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IHS: Russian defense cut on low energy revenue

Russia retains No. 4 spot, but outspent by the United States by a factor of 10.

By Daniel J. Graeber
IHS: Russian defense cut on low energy revenue
Russia retains top position in terms of defense spending, though sector hurt by falling revenue in a depressed crude oil market, analysis finds. File Photo by UPI/Sergey Starostenko | License Photo

LONDON, June 17 (UPI) -- Financial pressures that resulted from lower revenues from the energy sector has forced the Russian government to cut back on defense spending, analysis finds.

Analysis firm IHS Aerospace, Defense & Security finds the Russian defense budget for 2015 was cut by 5.3 percent to $57.7 billion.

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"Next year, the defense budget is expected to fall, in real terms, for the first time since 2010," the emailed report finds.

In December, the World Bank said it expected Russia's real gross domestic product should contract by 0.7 percent. That forecast was based on oil priced at $78 per barrel, more than 20 percent above the current price.

The International Monetary Fund in January warned the low price of oil is "clearly bad news" for economies like Russia's that depend heavily on export revenue. The adverse effect for Russia, the fund warned, is likely to be "very large."

A forecast for 2015 from the Russian Economy Ministry said export revenues would decline as Russian energy products wane from the world market. Russian Prime Minister Dmitry Medvedev in early 2015 said the economic situation in the country was "problematic to say the least."

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The IMF has said the economic factors at play in the weakened crude oil market are "unusually complex." Some factors, like the decline in the value of the ruble, the currency in oil-rich Russia, are easily visible, though other factors are less apparent.

The analysis from IHS said the Russian government is expected to divert funding from other areas to support defense spending.

"With military personnel numbers unlikely to be cut significantly, operating costs appear to be the most likely source of potential savings," it said.

Previous analysis from the company found defense spending in the oil-rich Middle East is continuing despite the slump in oil prices. By 2020, Saudi Arabia will be the fifth-largest spender on defense, tapping around $60 billion a year, up from the current $49 billion.

At $57 billion, Russia is the fourth-largest defense spender in the world. The United States is first, with an estimated $566 billion allocated, eclipsing the No. 2 spender, China, with $190 billion.

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