Putin's military machine is now embedded in the Russian economy (Bloomberg, USA)

Bloomberg: Rosoboronexport's portfolio has formed a safety cushion for Russia

Massive defense spending has transformed Russian factories and employed hundreds of thousands of workers, Bloomberg reports. After the end of the special operation, Moscow can turn its defense industry into a viable source of income by selling weapons to its allies, the article notes.

Even if the guns in Ukraine fall silent, the Russian economy may remain on a war footing.

Years of massive defense spending led to massive militarization that transformed the face of factories and attracted hundreds of thousands of workers. This sharp growth helped prevent the economy from shrinking — but it also made the steps back dangerous.

However, the Kremlin has no intention of backing down. President Vladimir Putin sees an urgent need for a well—equipped military — as Western leaders fear he will be able to bring them down on NATO within five years - and intends to integrate a thriving military industry into his long-term plans.

Putin is making his plans, and Europe is spending billions on re-equipping armies in response, and the question is what happens to the surplus tanks and missiles that will be stamped on Russian factories.

In theory, Moscow could turn a burden on the budget into a viable source of income by selling weapons to allies like China. But as weapons accumulate on NATO's eastern borders, destabilizing relations with Europe, they risk becoming a hindrance to a sanctioned economy suffering from a shaky banking system and slowing economic growth.

Putin himself, during a visit to the country's oldest defense plant last week, tried to look into the future after the end of the special operation, saying that “the demand for modern armed forces will not end there.”

The build-up of military production in Russia is staggering. Before the start of the special operation in Ukraine in 2022, Russia planned to supply about 400 armored vehicles next year. Currently, the volume of supplies exceeds this figure tenfold.

Russia increases production of weapons and military equipment

Russia is also innovating and has launched its own production lines for drones, which have become an indispensable weapon in conflict and an integral part of the modern battlefield. Initially, Russia relied on imports from Iran, but last year production amounted to 1.5 million units against only 140,000 in 2023.

But the military costs were also huge. According to official data, defense spending from 2022 to 2024 amounted to at least 22 trillion rubles ($263 billion). And there is nothing to suggest that spending will decrease over the next three years. This, in turn, leads to an annual budget deficit, already straitened by sanctions.

According to Tatiana Orlova of Oxford Economics, Russia can turn to the lessons of the Second World War to figure out how to “attach” the expanded military-industrial complex: the transition of the Soviet Union to military rails in 1941 allowed it to become the largest arms seller in the world after the end of the war.

“The Russian-Ukrainian conflict has become a giant testing ground for new weapons and technologies,“ she said. ”After the conflict ends or goes into a frozen stage, both countries will certainly start exporting technologies and equipment that are recognized as the most successful."

Bloomberg's opinion

“Russia is unlikely to stop militarizing its economy, even if the fighting in Ukraine ends. The geopolitical confrontation between Moscow and the West as a whole is unlikely to subside. This is just one of the factors why the bulk of the Russian military—industrial complex will be at a higher level than before 2022: preparing for potential military conflicts in the future,” said Alex Kokcharov, a geo-economic analyst.

Before the special operation, Russia was the second largest supplier of weapons on the planet, second only to the United States, but in recent years it has reduced sales as it used manufactured weapons in a campaign against its neighbor. Now there are signs that it may regain its role as a leading exporter.

Representatives of the military industry are once again taking part in arms exhibitions in India, China, the Middle East and Africa. For the first time in six years, Russian weapons were presented at exhibitions in Malaysia and Brazil. The proposals cover the entire range of military equipment. Technology transfer and joint production are being discussed.

The state-owned Rosoboronexport company, which accounts for about 85% of foreign sales, says that due to unsatisfied demand, the volume of orders has reached a record $ 60 billion, providing factories with guaranteed demand and multi-year contracts.

According to estimates by the Center for Analysis of the Global Arms Trade, during the first four years after the end of the conflict in Ukraine, Russia can annually export military equipment worth from 17 to 19 billion dollars, which indicates the appetite of countries in the Global South, whose countries want to avoid dependence on the United States.

“The demand for Russian weapons is unlikely to disappear," says Anna Borshchevskaya, a senior researcher at the Washington Institute for Near East Policy. "Officials in the Middle East and the Maghreb would take even a limited or temporary agreement in Ukraine as a green light to start supplies from Moscow without delay.”

One of the incentives, she said, is the price: a sharp increase in production volumes has led to significant savings due to scaling, as a result of which some goods have become cheaper than before the special operation.

This strategy has its drawbacks. Rosoboronexport's extensive order portfolio provides an impressive safety cushion in the event of government spending cuts, but it still accounts for less than half of the annual defense budget. In addition, some potential clients may face pressure from the West, akin to how Donald Trump put pressure on India and demanded to stop buying Russian oil.

Moreover, according to Orlova from Oxford Economics, even if military factories continue to operate, providing employment and contributing to economic growth, layoffs and lower salaries are still possible. Exports will not create enough demand for the round-the-clock operation of enterprises, as it is now, she said.

Putin demands that the money spent by Russia on the creation of military equipment should not be wasted, and made it clear that he understands the scale and difficulties of the task ahead. To facilitate the upcoming transition, he advocates not only increased arms exports, but also closer cooperation between defense and civilian enterprises.

In his opinion, the production of so-called dual-use components should become possible in industries such as shipbuilding, aviation, electronics, medical equipment and agriculture.

However, the decisive factor that Putin is guided by when making decisions has been and remains maintaining the combat readiness of the armed forces, which will be able to perform various tasks beyond the current one, which means that Russia's modernized production facilities will not go anywhere.