Russian Arms Exports to Greece, Cyprus and Turkey
Russian Strategic Research Institute
Breaking into the arms markets of Turkey, Greece and Cyprus was one of the biggest successes of Russian arms and military hardware exporters in the 1990s. The penetration of this market has been accompanied by quality marketing research taking into account the peculiarities of the economic and political situations in these countries, which have traditionally been the domain of western arms manufacturers. Sales have already reached about $1 billion. And the groundwork has been laid for new contracts, subsequent servicing and modernization of military hardware. However, far from all plans to promote Russian arms sales in Turkey, Greece and Cyprus have been realized. Sometimes this has been due to objective reasons, but there have also been miscalculations by Russian exporters themselves.
Therefore, it is worth taking a look at the nature of the arms markets in these Mediterranean countries, and the grounds for and limits to the development of military cooperation with them.
Nature of regional arms market
Western Europe in general is a very difficult region for Russian arms exporters to work in1. The successful promotion of Russian weapons and hardware in the countries of this region requires skilful use of the differences and conflicts among NATO members, as well as playing off the competition between U.S. and Western European arms manufacturers. Russia should take advantage of the relative economic and technological weaknesses of these Mediterranean countries, as well as its continued political influence as a permanent member of the UN Security Council.
There is a whole set of factors that determine the current military build-up and arms import policies of Turkey, Greece and Cyprus:
unresolved regional conflicts (especially the dispute between Turkey and Greece over islands in the Aegean Sea and over Cyprus);
domestic political instability in Turkey (the government’s war against Kurdish separatists, the human rights situation in the country);
the large amount of financial, economic and military aid the United States has provided to both Turkey and Greece for many years, massive deliveries of American military hardware on soft terms;
the efforts of U.S. defense companies to warm up the arms markets of these two countries and grab them for themselves;
the attempts of Western European countries, especially France and Germany, to push the United States out of the arms markets of these countries;
the desire of Greece and Turkey to not become too dependent on one arms supplier, the policy of diversifying sources of arms and military hardware;
the traditional ties of Greece and Cyprus to Russia as a member of the UN Security Council who has for many years pushed for a settlement to the Cyprus problem;
Turkey’s efforts to strengthen political and economic ties with the European Union with the aim of future membership;
periodic restrictions on arms supplies to Turkey due to the conflict with the Kurds. Turkey’s concerns that the U.S. Congress and some European countries could ban their arms manufacturers from selling to Turkey even if they win tenders held by the Turkish army;
integration processes in the West’s defense industry (both at the European and Trans-Atlantic levels), the intentions of Greece and Turkey to become a part of these processes; efforts to develop domestic arms production with foreign aid;
cost cutting, which is inevitable in large-scale programs to modernize armed forces; this is the source of interest in used hardware, the search for cheaper arms supply options; the need in a number of cases to procure arms urgently (characteristic for Turkey).
Therefore there are a number of very concrete reasons for Russian military-technical cooperation (MTC) with these Mediterranean countries. But there are some processes in the region (for example, the integration of Western European defense industries, the easing of internal political instability in Turkey) that are throwing up roadblocks to the promotion of Russian arms and military hardware. Along with the grounds for cooperation, there are serious restrictions to the development of Russia’s MTC with the countries of the region.
MTC between Russia and Turkey: destruction of illusions
The modern phase of Russian-Turkish MTC began in 1993. Since then, Russia has delivered the following to Turkey:
The deliveries were made with payment of 100% in hard currency in the year of delivery, as well as in exchange for Russian debt on loans extended to Vnesheconombank of Russia by Turkey’s Eximbank2.
Turkey’s Air Force and Naval Command expressed an interest in continuing arms purchases from Russia, particularly the Mi-28 (Havoc) and Ka-50 (Hokum) helicopters, airborne missiles, amphibious landing craft and project 636 (Kilo class) submarines. Russian state arms exporter “Rosvoorouzhenie”, for its part, offered Turkey frigates, missile patrol boats, MiG-29 (Fulcrum) fighters, S-300 air defense system, Ka-50 helicopters and T-80 tanks. The value of the potential contracts was estimated at $400 million to $600 million.
But then Russian-Turkish relations cooled over the war in Chechnya and differences over the straits. The first contacts failed to evolve into long-term cooperation. Moreover, according to analysts at Russia’s State Committee for Military-Technical Policy (SCMTC), Ankara had not planned to make large-scale arms purchases in Russia on a regular basis, and had no intention of establishing extensive defense industry cooperation. A typical example of this was Turkey’s decision to turn down an obviously profitable proposal made by Russia in 1997 to set up production of Kalashnikov submachine and machine guns along NATO standards at Turkish defense companies. Turkey used MTC with Russia more as a means of putting indirect pressure on the West to step up its ties with Ankara in order to facilitate a quicker and cheaper rearming of the country. Russian-Turkish military contacts in recent years only confirm these conclusions.
MTC with Turkey also has some restrictions related to Russian national security. As SCMTC experts showed as far back as 1996, stepping up military aid to Turkey amid Russia’s ongoing economic troubles and the erosion of the combat readiness of the Russian armed forces could tip the military balance in the Black Sea basin in Turkey’s favor. Turkey’s military spending is already comparable to that of Russia. In light of this the economic benefits of MTC with Turkey would be minimal, as the cost of restoring military parity with Turkey even at the naval level would be much higher than the potential hard currency earnings from arms sales. By shopping around the republics of the former Soviet Union, Turkey has been able to acquire components of complex combat systems that Russia had refused to sell3.
Therefore it was suggested that Russia should refuse to sell Turkey arms that would strengthen its navy (including frigates, state-of-the-art anti-ship missiles, ship-based anti-aircraft missile complexes) and/or were accompanied by the transfer of high technology. They include technologies related to the manufacture of high-precision systems, all types of long-range winged missiles, effective radar jamming systems, anti-missile defense systems, and high-resolution aerospace reconnaissance technology.
At the end of the 1990s, a slightly different view regarding MTC and defense industry cooperation with Turkey began to prevail in the Russian leadership, and both these areas began to be considered quite promising. In line with this mood, during a helicopter tender Russia made a number of proposals that can be considered direct concessions. They include:
offering Turkey the right to independently export the Ka-50 helicopters produced under the Russian license (Russia has never authorized buyers to re-export its latest weapons).
offering to deliver part of the helicopters as payment for Russian debt to Turkey (totaling $300 million) 4.
slashing the initial price of the helicopter by more than half (!) to about $13 million, which is far less than world prices and puts into question the profitability of building the helicopters.
The more cautious position regarding the possible transfer of military technology usually held by the exporting countries in international practice include the following elements:
the license can be transferred only after a shipment of arms is delivered;
the licensing agreement must ensure that there is a technological lag of one generation behind the weapons systems of the exporting country;
the licensing agreement must stipulate the possible continuation of MTC in this area after production of the licensed hardware is established (for example through supplies of components not included in the license);
military hardware produced under license cannot be exported to third countries;
the license is paid for only in hard currency, not by writing off foreign debt or by barter.
Thus Russia was prepared to make unprecedented concessions, apparently in the hopes of playing on the well-known differences in the positions of Turkey and western arms exporters and thus secure fat contracts or establish defense industry cooperation. But today it is clear that this approach missed the mark. Attempts by Russian exporters to sell the same weapons to both sides of a conflict, that is both Turkey and Greece, in order to ease suspicions and mistrust also ended in failure. These attempts included the offer to sell S-300PMU-1 (SA-10) air-defense systems to both Cyprus and Turkey.
MTC between Russia and Greece: prospects and limits
Military-technical cooperation between Russia and Greece began in 1993, and two years later the countries signed an intergovernmental agreement that is in force to this day. The Greek military is quite familiar with Russian military hardware, which has been regularly shown off at the DEFENDORY international land, air and sea arms shows.
Russian arms deliveries in recent years include:
31 “Tor-M1” (SA-15) anti-aircraft missile complexes under 1999 and 2000 contracts;
five “Osa-AKM” (SA-8) anti-aircraft missile batteries delivered in 1998 and 1999;
two large “Zubr” (Pomornik class) amphibious landing craft under a 2000 contract, including one new ship built at the Almaz shipyard in St. Petersburg and one decommissioned from the Russian navy and modernized.5
The Greek army also has 500 Russian BMP-1 infantry fighting vehicles bought from Germany, which inherited them from East Germany after reunification.
Russian specialists reckon that the most promising areas of Russian-Greek MTC include:
the modernization of BMP-1 infantry fighting vehicles and promotion of BMP-36;
participation in two tenders called by the Greek defense ministry for helicopters and tanks (Russia offered the Mi-17-1V(HipH) helicopters and T-80U main battle tanks).
According to Rosvoorouzhenie, Russia could also modernize Slovak-made RM-70 Grad multiple rocket launchers that Greece received after the collapse of the Warsaw Pact7.
Given Greek demands that contracts include offset proposals, at the last DEFENDORY-2000 show “Rosvoorouzhenie” representatives presented a number such programs, including the placement of counter orders with Greek defense plants for the manufacture of parts and units for Russian military hardware, its assembly and repair8. “Rosvoorouzhenie” also thought that the Greek merchant fleet could be used to ship Russian exports of arms and other cargo. But the list of possible offset programs proposed by Russia looks rather modest compared to similar proposals from western firms.
Russian defense companies are also offering Greece many other types of military hardware, including the Buk-M1 (SA-11) air defense missile complex, the Mi-26 (Halo) heavy helicopter, the Amur class submarine, the Molniya class missile boat, and Murena class amphibious landing boat. Reports emerged at the beginning of 1999 that agreements had been reached with Greece for the delivery of several additional “Osa-AKM” short-range air-defense systems. There were also reports of consultations on the sale to Greece of the Antey-2500 anti-aircraft missile system.9 This and similar information indicates that Russia’s defense industry has serious hopes and plans for the Greek arms market.
How well founded these hopes are and how promising the Greek arms market actually is, is another question. We see some real restrictions to MTC with Greece. First of all, there is opposition from the United States, which is trying to prevent the signing of new contracts between Russia and Greece. After the NATO bombing of Yugoslavia, the United States stepped up pressure on its Western European NATO partners, demanding rapid modernization of their armed forces with procurement of new weapons, especially American-made.
Secondly, in Greece itself there are political forces pushing for a reduction in military spending and/or are opposed to more extensive military ties with Russia. Such conflicts exist even within the ruling PASOK party between the followers of Prime Minister Costas Simitis and Defense Minister Akis Tsochatzopoulos, who is in favor of developing MTC with Russia. The country’s economics and finance ministry is demanding a reduction in defense spending in order to meet Greek obligations to the European Union regarding membership in the currency union. There is a strong view among Greek leadership circles that the country should more consistently orient itself towards European arms makers, continue efforts to integrate into the European military-industrial complex, including through the privatization of key Greek defense companies with an emphasis on bringing in European strategic investors. Greece has announced plans to take part in the Eurofighter program, which currently includes four countries, as a full member. Some 70% to 80% of the labor in the manufacture of fighters for the Greek air force is to be done at local aircraft plants.
It is also worth mentioning here the more aggressive competition from Ukraine, which is pushing its T-84 tanks onto the Greek market, as well as “Zubr” amphibious landing ships, and various types of radar. In order to clinch its offers, Ukraine uses the traditional move: dumping prices.
It seems that Russia was unable to fully realize the potential for MTC with Greece that existed in the mid-1990s thanks to Athens’ retreat from its orientation only towards western partners, good Russian-Greek political relations and the Greek military-industrial complex’s exclusion from Western European structures. Now the country has set off on a course of determined integration into the single European defense industry, and establishing closer economic ties with other members of the EU.
Russia and Cyprus: the political factor in MTC
Arms procurement contracts in Cyprus require special approval by parliament. In recent years, the defense budget has had some difficulty making its way through parliament. The two main opposition parties – AKEL and the United Democrats – are opposed to new arms purchases (for example, combat helicopters and “Tor-M1” anti-aircraft missile complexes). They argue that such purchases could derail the peace process. The leaders of these parties are ready to back defense spending only after clearance from Athens within the joint defense pact.
Plans to buy additional Russian military hardware are backed by the ruling Democratic Rally, and by the KISOS socialist party. The Cypriot government is working hard to secure parliamentary support from all political parties for military agreements with Russia that are on the table.
NATO countries are doing all they can to block the development of Russian MTC with Cyprus. This is one of the main goals of NATO military attaches stationed on the island. Nicosia, meanwhile, reckons that even a demonstration of intent to buy Russian arms is an effective way of putting pressure on the West, especially the United States, to push for a settlement of the Cyprus problem.
Russian arms deliveries in recent years include:
43 BMP-3 infantry fighting vehicles under a contract signed in 1995;
41 T-80U main battle tanks under a contract signed in 1996;
S-300PMU-1(SA-10) air defense system under a 1997 contract that is still owned by Cyprus despite the fact that it was stationed on the Greek island of Crete.
The Cypriot defense ministry is interested in buying more Russian weapons for the National Guard, including medium- and short-range anti-aircraft missile complexes, combat and transport helicopters, and training systems for T-80 tanks.
The fact that Cyprus has already bought Russian military hardware to some extent eases the development of MTC with Russia10. Cypriot military circles say the island should continue to buy Russian weapons because this would reduce the time and cost of training new crews, as well as save money on operation and maintenance of combat vehicles.
The lessons of tenders
In recent years Russian arms exporters (primarily “Rosvoorouzhenie”, now known as “Rosoboronexport”) have begun taking a more active part in international arms tenders held by various countries, including South Africa and the United Arab Emirates. Turkey and Greece announced several tenders simultaneously, for tanks, fighter planes, and helicopters. The results of such tenders have not been terribly successful for Russia: the biggest contracts – for fighters, submarines, helicopters – still go to western firms. Nonetheless, Russian defense companies and the country’s main arms exporter, state company “Rosoboronexport”, are getting good object-lessons and reaping clear benefits from their participation in tenders. They are learning to meet the requirements of customers (for example on offset programs), mastering traditional methods of competition, and finding ways to boost the competitiveness of Russian proposals. In other words, they are gaining experience that will undoubtedly be of use in the future. The participation of Russian arms companies in a number of tenders held by Turkey and Greece point to several conclusions that have probable practical importance.
1. First of all, it should be noted that attempts to sell military hardware to NATO members are met with objective difficulties. Countries holding international tenders selected winners based on an analysis of a whole set of factors, the most important of which is political. It is typical that even official representatives of the country did not hide this fact. This offset the advantages often offered by Russian military hardware, such as firepower, maneuverability, simplicity in operation and low cost11.
The NATO membership of Greece and Turkey requires the proposal of technically complex, state-of-the-art products equipped with the latest electronic systems. And Russian companies have to compete with better-known western firms. The situation is different when it comes to MTC with African countries, for example, which require cheap and simple products. Another problem is that the latest hardware on offer has, as a rule, not yet been introduced into the Russian armed forces themselves. Foreign clients are very wary of such offers and are reluctant to buy such equipment.
American arms manufacturers have an initial advantage on the Greek and Turkish markets over their Western European and Russian rivals because the United States is the traditional arms supplier to these countries. Moreover, they provide considerable financial aid to Athens and Ankara12. The U.S. administration has directly tied military and humanitarian aid (after the recent earthquake) to Turkey to the development of military-technical cooperation, including to the purchase of American combat helicopters.
Another important advantage that the United States has is that only it is capable of implementing extensive offset programs. This is an advantage not only over Russia, but also over Western European companies, with the possible exception of Britain’s BAe Systems.
The results of tenders conducted in Turkey and Greece (for fighters in Greece and combat helicopters in Turkey) showed that Russian experts underestimate the strength of U.S. influence over its NATO allies when it comes to arms purchases. Similarly, Russia was unable at one time to correctly assess the role of military and political factors in the contract for the S-300PMU-1(SA-10) system with Cyprus. Attempts to present this deal as a purely commercial venture clearly failed.
On the other hand, the importance of familiar rifts in American-Turkish relations has been exaggerated, particularly when it comes to assessments of the U.S. Congress’s position on restricting arms supplies to Turkey. As the practice of recent years in various regions of the world (the Middle East, Southeast Asia) has shown, congressmen always meet arms makers halfway and soften their position when a major deal is in the offing. This is not surprising since major U.S. defense companies are very good at lobbying their interests. The State Department’s position is similar to that of Congress. For example, in 1997 the State Department, after a few months of waffling, granted licenses to two leading helicopter makers: Bell Helicopter Textron and Boeing.
Russian exporters are faced with having to overcome the standard move used by many foreign governments: American and Western European firms make it into the final phase of tenders, while Russian bids are used as a means of exerting pressure on the western firms to extract lower prices, more up-to-date equipment and shorter delivery deadlines.
In conducting MTC with one side, Russia has difficulties attempting to sell similar weapons systems to the other side. Western arms exporters, except for the United States, have similar difficulties. For example, tank manufacturers understand that the supplier that is selected by Greece will be passed over by Turkey. Britain’s Vickers Defense Systems, for example, said it is betting on the Greek order and is not making an effort to sell its Challenger 2 tanks to Turkey.
2. Russian weapons systems win tenders primarily thanks to their very high and at times unique tactical and technical characteristics. The “Tor-M1” anti-aircraft missile complex is a typical example, with its artificial intelligence technology and ability to hit two targets simultaneously, which not a single western counterpart can do. Moreover, the system is intended to counter high-precision weapons such as the American HARM missile, which targets radiation from air-defense systems.
3. Other advantages of Russian arms are their reliability, simplicity in operation and maintenance, and comparatively low price. But the offset programs that Russia can offer look quite modest compared to similar offers from western firms.
4. Russian exporters more often succeed in securing contracts based on intergovernmental agreements, bypassing international tenders. An example is MTC with Cyprus. But this happens relatively rarely, when the two countries have good military and political relations.
5. Participation in international tenders gives Russian firms valuable experience in how to compete, which will be needed in other markets where there are fewer obstacles.
6. It is notable that during one of the biggest tenders (for combat helicopters for Turkey), Russia used many traditional methods of fair competition. These efforts did not go unnoticed: Turkey not only did not bar Russia from the tender (which was a possibility given the sharp negative reaction against Russia’s sale of the S-300 air defense system to Cyprus), but the Russian bidders even succeeded in dashing the planned scenario for the tender, where American and European firms were to be the finalists. The Ka-50-2 helicopter successfully passed all the tender trials and made it onto the short list. The Kamov Company managed to prepare all the paperwork needed for the tender in full compliance with international norms and rules. And Russia got an idea of the West’s technical requirements for “the combat helicopter of the 21st century”. True, it is difficult to agree with some Russian military specialists that now the Ka-50(Hokum) has a much better chance of winning a similar tender in South Korea. U.S. influence on the military policy of this country is too strong to allow Russia to grab a whole segment of the South Korean arms market.
7. The strategy of implementing joint projects with Israel in the interests of third countries needs to be reassessed. The results of the helicopter tender in Turkey, the program to develop the A-50 (Mainstay) long-range radar detection plane, and the fate of several other projects13, make it possible to make a number of, perhaps tentative, conclusions:
in general, it should be conceded that the main goal of such projects – the penetration of those markets where Russia on its own has no chance – has so far never been attained. On the contrary, Israel, thanks to the participation of Russian firms, secures easier access to the markets of traditional Russian partners – China and India;
the widespread use of Israeli avionics on Russian hardware designated for export undermines the Russian onboard instrumentation and electronics industry;
such joint projects open the threat of Russian technology leaks to Israel14;
the United States, being a financial donor, supplier of military technology, and key assembly parts to Israel, has and actively uses levers to influence the military and defense industry policies of this country. The threat of U.S. sanctions excludes the possibility that Russia’s armed forces could be equipped with helicopters or airplanes fitted with Israeli avionics, so in any case Russia has to build two versions of such military hardware, for export and for domestic use.
Of course the question arises what alternative there is to Israel as a partner in military-technical cooperation, an alliance with which could boost the competitiveness of Russian arms on the world market. The experience of work with France has on the whole been just as negative. Right now only the prospect of modernizing Eastern European MiG-29 fighters by the Russian-German joint venture MAPS looks relatively good.
In conducting MTC with Greece, Turkey and Cyprus, Russia needs to tackle what are on the whole identical problems, including:
strengthening Russia’s position on the regional arms market;
securing orders for the Russian military-industrial complex and earning hard currency;
increasing the level of trust between Russia and its partners in MTC.
At the same time, MTC with Turkey differs greatly. A number of factors of the military and political environment have a negative impact on the development of Russian-Turkish contacts in the area of MTC and create objective restrictions to the nomenclature of products, even within the bounds of the Russian military hardware eligible for export. This is especially important because Russian defense companies now have sufficient experience and resources in order to lobby in Russia for favorable contracts. In a number of cases, they are capable of arranging for the export of arms without taking into consideration the possible negative military and political consequences15. Also, the views of Turkish leaders on the outlook for MTC with Russia differ greatly from the positions of Greece and Cyprus. The underestimation of this factor was one of the reasons for the appearance and subsequent collapse of the illusions regarding potential MTC between Russia and Turkey.
The outlook for developing MTC with Greece and Cyprus looks much better. True, attempts to sell Greece expensive weapons systems such as fighters and long-range air-defense systems have been met with strong opposition from the United States, although this does not exclude the possibility of securing comparatively small contracts, for example for “Buk-M1”(SA-11) anti-aircraft missile complexes, “Kornet-E” (AT-14) anti-tank missile systems and transport helicopters. One should also keep in mind that the Greek and Cypriot arms markets are smaller than that of Turkey.
1 For details see S.P. Kandaurov, V.M. Komardin, «VTS Rossii so stranami Zapadnoi Evropy», Eksport Vooruzheniy, No. 5, September-October 1999, pp 5-12.
2 It is notable that the purchased Russian arms were not intended for the Turkish Armed Forces themselves, but to equip the gendarmerie.
3 The problem of the potential sale to Turkey of arms that could be handed over to rebels fighting in Russia or other CIS countries needs to be discussed separately.
4 Vedomosti, October 26, 2000, p. 1.
5 Greece will get two more similar craft from Ukraine.
6 These issues were discussed during the Russian Prime Minister Mikhail Kasyanov’s visit to Greece in January 2000.
7 INFO-TASS, «Vega» electronic database, October 4, 2000.
8 INFO-TASS, «Vega» electronic database, October 4, 2000.
9 INFO-TASS, «Vega» electronic database, March 1, 1999.
10 And makes it more difficult for Cyprus to procure similar types of arms and military hardware in the West or even in the CIS, for example from Ukraine.
11 On the other hand, Russia had fewer problems when negotiations for contracts were conducted on the basis of direct agreements (for example with the defense ministry of the importing country), bypassing international tenders.
12 Here it is interesting to discuss why firms from France, Germany, Britain and other countries nonetheless manage to make headway on the Turkish and Greek arms markets.
13 For example, in 1998 the Israeli defense ministry, under pressure from the United States, blocked the plans of IAI to sell anti-tank missiles to the Turkish air force together with Russian Kamov Company.
14 For details see S.P. Kandaurov, V.M. Komardin, «VTS Rossii so stranami Zapadnoi Evropy», Eksport Vooruzheniy, No. 5, September-October 1999, pp 5-12.
15 In the interests of objectivity, it should be noted that they are sometimes pushed into this by the virtual absence of state orders, which is of course not normal.