Several compound factors – including the impact of sanctions and pre-existing, systemic issues in the defence industry – undermine Russia’s ability to procure, develop and make military materiel. At the same time, Russia’s military-industrial complex remains surprisingly resilient. For the West, a key lesson is the need to close sanctions loopholes.
The Russian military-industrial complex (hereafter OPK) has been severely affected by almost a decade of international targeted sanctions and by the demands of the full-scale invasion of Ukraine. The current situation is untenable for Russia, and is leading the OPK into a period of deterioration and decline. Yet despite its problems, the Russian military industry remains a formidable and resilient force, able to adapt under very challenging conditions. Future Western policy pathways must therefore find innovative solutions to accelerate the OPK’s decline, and must limit Moscow’s ability to recapitalize its military capabilities and compete with the West and NATO.
State of play of the Russian military-industrial complex
In the context of the war against Ukraine, the state of the Russian military industry is a compound problem affected by several key factors.
Russian defence spending has been increasing since the 2022 full-scale invasion, and is projected to reach a post-Soviet-era high of over 6 per cent of GDP (over $112 billion) in 2024. This means that about every third rouble from the Russian budget will be allocated to supporting the war effort and the military industry. The rise in defence spending is compounded by the presence of ‘unspecified’ expenditure probably linked to the war effort, as well as by increased output of civilian industrial goods (metalworking products, consumer electronics, agrochemicals, etc.) that support military activity.
Since 2014, international sanctions have impaired the ability of the OPK to regenerate and keep stocks of critical components. The situation is mostly explained by Russia’s legacy dependence on imported Western components and industrial equipment for the OPK. The impacts of sanctions and the current war (i.e. since 2022) have shed new light on Russia’s critical dependencies on Western components, especially on the ‘silicon lifeline’ provided by dual-use computer chips, semiconductors, and other electronics needed for advanced military systems. The equation is fairly simple: the more advanced a Russian weapons system becomes, the greater its dependence on foreign imports.
Initial Russian responses to pressures on production have mostly consisted of drawing down existing stocks of materials, components and ammunition. This approach is unsustainable, however, and has failed to prevent shortages of critical military supplies. From 2015 onwards, after Russia’s first invasion of Ukraine in 2014, the OPK quickly ran out of higher-end components. This forced Moscow to seek lower-end imported substitutes and to retrofit military platforms with lower-quality systems.
Furthermore, a combination of import substitution programmes and off-the-shelf procurement from third parties failed to meet expectations, leaving the OPK with entire production gaps – especially in engines, turbines and microelectronics.
Years of sanctions, increased defence spending and limited procurement alternatives have further exposed the ‘Achilles heels’ in Russia’s defence industry. The list of goods and materials that the OPK struggles to obtain keeps growing by the year.
An additional problem, from Russia’s point of view, was that the OPK entered the 2022 war in poor financial shape. The industry was already struggling with crippling financial issues dating from the impact of the first invasion of Ukraine – these included, among other things, profitability problems at the main OPK state corporations, weak debt management, and an inability to diversify production into dual-use and civilian goods. The OPK is plagued by what has been described as ‘military industry overheating’: an unsustainable model in which a military-industrial complex subject to ever-rising costs accounts for a significant share of Russian economic output that is then immediately consumed in Ukraine.
Years of sanctions, increased defence spending and limited procurement alternatives have further exposed the ‘Achilles heels’ in Russia’s defence industry. The list of goods and materials that the OPK struggles to obtain keeps growing by the year, and includes: microelectronic components (especially optical systems and microchips), machine-building tools, special steels and metallurgical products, space-grade materials and components, engines and turbines, and bearings for military vehicles.
The state of the OPK is worsened by wider socio-economic issues linked to low workforce productivity and a continuing brain drain. Overall productivity in the OPK was never impressive, but the impacts of the initial 2014 invasion, the COVID-19 pandemic and international sanctions have only made things worse. To sustain the war effort, the Russian government has made repeated calls to increase military-industrial output, notably by extending the number and length of work shifts, cancelling holidays and days off, or keeping production chains open for longer periods.
Wartime solutions for mitigating shortages of materiel, however, are facing an insurmountable problem: the limited life cycle of machine-building tools and industrial machines used for military production. Moscow is seeking to achieve an impossible balance between increasing output and preserving Western-imported tools that cannot be replaced because of sanctions. The OPK might be tempted to cannibalize machine tools from the civilian world – for instance, from the automotive industry – in response, but this will not solve the issue in the long term.
Furthermore, the OPK is crippled with systemic workforce issues in terms of quality (a decline in technical education, ineffective recruitment, and a continuing gap between personnel needs and applicant capabilities) and quantity (the brain drain, problems retaining staff, poor working conditions, etc.).
In February 2024 Russia’s president, Vladimir Putin, boasted that the OPK had created 520,000 new jobs since the start of the full-scale invasion and was currently employing 3.5 million workers. Regardless of the veracity of such statements, they hint at the implicit ‘responsibility’ of the OPK for maintaining employment – and thus social stability – across Russian regions.
Many of the above problems negatively affected OPK production capabilities at the start of the full-scale invasion of Ukraine, preventing the industry from reaching surge production capacity in 2022 – the shortfall was also due, not least, to the fact that the industry had not been informed of the looming invasion. Rather, surge production had been requested in the current State Armament Programme (GPV), running until 2027, with the aim of building peacetime stockpiles through ‘serial and uninterrupted’ production of military equipment.
Prospects for military-industrial adaptations and evolution
The OPK has demonstrated resilience since the start of the full-scale invasion, as the events of the war have forced it to adapt and recover from shocks. Military-industrial output has not collapsed: the OPK can still produce sufficient amounts of hardware and ammunition to sustain the war effort for the time being. However, the industry must perform a constant balancing act between managing existing stocks, procuring and modernizing existing platforms, taking legacy platforms out of storage and increasing production in other sectors.
Despite sanctions, Russia has demonstrated a continued ability to access sufficient amounts of Western military-grade components. Adaptation to the current sanctions regime has been one of the strong suits of Russia’s military industry: Moscow benefits from insufficient external enforcement of sanctions, loose secondary sanctions regimes, and gaps in export controls on third-party countries.
Several mechanisms to circumvent sanctions are in place. Moscow is evading sanctions primarily by importing from third-party countries that have not sanctioned Russia in the first place – countries like China, Iran, North Korea (via the infamous ‘Orient Express’ ammunition supply routes), Türkiye, Kazakhstan, Belarus and so on. This allows the OPK to directly import a mix of off-the-shelf systems (for instance, Iranian attack drones) and critical military components. The defence industry also uses well-established networks of non-sanctioned intermediaries, shell companies, concealed entities and ‘neutral’ countries to import products semi-legally into Russia.
Russia also smuggles components through illicit networks and along grey-market supply chains, mainly through the Russia-led Eurasian Economic Union (EAEU), the Balkans, China, Türkiye and Iran. This situation is creating a form of parallel black-market economy for the supply of certain components, a market that helps sustain Russia’s official war economy.
Despite established sanctions evasion mechanisms, the OPK’s current adaptations are not fully sustainable for Russia over the long term.
Yet despite established sanctions evasion mechanisms, the OPK’s current adaptations are not fully sustainable for Russia over the long term. Russian efforts to evade sanctions involve additional cost, and can result in problems such as the procurement of lower-quality components, unpredictable delivery quantities, and delays in supply. Imported components tend to be lower-quality substitutes, and reliance on off-the-shelf foreign systems disincentivizes innovation in Russia’s own military industry, thereby jeopardizing potential future technological developments. Third-party imports are only a stopgap measure for the OPK, not a long-term solution: the Russian military industry will ultimately have to address its own challenges in domestic production if it wants to survive.
Due to structural limitations, the OPK is thus ill adapted to deal with the effects of a prolonged war against Ukraine or to achieve a sustainable future in terms of production, innovation and development. Indeed, Russia’s highly centralized, state-based approach to military research and development (R&D) is contrary to current worldwide trends, most notably seen elsewhere in private sector-led and venture capitalism approaches to innovation. Existing Russian innovation structures such as the Advanced Research Foundation and the Era technopolis simply cannot compete with their Western equivalents.
Russian efforts to support military innovation and breakthrough technologies display various degrees of inadequacy – key problem areas include microchip production (where Russia critically lags), military artificial intelligence (AI), robotization of the armed forces, and other advanced technologies. The situation is exacerbated by the mass exodus of scientific and intellectual capital from Russia. Prospects for military R&D are also limited by well-known structural factors such as corruption, bureaucracy, insufficient funding and so on.
Although the Kremlin and Putin himself are betting on technology to propel Russia into the future, Moscow will probably limit the number of high-tech and R&D programmes in its next GPV cycle after 2027. Pathways to military innovation are still available in Russia, although genuine advances in capabilities are likely to be incremental and limited to very specific segments. The OPK is not yet facing an existential crisis in terms of innovation models and advanced military technology, but the feasibility of it developing ‘next-generation’ weapons can certainly be called into question. Increased reliance on foreign partners such as China, Iran or North Korea for technological and knowledge exchanges will not solve the aforementioned problems. These are but a few of the many outstanding challenges with the OPK that the new defence minister, Andrei Belousov, will have to take on.
Lessons learned and policy implications for Western military planners
After a decade of international targeted sanctions and an attempt at an impossible full-scale invasion of Ukraine, the Russian military industry is struggling. In 2023, Putin was confident that Russia’s military-industrial strength would make victory in Ukraine ‘inevitable’. Instead, the Russian OPK is now going through decline and deterioration: the production of military hardware and components has had to be simplified, productivity rates are falling, production chains are stretched, the quality and sophistication of weapon systems are deteriorating, and prospects for improvement in R&D and innovation are slim.
Even though the entirety of the OPK is not turned towards supporting the war effort, the ongoing degradation of the military industry will undoubtedly impair Russia’s ability to prosecute the war, particularly when it comes to continuing the tempo of high-intensity offensive operations. The OPK’s problems will also affect the ability of the armed forces to quickly re-equip, recapitalize military hardware and modernize.
However, the Russian military industry remains a formidable machine. It is likely to continue to be able to muddle along, producing ‘good enough’ systems that will still represent a significant threat to Ukraine, NATO and their allies. This is especially true for stand-off and asymmetric capabilities that have not yet been engaged in the war against Ukraine.
Even so, there are segments of military technology where ‘good enough’ is simply not good enough, especially against the technology of a peer competitor – these sectors include space-grade technology, AI and automation, electronic warfare and hypersonic systems. In this respect, the decline of the military industry will increasingly affect Russia’s ability to confront Western countries and NATO symmetrically in conventional and strategic competition, especially as technology becomes an even more significant element of national power.
This imbalance may lead to greater Russian emphasis on low-tech warfare, especially for sub-threshold and grey-zone operations as part of Russia’s enduring low-intensity attacks on NATO and Western interests.
Western policymakers should focus on finding innovative ways to accelerate the decline of the Russian military industry. The aim should be to outsmart and ‘out-tech’ Moscow in order to blunt Russia’s ability to compete with NATO symmetrically and asymmetrically, as well as to limit Moscow’s ability to regenerate its armed forces.
As Russia itself is planning on the basis of a war economy, international sanctions against the OPK must equally be on a war footing. There remain many areas in which there is room for sanctions pressure to increase, which would enable the West to squeeze the Russian military industry further.
First, primary and secondary sanctions must be strengthened in sectors supporting those in which the OPK operates. Targets should include dual-use segments such as consumer electronics, heavy industry, metallurgy, heavy chemistry, agrochemicals, nuclear, etc. The aim should be to challenge Russia’s technological self-sufficiency in specific weapons systems and platforms (especially the nuclear industry). Ultimately, a shortage of military-related components will create a shortage of weapons systems.
Western policies must identify critical interdependencies along OPK production chains to multiply effects, exploit known vulnerabilities, and seek cascading impacts. In other words, policies should force Russia to ‘go cheap’ in sectors where quality cannot be compromised, such as in the space industry, electronic warfare, hypersonic systems and the nuclear industry.
Second, stronger export controls on dual-use and military goods must be applied to actual or potential Russian trade partners to block Russia’s ability to use direct and indirect imports. The objective should be to close export control gaps, loopholes and inconsistencies that currently allow Moscow to circumvent sanctions regimes. Of special relevance is the need for new secondary sanctions on countries that have not yet officially sanctioned Russia, and for controls on third-party intermediaries that are engaging in semi-legal trade or black-market trade with Russian entities.
Finally, individual countries and coalitions must develop adapted offensive economic statecraft practices to exploit Russian vulnerabilities, especially with regard to dual-use technology and goods. This could take the form of incentivizing a further exodus of scientific expertise from Russia, strengthening economic levers against countries known for enabling OPK-related Russian imports, improving institutional and inter-agency cooperation, increasing oversight of the private sector, and increasing corporate responsibility. Measures could and should also entail delegitimizing Russian arms exports, especially in what the Kremlin considers its ‘near abroad’.
