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As oil prices remain high, and natural gas has become a critical fuel for Europe, Russia’s strategy for geopolitical action and leverage has revolved around energy. After the disastrous collapse of Russia’s communist illusion economy, high energy prices are lifting the Russian economy – and with it, available funds for Putin to spend on military modernization.

Russia’s military has declined from 4 million men to 1.1 million, and the vast majority of its equipment consists of holdovers from the Soviet Union. During the 1990s, weapons procurement was almost completely halted, indeed, there were frequent reports of Russian soldiers in uniform, begging in the streets. Times have changed, and Russia’s military is set to change and modernize. The invasion of Georgia shows a Russia that is once again prepared to use military power beyond its borders. Budgets are rising, and will rise further.

The UK’s Times reports that in September 2008, Russia’s Duma passed a 25% increase in official defense spending, from $40 billion in 2008 to $50 billion in 2009. The country’s current 3-year plan includes further jumps to $54.5 billion in 2010, and to $58 billion in 2011. Overall, $189 billion is reportedly earmarked to upgrade Russian army and navy equipment by 2015. Forecast International adds that this plan calls for 1,400 new and upgraded main battle tanks in 45 tank battalions, 4,020 armed infantry fighting vehicles, and 3,008 armored personnel carriers for 174 motor rifle and parachute battalions. Missiles are also represented: 60 SS-26 Iskander E short-range ballistic missile systems for 5 missile brigades, and 18 S-400/SA-21 Triumf anti-aircraft/ABM systems to equip 9 air-defense units. On the electronic front, improvements to Russian electronics and communications, electronic protection systems for Russian helicopters, and improvements to its GLONASS GPS system are all priorities.

The question is whether Russian industry can keep up…

SU-30: success!
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Russia’s bungled refit of the aircraft carrier Gorshkov for India, and the recent spat with A;geria that resulted in the unprecedented step of having its MiG-29s returned for refund, underscore a very real issue for Russia’s defense industry.

http://www.defenseindustrydaily.com/algerian-arms-deal-brings-russia-75-billion-gas-market-leverage-02024/

Russian concepts of equipment quality already proceeds from a different mindset than American/European approaches. American or European items are frequently overdesigned. Russian equipment is frequently overbuilt. This makes it rugged, and often less expensive. If coupled with excellent fabrication and quality approaches, it could offer a compelling alternative in the international defense market. Unfortunately, Russian fabrication technologies, quality approaches, and accountability have often been poor, resulting in a mixed bag of good performers whose basic design overcomes these deficits, and poor performing equipment that cannot.

Fixing that kind of pervasive organizational/cultural problem would be a massive effort under the best of circumstances. Unfortunately for Russia, these are not the best of circumstances. Mere maintenance of its equipment base currently presents a challenge.

T-72: not so much
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The complete defense budget collapses of the 1990s have left Russia a lasting legacy – one that serves as a canonical example of what happens when a country’s military industrial and knowledge base is allowed to decay. Russian defense analyst Nikita Petrov explains, in a February 2008 RIA Novosti Op/Ed:

”...the Algerian experts are right when they talk about a drop in quality of Russian arms exports. This is openly admitted by top-ranking officials in charge of the Russian military-industrial sector…. At a recent Academy of Military Sciences conference, Putilin said that “although the enterprises of the military-industrial sector have increased their turnout by more than 14% (military production went up by 19.1%, and civilian by 7.6%), some of them are simply unable to fulfill state-awarded contracts. Moreover, they cannot even use the allocated funds….” ....Highly qualified personnel have come close to retirement age. Machines and technologies are becoming obsolescent – capital equipment in the defense industry is more than 30 years old. Major technologies have been lost, usual contacts severed, and the required raw materials and equipment are in short supply. The price of energy… greatly exceeds the deflators fixed by the Ministry of Economic Development and Trade. Graduates of technical colleges are reluctant to work in the defense industry. Salaries are rather low, and career opportunities cannot compete with those in the oil and gas industry…. Before, young people were not drafted if they worked at a military plant called a mailbox. Now this benefit does not exist…. technical vocational schools no longer exist….”

This isn’t the first time RIA Novosti has covered these issues. Nikita Petrov again, this time from a January 2007 RIA Novosti article:

“In the last few months, defense factories have expanded production by 14.1%, boosting military-equipment and civilian output by 19.1% and 7.6%, respectively. Nevertheless, some of them are simply unable to fulfil the state defense order and to effectively spend federal-budget allocations…. Only 36% of strategic defense enterprises are solvent, while another 23% are tottering on the verge of bankruptcy…. The lack of qualified personnel and up-to-date production equipment will inevitably impair product quality. In fact, India, Algeria and some other countries are beginning to file quality claims [emphasis DID’s]..... Since 1992, not a single state defense order has been fulfilled completely and on time.”

Russia’s budget for 2009 is already shooting past prior year’s projections for 2010. If energy prices remain high, it would not be surprising for the planned 2010 and 2011 figures to also find themselves overtaken by additional spending.

Even so, money alone won’t instantly provide production lines with the required tools, some of which must be bought abroad. Or produce technically qualified graduates from thin air to operate them. Or fix the gap between real and official prices, including poorly-set energy cost adjustments. Or handle the property right issues and state interference that prevent the creation of efficient holding companies, and make it very difficult to restructure the assets and production of the holding companies that are created.

Recovery from that situation will take more than just cash. It may even take more than time.

Regardless of the formal system in place, Russia is a country where Vladimir Putin’s desires are law, or will soon become so. Continued domestic defense spending is assured, therefore, and may eventually begin to restore Russia’s defense industry to some semblance of health.

Restoration beyond that level will require both sound policy, and a strong system of accountability.

Success would leave Russia with a modernized force, a rejuvenated military-industrial capacity, and a an export position that goes from strength to strength. Failure on those fronts could leave Russia with a budget that’s willing, but an industry that’s weak. One hard pressed to keep pace with domestic demand, and too unreliable to offer strong competition on the international front outside of a few select niches.