Murphy's Law: Merchants Of Success

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September 16, 2008:  While Russian arms sales are sliding, American weapons exports are surging. Russian expects to sell $6 billion worth of weapons this year. But Russia exported $8 billion worth of weapons last year, and there were hopes that sales might reach $10 billion this year. The sudden fall in Russian arms sales comes from problems with the two largest customers; China and India. Meanwhile, U.S. sales are currently about $32 billion a year.

The United States and Russia have long been the largest exporters of weapons, accounting for about 70 percent of world sales over the last decade. Traditionally, the U.S. sold nearly three times as much as Russia, but that ratio is changing, to more than five times more arms exports for the U.S.  Three years ago, U.S. sales were only $12 billion. Since then, sales have sharply increased. The primary reasons for this are fear, obsolescence and confidence. Persian Gulf Arab nations have lots of oil income, and a growing fear of Iran. That's where most of the sales are coming from. But all over the world, in over fifty nations, there is more emphasis on replacing Cold War era weapons, and confidence in combat proven U.S. equipment, U.S. weapons are preferred.

You could see the coming surge of sales because of aging Cold War gear. When the Soviet Union collapsed in 1991, and their military threat melted away, dozens of major military nations suddenly had more weapons than they needed, and no dangerous neighbor to justify large armed forces. So for the last 17 years, many nations have been living off past purchases, and putting a lot of quality weapons on the second hand market. Then there were the Eastern European nations, long a major market for Soviet arms, now joining NATO, and buying Western, often U.S., weapons in order to pull their weight in the NATO alliance. Even India, long a customer of Russia, is seeking higher quality weapons, and has become a customer for American arms.

Confidence in the superiority of American weapons makes it easy for a nation to justify the higher price (compared to comparable, on paper, Russian, or even European, equipment) of U.S. aircraft, ships and infantry gear. Even nations that were opposed to American operations in Iraq, have noted how effective U.S. military equipment has been. It's also been noted that the U.S. casualty rate has been a third of what it was in Vietnam, and all other wars in the last century. Whatever the Americans are doing, other nations want to buy in to how they are doing it..

There is more effort by the Russians to not just sell on price, but also on service and warranties. Most of the cost of a new weapon comes during the lifetime (often a decade or more) of use. In the past, Russia had a bad reputation for support, and lost a lot of those "after-market" sales of maintenance services and spare parts. The U.S. was much better in that respect, but much more expensive. Now the Russians not only have the price advantage (often half, or less, the cost of equivalent American weapons), but an improving reputation for providing good service. The Russians are also selling more high tech, and expensive, warships. For many years, warplanes comprised about two thirds of Russian sales, but now, about half the sales were for warships.

Russian arms exports had been growing rapidly during the last few years. In 2005 Russian arms exporters had already booked orders for six billion dollars worth of sales per year through 2008. In 2004, Russian arms sales were $5.6 billion, and that went to $6 billion in 2005 and $7 billion in 2006. Russian arms sales have been rising sharply (they were only $4.3 billion in 2003), 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, as eager to buy more weapons, with which to defend their assets.

Over the last decade, about 40 percent of Russian arms exports went to China. But that is now at risk, as Russian manufacturers feud with the Chinese over stolen technology. The Chinese have been quite brazen of late, as they copy Russian military equipment, and then produce their own versions without paying for the technology. Worse, the Chinese are now offering to export these copies. The Russians are trying to work out licensing deals with the Chinese, but are not finding much interest. The Chinese say their generals are angry over how Russia sells technology to potential Chinese enemies, like India. The Russians don't understand that, as they have been selling weapons to India for decades. Russia fears that the Chinese have just decided that they don't need to buy Russian technology, or equipment, any more, and can just steal what they need.

Then again, all this could just be a lot of posturing, as the Chinese negotiate to get the best deal they can for Russian military technology. It is cheaper to build under license, because that way you get technical assistance from the developer of the technology.

India is unhappy with Russian sloppiness in handling large projects, like refurbishing an unfinished Cold War era carrier. This project has been a financial disaster for India. Worse yet, India is buying more Western (Israeli, European and American) weapons, and notes the differences in performance and service. Israel, like the U.S., has an edge because their gear is high tech and combat proven. But Arab nations, and most Moslem countries, refuse to buy from Israel, and will sometimes pressure other nations do likewise. This makes America the only alternative if you want high tech, and combat proven, weapons.

 


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