It’s panic time in Moscow, as the deadly double whammy of collapsing oil prices and Western sanctions is knocking the Russian economy into recession. Nothing the government can do has been able to stem the accelerating selloff in Russian assets, and the meltdown has gone so far that average people increasingly understand that their economic futures are at risk. And for good reason, as Reuters explains:
The rouble plunged more than 11 percent against the dollar on Tuesday in its steepest intraday fall since the Russian financial crisis in 1998 as confidence in the central bank evaporated after an ineffectual rate hike…
It has now fallen close to 20 percent this week, taking its losses this year against the dollar to over 50 percent and raising memories of the crisis in 1998 when the currency collapsed within a matter of days, forcing Russia to default on its debt… [A]nalysts say the country is on the brink of a full-blown currency crisis.
The Putin government has come to a fork in the road—and both of its choices look unpleasant. It can accept that the oil price collapse is forcing it to change paths in foreign policy and give up (at least for now) on its dreams of geopolitical revenge for the defeat in the Cold War—or it can double down on the fight against the West and the world system.
The first course is obviously the smartest from the standpoint of Russian national interest, but the second may make more sense in terms of the personal fortunes of one Vladimir Putin—and unless something changes in Russia, Putin is firmly in charge.
Putin has to be thinking in terms of using the crisis to enforce even tighter government control over Russia’s economy: cracking down on currency trading, increasing control over banks, possibly repudiating private as well as public debts to Western creditors. To make this work, he’d have to resort to claims that the West is in an all-out war to destroy Russia, and that national mobilization (under, of course, his inspired leadership) is the only way to save the country.
The long term prospects for such a course of doubling down on an aggressive foreign policy are not good; the Soviet Union was a lot stronger than Russia is today, and the USSR went down in poverty and defeat. And many of the Russian oligarchs and elites who have made huge fortunes under Putin would face massive financial losses if this plan goes forward. (They’ve already sustained heavy blows as Russia’s stock market implodes.) So to continue down this road, Putin will need to tighten his control over his supporters; the logic of Putin’s policy abroad is a more radical dictatorship at home. To justify the crackdown, Putin will need to convince Russians that the country faces a truly diabolical threat from beyond its borders, so we could well see him simultaneously embracing more confrontational policies abroad and a more totalitarian style of leadership at home.
Putin, who embodies a mix of geopolitical recklessness and shrewd calculation, will do his best to avoid being trapped into the harshest and most radical course. He will be looking for a strategy that avoids the worst economic consequences without giving up on his ambitions in Ukraine. One choice would be to do something dangerous and expensive from the standpoint of Russia’s longterm national interests, and double down on his relationship with China.
Putin has tried this route before, announcing large, long term gas deals with China as a way of underlining his independence from European energy customers. But those deals are long term and may never reach fruition. If he needs ready cash—and the increasing pressure on his shrinking foreign exchange reserves suggests that he soon may—he’ll have to find some compelling deals that the Chinese are willing to pay for up front. Fire sales of Russian assets to Chinese buyers could generate enough cash to ride out the storm in the financial markets, and China’s hunger for raw materials remains huge. Long term contracts to exploit mineral resources, sweetened perhaps with agreements not to contest Chinese influence in central Asia and so forth, could provide—at an extremely high cost to Russia’s own long term national interests—a way for Putin to ease the pressure he’s under now.
At the moment, China wants no part of Russia’s quarrel with the West. But, it also doesn’t want the U.S. to crush Russia once again. If there were a way for China to make extremely advantageous energy and mineral deals while also propping up a power that, like China, wants to see a reduced U.S. role in the world, Beijing just might lend Putin a helping hand.
It won’t come cheap, though: Beijing can see what a weak hand Putin has, and it will expect to be compensated—at Russia’s expense—for any help it offers the struggling strong man.
Another route Putin may opt for is to take measures to bring Russian oligarchical capital, which has been in full-on flight mode, back to Russia. One of the least-discussed parts of Putin’s recent annual state-of-the-country speech was his announcement of an amnesty that will allow the oligarchs to bring their money home without punishment.
There is one other alternative that the Dark Genius of the Kremlin may be turning over in his mind: Is there some way Russian foreign policy could create a Middle East crisis that would drive oil prices back up into the stratosphere? The most obvious way would be to bring about some kind of situation involving the Iranian nuclear talks—perhaps by offering quiet support to Iranian hardliners, increasing the chances that the talks fail. Any kind of serious war scare in the Persian Gulf would be good for Russia’s financial situation; Russian foreign policy experts are presumably thinking through their options.
One hopes for the sake of the long-suffering people of Russia that Putin somehow finds it in himself to turn away from the very dark path that now lies before him. But it won’t be an easy thing to do. He’s gone out on such a limb in Ukraine, introduced such a poisonously chauvinistic public mood in Russia, and alienated so many potential partners and interlocutors in the West that it will be extremely difficult for him to defuse the crisis while remaining in power.
The path of least resistance for Putin is the path of greatest danger for Russia; we shall see what choices he now makes—and we shall see if he has so thoroughly mastered Russia’s oligarchs and institutions that no effective opposition to him is possible even if he pushes the country further down the road to isolation and ruin.