Murphy's Law: Why Russia Is Angry


February 23, 2012: Want to know why Russia continues to defend dictators in Syria and Iran. It's about money and lost glory. Consider the money angle. A quarter century ago Russia was exporting over $80 billion worth of weapons a year. When the Cold War ended those sales fell over 90 percent and only recently climbed back to $13 billion a year (for 2011). But Russia could have been selling $20 billion worth a year were it not for the recent demise of the dictatorship in Libya (which cost Russia over $4 billion) and years of arms embargoes on Iran (over $12 billion in lost sales). Now the Syrian dictatorship is challenged by a popular revolution and Russia faces the loss of another $5 billion in arms sales.

Some Russians see all this as a deliberate attack on Russia, a clever economic war by those evil Westerners. By denying Russian arms makers those export sales Russia cannot afford the research and development needed to remain competitive (in terms of technology) with the West. Yes, it must be (to Russians) a masterful plot to keep Russia weak.

That's not quite how it was. The enormous size of the Soviet defense industries played a major role in bankrupting the Soviet Union and ending the Cold War. During the 1980s, over 20 percent of Russian GDP was devoted to military spending. That was more than four times the figure for Western nations. In addition, Russia had captive markets in Eastern Europe (nations that had been occupied by Russian troops since the end of World War II) and nations that would not, or could not, buy from the West (mainly India and the Middle East). Most of these markets stopped buying Russian arms after 1991.

The Russian defense industries are still huge, employing nearly three million people and accounting for about 20 percent of industrial jobs in Russia. At the end of the Cold War in 1991, defense work was more than three times as large as it is now. In the early 1990s, Russian defense firms quickly realized that export sales were all that could save them. It worked. By 2004, Russia was exporting $4.3 billion worth of weapons a year. Sure, that was less than ten percent of annual exports during the Cold War but new markets had been found and Russian arms had a much better reputation. In the last decade sales increased as the economies of their two biggest customers (India and China) grew larger. That, and the escalating price of oil (driven largely by increased demand from China and India) has sent international arms sales from $29 billion in 2003, to over $60 billion now. Oil rich countries, particularly those in the Persian Gulf, are eager to buy more weapons, with which to defend their assets, but not so much anymore because the Arab Gulf States support the rebels in Syria.

All those former defense industry employees in Russia remember the glory days. The defense industries have been rebuilding, not just surviving, during the last decade. But now major export customers are falling away. Not just the dictators in Libya, Syria, and Iran but India (unhappy with poor quality and support) and China (which seems more interested in stealing Russian military technology than in buying Russian weapons). The lost export sales mean fewer jobs, and profits, in Russia. No wonder the Russians are mad.





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