Russia’s Boom Business Goes Bust

After cresting in the early 2010s, Russian arms exports have fallen to levels not seen since the collapse of the Soviet Union. The Wall Street Journal referred to Russia’s precipitous decline in arms exports as among “the casualties of Russia’s war in Ukraine.”

But the timing doesn’t add up: According to data from the Stockholm International Peace Research Institute, Russia’s arms exports began falling in earnest in 2019, and were already down nearly 20 percent relative to 2011, the high-water mark for the Russian arms industry. That year, Russian arms exports nearly matched U.S. arms exports and were delivered to 35 different countries. Eleven years later, Russian arms exports had fallen by nearly 70 percent, with deliveries to just 12 countries.

If the war on Ukraine dealt the knockout blow to Russia’s arms exports, the industry had already been on the ropes for some time.

Already facing substantial and largely self-inflicted wounds, what do Russia’s falling arms sales portend for the country’s position in global affairs? They point to further erosion of Russia’s—and Russian President Vladimir Putin’s—international influence and increasing dependence on oil and gas exports. Writing in the Washington Post, Maria Snegovaya admonished the West to think of Russia “as an ordinary petrostate, not an extraordinary superpower” back in 2015. With its defense industry in the doldrums, this assessment is even more true now than it was then.

Perhaps most importantly, the decline in arms sales signals Moscow’s increasing dependence on—and subordination to—the interests of India and China. Russia is now more dependent on arms sales to those two nations than any time since 2003—but at much smaller export volumes, and with both India and China continuing to develop their own import-competing arms industries.

Russia’s early-21st century arms boom was fueled by scaled-up purchases from China, India, and Algeria—Russia’s three biggest export markets—as well as expansion into “new” markets in the former Soviet Union. Flush with oil and gas revenues, former Soviet republics Azerbaijan and Turkmenistan began stocking up on Russian weapons and weapons systems, including battle tanks, attack helicopters, and both surface-to-air and anti-tank missiles.

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But it was also around this time that Russia began expanding its role as an exporter of choice for revisionist and rogue leaders, such as Hugo Chávez in Venezuela and Bashar al-Assad in Syria. Russian arms transfers to Syria spiked from 2010 to 2013 in the run-up to and first few years (and heaviest fighting) of the Syrian civil war as the United States, European Union, and others imposed arms embargoes on Damascus.

After a decade of strong Russian arms sales, headwinds emerged in the mid-2010s. Venezuela’s economy cratered in 2014, as did Syria’s arms purchases. The surging oil prices of the previous decade were replaced by lower and more volatile prices, curtailing demand from oil-rich neighbors. Following Russia’s annexation of Crimea, the United States and other Western countries began pressuring third countries not to buy Russian.

At the same time, Russia’s biggest export markets in India and China began to change. Under Prime Minister Narendra Modi, the Indian arms industry has benefited from a general Indian  pivot to local procurement that saw domestic production surge and imports fall.

China’s 2000s economic boom facilitated the development and modernization of its military-industrial complex, curtailing Russian imports and competing with Russia as an arms exporter, especially to developing and middle-income countries. Though China remains a top Russian export destination, overall, China’s imports from Russia began receding in the late 2000s. With Ukrainian fighters reporting more and more Chinese components in captured or destroyed Russian weapons, the war appears to be at least temporarily reversing the earlier flow of trade.

Declining arms sales are both a symptom and cause of eroding Russian influence in global affairs. Arms sales and in-kind military aid are among major powers’ strongest levers of influence on foreign governments, useful for developing strategic partnerships and as the carrot or stick in explicit quid pro quo-based diplomacy, such as U.S. military support to both Israel and Egypt as an enticement to seal the Camp David Accords.

In 2010, Russia exported arms to 37 countries, including EU members Cyprus and Slovenia, as well as Western hemisphere countries Brazil and Mexico. These arms exports reflected Moscow’s reemergence under Putin as a global power following more than a decade of political and economic instability. By 2022, Russian arms exports reflect its growing isolation: 91 percent of its exports flowed to just four countries: India, China, Belarus, and Myanmar—two ascendent powers, one vassal state, and a global pariah. The headwinds of the mid-2010s have become a full-blown gale.

Venezuelan President Hugo Chávez (third from left) inspects anti-aircraft missiles at the Izhmash plant, the home of the Kalashnikov assault rifle, in Izhevsk, Russia, on July 26, 2006.AFP via Getty Images

Russia’s weakening position as an arms exporter also increases its dependence on exporting oil, natural gas, and other commodities, as well as comparatively low value-added exports such as fertilizer and steel. Although Russia is a major player in both food and fuel markets, its fortunes rise and fall with commodity prices such as those of other exporters. Moreover, its tendency to weaponize its food and fuel exports—both of which have been on display during the Ukraine war—has reduced its credibility as a trading partner.

In the short term, war-related market instability resulted in burgeoning coffers, stabilizing a Russian economy beset with sanctions and the mounting costs of war. But as global prices moderate, Russia’s export and government revenues are softening. Europe is learning to live without—or at least with significantly less—Russian oil and gas, which brings us to perhaps the most important implication of Russia’s declining arms sales: its growing dependence on India and China.

India and China have been Russia’s economic lifelines during the Ukraine war and resulting Western sanctions. As of mid-April, more than 90 percent of Russia’s seaborne crude oil exports went to the two countries, and China alone doubled its purchases of Russian liquefied petroleum in 2022. As other export markets for Russian arms have also dried up, India and China now command larger market shares in that sector than at any point in the past two decades.

And either or both of those markets can change rapidly. Russian arms exports to India are currently stalled due to New Delhi’s fears of payment running afoul of Western sanctions and because the Kremlin is having to divert arms to its own military. The sanctions-fueled opportunity to wean countries off of Russian military technology is not lost on the U.S. Defense Department.

With fewer arms flowing to traditional trading partners and fewer export destinations for its products, Russia is losing one of its best—and most targetable—sources of diplomatic leverage over other countries, especially those countries where it might otherwise compete for influence with the West. Indeed, the United States has ramped up intelligence sharing, military assistance, and exports to India to help decrease its reliance on Russian arms and as part of Washington’s strategy to balance China in Asia.

Over the longer term, China will emerge as Russia’s most important trade partner, with Chinese imports of automobiles, industrial machinery, and semiconductors having replaced imports from Europe. But the more Russia depends on China for exports and imports, the more the strategic autonomy arms exports are supposed to provide erodes.

The war in Ukraine makes a quick reversal of Russian fortunes extremely unlikely for several reasons. First and most obviously, the Russian arms industry isn’t even keeping up with domestic demand as Russia burns through its stockpile of arms and drafts long-mothballed Khrushchev-era tanks back into service. The whole point of having a military-industrial complex is to be able to fuel the war machine from domestic production; arms exports are taking a back seat to supply the war effort.

Second, Western sanctions are constraining the supply chains on which the Russian arms industry depends. A recent report by the Center for International and Strategic Studies found that Western sanctions have created massive sourcing problems for Moscow, especially in the areas of semiconductors, night-vision technology, and avionics. Even if demand were to rebound, it is not clear Russia could meet it.

And finally, the war has been a humbling showcase for Russian military technology. Images of “headless” tanks and reports of high failure rates for Russian missiles may be part wartime propaganda, part reality. Focusing on the technological shortcomings of Russian weapon systems may overly discount the ingenuity and effectiveness of Ukrainian forces. Whatever the reasons, the war in Ukraine has not been a particularly compelling advertisement for Russia’s leading-edge military technology.

As the Ukraine war drags on, Russia is becoming—by some measures—less isolated than in the immediate aftermath of its invasion. In addition to trade relations with China and India, Russia’s trade with countries ranging from Costa Rica to Indonesia and Turkey has increased. But its arms exports, a core tool by which countries build coalitions and extend and protect their interests, have waned dramatically. The Ukraine war and subsequent sanctions have thrust Russia’s lagging arms exports into the spotlight, but the problems had been accumulating for almost a decade—and there isn’t a clear path toward reversing the trend.