In all, the sources said, Moscow could lose $10 billion in arms deals in the Middle East. They cited rising unrest in Algeria, Russia's leading defense client in the region, as well as Egypt.

The biggest loss has been that of the Libyan market, Middle East Newsline reported. The sources said Tripoli had ordered $2 billion worth of air defense, main battle tanks and aircraft.

"Rosoboronexport's lost income from the situation in Libya amounted to $4 billion," Russian Technologies director-general Sergei Chemezov said.

Gadhafi had also been negotiating for another $1.8 billion in additional Russian systems. The sources said the contracts included procurement of aircraft such as the Yak-130 air trainer, as well as upgrades.

"As of today, contracts for military hardware of around $2 billion had been agreed with Libya," a military source told Russia's Interfax news agency. "Work on contracts for aviation equipment and air defense was also in the final stage. These were valued at $1.8 billion."

The sources said Russian contracts with Algeria could also be threatened. They cited massive unrest in the North African state amid clamors for social welfare programs.

In 2010, Russia was reported to have broken another arms export record. Officials said the Kremlin oversaw more than $10 billion worth of defense sales.

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