The announcement that Russia is planning to lift its self-imposed ban on selling the advanced S-300 air defense system to Iran gives us an important insight into how Moscow plans to move ahead with its ambitious plans to modernize and reequip the Russian armed forces.Initially, the rearmament plan announced by President Vladimir Putin was to be funded from the golden river that was generated by the taxes on energy exports that had helped to fill the Kremlin's coffers. The collapse in world energy prices over the past year (as prices have gone down, the amount of the windfall tax collected has also contracted)—coupled with the recession Russia is now undergoing (with its economy expected to contract by at least 3 percent in 2015), has diminished the resources available.
The Defense Ministry expects to cut military spending by 3.8 percent—less of a haircut than what other ministries and departments must slash (generally 10 percent of their budgets)—but it will be a test as to whether the Russian defense industry can mitigate the impact of any reduction by finding greater efficiencies. A forthcoming test will be whether the chassis for the 5th generation tank the T-14 Armata can be used as the basis for other new vehicles such as armed personnel carriers and self-propelled artillery, simplifying production and cutting down on maintenance costs. There will also be pressures to cut costs for procurement by holding the line on salaries—which, paradoxically, may not produce labor unrest as the deteriorating economy makes it less likely professionals would be able to easily switch into other, higher-paying jobs.