Lost amid the chaos of the downing of Malaysia Airlines Flight 17 was a little-noticed development in the Western press about the Russian defense industry. Last week, the Russian cabinet signed off on a measure that would increase Russian defense spending to 21 percent of the country's overall budget by 2017, from 17.5 percent today. The spending hike still needs to be stamped by the Duma, the Russian legislature, but is virtually certain to be approved.
The defense sector is a valuable tool in the Kremlin's foreign-policy playbook. Russia -- the world's second-largest arms exporter -- has cornered the market by selling its weapons at bargain-basement prices and being willing to cut deals with all sorts of unsavory regimes. Moscow has not shied away from using its arms industry to bolster Russia's allies, supplying Syria with advanced radar systems and S-300 surface-to-air missile systems, selling weapons to Iran, and arming Ukrainian rebels with the types of missiles used to down Malaysia Airlines Flight MH 17 this earlier this month.
Still, last week's announcement marks a shift for Russia's defense industry, which has been trying to sell more of its wares to the Russian armed forces than to foreign buyers. The industry is making the move in response to clear pressure from the Kremlin. In May, President Vladimir Putin called on Russia's defense industry to stop relying on foreign components following initial sanctions leveled by the United States and Europe. Since then, Western powers have since increased their punitive economic measures against Russia, including a recent round of American sanctions that targeted eight Russian defense firms. On Tuesday, European foreign ministers convened to consider further moves on Russia, including measures to restrict access to defense technology, but failed to reach agreement.
The outcome of the EU's decision will affect the Kremlin's plan to restructure the armed forces and replace the military's aging weaponry with new, modern equipment like the Su-35 jet and S-400 Triumph surface-to-air missile system. This ambitious $720 billion project -- launched in 2011 -- has already led to major increases in the defense budget. The Stockholm International Peace and Research Institute estimates that military spending increased by 4.8 percent in 2013 and that Russia spends a larger portion of its GDP on the military than the United States, where defense outlays total 4.1 percent of GDP (the disparity is even sharper with NATO, only four of whose 28 members spend 2 percent of GDP on defense).
According to the Kremlin's official numbers, the military budget will continue to rise, reaching approximately $83.7 billion in 2015 and $93.9 billion in 2016. By comparison, the U.S. Department of Defense's budget proposal for 2015 totals $601 billion.
One of the aims of Russia's modernization plan is to produce more sophisticated weaponry within Russia. But shifting high-tech production to within Russian borders faces major obstacles, according to defense analysts. Russian defense companies like Irkut and Almaz-Antey have been able to develop new and efficient designs, while remaining profitable. But even these companies remain dependent on defense subcontractors abroad, such as those supplying parts for aircraft engines and missiles in Ukraine, for their supply chains. Meanwhile, Russian alternatives are lacking in technical ability.
Moscow's attempts to revitalize its shipbuilding industry have not gone smoothly. In 2005, India inked a nearly $1 billion deal with Russia for a rebuilt Soviet-era aircraft carrier -- called Vikramaditya. However, the ship suffered a near-total breakdown shortly after her purported completion in 2012. India finally accepted Vikramaditya in 2014, though the refurbishment nearly tripled the project's cost, to $2.3 billion. If Russia can't even remodel an existing warship, imagine the challenges the defense sector faces in building a ship from scratch.
And the fallout from the Ukraine crisis has only exacerbated Russia's reliance on foreign technology. Russia is currently awaiting delivery of a pair of Mistral helicopter carrier ships from France, a contract valued at $1.6 billion that promises to help modernize Russia's geriatric navy. While French President François Hollande has pledged to complete delivery of the first ship, he has indicated a willingness to scrap plans for the sale of the second if EU nations increase sanctions against Russia.
According to a study released in April by the Plekhanov Russian University of Economics, the buildings and equipment of Russian industrial enterprises are on average more than 20 years old, with a level of wear and tear almost twice that of industries in other BRICS countries. For the defense sector to be able to meet the demands of the military's ambitions, the sector will need a complete infrastructure overhaul.
"Russia needs European countries to cooperate with it so that it can get a better technical capability," Siemon Wezeman, a senior researcher for the Stockholm International Peace and Research Institute, said. "The Russian defense industry is certainly capable of designing some complex systems, but they are not prepared to produce these on their own," he added.
Growing domestic production is representative of Russia's increasingly inward-looking posture on the world stage, but there are serious doubts over whether Russia will be able to afford its defense aspirations. "Two years ago it was possible to fund this rise in spending because of the oil and gas industry," said Igor Sutyagin, a research fellow at the Royal United Services Institute in London. "Now, because of sanctions, stagnation, and new expenses from Crimea and Ukraine, building up the military as planned is completely unsustainable."
Events in Georgia in 2008 and Crimea this March have shown that Russia is more than eager to use its updated military to settle disputes. But with mounting international pressure on the Russian economy and the defense industry cut off from reaching its full potential, Russia is trying to modernize from within.
But in looking inward, Russia might not like what it sees.
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