Russia – political stability II
Digging deeper into the question of the prospect of the Russian political order, we focus on the economic effects of the war in Ukraine on Russian political stability.
No doubt the economic sanctions by US, EU and affiliates will have a long-term effect on economic development in Russia, due to the economic decoupling that will follow from these heavy sanctions. But is the blow to the economic order in Russia destabilizing Russian political order? How? To what extent? We point to three elements:
Stability of the currency (Rubel) and national budget
Impact on the national economy and its doctrine
The impact for further development and interdependences of Russia.
Analytical elements
When we seek to grasp how Russia fares through the attack on its economy, we look at how Russia is defending itself and seek to balance its national economy. The Russian Central Bank defended its currency by cutting demand through redrawing the rubel from the market. A dangerous but necessary solution that will be a headache for The Central Bank in the long run, but balancing monetary policy by resting on Russias strong current account to counter the immediate effects on the exchange rate. Russia has a large export hence enough foreign currency. This led to an economic situation with some pressure on the rubel, reaching a stable level throughout the year 2022 hence the attack on the rubel failed. Inflation remains relatively low and national income is stable despite los of revenue on oil and gas from exports to Europe. It is not easy to influence an economic order build on commodities that all countries need.
Russia’s economic order was fueled by gas and oil sales to EU and others. One year ago, 86% of gas used in EU came from Russia; today it is 7%: USA and Norway have stepped up to provide a lot of the discrepancy here. Suspicions that these countries blew up the Russian pipeline in the Baltic Sea are difficult to counter, but what is of interest here, is that Russia is becoming totally decoupled from the Western economies and here a blown-up pipeline merely comes to symbolize detachment. Russia had 300 billion $ of financial assets frozen by the West. The resilience of Russia towards sanctions is due to its place in the global economy. It provides commodities and has adjusted its national economic doctrine accordingly. If it becomes more difficult to buy commodities, then price goes up, and if Russia finds a new buyer, then it will soon earn 300 billion $. Russia found new buyers for oil in Asia, for a lower price, though, but the effect of sanctions weakened as countries turned their back on The West and was unwilling to back up the sanctions regime. Oil always seems to find a way from seller to buyer.
GDP growth rate took a dip from expected 4,5% to around -2% in 2022, but is back from recession in 2023. Finding new buyers for commodities on a larger scale, will take time, hence a slow recovery should be expected. Western companies has all but terminated their activity in Russia. This will have a huge impact on economic development as this kind of activity cannot be substituted. Russia is in many ways still learning to do business and produce popular products here, 33 years after the breakdown of The Soviet Union, hence the sudden retraction of Western products and companies is a substantial blow. The draft will cost on productivity, but since wages in the army are higher than average, consumer demand should not suffer. All in all, economic development is a seriously negative trend, and it seems like Russia will be stuck in the lower end of the industrial supply chain for at least another decade. The resilience of the Russian population is legendary, but the actual pivot to Asia will take a long time to complete, since it will require a lot of new geo-economic infrastructure. Kremlin has prepared itself for such a turn of events by engaging in a pragmatic partnership with China and participating in the so called BRIC. Russian foreign policy is very active in its near abroad and throughout the last decade also deep into the Post Soviet Space and even beyond.
Conclusion
Sanctions will have the effect of squeezing the Russian economy and stall economic development for many years to come. Politically, it seems to have no effect beyond the fact that some brain drain and consumer grievances may have a marginal effect on the otherwise unproblematic regime legitimacy.
Sanctions regime will go on
It appears that the goal of Washington and its NATO alliance is to use the escalation of the conflict in Ukraine to destabilize Russia through exhaustion. Whether or not that is a viable strategic objective we shall discuss some other time. Here, we shall take interest in the measures used and their effect on Russia. And these are hard measures. Russia is the most heavily sanctioned country after North Korea and Iran, the pariahs of the former decades. What immediately stands out is that Russia was hit by the full blow of the hammer and that has been interpreted differently, by different observers. To some, Russia leads a war of agression and must suffer sanctions until Kremlin complies and that should be the regiment to be observed by all nations facing the will of The West. To others, among them many geopolitical observers, a simple stratagem is deployed by The West: Ignore someone’s grievances till they react, give them the blame for the conflict unfolding, and then celebrate unity by employing the full scale of sanctions. This dynamic is textbook for geopoliticians and the stratagem employed by ruling elites long before the time of Hammurabi; still The West seems united in deploying this stratagem, both between elites and masses and between the.polities of ‘The West.’ Therefore, we may predict that the sanctions regime employed by the West may last long enough to constitute a fundamental shift towards further polarization in the global political order: Russia will turn away from The West towards The Rest.