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Here Is How Russia's Military Industry Is Responding to Sanctions

Mathieu Boulegue

Security, Eurasia

Russian Army members ride on historical tanks, during a rehearsal for a military parade to mark the anniversary of a historical parade in 1941, when Soviet soldiers marched towards the front lines at the Red Square in Moscow, Russia November 5, 2017. REUTERS/Grigory Dukor

Russia would argue that sanctions actually made defense companies more autonomous and more productive—but there are "serious challenges."

Twitter politics is not just for the White House. On January 8, 2018, Dmitry Rogozin, the Deputy Prime Minister in charge of the military industry, tweeted about the creation of “operational headquarters” within the Military-Industrial Commission (VPK)—the highest decision-making organ in the defense industry. This task force will monitor the impact of U.S. sanctions on the Russian defense industry and on the implementation of State defense orders (GOZ). It will be headed by deputy chairman of the VPK Oleg Bochkarev.

The U.S. Congress adopted the Countering America's Adversaries Through Sanctions Act (CAASTA) in July 2017 and strengthened it in October 2017 with an extended list of more than thirty defense companies and their subsidiaries responsible for GOZ fulfilment, such as Rostec, United Aircraft Corporation (OAK), Almaz-Antey, Kalashnikov and others. Starting January 2018, the U.S. administration will be able to apply extraterritorial sanctions against legal entities and individuals targeted by CAASTA.

Sanctions now officially have the VPK worried. One can only wonder how bad the situation must be for some military-industrial companies. Sectoral sanctions against the Russian military industry are quite a conundrum for the Kremlin. On the one hand, authorities have presented them as a boon for the industry as they remove the dependency on critical Western and Ukrainian components. Russia would argue that sanctions actually made defense companies more autonomous and more productive.

On the other hand, sanctions opened a period of doubt in the defense sector, as bridging the gap left by the breakdown of military-industrial cooperation with Ukraine and the West is proving difficult. In 2014 President Putin declared that he “did not doubt” that adapting to sanctions was fully feasible, although he admitted in 2016 that they represented a “serious challenge” to the military industry.

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