In focus
Ruslan Pukhov's article for Defense News on the future of Russian-Western relations, part 2
Konstantin Makienko's article for the Valdai Club
Ruslan Pukhov's article for Defense News on the future of Russian-Western relations, part 1

'Kamikaze drone: Russian arms merchants diversify, feverishly expand sales despite sanctions

'Kamikaze drone: Russian arms merchants diversify, feverishly expand sales despite sanctions

“Our weapons are always in great demand,” an employee of Russia’s famed Kalashnikov arms producer boasted during a recent presentation of its newest AK assault rifles at the company’s firing range near Moscow.

State media journalists jostled for position to handle the guns while a sign nearby cautioned: “No shooting after drinking.” Meanwhile, Kalashnikov staff warned TV crews not to show the faces of the company’s weapons professionals.

Standard stuff for a corporate dog-and-pony show, as least in the munitions business, but these are not normal times for one of the country’s corporate crown jewels.

Alongside caviar and vodka, the Kalashnikov automatic rifle, in particular the iconic AK-47, is one of Russia’s best-known products. But U.S. and European sanctions, imposed on the Russian arms industry in the wake of the Kremlin’s seizure of Crimea from Ukraine in 2014, have forced the company into a radical rethink of its business model.

“Sanctions have had a negative effect,” Vladimir Dmitriev, the director general of Kalashnikov Concern, told The Washington Times. “It’s become harder to exports our products.”

Before the sanctions came into force, the Kalashnikov Concern, which is part of the state-controlled military-industrial group Rostec, sold about 90% of its weapons to civilians overseas. A large chunk of its revenue came from sales to the United States, the world’s largest market for civilian arms.

Just six months before sanctions were imposed, the Kalashnikov Concern signed a deal to sell 200,000 rifles a year in the United States. The deal was halted with nearly half of the order undelivered.

In response, the Kalashnikov Concern is now concentrating on military sales, spending $200 million on an upgrade for its main weapons plant in Izhevsk, in central Russia. The company now says that 70% of its sales are to military clients, although it remains tight-lipped about the identities of its customers.

Despite the logistical difficulties, the company is more than keeping its head above water. The Kalashnikov Concern’s annual sales increased by 86% last year to reach about $632 million. Production rose by 20%.

As part of a move to diversify, Kalashnikov has branched out into other lines, including clothing, robotics and motorcycles. It is even developing an electric car.

This year, the company unveiled two new attack drones. One, the Kub, has been described as a low-budget “kamikaze drone” that can travel for 40 miles while carrying up to 6 pounds of explosives before detonating as it strikes its target.

“This is a step toward a completely new form of combat,” Sergey Chemezov, chairman of Rostec, said at a presentation in Abu Dhabi in February.

Aside from the power of the Kalashnikov brand, the drones are expected to be far cheaper than those of their U.S. or Israeli rivals. The Kalashnikov Concern’s director general dismissed suggestions, however, that the company’s arms could fall into the hands of terrorist groups. He said Russian authorities would strictly control the export.

“There is no chance that illegal armed groups could purchase these drones,” Mr. Dmitriev said.

Surviving sanctions

Kalashnikov’s ability to adapt to difficult circumstances has been mirrored by Russia’s capacity to improve its position on the global arms trade market in the face of Western sanctions, which many predicted would curtail the economy’s prospects for years.

Last year, Russia overtook Britain as the world’s second-largest arms producer after the United States. It was the first time Britain had slipped from the No. 2 position since 2002. Russia benefited from its ability to “showcase” weapons in Syria, according to the Stockholm International Peace Research Institute.

Russian President Vladimir Putin has described the military campaign in Syria as a “priceless” opportunity to test new weaponry and advertise its capabilities to potential buyers.

“We all know well what pressure Russia is under, especially its defense industry,” Dmitry Shugayev, the head of Russia’s Federal Service for Military and Technical Cooperation, told state media last month. “[But] sanctions have failed to push through the main task of ousting Russia from the world arms market, and they have also failed to make our partners turn away from us.”

Mr. Shugayev said Russia has sold weapons to 51 countries and that the deals were worth about $15 billion.

Russia’s advanced S-400 missile systems have proved a boon to its arms industry, but sales have also stirred up political tensions. In October, Rosoboronexport, Russia’s state arms seller, sealed a $5.4 billion deal to supply S-400 missile systems to India.

The contract was signed despite warnings from Washington that it could result in sanctions on India. In September, the United States sanctioned China for its purchase of the S-400 missile system from Russia, a move that was met with anger in Beijing.

On Saturday, Turkish President Recep Tayyip Erdogan said ahead of talks with Mr. Putin and President Trump at the Group of 20 summit in Osaka, Japan, that Ankara intended to push ahead with a deal to purchase S-400s from Russia.

Both the United States and the NATO military alliance, of which Turkey is a member, have said they oppose Ankara’s decision, but Mr. Trump said after the bilateral meeting that the U.S. would not be imposing new sanctions on Ankara.

Despite Russia’s successes, some overseas clients are not taking chances. Reports said Kuwait and the Philippines recently backed out of deals to purchase Russian arms over fears of sanctions from Washington.

“Sanctions are obviously harming the Russian defense industry, but we should always remember that sanctions are like a poison that works in the long term,” said Ruslan Pukhov, a weapons specialist and director of the Moscow-based Center for Analysis of Strategies and Technologies. “It will take decades to stop Russia with sanctions.”

Mr. Pukhov cited the example of Yugoslavia, which was hit by Western sanctions in the 1990s in the midst of the Balkan wars sparked by Yugoslav leader Slobodan Milosevic. “It took basically 15 years before Milosevic’s military machine started falling apart,” he said.

One problem for Russia’s arms industry is reduced domestic defense spending: The Kremlin’s defense budget shrank by 3.5% in 2018 to $61.4 billion. The decrease followed a 20% decline in 2017, and analysts say the trend looks likely to continue.

“Low oil prices, declining revenues from taxes and Western sanctions have taken a chunk out of the financial pool available to Russia’s military and the broader defense industry,” the Stratfor think tank wrote recently.

The consequences were apparent last year when Russia dropped out of the world’s top five defense spending countries for the first time since 2006 and landed in sixth place behind France. The five biggest spenders on defense in 2018 were the United States, China, Saudi Arabia, India and France. The United States spent $649 billion, more than the next seven countries combined.

Despite the headwinds, Mr. Pukhov said, Russia had every chance of maintaining its share of the world’s arms deals. He said that was partly a result of Mr. Putin’s relentless promotion of his country’s weaponry. “Putin is a salesman,” he said.

Another reason? Russians are passionate about the arms industry. “For Russians,” Mr. Pukhov said, “it’s like a non-Olympic sport.”

By Marc Bennetts