Putin’s Russia: ‘There may be trouble ahead’

Putin WEF

By Peter Ferdinand

At first sight 2014 appears to have been a year largely of diplomatic success for Russia and for President Putin.  Despite all the haranguing from the West, it moved swiftly to wrest Crimea from Ukraine and maintain control over its Black Sea naval base at Sebastopol without appearing openly to flout UN agreements.  Subsequently it has hamstrung the new democratic, more pro-Western government in Ukraine by conniving at secession in the east of the country.  It has demonstrated that there is no long-term solution there unless Russia has bought into it.  In the Middle East it has provided vital diplomatic backing for its client regime in Syria that has enabled President Assad to survive far longer than outside observers had predicted, even though the humanitarian consequences for the people have been horrendous.

All of this has revived President Putin’s prestige at home.  According to the Levada Centre public opinion surveys, domestic approval of Putin had fallen to 61 per cent in November 2013 but by November 2014 had risen to 85 per cent.  In October 2014 69 per cent of respondents agreed that they were either ‘definitely’ or ‘mostly’ proud of Russia, whilst the corresponding figure for October 2013 was 53 per cent.  And Western commentators have often contrasted Putin’s strategic vision with the weakness and apparent pusillanimity of Western leaders, whether in the US or the EU.

And yet…  

The overall environment for Russian development has turned negative.  Western sanctions have begun to hurt.  Whether or not those targeted at individual Russians close to the top of the regime have changed behaviour, they have begun seriously to affect Russian businesses that had hoped for loans and investments from Western banks.  Capital flight from Russia has swelled from around $50 billion per year to around $100 billion.  Projections for the Russian economy to grow by 2 or 3 per cent this year have now been scaled back to at most 0.5 per cent.  More ominously, relations with Germany – Russia’s favourite Western partner – have soured.  And Russia’s behaviour has reminded the EU of the need to be wary of excessive dependence upon Russian energy, thus undermining Putin’s long-term strategy of using its energy reserves as a strategic diplomatic asset.

Worse, world oil prices have fallen dramatically and unexpectedly.  Taxes on oil and gas now account for over 50 per cent of the Russian budget, with the break-even point being US$80 per barrel.  The current figure on world markets is around $65 – though this may be a short-term blip (in June the oil price was around $115).  The main factor here is not Western sanctions (although that does affect Russia’s ability to invest in extraction in new and more challenging environments such as the north of Russia and the Arctic), but long-term rivalry between Saudi Arabia and shale-oil extractors in the US, which suggests at the very least long-term downward pressure on world prices.  Neither of those protagonists has an interest in trying to mitigate the effects on Russia.  In that case pressure will mount on Russia to scale back its budgetary commitments – above all its plans to renew and expand its military capabilities, something that would embarrass President Putin.  Where Putin was ‘lucky’ and farsighted in reaping the benefits of major increases in world energy prices from 2002 for political and economic gains, now he looks unlucky and shortsighted.  Opportunities to modernize Russian industry have been sacrificed on the altar of high energy revenues.

Russia Leans East

In the meantime Russia has been forced to lean further East.  In September it announced the signing of a long-term agreement to supply gas to China, which had stalled for years because of Chinese refusal to pay ‘European’ prices for it.  The terms of the contract have still not been revealed, but it is reasonable to assume that the price is closer to what China wanted.  It is ironic that the regime’s more combative independent stance towards the West is leading to greater dependence upon China – not something of which Russian nationalists would approve.  And since then Russia has announced that it is cancelling the Southstream gas pipeline that was intended to supply Southern Europe and instead will build a pipeline to Turkey – though serious negotiations, let alone actual construction,  have not yet started.

Challenges Reappear

Thus Russia is feeling pressure, but is not without options of its own.  Domestically the government is tightening controls over the media further to restrict free comment, just in case.  But whether that will be enough to ensure continued votes for United Russia in the Duma elections of 2017 and in the presidential election the following year remains to be seen.  A lot depends on the economy.  If it stops growing, if there is a widespread sense that living standards are being hit, and if there is a widespread sense that corruption at the top is siphoning off huge amounts of oil revenue to a Kremlin clique, then the outlook becomes cloudy.  According to the Levada Centre, only 22 per cent of respondents believed that they have a personal impact on Russia’s economic and political life, either ‘definitely’ or ‘mostly’.  If things go wrong, the majority will not feel that it is their fault, and they will know who to blame – unless it can be redirected elsewhere.

Some have suggested that Russia’s forays into Ukraine were motivated by the desire to divert attention from the worsening economic situation.  That seems excessively Machiavellian – Putin was shocked by popular protests that overthrew the elected President Yanukovich in Ukraine and by the ensuing threat to Russian access to the Sebastopol naval base.  No doubt there already was a long-standing plan in place to cater for the latter eventuality, and it was relatively easy to implement it.  But the Kremlin has encouraged media reports of ‘fascist’ atrocities by Ukrainian nationalists against Russian speakers.  They will not have failed to notice the wave of popular support that followed.  If the economy continues to do badly, then the possibility of Russia stoking tensions in other parts of the Former Soviet Union to ‘defend’ Russians still living there cannot be excluded.  Probably action against the Baltic states and Eastern Europe would be too much of a provocation to the West.  But Moldova might feel pressure.  And whilst the West might not feel the same emotional need to support Moldova that it would for Poland or the Baltic states, Russia’s claim to a right to intervene over its borders in countries where a Russian minority is allegedly being persecuted presents a fundamental challenge to the principles of the UN international order.  It amounts to a Russian claim to exceptionalism, which would set a worrying precedent.

To return to the Irving Berlin song quoted in the title of this piece, it continues:

‘Before the fiddlers have fled, 

Before they ask us to pay the bill, and while we still have that chance, 

Let’s face the music and dance’. 

Now among Putin’s circle the music is speeding up, the dancing is becoming more boisterous and money to pay the fiddlers is streaming abroad.

Peter ferdinand photoPeter Ferdinand is a Reader in Politics and International Studies. He studied Russian and French at Oxford and Russian Government at the LSE, before completing a DPhil on Soviet politics in the 1920s. On the way he also studied at Kiev University in Ukraine and at Harvard University. He has taught at Warwick since 1976 and has also been a British Academy Research Fellow at the Chinese Academy of Social Sciences in Beijing. Between 1989 and 1993 he was on secondment to the Royal Institute of International Affairs, Chatham House, London, where he was Head of the Asia-Pacific Programme. 


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