War in Ukraine: Is America Covertly Supplying Weapons?

By Markets Fool.com


After nearly a year's worth of fighting against Russian-backed separatists, Ukraine's tanks are looking somewhat the worse for wear -- and due for an upgrade. Photo: / DenTVinform.

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Despite impassioned pleas from Ukraine's president, and from regional allies, the United States has for months steadfastly refused to supply defensive weapons to help Ukraine defend itself from Russian aggression.

Officially.

Unofficially, though, this story may be getting more interesting.


Welcome to the Arab world's biggest arms bazaar -- IDEX 2015. Photo: IDEX UAE.

Welcome to the Mideast arms bazaar. May we take your order?
Last week, in a development guaranteed to set conspiracy theorists to theorizing, Ukrainian representatives attending the International Defense Exhibition and Conference in Abu Dhabi were reported to have signed a deal for "unspecified military and technical cooperation with the UAE," according to Defense News.

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Initially, all United Arab Emirates government spokesman Obaid al-Ketbiwould sayon the subject was that "we have a lot of interest in [Ukraine's] products, and they also have interest in some of the things that we produce in the UAE," said Reuters. It soon became known, however, that Ukraine is in the market for as much as $110 millionin new weapons systems, and, according to Defense News, had "signed a very important memorandumabout military and technical cooperation" with UAE.

Clarifying, Ukrainian President Petro Poroshenko acknowledgedthat "to increase the defense capability of Ukraine," Ukrainian companies had signed contracts worth tens of millions of dollars to assist in accelerating the Ukrainian military's modernization.

But what does that mean exactly?

Theory No. 1: Conspiracy!
At first glance, President Poroshenko's statement appears to suggest that Ukraine came out of IDEX bearing tens of millions of dollars' worth of new weapons with which to carry on its war against Russian-backed separatists -- and that may even be (partly) true. After all, in recent years, the UAE has been trying to diversify its oil-based economy, developing a home-grown defense industry capable of, among other things, providing advanced "drone" aircraft technology to Russia itself.

More disturbingly, the fact that the UAE is itself a major buyer of weapons systems from the U.S. raised the prospect that America was using the country as a conduit for covertly delivering arms to Ukraine. After all, recent years have seen the UAE sign multiple contracts to acquire weapons systems that could be of great help to Ukraine in its conflict with Russia:

Most recently, in September of last year, Congress was notified of a pending sale of nearly $1 billion worth of weapons from Lockheed Martin -- 12 High Mobility Artillery Rocket Systems Launchers (HIMARS), along with more than 250 rocket "pods" to fire from them.

Tally up the figures, and over the past two years, UAE has either placed firm orders for, or begun the process of buying, close to $9.5 billion worth of U.S. arms. Put any significant proportion of those weapons in the hands of Ukrainian fighters, and Russia's occupying forces could suddenly have a very bad day.

Theory No. 2: Reality
Hearing the rumors that this was precisely what was going on, though, UAE's diplomats rushed to toss cold water on the theory. The defense tech agreement between Ukraine and the UAE, assured UAE's assistant foreign minister for security and military affairs,Faris Al Mazrouei, "does not include any arms deals" whatsoever, according to the Wall Street Journal -- and by implication, no covert arms transfers from America to Ukraine via the UAE.

This would appear to put a definitive end to any and all conspiracy-theorizing. And yet, if Al Mazrouei's assurances are to be believed, then what exactly did Ukraine and UAE agree to that was worth "tens of millions of dollars"?

In a column last month, international military affairs analyst Stratfor suggested that, Mazrouei's denials notwithstanding, "sources have indicated that UAE military supplies to Ukraine" may well include "armored vehicles" of UAE-origin. After all, UAE is known to have "delivered armored vehicles to the Ukrainian military" in the past -- weapons "that have been used in active operations" against Russia-backed forces. But Stratfor, at least, is convinced that any arms deal signed in Abu Dhabi is unlikely to have included "U.S.-produced arms."

More likely, therefore, the "tens of millions" that were referred to in earlier press reports on IDEX refer to deals moving in the other direction -- Ukrainian companies selling weapons, and transferring weapons technology and know-how to UAE. And it's the cash raised from such arms sales to UAE buyers that Ukraine intends to use to buy "$110 million" worth of new weapons for its military... from somewhere else.

What it all means to investors
Investors who were hoping, therefore, that Ukraine's presence at IDEX foreshadowed hundreds of millions of dollars' worth of new arms purchases by the UAE to replace weapons resold from UAE to Ukraine appear likely to be disappointed. No such sales are forthcoming. (Which, by the way, doesn't detract from the fact that U.S. arms dealers are still profiting handsomely from the Mideast arms market all on its own.)

That said, if Ukraine is indeed earning a cash infusion from selling its own weapons technology to UAE, then this does raise the potential for Ukraine to pay for new weapons from the West -- if and when Western nations finally agree to sell them over Russian objections.

As I've argued in the past, these are arms deals that simply must happen if Ukraine is to shore up a military badly battered by its run-in with the Russians already. Ultimately, the cost of Ukrainian rearmament is a project that will generate not tens of millions, but billions, of dollars -- and much of this business is likely to go to U.S. defense companies.

That said, and the conspiracy theorists notwithstanding, these are sales that lie some months or even years in the future. They're not going to happen today. And they didn't happen in Abu Dhabi.


Tanks crowd the catwalk at the IDEX arms fair. But for the time being, at least, investors in U.S. defense companies, hoping to profit from Ukrainian rearmament, can only say: "Tanks for nothing, Abu Dhabi." Photo source: IDEX UAE.

The article War in Ukraine: Is America Covertly Supplying Weapons? originally appeared on Fool.com.

Rich Smithowns shares of Raytheon. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 301 out of more than 75,000 rated members.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.