According to the Stockholm International Peace Research Institute, Russia is currently the second largest arms exporter in the world after the United States. It exported $6.6 billion worth of arms vs. $7.8 billion by the United States.

The package for the Saudi kingdom will include Mi-35 attack helicopters (NATO designation HIND-E manufactured by the famed Rosvertol from the southern city of Rostov), and transport choppers Mi-17 and Mi-8.

Experts say that the quality of Russian helicopters has improved, while Rosoboronexport offers better service and training packages than in the past. Russia beat Sikorski and the French manufacturers, who tried in vain to sell the kingdom their more expensive Eurocopter.

However, Moscow is not selling the Saudis the crown jewels. The best Russian attack helicopter, Mi-28, nicknamed Nochnoy Okhotnik (The Night Hunter), is currently going to the Russian air force and is not on offer to the Gulf customers yet.

Russia is also expecting the Saudis to make a decision on a $1 billion package which includes T-90 tanks and armored personnel carriers.

These activities demonstrate that Russia is challenging the U.S. for leadership in arms exports. Further, they indicate that Moscow is not backing off from opening new markets which traditionally belonged to Americans, the British, and the French. Recently, Moscow sold submarines and other hardware to Indonesia.

"Arms sales create allies," said a Moscow security expert who requested anonymity.

China is also increasing its exports to the Middle East as its dependence on oil supplies from the region grow. Saudi Arabia is looking to diversify its security providers, to include the resurgent Russia and fast-growing China.

But neither Moscow nor Beijing are capable of offering the Gulf states, obsessed with the Iranian ascendancy, what the U.S. can: a comprehensive security blanket, including troop deployment in the area, naval presence, and at the end of the day, nuclear deterrent.

Still, Washington is unhappy about the Russian arms sales encroachment. This month, the House of Representatives has introduced a bill sanctioning Russia, ostensibly for selling arms to Iran, Syria, and Venezuela.

The sanctions are focusing on a $700 million contract to supply Tehran with 29 units of TOR-M-1, a short-range anti-aircraft missile system, which would protect Iran's nuclear infrastructure. They also mention supply of the Strelets ("shooter") to Syria. Strelets is an integrated missile and cannon system, which also includes radars and computers.

Venezuela, another U.S. nemesis, is buying from Russia 50 military helicopters, 24 modern Sukhoi-30 MK2 fighter jets, 100,000 Kalashnikov rifles and factories to produce Kalashnikovs and shoulder launched missiles, the famed RPGs.

The Venezuelan soon-to-be dictator Hugo Chavez believes that his Bolivarian Revolution has to be protected from "Yankee imperialism," a tune straight from the songbook of his teacher Fidel Castro.

The destabilizing Russian arms sales come at the time the U.S. is selling tens of billions of dollars worth of military hardware to Saudi Arabia, other Gulf states, and Israel.

Russia is rejecting American criticism. "Any attempts to dictate the restrictions based on one-sided and politicized views cannot and will not be taken into consideration.… Russia has always observed, observes and will observe all international obligations in the defense field," said Putin.

Russian and Western experts interviewed in Moscow and Washington claim that selling weapons to the volatile areas, often to both sides in a conflict, is a time-honored Russian practice. For example, in 1981-1988, the USSR has sold arms to its protégé Saddam Hussein, and to Khomeini's Iraq.

While selling nuclear reactors and expertise, aerospace and military technology, and weapons to Iran, Russia wants to cash in on insecurity in Saudi Arabia and elsewhere in the Gulf by providing multi-million weapons contracts.

Moscow today is obsessed to be on a par with Washington. Some Russian analysts now even pulled the Leninist thesis about the "terminal crisis of capitalism" out of the mothballs. They believe, together with Chavez and Iranian President Mahmoud Ahmadinejad, that the fall of the dollar conclusively indicates U.S.'s doom, forgetting both the GDP size and the military power Washington commands.

Above all, the pragmatic and opportunistic Russians see the way to make a buck on arms sales in the region flush with cash – and insecurity.

And if Washington is fuming, so be it.

Ariel Cohen, Ph.D., is senior research fellow at the Heritage Foundation. He visited Moscow this month.