The upheaval in eastern and southern Ukraine comes with a hidden cost for one of the region’s little-known success stories: the close ties between the Russian and Ukrainian defense industrial bases. In late March, Yuri Tereshenko, the head of Ukraine’s state-controlled defense-industrial conglomerate Ukroboronprom declared that Kiev planned to curtail its military and technical cooperation with Russia in response to Russia’s annexation of Crimea. A month later, Russian President Vladimir Putin shot back. At a May meeting with defense industrial managers and top military commanders, he said, “We need to do our utmost for anything used in our defense sector to be produced on our territory, so that we are not dependent on anyone.” It is hard to overstate how disruptive it could be if Tereshenko and Putin get their way: decades of cooperation in a vast industry originally developed will come to an end.
After a crash start under the first five-year industrial plan in the 1930s, the Soviet armament industry expanded dramatically in the decades that followed, giving rise to a scientifically complex and geographically distributed sector. By the end of the 1980s, Ukraine housed 30 percent of the Soviet-era defense industry. It was home to some 750 factories and 140 scientific and technical organizations. At that time it employed approximately 1.5 million people.
The breakup of the Soviet Union in 1991 dealt a heavy blow to all sectors of Soviet industry. But it was a true catastrophe for the military-industrial complex. Practically overnight, the economic sector that had turned the country into a military superpower on par with the United States fractured. A complicated and multi-layer production chain was suddenly scattered over several countries.
Realizing the disaster on their hands, as the union was breaking apart, the Russian and Ukrainian governments attempted to preserve military-industrial cooperation and establish sustainable commercial ties. This was especially important for Ukraine, since, at the time, more than 70 percent of Ukrainian defense enterprises depended on components from Russian factories. Meanwhile, 20 percent of Russian