Publication: Prism Volume: 4 Issue: 3

Reorganizing Russia’s arms export system

By Stanislav Lunev

The Kremlin has recently begun to make radical structural changes in Russia’s system of state organization and control in the area of arms sales. The arms trade is one of the few branches of Russian industry which brings in hard currency income, and lots of it.

For Russia’s leaders, who ends up getting these weapons is of little concern. They are far more interested in making sure that the money brought in from such sales will go into their personal bank accounts.

Over the last five years, Russia has received about $27 billion in loans and credits from the World Bank and the IMF, and about $20 billion in investment, while over $60 billion has been transferred by "new Russians" into personal accounts in foreign banks. In this situation, as the media rightly ask, "Who is the real creditor, and who is the debtor?" (1) In other words, all of the credits and investment received from the West in recent years have leaked out, legally, semi-legally, and illegally, as have the proceeds from the sale of natural resources and the Russian goods which are in demand on the world market, mostly those produced in the Russian military-industrial complex. In this connection, the Kremlin’s interest in introducing changes in the arms export system, in order to extract additional profit, is quite understandable.

These changes were reflected in a series of decrees signed by President Boris Yeltsin on August 21 of last year. Rosvooruzhenie and two other state enterprises received the status of special arms exporters, and plans were announced to increase the number of defense enterprises with the right to sell arms independently on the world market. There were eight such companies before the series of presidential decrees.

It is easy to understand why this is being done. Up to the present time, the Russian government has actively violated its international obligations and supplied nuclear, missile, and other technology to regimes with dubious reputations, explaining their actions by saying that "nobody knew" what these Russian companies were doing. (2) Increasing the number of companies permitted by the government to sell arms abroad will permit the Kremlin to continue, and even to step up, this practice, while avoiding sanctions from countries concerned about the proliferation of deadly weapons.

A September 1997 presidential decree, removed Rosvooruzhenie’s general director, Maj. Gen. Aleksandr Kotelkin, from his post. He was replaced by Yevgeny Ananev, the former chairman of the board of MAPO-Bank, who had previously participated in the development of projects involving military aviation technology. The official reason for this reshuffling was given as the "reorganization of the company," but the Russian media think that a new group had won out in the Kremlin power struggle, and wanted its own man in the lucrative post of director of Rosvooruzhenie.

One of the reasons for Gen. Kotelkin’s removal, in the media’s opinion, was the desire of Prime Minister Viktor Chernomyrdin — one of those who ostensibly "knows nothing" of Russia’s deals with Iran — personally to oversee Rosvooruzhenie. Kotelkin, reputed to be a protege of Gen. Aleksandr Korzhakov, former head of the Presidential Security Service, apparently did not suit the prime minister. (3)

However, Chernomyrdin was forbidden by Yeltsin to disturb the mechanism of selling arms abroad, according to which most arms shipments went, not through state orders, but through commercial contracts ostensibly free of government control. As a result, the government retained the ability to earn significant off-budget income, which could be used for anything at all, including election campaigns and other political purposes. In this connection, replacing the company’s director for Ananev, who was more "Chernomyrdin’s man," could be seen as a farsighted political step.

Recognizing Kotelkin’s services in expanding arms exports, the president appointed him First Deputy Minister of Foreign Economic Relations. But Kotelkin did not occupy the post for long. In January of this year, he was removed from his new post in a round of "staff cuts," which, in Russia, are still seen as a convenient way to get rid of inconvenient staffers. The real reason for his removal was that Kotelkin had accused Vice-Premier Yakov Urinson, who was responsible for the military-industrial complex, and his team of "deliberately ruining the domestic military industry and sharply reducing the scale of Russian arms shipments abroad." (4)

Kotelkin is widely seen as a serious professional in the arms trade. He will undoubtedly be offered a good job, but, most likely, in the private sector. This is an ironic turn of events for a man who tried to keep the activity of his agency within the bounds of the international obligations taken on by the Russian government, to whom he proved to be "inconvenient."

How will these changes affect Russia’s arms sales abroad?

Russia has fallen from second place behind the United States in arms sales, which it occupied in 1995, to third, having been overtaken by Great Britain. (5) Russia’s slide was not caused by the quality of the arms it offered; its clients had virtually no complaints on that score, although they had some concerns over correctable shortcomings such as poor quality of service, preventive maintenance and repair, and the lack of availability of replacement parts.

Russia’s main problem is that it has lost its once-permanent customers. Most of its former Warsaw Pact allies have no money for arms modernization, since they are going through an economic crisis. Other former allies, who have been invited into negotiations to join NATO, will be switching to North Atlantic standards.

Russia’s recent deals to sell 40 fighters to India, and four submarines and 72 fighters to China, have been quite profitable, however.

China is taking on increasingly greater significance for Russian arms exports, in accordance with the "strategic partnership" between the two countries. This involves the integration of the two countries’ arms on the basis of new weapons systems developed by the Russian military-industrial complex. According to statements by the two countries’ leaders, such cooperation is not directed against any third country. According to Israeli intelligence, however, Russia and China are working together to build a long-range missile for Iran. (6)

If this program is completed successfully, in three years Tehran will receive missiles with a range of about 1200 miles, which could be equipped either with conventional warheads, or with nuclear, chemical, or biological weapons.

Russia’s present leadership does not appear at all worried about the threat that Iranian missiles, built with Moscow’s participation, might pose to international security. The Kremlin’s unprincipled choice of trading partners is also shown in the fact that the main buyers of Russian weaponry are still located in the Middle East, and include such countries as Iraq, Syria, Libya, and other states internationally recognized to be sponsors of terrorism, or countries which participate in terrorism.

It is hard to say how Russian arms sales will develop after these structural and personnel reorganizations, since the country’s leaders appear chiefly interested in making a quick profit. Official statements that Russia’s top leaders are ostensibly "unaware" of arms shipments that violate Russia’s obligations are, to put it mildly, untrue, since the institutions supplying the arms are state enterprises, under the direct control of government agencies, and cannot even think of taking such a step without the approval of government officials. The traditional democracies find themselves once again, therefore, facing dangerous problems of weapons proliferation.

Translated by Mark Eckert

Stanislav Lunev was formerly a colonel in Soviet military intelligence [GRU].


1. ORT, January 9, 1998

2. The Washington Times, January 19, 1998

3. Delovoi mir, No. 129, 1997

4. Izvestia, January 17, 1998

5. Delovoi mir, No. 129, 1997

6. The Washington Times, September 10, 1997


Prism is a publication of the Jamestown Foundation. It is edited by Elizabeth Teague and Stephen Foye.

The opinions expressed in Prism are those of the individual authors and do not necessarily represent those of the Jamestown Foundation.

If you would like information on subscribing to Prism, or have any comments, suggestions or questions, please contact us by e-mail at <>, by fax at 202-483-8337, or by postal mail at The Jamestown Foundation, 1528 18th Street NW, Washington, DC 20036.

Unauthorized reproduction or redistribution of Prism is strictly prohibited by law.