Russia Defence and Security Report Q2 2008

Russia's defence exports rose considerably in 2007 due to a number of high-profile orders secured with Venezuela, Iran, India, Algeria and most recently Indonesia. In Q108 the Russian defence industry continued to grow rapidly. In the last year Russia's defence industrial base grew by 23.1%. In recent years Russia's defence industry growth has been exceptionally strong but it has received assistance from the government, first in the form of a reconsolidation of the defence industry and most recently via US$189bn allocated for the 2007-2010 re-armaments plan. The boom has also been driven by an increased demand from overseas clients, such as Venezuela, Algeria and Indonesia.

Defence industry developments in 2007 included the Russian government confirming plans to establish three shipyard holding companies. The firms have not been selected yet but some have been mentioned, namely Severnaya Verf and Baltiisky Zavod, which are majority-owned by Mezhprombank through United Industrial Corporation. The Kalingrad-based Yantar shipyard was also named as a possible candidate.

In recent months Russia's regional diplomatic and defence ties have deteriorated significantly. In Q108 the Russian government's decision to boost its missile capability caused concern for the EU and the US.

Russia's motives for boosting its missile cache were questioned in light of the government suspending its involvement in the Conventional Forces in Europe (CFE) Treaty in Q108. Russia withdrew its membership of the CFE treaty as it felt the agreement did not have the same relevance today as it did in 1999. Russia did however state that the government may consider reviving CFE negotiations if all NATO member states ratified the 19 November 1999 treaty, which benefits Russia from a defence and diplomatic standpoint. It is unlikely that the US will acquiesce to such a demand. As such, the issue is unlikely to be resolved in the immediate term.