MOSCOW - President Vladimir Putin recently announced that this year was a record year for Russian weapons exports, with $15 billion in contracts for next year and $14 billion worth of weapons that have already been sold in 2012.

This past year the main customers for Russian weapons were once again India, Algeria and Vietnam. In addition, this year Iraq joined the club, signing a whopping $4.2 billion dollar weapons contract with Russia. The ultimate fate of that contract, however, is still questionable.

“Of course, Russia will continue to work with its traditional partners in the weapons technology market, but it is no less important for us to enter new markets, to diversify the number of products and services we offer,” President Putin said during an open session of the Commission for Weapons Technology. He mentioned that there was plenty of serious competition in the market. “In order to win the fight, we have to give our weapons manufacturers more possibilities for demonstrating their scientific and technical potential.”

On the whole, however, according to a source who works in the Russian military technology sector, the situation has not really changed from a year ago. “The orders will stay at about the same level for three or four years,” the source said. “In the future, the outlook is even less bright. Unless there are new real, major contracts, such as the one that was signed with Algeria in 2006 (for $7.5 billion), then our portfolio will be cut in half.”

Last year’s weapons contracts brought Russia around $13.2 billion. According to Kommersant’s information, that number includes Russia’s contract with India to modernize an aircraft carrier – but because of problems with the project, the actual aircraft carrier will not be delivered until the last quarter of next year. The aircraft carrier cost $2.33 billion, and if you don’t count it, then Russia’s actual weapons export income for 2012 was only $11.7 billion.

In 2012 the amount of exports in each category of weapons also changed compared to 2011, but the customers have not changed at all. Just as in 2011, Russia’s main weapons clients were India, Algeria and Vietnam. Iraq just joined this group of high-powered customers, having recently signed a $4.2 billion dollar contract for military helicopters and rocket systems. The Iraqi contract represents about 30% of Russia’s contracted weapons exports for the next year.

But there have already been problems with the realization of the Iraqi contract. On November 10, Ali Musavi, an advisor of the Iraqi prime minister, announced that the contract would be canceled due to suspicion of corruption. According to our information, Moscow immediately sent an official inquiry to Baghdad, demanding an explanation, but has not yet received a response. “It is possible that the contract will be frozen for a while, so we really need to know how serious the intentions of our partners are,” Kommersant’s source said. “For starters, they need to figure things out for themselves.”

He also mentioned that a possible weapons technology partnership with Libya was similarly suspended. “They say that they are ready to work with us, but then things just don’t move forward.”

Difficult African and Asian markets

Russia was also not very successful in attempts to enter the market in Angola and Nigeria. “Africa is a difficult region, which for the moment is very difficult for us to crack,” said an official who works on military technology. In fact, according to him, one of the biggest successes in 2012 was the contract with Equatorial Guinea; it is possible that in 2013 the two sides will talk more about military land and air transportation.

This year, Russia and China signed a contract for aircraft movers worth $700 million. But China keeps insisting that it wants a different kind of technology, and the Russian Federal Security Service keeps vetoing the deal. “The Chinese want complex technological elements so that they can make their own version,” Kommersant’s source said. “Selling them the weapon while our own army is not supplied with enough of them is suicide.” In fact, that is the case with all Russia’s potential deals with China.

When he made his presentation to the Commission for Weapons Technology, President Putin said it was extremely important that Russia also established a position in the market for modernizing and repairing military technology. “In a couple of years the cost of a Mi-17B5 helicopter went from $4 million to $17.5 million,” a source close to the military technology system said. “Many customers won’t accept that kind of price increase on principle. At the same time, most of the time the equipment hasn’t been well serviced, which has hampered development of a repair market. Potential clients will start to think that we’re not on the same playing field.” According to that source, fixing that disconnect should be one of Russia’s most important tasks for the next year.

“The risks associated with signing contracts will continue to increase, but the numbers speak for themselves,” said Konstantin Makienko, vice-director of the Center of Strategic Analysis. “The signing of so many large contracts has been largely possible due to Russia’s political influences, and in some cases due to Vladimir Putin personally. He has often personally been the initiative behind these deals.”