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To Boost Arms Exports, Russia Courts U.S. Clients -- WSJ

18 Mar 2017 6:32 am

Moscow claws back market share lost since Crimea annexation
By Thomas Grove 

MOSCOW -- When Russian officials struck a deal with the United Arab Emirates last month to develop a cutting-edge combat plane, they sent a clear signal: Moscow is fighting to win back lost market share in arms exports and courting major U.S. customers.

Moscow's foreign arms sales plummeted after its 2014 annexation of Crimea as Ukraine, which was a major supplier of parts to Russian arms manufacturers, cut off shipments in protest.

But Russian arms exports rose 16% last year, to $6.4 billion, according to data compiled by the Stockholm International Peace Research Institute, or SIPRI, which tracks arms sales. Russian President Vladimir Putin said last year that customers had placed orders for $56 billion in future deliveries, a record high for Russia.

"I think they're on an upward trajectory, and I expect they will improve with time as they try to reap the gains of the relationships they're putting in place," said Doug Berenson, managing director at Washington-based defense industry consultancy Avascent.

Russia had long been the world's second-largest arms exporter behind the U.S. but had been gaining ground and even outsold the U.S. in 2013 before the drop.

Moscow's efforts to bounce back have caught the attention of U.S. arms makers, in part because Russia is dealing in some cases with countries such as the U.A.E., Egypt and the Philippines that have long been major buyers of U.S. weapons, though some have also purchased arms from Russia as well. U.S. arms exports rose sharply in 2014 as Russia's fell, and have since edged down to $9.9 billion last year, according to SIPRI.

"If one of our partners like U.A.E....starts turning on any given transaction to the Russians, that means the Russians have gained an opportunity -- that we no longer have -- to build their influence," said Remy Nathan, vice president of international affairs at the Aerospace Industries Association, a trade group that represents U.S. manufacturers.

At the same time, Russia is also moving aggressively to increase sales to countries that traditionally have been customers in the past, such as Indonesia, which is close to reaching a deal with a Russian state-owned arms firm to purchase jet fighters. Belarus, Iran and Nicaragua were among the countries that imported more arms from Russia last year than the prior year.

The Philippines is negotiating an agreement that would allow Manila to import Russian arms for the first time. The deal would be striking because the Philippines is a former American colony and has a military modeled along U.S. lines.

The talks come as Philippine President Rodrigo Duterte has strained relations with the U.S. through his abrasive remarks about former President Barack Obama and an antidrug campaign that critics say has been rife with extrajudicial killings. Mr. Duterte says he wants to boost ties with Russia and Mr. Putin, whom he calls a hero.

Philippine officials have already been in talks with Russia's iconic firearms company Kalashnikov Group about purchasing rifles for its military.

Amb. Carlos Sorreta, Manila's ambassador to Moscow, said his country's military is hemmed in by U.S. export restrictions that stipulate weapons won't be used to commit human-rights violations.

"It's almost like when you buy the gun there is a string attached to it, " Mr. Sorreta said. "As a soldier, you need to be free to act as a commander on the ground and it's difficult to walk around with a weapon that leads all the way to Washington."

The U.S. has maintained a longstanding military advisory mission in the Philippines to help combat an Islamist insurgency. "[The U.S.] didn't give us enough to go all out, to go postal on them, just enough to keep them at bay," Mr. Sorreta said. "Russia's strategy is very different."

Russia is also working to fulfill a $3.5 billion arms deal with Egypt that includes jet fighters. The raft of contracts came about as Cairo's ties with Washington cooled following the 2013 military coup that brought President Abdel Fattah Al Sisi, a former defense minister, to power. Officials at the Egyptian embassy in Moscow couldn't be reached for comment.

The U.S. has far outsold Russia in Egypt and the U.A.E. over the past 10 years, according to SIPRI.

But Washington has been reluctant to sell certain military gear, such as Lockheed Martin Corp.'s radar-evading F-35 Joint Strike Fighter, to Persian Gulf nations in order to ensure that Israel maintains an edge in the region.

The jet fighter that Russia and U.A.E. will develop jointly is meant to be the rough equivalent of the F-35. The U.A.E. and others are concerned about countering Iranian influence in the wake of the 2015 nuclear deal that the U.S. and other world powers struck with Tehran.

"These guys went out of their way over the years not to upset the U.S. and what did they get in return? The U.S. refraining from providing them with the weapons and ammunition when they needed it," said Riad Kahwaji, founder and CEO of the Institute for Near East and Gulf Military Analysis, a consultancy in Dubai.

U.A.E. officials didn't respond to requests for comment.

The deals provide Russia with much-needed dollars at a time when low oil prices and a sharp drop in the ruble are putting pressure on the domestic economy. Russian arms are typically less expensive that U.S. weaponry, which can add to their appeal for some customers.

"In the case of direct competition between Russian and American offers, the price is usually higher on American arms," said Mikhail Barabanov, an analyst at CAST, a Moscow-based defense think tank.

--Asa Fitch in Dubai contributed to this article.

Write to Thomas Grove at thomas.grove@wsj.com

(END) Dow Jones Newswires

March 18, 2017 02:32 ET (06:32 GMT)

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