Russia’s misadventure in Ukraine sets off European re-armament

European and US arms companies' shares have jumped in price since the Russian invasion began

By Ajai Shukla

Business Standard, 14th March 22

 

Russia’s on-going military invasion of Ukraine, which began on February 24 and still continues, has been described as a turning point in the modern history of Europe.

 

Russia’s aggression has catalysed European rearmament, galvanized the European and American arms industry, rejuvenated the North Atlantic Treaty Organisation (NATO), caused Germany to reassert European leadership and galvanised tentative Japanese militarism.

 

For India, which has been enjoying the advantages of an arms buyer’s market and invoking the “Atmanirbhar Bharat” slogan to bargain hard for setting up production of western weaponry in the country, this unwanted shift towards a seller’s market spells bad news.

 

Seller’s market in defence

 

Since the Washington Treaty brought NATO into being on April 4, 1949, its biggest member and guiding light, the United States of American (US) has been frustrated by the reluctance of NATO’s 30 member countries to live up to their commitment to spend at least 2 per cent of their Gross Domestic Product (GDP) on their militaries to ensure the alliance’s readiness to face any military challenge.

 

Less than half of NATO’s members have been allocating two per cent of their GDPs to defence. Of the most influential member countries, only the US and UK have been meeting the two per cent target.

 

Europe’s largest and richest country, Germany, was amongst the most reluctant to build up capacity for collective defence. Just two months ago, with Russia building up forces against Ukraine and openly threatening war, Berlin flatly declined to supply Ukraine with lethal weaponry. Instead, it sent Kyiv defensive equipment: a $5 million field hospital and 5,000 helmets.

 

Furthermore, Germany’s Chancellor Olaf Scholz forbade other NATO countries from sending German-made weapons to Ukraine. “Germany has not supported the export of lethal weapons in recent years,” he said.

 

In another event that would have seemed impossible until recently, Japan’s former Prime Minister Shinzo Abe suggested that Japan should assume responsibility for nuclear defence and that Japan should consider a NATO-style nuclear-sharing arrangement with the US. This would allow American nuclear weapons to be placed on Japanese soil, something forbidden so far.

 

The new European rearmament

 

This attitude changed dramatically as Russian forces crossed into Ukraine on February 24. Germany immediately sent 1,000 anti-tank weapons and 500 Stinger anti-aircraft defense systems to Ukraine. Berlin also revoked its block on European Union countries that were supplying German-made equipment to other countries.

 

A day later, in an address to the Bundestag – Germany’s parliament – Scholz reversed decades of German security policy and proposed massive investments, including a Euro 100 billion special fund, for building up the Bundeswehr – the German military.

 

This was a huge rise in military spending, given that Germany spent just €47 billion on defence in 2021.

 

The European and American defence industries reacted with delight to the prospect of a sharp rise in western defence spending. The share price of Swedish defence conglomerate, Saab AB, almost doubled over the last three weeks. BAE Systems’ share price rose by 23.16 per cent, while that of French major, Thales, rose by 33.35 per cent. Leonardo SpA’s shares rose by 13.36 per cent, Lockheed Martin’s share price saw a rise of 12.16 per cent, Leonardo SpA shares rose by 13.36 per cent and Raytheon Technologies’ share prices rose by 3.4 per cent. 

 

For Indian micro, small and medium enterprises (MSMEs) that are a part of the supply chains of global aerospace and defence (A&D) companies, this could trigger a significant increase in orders.

 

A blow to “Make in India”

 

Senior executives from European and American original equipment manufacturers (OEMs) welcome the renewed focus on doing business with NATO militaries. Pushed to the sidelines by three decades of defence spending cuts after the Soviet Union collapsed, the products these OEMs make are suddenly back in demand.

 

“New Delhi has been squeezing the big western defence corporations to set up production in India under the Atmanirbhar Bharat (self-reliant India) scheme, even when it made little economic sense. With New Delhi calling the shots in a buyer’s market, the western defence OEMs had little choice but to comply. That will not be the case any longer,” said the chief of a big OEM.

 

Indian government officials are contemplating the prospect of New Delhi standing in line for sophisticated weaponry that would be supplied on priority to a re-arming Europe, faced with an increasingly powerful Russia, backed by an emergent China.

 

Current situation

 

In Cold War era exercises that wargamed Warsaw Pact (Soviet bloc) armoured columns racing westwards through NATO countries, Soviet Union tanks would invariably reach their objectives on the Atlantic seaboard – more than 1,000 kilometres away from their launch pads – in 7-10 days, implying an advance of about 100 km each day. In advancing through Ukraine, however, Russian tank columns have moved no faster than 10-20 km each day.

 

For reasons not yet entirely clear, Ukrainian tanks, unmanned aerial vehicles (UAVs) and missiles have succeeded in restricting the Russian advance to a negligible pace.

 

A meeting of the Russian propaganda outlet – the Joint Coordination Headquarters for Humanitarian Response in Ukraine – announced on Sunday: “Unfortunately, the humanitarian situation in Ukraine continues to deteriorate rapidly, and in some cities it is catastrophic. Armed formations of [Ukrainian] nationalists are mining residential areas, destroying bridges and roads, destroying life support facilities.

 

“The most difficult humanitarian situation has developed in Mariupol. Hundreds of thousands of people, including foreigners, are forcibly detained by nationalists who, threatening physical violence, stop any attempts to leave the city.” 

 

Russia has fired missiles and struck the International Peacekeeping and Security Center in Western Ukraine. This has brought the war dangerously close to the Polish – and therefore NATO’s – border, where the US has dispatched soldiers to bolster NATO forces, creating a potential flashpoint. The border is a lifeline for Ukraine, with more than one million refugees escaping to safety in Poland while weapons flow in the other direction.

 

Western analysts wonder what logic drove Russian President Vladimir Putin to invade Ukraine, given that the country (and earlier Georgia), were very far away from meeting the criteria for membership of NATO.

 

With Ukraine successfully slowing the Russian advance, the EU and NATO both got their mojo back, and the Biden administration’s attention was diverted from China to the European theatre. With Russian dependence on China renewed, and with the prospect of thousands of jihadi fighters weighing in on Moscow’s behalf, Beijing is the biggest beneficiary of the crisis.