Moscow Defense Brief

Russian Arms Exports in 2018

Andrey Frolov

By mid-January 2019, senior Russian officials had announced some of the official arms export figures for 2018. In late December 2018, President Putin said that Russia had sold 16bn dollars’ worth of weaponry to foreign customers that year, of which the state-owned intermediary Rosoboronexport accounted for 13.4bn.1 The company had also signed 19bn dollars’ worth of new contracts by early November 2018,2 while the estimated total for the whole year is 20bn.3

The Russian arms contracts portfolio grew from 45bn dollars at the beginning of 2018 to 55bn at the year’s end. By subtracting the value of arms deliveries made over the year, we arrive at a rough estimate of the total value of new export contracts signed in 2018: 26bn dollars. We can also deduce that new contracts signed with the CSTO states, free arms transfers, and contracts for the repair and maintenance of previously delivered hardware were worth about 5bn dollars. It’s worth mentioning that these figures almost match the record highs set in 2015 (see Figure 1).

Officials have also released a few details about the number of new contracts signed and the schedule of deliveries under those contracts. For example, we now know that Rosoboronexport had made 7bn dollars’ worth of deliveries and signed 600 new contracts worth a total of 9bn dollars by August 2018.4 By November, the number of new contracts had reached 1,100, and their combined value 19bn dollars.

Figure 1. Russian arms export portfolio and new contracts in 2013-2018

Source: CAST

Russian arms exporters’ rouble earnings grew in 2018, helped by the weakening rouble (whose average annual exchange rate fell from 58.3 to the dollar in 2017 to 62.92 in 2018). The rouble inflation rate was 4.3 per cent, up from 2.5 per cent the previous year.

Another upsurge in new arms contracts and a bulging portfolio

As already mentioned, the Russian portfolio of arms export contracts grew sharply to a fairly comfortable 55bn dollars, providing for a healthy safety cushion compared to the previous years’ average of 45 to 49 billion. That upsurge is largely explained by the successful completion of talks on several large contracts with India. Without that contract, the Russian portfolio would probably have remained flat.

A few details were released during 2018 about the structure of that portfolio. As of late August, North Africa and Asia Pacific (including India and China) accounted for 60 per cent of all outstanding contracts; the Middle East and the Arabian Peninsula for approximately 20 per cent; sub-Saharan Africa 10 per cent; and the CIS 5 per cent.5 The portfolio itself stood at 45bn dollars at the time, so, in absolute figures, these percentages translate into 27bn, 9bn, 4.5bn, and 2.25bn dollars, respectively. Interestingly, in late September, the portfolio of contracts signed with unspecified “African states” was said to be worth 3bn dollars; the source provided no further details.6

China accounted for 15 per cent of the export contracts portfolio (6.75bn dollars) and 12 per cent of all Russian arms deliveries made in 2018 (1.92bn).7 In fact, the Chinese share of the portfolio has risen sharply from 5 per cent in 2013 to 14-15 per cent in recent years.8 Outstanding contracts with Vietnam are worth 1bn dollars (2.2 per cent of the 45bn-dollar total).9

Some interesting details were released about the state of Russian-led defense infrastructure projects in third countries in recent years. Rosoboronexport was said to have completed 11 large projects across all the major types of armed services in foreign countries over the period from 2001 to 2018. Another 20 infrastructure projects were under way in more than 10 countries in 2018.10

It was also reported that over the past five years, the value of joint R&D programs with foreign partners (focusing on arms upgrades and the development of new weaponry) was up 35 per cent.11 But the largest such program, the joint effort with India to develop the FGFA fifth-generation fighter, is now effectively frozen.12

Figure 2. Russian arms exports in 2013-2018: total and those channeled via Rosoboronexport

Source: CAST

Key developments and highlights of 2018

The main development of 2018 was the impact of US sanctions under the CAATSA bill on Russian arms exports. US sources estimate the Russian arms exporters’ losses as a result of those sanctions at 3bn dollars, mainly in the form of contracts from which the potential buyer has walked away – but Moscow has denied this.13

Regardless of the actual figure, there is no denying that the sanctions have caused some real problems. We are aware of at least one contract affected by CAATSA. Indonesia was willing to buy 11 Su-35 fighters from Russia, but the contract depended on credit financing by a commercial bank. That bank, however, did not want to risk the consequences should the US government interpret the loan as the bank’s cooperation with Rosoboronexport and slap sanctions on it. As a result, the implementation of the contract was postponed, and Indonesia did not receive any Su-35 jets in 2018.14

Even China did not escape unscathed by the CAATSA bill. In fact, it proved its first real victim in September, when Washington slapped the first official penalties under that bill on the People’s Liberation Army’s (PLA) Equipment Development Department (EDD) and its chief, Gen. Li Shangfu, for buying Russian Su-35 fighters and S-400 SAM systems. It didn’t even help that the contracts in question were signed long before the CAATSA bill came into effect.

The sanctions have also caused problems with payments for Russian defense hardware delivered to foreign customers, including such a major global power as India. It was reported in June that Indian payments under most of the arms contracts with Russia suddenly ground to a halt in April 2018 over the CAATSA sanctions against Rosoboronexport, whose foreign trading partners now risk so-called secondary sanctions for doing any business with it.15 The proposed solutions Russia began to explore included new payment options, such as clearing accounts and currencies other than the US dollar in order to shield Indian banks from the CAATSA threat.16

In an indirect admission that the US sanctions have a real bite, there have been several statements to the effect that Russia intends to begin using the rouble and its foreign defense customers’ own national currencies – such as the Indian rupee, the Chinese yuan, and the UAE dirham – for future contracts. In fact, the dollar has already been replaced as the settlement currency by one of the national currencies for some of the existing contracts.17

In addition to financial risks, there have also been difficulties with logistics. For example, the Russian RO/RO ship Ural sailing under a Turkish flag was arrested with a cargo of weapons on a flimsy pretext in Tunisia in February, and released only two months later in April. We believe that problems like these have forced Russia increasingly to rely on its military transport planes and Emergencies Ministry aircraft for defense hardware deliveries to foreign customers. Also, in June 2018, the government issued a resolution authorizing foreign shipping companies to handle shipments of Russian weapons destined for foreign customers in the event of Russia’s own companies being unable to do so. It remains unclear though whether and how those foreign shipping companies can evade the US sanctions.

Another part of the Russian strategy to minimize the risks posed by sanctions is to further reduce the transparency of its arms exports. Statements by the traditional Russian arms export newsmakers have become few and far between, and information from Russian sources has become scarce. The Russian government has issued a resolution barring the AO- and OOO-type incorporated companies from disclosing information related to Russian defense procurement or foreign arms contracts. Also, Russian companies are no longer allowed to disclose any details about contracts signed by the Russian legal entities or physical persons who have been put on any of the foreign sanctions lists.18

Parliament has also passed amendments to the Russian law regulating the arms trade. The changes allow “corporate commercial and insurance information related to foreign trading operations” to be kept secret. According to the Russian media, the information in question concerns the insurance in Russia and reinsurance in the West of Russian arms export contracts.19

Moving on to the positive side of things, the main achievement of 2018 was the finalization of several contracts with India that had been on the table since 2015. Moscow and New Delhi have finally signed a 5.5bn-dollar deal for S-400 SAM systems, a large contract for two Project 11356 frigates, and a deal for Igla-S SAM systems. Several other contracts have yet to be signed, hopefully some time in 2019. These include a contract for local production of the Ka-226T helicopter under Russian license; Russian deliveries and local production of Kalashnikov assault rifles; the lease of another (second) Russian nuclear submarine by the Indian Navy; and a contract for 48 Mi-17V-5 helicopters. These hoped-for new deals are expected to boost Russia’s new-contracts total in 2019. On the other hand, Russia has lost the Indian tender for anti-aircraft systems to South Korea’s K30 Biho system. Moscow is now working hard to persuade the Indians to reverse that decision.

Other significant events in 2018 include an official Russian confirmation that a foreign customer has expressed interest in the Su-34 (Su-32FN) tactical bomber. The statement did not specify who exactly that customer was.20 Russia has also confirmed that a third foreign customer wants to buy a batch of Su-35 aircraft, also without specifying the customer’s identity.

Another noteworthy development was a large contract for BMP-3 infantry fighting vehicles with Iraq. Deliveries were originally expected to commence back in 2014 but were delayed for various reasons. The deal is potentially one of the largest contracts for Army hardware ever secured by a Russian supplier (estimates of the number of vehicles ordered by the Iraqis range from 300 to 500).

In 2018, the Russian government withdrew from a 1995 agreement with Ukraine on bilateral transfers of defense hardware. The move followed Ukraine’s unilateral withdrawal from that agreement in November 2017.

Noteworthy institutional changes in 2018 include a greater remit of the Federal Service for Military and Technical Cooperation. Under a new presidential decree, the agency now has the power to “define the procedure for placing and disseminating information related to military and technical cooperation”, as well as “the procedure of formulating the objectives for negotiations with foreign customers”.21

  1. Putin: Russian arms exports to reach 16bn and agriculture exports 25bn in 2018 // Prime, 20.12.2018; Rosoboronexport details

  2. 2018 arms exports plans // RIA Novosti, 06.11.2018

  3. Nikolsky A. Rosoboronexport sells a record 19bn dollars’ worth of weapons to foreign customers despite sanctions // Vedomosti, 02.11.2018

  4. Dzhordzhevich A., Safronov I. Tanks not going back // Kommersant, 02.04.2019

  5. Rosoboronexport makes over 7bn dollars’ worth of deliveries and signs 9bn dollars’ worth of contracts in 2018 // Interfax-AVN, 20.08.2018

  6. Smitry Shugayev: Russia has found a way to win new arms export customers // RIA Novosti, 20.08.2018

  7. FSVTS chief: Russian arms return to Africa // Interfax-AVN, 20.09.2018

  8. Shoygu: 12% of Russian arms exports destined for China // TASS, 11.07.2018; China accounts for over 15% of Rostech and

  9. Rosoboronexport portfolio of arms contracts // Aviation EXplorer, 06.11.2018

  10. Reshetnikov D. Sanctions not depressing demand for Russian weapons. Shugayev on arms trade with China and competition with

  11. the US // TASS, 07.11.2018

  12. Russian portfolio of Vietnamese arms contracts worth over 1bn dollars // TASS, 06.09.2018

  13. Rosoboronexport working on infrastructure projects in more than 10 foreign countries // RIA Novosti, 11.10.2018

  14. Putin praises Russia’s arms export achievements // RIA Novosti, 06.11.2018

  15. Dmitry Shugayev: Russia has found a way to win new arms export customers // RIA Novosti, 20.08.2018


  17. Safronov I., Dzhordzhevich A. Sukhoi sanctions // Kommersant, 05.10.2018

  18. Nikolsky A. Sanctions hampering payments // Vedomosti, 24.08.2018

  19. Ibid.

  20. Several contracts for Russian defense hardware already rely on non-dollar payments — Deputy Prime Minister Borisov // Interfax-AVN, 14.09.2018

  21. Companies allowed not to disclose information about Russian defense procurement-related deals // TASS, 17.01.2018

  22. Ivanov M., Dzhordzhevich A., Raysky A. An exceptional case // Kommersant, 24.05.2018

  23. Russia receives first request for export of Su-34 bombers, says Rosoboronexport chief Aleksandr Mikheyev // Interfax-AVN, 21.08.2018

  24. Putin expands remit of the Federal Service for Military and Technical Cooperation // Rambler News Service, 02.07.2018

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