The sanctions straitjacket on Russia’s defence sector

Maintaining a self-sufficient defence-industrial complex has long been an uphill struggle for Russia – and recent sanctions have only steepened its climb.

For Russian officials, policymakers, and even ordinary citizens, military might and military affairs are not a niche issue or a necessary evil: they are a central part of Russia’s understanding of its own sovereignty and its desire for great-power status. Despite this, since the collapse of the Soviet Union, Russia has largely struggled to maintain its armed forces at a level commensurate with these ambitions.

A fundamental problem the Russian government has come up against time and again is a lack of funding. For many years, the state kept existing lines of production alive through export contracts and maintenance work on Soviet legacy equipment used across the world. But reliance on exports became unsustainable as Soviet-era systems were phased out, replaced by domestic or Chinese products in many developing countries. Renationalisation and state subsidies became common in the Russian defence sector – increasingly so with every economic crisis. This only grew after the economic shock of 2014, when the rationale for state subsidies came to rest on social policy: with civilian industry still in decline, the government now considers the country’s 1,400 defence enterprises to be key providers of employment – in parts of Siberia, even as a way to keep whole cities alive.

There is no doubt that the armaments sector enjoys privileged access to political decision-makers. In 2016 the Kremlin issued an 800 billion rouble debt bailout to the embattled defence industry, and Russia’s main state-owned armament holding, Rostec, took over struggling private enterprises. On top of this, the Russian defence industry suffered two other adverse developments. Firstly, Russia’s oil- and gas-dependent economy lacked innovation and quality manufacturing in civilian sectors. Secondly, the commercialisation of Russia’s education system, which took place from the 2000s onwards, significantly degraded educational standards among graduates. Core engineering and natural sciences disciplines were less affected by this, but ‘soft’-skill parts of the education sector came under pressure. Management deficiencies became ever more apparent as Russia showed itself able to produce successful prototypes of advanced systems – but then proved incapable of producing these in larger numbers. Russian engineers have the requisite skills and ability, but the industry failed to deliver the production and quality control needed.

Western observers often overlook these factors, pointing instead to demographic decline and exchange-rate fluctuations as major challenges for Russia’s defence sector. But such issues have had a much smaller impact than is conventionally thought. Indeed, Russian defence spending has proven sustainable, at a consistent level of around 4 percent of GDP even in times of economic crisis.

Western observers point, mistakenly, to demographic decline and the exchange rate as major challenges for Russia’s defence sector

That said, the fallout from Russia’s invasion of Crimea has had a further impact. Before Europe and Ukraine imposed sanctions in September 2014, Russia would regularly turn to western Europe to compensate for its own dysfunctional domestic machinery sector, largely seeking dual-use items: in 2013 it imported dual-use goods worth €20 billion.

The post-Crimea sanctions put an abrupt end to this approach. Quantitatively, Ukrainian sanctions have actually hurt more, and Ukraine – despite its reputation as a corrupt state – is adhering to these sanctions, unlike states such as Italy, which has left loopholes in its regulations and kept fines to a low level. In Germany, during Sigmar Gabriel’s tenure as economy minister, several deliveries of tools and machining equipment took place. Still, so long as sanctions remain, they will put serious constraints on the Russian supply chain.

To address this, Russia tried to switch to Chinese machinery, but with potentially disastrous results. Many defence experts and grey sources attribute a series of mishaps and accident since 2014 – such as the fire on board the AS-31 research submarine last year – to the integration of lower-quality parts into these platforms. Many Russian next-generation weapons systems cannot enter serial production due to the shortage of key subcomponents and precision machinery, and Chinese manufacturing machines cannot produce them to adequate levels of quality. Designing new weapons platforms to accommodate such lower-quality parts would further delay, if not imperil, their introduction.

In the fraught domain of nuclear weapons, Russia’s actions in seeking to modernise its arsenal are actually rather orthodox. For example, different versions of the Yars intercontinental ballistic missile (ICBM) and Smart ICBM are effectively de-Ukrainianised versions of previous Soviet designs. And one should view the new Wunderwaffen presented by Vladimir Putin in March 2018 with some scepticism: they are all developmental platforms, at best.

Indeed, in hypersonic weapons, Russia has the ability to develop very fast-flying boost-glide vehicles – but it has not found a way to provide them with jamming-resistant, reliable precision guidance. At such high speeds, even small inaccuracies in the internal guidance system can cause a missile to miss by a large margin. Russian hypersonic weapons travel fast, but they fail to hit their targets. Moreover, the first generation of these vehicles is set to carry extremely large nuclear warheads – and will, therefore, only be useful against large-area targets such as cities. Still, the true purpose of the Wunderwaffen is political rather than military: Russia fears that, if the United States were to restart full-scale nuclear weapons production after the expiry of the New Strategic Arms Reduction Treaty (New START), it would out-build Russia quickly. It therefore hopes that fear of multiple unbeatable super-nukes would persuade the US to accept a New START extension to preserve transparency.

Theatre nuclear weapons still play a role in Russia’s military thinking, albeit in a different way than they did during the cold war. While Russia inherited large quantities of non-strategic nuclear warheads from the Soviet Union, most of the delivery systems they were designed for have been phased out, and these warheads have now reached the end of their operational life. As the capabilities of its nuclear warhead production industry have declined since the end of the cold war, Russia needs to economise with the few warheads it produces. The recent introduction of common platforms, such as the Kalibr missile family, for land-, sea-, and air-borne applications, is one way to maximise this small number. Precisely because the Intermediate-range Nuclear Forces Treaty was an obstacle to this approach, Russia breached it.

The true purpose of the Wunderwaffen is political rather than military

Elsewhere, artificial intelligence and electronic warfare feature prominently in new Russian military thinking. The war in Ukraine showcased Russia’s electronic warfare and jamming capabilities. However, most Russian electronic warfare systems also have a passive location-finding and electronic-surveillance function – which are more important to the Russian military. Having noticed that Western ‘network-centric warfare’ concepts have dramatically increased Western military forces’ electronic emissions (constant data signals), the Russian armed forces are working on new integrated systems to generate an accurate, real-time automated battlefield situation based on the enemy’s emissions. These should give Russian commanders the opportunity to plan their operations and commit their forces without over-exposing their own sensors to enemy action, while staying ahead of their opponents in the decision-making loop. This will significantly strengthen Russian capabilities, especially in comparison to those of most NATO countries.

Despite its military impact in Syria, expeditionary warfare does not play a significant role in Russia’s procurement policy. Putin has indefinitely postponed a blue-water navy and carrier fleet rebuild. And space-based communication and intelligence, surveillance, and reconnaissance capabilities are underfunded, as are sealift and airlift capabilities. With many cold war-era big ships, transport aircraft, and satellites now becoming obsolete, and with replacements delayed or cancelled, Russia’s ability to conduct out-of-area operations will decrease in the coming years. Land warfare in Eurasia will therefore dominate Russia’s military thinking for some time to come. But, in terms of equipment, Russia’s land forces will, again, still have to rely on cheap systems that draw on Soviet design heritage. To compensate for the qualitative inferiority of its conventional armed forces, Russia will continue to improve ‘soft’-skill combat enablers, such as high readiness; manoeuvres-rehearsing planned operations; and improved organisation, better reconnaissance, and intelligence on possible enemy forces, terrain, and decision-making processes.

Looking ahead, the West tends to underestimate the effect of sanctions, but these measures have had a significant impact on Russia’s defence industry and are a successful containment tool. Moscow’s hopes that right-wing European governments would break ranks on sanctions in Brussels have proven ill-founded so far, and the Russian defence sector is now trying to circumvent the measures. Apart from seeking European businesses willing to break the sanctions, Russia is setting up front companies in other countries to import dual-use goods – purportedly for civilian use – and then transferring them to Russia to engage in ‘civilian’ cooperation projects with Western firms, before migrating knowhow to the defence sector. Coherent implementation and sanctions supervision – if possible, by the European Commission – is therefore pivotal in keeping European dual-use products out of the reach of the Russian defence industry.

In military terms, the West now needs to distinguish between the sophistication of individual weapons and defence products on the one hand, and the effectiveness of the Russian army as a synchronised fighting force on the other. Russia lags on the former, but it can find ways to compensate for this, to some extent, with creative thinking on the latter. If Europe wants to credibly defend itself against Russia, it needs to pay this particular attention. European military planners need in turn to be creative in identifying Russia’s Achilles heel and working out how to exploit it.

The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.


Senior Policy Fellow

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