Sunday, 14 October 2018

Sanctions and tsunami may cause problems for Indonesia to acquire the Su-35

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Translated by google

Sanctions or tsunami: whether Russia will sell the Su-35 Indonesia

The second export deal for the Su-35 was under threat

Ilya Kramnik

One of the main military news in October was the possible delay in the supply of Su-35 fighter jets to Indonesia. The media reported that the implementation of the contract may be disrupted due to US sanctions, impeding the payment of Russian cars. Izvestia understood the possible consequences.

Second contract

The agreement on the supply of Su-35 to Indonesia was signed in February 2018. Jakarta should receive 11 fighters, the cost of the transaction exceeds $ 1 billion, while its financing is carried out, according to some sources, at the expense of the Russian commercial loan.

The deal with Indonesia is already the second export contract for the Su-35, but the conditions for its implementation are significantly different from the first. 

The first contract was signed in 2015 with China, which purchased 24 Su-35s in Russia for more than $ 2 billion. Four cars were shipped in 2016, 10 - in 2017, deliveries are due this year. With the execution of the Chinese contract, there were no initial issues: Moscow and Beijing have enough tools to bypass the US attempts to limit the financial calculations between them.

The deal with Indonesia, which also looked quite reliable, was suddenly questioned, and, of course, a number of observers remembered CAATSA - the American law "On Counteracting the Opponents of the United States through Sanctions."

On October 5, Kommersant reported problems with the implementation of the contract, citing sources that linked them specifically with sanctions that may be imposed in the framework of CAATSA. It was noted that both sides are looking for ways out of the situation. 

Kommersant drew attention to the absence of US guarantees of non-proliferation of CAATSA sanctions on Indonesia. However, the reason for the delay in the implementation of the contract may be different.

“The fact is that the Russian defense industry is almost all under sanctions, and the US’s next measures do not add or add anything here — direct and open schemes for the implementation of transactions are practically excluded,” a source in the Russian military diplomatic said in an interview with Izvestia. case. According to the source, it is this that leads to the use of alternative methods of financing transactions.

- Many transactions are financed by bank loans, which are then reimbursed by commodity supplies - in fact, exchange positions. Physical deliveries of goods to Russia are optional, we are talking about their sales on the world market, the funds from which can already be received in the income of Russian organizations, - said the source.

Such transactions can be carried out through various chains of legal entities, which in itself does not guarantee against the use of sanctions, although it complicates their implementation. At the same time, recent events in Indonesia have hampered heavy spending on military needs without any interference from Washington.

Tsunami effect

The impact of the tsunami that hit the Indonesian island of Sulawesi on September 28, 2018, caused enormous destruction and the death of a large number of people. As of October 9, the number of victims has already exceeded 2 thousand people, and the damage assessment has approached $ 700 million. Both figures may increase dramatically in the future.

Under these conditions, it is impossible to predict how much money the Indonesian government will have to spend in the coming months on the urgent tasks of dealing with the consequences of a natural disaster, and caution with large contracts is quite understandable.

The money that the government of the country could gain from the sale of goods intended to pay for the supply of Russian fighters is likely to be in demand in other places, and, in the opinion of Izvestia interlocutors, “emergency” needs today are a much more weighty reason for postponing fighter purchases than possible sanctions from the US.

To compare the negative financial effect of an elemental strike that has already taken place and potential sanctions is a thankless task, but it is hardly justified to explain what is happening exclusively by sanctions.

Whom will beat

The problem with the application of sanctions, however, will  not go anywhere and will rise with each subsequent transaction. According to information available to Izvestia, pressure from the United States has already led to difficulties in concluding a number of treaties with some countries of the Middle East and in other regions. At the same time, the effectiveness of this American instrument is rather limited, both in terms of its impact on third countries and on Russia.

In the case of Russia, the problem is formulated very simply: every next round of restrictions imposed by the US on the political and business interests of Moscow in various regions of the world unleashes Moscow in organizing long-term and intractable problems for Washington in these very regions.

So, over the next few years, there is no doubt that the disruption of transactions with wealthy Middle Eastern buyers from among the monarchies of the Gulf will be compensated for by the supply of modern weapons to Iran, including perhaps the same S-400 complexes and modern combat aircraft imposed sanctions in the framework of CAATSA against China and are considering the possibility of their application to India and Indonesia.

Of particular interest in this aspect are the prospects for cooperation between Russia and Turkey, another S-400 customer, and in the future, if the US still blocks supplies of the fifth generation F-35 fighters to Ankara, and Russian combat aircraft.

From the point of view of the consequences for possible other foreign buyers of Russian military equipment, the following indicator can be used for rough forecasting in the Asia-Pacific region: the probability of these transactions is the higher the share of India and China in the foreign trade turnover of these countries. For Indonesia, for which India and China together account for about 20% of exports, and 11% for the United States, this means that there is a wide range of financial instruments that allow, if necessary, to finance a deal with Russia. 

It is difficult to call this situation sustainable. However, if the US tries to crack it, using increasingly harsh measures against India and the PRC, it will be impossible to predict the consequences - at least in politics, given Washington’s desire to find support in New Delhi against China’s growing military and political power.


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