Has the Oil Price Drop & Economic Sanctions Impacted Russian Military Modernization?

The drop in Russian state revenues has affected Russian military modernization to some extent, though the Russian government has made an effort to insulate the military from budget cuts. Although the 2015 military budget was cut by five percent mid-year, the total allocation was still 25 percent higher than the previous year’s budget. This allowed the military to continue its modernization process, conduct operations in Syria, and fulfill its training and exercise programs.

With oil prices remaining low, the military is facing a more difficult financial picture in 2016. In November, the Finance Ministry announced that the total 2016 defense budget would be largely the same as in 2015. However, last month, an additional five percent cut was announced, which will result in the first annual net decline in Russian defense spending since Vladimir Putin became president in 2000.

As a result of the deteriorating financial outlook, the fulfillment of the 2011-2020 State Armament Program is now in question. The Russian military continues to develop new designs and receive new hardware but has been forced to reduce the quantities purchased of some items and to defer some big ticket items. For example, completion of the Yasen and Borei nuclear submarine construction programs has been pushed back from 2020 to no earlier than 2023 for the Yasen class and 2021 for the Borei class. Whereas Uralvagonzavod has previously announced that it will provide 2300 Armata T-14 main battle tanks to the Russian army by 2020, experts believe that only 200-300 will actually be procured over the next five years, with 2300 remaining a goal for 2030. Completion of the Barguzin railroad-based ICBM system was initially delayed by a over a year and then canceled due to financial problems. Finally, orders of the T-50 fifth generation fighter aircraft were reduced in 2015 from 55 to 12 because of the country’s deteriorating financial situation.

Longer term projects have also faced delays, with procurement of a new long range strategic bomber being postponed in favor of modernization of existing bombers. Plans for building large naval ships have been particularly affected. Construction of a new 14 thousand ton nuclear-powered destroyer, once intended to start in 2016, appears to no longer be under discussion, while plans for large amphibious assault ships, meant to replace the Mistral project that was canceled due to Western sanctions, remain amorphous and may have been quietly put on the back burner.

link.

Russian Sailors Leaving France Without Mistrals

Hundreds of Russian sailors pulled out of a French port Thursday, bearing perfumes for their loved ones but lacking the controversial bounty they came for: a 1-billion-euro, French-built warship that has become a hostage to the biggest East-West conflict since the Cold War.

The Vladivostok helicopter carrier is part of a strange and divisive arms deal now on hold — and perhaps on the verge of collapse — because of the conflict in Ukraine. France built it for Russia's navy but is now having second thoughts, notably amid heavy U.S. criticism of the deal.

After months training on the ship, the Russian sailors left the port town of Saint-Nazaire empty-handed. The ship, painted with Cyrillic letters reading "VLADIVOSTOK," floats in a dock, unused. A second ship meant to be part of the deal is there, too, an expensive diplomatic embarrassment.

link.

Obama Signs Ukraine Freedom Support Act

President Barack Obama said on Thursday he had signed into law a new Russian sanctions bill passed by Congress but did not intend to impose further sanctions against Moscow for now.

"My administration will continue to work closely with allies and partners in Europe and internationally to respond to developments in Ukraine and will continue to review and calibrate our sanctions to respond to Russia's actions," Obama said in a statement.

"We remain prepared to roll back sanctions should Russia take the necessary steps."

link.

Note: the bill allows for considerable military aid in the form of ATGM and MANPADS.  

It does not force the President to do so or enact the sanctions against Russia.  However, the President now has the authority to do so without having to consult Congress.  

Originally, the bill designated Ukraine as a major nonNATO ally (likewise for Moldava and Georgia).  This language was watered down during its passage.  If the President enacts the sanctions and gives the military aid and Russia still doesn't back down in Ukraine. 

Note: do not expect Russia to give up Crimea any time soon.  In fact, expect the Republicans and even Clinton to make this an issue in the 2016 Presidential Race. 

more info here.

Will She or Won't She? France's Russian Mistral Contract Delivery

Despite strong language from the French President François Hollande, Russia has not received formal notification from France suspending or cancelling the $1.53 billion deal for two Mistral-class amphibious warship deal, Russian officials said on Tuesday.

“We have not received any official refusals,” Russian Industry and Trade Minister Denis Manturov, reported Russian wire service ITAR-TASS.
“The contract schedule has not changed.”

Under the original terms, France was to handover the first ship — Vladivostok — at the end of October.

In September Hollande’s office issued a statement saying, absent a ceasefire agreement with Ukraine, “the conditions under which France could authorize the delivery of the first helicopter carrier are not in place.”

France’s final decision on the Mistral isn’t clear as of Tuesday.

link.

Will Sanctions Finally, Actually Hurt the Russian Economy?

IT MAY not be, as leaders in Washington and Brussels insist, the start of a new cold war. But the punitive sanctions against Russia announced by the European Union and America on July 29th bring to an end a 25-year-long quest to make Moscow a partner of the West. How long the rupture will last and whether it intensifies will depend upon the response of Russia’s president, Vladimir Putin—and above all on whether he steps back from escalating the bloody insurrection in eastern Ukraine that he has encouraged. He shows not the slightest sign of doing so. If anything, his belligerence towards the West and his preference for surly isolation are growing.

After months of disjointed action, America and Europe finally put together a tough and co-ordinated package of sanctions targeting state-owned banks and forbidding the export of technologies needed by Russia’s oil and defence industries. On their own, the sanctions will not bring Russia to its knees. But they could do real damage to its already ailing economy.

link.

US Sanctions Having Impact on Russian Launch Industry, Might Benefit American & Chinese Launchers

In response to Russia’s involvement in the Ukrainian crisis, the United States has tightened its export controls, and this has seriously hurt important Russian space projects. US authorities are apparently denying export licenses that allow European and other foreign communications satellites containing US components to be launched into space by Russian rockets. This decision has effectively pushed the Russian Federation out of the highly prestigious (though limited) international space launch market. In 2014, the country’s space agency, Roscosmos, was planning 38 space launches, with 10 of them contracted to carry foreign payloads. Commercial space launches of foreign satellites have been bringing Russia some $700–800 million a year. This additional income is important both economically and psychologically—a symbolic vestige of Russia still being a high-tech powerhouse. If Russia is pushed out of the commercial satellite launch marketplace by US sanctions, even temporarily, it would be difficult to ever come back fully, as cheaper Chinese and private US space launchers pick up its market share.

link.

United Launch Alliance Claims Sufficient RD-180 Engines for USAF Block Buy of Atlas V Rockets

United Launch Alliance (ULA), the Boeing-Lockheed Martin joint venture that provides satellite launch services for the US Air Force (USAF), has enough Russian-made RD-180 rocket engines in storage to fulfil a contract for 36 launch cores signed late last year, according to a Boeing executive.

"We believe we can fully deliver on the block buy with the engines that we have on hand," said Roger Krone, president of Boeing Network and Space Systems. Krone spoke to reporters at a 13 May briefing in Washington, DC.

RD-180 rocket engines are used by ULA to power its Atlas V rockets.

Earlier in the week Dmitry Rogozin, Russia's deputy prime minister, announced that Moscow would halt further RD-180 sales to the United States for military launches and stop co-operation on the International Space Station after 2020.

link.

Russia Strikes Back (and makes the spacex lawsuit irrelevant)

Russia will bar the United States from using Russian-made rocket engines for military satellite launches, Deputy Prime Minister Dmitry Rogozin said on Tuesday, retaliating for sanctions on high-tech equipment which Washington has imposed over the Ukraine crisis.

He also said Russia would reject a U.S. request to prolong the use of the International Space Station beyond 2020.

Russia pledged to respond in kind when the United States said last month that it would deny export licenses for any high-technology items that could aid Russian military capabilities and would revoke existing licenses.

Moscow's measures would affect MK-33 and RD-180 engines which Russia supplies to the United States, Rogozin told a news conference. "We are ready to deliver these engines but on one condition that they will not be used to launch military satellites," he said.

Washington wants to keep the International Space Station, a $100 billion orbital outpost that is a project of 15 nations and a showcase of Russian-U.S. cooperation, flying until at least 2024, four years beyond the previous target.

In spite of differences on foreign policy and security matters, Washington and Moscow have cooperated extensively on space exploration. Russian Soyuz spacecraft are the only way astronauts can get to the space station, whose crews include both Americans and Russians.

Rogozin also said Russia will suspend the operation of GPS satellite navigation system sites in Russia from June and seek talks with Washington on opening similar sites in the United States for Russia's own system, Glonass.

He threatened the permanent closure of the GPS sites in Russia if that is not agreed by September.

link.

JP Morgan Blocked Payments by Russian Embassy in Kazakhstan

Russia's Foreign Ministry said on Tuesday U.S. bank JP Morgan had "illegally" blocked a payment from its embassy in Kazakhstan to insurance agency Sogaz "under the pretext of anti-Russian sanctions imposed by the United States".

In a statement on its website, the Russian Foreign Ministry suggested the action, which it called "unacceptable, illegal and absurd", would have consequences for the U.S. embassy and consulate in Russia.

JP Morgan gave no immediate comment.

"Washington should understand any hostile action against a Russian diplomatic mission not only constitutes a flagrant violation of international law but is rife with consequences that will inevitably effect the work of the embassy and general consulate of the United States in Russia," the statement said.

Sogaz is partly owned by Abros, according to the Sogaz website. Abros is a subsidiary of Bank Rossiya, according to Russian media reports.

link.

Ukraine: The Referendum Cometh

There have been a number of developments.

The first is last minute talks between the West and Russia have failed. Russia is calling the West's bluff. Or what they think is a bluff at least.

In reply the West has stated they will respond more than negatively to the referendum or annexation. The next level of sanctions will cut in on Monday: including, supposedly, those against GAZPROM and ROSNEFT.

The US was asked for a lot of military aid. This has been turned down. For now. With the exception of food for the troops. This is being sent immediately. They'll get to suffer through American MREs.

One of the reasons why is the Ukrainian army is in a shambles. They don't even have money for fuel. One of the oligarchs is stepping up to provide that in Eastern Ukraine.

The US may not be exactly passive though. There are reports a Reaper drone - an armed unmanned aircraft - crashed or was spoofed in Crimea. *IF* a Reaper is there, you can bet there are other, more advanced drones running around.

Crimea had a pro Ukraine rally today in Simferopol. It was modest in size.

The big news outside of Crimea has been the clashes in Donetsk. Reports are of differing numbers of those who were killed. Some say as high as four. Others only one. The other interesting bit from it was that photographs of some of the Pro Russian protestors are cropping up and they were in Riga in 2009. This is similar to the Lugansk Flag pole guy (hint: he lives in Moscow).

The last news is Russia is massing troops on the east and northeast of Ukraine. We knew that already. The russians keep exercising them. The mailed fist is quite obvious.

On the positive side, the Canadians have offered $200 million (+/-) and the IMF has snapped into negotiating with Kiev to get a loan in place by March 21st.   The US has also now added an additional $600 million to the total.  This means brings the American total to $1.6 billion.  Between the US, Canadians, World Bank and Europeans we are now almost up to $21 billion.  Toss in whatever the IMF is going to do...and Ukraine seems to be on the path for the $30+ billion they say they need.

On the ineffective side, a draft UN resolution which is squarely on Ukraine's side and even goes as far as to call the referendum illegal is going to be rejected/vetoed by Russia.

The referendum cometh.  It will arrive soon and then all hell may break loose with the all but guaranteed outcome.