureau accounted for 12.6% of deliveries worth $814 million. The 18 Russian companies licensed to export spare parts delivered $350 million worth of goods, or 5.4% of total deliveries, up 16.7% from the year before. Sukhoy Corporation was the leader with $235 million, with Salyut and Admiralty Shipyards in second and third place with $50 million and $23 million respectively.

The largest transfers last year were deliveries of Su-30 fighters, together with kits for their licensed assembly. Two Su-30MK2V fighters were delivered to Venezuela, and between 13 to 15 kits for the assemble Su-30MKI fighters were delivered to India’s HAL Corporation, according to the terms of the 2000 contract for the licensed production of 140 fighters in India. Two MiG-29SMT fighters and two MiG-29UBT twin-seat fighters were delivered to Algeria. The

Figure �. Composition of Russian arms deliveries �00�-�00�

2005 2006 20070

20%

40%

60%

80%

100%

60,1

18,8

12,9

5,8

2,4

33,5

48,1

10,1

5,1

3,2

49,4

27,3

11,4

9,2

2,2Misc. Equipment

Air Defense Systems

Land Forces

Naval Forces

Air Forces

Year

# 2, 2007 Moscow Defense Brief ��Russia on the Arms Market in �00�

Arms Trade

fact that the deliveries of Su-30MK2V fighters to Venezuela began just 4 months after the contract was signed suggests that the Komsomolskiy factory, which was largely idle in 2005, remains in good working condition. MiG Corporation was also in good form, disproving sceptics who thought it was not capable of producing new multirole aircrafts.

As usual, Russia’s helicopter plants had a good year, producing 90 aircraft, including 70 Mi-8/17 helicopters (in several different versions), with the majority going to foreign customers, first of all Venezuela and China. The Moscow Salyut and the Ufa engine building production associations continued to work on two large Chinese orders for 280 AL-31F/FN turbofan engines for the Su-27SK fighters, the Su-30 fighters and the national J-10 fighters.

In the sphere of naval armaments, Russia transferred a second Project 956EM destroyer to the PLAN for $700 million and one (last) Project 636M Kilo-class submarine to the PLAN for a probable $250 million. The transfer to Iran of 29 Tor-M1 (SA-15) SAMs, including 12 towed systems, was the most sensational delivery. The Islamic Republic became the

first recipient of this lighter and less expensive system which promises to remain in high demand.

Preliminary forecast for �007According to the Federal Agency for Military Technical

Cooperation, Russia will export over $7 billion worth of arms in 2007. Mikhail Dmitriev estimates that 75% of this total, or $5.5 billion, will be exported by Rosoboronexport. The past few years have shown these estimates to err on the conservative side, with actual deliveries consistently turning out higher than predicted. In view of the large expected transfers of Su-30 fighters to Malaysia (between 9 and 12 planes), Venezuela (at least 10 planes), Algeria (8-10 planes) and India (15-20 planes, include kits), one might expect the value of deliveries for the current year to reach something in the order of $7.3 - $7.5 billion at current prices. A high volume of deliveries will also be supported by the transfer to China of S-300PMU-2 (SA-20) SAMs, as per the contract signed in 2004.

Figure �. Geographical distribution of Russian arms exports, by regions

Principal partners: Asia: India, China, Vietnam and South Korea; Middle East and North Africa: Algeria; Latin America: Venezuela and Mexico; Europe: Greece; CIS: Azerbaijan, Armenia, Belarus’ and Uzbekistan.

Misc. countries 0,4%CIS 1,1%

Europe 3,8%

Latin America 7,7%

Middle East and North Africa 21,7%

Asia 65,3%

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The Multipolarity Trap: How Russia Should Make Friends… and With Whom?

The Multipolarity Trap: How Russia Should Make Friends…and With Whom?On Russia’s Foreign Policy OrientationVladimir Frolov, Andrey Seregin

The problem of identifying Russia’s potential allies in the global arena is made all the more difficult by the

absence of any domestic consensus regarding Russia’s chief foreign policy goals. The MFA seeks to diversify Moscow’s international economic and political relations, but the tactical emphasis placed thus far on energy policy does not fully account for the strategic goal of supporting stable relations with Russia’s key foreign policy partners and neighbors.

Clearly, the system of international relations is on the verge of a profound change, arising from the forced (and perhaps long-term) retrenchment of the hegemonic reach of the USA; its eventual withdrawal from Iraq and Afghanistan, along with attempts to shift responsibility for the fate of the world on to other centers of power, etc.

For over 50 years US hegemony has distorted international relations to such an extent that America has become the main focus of the foreign policy orientation of the vast majority of states. And no matter how prominent alternative centers of power may appear, the architecture of international relations is still based primarily on the “vertical” principle. States are not free to act on a purely “horizontal” basis among themselves, but are always looking up to Washington. A weakening of American hegemony thus entails a sharpening of “horizontal” competition in certain regions leading to a marked weakening of stability.

At the urging of the Russian President and foreign policy leaders, Russia has sought to weaken the hegemony of the USA and foster an equitable and genuinely multipolar world order. But an ad hoc policy of “multipolarity” will not lead inevitably to the just and stable multipolar world order that Russia, China and India, among others, are striving for. There are several issues that need to be addressed by Russian foreign policy, first among which concerns the choice of partners and allies.

Pragmatism or Idealism?Russia’s foreign policy has acquired a pragmatic (some

would say mercantile) character over the past few years. It provides support to Russian exports with the aim of

increasing the nation’s foreign policy capacity, making full use of Russia’s competitive advantage, particularly in the area of fuel and energy.

This policy has borne fruit in Gazprom’s impressive capitalization of over $300 billion, making it the world’s third largest company after Exxon-Mobil ($392.94 billion) and General Electric ($355 billion). The stated goal of Gazprom chairman and First Deputy Prime Minister Dmitry Medvedev to reach the level of $1 trillion seems realistic. In this area the goals and tasks of Russia’ foreign policy are clear and understandable, and the policy of establishing pragmatic relations with energy transit states is on the whole justified.

Clearly, in the 21st century the principle of realpolitik is making way for the rebirth of messianism. Moreover, it is not only the United States that sees itself following a predetermined ideological mission, but China, and many other powers. It is no coincidence that the Russian MFA’s Survey of Foreign Policy recognizes a dangerous tendency towards the “re-ideologization” of international relations, and calls for careful consideration of this new development at a doctrinal level.

As distinct from the Soviet Union, Russia has no edge over the West in the sphere of ideology. In the vast majority of situations, Russia’s foreign policy does not contest Western, primarily American, principles, but rather makes reference to the same system of liberal values and, for this reason, finds itself compelled by degrees to toe the line set by Washington and Brussels. For this reason, any attempt to break the paradigm, and offer the world Russia’s proper vision of its mission (and not just oil, gas and armaments), is greeted in the West with unconcealed disdain. For the West, “democratic Russia” is unequivocally a state with limited sovereignty, subscribing to Western standards of liberal democracy and market relations.

Thus, it becomes clear why the West was so quick to exploit the isolated “excesses” of Russia’s energy policy in the near abroad from 2004-2006. Although Russia presented well-grounded arguments in favor of pragmatic trade at market prices with transit states, this policy undermined trust in Russia’s ability to play a constructive role in international affairs. In essence, because Russia overplayed its energy card,

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our largely well-justified criticism of American hegemony is increasingly being misrepresented as the “neo-imperial ambitions of the Kremlin,” and not as a natural and logical policy meant to establish an equitable system of international relations. Today, unfortunately, it is hard to imagine a state “under Russia’s influence” that would engage in relations with Russia without constantly glancing back at Washington, Brussels and other key regional players like Beijing, Delhi, Tehran or Ankara.

Moreover, in the age of the rebirth of foreign policy idealism, Russia’s wager on the energy card not only repels its “natural” allies (with centuries of cultural, social and ethnic ties to Russia), but also, paradoxically, weakens its integration with Europe, provoking growing opposition from the principal consumers of Russian energy. Urged by Washington, and for exclusively political motives, the European Union has already de facto adopted a policy of reducing its energy dependence on Russia, a policy that is much more costly than the development of a partnership based on objective realities, such as the mutual dependence of supply and demand, Russia’s objective need for advanced European technologies for production, and so on.

After the Brussels summit the EU is deliberately going around Moscow to draw the states of Central Asia and the Caspian into a tighter embrace. Even the most innocent attempts by Russia to negotiate with consumer states on a bilateral basis is seen by Brussels as an attempt to undermine European unity.

The basic elements of the strategy to shield European consumers from “Moscow’s energy imperialism” can already be distinguished: to put energy security on NATO’s agenda, to divert Central Asia’s energy resources from Russia through the development of new transport routes, the creation of a transit union among Ukraine, Belarus, Poland and Lithuania and, possibly, a consumer cartel meant to raise the price of access for Russian companies to European markets, including a demands for controlling blocs of shares in Russian corporations.

Clearly, energy policy on its own cannot adequately serve Russia’s national interests. It should be an important, but by no means exclusive element in Russia’s system of international relations.

Stability or Multipolarity?At the jubilee meeting of the Foreign and Defense Policy

Council, Foreign Minister Lavrov stated that the “unipolar world has not come to pass.” The above-mentioned Survey of Foreign Policy asserts that the “myth of a unipolar world has come to a final end in Iraq. The very model proved to be unworkable, as it does not offer an ethical basis for modern civilization.” This argument is strong, but the following

conclusion invites skepticism: “As a result, the equilibrium and competitive environment lost at the end of the Cold War are being reestablished.” Not surprisingly, the authors qualify this dubious conclusion with the more realistic statement that “in a globalizing world there can be no islands of stability.”

The colonizing states, having withdrawn from the Third World during the middle of the last century, left the “curse of civilization” behind in the form of monoculture resource-based economies, elite education in Western as opposed to local traditions, and the like. Today, one might speak of the “damned American hegemony” and its legacy for the rest of the world. Even with the partial retrenchment of US power, the entire system of international relations, built one way or another on cooperation with or resistance against Washington’s policy, shall cease to provide stability.

At the same time, the development of new, equitable and competitive international “rules of the game” (strongly promoted, among others, by the head of the Russian MFA), is failing to make any headway, due to the simple inertia of American domination. Experts on both sides of the Atlantic are convinced that the preponderance of US economic and military-industrial capacity means that it will retain its dominant position for the next few decades. Thus the majority of states, including Russia, will keep US considerations at the core of their foreign policy.

Hence the frequent reproach of Russia for its “anti-American” line, along with the groundless suspicion that Russia understands the construction of a multipolar world in an anti-American light. Similarly, a key obstacle to the formation of real multipolarity lies in the inertial foreign policy thinking of the majority of Russia’s potential allies: from the countries of the CIS to the EU, China and India. They all persist in “calibrating” their foreign activities to the position of the USA, to marshal their long-term foreign policy strategies with a view to the US retaining primary responsibility for dealing with majority of today’s global issues, from the fight against terrorism and support for global stability, global resource distribution and the elimination of poverty.

The sad fact is that in spite of their ambition to regional leadership or to increase their influence in global affairs, the alternative “poles of power” do not yet think of themselves as “hegemons” and are not ready to take on even a part of the responsibility that the US administration has adopted as its own, even as Washington encourages China, Russia, India and Brazil to shoulder their share of the burden of maintaining global stability.

Meanwhile, multipolarity, in the form that it is taking today, as a result of the expected weakening of American hegemony and in the absence of any generally accepted rules of the game or mechanisms for maintaining global stability, is a threat to Russia’s national interests and a poor environment for the promulgation of its policies. In the words

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of British historian Niall Ferguson, a world without American hegemony would become a “world of multiple centers of power, none of which could seek to lead on the global scale.”

The world is already witness to increasing competition among regional powers and the qualitative expansion of militar y expenditure. The majority of regional “mini-superpowers” taking part in the construction of “multipolarity” are already engaged in arms races, including nuclear. The number of nuclear-weapon possessing states (thanks to the increasing availability of relatively primitive technology dating to the 1960s), and the resulting temptation to use them to advance practical foreign policy objectives, will only grow. Within the next five to seven years the nuclear club could expand to include North Korea (if the Six-Party talks fail), Japan, Taiwan, Iran, South Korea (if North Korea does not abandon its nuclear weapons), Brazil, Turkey, Saudi Arabia and Egypt.

The “crystallization” of new power centers has set off a chain reaction: at the urging of the United States, the number of “mini-regions” with their own “mini-hegemons” has grown considerably. This process is inevitable and cannot remain within the control of the US or the “first order regional powers.” The interests of the “second” and “third” order powers are so varied and contradictory that regional and world stability will be threatened if they were allowed to come into contact.

Russia has no allies except its army and navy?Russian experts and media are fond of quoting

Alexander III to the effect that Russia has no allies aside from its army and navy, by which they understand that Moscow should focus on developing its domestic political-military capacity rather than seek to cultivate “eternal friends” abroad. The argument has merit to the extent that in their current state, Russia’s armed forces are not exactly what one would describe as a reliable ally.

In his last address to the Federal Assembly, the Russian President took note of the rampant arms race that has broken out in the world. This race today has truly reached a qualitatively new level and taken on a multifaceted character. Its scale exceeds the peak of the Cold War. In the decade beginning in 1995, CIS military spending has grown by more than 50%. Significant growth of military spending is occurring in even the poorest countries of the world: Congo, Rwanda, Sudan, Botswana and Uganda have all doubled their defense spending from 1985 to 2000.

According to Russia’s Defense Minister, Russia spends just 2.6% of GDP on defense, while the Soviet Union spent up to one third on defense needs. Defense spending in Russia today is one sixth of the US defense budget and less than that of the majority of G8 countries. Over the past five years

the US defense budget has practically doubled; the share of military spending has risen to 4% of its GDP and now accounts for half of world spending on defense. In 2005 American defense spending rose to about $505 billion, compared to $28.8 billion for Russia in 2007 (821.1 billion rubles). Russia spends less than the majority of leading states, including China ($67.5 billion), Japan ($45.8 billion), France ($45 billion), the UK ($42.8 billion) and Germany ($35.1 billion). The military capability of the European members of NATO alone (that is, not counting the US) is many times greater than Russia’s.

The multilateral non-proliferation and arms control treaty regime is in a deep crisis. The majority of negotiating forums are stalled, while accepted norms are being eroded (for example, on missile defense), or living out their last days (SNF-1 (The Treaty on Reduction and Limitation of Strategic Offensive Arms) expires in 2009, the Moscow Treaty expires in 2012).

In the near future we could witness the collapse of the concept of nuclear deterrence (founded on the principle of mutually assured destruction or irreparable damage). The US has adopted a nuclear policy of first use, and in its nuclear policy review of 2002, American strategists underscore the necessity of using nuclear weapons against emerging threats to national security. Meanwhile, the effectiveness of strategic missile defense has improved considerably. Up to $1.7 trillion will be spent in the long term (to 2030-2040) on a global missile defense system.

Under such conditions, it is obvious that Russia cannot rely on its army and navy alone as “allies” in the defense of its national interests. Given the current scale of global defense spending, Russia’s armed forces are simply not up to the task of responding to the threats that arise from the blurring of the role of nuclear weapons and the development of strategic missile defense.

What does Russia seek from the Moscow-Delhi-Beijing axis?

On the surface, Evegeny Primakov’s long-cherished (since 1999) idea of creating a military-political axis among Moscow, Delhi and Beijing, with the possible inclusion of Brazil, is alluring, as it would create a block including over 40% of the world’s population, 20% of global GDP and over half of all nuclear warheads. The cumulative GDP of India and China, at purchasing power parity, is already higher than that of the United States, and the GDP of Brazil, Russia, India and China is higher than that of the European Union. The combined spending of Beijing and Delhi on R&D has already reached 80% of US levels.

The leaders and diplomats of the three aforementioned countries have been active over several years now, working

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on the deepening of cooperation with a view to establishing a qualitatively new level of relations that would ensure the creation of new poles of power to counterbalance the US and the EU.

However, it seems that Russia faces a problem that mirrors that troubling Moscow’s relations with CIS capitals. While Russia seeks, in its relations with Beijing and Delhi, to address strategic issues and to build a truly equitable and multipolar world order in place of the current “chaotic multipolarity,” Beijing and Delhi appear to reciprocate with a more “pragmatic” approach. The declarations of China and India on the goals of a multipolar world, the democratization of international relations, the strengthening of the role of the UN and of international law do not in fact guide their actions. China and India continue to “calibrate” their foreign policy in relation to the US. Their policy towards Washington seeks mainly to extract investment and technology, and neither China nor India are prepared to sacrifice their good relations with the US for the sake of the Russian idea of equitable multipolarity.

Moreover, the recent turn of the Bush Administration towards India (that some have already compared to Nixon’s “opening” of China in the 1970s) has launched a profound recasting of relations between the US, India and China. Following President Bush’s historic visit to India, Washington has removed sanctions against India, which opens the door to military cooperation and the transfer of advanced military and civilian technologies, and introduced legislation on nuclear cooperation with Delhi. It is clear that this is all done with the aim of undermining the position of China, to contain its expansion in Asia and to restrict its global ambitions. Washington does well to wager on the integration of India into the “concert” of western democracies. As distinct from Moscow and Beijing, Delhi’s inclusion into the latter does not pose any particular problems for the American establishment.

China’s India policy, in turn, is taking on an anti-American character. Following the historic (the first in 10 years) visit of President Hu Jintao to India, it became clear that Beijing is ready temporarily to put aside its territorial disputes with Delhi, if only to throw a wrench in the works of the US. The fifth plenum of the XVI session of the Central Committee voiced a new policy on the attaining of “global harmony,” which China understands as the attainment of a “worthy place” for the Chinese in the world. China no longer seeks to fill the role of the “younger brother” in the family of superpowers. China has long “grown up” and is tempted to abandon its customary role of “watching the tigers fight in the valley,” which it has followed for the past 50 years.

Beijing’s ambitions are thus far limited to securing regional leadership through the Shanghai Cooperation Organization, ASEAN+3, the Six-Party Talks and the like, to secure energy supplies from Central Asia and Africa (a

summit of 48 African states recently took place in Beijing), Iran and Venezuela. However, it is clear that Beijing has been forced to recast its foreign policy in light of its competition with the US, and it is constantly seeking to bring North Korea, Pakistan, Afghanistan, Iran, Kazakhstan, the countries of Central Asia and Latin America and, in the future, Iraq, into its orbit. The Shanghai Cooperation Organization, of which Russia is a founding member, is the main instrument of this policy. The US has already de facto identified China as a potential opponent: about half of the National Security Strategy is dedicated to China, and a recent report of the congressional Joint Economic Commission makes strong economic demands, including yuan devaluation, on China.

Against this background, the geopolitical and strategic interests of Delhi in relation to Beijing and Moscow are not obvious. It is likely that the aspiration, largely irrational, to raise the international status of India, is the main driver. Delhi’s “new partnership” with Washington opens many possibilities, and Russia’s value to Delhi as a member of the G8 would fall considerably should the club expand to include ten members. Moreover, Moscow’s reliance on the “axis” of military-technical and energy cooperation with Beijing and Delhi will require further concessions from the Russian side for the foreseeable future. India already intends to increase its share of Sakhalin-1 (currently 20%), and to participate in Sakhalin-3 and other projects in the Far East. The removal of sanctions against India by the US and the EU, imposed as a result of India’s self-proclaimed entry into the nuclear club eight years ago, will pose additional problems for Russia-India relations.

The call on Beijing and Delhi to “think strategically” in terms of an “axis” sounds hollow coming from Russia, as it is in fact the weakest link. As the expansion of the nuclear club and the development of strategic missile defense continues, Russia’s nuclear arsenal plays a role of decreasing importance, exposing the asymmetry between Russia’s economic capacity and that of its allies.

In 2007 Russia’s GDP has simply re-attained the level of 1990; during this time that of the US and other leading powers like China and India have marched far ahead. While Russia hopes to double its GDP over the next 10 years (an unrealistic goal according to many economists), China’s is forecast to triple by 2020, accounting for 20% of the world economy. Russia’s GDP now accounts for just 2% of the world economy, and even a doubling would not necessarily suffice to maintain this share over time. By 2020, India will assume third place, behind the US but far ahead of Japan and the EU.

In economic terms, Moscow has much less to offer Beijing or Delhi than does Washington, and less even than these two countries have to offer each other. Russia’s trade with India was $3 billion last year and the goal is to reach $10 billion by 2010, that is, the amount traded between the Soviet Union

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and India during the 1980s. By way of comparison, China’s trade with India today is six times higher, at $18 billion, and US trade with India is ten times higher, at $28 billion. China is forecast to become India’s main trading partner sometime between 2007 and 2009. Our trade turnover with China is about $30 billion, which is seven times less than the trade deficit between Beijing and Washington – over $200 billion.

China is increasingly competing with Russia on energy issues. In particular, the Chinese have secured contracts for substantial volumes of cheap energy supplies from Kazakhstan and Turkmenistan, beginning in 2009, eroding Russia’s monopoly on the transit of Central Asian fuel. Meanwhile, Beijing and Delhi are gradually reducing their mutual competition for energy supplies in favor of a kind of consumer pool. In 2005, national oil companies of each country (first of all Sinopec and ONGC) invested jointly in the Syrian Al-Furat Petroleum Company, and recently jointly acquired 50% of the Colombian Omimex.

Conclusions The growing unpredictability of “multipolarity” in its

present incarnation presents a threat to the national interests of Russia at the regional and global levels. The weakening of American hegemony is promoting a sharp rise of competition in all problematic regions and the growth of the Islamic threat. Russia’s foreign policy departments are thus tasked with developing “global rules of the game,” promoting the role of existing instruments such as the UN and regional forums, and the creation of new international institutions capable putting order to the chaos of multipolarity.

Under these conditions Russia must increase its cooperation with the US. Facing similar threats to security and increasing globalization, Moscow and Washington are doomed to pursue a “difficult relationship.” Nevertheless, mutual mistrust between the elites of both countries is also bound to increase.

The growing asymmetry in the economic and political-military capacity of Russia compared to the US, the EU

and also China and India will soon preclude the exercise of the traditional Soviet tactic of using force to solve political problems (as the bottom falls out of Russia’s nuclear deterrence), and limit the ability of Russia to deploy economic means in support of foreign policy goals.

The threat of a north-south conflict between civilizations is growing as a result of the deepening ideologization of international relations. In this context, Moscow’s tactic of seeking temporary “partners” to address shifting goals, (or, in the words of Minister Lavrov, “network diplomacy”) will produce only short-term gains. The proposal to raise the status of Russia through a close alliance with Beijing and Delhi is in need of a serious rethink. Russia will be forced in the medium term to limit its ambitions to more attainable objectives. It would be advisable for the MFA to exchange approaches to relations with the CIS and the “axis” respectively. It should revive the idealist approach to Moscow’s relations with the former Soviet Union, and to put dealings with India and China on a more pragmatic footing.

Russia should once again demonstrate to the world that it has a vision of its proper mission, one that is, moreover, comprehensible and attractive to the majority of world states; to demonstrate that it is capable of being a reliable partner, with a view to maintaining long-term (50-100 year) neighborly relations, even at the expense of short-term interests. The highest priority for Moscow should be to eliminate the misalignment of its policy in the post-Soviet space, as a kind of testing ground for a new foreign policy mission. It should concentrate its efforts on the formation of a “core confederacy” including Russia, Belarus(once the problem of Lukashenko has been dealt with), Kazakhstan, Armenia, Uzbekistan (with the gradual democratization of the regime), Kyrgyzstan and Tajikistan. It is also important to create an appropriate system of incentives to deter Ukraine, Azerbaijan, Moldova and Georgia (although this would probably require a change of the Saakashvili regime) from participating in the integrative projects of the West.

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# 2, 2007 Moscow Defense Brief �5Military-Technical Relations between Russia and North

Korea: Past, Present and Future

Military-Technical Relations between Russia and North Korea: Past, Present and FutureArtyom Sanzhiev

North Korea and Russia/USSR have maintained political, economic and military relations for over fifty

years. Military-technical cooperation has always figured prominently in this relationship, and has evolved during the post-Soviet era in two major stages:

1991-2000 was a period of sharp decline, due largely to the shift of Russia’s foreign policy in the early 1990s;

Since 2000, military-technical relations between the two states have resumed its traditional pattern.

First Stage (����-�000)The collapse of the Soviet Union led to a deterioration in

relations between Russia and the DPRK that affected all areas of activity, including military-technical. Russia’s change of course was driven first of all by a domestic economic crisis and resulting inability to sponsor the North Korean regime financially. Secondly, Russia sought to improve relations with the Republic of Korea, and signed a basic treaty in 1992.

The new political situation, as well as the chronic inability of North Korean to pay its debts, led to the cancellation of the majority of defence programs initiated in the Soviet era. Thus, after the delivery in1994 of up to18 MiG-29 fighters kits, the assembly of these fighters in the DPRK was wound-up.

However, Russia did not wish to sever ties entirely and sought to maintain a minimal level of military-technical cooperation with the country that remained, after all, a formal ally. The Russian leadership made attempts to recast its relations with the DPRK in a variety of formats, for example, at the level of the CIS – DPRK. In March 1992 the Chief of the General Staff of the CIS forces Viktor Samsonov visited Pyongyang and signed several agreements on military relations. These agreements led to a fairly active exchange of delegations, navy and air force in particular. An agreement on military cooperation was worked out in August 1995, but was not officially signed until 2001. During the visit of Deputy Foreign Minister Grigoriy Karasin to Pyongyang in January 1997, Russia and the DPRK agreed to expand their trade and economic relations, including steps to renew military-technical ties.

In spite of the cooling of relations during this period, some Russian military equipment was nevertheless transferred to the DPRK, including 260 units of the 9K310 Igla-1 (SA-16) man-portable surface-to-air missile system and a license for its production. The DPRK also produced Malyutka (AT-3) and Fagot (AT-4) anti-tank guided-missiles and other weapons systems under Russian license. Moreover, in 1994 Russia acquired the Malakhit air surveillance system with ten Shmel UAVs. This contract was signed and executed by the Kulon Research Institute. Incidentally, North Korea was the first country to purchase this system from Russia.

The low volume of the aforementioned deals suggests that substantial deliveries of military equipment to the DPRK had ceased, although some Russian sources maintain that deliveries of spare parts for Soviet-made equipment continued Leonid Ivashov, Chief of the International Relations Department of the Russian Defence Ministry, confirmed in May 1997 that Moscow continued to pursue military-technical relations with Pyongyang, though at a restricted level and consisting of spare parts deliveries, for equipment delivered in Soviet times. Russia considered maintaining at least a minimal level of cooperation essential to maintaining a strategic foothold on the Korean Peninsula.

Meanwhile, other former Soviet republics began to sell not only parts, but complete weapons systems that they had removed from active service. North Korea apparently acquired 50 tanks from Belarus between 1994 and 2000. From 1995-1999 34 old MiG-21bis fighters, 24 obsolete 100 mm KS-19 anti-aircraft guns, together with four SON-9 fire-control radars to match, and other miscellaneous military equipment was acquired in Kazakhstan, for a grand total of up to $176 million.

Military-technical relations between Russia and the DPRK also included some illegal transfers of excess military goods from the Far Eastern Military District. For example, five Mi-8T military transport helicopters were seized by customs at Kraskino in Primorskiy Krai. Officials found that the classified systems had not been removed, and that the helicopters had been repaired (at the expense of the military) just before sale. The delivery had been approved by high military officials.

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The ensuing investigation uncovered prior illegal transfers mediated by front companies. In 1995, three Mi-8T helicopters were to be retired from service and given to use by law enforcement, civil defence and health care services. However, they were sold instead to the “Rosa” airline based in Nakhodka. A year later, this airline purchased another five military helicopters. Following a media outcry, the Far Eastern Military Procuracy conducted an investigation that ascertained that all of the aforementioned helicopters had been repainted, their engines replaced, refuelled and their lubricants replenished on an unscheduled basis, shortly before they were sold. Aside from these accounts, is impossible to determine how many such helicopters and other military equipment may have been sold illegally to the DPRK.

Second Stage (�000 – Present)The signing in February 2000 of a “Friendship, Good

Neighbourliness and Cooperation Treaty,” together with President Putin’s visit to Pyongyang that same year, marked a certain revival in bilateral relations. And while this was largely confined to the political sphere, there was some spill-over to the military-technical. In 2001-2002, 32 armoured personnel carriers BTR-80A were delivered. It is likely that some automobiles were also sold during this time, including UAZ jeeps. In April 2001, the North Korean Minister of Defence Kim Il Choi signed an intergovernmental agreement on defence industry and military equipment cooperation, as well as an interdepartmental agreement on military relations.

The current state of bilateral relations is closely related to the economic situation in North Korea. According to then Defence Minister Sergei Ivanov, “Russia’s military-technical cooperation with Pyongyang has an exclusively utilitarian character and is limited first of all by the economic capability of North Korea.” He went on to add that Russia’s military-

technical relations with Pyongyang are no different than those with Seoul, signalling a balanced approach to the two Koreas, with the added proviso that Russia has no intention of “providing gifts to the DPRK without at least some repayment of loans.” Indeed, North Korea’s debt to Russia is one of the main obstacles to further cooperation.

North Korea has shown great interest in purchasing Russian Su-27/30 fighters, submarines and escort ships. The North Korean military is especially keen on naval armaments. In November 2005 a North Korean delegation led by Rear Admiral Han San Sun attended an international arms exhibition in St. Petersburg. The delegation seemed to be most interested in long range torpedoes capable of defeating the newest South Korean destroyers equipped with the Aegis system. The North Koreans may also be looking to replenish their fleet of armoured vehicles, missiles, artillery and air defence systems.

Russia may choose to pursue military-technical relations with North Korea by modernizing its obsolete fleet of aircraft and military ships. A relatively small number of new systems could also be delivered with the support of long-term credits.

The DPRK clearly cannot afford to pay for deliveries of Russian arms or the services of Russia’s defence industry, and so alternative strategies for promoting bilateral ties must be devised. For example, Russia could participate in the development of North Korean natural resources. For instance, the DPRK has significant deposits of magnesium, coal and uranium. Russia could also make use of the country’s infrastructure, including its many ports.

On the other hand, North Korea’s nuclear test has generated an extremely negative international environment for such cooperation. Although Russia will probably not find it necessary to halt its current level of military-technical cooperation (spare parts deliveries), it is equally unlikely to expand these relations in the near term.

Table �. Deliveries of Russian Arms to DPRK ���0-�005Description Quantity Delivered Comments

Ka-32 helicopters N/A 2001 Civilian

BTR-80A armoured personnel carriers 32 2000-2001

MiG-21 fighters N/A 2000 Not confirmed

Malakhit surveillance system with Shmel’ UAVs 1 (10) 1994 Kulon

Fagot 9M111 anti-tank guided missiles 3250 1992-2004 Produced under license

Igla-1 9K310 MANPADS system 1250 N/A

Malyutka 9M14M anti-tank guided missiles 20 000 1976-1995

Mi-8T helicopters at least eight late 1990s Not confirmedSources: SIPRI database (www.first.sipri.org); Korean Republic MoD 2004 (www.mnd.go.kr); Russian media.

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Our AuthorsMikhail Barabanov. Graduated from the Moscow State University of Culture. Currently employed by the Moscow city government. Independent expert on naval history and armaments.

Andrei Frolov. Graduated with honours degree from the Faculty of Foreign Affairs of Saint Petersburg State University and in 2003 from French-Russian Masters’ School of Political Science and International Relations. In 2003-2004 – researcher at the Center for Policy Studies in Russia (PIR-Center), executive editor of Yaderny Kontrol magazine (in Russian). In 2004 – project manager of Export control system transformation in Russia in 1999-2003 programme.

Vladimir Frolov. Ph.D. (Political Sciense), graduated from the Military Institute decorated with the Order of the Red Banner and Diplomatic Academy of the Ministry of Foreign Affairs of the Russian Federation. Vladimir Frolov is a director of the National Center for Foreign Policy.

Andrei Ionin is a graduate of the Mozhaisky Institute of Military Engineering. He served as a researcher at the Baikonur Aeronautical Facility from 1983 to 1988. Since 1988 he occupied different scientific positions within the Ministry of Defense Scientific Research Institute. He received his PhD in 1995. His contributions to MDB in the capacity of an independent expert.

Konstantin Makienko. Graduated from the Oriental Department at the Moscow State Institute for International Relations in 1995 and the French-Russian Masters’ School of Political Science and International Relations in 1996. Head of a project on conventional armaments at the Center for Policy Studies in Russia (PIR-Center), 1996-1997. Since September 1997, Deputy Director of CAST. Author of numerous articles on Russia’s military-technical cooperation with other countries.

Artyom Sanzhiev. Post-graduate student of Far Eastern National University. He is an analyst of the Center of Korean Studies of Far Eastern National University.

Andrey Seregin. Graduated from the Moscow State University. Ph.D. (History), senior research fellow at the National Center for Foreign Policy.

Dmitry Vasiliev. Graduated from the State University – Higher School of Economics with a Master’s Degree in Strategic Management in 2004. From 2003 to mid 2004, worked as an analyst at Absolut Bank in the Department of Risk Evaluation. Currently working since July 2004 as CAST researcher and editor-in-chief of the Eksport vooruzheniy (Arms Export) journal.