The Venezuela Contracts (MDB)
Konstantin Makienko
In July 2006, Russia and Venezuela signed a series of contracts for the delivery of Russian arms worth $3 billion during Venezuelan President Hugo Chavez’s visit to Russia. The prospects for this level of trade between Russia and Venezuela were discussed as early as 2001—2002, when a large (up to 50 units) delivery of MiG-29SMT fighters was considered. However, due to political instability in Venezuela, Russia’s caution in pursuing military-technical cooperation with an anti-American regime, and the opposition of a pro-American bureaucracy in Venezuela itself, the first real contracts for the delivery of helicopters and small arms were concluded only in 2005. In July 2006 new contracts were concluded that resemble, in both scale and variety, the Algeria deals concluded in March 2006.
What Do We Know?
Full and reliable information on the contracts is not available to the public. The aviation deals are thus far the most clearest. First, the contract for delivery of 24 Su‑30MK2’s for a probable sum of $1.5 — 2 billion. Such fighters had earlier been delivered to the PLA (24 units) and the Vietnam Air Force (four units). The first four units were delivered to Venezuela in December 2006, that is, just four months after the closing of the deal. This tight schedule suggests that in spite of the fact that it secured no orders in 2005, the KNAAPO has kept its production capacity in good shape. A full production cycle of the Su-30 requires about 18 months to complete, and so the delivery of the remaining 20 fighters will most likely proceed in batches of ten units, from 2007—2008. But one cannot exclude the possibility that all 20 units will be delivered before the end of 2007. According to some sources, in addition to this contract, Venezuela negotiated an option to purchase another batch of 24 Su-30MK2. However, the likelihood of Venezuela exercising this option, if indeed it does exist, depends of several factors, first of all the stability of the regime of Hugo Chavez. Moreover, by 2008 Russia will have developed the new Su-35 fighter with fifth-generation avionics, modernized engines and a new array of weapons. Chavez has already expressed his interest in this aircraft, and so Venezuela could well place the first foreign order for it.
Details on the helicopter acquisitions also were published. As early as 2005, two contracts for a total of $201 million were signed for the delivery of 15 helicopters, including 6 Mi—17B5, 8 Mi‑35M and one Mi‑26T. The first contract for $120 million envisaged the delivery of 10 aircrafts (six Mi—17, three Mi‑35M and one Mi—26T). The second was for the transfer of five Mi—35M for a probable cost of $81 million.
On the eve of the July visit, a new contract for 18 helicopters was signed, including 14 Mi—17B5, two Mi—35M and two Mi—26T. In addition, it appears as though another contract for the delivery of 20 Mi—17, including two VIP versions, was agreed upon. The cost of all 38 helicopters amounts to $484 million. Thus, the total size of Venezuela’s helicopter programs, which includes the delivery of 40 Mi—17, 10 Mi—35M and three Mi—26T amounts to $685 million. This would be the largest (by cost) single post-Soviet sale of helicopters. Taking into account earlier purchases of Mi—17’s from Israeli aviation companies, Venezuela stands alongside China and India as the largest purchasers of helicopters of Russian post-Soviet production.
Information regarding other likely purchases must be considered preliminary. For example, there is oblique evidence of Venezuelan interest in Russia’s air-defense systems. In any case, during his visit to Izhevsk, Chavez visited not only the small arms factory, but also the Kupol plant which produces the Tor-M1 missile system. An air-defense system purchase would be fully consistent with the logic of Venezuela’s military-technical policy, one of the priorities of which is to protect the airspace of the country after the decommissioning of its F-16s, which are no longer combat-ready due to the US embargo on deliveries of spare parts.
The deal to sell Venezuela a batch of Russian AK-103 assault rifles and licenses for their production of is noteworthy, because this is the first time that Russia has made a deal not just to deliver arms but to construct a turn-key facility for their manufacture.
Finally, Venezuela has demonstrated its interest in Russian An-74 military-transport aircraft. Earlier, Caracas intended to purchase twelve CASA-C—295 light transport aircraft of European production, but this deal was blocked by the USA, which supplies its engines. In October, a Venezuelan delegation visited the Omsk Polyot factory that produces the An-74.
There have also been reports that the Russian Project 677 conventional submarine won a tender conducted by the Venezuelan Navy for the purchase of next-generation submarines, but the contract itself, it seems, will be signed at a later date.
Qualitative Analysis
This series of Venezuelan contracts is the second concluded in 2006 (after the Algerian contracts) which include the following elements:
- A multi-billion dollar scale, far exceeding the usual level for Russian arms exports. Only the contract for the licensed production by India of the Su-30MKI, worth $3.3 — 3.5 billion, can compare to the cost of the Algerian package, at $7.5 billion, and the cost of the Venezuelan package, at about $3 billion.
- A geographic expansion beyond Russia’s traditional customer base in India and China. Algeria has now become a significant importer of Russian defense and aerospace equipment, it purchased significant amounts of Russian arms and has modernized its stocks, but it was also a significant purchaser of Soviet armaments in the past. Venezuela, on the other hand, has never made major purchases from either Russia or the Soviet Union.
- A wide variety of weapon types, including defense and aerospace equipment for air and land forces, and very likely for the air defense and the navy.
As for the volume of the Algerian and Venezuelan packages, taken together they amount to over $10 billion, making up half of the current portfolio held by Rosoboronexport. Moreover, for the first time in Russia’s post-Soviet history its exports are well-balanced geographically, going beyond the Indo-Chinese «reservation.» One can now speak of a group of five to six states that will remain the major purchasers of Russian aerospace and defense equipment until 2009—2010. This includes the traditional customers India and China, and the new additions of Venezuela and Algeria. In a few years, once deliveries of the Su‑30MKM begin, Malaysia will join this club. It is also reasonable to suppose that relatively large sales will be made to Syria and Iran.
Diversity is another distinguishing feature of the Algerian and Venezuelan packages. The range of products includes military aviation, naval equipment, air-defense and land forces armaments. This suggests that Russia has moved beyond the mere sale of individual types of arms that characterized its trade in the 1990s, to deals with better heeled customers for comprehensive solutions to their military security challenges. Transcending the purely commercial sale of arms, Russia is now in the process of becoming a provider of security, a more complex and inevitably political relationship. The rise of Russian export volumes, the widening range of product types, and especially the geographic diversification of importers all indicate the increasingly integral power of Russia, now recognized by importing states as at least the equal of France or the UK. Indeed, with the exception of China, for which Russia remains practically the only available source of armaments, both Algeria and Venezuela could have turned to the Europeans to satisfy the majority of their defense equipment needs.
The Venezuelan contracts are also indicative of an important geopolitical process. After a decade and a half of forced passivity in the Latin American region, Russia is re‑establishing its presence in this soft underbelly of the USA. Moreover, Russia’s return is felt not on an ideological plane, but on two important geopolitical and geoeconomic fronts, namely, in military-industrial cooperation and in energy. As distinct from Soviet times, when the Soviet presence was based on Cuba, Russia now relies on Venezuela, with its much richer base of resources. To secure this toehold Russia will most likely promote cooperation not only in the delivery of arms and joint energy projects, but also in the area of civilian machine-building. This could include deliveries of Il—96 and Tu-204 passenger aircraft to Venezuela and other states in the region. In addition, Russia could renew the Soviet practice of making discounted and subsidized deliveries of defense and aerospace equipment to the poorer states in the region, many of which, like Cuba, have not renewed their stocks of arms in over two decades. Against the backdrop of growing leftist and anti-American sentiment in Latin America, Russia has a unique opportunity to provide a worthy, asymmetric response to US activity in Russia’s sphere of interest in the near abroad.
Table 1: Identified and Supposed Contracts
System Number Cost Date of Signature Source and Comments Confirmed Contracts Su-30MK2V fighters 24 $1.5 billion* 17.07.2006
Kommersant, Vedomosti Mi-17 transport helicopters 3 $26 million Transport and attack helicopters 6 Mi-17, 3 Mi-35M,
1 Mi-26 $120 million 2005 Attack helicopters 5 Mi-35M $81 million 2005 Transport and attack helicopters 2 Mi-35M, 2 Mi-26,
34 Mi-17 $484 million 15.07.2006
Kommersant AK-103 assault rifles 100 000 $54 million 03.07.2006
Kommersant Factory to produce AK-103 assault rifles, factory to produce 7,62 mm ammunition $474.6 million 12.07.2006
Kommersant Total $2 739,6 million
Supposed and possible future contracts Tor-M1 SAM systems NA NA; likely a few hundred million dollars
Vedomosti Patrol boats NA
Vedomosti Project 677 conventional submarines 2 Tender by Venezuelan Navy An-74 transport planes 6 $72 million
*estimate Source: table by the author
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