tag:theconversation.com,2011:/au/topics/russian-economy-14081/articlesRussian economy – The Conversation2024-02-29T13:40:51Ztag:theconversation.com,2011:article/2236322024-02-29T13:40:51Z2024-02-29T13:40:51ZHow Russia has managed to shake off the impact of sanctions – with a little help from its friends<p>Almost two years after the West <a href="https://www.politico.com/news/2024/02/24/russia-economy-west-sanctions-00142713">responded to the Russian invasion in Ukraine with a blistering array of sanctions</a>, a fresh round of <a href="https://home.treasury.gov/news/press-releases/jy2117#:%7E:text=State%20is%20designating%20three%20Government,abuses%2C%20and%20aggression%20against%20Ukraine.">financial measures was announced by the Biden administration</a> on Feb. 23, 2024. The new sanctions, imposed following the <a href="https://theconversation.com/navalny-dies-in-prison-but-his-blueprint-for-anti-putin-activism-will-live-on-223774">death of Russian opposition leader Alexei Navalny</a>, raised the number of individuals and entities now targeted by the U.S. to more than 2,000.</p>
<p>These measures <a href="https://www.state.gov/ukraine-and-russia-sanctions/">have run the gamut</a>, from targeted sanctions against President Vladimir Putin and other members of Moscow’s elites to broader restrictions on trade and investment.</p>
<p>Yet there are <a href="https://www.wsj.com/world/the-biggest-ever-sanctions-have-failed-to-halt-russias-war-machine-0986873f">few signs the sanctions have had a meaningful impact</a> on Putin’s ability to wage war.</p>
<p>As <a href="https://miamioh.edu/profiles/cas/keith-preble.html">experts on</a> <a href="https://www.skidmore.edu/political_science/faculty/willis.php">economic sanctions</a>, we believe the blunting of the sanctions’ impact can be attributed in large part to how Putin has been able to “sanction-proof” the Russian economy with help from friendly nations.</p>
<h2>Russian sanctions regime</h2>
<p>The sanctions regime put in place by the <a href="https://www.lawfaremedia.org/article/what-sanctions-has-world-put-russia">U.S. and its partners</a> in the European Union, along with Japan, Australia, New Zealand, South Korea and Switzerland, has been both targeted and broad.</p>
<p>Restrictions have been placed on individuals and firms on an ever-growing blacklist – the U.S. calls it the <a href="https://ofac.treasury.gov/specially-designated-nationals-and-blocked-persons-list-sdn-human-readable-lists">Specially Designation Nationals and Blocked Persons List</a>. The list includes entities both in Russia and within Russia’s procurement network and supply chains operating in other countries. </p>
<p>Inclusion on the list results in a proscribed entity’s assets being blocked. Meanwhile, U.S. nations and businesses are barred from conducting business with entities on the list.</p>
<p>Economic sanctions have also <a href="https://www.state.gov/additional-sanctions-on-russias-technology-companies-and-cyber-actors/">focused on specific sectors</a>, such as the financial services sector. Banks have been barred from clearing payments and facilitating the flow of money in Russia’s key revenue generating sectors, such as the oil and energy industries. Such <a href="https://www.state.gov/countering-the-wagner-group-and-degrading-russias-war-efforts-in-ukraine/">sectoral sanctions</a> target all firms in the given sector and, theoretically, can have a devastating effect on an economy. </p>
<p>In addition, the U.S. has been both surgical and cautious in its <a href="https://www.state.gov/issuance-of-a-new-executive-order-to-expand-russia-sanctions-authorities/">use of secondary economic sanctions</a>. Secondary economic sanctions, which penalize individuals and firms in third-party countries that maintain trade and financial transactions with proscribed entities, can be politically and diplomatically challenging given that targeted firms often aren’t doing anything illegal in their home countries.</p>
<p>The United States’ <a href="https://www.fincen.gov/sites/default/files/2022-06/FinCEN%20and%20Bis%20Joint%20Alert%20FINAL.pdf">Bureau of Industry and Security in the Department of Commerce</a> and <a href="https://www.consilium.europa.eu/en/policies/sanctions/restrictive-measures-against-russia-over-ukraine/history-restrictive-measures-against-russia-over-ukraine/">the EU</a> have also implemented export controls that restrict Russia’s military sector from accessing key technologies for the war effort. </p>
<h2>Dwindling effect</h2>
<p>These economic sanctions placed significant stress on the Russian economy in the first year of the war. Evidence of economic pain in 2022 can be seen in the jump in the rate of inflation <a href="https://www.imf.org/external/datamapper/PCPIPCH@WEO/RUS?year=2022">from 6.7%</a> to <a href="https://www.imf.org/external/datamapper/PCPIPCH@WEO/RUS?year=2023">13.8%</a>. Meanwhile, Russia’s gross domestic product fell <a href="https://carnegieendowment.org/politika/88664">3% to 4% in the first nine months of the war</a>, although analysts had initially forecast a GDP decline of up to 10%.</p>
<p>But since then, the Russian economy has withstood the impact of sanctions. According to data from the International Monetary Fund, the rate of inflation is anticipated <a href="https://www.imf.org/external/datamapper/PCPIPCH@WEO/RUS?year=2024">to drop to 6.3%</a> in 2024. Some analysts predict <a href="https://carnegieendowment.org/politika/88664">Russia’s economy to recover further in 2024</a>, with the <a href="https://www.imf.org/en/Publications/WEO/Issues/2024/01/30/world-economic-outlook-update-january-2024">IMF forecasting a 2.6% growth in GDP</a> – up from earlier estimates of <a href="https://qz.com/russian-ukraine-invasion-sanctions-war-international-mo-1851208999">just 1.1% growth</a>.</p>
<figure class="align-center ">
<img alt="A man in a suit stand sin front of a tank." src="https://images.theconversation.com/files/578804/original/file-20240229-30-f3hsoh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/578804/original/file-20240229-30-f3hsoh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=411&fit=crop&dpr=1 600w, https://images.theconversation.com/files/578804/original/file-20240229-30-f3hsoh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=411&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/578804/original/file-20240229-30-f3hsoh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=411&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/578804/original/file-20240229-30-f3hsoh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=516&fit=crop&dpr=1 754w, https://images.theconversation.com/files/578804/original/file-20240229-30-f3hsoh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=516&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/578804/original/file-20240229-30-f3hsoh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=516&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Vladimir Putin visits a tank factory on Feb. 15, 2024.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/in-this-pool-photograph-distributed-by-russian-state-agency-news-photo/2006245916?adppopup=true">Alexander Kazakov/AFP via Getty Images</a></span>
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</figure>
<p>This dwindling impact on the Russian economy points to a general truth: Sanctions are hard to maintain. They are only effective when they are consistently enforced, and <a href="https://www.aljazeera.com/opinions/2023/6/5/sanctions-on-russia-may-not-be-working-we-now-know-why">few countries apart from the United States have had the stamina to enforce export controls</a> over a prolonged period.</p>
<h2>‘Sanctions-proofing’ Fortress Russia</h2>
<p>Russia has also been able to adapt to the sanctions by adopting several strategies, some of which began long before the 2022 invasion. By then, Russia had been coping for years with <a href="https://2009-2017.state.gov/e/eb/tfs/spi/ukrainerussia/">sanctions put in place</a> after its illegal annexation of Crimea in 2014. The plan put in place by Moscow to fortify the economy has been named “<a href="https://www.npr.org/2022/03/01/1083804497/economic-warfare-vs-fortress-russia">Fortress Russia</a>” and consisted of building up <a href="https://www.npr.org/transcripts/1083804497">significant foreign exchange reserves</a> to maintain confidence in the Russia ruble. </p>
<p>Diversifying foreign exchange reserves, though, is just one part of the strategy.</p>
<p>The limited economic and financial sections imposed by the U.S. and others after the annexation of Crimea provided Russia with space and time to undertake a strategy of <a href="https://doi.org/10.1080/0163660X.2023.2188829">sanctions-proofing its wider economy</a>.</p>
<p>Sanctions experts such as <a href="https://caileighglenn.wixsite.com/home">Caileigh Glenn</a> have <a href="https://www.lawfaremedia.org/article/can-you-sanctions-proof-a-government#:%7E:text=A%20fourth%20sanctions%2Dproofing%20strategy,%2C%20Chinese%20renminbi%2C%20and%20euros.">identified four strategies</a> that countries employ to sanctions-proof their economy: <a href="https://www.bofbulletin.fi/en/blogs/2022/russia-is-struggling-to-find-new-sources-of-imports/#:%7E:text=During%20the%20past%20decade%20and,been%20modest%20in%20most%20sectors.">import substitution</a>, strengthening foreign partnerships, <a href="https://www.shearman.com/en/perspectives/2023/05/russian-countersanctions--new-measures-targeting-foreign-investors-in-russia">retaliation through countersanctions</a> and <a href="https://www.brookings.edu/articles/russias-external-position-does-financial-autarky-protect-against-sanctions/">reducing dependency on any single reserve currency</a>. </p>
<p>While Russia has employed a <a href="https://carnegieendowment.org/politika/88664">combination of these strategies</a>, cultivating partnerships with countries that are willing to ignore Western sanctions – or willing to look the other way – appears to have been a particularly successful strategy.</p>
<h2>China: A crucial partner</h2>
<p>Fortunately for Russia, China has been a somewhat willing partner.</p>
<p>Throughout the Ukraine conflict, China has played a balancing act: eager to maintain both its relationship with Russia as well as <a href="https://thediplomat.com/2023/11/understanding-chinas-policy-in-the-russia-ukraine-war-and-implications-for-china-us-relations/">economic ties with the U.S., the EU and Ukraine</a>. </p>
<p>In line with that policy, China has refrained from issuing its own economic sanctions against Moscow and has <a href="https://thediplomat.com/2022/08/china-moves-to-fill-the-void-left-by-russia-sanctions-on-its-own-terms/">filled, for Russia, the void</a> left by a reduction in trade with sanctioning countries.</p>
<p>In 2023, for example, Russian officials stated that around half of the country’s oil and petroleum exports <a href="https://www.reuters.com/markets/china-russia-2023-trade-value-hits-record-high-240-bln-chinese-customs-2024-01-12/#:%7E:text=Chinese%20shipments%20to%20Russia%20jumped,13%25%20last%20year%20from%202022.">were exported to China</a> – far higher than before the sanctions were imposed. Similarly, China’s exports to Russia, including smartphones, <a href="https://www.reuters.com/markets/china-russia-2023-trade-value-hits-record-high-240-bln-chinese-customs-2024-01-12/#:%7E:text=Chinese%20shipments%20to%20Russia%20jumped,13%25%20last%20year%20from%202022.">rose astronomically from its pre-Ukraine war levels</a>, largely due to the U.S.’s and EU’s sanctions against Russia. </p>
<p>The China-Russia partnership was on the rise even before the 2022 invasion. Presidents Xi Jinping and Putin have <a href="https://crsreports.congress.gov/product/pdf/IF/IF12100">met several times since 2013</a>, a year before Russia’s invasion of Crimea. And since then, the two countries have conducted a <a href="https://crsreports.congress.gov/product/pdf/IF/IF12120">variety of bilateral agreements</a> in areas such as trade, energy, diplomacy and military cooperation. </p>
<p>As such, the increase in trade between China and Russia since 2022 is part of a longer trajectory of Moscow relying less on Western powers.</p>
<p>And this has made the Russian economy less vulnerable to sanctions from Western countries. China’s share of Russian <a href="https://crsreports.congress.gov/product/pdf/IF/IF12120">trade increased</a> from around 10% in 2013 to 18% in 2021. Over the same period, the EU’s share dropped from 47% to 36%, and the U.S.’s remained relatively stable – at around 3% to 4%.</p>
<p>However, Russia’s ability to insulate itself from sanctions through increased trade with China may be facing a setback. The EU recently issued <a href="https://www.scmp.com/news/china/diplomacy/article/3252736/eu-agrees-blacklist-chinese-firms-first-time-latest-russian-sanctions-package">secondary sanctions on 193 firms and individuals</a> who are doing business with Russia, including three firms in mainland China and one in Hong Kong. The U.S. is <a href="https://www.cnbc.com/2024/02/19/china-has-a-lot-more-to-lose-us-considering-sanctioning-chinese-firms-aiding-russias-war.html">considering similar sanctions</a> against Chinese firms as well. </p>
<p>This may be particularly problematic for Russia, as China is much less dependent on Russia economically. Russia <a href="https://crsreports.congress.gov/product/pdf/IF/IF12120">comprised only 2% of China’s trade share in 2021</a>, and although trade between the two <a href="https://www.cnbc.com/2024/01/12/china-posts-higher-than-expected-exports-growth-in-december.html">increased in 2023</a>, <a href="https://oec.world/en/profile/country/chn">trade with the U.S., the EU and other countries within Asia</a> remains more integral to the Chinese economy.</p>
<h2>Other sanction busters</h2>
<p><a href="https://www.cfr.org/backgrounder/north-korea-sanctions-un-nuclear-weapons">North Korea</a> and <a href="https://www.sipri.org/publications/2021/policy-reports/mitigating-humanitarian-impact-complex-sanctions-environment-european-union-and-sanctions-regimes">Iran</a> – themselves targets of extensive sanctions – have also emerged as important partners in Russia’s strategy to sanctions-proof its wartime economy. Consistent with a trajectory of closer ties <a href="https://www.aljazeera.com/news/2023/9/13/the-highs-and-lows-of-russia-north-korea-relations">since Putin took office</a>, North Korea is now <a href="https://www.aljazeera.com/news/2024/1/12/us-imposes-sanctions-over-transfer-of-north-korean-missiles-to-russia">allegedly providing Russia with missiles and other arms</a>. Similarly, Iran <a href="https://www.reuters.com/world/europe/russia-has-received-hundreds-iranian-drones-attack-ukraine-white-house-2023-06-09/">has sold drones to Russia</a> for use in the Ukrainian conflict. </p>
<p>Western countries have been engaging in sanctions-busting, too. In December 2023, the U.S. Treasury <a href="https://home.treasury.gov/news/press-releases/jy1948?_gl=1*7sn7lq*_gcl_au*MTYyMjQ3ODI3OC4xNzA1MDgyMDky">unsealed indictments</a> relating to a Belgium-based network accused of coordinating the sale of electronics to Russian firms. Such networks undermine the export controls designed by the West to limit Russia’s acquisitions of critical technologies.</p>
<p>Also, spotty enforcement of sanctions has allowed Russia to circumvent restrictions. A report by Reuters on Russia’s wartime supply chain found that from February to October 2022, some US$2.6 billion in computer and electronic components <a href="https://www.reuters.com/investigates/special-report/ukraine-crisis-russia-tech-middlemen/">made its way into Russia</a>, with at least $777 million of the products originating from Western firms such as Intel and Texas Instruments.</p>
<p>These exports to Russia also included chips that could be used in the manufacturing of high-tech weaponry. Recent <a href="https://kse.ua/wp-content/uploads/2023/06/Russian-import-of-critical-components.pdf">analysis from the KSE Institute</a> found that Russian imports of “high-priority battlefield items” have largely recovered since sanctions were imposed in 2022.</p>
<h2>Next steps</h2>
<p>Key to improving the effectiveness of economic sanctions is the development of robust mechanisms of enforcement – both against firms and individuals. </p>
<p>Greater use of secondary sanctions along with stiffer penalties against sanctions violators should raise the costs of sanctions-busting and make such transactions less attractive. Research has shown that the longer economic sanctions persist, the <a href="https://www.sup.org/books/title/?id=24154">less effective they become</a> – and two years into the Ukraine conflict, Russia has shown itself to be quite adept at avoiding the full force of the West’s attempts to squeeze its economy and derail its war effort.</p><img src="https://counter.theconversation.com/content/223632/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The US has imposed another round of sanctions following the death of Russian dissident Alexei Navalny. But will it work?Keith A. Preble, Visiting Assistant Professor of Political Science, Miami UniversityCharmaine N. Willis, Visiting Assistant Professor of Political Science, Skidmore CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2213332024-02-22T13:28:03Z2024-02-22T13:28:03ZRussia’s economy is now completely driven by the war in Ukraine – it cannot afford to lose, but nor can it afford to win<p>Two years after its full-scale invasion of Ukraine, Russia is still facing an unprecedented number of economic sanctions. It has been <a href="https://www.sciencedirect.com/science/article/pii/S0167268123004651?via%3Dihub">excluded</a> from major global financial services, and around €260 billion (£222 billion) of its central bank assets <a href="https://www.consilium.europa.eu/en/press/press-releases/2024/02/12/immobilised-russian-assets-council-decides-to-set-aside-extraordinary-revenues/">have been frozen</a>. </p>
<p>Russian airspace is closed to most western planes, and western ports are closed to Russian vessels. A <a href="https://www.reuters.com/business/energy/g7-price-cap-russian-seaborne-crude-oil-main-elements-2022-12-05/">formal cap</a> has been imposed on buying or processing Russian oil sold for more than US$60 per barrel (world prices <a href="https://www.neste.com/investors/market-data/crude-oil-prices#f0cd2e6c">currently fluctuate between $80 and $100</a>. And in theory, <a href="https://www.consilium.europa.eu/en/infographics/eu-sanctions-russia-ukraine-invasion/">it is illegal</a> to sell Russia anything that could be used by the military.</p>
<p>Sanctions have had some effects. <a href="https://www.reuters.com/world/europe/blood-billions-cost-russias-war-ukraine-2023-08-23/">According to the IMF</a>, Russia’s GDP is around 7% lower than the pre-war forecast. </p>
<p>Despite all of this, Russia’s economy has not collapsed. But it does look very different, and is now entirely focused on a long war in Ukraine – which is actually driving economic growth.</p>
<p>In fact, the IMF expects <a href="https://www.ft.com/content/21a5be9c-afaa-495f-b7af-cf937093144d?segmentid=dcee0941-6e02-a9de-5643-b340f3ef2e3a">Russia to experience GDP growth</a> of 2.6% this year. That’s significantly more than the UK (0.6%) and the EU (0.9%). Similarly, Russia’s budget deficit (the amount the government needs to borrow) is on track to remain <a href="https://www.bloomberg.com/news/articles/2023-11-07/russia-s-fiscal-gap-shrinks-again-despite-growing-cost-of-war">below 1% of GDP</a>, compared to <a href="https://obr.uk/forecasts-in-depth/brief-guides-and-explainers/public-finances/">5.1% in the UK</a> and <a href="https://www.reuters.com/markets/europe/euro-zone-tighten-fiscal-policy-2024-some-still-spend-too-much-commission-2023-11-21/">2.8% in the EU</a>.</p>
<p>One reason for this relative resilience is Russia’s strong, independent central bank. Since 2022, it has imposed massive interest rate hikes (<a href="https://www.cbr.ru/eng/press/keypr/">currently at 16%</a>) to control inflation (<a href="https://www.cbr.ru/eng/press/keypr/">still above 7%</a>). </p>
<p>This has been combined with <a href="https://www.ft.com/content/e0216489-a57d-46d2-90b9-b2e26b0a9973">government-imposed controls</a> which make it almost impossible for Russian exporters and the <a href="https://theconversation.com/western-firms-still-doing-business-in-russia-finance-the-war-heres-how-to-recoup-the-huge-cost-to-taxpayers-210475">many foreign companies still operating in Russia</a> to take money out of the country. Together, these policies have helped to <a href="https://www.reuters.com/markets/currencies/russian-rouble-set-steady-decline-back-past-100-vs-dollar-2024-2023-11-03/">avoid a total collapse of the ruble</a>, by keeping the currency flowing inside Russia.</p>
<p>Russian firms have also learned to sidestep sanctions, with the oil cap being a prime example. In theory, no Russian oil should be traded with the west above the cap, which <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4497485">would have a massive impact</a> on Russia’s public finances. </p>
<p>In practice, it <a href="https://www.reuters.com/world/us-issues-fresh-sanctions-over-shipment-russian-oil-above-price-cap-2023-12-01/">has been circumvented</a> by a large <a href="https://www.theguardian.com/business/2023/aug/19/the-dark-fleet-of-tankers-shipping-russian-oil-in-the-shadows">“dark” fleet of uninsured vessels</a> and the use of <a href="https://www.politico.eu/article/russia-oil-price-cap-ukraine-war-centre-research-energy-clean-air/">accounting loopholes</a>. And while sanctioning countries are <a href="https://www.offshore-technology.com/news/uk-us-tighten-enforcement-russian-oil-price-cap/#:%7E:text=The%20UK%20and%20US%20have%20tightened%20rules%20relating,make%20circumventing%20the%20sanctions%20more%20difficult%20for%20Moscow">trying to tighten the rules</a>, Russia’s public coffers have actually been <a href="https://www.newstatesman.com/the-weekend-report/2024/01/revealed-city-of-london-vladimir-putin-oil">flooded with oil money</a>. </p>
<p>Many countries have also made money playing the role of intermediaries. <a href="https://www.euronews.com/business/2023/11/27/turkey-faces-scrutiny-as-exports-to-russia-surge-fuelling-concerns-of-sanctions-evasion">Turkey</a>, <a href="https://www.nbcnews.com/news/investigations/china-helps-russia-evade-sanctions-tech-used-ukraine-war-rcna96693">China</a>, <a href="https://www.rferl.org/a/serbia-russia-sanctions-dual-use-technology/32676159.html">Serbia</a>, <a href="https://www.euractiv.com/section/politics/news/the-export-of-dual-use-goods-to-russia-via-bulgaria-is-increasing/">Bulgaria</a> and <a href="https://www.reuters.com/business/energy/borrell-urges-eu-crack-down-imports-indian-fuels-made-with-russian-oil-ft-2023-05-16/">India</a> are among those which have reportedly circumvented sanctions, and carried on selling goods to Russia. </p>
<p>Those products are understood to often include dual-use goods such as <a href="https://www.ft.com/content/1cef6628-32eb-49c9-a7f1-2aef9bce4239">microchips or communication equipment</a> that are subsequently used by the Russian military. And <a href="https://www.ft.com/content/7ef97342-48fa-4969-b3ee-bc7419b69e65">despite</a> <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2023/12/22/fact-sheet-biden-administration-expands-u-s-sanctions-authorities-to-target-financial-facilitators-of-russias-war-machine/">recent efforts</a>, a full regime of <a href="https://academic.oup.com/jcsl/article/27/1/53/6528963">extra-territorial trade sanctions</a> – which ban any foreign company from <a href="https://www.sciencedirect.com/science/article/pii/S0014292120302026">trading</a> with Russia – is still far away.</p>
<h2>Fortunes of war</h2>
<p>But perhaps the most worrying reason for the Russian economy’s resilience is the war itself.</p>
<p>For a long time, the economy of Russia has not been diverse, relying heavily on the export of natural resources such as oil and gas. And a major reason for the relatively high revenue of the Russian government today is precisely that the war has <a href="https://www.nature.com/articles/s41599-023-02526-9">led to high energy prices</a>. </p>
<p>Russia’s public spending is <a href="https://www.ft.com/content/04bd3730-e8b4-40da-bc10-131843534504">at unprecedented levels</a>, and around 40% of the government budget is spent on the war. Total military spending is expected to <a href="https://www.wilsoncenter.org/blog-post/russias-unprecedented-war-budget-explained">reach more than 10% of GDP</a> for the year 2023 (the UK <a href="https://researchbriefings.files.parliament.uk/documents/CBP-8175/CBP-8175.pdf">figure is 2.3%</a>). </p>
<p>Military pay, ammunition, tanks, planes, and compensation for dead and wounded soldiers, all contribute to the GDP figures. Put simply, the war against Ukraine is now the main <a href="https://carnegieendowment.org/politika/90753">driver of Russia’s economic growth</a>.</p>
<p>And it is a war that Russia <a href="https://theconversation.com/the-cost-of-war-how-russias-economy-will-struggle-to-pay-the-price-of-invading-ukraine-178826">cannot afford</a> to win. The cost of rebuilding and maintaining security in a conquered Ukraine would be too great, and an isolated Russia could at best hope to become a junior partner entirely dependent on China. </p>
<p>In a context of <a href="https://www.dw.com/en/why-are-many-russians-freezing-in-their-homes-this-winter/a-68025856">collapsing infrastructure</a> and <a href="https://www.nytimes.com/2024/01/18/world/europe/protests-russia-bashkortostan.html">growing social unrest</a> inside Russia, the projected cost of rebuilding the occupied area is already massive. </p>
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Read more:
<a href="https://theconversation.com/ukraine-war-the-west-is-at-a-crossroads-double-down-on-aid-to-kyiv-accept-a-compromise-deal-or-face-humiliation-by-russia-223747">Ukraine war: the west is at a crossroads – double down on aid to Kyiv, accept a compromise deal, or face humiliation by Russia</a>
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<p>A protracted stalemate might be the only solution for Russia to avoid total economic collapse. Having transformed the little industry it had to focus on the war effort, and with <a href="https://www.reuters.com/world/europe/russia-short-around-48-million-workers-2023-crunch-persist-izvestia-2023-12-24/">a labour shortage problem</a> worsened by <a href="https://www.nytimes.com/2023/08/18/us/politics/ukraine-russia-war-casualties.html">hundreds of thousands</a> of <a href="https://www.bbc.co.uk/news/resources/idt-829ea0ba-5b42-499b-ad40-6990f2c4e5d0">war casualties</a> and <a href="https://www.npr.org/2023/05/31/1176769042/russia-economy-brain-drain-oil-prices-flee-ukraine-invasion">a massive brain drain</a>, the country would struggle to find a new direction.</p>
<p>Thirty-five years after the fall of the Berlin wall, it has become clear that resource-rich Russia <a href="https://data.worldbank.org/indicator/NY.GDP.PCAP.KD?end=2022&locations=RU-PL-HU-EE-LV&start=1990">has become much poorer</a> than its former Soviet neighbours such as Estonia, Latvia, Poland and Hungary, who pursued the route of European integration. </p>
<p>The Russian regime has no incentive to end the war and deal with that kind of economic reality. So it cannot afford to win the war, nor can it afford to lose it. Its economy is now entirely geared towards continuing a long and ever deadlier conflict.</p><img src="https://counter.theconversation.com/content/221333/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renaud Foucart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Western military support for Ukraine is more important than ever.Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2229502024-02-21T19:04:02Z2024-02-21T19:04:02ZQ&A with Sergei Guriev: ‘The optimistic scenario is the departure of Vladimir Putin in whatever way’<p><em>When Russian economist Sergei Guriev and The Conversation sit down to speak on the morning of 16 February, the news of the death of the opposition leader Alexei Navalny hasn’t yet broke. In fact, we discuss how the international community could best protect his imprisoned friend. Guriev has since described Navalny’s death, decried by the West as a political assassination orchestrated by Kremlin, as <a href="https://www.ft.com/content/b8404189-e761-48c2-a63a-5bc74cdf31e0">“terrible news — not only for the future of Russia, but also for Ukraine, Europe and the entire free world”</a>. He has also endorsed Yulia Navalnaya as a <a href="https://twitter.com/sguriev/status/1759988189316469051">“strong and independent leader” on Twitter</a> days after the opposition leader’s widow – herself a trained economist – announced that she would be taking up her husband’s mantel.</em></p>
<p><em>Our Q&A, which focuses on the state of the Russian economy almost two years after Russia’s invasion of Ukraine, remains more relevant than ever, as the West begins to unleash a <a href="https://www.rfi.fr/en/international/20240221-eu-approves-new-round-of-sanctions-against-russia">new wave of sanctions</a> in response to Navalny’s alleged murder.</em></p>
<p><em>One of Russia’s most prominent economists, Guriev was once a linchpin of the government of Dmitri Medvedev (2008-2012), writing speeches for the president and serving on the boards of many state companies. He fled Russia in 2013, due to fears for his freedom after co-authoring a report critical of the treatment of Mikhail Khodorkovsky, a then-imprisoned oil tycoon at the centre of the <a href="https://www.bbc.com/news/world-europe-12082222">Yukos affair</a>. He is now a professor of economics and the provost of Sciences Po Paris, and has just been named Dean of the London Business School – news which prompted Navalny to offer <a href="https://twitter.com/navalny/status/1752949923597668528">his congratulations</a> from his cell in the Arctic penal colony. Since Russia invaded Ukraine, Guriev has also been one of the leading minds behind western sanctions on his country through his work for Stanford University’s international working group, ‘Making Putin Pay’.</em></p>
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<p><strong>Since Russia’s invasion of Ukraine, there have been countless Western sanctions. But it also appears that Russia has proved more resistant to them than thought. In fact, the IMF even predicted its economy would <a href="https://www.imf.org/external/Pubs/FT/weo/2024/01/pdf/January%202024%20WEO%20Update_EN.pdf">grow by 2.6% this year</a>, buoyed by extensive state spending – what some have dubbed “military keynesianism”. So how is the economy really faring? Is it shrinking, or growing?</strong></p>
<p>It’s a question of definition. If we associate economic growth with GDP growth, there is no question that the Russian economy is growing. However, GDP is not the same measure of economic performance in wartime as it is in peace time. When you spend a substantial part of GDP on producing tanks and artillery shells and recruiting soldiers who are being wounded or killed in Ukraine, that means that it is equivalent from the civil sector’s point of view to just printing money and injecting it in the economy.</p>
<p>We count this as part of GDP because things are produced and people are employed as soldiers, but that has nothing to do with economic performance within Russia. When we talk about military spending, remember that it was 3% of GDP, and in 2024 it is <a href="https://carnegieendowment.org/politika/90753">6% of GDP</a>. This gap is enough to explain whatever growth is happening in the Russian economy. And of course there is an additional set of sectors which are not directly involved in military spending, but also involved in producing military services and goods. So I think it’s quite misleading.</p>
<p>A number that is more informative, I think, is retail, trade turnover. If you look year on year, from 2021 to 2022, you see a fall of <a href="https://www.reuters.com/article/russia-retail-idUSR4N32X04N/">around 6.5%</a>. If you actually look at December 2021 to December 2022, it shows -10.5%. 2023 data will be published soon. There will be no fall, and even some growth, but overall, Russian consumption is not doing well.</p>
<p>You mentioned “military Keynesianism”. I think it’s somewhat misleading as well. Keynesianism is a policy which you use when you have slack in the economy and high unemployment in a bid to employ people through government spending.</p>
<p>The risk of Keynesianism is that the economy becomes overheated. And, of course, Keynes published his ideas in 1930s, in the course of the Great Depression, when you had unemployment in the United States reaching 25%. Today, unemployment in Russia is very low, because people are either living there or recruited for fighting in Ukraine.</p>
<p>In fact, the economy is rather overheating. Inflation is higher than the target at 7%, which the Central Bank is extremely worried about. If anything, now is not the time for Keynesianism.</p>
<p><strong>You are part of <a href="https://fsi.stanford.edu/working-group-sanctions">Stanford’s International Working Group on Russian Sanctions, ‘Making Putin Pay’</a>. Could you tell us how the group has managed to shape sanctions on Russia thus far, and what you hope yet to achieve?</strong></p>
<p>The group is very inclusive, including economists, political scientists, former government officials from the US, Europe, other countries. And its purpose is to publish papers, currently at 18. I’ve been part of about five working papers – the first four and the one on <a href="https://fsi9-prod.s3.us-west-1.amazonaws.com/s3fs-public/2023-09/working_paper_14_-_using-energy-sanctions_09-19-23_update.pdf">energy sanctions of September</a>.</p>
<p>The idea is to inform policymakers about trade-offs involved in sanctions, as well as their potential impact. We want to make sure that this war is more costly to Russia and therefore Putin has fewer resources to kill Ukrainians and destroy Ukrainian cities.</p>
<p><strong>And has it had tangible impacts? Can you directly link some of the sanctions that have been put forward with the papers that have been released?</strong></p>
<p>We’ve always argued in favour of oil embargo and that’s happened. We’ve always talked about the necessity of oil price cap, tightening technological sanctions, financial sanctions, they have happened. Whether we were pivotal, I don’t know.</p>
<p><strong>To what extent do you believe sanctions are effective? Only last week, The Conversation published <a href="https://theconversation.com/financial-sanctions-banks-reactions-depend-on-their-location-research-reveals-219678">an article</a> indicating that German bank subsidiaries located in zones blacklisted by the Financial Action Task Force were 151% more likely to lend to sanctioned countries.</strong></p>
<p>I think the right way to ask this question is: “What would be the case if sanctions were not in place?” When we ask the question, “Are sanctions effective?”, we shouldn’t compare what’s happening now with what we wish to be happening. We should compare what’s happening now in the presence of the sanctions and would have happened in the absence of the sanctions.</p>
<p>So imagine indeed that all European banks – including German banks – located in Europe continue lending to Russia: Putin has unlimited access to funding. He has unlimited access to his central bank reserves. He has unlimited access to French and German technology. And he can also actually recruit soldiers all over the world. He keeps selling oil and gas to Europe at full European price. So imagine this world. Would the Ukrainian army have a more difficult time? The answer is “yes”.</p>
<p>Now, Putin has learned how to circumvent sanctions. The West is doing more to fight this. And you see that Putin is increasingly struggling to work through Turkey, even through China. You see that Chinese and Turkish banks and Central Asian banks are more and more vigilant regarding payments to Russian counterparts. Now, if Putin can circumvent sanctions, it is through third, fourth, and fifth countries that charge him intermediary fees. And the more that is given to intermediaries, the less is put in his pockets and that’s good. But of course, more effort needs to be invested in tightening sanctions and enforcing sanctions.</p>
<p><strong>Sanctions have hit Russia’s ability to modernize, and that also includes the <a href="https://theconversation.com/other-casualties-of-putins-war-in-ukraine-russias-climate-goals-and-science-182995">world’s fourth-largest emitter’s ability to green its industry</a> at a time of climate emergency, be it through import restrictions on technology, collapse of foreign capital sources or the freezing of international programs. Do you have any thoughts on how we might help the country carry out the energy transition, while hitting the Kremlin where it hurts?</strong></p>
<p>Well, I think you formulated it very well: Putin’s access to technology is limited. And while this is indeed not my area of expertise, if there is technology that cannot be used for military production but only be used for the green transition, the US should continue to export this technology to Russia. My understanding is there’s very little of that.</p>
<p>And one of the things which we’ve seen in 2022 and 2023, is that Putin has imported a lot of civilian technology – like dishwashers or fridges – just to have access to microprocessors, to produce missiles and kill Ukrainians. Russia is also suffering from lack of chips in credit cards. As a result, banks are now recycling them.</p>
<p>So I’m not sure there is advanced civilian technology for decarbonization that Putin cannot use for military production. But that’s a question I’m not a specialist in. Now, the most important contribution to the green transition while limiting Putin’s ability to fight this war is the decarbonization of Western economies. If the West decarbonizes faster and reduces its demand for fossil fuels, that will reduce oil prices globally and therefore the revenues Putin can use for killing Ukrainians.</p>
<p><strong>In 2018, Christine Lagarde, then the head of the IMF, lauded the current head of the Russian bank, Elvira Nabiullina, as the woman who could “make central banking sing”. How vital has she been in keeping Putin’s war machine running? And what do you make about the speculation about her health after <a href="https://www.reuters.com/world/europe/russian-central-bank-governor-nabiullina-cancels-appearance-exhibition-2024-01-16/">she allegedly underwent surgery</a> in January?</strong></p>
<p>I have no idea about her health. She definitely has not been showing her support for the war. She’s never spoken against the war, but already in 2018, she would <a href="https://www.wionews.com/world/russian-central-bank-chief-noted-for-coded-dress-wears-funeral-black-to-signal-death-of-economy-459472">use her way of dressing to signal the sentiment of the central bank’s monetary policy</a>. In her press conferences, she would be <a href="https://www.bloomberg.com/news/articles/2020-12-28/read-my-brooch-says-russian-central-bank-chief-nabiullina">using brooches</a> to signal whether the central bank was more hawkish or more dovish. She would have a broach with a dove to signal that the central bank is more likely to lower interest rates and some other brushes or colours of her dress to signal whether the Central Bank is optimistic or pessimistic regarding the state of the Russian economy.</p>
<p>Since the beginning of the war, she started to dress in black, though my understanding is that that recently changed. So I think she wants to signal to the world that she’s unhappy.</p>
<p>On the other hand, she continues to work, and indeed, as you rightly said, she’s an important instrument in financing Putin’s machine. And that is something that I think history will not judge her on positively. And while she may say that she’s fighting inflation to protect the most vulnerable parts of Russian society, every billion, 10 billion or 100 billion dollars that is saved for Putin’s budget is another billion, 10 billion, or 100 billion that Putin can use to buy Iranian drones, artillery shells from North Korea, recruit soldiers and kill Ukrainians.</p>
<p><strong>Finally, what would be the best and yet realistic case scenario one could hope for Russia right now?</strong></p>
<p>Vladimir Putin has shown that he has no respect for human rights and international law. I don’t think that if Putin stays in power, we can have any optimistic scenario for Russia. The only optimistic scenario is his departure in whatever way and a democratic transition.</p>
<p>Maybe not immediately, but in a matter of several months or a couple of years, there will be something like Perestroika 2.0. I don’t see how Russia can become a North Korea or Syria. There are people who will try to do that, but I think Russia is too diverse, too large, and too educated, and frankly just too rich to tolerate a Stalinist regime.</p>
<p>And I think there will be enormous willingness of people who succeed Putin, even his closest entourage. These people want to stop this war. They want to re-engage with the West. They will try to negotiate something and that will lead to an increase in political liberties and openness in Russia, which in turn should lead to some immediate improvement and hopefully substantial improvement in the relationship with Ukraine and Europe over the next decade.</p>
<p><strong>Do you see Russian elites rebelling against the Kremlin anytime soon? We’ve seen a lot of <a href="https://www.ft.com/content/d6d3b45a-35cc-4e32-b864-b9c0b1649a79">business people moving to Dubai</a>.</strong></p>
<p>So business elites are of course unhappy, but they’re also aware that rebelling against Vladimir Putin is physically dangerous. We’ve seen a lot of “suicides” in recent years. People are extremely aware of the risks related to opposition to Vladimir Putin. Very few of them openly spoke against the war. You can actually count people like this on one hand with <a href="https://theconversation.com/russian-billionaire-cranks-up-the-pressure-on-cyclings-beleaguered-bosses-36072">Oleg Tinkov</a> and <a href="https://www.ft.com/content/24c47ec1-dc7f-48a9-960e-7ad89cda8e1a">Arkady Volozh</a>, who spoke openly against the war.</p>
<p>But we also see that people are not speaking in favour of the war, and that includes business elites, heads of civilian agencies and ministries. They are all extremely unhappy. Their lifetime projects are destroyed. And in that sense, we may not see a rebellion like Prigozhin’s, but once Vladimir Putin disappears, there will be time for change. But maybe there is also a coup being prepared as we speak. The coups that are successful cannot be prepared openly.</p><img src="https://counter.theconversation.com/content/222950/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sergei Guriev ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>One of the main minds behind sanctions on Russia, Russian economist and political refugee Sergei Guriev is adamant about their restraining power on the Kremlin.Sergei Guriev, Professor of economics, Sciences Po Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2146672023-10-13T12:33:38Z2023-10-13T12:33:38ZEmpire building has always come at an economic cost for Russia – from the days of the czars to Putin’s Ukraine invasion<figure><img src="https://images.theconversation.com/files/553555/original/file-20231012-15-bte4g9.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C7276%2C5239&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Russian economy: A Potemkin village?</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/women-walk-past-a-military-propaganda-poster-advertising-news-photo/1597113264?adppopup=true">Getty Images</a></span></figcaption></figure><p>President Vladimir Putin’s invasion of Ukraine has come at huge economic costs. By conservative estimates, the Russian economy has taken a <a href="https://www.economist.com/graphic-detail/2023/05/30/how-much-is-russia-spending-on-its-invasion-of-ukraine">US$67 billion</a> annual hit as a result of war expenses and the effects of economic sanctions. In the early stages of the invasion, some analysts put the costs even higher, <a href="https://www.newsweek.com/russia-spending-estimated-900-million-day-ukraine-war-1704383">at $900 million per day</a>.</p>
<p>These war costs show no sign of abating. The newly released Russian government budget for 2024 calls for a 70% defense expenditure increase, <a href="https://www.reuters.com/world/europe/everything-front-russia-allots-third-2024-spending-defence-2023-10-02">an astonishing reallocation</a> of precious resources for a war that some observers <a href="https://theintercept.com/2022/10/05/russia-ukraine-putin-cia/">expected to last a week</a> at most.</p>
<p>Despite the toll of war and sanctions, the <a href="https://www.economist.com/finance-and-economics/2023/09/28/the-costs-of-russias-war-are-about-to-hit-home">Russian economy has not collapsed</a> and seems to have proven somewhat <a href="https://www.ft.com/content/3652bbb5-a0f9-4d54-adc6-03b645a44306">resilient against being shut out of global value chains</a>.</p>
<p>Indeed, if you were to tune in to broadcasts of state-run RT television’s <a href="https://www.rt.com/shows/crosstalk/583976-ukraine-support-west-doubt/">“CrossTalk”</a> with American host Peter Lavelle, you’d be reassured that hardly anyone notices “irrelevant” Western sanctions, with even some reputable <a href="https://www.cirsd.org/en/news/prof-sachs-%E2%80%9Csanctions-against-russia-ineffective-and-contrary-to-international-law%E2%80%9D">Western economists</a> claiming that sanctions are harming Europe more than Russia. </p>
<p>Certainly, Muscovite oligarchs can still stroll across Red Square to <a href="https://www.dailymail.co.uk/news/article-11685551/The-luxury-goods-famous-UK-brands-sale-Moscow.html">Agent Provocateur and the GUM luxury shopping mall</a> to buy lingerie for their wives and perhaps mistresses, too. And almost 8 in 10 Russians <a href="https://globalaffairs.org/research/public-opinion-survey/western-sanctions-have-largely-spared-ordinary-russians">report to pollsters</a> that sanctions have not affected their daily lives.</p>
<p>But from our standpoint as <a href="https://scholar.google.com/citations?user=s25Y7l0AAAAJ&hl=en">experts on Russian</a> <a href="https://law.umn.edu/profiles/paul-vaaler">economic history</a>, it looks very much like a <a href="https://www.britannica.com/topic/Potemkin-village">Potemkin village</a> – a false facade that belies harsh economic realities, including unsustainable defense spending, a plummeting currency and rising bond yields. Meat and poultry prices in Moscow <a href="https://www.nytimes.com/2023/10/09/business/economy/russia-economy-ukraine-war.html">continue to rise</a>, <a href="https://www.economicsobservatory.com/sanctions-against-russia-what-have-been-the-effects-so-far#:%7E:text=But%20the%20shock%20of%20the,lowered%20ordinary%20Russians'%20living%20standards.">retail sales across Russia have dropped</a> by nearly 8% since February 2022, and <a href="https://www.airport-technology.com/features/how-have-sanctions-against-russia-impacted-aviation/?cf-view">Russia’s aviation industry has plummeted</a> for lack of spare parts and maintenance. </p>
<p>Such an economic hit was to be expected. As we show in a <a href="https://doi.org/10.48550/arXiv.2309.06885">preprint study</a>, imperial overreach from Russia in territories that are not its own has resulted in long-term damage to the Russian economy for over a century. More importantly, even during czarist times, rebellion in the modern-day lands of Ukraine against Russian rule led to the highest costs for the Russian economy.</p>
<h2>Huge boost in military spending</h2>
<p>Russia’s ability to seemingly absorb massive shocks since February 2022 is due in part to producers becoming accustomed to the milder sanctions that <a href="https://www.nato.int/docu/review/articles/2015/07/13/sanctions-after-crimea-have-they-worked/index.html">began in 2014</a> with the initial invasion of Ukraine and annexation of Crimea. </p>
<p>However, a larger driver of performance has been the Russian government taking it upon itself to try to keep the economy afloat by increasing its <a href="https://www.bloomberg.com/news/articles/2019-05-06/state-role-in-russia-economy-at-whole-new-level-watchdog-says?embedded-checkout=true">involvement in all sectors of the economy</a>, <a href="https://www.themoscowtimes.com/2023/06/15/putin-signs-secret-decree-to-buy-discounted-western-companies-ft-a81510">nationalizing formerly Western-owned businesses</a> and <a href="https://www.nytimes.com/2023/07/31/world/europe/russia-war-economy.html">pumping money from the state budget</a> into the <a href="https://www.oxfordreference.com/display/10.1093/oi/authority.20110803100157657">military industrial complex</a>.</p>
<p>This approach has continued with the <a href="https://www.reuters.com/world/europe/everything-front-russia-allots-third-2024-spending-defence-2023-10-02/">Russian government’s 2024 budget</a>, which is currently on its way to be rubber-stamped in the Russian parliament, the Duma. While <a href="https://www.themoscowtimes.com/2023/09/29/russian-military-says-no-plans-for-new-mobilization-a82602">mobilization of troops</a> for Russia’s growing quagmire is moving in fits and starts, the Kremlin has proceeded with a full-scale economic mobilization. Expenditures on defense are forecast to be 6% of the country’s GDP, making up a full 29% of all Russian government spending, <a href="https://www.bofit.fi/en/monitoring/weekly/2023/vw202339_1/">according to an analysis by the Bank of Finland</a>, and with an additional 9% spent on “national security.” In contrast, social programs are a mere 21% of the budget. Compare this with the United States, where defense spending is 3% of GDP and <a href="https://www.pgpf.org/chart-archive/0053_defense-comparison">12% of all government expenditures</a>. </p>
<p>Financial markets have reacted poorly to Russia’s most recent imperial adventure. The ruble’s turbulence is well known, once again <a href="https://www.nytimes.com/2023/10/03/world/europe/russia-ruble-dollar-economy.html">breaking 100 rubles to the dollar</a> on Oct. 3, 2023, but Russia’s <a href="https://www.bbc.com/news/business-60672085">inability to service its debt</a> has been more under the radar.</p>
<p>For the first time since the Bolsheviks refused to honor the country’s foreign debt in 1918, <a href="https://www.weforum.org/agenda/2022/07/russian-debt-default-russia-global-financial-markets">Russia defaulted on its foreign currency payments</a> in June 2022, and major ratings agencies stopped rating Russian government bonds. </p>
<p>At the same time, bond yields on existing Russian government debt – an excellent measure of fiscal risk – have been climbing almost continuously since the first invasion of Ukraine in 2014, rising to nearly 14% in 2014 and recently climbing to over 13%, <a href="https://tradingeconomics.com/russia/government-bond-yield">an 18-month high</a>. </p>
<h2>Ponzi-like scheme</h2>
<p>The combination of military aggression, stretched finances and battlefield stagnation are nothing new for Russia, especially in Ukraine. As our study shows, <a href="https://doi.org/10.48550/arXiv.2309.06885">czarist fiscal management from 1820 to 1914</a> was based on a Ponzi-like scheme that funded land grabs and military expansion with government borrowing through bond issues, taxation of newly acquired territories and bond repayment by a government now overseeing a more geographically extensive state. </p>
<p>By 1914, Czar Nicholas II had bonds worth more than $155 billion in 2022 dollars trading abroad – by comparison, the <a href="https://www.elibrary.imf.org/display/book/9781513511795/ch002.xml">value of British debt in 1914</a> equates to approximately $123 billion today. </p>
<p>Vladimir Putin’s handling of the economy since the early 2000s has been based on a similar pyramid scheme, we would argue. A combination of aggressive foreign borrowing and natural resource exports have financed foreign wars and domestic repression in territories of Russia’s near abroad: These have included <a href="https://ciaotest.cc.columbia.edu/olj/sa/sa_aug00bag01.html">conflicts in Chechnya</a> <a href="https://www.atlanticcouncil.org/blogs/ukrainealert/the-2008-russo-georgian-war-putins-green-light/">and Georgia</a> in the 2000s; <a href="https://www.rand.org/pubs/research_reports/RR1498.html">Crimea and the Donbas</a> in the 2010s; and the rest of Ukraine in the 2020s. Until this current round of aggression toward Ukraine, the outcome of these conflicts appeared to favor Russia, with its seemingly strong central government, military and economy. </p>
<p>However, Russia may now be at an inflection point. Historically, when Russia’s military was successful, it was able to finance both its war machine and industrialization. </p>
<p>Yet even past military success put the regime on very shaky ground that allowed small setbacks to threaten its foundation. Military reversals such as the stunning <a href="https://academicworks.cuny.edu/cgi/viewcontent.cgi?article=1017&context=qb_pubs">loss to Japan in 1905</a> or even the costs associated with pacifying troublesome territories such as <a href="https://www.armyupress.army.mil/Portals/7/combat-studies-institute/csi-books/LP20_Russian-SovietUnconventionalWars.pdf">in the Caucasus</a> created more difficulties and risk for Russian bond markets and its economy. Indeed, unrest, armed rebellion and serf revolts in the far reaches of the empire raised Russian bond yields by approximately 1%. This risk was much higher than if such unrest occurred even in St. Petersburg or Moscow. </p>
<p>And perhaps most importantly, in Ukraine the cost of empire during czarist times was the largest, with each rebellion or bout of unrest in Ukraine raising Russian yields by between 3% and 3.5%. </p>
<p>With its newest defense budget <a href="https://www.wsj.com/world/russia/putin-redirects-russias-economy-to-war-production-1e14265f">going “all in</a>” on its already faltering invasion of Ukraine, Russia appears to have learned none of the lessons of its past. Then as now, Ukraine and Ukrainian defiance constituted a grave threat to Russian territorial ambitions. </p>
<p>In 2024, that defiance just might prove too determined and too costly for an increasingly fragile Russian economy. And as in 1917, the consequences could be far beyond the control of <a href="https://time.com/6218211/vladimir-putin-russian-tsars-imperialism/">the modern-day czar</a> in the Kremlin.</p><img src="https://counter.theconversation.com/content/214667/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A new study traces how Russia’s empire building, especially in Ukraine, resulted in long-term economic damage and fomented rebellion for over a century.Christopher A. Hartwell, Professor of International Business Policy, ZHAW School of Management and LawPaul Vaaler, Professor of Law and Business, University of MinnesotaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2060862023-07-30T20:08:46Z2023-07-30T20:08:46ZMore corrupt, fractured and ostracised: how Vladimir Putin has changed Russia in over two decades on top<p>Vladimir Putin’s <a href="https://www.theguardian.com/world/2022/jun/10/putin-compares-himself-to-peter-the-great-in-quest-to-take-back-russian-lands">own version of history</a> casts himself as modern Russia’s bulwark and champion.</p>
<p>According to this narrative, Putin has sturdily held back waves of foreign and domestic adversaries, and simultaneously restored Russia to greatness. </p>
<p>Although these breathless tales of Putin’s heroics may still resonate among Russians who’ve been spoon-fed a rich diet of disinformation for years, informed observers will view them on a spectrum ranging from embellished to the absurd.</p>
<p>Future historians are unlikely to treat Putin kindly. He has ruled through a combination of fear and favour, cynically upending Russia’s proto-democracy by making dissent a crime rather than a crucial part of political life. Russia has become a nation under the thrall of Putin’s singular idea, instead of a healthy contest between competing ones.</p>
<p>He has progressively sickened Russian society, creating a toxic culture that celebrates xenophobia, nativism and violence. </p>
<p>And by launching a foolish war of imperial expansion in Ukraine that his much-vaunted modernised military has proved incapable of winning, he has inadvertently revealed the fragility of his own power structure.</p>
<h2>Putin’s ascent</h2>
<p>Putin’s political ascent began once he took over as head of the Russian Security Council in March 1999, long seen as a likely pathway to executive leadership. He then assumed Russia’s prime ministership, and, soon after, its presidency as an increasingly infirm Boris Yeltsin sought to anoint a successor. </p>
<p>Putin’s willingness to protect the interests of “<a href="https://uh.edu/%7Epgregory/conf/Rutland.PDF">the family</a>” – the network of cronies and oligarchs comprising Yeltsin’s inner circle – made him an obscure but nonetheless logical choice. </p>
<p>A struggle for order and stability has been a consistent leitmotif in how Putin has portrayed himself. He played up this theme during Russia’s presidential election in 2000, which followed the crippling 1998 Russian <a href="https://www.brookings.edu/articles/an-analysis-of-russias-1998-meltdown-fundamentals-and-market-signals/">financial crisis</a>, and was held amid Russia’s second war in Chechnya. </p>
<p>In his debut campaign, Putin offered little beyond a vague promise to restore order and make Russia a great power again. He faced little opposition once two leading political figures – Moscow mayor Yuri Luzhkov and former Prime Minister Yevgeny Primakov – pulled out of the race. Russians <a href="https://carnegieendowment.org/2000/04/01/russia-s-2000-presidential-elections-implications-for-russian-democracy-and-u.s.-russian-relations-pub-421">elected</a> him with 53% of the vote, more out of a sense of relief than enthusiasm. </p>
<p>Upon assuming the leadership, Putin set about stabilising the economy. He amended Russia’s tax code, replacing an arcane system of loopholes and tax breaks with flat rates to boost compliance. In 2004, he effectively renationalised the oil and gas industries after the forced breakup of <a href="https://www.nytimes.com/2004/12/17/business/worldbusiness/kremlin-reasserts-hold-on-russias-oil-and-gas.html">Yukos</a>, which controlled around 20% of Russia’s oil production.</p>
<p>This sent both an economic and a political message: Russia’s future prosperity would be driven by energy revenues, and Russia’s oligarchs would only prosper at Putin’s pleasure. Such has been Russia’s reliance on energy that by 2021, taxes and dividends from oil and gas companies accounted for 45% of Russia’s <a href="https://www.iea.org/articles/energy-fact-sheet-why-does-russian-oil-and-gas-matter">federal budget</a>.</p>
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<h2>Putin’s economic miracle?</h2>
<p>After the September 11, 2001, attacks and subsequent US-led global war on terror, Russia’s economy <a href="https://deliverypdf.ssrn.com/delivery.php?ID=654125087110031098002014088031024076025033067063006028024025072018102089121107096006025011001016026124055019085071108104112094117023037077029096069019096125119079060075054120121069012003115017031094072086120110018005068003087125081065090092123123021&EXT=pdf&INDEX=TRUE">rebounded considerably</a>, aided by high energy prices. </p>
<p>Between 2000 and 2007, average disposable income increased considerably. Inflation fell and the economy grew by around 7% a year, although real wages <a href="https://www.imf.org/external/pubs/ft/scr/2014/cr14176.pdf">declined</a>. While the economy suffered a recession as a result of the global financial crisis in 2008, growth was swiftly restored.</p>
<p>Annual <a href="https://www.ceicdata.com/en/indicator/russia/annual-household-income-per-capita">household income</a> rose to an estimated US$10,000 per capita in 2013, but by 2022 had contracted to only $7,900. Hence Russians have, on average, been worse off over the last decade. </p>
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<a href="https://theconversation.com/how-russia-is-shifting-to-a-war-economy-in-the-face-of-international-sanctions-206781">How Russia is shifting to a war economy in the face of international sanctions</a>
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<p>This is partly due to Western sanctions imposed after the country’s annexation of Crimea in 2014. Later, following the 2022 invasion of Ukraine, Russia <a href="https://www.bloomberg.com/news/articles/2022-06-26/russia-defaults-on-foreign-debt-for-first-time-since-1918">defaulted</a> on its foreign currency debt (for the first time since 1918), and the economy entered recession in November.</p>
<p>Significant structural problems in Russia’s economy and society have persisted under Putin. Wealth is unevenly distributed, concentrated in Moscow and St. Petersburg, and in Russia’s regions it’s highly centred on local elites.</p>
<p>Russian life expectancy under Putin has improved only slightly. In 2021, it was <a href="https://data.worldbank.org/indicator/SP.DYN.LE00.IN?end=2021&locations=RU&start=1960&view=chart">estimated</a> at 69 years, <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC259165/">compared</a> to 65 years in 2000.</p>
<p>On average, Russians have shorter lives than Iraqis (70 years), and only live marginally longer than citizens of Eritrea (67 years) and Ethiopia (65 years).</p>
<h2>Kleptocrats, meet autocrats</h2>
<p>Bribery and institutionalised corruption have been just as much a hallmark of Putin’s rule as his predecessor’s. </p>
<p>Despite fanfare about clearing out the oligarchs, Russia has scored consistently poorly on Transparency International’s <a href="https://www.oecd.org/about/publishing/Russia-Modernising-the-Economy-EN.pdf">Corruption Perceptions Index</a>. In 2022, Russia was ranked 137th out of 180 nations. By comparison, after Putin had finished his first term as president in 2004, Russia placed 90th.</p>
<p>Putin’s rule is also the story of Russia’s slide from a “managed” democracy to an autocratic regime. This was a gradual process, justified by the need for new laws to protect society.</p>
<p>It began in 2003 when Russian <a href="https://www.theguardian.com/world/2003/oct/02/russia.pressandpublishing">media</a> were barred from political analysis during elections. By 2012, Putin’s imposition of new laws that criminalised foreign agents, protests and criticism of the government saw Russia ranked 148th out of 176 countries on the Reporters Without Borders <a href="https://rsf.org/en/node/79174">Press Freedom Index</a>. This year, it has slipped to 164th out of 180 countries.</p>
<p>After the Ukraine invasion, <a href="https://www.rferl.org/a/anti-war-russians-face-fines-jail-psychiatric-punishment/31905194.html">Russians convicted</a> of “discrediting the military” have faced jail terms, fines, beatings, social ostracism, loss of income and benefits, and even psychiatric confinement.</p>
<h2>Putin’s legacy: ostracism and fragility</h2>
<p>Putin’s Russia is a society in which enemies abound. With respect to perceived external adversaries – NATO members and the broader West – Putin sees regime security as being synonymous with national security. As a result, his primary fears are personal, not geopolitical. </p>
<p>It’s not NATO expansion that concerns Putin, but what an alliance of largely democratic nations may bring with it: the prospect of “<a href="https://www.reuters.com/article/us-russia-putin-security-idUSKCN0J41J620141120">colour revolutions</a>”, in which populations seek to wrest control from the hands of corrupt dictators. </p>
<p>By invading Ukraine, Putin has actually succeeded in enlarging NATO further, with Finland and Sweden joining the alliance. He has prompted Germany and other overdependent European states to wean themselves off Russian oil and gas. And he’s ensured Russia will remain a Western pariah for the foreseeable future, while bequeathing Russia’s next generation the lasting hatred of Ukrainians. </p>
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<p>Russia now faces an uncertain future. Instead of Putin’s vision of a Euro-Pacific great power, it seems destined to be little more than a nuclear-armed raw materials appendage of China. </p>
<p>Even worse for Putin, his rule now looks increasingly tenuous. His failures in Ukraine have proven impossible for Russia’s compliant state media to fashion into a story of triumph. </p>
<p>Putin’s response to Yevgeny Prigozhin’s <a href="https://theconversation.com/wagners-rebellion-may-have-been-thwarted-but-putin-has-never-looked-weaker-and-more-vulnerable-208436">dramatic mutiny</a> in June added to the <a href="https://www.foreignaffairs.com/russian-federation/putin-security-crisis-wagner-rebellion">perception of weakness</a>. It initially took him several hours to appear in an emergency broadcast, in which he spoke of a potential civil war and promised to liquidate the Wagner traitors. </p>
<p>But once a hasty deal with Prigozhin was struck, that strong statement was walked back only hours later by Putin’s press secretary, who was forced to paint the Wagner forces simultaneously as both heroes and enemies of the state.</p>
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<a href="https://theconversation.com/the-rise-of-yevgeny-prigozhin-how-a-one-time-food-caterer-became-vladimir-putins-biggest-threat-208450">The rise of Yevgeny Prigozhin: how a one-time food caterer became Vladimir Putin's biggest threat</a>
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<p>Later, in an address to Russian soldiers, Putin <a href="https://www.reuters.com/world/europe/vladimir-putin-thanks-russian-army-stopping-civil-war-2023-06-27/">thanked</a> the military for saving Russia, even though it hadn’t confronted the revolt. </p>
<p>The equally apathetic response by the general public (indeed, nobody tried to lie down in front of a Wagner tank to protect Putin) was also telling. So, too, was the fact Wagner operatives were able to escape the mutiny unpunished, while ordinary citizens face jail terms for even short silent protests.</p>
<p>Putin’s Russia is starting to look like Tsarist Russia: a state that collapsed under the weight of its own contradictions, as British historian <a href="https://www.google.com.au/books/edition/A_People_s_Tragedy/ety5B4feoDoC?hl=en&gbpv=1&printsec=frontcover">Orlando Figes</a> put it. Russia in 2023 now looks even more fractured than it did when Putin took over, ostensibly to save it from turmoil. </p>
<p>Perhaps the greatest irony of Putin’s near-quarter century at the helm, then, is that he has come to personify the chaos he has long professed to abhor.</p><img src="https://counter.theconversation.com/content/206086/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matthew Sussex has received funding from the Australian Research Council, the Fulbright Foundation, the Carnegie Foundation, the Lowy Institute and various Australian government departments and agencies.
</span></em></p>Putin has progressively sickened Russian society, creating a toxic culture that celebrates xenophobia, nativism, and violence.Matthew Sussex, Fellow, Strategic and Defence Studies Centre, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2087312023-07-05T12:23:42Z2023-07-05T12:23:42ZPrigozhin revolt raised fears of Putin’s toppling – and a nuclear Russia in chaos<figure><img src="https://images.theconversation.com/files/535042/original/file-20230630-29351-t87jz9.jpeg?ixlib=rb-1.1.0&rect=12%2C24%2C8167%2C5432&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Russian President Vladimir Putin in Moscow on June 29, less than a week after the rebellion by the mercenary Wagner Group.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/russian-president-vladimir-putin-speaks-during-the-strong-news-photo/1267919329?adppopup=true">Contributor/Getty Images</a></span></figcaption></figure><p><em>As national security scholar <a href="https://spatial.usc.edu/team-view/gregory-f-treverton/">Gregory F. Treverton</a> says, the brief mutiny mounted by Russian mercenary leader Yevgeny V. Prigozhin, the head of the Wagner Group, may be over, but the <a href="https://www.cnn.com/2023/06/28/europe/belarus-wagner-prigozhin-lukashenko-russia-intl-hnk/index.html">dramatic events sparked by that mutiny</a> are “still unfolding.” In this interview with The Conversation U.S. democracy editor Naomi Schalit, Treverton, a former chairman of the National Intelligence Council in the Obama administration, points out that the U.S. response to the incident was superficially simple – essentially “<a href="https://www.politico.com/newsletters/west-wing-playbook/2023/06/28/1-800-not-our-coup-00104093">We have nothing to do with this</a>” – but fundamentally more complex.</em></p>
<p><strong>What did you think at first when you heard about this action taken by Prigozhin and his Wagner Group mercenary soldiers?</strong></p>
<p>My first thought was, “Why is Prigozhin taking this huge risk?” We knew that he’d been critical of the Russian military and was getting away with it in ways that none of us quite expected. But to go this far, take the next step, even if he said that this was not aimed at Putin but <a href="https://www.wsj.com/articles/wagners-prigozhin-planned-to-capture-russian-military-leaders-805345cf">only aimed at the generals</a> – is this ambition run amok? Or was it fear? Desperation?</p>
<p><strong>When Prigozhin agreed to go to Belarus and his soldiers backed off, did you think that was the end of it?</strong></p>
<p>My response was, “That can’t be the end.” Maybe it means the demobilization of Wagner. And maybe the end of Wagner. If you’re looking at this from Putin’s perspective, you’d say, well, this guy Progozhin got too big for his boots. He was helpful to Russia – <a href="https://edition.cnn.com/interactive/2019/08/africa/putins-private-army-car-intl/">not just in Ukraine, but in Africa</a>. He’s now overstepped the line and therefore needs to be disciplined. But this is still a play unfolding. And, you know, if I were Progozhin, I’d be scared to death about possible attacks on my life.</p>
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<img alt="A balding man in a suit and tie looking skeptical and disturbed." src="https://images.theconversation.com/files/535041/original/file-20230630-23-fghhrf.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/535041/original/file-20230630-23-fghhrf.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=448&fit=crop&dpr=1 600w, https://images.theconversation.com/files/535041/original/file-20230630-23-fghhrf.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=448&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/535041/original/file-20230630-23-fghhrf.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=448&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/535041/original/file-20230630-23-fghhrf.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=563&fit=crop&dpr=1 754w, https://images.theconversation.com/files/535041/original/file-20230630-23-fghhrf.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=563&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/535041/original/file-20230630-23-fghhrf.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=563&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Yevgeny Prigozhin, the Wagner Group leader now in exile in Belarus.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/russian-billionaire-and-businessman-concord-catering-news-photo/540699652?adppopup=true">Mikhail Svetlov/Getty Images</a></span>
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<p><strong>What’s the US attitude been toward Putin?</strong></p>
<p>Putin was the first world leader to <a href="https://www.npr.org/2022/04/16/1092811802/russia-putin-bush-texas-summit-crawford">call George W. Bush on 9/11</a>. And there was a period in the late 1990s when the <a href="https://www.cfr.org/timeline/us-russia-nuclear-arms-control">two countries were still working together</a> to denuclearize the Soviet republics. That sort of cooperation existed until about 2000. By 2007, <a href="https://www.politico.com/news/magazine/2022/02/18/putin-speech-wake-up-call-post-cold-war-order-liberal-2007-00009918">Putin was already talking about</a> how NATO was trying to encircle Russia and was a threat to Russia.</p>
<p>When I was in the Obama administration, many of my senior colleagues were palpably negative about Putin. I kept having to gently remind them, “Yes, he may be a liar, a thief and a cheat. But we dealt with those kinds of people earlier, in the Soviet Union, and didn’t blow up the world. So no matter what he is, we need to deal with it.” </p>
<p>What struck me when I was <a href="https://www.dni.gov/index.php/newsroom/press-releases/press-releases-2014/item/1116-new-national-intelligence-council-chairman-arrives">running the National Intelligence Council</a> was how <a href="https://www.ft.com/content/c039db89-7201-4875-b31f-b41a511496f1">isolated Putin was</a>. He hardly ever came to the Kremlin, stayed in one of his dachas outside Moscow. He had a lifestyle that most of us would envy. He didn’t do anything much besides exercise and read till 1 o'clock in the afternoon. Then he’d see a few people. </p>
<p>But he was <a href="https://www.washingtonpost.com/politics/2022/02/28/putin-bizarre-isolation/">very isolated in the pandemic</a>, and more and more isolated by now. The U.S. now finds itself in circumstances where basically everybody around Putin owes their career to him. And that makes you worry about the advice he gets – that’s not someone to whom you can deliver bad news.</p>
<p><strong>So he was initially someone the U.S. could work with. He then got more difficult as he worried that the U.S. was trying to back him into a corner with NATO. And now, we’re not even sure if the information on which he bases his actions is reliable. That sounds like someone that the U.S. would worry about and not want to have in power.</strong></p>
<p>Somebody who’s that isolated, perhaps that detached from reality – that’s very dangerous in this <a href="https://www.armscontrol.org/factsheets/Nuclearweaponswhohaswhat">world of nuclear weapons</a>. Ideally, the U.S. would like somebody else. </p>
<p>For the past 20 years, Putin’s made <a href="https://www.newyorker.com/news/q-and-a/how-putin-controls-russia">his power more absolute</a>. In the process, he has not done the thing the U.S. hoped he would do, which was begin to <a href="https://www.rand.org/blog/2022/04/russias-tragic-failure-to-reform-its-economy.html">renovate the Russian economy</a>, which is still in terrible shape. It plugs along only <a href="https://www.economist.com/by-invitation/2023/04/19/only-a-sustained-fall-in-oil-prices-will-break-vladimir-putins-regime-argues-kirill-rogov">because oil prices have been pretty high</a>. This isn’t where the U.S. hoped it would be with Russia at this point in history.</p>
<p><strong>During that three-day period that Putin called a “mutiny” by Prigozhin and his troops, I would imagine that there was a strange situation in terms of how the U.S. was thinking about Putin: We don’t like him. He really does have to go, but we don’t want him to go this way, because it’s too scary.</strong></p>
<p>On the one hand, having Putin remain in power through this Prigozhin affair was probably better than the chaos that might have ensued if Putin had been ousted. On the other hand, in the long run, the U.S. seems to have moved to the position over the Ukraine war where we basically say, Putin can’t win. It has to be clear that Putin did not win, that he lost. And in some sense, without saying it, this means Putin has to go.</p>
<p>The administration made clear that the U.S. government <a href="https://www.nytimes.com/2023/06/26/world/europe/biden-russia-prigozhin.html">had nothing to do this</a>. This was entirely a Russian affair. We weren’t seeking to benefit from it. We weren’t trying to foment it. Indeed, there seem to have been <a href="https://www.politico.com/newsletters/west-wing-playbook/2023/06/28/1-800-not-our-coup-00104093">back-channel communications with Russia</a>, reassuring them that we weren’t involved, that we weren’t seeking regime change or the country’s destruction.</p>
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<a href="https://images.theconversation.com/files/535031/original/file-20230630-21-h78a2w.jpeg?ixlib=rb-1.1.0&rect=20%2C27%2C4589%2C3041&q=45&auto=format&w=1000&fit=clip"><img alt="A large street and sidewalk barred by barricades, with onion-domed buildings in the background." src="https://images.theconversation.com/files/535031/original/file-20230630-21-h78a2w.jpeg?ixlib=rb-1.1.0&rect=20%2C27%2C4589%2C3041&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/535031/original/file-20230630-21-h78a2w.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/535031/original/file-20230630-21-h78a2w.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/535031/original/file-20230630-21-h78a2w.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/535031/original/file-20230630-21-h78a2w.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/535031/original/file-20230630-21-h78a2w.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/535031/original/file-20230630-21-h78a2w.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A police officer stands on guard at the closed Red Square in Moscow on the morning of June 24, 2023, as Wagner mercenaries advanced toward the city.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/policeman-stands-on-guard-at-the-closed-red-square-in-news-photo/1259028683?adppopup=true">Vlad Karkov/SOPA Images/LightRocket via Getty Images</a></span>
</figcaption>
</figure>
<p><strong>What was the fear here in the U.S. if Putin were to have been deposed?</strong></p>
<p>If Russia is ever going to make peace in the Ukraine war, it isn’t going to be Putin who does it – he is so dug in with his objectives. There is no way he could make an agreement. So on the one hand, if Prigozhin had been successful, maybe there would have been some way to think about this war being wound down, some armistice, some freezing of conflict at least, maybe even an agreement on a cease-fire. So that would have been positive.</p>
<p>The concern obviously was, you’ve got real chaos in Russia. Is that something the U.S. would really want? The U.S. would like Putin and Russia to behave better. On the other hand, we don’t want Russia to become a kind of lawless space to the east of Europe with nuclear weapons. The idea that you have a country coming apart, with the lawlessness of warlords, and all that in the presence of nuclear weapons – that seems to me to be one that does keep you up at night.</p>
<p>I’ve thought for a long time that this war is going to be bad for Russia, no matter how it ends. </p>
<p><a href="https://www.reuters.com/world/europe/russias-e-conscription-overhaul-underlines-scramble-military-manpower-2023-04-12/">Their military manpower is depleted</a>, and if the Wagner group disbands, that will build still more pressure to conscript. Not only has Russia lost people on the battlefield and used up supplies it can’t easily replace, <a href="https://www.washingtonpost.com/world/2023/02/13/russia-diaspora-war-ukraine/">lots of talented people have emigrated</a>, and their <a href="https://www.bbc.com/news/world-europe-60125659">economy has been sanctioned</a>. So this has been a pretty bad period for the country. And it’s not going to get any better.</p><img src="https://counter.theconversation.com/content/208731/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gregory F. Treverton does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The revolt by Russian mercenary leader Yevgeny Prigozhin and his troops put the US in an unusual situation with Russian leader Vladimir Putin.Gregory F. Treverton, Professor of Practice in International Relations, USC Dornsife College of Letters, Arts and SciencesLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2067812023-06-07T16:43:45Z2023-06-07T16:43:45ZHow Russia is shifting to a war economy in the face of international sanctions<p>As Russia’s progress in Ukraine has stalled, with enormous losses in material and people, the frustrated head of the Wagner mercenary force Yevgeny Prigozhin has called for Russia to <a href="https://www.nytimes.com/2023/05/24/world/europe/wagner-group-prigozhin-russia.html">shift to a total war economy</a>:</p>
<blockquote>
<p>The Kremlin must declare a new wave of mobilisation to call up more fighters and declare martial law and force ‘everyone possible’ into the country’s ammunition production efforts. We must stop building new roads and infrastructure facilities and work only for the war.</p>
</blockquote>
<p>His words echo similar sentiments expressed by the head of Russia’s state broadcaster RT, <a href="https://www.newsweek.com/russian-tv-host-ammunition-shortage-margarita-simonyan-ukraine-war-1801717">Margarita Simonyan</a> – an influential supporter of the Russian president, Vladimir Putin – who said recently: </p>
<blockquote>
<p>Our guys are risking their lives and blood every day. We’re sitting here at home. If our industry is not keeping up, let’s all get a grip! Ask anyone. Aren’t we all ready to come help for two hours after work?</p>
</blockquote>
<p>Already facing western sanctions since its annexation of Crimea and occupation of territory in Ukraine’s eastern provinces in 2014, Russia has had to adapt to life under an increasingly harsh series of economic punishments. And, while Putin had apparently planned for a relatively short “special military operation”, this conflict has become a protracted and expensive war of attrition.</p>
<p>The Economist <a href="https://www.economist.com/graphic-detail/2023/05/30/how-much-is-russia-spending-on-its-invasion-of-ukraine">has estimated</a> Russian military spending at 5 trillion roubles (£49 billion) a year, or 3% of its GDP, a figure the magazine describes as “a puny amount” compared to its spending in the second world war. Other estimates are higher – the German Council on Foreign Relations (GDAP) <a href="https://dgap.org/en/research/publications/russias-war-economy">estimates US$90 billion</a> (£72 billion), or more like 5% of GDP.</p>
<p>But the international sanctions have hit the economy hard. They have affected access to international markets and the ability to access foreign currency and products. And the rate at which the Russian military is getting through equipment and ammunition is putting a strain on the country’s defence industry. </p>
<p>So the Kremlin faces a choice: massively increasing its war efforts to achieve a decisive breakthrough, or continuing its war of attrition. The latter would aim to outlast Ukraine in the hope that international support may waver in the face of a global costs of living crisis.</p>
<h2>Equipment shortages</h2>
<p>Russia has lost substantial amounts of arms and ammunition. In March 2023, UK armed forces minister James Heappey estimated that <a href="https://www.forces.net/ukraine/russia-has-lost-1900-main-battle-tanks-during-ukraine-war">Russia had lost</a> 1,900 main battle tanks, 3,300 other armoured combat vehicles, 73 crewed, fixed wing aircraft, several hundred uncrewed aerial vehicles (UAVs) of all types, 78 helicopters, 550 tube artillery systems, 190 rocket artillery systems and eight naval vessels.</p>
<p>Russia has to contend with several important military-industrial challenges. For one, its high technology precision-guided weapons require access to foreign technology. </p>
<p>This is now unavailable – or restricted to sanctions-busting deals which can only supply a fraction of what is needed. Most of the high-tech electronic components used by the Russian military are <a href="https://www.reuters.com/business/aerospace-defense/exclusive-russian-weapons-ukraine-powered-by-hundreds-western-parts-rusi-2022-08-08/">manufactured by US companies</a>.</p>
<p>So it has to substitute these with lower-grade domestic components, which is probably why the Russian military is using its high-tech weaponry sparingly. But the artillery shells on which it has been relying <a href="https://www.forbes.com/sites/davidhambling/2023/04/05/when-will-ammunition-shortage-silence-russias-artillery/?sh=3705f6546d95">are running short</a>. </p>
<p>US thinktank the Center for Security and International Studies <a href="https://www.csis.org/programs/one-year-later-russias-war-ukraine">has reported US intelligence estimates</a> that since February 2022, export controls have degraded Russia’s ability to replace more than 6,000 pieces of military equipment. Sanctions have also forced key defense industrial facilities to halt production and caused shortages of critical components for tanks and aircraft, among other materiel. </p>
<h2>Make do, mend – and spend</h2>
<p>There are clear signs of increasing efforts to address the shortages. According to a <a href="https://www.economist.com/briefing/2023/04/23/russias-economy-can-withstand-a-long-war-but-not-a-more-intense-one">report in the Economist</a>, Dmitri Medvedev, deputy chairman of Russia’s security council, has recently announced plans for the production of 1,500 modern tanks in 2023. Russian news agency <a href="https://tass.com/defense/1523079">Tass reported recently</a> Medvedev also plans to oversee a ramping up of mass production of drones.</p>
<p>The government is reported to be <a href="https://www.economist.com/briefing/2023/04/23/russias-economy-can-withstand-a-long-war-but-not-a-more-intense-one">providing substantial loans to arms manufacturers</a> and even issuing orders to banks to do the same. Official statistics indicate that the production of “finished metal goods” in January and February was 20% higher compared to the previous year. </p>
<p>The GDAP <a href="https://dgap.org/system/files/article_pdfs/DGAP%20Policy%20Brief%20No.%203%2C%20Febraury%202023%2C%2011%20pp._0.pdf">reported in February</a>: “As of January 2023, several Russian arms plants were working in three shifts, six or seven days a week, and offering competitive salaries. Hence, they can increase production of those weapon systems that Russia is still able to manufacture despite the sanctions.” </p>
<p>So it appears the Kremlin is playing a delicate balancing act of redirecting significant resources to the military and related industries while trying to minimise the disruption of the general economy, which would risk losing the support of large sections of the population.</p>
<p>The International Monetary Fund has projected Russia’s economy to grow by <a href="https://www.imf.org/en/Countries/RUS">0.7% this year</a> (which would trump the UK’s <a href="https://www.reuters.com/world/uk/imf-says-uk-no-longer-heading-recession-2023-2023-05-23/">projected growth of 0.4%</a>). This will largely be underpinned by export revenues for hydrocarbons as well as arms sales to various client countries happy to ignore western sanctions. </p>
<p>Meanwhile diversifying import sources has kept stores stocked. However, <a href="https://romir.ru/studies-eng/the-majority-of-russians-arent-worried-about-the-absence-of-sanction-products-on-the-shelves">Russian public opinion pollster Romir</a> has reported that while most people aren’t worried about the absence of sanctioned goods, about half complained that the quality of substituted goods had deteriorated.</p>
<p>So ordinary Russians – those who haven’t lost loved ones on the battlefield or to exile – remain relatively sanguine about everyday life. But a longer, more intense conflict, requiring a shift to a total war economy, could be a different matter altogether.</p><img src="https://counter.theconversation.com/content/206781/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christoph Bluth received funding from the Volkswagen Foundation</span></em></p>The options facing the Kremlin’s economic and military planners.Christoph Bluth, Professor of International Relations and Security, University of BradfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1973152023-01-11T15:26:24Z2023-01-11T15:26:24ZUkraine war: life on Russia’s home front after ten months of conflict<p>It’s been a year since I last visited Russia. Back then, most people I met thought the <a href="https://theconversation.com/ukraine-russians-i-met-recently-in-st-petersburg-believe-there-will-be-no-invasion-foreign-policy-expert-175668">prospects of a war with Ukraine</a> were very remote, despite the massive troops build-up on the border. So I was curious to see how attitudes had changed since then. Equally important was to see for myself how the war has changed life in Russia. </p>
<p>The first surprise was how normal life was. Despite all the media reports of doom and gloom as a result of western sanctions, everything works just as before. Domestic banking is working, salaries and pensions are paid on time, ubiquitous e-commerce is bustling with activity, the shops are stuffed with food and consumer goods. In St Petersburg, at least, I’ve struggled to notice any change in daily life compared to January 2021.</p>
<p>Yet, digging deeper and the impact of sanctions is there. One issue that kept popping up was spare car parts, which have become noticeably more <a href="https://intellinews.com/sanctions-bring-russian-car-market-screeching-to-a-halt-252036/">expensive</a>. But even there new supplies are being shipped now. This goes pretty much for everything else consumer orientated. There’s no shortages, even of western goods such as whisky – the supermarket shelves are fully stocked.</p>
<figure class="align-center ">
<img alt="View of fully stocked supermarket shelves in Russia" src="https://images.theconversation.com/files/504014/original/file-20230111-16-stq176.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/504014/original/file-20230111-16-stq176.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=452&fit=crop&dpr=1 600w, https://images.theconversation.com/files/504014/original/file-20230111-16-stq176.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=452&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/504014/original/file-20230111-16-stq176.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=452&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/504014/original/file-20230111-16-stq176.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=568&fit=crop&dpr=1 754w, https://images.theconversation.com/files/504014/original/file-20230111-16-stq176.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=568&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/504014/original/file-20230111-16-stq176.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=568&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Despite western sanctions, supermarket shelves in St Petersburg are fully stocked.</span>
<span class="attribution"><span class="source">Alex Titov</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>EU <a href="https://www.rferl.org/a/russia-european-union-visas-travel-ukraine-invasion/32080584.html">travel restrictions</a> have had their effect – but nothing like the measures introduced during the COVID pandemic. People can still travel to many countries, including Turkey, Egypt or the Gulf states.</p>
<p>Business people complain of facing difficulties, particularly those in the import/export sector. But, after a few months of chaos, business has been <a href="https://www.ft.com/content/6c01e84b-5333-4024-aaf1-521cf1207eb4">finding new shipping routes</a> via third countries such as Turkey or Kazakhstan.</p>
<p>An acquaintance who works in a defence-related sector laughed at the suggestion that Russia could run out of missiles. He told me the defence industry had been stockpiling essential parts for years and is also using more locally sourced alternatives (although this is a claim I was unable to verify). The rest can still be bought – albeit at <a href="https://www.reuters.com/business/retail-consumer/mickey-mouse-spider-man-super-mario-added-russias-parallel-imports-scheme-2022-11-02/">inflated prices</a>. Their real problem is not a lack of parts, but the capacity to scale up production to meet growing military orders.</p>
<p>The general impression from conversations with people in different businesses is that their main focus is on adapting to the new normal. Many things will be less efficient and more expensive, but the Russian economy will not collapse.</p>
<p>If this is a crisis for Russia – which it is – it’s nothing like the <a href="https://theconversation.com/the-wild-decade-how-the-1990s-laid-the-foundations-for-vladimir-putins-russia-141098">turmoil of the early 1990s</a> when the state, society and economy were all collapsing at the same time.</p>
<h2>Don’t mention the war</h2>
<p>Another surprising thing I’ve found is the extent to which the war is avoided on a day-to-day basis. You see reports about it on TV news and chat shows (which steadfastly follow the government line), but I felt much better informed about the war using the <a href="https://telegram.org/">Telegram app</a> in Belfast, where I live and work, than when talking to actual people in St Petersburg. I found you could have whole conversations without Ukraine ever coming up, unless I deliberately mentioned it.</p>
<p>My overall impression was that the invasion has reinforced people’s pre-existing views. Those who were always opposed to Putin hate it, while those who are supportive of the government remain largely in favour. But the vast majority tries to ignore it as much as they can.</p>
<p>No one I spoke to was happy that the war started – but there’s an important caveat: regretting it doesn’t mean they want to end it at all costs. Some said that one thing worse than a war is losing a war. </p>
<p>Nor did I see much evidence of popular protests. Obviously, many people who oppose Putin had <a href="https://www.reuters.com/world/europe/where-have-russians-been-fleeing-since-mobilisation-began-2022-10-06/">fled the country already</a>, especially since mobilisation began in September 2022. Many others opposing the war <a href="https://www.aljazeera.com/program/inside-story/2022/7/29/is-the-world-edging-towards-an-accidental-nuclear-war">have been imprisoned</a>. A couple of my friends (long-time critics of the regime) were planning to leave to avoid future mobilisation.</p>
<p>One of the most frequent questions I was asked related to the energy situation: “How much do you pay for gas in the UK?” The UK and the EU are presently suffering from <a href="https://www.ft.com/content/f6d2fe70-16fb-4d81-a26a-3afb93e0bf57">high energy costs</a>. But it’s unlikely the European economy will collapse or cause political unrest – the implicit assumption behind the question. It’s a similar situation in Russia. Despite <a href="https://theconversation.com/just-short-of-nuclear-these-sanctions-will-cripple-russias-economy-178000">western sanctions</a>, it appears that there is little danger of Russia’s economy collapsing. </p>
<h2>Perception gap</h2>
<p>My distinct impression from two weeks in St Petersburg is that Russia’s society and economy are still nowhere near to being fully mobilised for the war effort. While the partial mobilisation in September and October last year brought the war closer to home, it involved a relatively small percentage of the population – from all of my acquaintances only one friend of a friend was called up. Meanwhile further rounds of mobilisation are to an extent baked in to people’s expectations. Barring huge military setbacks leading to a really extensive mobilisation, it appears that life on Russia’s home front is carrying on fairly normally.</p>
<p>One of the biggest lessons from my trip is the huge gap between representations of Russia in the west and what you see when you arrive there. This <a href="https://carnegieendowment.org/politika/88654">gap in perception</a> is likely to increase because of the lack of people currently travelling there from the west and the suspension of professional and academic links.</p>
<p>Important as they are, reliance on comment from anti-Putin activists in exile or those remaining in Russia and still active on social media won’t help as they’re marginalised at home and lose contact with Russian reality while abroad.</p>
<p>The fact is that there is no substitute for seeing things for yourself. I found my recent trip to Russia stressful – but I’m glad I did it.</p><img src="https://counter.theconversation.com/content/197315/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alexander Titov does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Alex Titov took a trip home to St Petersburg in December. Here’s what he found.Alexander Titov, Lecturer in Modern European History, Queen's University BelfastLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1807412022-04-27T12:18:55Z2022-04-27T12:18:55Z‘Great resignation’ appears to be hastening the exodus of US and other Western companies from Russia<figure><img src="https://images.theconversation.com/files/459922/original/file-20220426-20-s6ka67.jpg?ixlib=rb-1.1.0&rect=190%2C60%2C6494%2C4560&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">McDonald's said it is losing $50 million a month by keeping its Russian locations closed. </span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/APTOPIXRussiaEconomy/1c71cd548f5649a8934ac9e835c479f0/photo?Query=russia%20mcdonalds&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=165&currentItemNo=1">AP Photo</a></span></figcaption></figure><p>Companies across the globe are fleeing Russia in an unprecedented display of corporate solidarity with their governments, appalled over the invasion of Ukraine. Over 750 multinational businesses so far have said they’re <a href="https://som.yale.edu/story/2022/over-750-companies-have-curtailed-operations-russia-some-remain">curtailing, suspending or severing ties to Russia</a>, more than triple the number that <a href="https://www.latimes.com/archives/la-xpm-1988-05-31-fi-3494-story.html">abandoned South Africa over apartheid</a> in the 1980s.</p>
<p>Many corporate statements announcing the decisions have emphasized humanitarian aspects and unity with the Ukrainian people. For example, Pepsi suspended soda sales in Russia, <a href="https://www.pepsico.com/news/press-release/pepsico-suspends-production-and-sale-of-pepsi-cola-and-other-global-beverage-brands-in-russia">describing events in Ukraine as “horrific”</a>; Ford Motor Co. cited Russia’s “threats to peace and stability” in <a href="https://www.nytimes.com/2022/03/01/business/boeing-ford-russia.html">pausing operations</a> at its three plants in the country; and Ikea <a href="https://about.ikea.com/en/newsroom/2022/03/03/ikea-pauses-operations-in-russia-and-belarus/">closed its stores</a> there and called the war a “human tragedy.”</p>
<p>Detractors of <a href="https://www.spectator.co.uk/article/i-invented-virtue-signalling-now-it-s-taking-over-the-worl">this type of corporate do-goodery</a> have dismissed it as “virtue signaling,” implying there is an <a href="https://theconversation.com/virtue-signalling-a-slur-meant-to-imply-moral-grandstanding-that-might-not-be-all-bad-145546">ulterior motive to the grandstanding</a>. As <a href="https://theconversation.com/why-ford-chanel-and-other-companies-pitch-in-during-a-crisis-without-the-government-ordering-them-to-135170">scholars of corporate social responsibility</a>, we believe altruism can play a role in corporate decisions like these, but – as virtual signaling suggests – other more <a href="https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html">profit-focused drivers</a> are usually at work, especially given the stakes when deciding to abandon an entire country. </p>
<p>In this case, the common theme we see for many companies is the “<a href="https://theconversation.com/us/topics/great-resignation-112723">great resignation</a>” – and the fight to attract increasingly picky, younger <a href="https://www.ypulse.com/article/2021/10/19/how-gen-z-millennials-are-fueling-the-great-resignation/">Gen Z and millennial</a> workers, who say <a href="https://www.fastcompany.com/90740920/want-to-attract-and-retain-gen-z-talent-respect-them">they want to work</a> for <a href="https://www.zenefits.com/workest/corporate-social-responsibility-and-the-rise-of-the-gen-z-worker/">socially responsible brands</a>. </p>
<figure class="align-center ">
<img alt="A white boy with a blue stocking hat and coat looks at a toy tank on a box on a table next to several glass Pepsi bottles" src="https://images.theconversation.com/files/459897/original/file-20220426-20-2amyq2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/459897/original/file-20220426-20-2amyq2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=389&fit=crop&dpr=1 600w, https://images.theconversation.com/files/459897/original/file-20220426-20-2amyq2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=389&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/459897/original/file-20220426-20-2amyq2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=389&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/459897/original/file-20220426-20-2amyq2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=488&fit=crop&dpr=1 754w, https://images.theconversation.com/files/459897/original/file-20220426-20-2amyq2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=488&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/459897/original/file-20220426-20-2amyq2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=488&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Pepsi, which has been in Russia for over 60 years, suspended soda sales, calling the invasion ‘horrific.’</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/RussiaPeople1992/9eb3bf55726540e196f3e3276573dd58/photo?Query=pepsi%20russia&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=10&currentItemNo=3">AP Photo/Alexander Zemlianichenko</a></span>
</figcaption>
</figure>
<h2>A weighty decision</h2>
<p>A company’s decision to entirely sever its operations in a country is seldom taken lightly.</p>
<p>In leaving Russia, <a href="https://www.reuters.com/business/companies-count-cost-ditching-russia-2022-04-22/">companies will incur significant costs</a> from abandoning equipment, stores and factories, or even an entire workforce. For example, Exxon said it <a href="https://www.reuters.com/business/energy/exxon-mobil-begins-removing-us-employees-its-russian-oil-gas-operations-2022-03-01/">expected to lose US$4 billion</a> in assets over its decision to exit Russia, while <a href="https://www.reuters.com/business/mcdonalds-says-russia-store-closures-cost-50-mln-per-month-2022-03-09/">McDonald’s restaurant closures will cost the company $50 million per month</a>. </p>
<p>And there’s no knowing when the <a href="https://www.ft.com/content/86144c9c-2258-4b9c-a0ad-ea8d63b7000f">companies leaving Russia</a> will be able to return – if ever. </p>
<p>Yet that isn’t stopping hundreds of companies from making the difficult decision to back away. Amid their condemnations of the invasion and expressions of solidarity with the Ukrainian people, many companies have also acknowledged clear business-related reasons. Appliance maker Whirlpool cited the <a href="https://whirlpoolcorp.com/statement-from-whirlpool-corporation-on-ukraine/">security of its workers</a>, Japanese automaker Toyota blamed <a href="https://www.reuters.com/article/ukraine-crisis-honda-idCNL1N2V50NI">logistical and supply-chain hurdles</a>, and video streaming company Netflix said <a href="https://www.americanbanker.com/payments/list/these-payment-companies-are-cutting-off-russia">troubles with payment processing</a> will <a href="https://www.wsj.com/articles/tiktok-and-netflix-pull-back-from-russia-adding-to-its-tech-and-media-isolation-11646606867">strain operations</a>.</p>
<h2>Growing power of workers</h2>
<p>While these practical reasons, along with the moral concerns, could be enough to drive the exodus, we believe the great resignation, in which record numbers of workers are quitting their jobs, is amplifying all these other risks of staying in Russia.</p>
<p><a href="https://www.cnbc.com/2022/02/01/roughly-47-million-people-quit-their-job-last-year.html#:%7E:text=Another%20historically%20high%204.3%20million,the%20pandemic%20and%20Great%20Resignation.">Roughly 47 million</a> U.S. workers <a href="https://fred.stlouisfed.org/series/JTSQUL">voluntarily left their jobs</a> in 2021, accounting for well over a quarter of the <a href="https://fred.stlouisfed.org/series/CLF16OV">civilian labor force</a>, according to the Bureau of Labor Statistics. Over 4.5 million quit in November alone, a single-month record, and nearly that many continued to hand in their notices in early 2022.</p>
<p>It’s not just a U.S. phenomenon. Many other countries <a href="https://www.washingtonpost.com/world/2021/10/18/labor-great-resignation-global/">are experiencing similarly high rates</a> of workers voluntarily quitting their jobs. </p>
<p>This trend has <a href="https://www.vox.com/recode/22841490/work-remote-wages-labor-force-participation-great-resignation-unions-quits">shifted bargaining power to employees</a>, and companies are struggling to <a href="https://www.forbes.com/sites/forbescoachescouncil/2022/04/01/how-to-keep-or-find-the-best-employees-in-the-great-resignation/?sh=6a86e8ba6737">acquire skilled workers</a> to fill vacant positions. Employees are <a href="https://www.cnbc.com/2022/03/22/great-resignation-continues-as-44percent-of-workers-seek-a-new-job.html">demanding higher pay and more benefits</a>, and <a href="https://www.forbes.com/sites/forbescoachescouncil/2021/10/18/the-great-resignation-is-here-how-to-find-purpose-in-the-next-stage-of-your-career/?sh=1d4c59651739">some are rethinking their careers</a> so that their work is more aligned with their values.</p>
<p>Another sign of the shift in power is the recent success of youth-led labor organizing efforts. A growing number of Starbucks locations are becoming unionized, while <a href="https://www.nytimes.com/2022/04/01/technology/amazon-union-staten-island.html">Amazon got its first U.S.-based union</a> after workers on Staten Island in New York City voted to form one in April 2022. <a href="https://www.linkedin.com/news/story/holdout-brands-suspend-russia-ops-4701985/">Starbucks</a> and <a href="https://www.retaildive.com/news/amazon-halts-sales-in-russia-amid-ukraine-invasion/620160/">Amazon</a> have both suspended operations in Russia. </p>
<p>Some industries <a href="https://sloanreview.mit.edu/article/toxic-culture-is-driving-the-great-resignation/">are experiencing especially high employee attrition rates</a>, including <a href="https://www.linkedin.com/pulse/talent-recruitment-dilemmas-facing-consulting-firms-caburlotto/">management consulting</a> and <a href="https://hiring.oilandgasjobsearch.com/energy-outlook-report-2021-22">oil and gas</a>, according to a recent article in MIT Sloan Management Review. The attrition rate measures how many workers are lost and not replaced over a period of time.</p>
<p>Management consulting, in which a <a href="https://www.sourceglobalresearch.com/the-next-crisis-in-consulting-people">talented workforce is vital</a>, for example, saw an attrition rate of 16% over the six-month period researchers looked at, or over five times the national average. </p>
<figure class="align-center ">
<img alt="a red sign with white letters reads 'now hiring!'" src="https://images.theconversation.com/files/459898/original/file-20220426-26-3rqdm8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/459898/original/file-20220426-26-3rqdm8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/459898/original/file-20220426-26-3rqdm8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/459898/original/file-20220426-26-3rqdm8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/459898/original/file-20220426-26-3rqdm8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/459898/original/file-20220426-26-3rqdm8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/459898/original/file-20220426-26-3rqdm8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The number of open positions has exploded as a record share of workers quit their jobs.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/UnemploymentBenefits/fb5c5d61436a4a649ff7382d1a0b05c7/photo?Query=hiring&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=15506&currentItemNo=20">AP Photo/Matt Rourke</a></span>
</figcaption>
</figure>
<h2>Employees demand solidarity with Ukraine</h2>
<p>This is why it wasn’t a surprise to us that companies in these labor-strained industries either were among those that severed ties with Russia or quickly did so after facing criticism from employees. </p>
<p>IT consultant Accenture, with nearly 700,000 employees, seemed to set the tone for what would be expected of companies in its industry when on March 3, 2022, it said it was <a href="https://newsroom.accenture.com/news/accenture-to-discontinue-business-in-russia.htm">discontinuing all business in Russia</a>. </p>
<p>“Accenture stands with the people of Ukraine and the governments, companies and individuals around the world calling for the immediate end to the unlawful and horrific attack on the people of Ukraine and their freedom,” it wrote. </p>
<p>Competitors <a href="https://www.mckinsey.com/about-us/media/mckinsey-statement-on-russias-invasion-of-ukraine">McKinsey</a> and <a href="https://www.bcg.com/en-us/press/4march2022-bcg-statement-work-in-russia">Boston Consulting Group</a> initially planned more timid withdrawals by cutting ties with the Russian government but continuing to honor existing private contracts. But after current and former employees of both companies took to <a href="https://www.linkedin.com/feed/update/urn:li:activity:6903755488790421504/?commentUrn=urn%3Ali%3Acomment%3A%28activity%3A6903755488790421504%2C6904390111434285056%29">social media</a> to <a href="https://www.bloomberg.com/news/articles/2022-03-03/mckinsey-staff-alumni-pushed-firm-to-cut-ties-to-russia-after-ukraine-invasion?sref=Hjm5biAW">call out their perceived soft stance</a> and even cowardice on Russia, the <a href="https://www.consulting.us/news/7315/big-consultancies-move-to-cut-ties-with-russia-after-backlash">companies quickly reversed</a> course by <a href="https://www.mckinsey.com/about-us/media/mckinsey-statement-on-russias-invasion-of-ukraine">announcing</a> they were pulling out completely. <a href="https://www.wsj.com/livecoverage/russia-ukraine-latest-news-2022-03-04/card/big-consulting-firms-pull-out-of-russia-UGnj9ebn0TFu3RtwYcCF">All the other consulting giants</a> have done the same, including <a href="https://www.linkedin.com/posts/manny-maceda_today-i-shared-a-note-with-my-global-colleagues-activity-6903871483840471040-0qOW/?utm_source=linkedin_share&utm_medium=member_desktop_web">Bain</a>, <a href="https://www2.deloitte.com/global/en/pages/about-deloitte/press-releases/deloitte-statement-on-ukraine-deloitte-global.html">Deloitte</a>, <a href="https://www.ey.com/en_gl/news/2022/02/ey-statement-on-ukraine">EY</a>, <a href="https://home.kpmg/ua/en/home/media/press-releases/2022/03/kpmg.html">KPMG</a> and <a href="https://www.pwc.com/th/en/press-room/press-release/2022/statement-on-pwc-russia.html">PwC</a>.</p>
<p>The big Western oil companies have similarly <a href="https://oilprice.com/Energy/Crude-Oil/Employees-Are-Pressuring-Big-Oil-Firms-To-Pull-The-Plug-On-Russia.html">faced employee pressure</a> to exit Russia, with workers going so far as to refuse to offload Russian oil and gas onto their docks. This comes on top of governments <a href="https://www.wsj.com/articles/bp-faces-pressure-from-u-k-government-over-stake-in-russias-rosneft-11645817245">pushing companies to take steps</a> that go beyond the sanctions. In severing ties, companies such as <a href="https://www.washingtonpost.com/business/2022/02/27/bp-russia-rosneft-ukraine/">BP</a>, <a href="https://www.reuters.com/business/energy/shell-withdraw-russian-oil-gas-2022-03-08/">Shell</a> and <a href="https://corporate.exxonmobil.com/News/Newsroom/News-releases/2022/0301_ExxonMobil-to-discontinue-operations-at-Sakhalin-1_make-no-new-investments-in-Russia">Exxon</a> have <a href="https://www.forbes.com/sites/sergeiklebnikov/2022/04/08/heres-how-much-major-energy-companies-are-losing-by-exiting-russia/?sh=5f75753b7e49">abandoned significant assets</a> in Russia, which will result in <a href="https://www.npr.org/2022/03/01/1083659975/oil-majors-pull-out-of-once-promising-russia">huge losses</a> on their balance sheets. </p>
<h2>Short-term costs for long-term gains</h2>
<p>But accepting these short-term losses appear to be worth it to avoid larger ones down the road.</p>
<p><a href="https://doi.org/10.1108/SRJ-07-2015-0095">Recruiting and retaining a talented workforce</a> <a href="https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter">is an important driver</a> of a company’s long-term profitability. </p>
<p><a href="https://www.statista.com/statistics/738519/workplace-training-spending-per-employee/">Training new workers is costly</a>, and the <a href="https://trainingindustry.com/articles/strategy-alignment-and-planning/how-to-survive-the-big-quit-winning-the-war-for-talent-in-2022/">best talent is always hard to recruit</a> – a challenge made worse by the great resignation. <a href="https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/digital/ey-the-business-case-for-purpose.pdf">Survey</a> after <a href="https://www.porternovelli.com/wp-content/uploads/2021/01/02_Porter-Novelli-Tracker-Wave-X-Employee-Perspectives-on-Responsible-Leadership-During-Crisis.pdf">survey</a> has shown workers are increasingly driven by a sense of purpose and expect their companies to <a href="https://doi.org/10.1016/j.jvb.2018.10.001">reinforce their values</a>. </p>
<p>No company that we know of explicitly cited issues related to the great resignation as a driver of its decision to leave Russia. And industries with high attrition rates and vocal workforces such as <a href="https://www.nytimes.com/2022/02/16/magazine/tech-company-recruiters.html">Big Tech</a> haven’t seen complete withdrawals. In some cases, such as with <a href="https://www.cnbc.com/2022/03/01/apple-halts-product-sales-in-russia-.html">Apple</a>, <a href="https://www.reuters.com/technology/google-pauses-all-ad-sales-russia-2022-03-04/">Alphabet</a> and <a href="https://about.fb.com/news/2022/02/metas-ongoing-efforts-regarding-russias-invasion-of-ukraine/#latest">Meta</a>, they’ve suspended some operations <a href="https://www.nytimes.com/2022/03/02/technology/russia-tech-companies.html">but are trying to keep doing business</a> in part because they play important roles in providing free information to Russian citizens to counter <a href="https://www.voanews.com/a/diaspora-media-work-to-counter-russian-propaganda/6538089.html">Kremlin propaganda</a>.</p>
<p>Every company and every industry has its own unique analysis to go through based on exposure to business and reputational risk in Russia. We believe the great resignation compounds this risk, in some cases significantly. And employees are increasingly <a href="https://fortune.com/2022/04/06/war-reaches-workplace-ukraine-invasion-is-unsettling-stress-american-workers-workplace-careers-leadership-mental-health-cheryl-naumann/">reporting feeling stressed out</a> over Ukraine. </p>
<p>Russia’s aggression against Ukraine <a href="https://www.cnbc.com/2022/04/01/russia-and-the-west-battle-to-get-china-and-india-on-side-in-the-war.html">has been condemned almost universally</a> in the West. Given that, many of the companies that severed ties – while <a href="https://www.nytimes.com/2022/04/11/business/costs-companies-leaving-russia.html">sacrificing short-term profits</a> – likely knew that staying would have been <a href="https://corpgov.law.harvard.edu/2022/03/16/the-russian-invasion-of-ukraine-a-lesson-in-stakeholder-capitalism/">far more harmful for their brand</a>, not only with customers <a href="https://www.forbes.com/sites/jenamcgregor/2022/03/08/there-isnt-a-both-sides-anymore-with-russia-customers-and-employees-demand-action-from-corporations/?sh=163de80c5246">but their employees as well</a>.</p>
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<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Two scholars of corporate do-goodery suggest a hidden driver of corporate decisions to leave Russia is the global trend in which record numbers of workers are quitting their jobs.Steven Kreft, Clinical Professor of Business Economics and Public Policy, Indiana UniversityElham Mafi-Kreft, Clinical Associate Professor of Business Economics, Indiana UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1811392022-04-18T12:28:58Z2022-04-18T12:28:58ZRussia faces first foreign default since 1918 – here’s how it could complicate Putin’s ability to wage war in Ukraine<figure><img src="https://images.theconversation.com/files/458329/original/file-20220415-16-jlry37.jpg?ixlib=rb-1.1.0&rect=143%2C0%2C5847%2C3664&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Replacing ships like the Moskva will be pricey. The flagship of Russia’s Black Sea Fleet recently sank after suffering damage.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/RussiaUkraine/96ef4c8b56c24796a61a124270f573b9/photo?Query=moskva&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=643&currentItemNo=1">Russian Defense Ministry Press Service via AP</a></span></figcaption></figure><p><em>Russia may be on the cusp of <a href="https://www.npr.org/2022/04/12/1092077016/russia-historic-debt-default-sanctions-invasion-ukraine">its first default on its foreign debt</a> since the Bolsheviks ousted Czar Nicholas II a century ago.</em></p>
<p><em>On April 14, 2022, Moody’s Investors Service warned the country’s decision to make payments on dollar-issued debt in rubles <a href="https://www.nytimes.com/2022/04/14/business/russia-default-moodys.html">would constitute a default</a> because it violates the terms of the contract. A 30-day grace period allows Russia until May 4 to convert the payments to dollars to avoid default.</em></p>
<p><em>A default is one of the clearest signals that the sanctions imposed by the U.S. and other countries are having their intended effect on the Russian economy. But will it have any impact on Russia’s ability to wage war in Ukraine?</em> </p>
<p><em>We asked <a href="https://scholar.google.com/citations?user=bSApaj4AAAAJ&hl=en&oi=ao">Michael Allen</a> and <a href="https://scholar.google.com/citations?user=uLty40oAAAAJ&hl=en&oi=ao">Matthew DiGiuseppe</a>, both experts on political economy and conflict, to explain the consequences of default and what it would mean for Russian President Vladimir Putin’s war.</em></p>
<h2>Why did Russia default on its debt?</h2>
<p>The Russian government has a total of <a href="https://www.nytimes.com/2022/03/15/business/russia-debt-bonds-default.html">US$40 billion worth of debt</a> in dollars and euros, half of which is owned by foreign investors. Russia had an <a href="https://www.npr.org/2022/04/12/1092077016/russia-historic-debt-default-sanctions-invasion-ukraine">April 4 deadline to pay</a> about $650 million in interest and principle to the holders of two bonds issued in dollars.</p>
<p>Russia has plenty of cash – <a href="https://asia.nikkei.com/Politics/Ukraine-war/G-7-resists-going-after-1bn-a-day-Russian-energy-revenue">it collects the equivalent of over $1 billion a day</a> from its oil and gas deliveries alone – but has limited access to dollars because of sanctions imposed by the U.S. The Biden administration had been allowing Russia to use some of the foreign reserves <a href="https://www.nytimes.com/2022/02/28/us/politics/us-sanctions-russia-central-bank.html">it had previously frozen</a> to make debt payments. The U.S. changed course on April 5, when <a href="https://www.reuters.com/business/us-cracks-down-russian-debt-payments-latest-sovereign-payments-halted-2022-04-05/">it blocked Russia from using dollar reserves</a> held at American banks to make the debt payments. </p>
<p>That gave Russia little choice but to try to make the payments in rubles, whose value <a href="https://www.xe.com/currencycharts/?from=USD&to=RUB">has been very volatile</a> since the invasion. If Russia doesn’t switch the payments to dollars by May 4, the government will be in default on its foreign obligations for the <a href="https://doi.org/10.1111/j.1540-6563.1986.tb02008.x">first time since 1918</a>, when the Bolshevik revolutionaries took over Russia and refused to pay the country’s international creditors. Russia also defaulted in 1998 but only on its domestic debt. </p>
<figure class="align-center ">
<img alt="A black and white photo shows groups of men in dark coats carrying caskets on their shoulders in a snowy scene. Someone in distance holds a flag" src="https://images.theconversation.com/files/458272/original/file-20220414-20-8atcc4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/458272/original/file-20220414-20-8atcc4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=431&fit=crop&dpr=1 600w, https://images.theconversation.com/files/458272/original/file-20220414-20-8atcc4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=431&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/458272/original/file-20220414-20-8atcc4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=431&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/458272/original/file-20220414-20-8atcc4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=542&fit=crop&dpr=1 754w, https://images.theconversation.com/files/458272/original/file-20220414-20-8atcc4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=542&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/458272/original/file-20220414-20-8atcc4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=542&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The last time Russia defaulted on foreign debt was during the Russian Revolution.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/RussiaRevolution/480b20fec8a84465a3b4bb50a3810310/photo?Query=bolsheviks&mediaType=photo&sortBy=arrivaldatetime:asc&dateRange=Anytime&totalCount=747&currentItemNo=1">AP Photo</a></span>
</figcaption>
</figure>
<h2>What are the consequences of default?</h2>
<p>When a country defaults on a foreign loan, international investors typically become unwilling or unable to lend more money to it. Or they demand much higher interest rates. </p>
<p>Whether because of higher interest costs or an inability to borrow, this forces a country to cut spending. Less government spending <a href="https://doi.org/10.1016/j.jimonfin.2020.102257">reduces economic activity</a>, <a href="http://dx.doi.org/10.2139/ssrn.3785746">increases unemployment</a> and <a href="https://www.doi.org/10.1057/imfsp.2009.21">slows growth</a>. While some of these effects, like weaker economic growth, are often short-lived, other consequences can haunt a country for years. Trade with other countries <a href="https://www.doi.org/10.1057/imfsp.2009.21">remains below normal for an average of 15 years</a> after a default, while full exclusion from capital markets typically lasts just over eight years. </p>
<p>For example, when Argentina defaulted in 2001, the <a href="https://www.doi.org/10.1007/s11079-015-9350-3">peso plunged</a>, the <a href="https://www.doi.org/10.1080/13600810600705098">economy shrank and inflation soared</a>. <a href="https://www.nytimes.com/2001/12/20/world/reeling-from-riots-argentina-declares-a-state-of-siege.html">Riots over food broke out</a> all over the country, leading to the <a href="https://www.nytimes.com/2001/12/21/world/argentine-leader-his-nation-frayed-abruptly-resigns.html">president’s resignation</a>. Although Argentina’s <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=AR">economy had recovered by 2007</a>, the country <a href="https://www.nytimes.com/2016/04/25/business/dealbook/how-argentina-settled-a-billion-dollar-debt-dispute-with-hedge-funds.html">remained unable to borrow</a> from foreign investors, which led to default again in 2014. </p>
<p>What does this mean for Russia? The country was already <a href="https://www.reuters.com/business/russia-debt-investors-limbo-default-risk-increases-2022-04-07/">locked out of international borrowing markets</a> because of sanctions. A government official recently said Russia <a href="https://www.bloomberg.com/news/articles/2022-04-10/russia-to-halt-bond-issuance-for-rest-of-2022-siluanov-says?sref=Hjm5biAW">would also avoid borrowing domestically</a>, because a default would lead to “cosmic” interest rates.</p>
<p>But its <a href="https://www.businessinsider.com/russia-sell-oil-friendly-countries-any-price-range-ukraine-war-2022-4">significant revenue</a> from sometimes-discounted sales of oil and gas may help offset the need for borrowing in the short term, especially if it can continue to find willing buyers like India and China. On April 14, 2022, Putin acknowledged sanctions <a href="https://www.nytimes.com/live/2022/04/14/world/ukraine-russia-war-news#putin-admits-sanctions-have-hurt-russias-oil-and-gas-sector">were disrupting exports</a> and raising costs.</p>
<h2>Does Russia care if it defaults?</h2>
<p>The Russian government has been trying hard to avoid default.</p>
<p>Until April 5, it was using its precious dollars to stay current on its bond payments. And before its invasion it had built up a <a href="https://www.economist.com/graphic-detail/2022/03/02/russias-attempt-to-sanction-proof-its-economy-has-been-in-vain">significant reserve of foreign currency</a>, in large part to allow it to continue to pay back debt borrowed in dollars and euros even amid sanctions. Russia has even threatened to <a href="https://www.ft.com/content/56df1dc0-6cf3-41f8-a644-d44be5085ee8#post-9a4c235d-5382-40f9-8314-e0c19152ac92">take legal action</a> if sanctions force it into default.</p>
<p>As odd as it may sound, Russia is likely worried about its reputation – at least among bond investors.</p>
<p>A default by a sovereign borrower <a href="https://press.princeton.edu/books/paperback/9780691134697/reputation-and-international-cooperation">establishes a bad reputation</a> that can take years to rehabilitate, as Argentina’s experience shows.</p>
<p>And the long-term impact could be worse for Russia. The reason Russia is in this bind is because it chose to invade Ukraine, <a href="https://www.usnews.com/news/world-report/articles/2021-12-07/u-s-threatens-extreme-sanctions-if-russia-invades-ukraine">despite repeated warnings</a> that doing so <a href="https://www.reuters.com/world/europe/us-uk-ready-punish-putin-associates-if-russia-invades-ukraine-2022-01-31/">would result in severe</a> economic and financial sanctions.</p>
<p>So creditors might wonder if Russia will always prioritize its foreign policy interests over the interests of creditors and raise borrowing costs permanently. If so, they may find it difficult to borrow for years to come. </p>
<p>Another risk is that a default may enable creditors to seize Russia’s overseas assets as a form of repayment. International sanctions have already <a href="https://www.cnn.com/interactive/business/russian-oligarchs-yachts-real-estate-seizures/index.html">enabled countries to seize or freeze Russian assets</a>, which could be used to pay off outstanding debts.</p>
<p>One count suggests that <a href="https://voxeu.org/article/how-creditor-lawsuits-are-reshaping-sovereign-debt-markets">50% of creditors in recent sovereign debt cases</a> have attempted to <a href="https://www.reuters.com/business/finance/clock-ticks-down-towards-russian-default-2022-04-08/">seize assets as an alternative to payment</a>. </p>
<h2>What does this mean for Russia’s war in Ukraine?</h2>
<p>As long as there has been debt, governments have waged wars with other people’s money. In fact, debt has become so vital as a source of power that countries rarely fight without it.</p>
<p>Around 88% of wars from 1823 through 2003 have been at least partly financed with <a href="https://www.cornellpress.cornell.edu/book/9781501702495/how-states-pay-for-wars/#bookTabs=1">funds borrowed from banks and other investors</a>. This reality even bleeds into fantasy worlds, like “Game of Thrones,” in which financing from the Iron Bank of Braavos <a href="https://qz.com/1064757/game-of-thrones-season-7-with-the-iron-bank-a-debt-crisis-is-always-looming/">is vital to financing the wars of Westeros</a>. </p>
<p>Our own research has shown that countries that have defaulted on their debts or have poor credit ratings find it <a href="https://www.doi.org/10.1177/0022343315587970">difficult to build military capacity</a> and, consequently, are more reluctant to <a href="https://doi.org/10.1111/fpa.12044">take up arms</a> against other nations. Related work has found that countries with lower borrowing costs <a href="https://doi.org/10.1177/0022002713478567">tend to win wars</a> – though this effect is stronger for democracies. </p>
<p>One reason is that borrowing allows countries to overcome the guns-versus-butter trade-off: More money spent on the military means less for its citizens’ welfare, which can hurt a government’s ability to stay in power. Foreign loans can help overcome this problem, but losing access to credit forces a government to choose. </p>
<p>In the short term, however, a default is not likely to alter the outcome of Russia’s war – or force Putin to make any unpopular trade-offs – especially if <a href="https://www.bbc.com/news/world-europe-60938544">Russia is able to achieve</a> its <a href="https://www.aljazeera.com/news/2022/4/11/russia-repositioning-in-ukraines-eastern-donbas-region-us">new and more limited military objectives</a> in the eastern Donbas region quickly. </p>
<p>This will change the longer the war goes on. The war was expected to last only a few days, but a <a href="https://www.cnbc.com/2022/03/04/russias-invasion-of-ukraine-is-baffling-military-analysts.html">stronger-than-expected Ukrainian defense</a> has pushed the conflict into its eighth week. Early estimates found that a prolonged war <a href="https://www.consultancy.eu/news/7433/research-ukraine-war-costs-russian-military-20-billion-per-day">could end up costing Russia</a> over $20 billion a day, including both direct and indirect expenses, like loss of economic output.</p>
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<p>If Ukraine becomes a <a href="https://www.theatlantic.com/international/archive/2022/03/how-long-will-ukraine-russia-war-last/627036/">lengthy war of attrition</a>, <a href="https://www.politico.com/news/2022/03/20/ukraine-war-of-attrition-00018752">as some analysts expect</a>, then Russia’s inability to borrow money will weaken its ability to sustain, supply and reinforce its position in Ukraine – especially if <a href="https://www.businessinsider.com/russia-sell-oil-friendly-countries-any-price-range-ukraine-war-2022-4">oil prices fall</a> or the <a href="https://www.nytimes.com/live/2022/04/14/world/ukraine-russia-war-news/europe-starts-drafting-a-ban-on-russian-oil-imports">European Union boycotts</a> or reduces its dependence on Russian fuel. </p>
<p><a href="https://doi.org/10.2968/060002010">Roman statesman Cicero wrote</a>: “Nervos belli, infinitam pecuniam,” which loosely translates as “Successful war-waging capacity requires unlimited cash.”</p>
<p>And that means borrowed money. Wars usually end quickly without it.</p><img src="https://counter.theconversation.com/content/181139/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael A. Allen has received funding from the Department of Defense's Minerva Initiative, the US Army Research Laboratory, and the US Army Research Office.</span></em></p><p class="fine-print"><em><span>Matthew DiGiuseppe receives funding from the European Research Council. </span></em></p>Russia is on the verge of defaulting on its foreign debt, which not only could have severe economic consequences but could also complicate Putin’s ability to wage a prolonged war in Ukraine.Michael A. Allen, Associate Professor of Political Science, Boise State UniversityMatthew DiGiuseppe, Assistant Professor of International Relations, Leiden UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1811202022-04-12T17:28:38Z2022-04-12T17:28:38ZRussian ruble’s recovery masks disruptive impact of West’s sanctions – but it won’t make Putin seek peace<figure><img src="https://images.theconversation.com/files/457535/original/file-20220411-18-1k1fz9.jpg?ixlib=rb-1.1.0&rect=215%2C197%2C5775%2C3790&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">People bought the last remaining groceries at a Finnish PRISMA store that was closing down in in St. Petersburg in March.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/APTOPIXRussiaEconomy/f1c28b8b1c0f48649df0515ce44e3099/photo?Query=russia%20company&mediaType=photo&sortBy=creationdatetime:desc&dateRange=Anytime&totalCount=2180&currentItemNo=77">AP Photo</a></span></figcaption></figure><p>Six weeks into the war with Ukraine, Russia’s economy <a href="https://fortune.com/2022/03/31/ukraine-war-russia-ruble-almost-recovered-does-that-mean-sanctions-not-working/">seems to be holding up</a> better than initially expected.</p>
<p>Despite <a href="https://theconversation.com/economic-sanctions-may-make-russians-lives-worse-without-stopping-putins-assault-on-ukraine-179623">unprecedented sanctions</a> and an <a href="https://theconversation.com/why-apple-disney-ikea-and-hundreds-of-other-western-companies-are-abandoning-russia-with-barely-a-shrug-178516">exodus of Western companies</a>, the Russian ruble – a widely followed indicator of the economy – <a href="https://www.themoscowtimes.com/2022/04/08/russias-ruble-stages-rebound-despite-western-sanctions-a77289">has recovered all of its earlier losses</a>. Meanwhile, <a href="https://www.reuters.com/business/energy/russia-maintains-gas-deliveries-europe-moots-fresh-sanctions-2022-04-04">billions of dollars</a> continue to flow in from energy sales to Europe and elsewhere, which has allowed the Kremlin to keep paying its international debts.</p>
<p>However, Russia’s apparently robust financial situation is something of a chimera and masks <a href="https://theconversation.com/economic-sanctions-may-make-russians-lives-worse-without-stopping-putins-assault-on-ukraine-179623">the real pain being experienced</a> by Russians and stress on the economy.</p>
<p>I’ve been a close observer of Russia for <a href="https://www.wesleyan.edu/academics/faculty/prutland/profile.html">over 30 years</a>. I have been struck by the tension between Russia’s <a href="https://www.ponarseurasia.org/the-2020-oil-crash-is-russia-still-an-energy-superpower/">integration into the global economy</a> on the one hand and its growing domestic <a href="https://www.amazon.com/Authoritarian-Russia-Analyzing-Post-Soviet-European/dp/082296368X">authoritarianism</a> on the other.</p>
<p>Russia’s integration is what makes the sanctions sting. Its authoritarianism is what makes them irrelevant.</p>
<h2>Swift sanctions</h2>
<p>Broad and deep <a href="https://www.piie.com/blogs/realtime-economic-issues-watch/russias-war-ukraine-sanctions-timeline">sanctions</a> were promptly imposed on Russia by over 50 countries after the Feb. 24, 2022, invasion. </p>
<p>Notably, those joining the sanctions included historically neutral Switzerland – a key location for <a href="https://www.bloomberg.com/news/articles/2022-04-07/swiss-have-frozen-8-billion-in-russian-assets-to-date?sref=Hjm5biAW">many of Russia’s overseas banking assets</a> – and Taiwan, the <a href="https://www.kommersant.ru/doc/5294238">source of 60%</a> of the world’s microchips.</p>
<p>The sanctions had an immediate and dramatic impact. The <a href="https://theconversation.com/ordinary-russians-are-already-feeling-the-economic-pain-of-sanctions-over-ukraine-invasion-178126">ruble lost 50%</a> of its value within days as Russians lined up to draw out dollars and rubles from their bank accounts. Panic buying of sugar, buckwheat and other essentials meant empty shelves and scuffles in stores. The official sanctions were followed by a wave of <a href="https://som.yale.edu/story/2022/over-600-companies-have-withdrawn-russia-some-remain">foreign companies</a> deciding to suspend their operations in Russia or pull out entirely.</p>
<h2>The ruble recovers</h2>
<p>But the more dire predictions of how this would affect Russia have not come to pass. </p>
<p>For example, after plunging to a record low of 136 to the U.S. dollar on March 10, 2022, the ruble has recovered to 83 to the dollar as of April 11, roughly <a href="https://www.xe.com/currencycharts/?from=USD&to=RUB&view=1Y">what it was worth</a> before the invasion. This is due to the Russian Central Bank’s imposition of <a href="https://www.wsj.com/articles/russia-central-banker-nabiullina-putin-ukraine-11649430535?page=1">strict rules</a>, such as requiring exporters to convert 80% of their dollar earnings into rubles, banning individuals from taking more than US$10,000 out of the country and introducing a 12% tax on dollar purchases.</p>
<p>Likewise, Russia met its debt payments in March, and though the ratings agency S&P declared it to be in “<a href="https://www.ft.com/content/b46d0acb-4d4c-4cd2-80a3-3003ca3a0021">selective default</a>” in April after <a href="https://www.nytimes.com/2022/04/10/business/russia-debt-default-rubles.html">it paid bondholders in rubles</a> rather than dollars, it still hasn’t fully defaulted on its debt. </p>
<p>While some individual countries such as the U.S., U.K. and Lithuania have announced that they will no longer buy Russian oil and gas, the European Union cannot afford to take such a step <a href="https://econtribute.de/RePEc/ajk/ajkpbs/ECONtribute_PB_028_2022.pdf">until the infrastructure</a> for handling alternative fuel supplies has been created. And China and India <a href="https://theprint.in/world/china-is-quietly-picking-up-cheap-russian-crude-as-india-buys-more/887648/">continue to be big buyers</a> of Russian oil. </p>
<p>Furthermore, any drop in the volume of sales due to sanctions has been more than compensated by a <a href="https://www.ft.com/content/56df1dc0-6cf3-41f8-a644-d44be5085ee8#post-77221d1c-1b95-4955-a875-a0ab8bd35830">60% spike in the price of oil</a>. </p>
<p>As a result, Russia continues to rake in <a href="http://www.business-gazeta.ru/article/546308">$35 billion a month</a> from its oil and gas exports, <a href="https://ridl.io/en/russia-s-default-believe-it-or-not/">more than enough</a> to enable it to meet its international debt obligations – and to keep the war going. </p>
<h2>Soaring inflation</h2>
<p>The ruble, however, is no longer a convertible currency, so its exchange rate is an artificial indicator that <a href="https://www.nber.org/papers/w29929?utm_campaign=ntwh&utm_medium=email&utm_source=ntwg4">tells us little</a> about the economy. Its apparent stabilization is a deceptive measure and doesn’t reflect the traumatic shock that the real economy is experiencing as a result of the sanctions. </p>
<p>The rising cost of living, on the other hand, is a more revealing indicator. It’s something the Kremlin is likely concerned about <a href="https://www.doi.org/10.1080/10758216.2017.1383854">because it can potentially lead to social unrest</a>.</p>
<p><a href="https://www.themoscowtimes.com/2022/04/08/russias-ruble-stages-rebound-despite-western-sanctions-a77289">Russian consumer prices rose 7.6%</a> in March and were up 16.7% from a year earlier. Part of this is due to rising global food prices even before the Ukraine war. The <a href="https://www.ft.com/content/5212871a-d2d3-41ef-99fe-400ed33859e8">United Nations food price index was up</a> 34% in March from a year earlier. </p>
<p>Russian Prime Minister Mikhail Mishustin offered a window into how bad things actually are when he <a href="https://www.kommersant.ru/doc/5295575">told the State Duma</a> on April 7, 2022, that the crisis is the worst that Russia has faced in 30 years. The economy will take six months to adapt, he added – which may turn out to be an overly optimistic assessment. The European Bank for Reconstruction and Development expects the Russian economy to <a href="https://www.wsj.com/articles/russia-set-for-steep-slump-and-long-stagnation-in-wake-of-ukraine-war-11648702801?mod=mktw&mod=article_inline">contract by 10%</a> this year. </p>
<h2>Softening the blow on workers</h2>
<p>The potential for rising unemployment is another concern.</p>
<p>Analysts surveyed by Bloomberg <a href="https://www.bloomberg.com/news/articles/2022-04-07/russians-paid-not-to-work-won-t-keep-jobless-spike-away-for-long?sref=Hjm5biAW">forecast Russian joblessness</a> to exceed 9% in the coming months, the first time it’s been that high in more than a decade. </p>
<p>To soften the blow, the government <a href="https://ria.ru/20220319/rynok-1778990614.html?in=t">is spending 40 billion rubles</a> (about $470 million) subsidizing wages in industries affected by the sanctions. This affects about 400,000 workers in total.</p>
<p>Meanwhile, the fate of the <a href="https://www.bloomberg.com/news/articles/2022-03-12/companies-leaving-russia-don-t-know-if-and-when-they-ll-return?sref=Hjm5biAW">thousands of workers</a> in foreign-owned businesses that are now shuttered remains uncertain. Russia has yet to follow through on <a href="https://www.reuters.com/business/russia-approves-first-step-towards-nationalising-assets-firms-that-leave-ruling-2022-03-09/">threats to nationalize their assets</a>, but some companies, such as the local franchisees of retail outlets like McDonald’s, may try to reopen under Russian management and build new brands and supply chains. The Russian subsidiaries of the top Western accounting firms <a href="https://www.ft.com/content/be3d59a3-d9b2-4303-946d-d61d32c2ff08">reportedly plan to continue operating</a> under new names.</p>
<p>One important safety valve for Russian workers is the presence of <a href="https://www.reuters.com/article/us-health-coronavirus-russia-migrants/russias-stranded-migrants-lose-jobs-rely-on-handouts-and-peers-for-food-idUSKCN22911T">roughly 10 million migrant workers</a>, 15% of the total workforce, who are typically the first to be fired. The <a href="https://www.rferl.org/a/russia-sanctions-central-asian-migrants/31771858.html">fall in the remittances</a> they send back home will be a blow to the economies of Central Asia.</p>
<figure class="align-center ">
<img alt="A white balding man gestures with his left hand over desk as he looks at a monitor that shows one white man in a big window and others around him" src="https://images.theconversation.com/files/457745/original/file-20220412-14283-cyx5dh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/457745/original/file-20220412-14283-cyx5dh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=367&fit=crop&dpr=1 600w, https://images.theconversation.com/files/457745/original/file-20220412-14283-cyx5dh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=367&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/457745/original/file-20220412-14283-cyx5dh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=367&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/457745/original/file-20220412-14283-cyx5dh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=461&fit=crop&dpr=1 754w, https://images.theconversation.com/files/457745/original/file-20220412-14283-cyx5dh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=461&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/457745/original/file-20220412-14283-cyx5dh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=461&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Russian President Vladimir Putin gestures while speaking during a meeting on economic issues via videoconference with Prime Minister Mikhail Mishustin and others.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/RussiaPutin/6fa8240db636402d9b5bb1c3aa4130eb/photo?Query=Mishustin&mediaType=photo&sortBy=creationdatetime:desc&dateRange=Anytime&totalCount=283&currentItemNo=11">Alexei Nikolsky, Sputnik, Kremlin Pool Photo via AP</a></span>
</figcaption>
</figure>
<h2>Tech troubles</h2>
<p>Russian consumers and companies are also encountering shortages of a wide range of goods, including <a href="https://www.kommersant.ru/doc/5304630">pharmaceutical supplies</a>, such as asthma inhalers, and drugs for Parkinson’s disease. Even copy paper, whose <a href="https://ria.ru/20220323/bumaga-1779570437.html?in=t">price has tripled</a> over the past month, is hard to come by because of a halt to the import of key chemicals, <a href="https://ria.ru/20220408/ege-1782473490.html">leading to calls</a> for university entrance exams to be suspended this year.</p>
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<p>The situation looks particularly grave in the information technology sector. Russian companies and state-owned enterprises remain heavily dependent on imported hardware and software – <a href="https://www.kommersant.ru/doc/5294238">despite a 2017 order</a> to wean themselves off of Western software. As part of the sanctions, companies like Microsoft and Google are <a href="https://www.washingtonpost.com/business/2022/03/04/russia-west-business-breakdown/">no longer doing business</a> in Russia, leaving local managers scrambling to find alternative software.</p>
<p>Compounding the problem is the fact that tens of thousands of IT professionals <a href="https://www.themoscowtimes.com/2022/04/01/russia-plays-tug-of-war-as-its-talented-it-workers-head-for-the-door-a77160">are leaving Russia</a> because they can easily work overseas, free from the economic and political restrictions of life in Russia. In a bid to stem the flow, on March 29, 2022, Prime Minister Mishustin <a href="https://www.themoscowtimes.com/2022/04/01/russia-plays-tug-of-war-as-its-talented-it-workers-head-for-the-door-a77160">signed a decree</a> exempting IT professionals from the draft.</p>
<h2>A bleak future</h2>
<p>The goal of the Western powers in imposing sanctions was to increase pressure on the government in the hope that President Vladimir Putin would come to the realization that the costs of continuing the war in Ukraine exceed the benefits. Unfortunately, that strategy may exaggerate the extent to which Putin factors the living standards of ordinary Russians into his decision-making calculus. </p>
<p>Moreover, the war and the resulting sanctions seem likely to be further empowering hard-line nationalist elements of the Russian government, with some critics calling for a reintroduction of Soviet-style central planning and a <a href="https://topwar.ru/194650-gospodin-prezident-ne-pora-nachinat-chistit-rossiju.html">military mobilization</a> of the economy. </p>
<p>Put simply, the future looks bleak for Russian citizens, who will continue to bear the brunt of the sanctions. Putin apparently expects them to tighten their belts until he achieves his “victory” – which is increasingly being <a href="https://globalaffairs.ru/articles/kto-my-gde-my/">seen in Russia</a> as a war with the “collective West,” not just Ukraine.</p><img src="https://counter.theconversation.com/content/181120/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Rutland does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Despite the ruble’s recovery, sanctions have actually dealt a punishing blow to the Russian economy. But changing Putin’s mind is another matter.Peter Rutland, Professor of Government, Wesleyan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1788262022-03-11T10:34:14Z2022-03-11T10:34:14ZThe cost of war: how Russia’s economy will struggle to pay the price of invading Ukraine<p>The invasion of Ukraine has placed Russia on the verge of bankruptcy. Interest rates <a href="https://www.theguardian.com/business/2022/feb/28/russia-central-bank-rates-rouble-sanctions-economy-ukraine">have doubled</a>, the stock market <a href="https://www.bloomberg.com/news/articles/2022-03-04/russia-keeps-stock-trading-closed-in-nation-s-longest-shutdown#:%7E:text=The%20Russian%20stock%20market%20will%20be%20closed%20to,will%20be%20shut%20March%205%2C%207%20and%208.7">has closed</a>, and the rouble has <a href="https://www.msn.com/en-gb/money/other/oil-soars-to-24120-a-barrel-and-rouble-crashes-to-all-time-low/ar-AAUzIDs?ocid=uxbndlbing">fallen</a> to its lowest level ever. </p>
<p>The military costs of war have been exacerbated by an <a href="https://www.newyorker.com/news/our-columnists/how-vladimir-putin-miscalculated-the-economic-cost-of-invading-ukraine">unprecedented</a> level of international sanctions, <a href="https://journals.sagepub.com/doi/full/10.1177/0738894213520379?casa_token=ewNYEpVzT0oAAAAA%3AcOJslTt5QSxaLTxHX_a23WeRPnuM_GOX22CALkpuTyLMsLZ1u6gHIzLRdVAWCmNikPQuChTpKkE">sustained by</a> a large coalition of countries. Russian citizens, now unable to spend at IKEA, <a href="https://www.theguardian.com/world/2022/mar/08/mcdonalds-bows-to-pressure-and-closes-all-its-russian-restaurants">McDonald’s</a> or Starbucks, <a href="https://www.washingtonpost.com/business/2022/03/08/ruble-dollar-exchange-barred/">are not allowed</a> to convert any of the money they do have into foreign currency.</p>
<p><a href="https://www.theguardian.com/world/2022/mar/02/russia-economy-could-shrink-by-7-per-cent-as-result-of-ukraine-sanctions-war-recession-covid">Generous estimates</a> suggest the Russian economy could shrink by 7% next year, instead of the 2% growth that was forecast before the invasion. Others say the drop could be as much as <a href="https://www.cnbc.com/2022/03/06/war-fallout-us-economy-to-slow-europe-risks-recession-and-russia-to-suffer-double-digit-decline.html">15%</a>.</p>
<p>Such a fall would be bigger than the <a href="https://research.stlouisfed.org/publications/review/2002/11/01/a-case-study-of-a-currency-crisis-the-russian-default-of-1998">1998 crash</a> of the Russian stock markets – a major shock to an economy which has <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.KD?locations=RU">hardly seen any growth</a> in the last decade, and <a href="https://wits.worldbank.org/CountryProfile/en/Country/RUSSIA/Year/LTST/Summarytext">failed to diversify</a> away from exporting oil and gas. Meanwhile the European Union is planning to <a href="https://www.politico.eu/article/commission-plan-eu-russia-gas-2030/">drastically decrease</a> its energy dependency on Russia, while the the US and the UK have begun to <a href="https://www.ft.com/content/2e0b1d84-e595-4c5a-be4e-928417b9c7cc">phase out</a> their own, more limited, imports.</p>
<p>Long-term perspectives are dire. If sanctions are maintained, Russia will be cut off from <a href="https://wits.worldbank.org/countrysnapshot/en/RUSSIA">its main trading partners</a> apart from China and Belarus. Rating agencies now predict Russia will soon be unable to <a href="https://www.bloomberg.com/news/articles/2022-03-08/fitch-downgrades-russia-rating-seeing-imminent-bond-default">pay back its creditors</a>, again with colossal long-term impacts on the economy. Its reputation as a disreputable borrower will make it hard to attract foreign investments without massive guarantees, potentially making it entirely dependent on China. </p>
<p>The economic scenario actually looks even worse if Putin reaches a point where he claims victory in Ukraine. Occupying the country and <a href="https://www.wsj.com/articles/ukraine-russia-war-end-putin-sanctions-troops-11646240527">installing a puppet government</a> would surely involve taking responsibility for <a href="https://www.reuters.com/world/europe/ukrainian-minister-puts-war-damage-infrastructure-about-10-billion-2022-03-07/">rebuilding destroyed infrastructure</a>. And with Ukrainian citizens <a href="https://muse.jhu.edu/article/803378">increasingly pro-European</a>, maintaining peace in such a hostile environment would force Putin to divert a huge amount of resources from the Russian budget. </p>
<p>To get a sense of what that would involve, we can look at what has happened before. After two wars and the <a href="https://www.theglobeandmail.com/world/article-putins-siege-of-grozny-in-2000-gives-ukraine-a-dark-foreshadowing-of/">destruction of Grozny</a>, Chechnya, in 1999–2000, Russia spends as much as US$3.8 billion (£2.9 billion) a year <a href="https://www.rferl.org/a/caucasus-report-kadyrov-chechnya-exempt-funding-cuts/28648698.html">sustaining its regime in the country</a>. Any decrease in monetary transfers would put Russia at risk of further insurgency, and Crimea costs Russia <a href="https://www.bloomberg.com/opinion/articles/2019-03-16/russia-s-annexation-of-crimea-5-years-ago-has-cost-putin-dearly">a comparable amount</a>. </p>
<p>Ukraine’s population of around 40 million is around <a href="https://datatopics.worldbank.org/world-development-indicators/">40 times larger than Chechnya’s</a> and 20 times that of the Crimean peninsula. The second largest country in Europe by area (after Russia), it will be a very expensive place in which to sustain an occupation. </p>
<p>Today, although Russian losses are a military secret, Ukrainian estimates put the material cost to Putin from the destruction of tanks, planes and weapons at <a href="https://civitta.com/articles/civitta-easybusiness-and-cer-experts-in-ukraine-release-study-on-war-costs-for-russia-and-ways-to-support-ukraine">around US$5 billion</a> for just the first two days of the war. </p>
<h2>The ultimate price</h2>
<p>But it’s not just military hardware that costs money. It may sound strange, distasteful even, but governments and economists do place a monetary value on every human life. It is calculations such as these that decide which drugs or medical treatments <a href="https://wchh.onlinelibrary.wiley.com/doi/pdf/10.1002/psb.1562">the NHS provides</a> on its limited budget.</p>
<p>So far in Ukraine, there are estimates that as many as <a href="https://www.independent.co.uk/news/world/europe/ukraine-russia-invasion-deaths-latest-b2030956.html">12,000</a> Russian soldiers have been killed. In comparison, around 15,000 soldiers <a href="https://www.tandfonline.com/doi/pdf/10.1080/026349300750057964">died</a> during the Soviet invasion of Afghanistan, 8,000 during the first Chechen war, and a slightly larger (<a href="https://www.jstor.org/stable/20202971">but uncertain number</a>) during the second one. </p>
<p>A <a href="https://www.nytimes.com/2020/05/11/upshot/virus-price-human-life.html">rough estimate</a> based on <a href="https://data.worldbank.org/indicator/SP.DYN.LE00.MA.IN?locations=RU">life expectancy</a> and <a href="https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=RU">GDP per capita</a> suggests that a death toll of 10,000 Russian soldiers would correspond to a cost of more than US$4 billion. To this, one would need to add the <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1472271">huge mental health toll</a> on their families, and on all the soldiers who took part in an active war. </p>
<p>These costs though are irrelevant in the immediate term to the budget of the government. So too is the <a href="https://interfax.com/newsroom/top-stories/75349/">paltry compensation announced</a> by Putin to the families of dead soldiers, which will be paid in local currency, meaning its actual value may soon be close to zero. Most material and human losses can effectively be listed under the description of “existing assets”, and the cost of replacing them will only be borne in the future.</p>
<p>In the coming days and weeks, whether the cost of war is too high for Putin will depend on two elements. Can the Russian military and defence industry <a href="https://tass.com/politics/1411153">survive</a> without technological imports such as <a href="https://www.meta-defense.fr/en/2019/08/22/import-substitution-in-the-Russian-defense-industry-issues-and-achievements/">electronics and industrial robots</a> from the West? </p>
<p>And will the impact of sanctions and casualties be sufficient to <a href="https://www.jstor.org/stable/20202971">shift public opinion</a> in a way that threatens the Kremlin? The rest of the very bleak economic warning clouds gathering over Russia will only matter to a leader who cares about the long-term impact of the war on his fellow citizens.</p><img src="https://counter.theconversation.com/content/178826/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renaud Foucart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The financial impact will be severe and long lasting.Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1784742022-03-04T22:36:17Z2022-03-04T22:36:17ZMeet Russia’s oligarchs, a group of men who won’t be toppling Putin anytime soon<figure><img src="https://images.theconversation.com/files/450095/original/file-20220304-13-294yju.jpg?ixlib=rb-1.1.0&rect=0%2C149%2C4528%2C2860&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Putin has kept most oligarchs at a distance – literally and figuratively.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/russian-president-vladimir-putin-chairs-a-meeting-of-big-news-photo/1238729232?adppopup=true">Alexey Nikolsky/Sputnik/AFP via Getty Images</a></span></figcaption></figure><p>U.S. President Joe Biden and other world leaders <a href="https://www.reuters.com/business/russia-billionaires-move-superyachts-maldives-sanctions-tighten-data-shows-2022-03-02/">are setting their sights on Russia’s oligarchs</a> as they seek new ways to <a href="https://www.economist.com/briefing/2022/03/05/western-sanctions-on-russia-are-like-none-the-world-has-seen">punish Vladimir Putin</a> – and those who have enabled him and profited from his reign – for waging war in Ukraine. </p>
<p>Biden <a href="https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/03/01/remarks-of-president-joe-biden-state-of-the-union-address-as-delivered/">singled out wealthy oligarchs</a> in his State of the Union address, promising to “seize your yachts, your luxury apartments, your private jets.” “We are coming for your ill-begotten gains,” he said. And in the U.K., two more rich Russians <a href="https://www.reuters.com/world/uk-unable-prove-case-sanctions-against-russian-oligarchs-like-abramovich-times-2022-03-03/">were added to the nine</a> other oligarchs who have been personally sanctioned over the invasion. </p>
<p>Yet <a href="http://www.doi.org/10.1257/0895330053147994">who are these oligarchs</a>, and what is their relationship with Putin? And more importantly, will eroding their wealth do anything to end the war in Ukraine?</p>
<h2>The oligarchs come to power</h2>
<p><a href="https://scholar.google.com/citations?user=8zj284UAAAAJ&hl=en&oi=ao">As a scholar</a> of emerging markets, corporate strategy and the post-Soviet political economy, I <a href="https://doi.org/10.1093/ser/mwl036">have studied</a> the <a href="https://doi.org/10.1177/0010414016688000">oligarchs in depth</a>. </p>
<p>Oligarchs, in the Russian context, are the ultrawealthy business elites with disproportionate political power. They emerged in two distinct waves. </p>
<p>The first group <a href="https://www.taylorfrancis.com/books/mono/10.4324/9780203563342/piratization-russia-marshall-goldman">emerged out of the privatization</a> of the 1990s, particularly the all-cash sales of the largest state-owned enterprises after 1995. This process was marred by significant corruption, culminating in the infamous “<a href="https://doi.org/10.2747/1060-586X.26.3.207">loans for shares</a>” scheme, which transferred stakes in 12 large natural resource companies from the government to select tycoons in exchange for loans intended to shore up the federal budget. </p>
<p>The government intentionally defaulted on its loans, allowing its creditors – the oligarchs-to-be – to auction off the stakes in giant companies such as Yukos, Lukoil and Norilsk Nickel, typically to themselves. In essence, then-President Boris Yeltsin’s administration appeared to enrich a small group of tycoons by selling off the <a href="https://www.rferl.org/a/1061761.html">most valuable parts of</a> the Soviet economy at a hefty discount.</p>
<p>After <a href="https://theworld.org/stories/2019-08-09/20-years-putin-power-timeline">Putin came to power in 2000</a>, he facilitated the second wave of oligarchs <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3003409">via state contracts</a>. Private suppliers in many sectors such as infrastructure, defense and health care would overcharge the government at prices many times the market rate, offering kickbacks to the state officials involved. Thus, Putin enriched a new legion of oligarchs who owed their enormous fortunes to him.</p>
<figure class="align-center ">
<img alt="A large yacht sits in the water at a dock" src="https://images.theconversation.com/files/450096/original/file-20220304-17-16juouf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/450096/original/file-20220304-17-16juouf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/450096/original/file-20220304-17-16juouf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/450096/original/file-20220304-17-16juouf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/450096/original/file-20220304-17-16juouf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/450096/original/file-20220304-17-16juouf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/450096/original/file-20220304-17-16juouf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">French authorities seized the yacht Amore Vero, which is linked to sanctioned Putin ally Igor Sechin, in the Mediterranean resort of La Ciotat.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/FranceRussiaUkraineWar/500946f467924be0938a948ed480ffd0/photo?Query=russia%20yacht&mediaType=photo&sortBy=creationdatetime:desc&dateRange=Anytime&totalCount=39&currentItemNo=0">AP. Photo/Bishr Eltoni</a></span>
</figcaption>
</figure>
<h2>Oligarchs lose their grip – keep their wealth</h2>
<p>In the 1990s, the oligarchs had the upper hand with the Kremlin <a href="https://demokratizatsiya.pub/archives/07-3_Graham.pdf">and could even dictate policy</a> at times. Under Yeltsin, multiple oligarchs assumed formal positions in the government, and <a href="https://www.publicaffairsbooks.com/titles/david-e-hoffman/the-oligarchs/9781610391115/">anecdotes abounded</a> describing coffers of cash being carried into the Kremlin in exchange for political favors.</p>
<p>But since the 2000s Putin <a href="https://heinonline.org/HOL/LandingPage?handle=hein.journals/fora83&div=100&id=&page=">has been calling the shots</a>. Essentially, Putin <a href="https://eprints.bbk.ac.uk/id/eprint/90/1/">proposed a deal</a>: The oligarchs would stay out of politics, and the Kremlin would stay out of their businesses and leave their often illegitimate gains alone. </p>
<p>Furthermore, popular disappointment with the privatization of the 1990s facilitated its partial <a href="https://www.rferl.org/a/1061761.html">rollback in the 2000s</a>. Putin’s Kremlin applied political pressure on oligarchs in strategic industries like media and natural resources to sell controlling stakes back to the state. Putin also passed laws that gave preferential treatment to the so-called <a href="https://www.wilsoncenter.org/publication/the-role-state-corporations-the-russian-economy">state corporations</a>. These moves secured the Kremlin’s control over the economy – and over the oligarchs.</p>
<h2>The three shades of oligarchy</h2>
<p>Today, <a href="https://direct.mit.edu/daed/article/146/2/101/27155/The-Atlas-That-has-Not-Shrugged-Why-Russia-s">three types of oligarchs</a> stand out in terms of their proximity to power. </p>
<p>First come Putin’s friends, who are personally connected to the president. Many of Putin’s close friends – particularly those from <a href="https://www.washingtonpost.com/wp-srv/inatl/longterm/russiagov/putin.htm">his St. Petersburg and KGB days</a> – <a href="https://www.theguardian.com/news/2021/oct/03/pandora-papers-reveal-hidden-wealth-vladimir-putin-inner-circle">have experienced a meteoric rise to extreme wealth</a>. A few of Putin’s closest oligarch friends from St. Petersburg are Yuri Kovalchuk, <a href="https://www.forbes.com/profile/yuri-kovalchuk/?sh=39c42ed51aae">often referred to as</a> Putin’s “personal banker”; <a href="https://www.forbes.com/profile/gennady-timchenko/?sh=4d34c4f71d68">Gennady Timchenko</a>, whose key asset is the energy trading firm Gunvor; and the brothers <a href="https://www.bbc.com/news/world-europe-55872249">Arkady and Boris Rotenberg</a>, who own assets in construction, electricity and pipelines. All of these individuals have been sanctioned.</p>
<p>The second group includes leaders of Russia’s security services, the police and the military – <a href="https://www.theguardian.com/world/2022/feb/04/putin-security-elite-siloviki-russia">known as “siloviki”</a> – who have also leveraged their networks to amass extreme personal wealth. Some of these so-called “<a href="https://doi.org/10.1016/j.orbis.2006.10.013">silovarchs</a>” are former KGB, and now FSB, intelligence officers who had eyed the Yeltsin-era oligarchs’ power and wealth jealously and obtained both under Putin. The man reputed to be the informal leader of the siloviki is <a href="https://www.ft.com/content/dc7d48f8-1c13-11e8-aaca-4574d7dabfb6">Igor Sechin</a>, chairman of oil giant Rosneft, widely seen as the second-most powerful person in Russia. </p>
<p>Finally, the largest number of Russian oligarchs are outsiders without personal connections to Putin, the military or the FSB. Indeed, some current outsiders are the 1990s-era oligarchs. While Putin selectively crushed politically inconvenient or obstreperous oligarchs after coming to power, he did not seek to systematically “<a href="https://www.washingtonpost.com/archive/politics/2002/12/14/oligarchs-power-unfettered-under-putin/424c2ba1-48e6-4a04-91d8-472922eedde4/">eliminate oligarchs as a class</a>,” as he had promised during his initial election campaign. For example, oligarchs such as Vladimir Potanin and Oleg Deripaska, who accumulated their wealth in the 1990s, regularly feature in the lists of <a href="https://www.forbes.com/sites/chasewithorn/2021/04/06/the-10-richest-russian-billionaires-2021/?sh=7e8d65006e84">richest Russians today</a>.</p>
<h2>Putin’s enablers</h2>
<p>Make no mistake: Regardless of their type, the oligarchs have helped Putin stay in power through their <a href="https://direct.mit.edu/daed/article/146/2/101/27155/The-Atlas-That-has-Not-Shrugged-Why-Russia-s">political quiescence</a> and economic <a href="https://muse.jhu.edu/article/715964">support of the Kremlin’s domestic initiatives</a>. </p>
<p>Furthermore, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3003409">my research highlights instances</a> in which oligarchs used their wealth – in terms of jobs, loans or donations – to influence politicians in other countries. For example, in 2014 the <a href="https://www.washingtonpost.com/world/national-security/a-russian-bank-gave-marine-le-pens-party-a-loan-then-weird-things-began-happening/2018/12/27/960c7906-d320-11e8-a275-81c671a50422_story.html">Russian bank FCRB lent 9.4 million euros</a> (US$10.3 million) to the populist anti-EU party of Marine Le Pen in France, creating a political debt to Russia. And in 2016, Lukoil, Russia’s second-largest oil company, <a href="https://www.nytimes.com/2016/12/30/world/europe/czech-republic-russia-milos-zeman.html">paid a $1.4 million government fine</a> for Martin Nejedly, a key adviser to the Czech president in 2016, which allowed Nejedly to keep his influential position. This helped make Czech President Milos Zema “<a href="https://www.nytimes.com/2016/12/30/world/europe/czech-republic-russia-milos-zeman.html">one of the Kremlin’s most ardent sympathizers among European leaders</a>.” </p>
<p>Some oligarchs appear to initiate such geopolitically significant transactions voluntarily to create rapport with the Kremlin. While it is difficult to establish direct causal links between what I dub the oligarchs’ “<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3003409">geopolitical volunteering</a>” and their beneficiaries’ pro-Kremlin policies, there is strong anecdotal evidence that oligarchs’ financing facilitates the <a href="https://observer.com/2018/01/how-czech-president-milos-zeman-became-vladimir-putins-man/">adoption of pro-Putin positions</a> in countries outside Russia.</p>
<p>Furthermore, my research on the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3904520">concealment of corporate political activity</a> suggests that using ostensibly nonpolitical intermediaries such as private companies is a key strategy through which organizations like the Kremlin can hide their political activity.</p>
<h2>Putin’s hostages</h2>
<p>This brings us to the most important question on many people’s minds: As the <a href="https://www.businessinsider.com/russian-billionaires-lost-more-than-80-billion-combined-wealth-2022-3">sanctions decimate oligarchs’ wealth</a>, could that prompt them to abandon Putin or change the course of the war?</p>
<p>Some oligarchs are already speaking out against the war, such as <a href="https://www.reuters.com/world/europe/russias-fridman-aven-contest-spurious-eu-sanctions-2022-03-01/">Alfa Group Chairman Mikhail Fridman</a> and <a href="https://www.wsj.com/livecoverage/russia-ukraine-latest-news-2022-03-03/card/russian-oligarch-oleg-deripaska-predicts-severe-economic-crisis-5qvUarlhqgvaBclxgq74">metals magnate Oleg Deripaska</a> – both of whom have been sanctioned by the West. Lukoil <a href="https://www.cnn.com/2022/03/04/business/lukoil-end-war/index.html">also called for the war’s end</a>. Although Lukoil is not currently under direct sanctions, oil traders are already <a href="https://www.bloomberg.com/news/articles/2022-03-04/oil-traders-shun-lukoil-s-trading-arm-litasco-on-sanctions-fear">shunning its products</a> in anticipation.</p>
<p>I believe we will see increasingly <a href="https://www.cnbc.com/2022/03/02/russias-oligarch-elite-speak-out-against-putins-invasion-of-ukraine.html">vocal opposition</a> to the war from the oligarchs. At the very least, their willingness to do the Kremlin’s dirty work by trying to influence Western politicians will likely subside significantly. </p>
<p>But there are two crucial limits to their influence and ability to affect Putin’s behavior. </p>
<p>For one thing, the oligarchs do not work well together. In Russia’s “<a href="https://www.cambridge.org/us/academic/subjects/politics-international-relations/russian-and-east-european-government-politics-and-policy/property-predation-and-protection-piranha-capitalism-russia-and-ukraine?format=PB">piranha</a> <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3003422">capitalism</a>,” these billionaires have mostly sought to outcompete their rivals for government largesse. Individual survival with a view to the Kremlin, not the defense of common interests such as sanctions’ removal, has been the oligarchs’ modus operandi. The Kremlin, for its part, has <a href="https://www.bloomberg.com/news/articles/2022-02-25/putin-huddles-with-tycoons-and-promises-banks-bulk-of-state-aid">promised state support</a> to sanctioned companies, especially in the banking sector.</p>
<p>More importantly, it is the guns, not the money, that speak loudest in <a href="https://www.economist.com/by-invitation/2022/02/19/alexander-gabuev-writes-from-moscow-on-why-vladimir-putin-and-his-entourage-want-war">the Kremlin today</a>. As long as Putin retains his control over the siloviki – the current and former military and intelligence officers close to Putin – the other oligarchs, in my view, will remain hostages to his regime. </p>
<p>The generals are more likely to sway Putin <a href="https://www.ft.com/content/5cd2c951-6b23-4e07-a72d-4731f7a71b58">than the oligarchs</a> – and an <a href="https://www.nytimes.com/2022/03/04/opinion/russia-ukraine-sanctions-economy.html">economic collapse may be even more convincing</a> still. </p>
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<p class="fine-print"><em><span>Stanislav Markus does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An expert on oligarchs explains how they came to be Russia’s richest and most powerful people and scrutinizes their relationship with Putin.Stanislav Markus, Associate Professor of International Business, University of South CarolinaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1780062022-03-01T15:49:00Z2022-03-01T15:49:00ZHow Vladimir Putin’s security obsession has eroded Russian living standards<figure><img src="https://images.theconversation.com/files/448996/original/file-20220228-25-9pjazc.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C6989%2C4244&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Demonstrators shout anti-war slogans in St. Petersburg, Russia, decrying their country's invasion of Ukraine.</span> <span class="attribution"><span class="source">(AP Photo/Dmitri Lovetsky)</span></span></figcaption></figure><iframe style="width: 100%; height: 175px; border: none; position: relative; z-index: 1;" allowtransparency="" src="https://narrations.ad-auris.com/widget/the-conversation-canada/how-vladimir-putin-s-security-obsession-has-eroded-russian-living-standards" width="100%" height="400"></iframe>
<p>Russian dramatist Anton Chekhov famously advised young playwrights that “<a href="https://www.oxfordreference.com/view/10.1093/acref/9780191843730.001.0001/q-oro-ed5-00002871">if in the first act you have hung a pistol on the wall, then in the following one it should be fired.</a>” </p>
<p>For the past 20 years, Vladimir Putin — a deeply paranoid megalomaniac who has by now completely <a href="https://apnews.com/article/russia-ukraine-vladimir-putin-europe-arrests-moscow-cf5dda5528937de907f8916820cfab75">isolated himself from his own people</a>, to say nothing of the world as a whole — has been progressively diverting Russia’s considerable wealth towards the construction of an all-encompassing security state. </p>
<p>Ever since the <a href="https://www.e-ir.info/2012/10/15/after-beslan-changes-in-russias-counterterrorism-policy/">2004 Beslan school massacre</a> that provided the initial pretext for this redirection, the Russian president has been hanging pistols on the walls to the exclusion of any other national project. The massacre was an Islamist, mainly Ingush and Chechen terrorist attack that resulted in the deaths of 333 people, 186 of them children.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/449019/original/file-20220228-15-1y02o09.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Two women weep as one holds a photo of a child." src="https://images.theconversation.com/files/449019/original/file-20220228-15-1y02o09.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/449019/original/file-20220228-15-1y02o09.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=497&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449019/original/file-20220228-15-1y02o09.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=497&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449019/original/file-20220228-15-1y02o09.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=497&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449019/original/file-20220228-15-1y02o09.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=624&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449019/original/file-20220228-15-1y02o09.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=624&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449019/original/file-20220228-15-1y02o09.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=624&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">In this 2004 photo, a relative of a 10-year-old girl who died alongside her mother in Beslan weeps as she holds the child’s portrait during her funeral.</span>
<span class="attribution"><span class="source">(AP Photo/Alexander Zemlianichenko)</span></span>
</figcaption>
</figure>
<p>This narrow channelling of the country’s resources into <a href="https://www.jstor.org/stable/20788646">security services</a> has brought about a steady decline in living standards for ordinary citizens. Most of them aren’t fortunate enough to be employed in government ministries such as <a href="http://www.country-data.com/cgi-bin/query/r-11541.html">the MVD</a> (Internal Affairs, which includes FBI-like functions), the security forces (<a href="https://www.journalofdemocracy.org/articles/reading-russia-the-siloviki-in-charge/">the infamously unaccountable <em>siloviki</em></a>, <a href="https://www.britannica.com/topic/Federal-Security-Service">including the Federal Security Service known as the FSB</a>), the military, the police or connected to oligarch-run business networks with ties to Putin. </p>
<p>An FSB agent can expect to earn the ruble equivalent of <a href="https://www.reuters.com/article/us-russia-fsb-salary-idINTRE67U2LS20100831">US$1,100 a month</a> and <a href="https://www.erieri.com/salary/job/police-officer/russian-federation">a police officer</a> about US$600-700 monthly, in addition to benefits such as housing assistance, free university education for family members and free or heavily discounted vacations. </p>
<h2>Best paid jobs out of reach for most</h2>
<p>A surgeon, meanwhile, <a href="https://therussianreader.com/2017/12/16/sixty-percent-of-russian-doctors-make-less-than-360-euros-a-month/">might make US$200-300 per month</a>
by working multiple jobs, while a teacher will have to struggle by on a measly <a href="https://www.statista.com/statistics/1130875/average-monthly-salary-of-teaching-staff/">$100 or less</a>. Salaries for office workers fall somewhere in between. <a href="https://tradingeconomics.com/russia/wages">Generally speaking, any position worth having</a> can only be obtained through nepotism, patronage networks or bribery. </p>
<p>In Russia’s <a href="https://blogs.lse.ac.uk/socialpolicy/2021/01/18/russias-sexist-list-of-banned-professions-for-women-must-end/">paternalistic society</a>, a man with the requisite skills can sometimes find employment as a <a href="https://www.rbth.com/business/330851-female-male-jobs">car mechanic or construction worker</a>. Low-paying unskilled jobs include food services, private security and retail sales. Those who own cars often work as unofficial taxi drivers. </p>
<p>Some men, unable to find employment, <a href="http://www.ijors.net/issue9_2_2020/pdf/__www.ijors.net_issue9_2_2020_article_2_marionneau.pdf">try to survive by betting</a> on sports events. Others rely on the financial support of their wives or girlfriends — if they have them — who bring in money by working in beauty salons or engaging in informal businesses such as buying and selling clothes, cosmetics or household products. </p>
<p>But without the necessary connections and a willingness to participate in corrupt, often criminal activities, it is becoming increasingly difficult if not impossible for the average Russian to lead anything resembling a normal life.</p>
<figure class="align-center ">
<img alt="A bearded man in a black hat man lies under a stained blue blanket and on top of large pipes." src="https://images.theconversation.com/files/449011/original/file-20220228-23-17dezyx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/449011/original/file-20220228-23-17dezyx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449011/original/file-20220228-23-17dezyx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449011/original/file-20220228-23-17dezyx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449011/original/file-20220228-23-17dezyx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449011/original/file-20220228-23-17dezyx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449011/original/file-20220228-23-17dezyx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">An elderly homeless man warms himself lies on the pipe of the city heating system during a frigid day in Omsk, Russia.</span>
<span class="attribution"><span class="source">(AP Photo/Evgeniy Sofiychuk)</span></span>
</figcaption>
</figure>
<h2>Cost of living</h2>
<p>The cost of living in Russia — outside of <a href="https://www.numbeo.com/cost-of-living/compare_cities.jsp?country1=Russia&city1=Moscow&country2=Russia&city2=Saint+Petersburg">Moscow and St. Petersburg</a>, world-class cities that are priced accordingly — is slightly less than in the West, but not by much. And given the much higher salaries in those aforementioned cities, the nationwide average of US$660 per month should be adjusted considerably downward for most regions.</p>
<p><a href="https://apnews.com/article/russia-ukraine-business-europe-japan-9fbeb1c66c523f4018abb8ebc6580839">As the ruble plummets</a>, the cost of living goes up but salaries do not. Pensions barely cover the cost of monthly utilities. Social assistance, including bonuses for health-care workers exhausted by the COVID-19 pandemic, <a href="https://www.bbc.com/russian/features-56199997.amp">gets diverted</a> along the way into mysterious pockets without ever reaching those in need. Health-care services are being <a href="https://www.wsws.org/en/articles/2020/10/03/ruco-o03.html">steadily reduced</a> and hospitals closed in the interest of “maximizing efficiency.”</p>
<p>Putin constantly claims to be “operating within <a href="https://direct.mit.edu/daed/article/146/2/64/27149/Putin-Style-Rule-of-Law-amp-the-Prospects-for">the framework of the law</a>,” but the legal system in Russia is manipulated for the sole purpose of supporting and protecting the powerful. </p>
<p>Russia is an advanced, <a href="https://blogs.worldbank.org/education/educated-russians-curse-returns-education-russian-federation-1990s#:%7E:text=Because%20of%20a%20strong%20literary,well%20above%20the%20OECD%20averages.">highly educated nation</a> rich in both human and <a href="https://epthinktank.eu/2015/03/16/the-russian-economy-will-russia-ever-catch-up/eprs-ida-551320-russian-natural-resources/">natural resources</a>, giving it considerable economic potential. But its leadership has chosen not to invest that wealth in the development of the country but rather in the build-up of a massive security apparatus that serves only the interests of the president and those close to him. </p>
<p>The Russian state is <a href="https://www.cam.ac.uk/kleptocracy">a kleptocracy</a> in the purest sense of the term, and for years <a href="https://www.chathamhouse.org/2021/12/uks-kleptocracy-problem">its kleptocrats</a> and the billions they’ve looted from the Russian people have been received with open arms by western countries such as <a href="https://ca.sports.yahoo.com/news/russian-oligarch-roman-abramovich-chelsea-premier-league-putin-225303541.html">the United Kingdom</a> and <a href="https://www.nbcnews.com/news/world/guess-who-came-dinner-flynn-putin-n742696">the United States</a>. </p>
<figure class="align-center ">
<img alt="A grey-haired man in a navy jacket sits in a sports stadium with his hand under his chin." src="https://images.theconversation.com/files/449014/original/file-20220228-23-18zxqc9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/449014/original/file-20220228-23-18zxqc9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=442&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449014/original/file-20220228-23-18zxqc9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=442&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449014/original/file-20220228-23-18zxqc9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=442&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449014/original/file-20220228-23-18zxqc9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=555&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449014/original/file-20220228-23-18zxqc9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=555&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449014/original/file-20220228-23-18zxqc9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=555&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Chelsea soccer club owner Roman Abramovich, a Russian oligarch, attends a soccer match in Sweden in 2021. Abramovich has a net worth estimated at more than $13 billion and used his fortune to buy the British soccer club Chelsea and homes in London and New York.</span>
<span class="attribution"><span class="source">(AP Photo/Martin Meissner)</span></span>
</figcaption>
</figure>
<h2>Ordinary Russians have no agency</h2>
<p>Ordinary Russians had no say in the decision to launch an invasion of Ukraine, which was the longstanding personal obsession of a president most Russians don’t support but aren’t free to oppose.</p>
<p>Teenage conscripts, told they were being sent to participate in “exercises,” <a href="https://www.rferl.org/a/ukraine-russia-pows-prisoners-identification-dead/31726619.html">have reportedly been shocked</a> to find themselves on the front lines of a war facing people they never considered their enemy. </p>
<figure class="align-center ">
<img alt="A woman in a blue jacket and grey pants lies on the ground crying out as police restrain her." src="https://images.theconversation.com/files/449009/original/file-20220228-3997-1gwprbd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/449009/original/file-20220228-3997-1gwprbd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/449009/original/file-20220228-3997-1gwprbd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/449009/original/file-20220228-3997-1gwprbd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/449009/original/file-20220228-3997-1gwprbd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/449009/original/file-20220228-3997-1gwprbd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/449009/original/file-20220228-3997-1gwprbd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Police officers detain a demonstrator in St. Petersburg, Russia, who was protesting against Russia’s invasion of Ukraine.</span>
<span class="attribution"><span class="source">(AP Photo/Dmitri Lovetsky)</span></span>
</figcaption>
</figure>
<p>As our leaders wring their hands and bemoan the Ukrainians’ fate, they should also take <a href="https://www.theatlantic.com/ideas/archive/2022/02/lavrov-russia-diplomacy-ukraine/622075/">a good look at their own roles</a> in enabling Putin and his circle to build up the war machine that has only too naturally unleashed itself on the nearest and most convenient victim. </p>
<p>The pistols could not hang indefinitely, and now they have been taken down and are being fired at thousands of innocent victims.</p><img src="https://counter.theconversation.com/content/178006/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Foltz does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Putin’s militarized security state has been growing since 2004 at the expense of social services and living standards for Russians.Richard Foltz, Professor of Religions and Cultures, Concordia UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1781892022-03-01T15:06:52Z2022-03-01T15:06:52ZUkraine: why the sanctions won’t topple Putin<p>Russia knows sanctions. In 2009, the death of Moscow anti-corruption lawyer <a href="https://henryjacksonsociety.org/event/sergei-magnitsky-and-the-decade-long-campaign-for-justice/">Sergei Magnitsky</a> in custody motivated Bill Browder, an entrepreneur who used to work in Russia and employ him, to lobby the US government to introduce sanctions against Russia. </p>
<hr>
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<p><em>You can listen to more articles from The Conversation, narrated by Noa, <a href="https://theconversation.com/uk/topics/audio-narrated-99682">here</a>.</em></p>
<hr>
<p>US sanctions <a href="https://www.bbc.co.uk/news/world-europe-22124145">were duly applied</a> to 18 people in 2013 who had been directly related to Magnitsky’s demise or the tax fraud investigation that led to his imprisonment. They were not allowed to hold bank accounts in the US or enter the country. <a href="https://www.themoscowtimes.com/2021/06/03/russia-to-expand-anti-magnitsky-sanctions-worldwide-keep-us-adoption-ban-a74091">In response</a>, Russia forbade foreigners from adopting Russian orphans. Later, the US sanctions were <a href="https://home.treasury.gov/news/press-releases/jy0526">expanded to</a> other individuals involved with human rights violations, while other countries <a href="https://www.theguardian.com/politics/2020/jul/06/who-was-sergei-magnitsky-and-how-did-uk-sanctions-come-about">such as the UK</a> introduced similar rules. </p>
<p>When Russian forces entered Crimea in 2014, it <a href="https://www.nato.int/docu/review/articles/2015/07/13/sanctions-after-crimea-have-they-worked/index.html">led to sanctions</a> on multiple people. These were not just aimed at individuals directly engaged in human rights violations, but also those who were organising the violations. This went as high up as oil executive <a href="https://www.atlanticcouncil.org/blogs/new-atlanticist/russia-is-out-of-control-the-dangerous-mr-sechin/">Igor Sechin</a>, a person in Vladimir Putin’s inner circle, clearly indicating who would be targeted next. </p>
<p>The sanctions also included oil and defence companies and banks, stipulating that US companies were not allowed to trade with them. Moscow again announced counter-sanctions, banning foodstuffs produced in the EU. This produced <a href="https://youtu.be/6ECA8RyMiQU">quite a few videos</a> of cheese and such being crushed by a bulldozer, but had little effect on the west. </p>
<p>When <a href="https://www.bbc.co.uk/news/world-europe-28357880">flight MH-17</a> got shot down in the Donbas region the same year, <a href="https://www.bbc.co.uk/news/uk-28415248">further sanctions</a>, spearheaded by the US, were invoked against Russian oligarchs. Most notably affected was Sberbank, one of the largest Russian banks, but also a lot of large-scale projects that depended on foreign machinery. </p>
<p>Russia responded with a law that permitted seizure of foreign assets, though I don’t think it was ever used. The nation’s <a href="https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=RU">GDP per capita</a> fell in the next two years by almost 40%, so the sanctions were significant. But Russia’s policies did not change.</p>
<p>The <a href="https://edition.cnn.com/2022/02/25/business/list-global-sanctions-russia-ukraine-war-intl-hnk/index.html">new sanctions</a> against Russia following its invasion of Ukraine are significantly harsher than what was imposed before. The central bank’s foreign assets are frozen and Russia cannot borrow from abroad. </p>
<p>Banks are prevented from using the <a href="https://theconversation.com/swift-ejecting-russia-is-largely-symbolic-heres-why-178065">Swift system</a>, making it harder for them to send money to banks abroad. Making payments is a key component in importing and exporting, and the restrictions introduce risks. When you ship things internationally, which takes weeks, you want to be sure that you will get your money back promptly. Top banks in Russia are also banned from using the US banking system. </p>
<p>Germany, initially reluctant to sanction Russia, has <a href="https://www.reuters.com/business/energy/germanys-scholz-halts-nord-stream-2-certification-2022-02-22/">indefinitely suspended</a> the new Nord Stream 2 pipeline, and promises to divest from Russian gas and oil. The EU and US are promising to find all the relatives of all the oligarchs. Switzerland is not neutral for the first time since 1815. And for the first time in history, a sitting president is the target of <a href="https://www.bbc.co.uk/news/uk-60530065">individual sanctions</a>. The intensity of international condemnation and cooperation is simply unprecedented.</p>
<h2>Will the sanctions work?</h2>
<p>The invasion of Ukraine was a shock for the market from the start. Many <a href="https://www.google.com/finance/quote/SBER:MCX?sa=X&window=5D">Russian stocks</a> have <a href="https://www.google.com/finance/quote/VTBR:MCX?window=5D">depreciated by</a> 40%-50% in roubles since Russia’s “peacekeeping operation” in Donetsk and Luhansk was announced on February 21. </p>
<p>The <a href="https://finance.yahoo.com/quote/IMOEX.ME/">Moscow stock exchange</a> is down by about 30% and has been closed for the past couple of trading days. Many people have been selling roubles to buy foreign currency, causing the exchange rate <a href="https://www.xe.com/currencycharts/?from=GBP&to=RUB&view=1W">to drop</a> by about 30%, further exacerbating the losses of foreign investors. </p>
<p>The Russian central bank has had to sell US$1 billion (£745 million) of internally held foreign reserves to prop up the exchange rate, as well as <a href="https://www.reuters.com/markets/europe/russian-central-bank-scrambles-contain-fallout-sanctions-2022-02-28/">introducing a requirement</a> for exporters to sell their foreign currency, and more than doubling <a href="https://www.reuters.com/business/finance/russia-hikes-key-rate-20-tells-companies-sell-fx-2022-02-28/">interest rates</a>. However, in the long run, Russia seems secure. </p>
<p>Russia does not need foreign borrowing: it fluctuates around <a href="https://www.statista.com/statistics/1049281/russia-external-debt-to-gdp-ratio">30% of GDP</a> compared to the <a href="https://www.ceicdata.com/en/indicator/united-states/external-debt--of-nominal-gdp">US’s 102%</a>, for example. Russia will be happy enough if capital will be hard to take out of Russia as a consequence of expulsion from Swift. <a href="https://www.ceicdata.com/en/russia/net-capital-inflowoutflow-private-sector/net-capital-inflow--outflow---private-sector-annual">Billions of dollars</a> are taken out annually, and not just by oligarchs buying yachts, but also by common people moving their savings to less risky jurisdictions. </p>
<p>The fall of the exchange rate will make Russian workers relatively poorer. A high interest rate will make it harder for them to buy property and cars. If the government does not come up with a support package, there could be unemployment, people losing their houses, and worse things like starvation. </p>
<p>But even with support, a further fall in the average Russian’s income seems likely in the long run. <a href="https://www.macrotrends.net/countries/RUS/russia/gni-per-capita">Their incomes</a> still haven’t recovered from the 2014 sanctions. And with the latest sanctions including equipment and repair parts, labour productivity is not going to get better. </p>
<p>As for the oligarchs, they will certainly get poorer, and might have to buy some new yachts to sail in Russia if they can’t access the ones in other countries. But fundamentally they’ll still be very rich and very happy. </p>
<p>Will Russia survive? Probably. A lot of people have spent a lot of time making sure that Russia can endure isolation. For instance, banks have planned ways of facilitating international transfers without using Swift. </p>
<p>Also, other agents such as China will likely buy the oil and aluminium that will not be bought by the west anymore. So while these sanctions <a href="https://www.journals.uchicago.edu/doi/full/10.1086/707398?casa_token=dMoRPO6vOC4AAAAA%3AGlDdL2pWhpu4FVa-9bi6A741740Qzj53rHwMTGhncFdc8rSp_APdXNpDw3qdyzEPetYlaj11K2Sw">will hurt</a> Russia, they will not break Russia.</p>
<p>I also doubt this will bring down Putin. His support was not so big anyway: why else would the administration indulge in <a href="https://www.bbc.co.uk/news/world-europe-58614227">massive election fraud</a>? Sanctions that make Russians poorer are therefore unlikely to motivate them to vote differently.</p>
<p>In 1992, a wide range of <a href="https://www.everycrsreport.com/files/19961216_97-20_92de1e618a5d683521ce8f1eb5d8f7cbf212d9c8.pdf">western sanctions</a> was imposed on Yugoslavia as a result of atrocities in the Balkan wars. These included a sports ban, international trade ban, naval blockades, Yugoslav airlines ban and an arms embargo. </p>
<p>Yugoslavia had to live through hyperinflation <a href="https://www.nytimes.com/1992/08/31/world/sanctions-driving-yugoslav-economy-into-deep-decline.html">as a result</a>. Yet the atrocities continued. Slobodan Milosevic was brought to The Hague. Milosevic, of course, did not have nuclear weapons.</p>
<hr>
<p><em>This piece has been corrected. The original attributed the Srebrenica massacre to Yugoslavia when it was in fact carried out by the Bosnian Serbs.</em></p><img src="https://counter.theconversation.com/content/178189/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sergey V. Popov does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The president’s regime has been planning for a trip to the international deep freeze for many years.Sergey V. Popov, Senior Lecturer in Economics, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1781262022-03-01T01:59:25Z2022-03-01T01:59:25ZOrdinary Russians are already feeling the economic pain of sanctions over Ukraine invasion<figure><img src="https://images.theconversation.com/files/449050/original/file-20220228-15-167v14t.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C7221%2C4806&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">As the ruble crumbles, are the wheels falling off the Russian economy?</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/EURussiaUkraineWarDiplomaticNewDawn/23a92e38afde40eab10646dd2d00c88d/photo?Query=russia%20line&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=now-24h&totalCount=7&currentItemNo=0">AP Photo/Pavel Golovkin</a></span></figcaption></figure><p>The daily life of ordinary Russians – not just the country’s political elite or super rich oligarchs – is already being impacted by <a href="https://theconversation.com/just-short-of-nuclear-the-latest-financial-sanctions-will-cripple-russias-economy-178000">economic measures</a> imposed by the international community in response to the invasion of Ukraine.</p>
<p>As a <a href="https://www.wesleyan.edu/academics/faculty/prutland/profile.html">scholar of Russia’s political economy</a>, I was surprised by the speed and severity of the Western economic response to the invasion of Ukraine. Whereas the sanctions that the West <a href="https://www.nato.int/docu/review/articles/2015/07/13/sanctions-after-crimea-have-they-worked/index.html">imposed after the annexation of Crimea in 2014</a> were <a href="https://jordanrussiacenter.org/news/economic-sanctions-on-russia-and-their-effects-part-i/#.Yh07O5ZOkcR">generally quite ineffective</a> – at best slowing Russian gross domestic product growth by 1% a year – this time they appear to be having an immediate impact. Just days into the conflict, we are seeing images of <a href="https://www.pbs.org/newshour/world/russians-line-up-at-banks-as-currency-plummets-in-face-of-sanctions">long lines of Russians</a> attempting to get cash out of bank ATMs.</p>
<p>In the past few days, the U.S. has frozen the assets of the Russian central bank in Western jurisdictions – an unexpected move – and excluded most Russian banks from the <a href="https://theconversation.com/us-eu-sanctions-will-pummel-the-russian-economy-two-experts-explain-why-they-are-likely-to-stick-and-sting-177896">SWIFT bank clearing system</a>, which processes trillions of dollars’ worth of transactions every day. </p>
<p>This means Russian individuals and businesses will not be able to access any foreign bank accounts that they have. The Central Bank of Russia has tried to reassure the public, <a href="https://www.cbr.ru/press/event/?id=12729">stating</a> that the national bank transfer system can handle domestic transactions and that credit cards issued by Russian affiliates of Western banks should work inside Russia.</p>
<p>But the package of sanctions is seen by economists such as <a href="https://novayagazeta.ru/articles/2022/02/28/s-golym-torsom-na-parovoz">Sergei Aleksashenko</a> and <a href="https://meduza.io/feature/2022/02/28/voyna-stoit-rossiyanam-dorogo-i-budet-stoit-esche-dorozhe">Sergei Guriev</a> as unprecedented in its scope.</p>
<h2>Prices head north as ruble heads south</h2>
<p>As news of the sanctions filtered out, Russians <a href="https://www.ft.com/content/424d8ed3-34ce-4729-8d9c-eebf0c7f5d4d">rushed to withdraw cash</a> from ATMs and to dump rubles for other currencies, fearing a further depreciation of the national currency. A classic bank run appears to be underway, with the ruble losing 29% of its value and exchange booths offering <a href="https://www.cbr.ru/press/event/?id=12729">100 rubles</a> to the dollar. Russia’s central bank is doing <a href="https://www.cbr.ru/press/event/?id=12729">everything it can</a> to shore up the value of the ruble. </p>
<p>The falling ruble pushes up the price of imports, which make up over half the consumer basket. Inflation in Russia was already a sensitive issue prior to the invasion of Ukraine, running at <a href="https://www.cbr.ru/eng/">8.7%</a>. In 2021, global food prices rose <a href="https://www.washingtonpost.com/world/2022/01/28/ukraine-grain-exports-russia-threat/">28%</a>, and Russia <a href="https://www.ft.com/content/07378501-0ab9-4eef-ad13-eb72adff1838">imposed price caps</a> and export duties on some basic food items. </p>
<p>The new sanctions will severely impact the living standard of ordinary Russians. A <a href="https://tass.com/society/1314425">survey conducted</a> in July 2021 found that around 75% of Russians spent around half their income or more on food, and that was before the recent price surge.</p>
<p>To try to protect the ruble, Russian President Vladimir Putin on Feb. 28, 2022, <a href="https://www.reuters.com/markets/europe/russian-central-bank-scrambles-contain-fallout-sanctions-2022-02-28/">ordered a ban</a> on sending cash abroad, and exporters must convert 80% of their earnings into rubles. The Central Bank of Russia also hiked its base interest rate from 9.5% to 20%. This should help stabilize the ruble but will make borrowing more expensive for businesses and thus increase the chance of a deep recession.</p>
<p>Russia’s foreign bonds are trading at 30 cents on the dollar and have been downgraded to <a href="https://www.wsj.com/livecoverage/russia-ukraine-latest-news-2022-02-26/card/russia-cut-to-junk-rating-by-s-p-ukraine-s-rating-lowered-grtPacmpCwsqrmnfKa2A">junk status</a> by Standard & Poor’s and Fitch ratings. This will make it harder for Russian businesses to raise money to invest, meaning less growth and employment in the medium to long term.</p>
<h2>Goods disappearing from shelves</h2>
<p>Russia hasn’t been completely excluded from the international financial system. The new sanctions do allow certain Russian banks that handle oil and gas exports to continue transactions in an attempt to limit the impact on European energy consumers. </p>
<p>As it is, the general uncertainty caused by the war has caused the world oil price to <a href="https://www.cnn.com/2022/02/24/energy/gas-prices-russia-ukraine/index.html">surge above $100 a barrel</a> to levels not seen since 2014, and grain prices are spiking due to the disruption of shipments from Russia and Ukraine – which together account for around <a href="https://www.nytimes.com/2022/02/24/business/ukraine-russia-wheat-prices.html">one quarter of global grain exports</a>.</p>
<p>Even before the invasion, grain prices had <a href="https://www.ft.com/content/a4439155-197b-4e63-baee-b4fa3229ac67">risen 50%</a> over the past year, leading Russia to ban fertilizer exports to help secure a good harvest this year. While Russian exporters benefit from high oil and gas prices, Russian consumers, along with consumers all around the world, will be paying more for fuel and food in future months. </p>
<p>The sanctions also bar the export of certain key technologies to Russia. Russia is <a href="https://www.kommersant.ru/doc/5230512">unable to manufacture</a> the latest generation of microchips due to a lack of manufacturing expertise. Taiwan, source of about <a href="https://www.cnbc.com/2021/03/16/2-charts-show-how-much-the-world-depends-on-taiwan-for-semiconductors.html">60% of the world’s chips</a>, has agreed to join the sanctions. That means a broad range of goods, from smartphones to automobiles, <a href="https://novayagazeta.ru/articles/2022/02/28/za-chto-budem-platit-i-stoit-li-ono-togo">could disappear</a> from Russian stores. </p>
<p>Similarly, <a href="https://www.thepharmaletter.com/article/russia-registers-steady-growth-of-drug-imports-so-far-this-year">about 66%</a> of medicines are imported, and it is not yet known if a mechanism will be created to enable Russians to pay for imports of medicines. </p>
<h2>Whom will Russians blame for economic pain?</h2>
<p>Any sanctions regime can be evaded by smuggling imports through third parties. However, the U.S. has become adept at tracking such transactions and <a href="https://meduza.io/feature/2022/02/28/voyna-stoit-rossiyanam-dorogo-i-budet-stoit-esche-dorozhe">going after sanctions breakers</a>. In any account, the risks involved push up the price considerably. </p>
<p>[<em>Over 140,000 readers rely on The Conversation’s newsletters to understand the world.</em> <a href="https://memberservices.theconversation.com/newsletters/?source=inline-140ksignup">Sign up today</a>.]</p>
<p>All in all, this amounts to a grim scenario for Russian consumers and businesses. The economy is likely to <a href="https://news.yahoo.com/russia-economy-poised-to-plunge-into-recession-warns-jp-morgan-120344770.html">plunge into recession</a>, and many Russians are already experiencing the effects of the sanctions.</p>
<p>Revenue from oil and gas exports will continue to flow, and that will provide Putin with enough funds to maintain the state’s security apparatus and put down popular unrest. However, worsening personal economic circumstances might affect how Russians view the war. In the past, Putin has tried to pass the blame for economic pain on to the West, but there is a chance that this time around, Russians might hold him to account.</p><img src="https://counter.theconversation.com/content/178126/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Rutland does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Soaring inflation and a run on the banks signal that punishing sanctions resulting from the invasion of Ukraine are already inflicting economic pain.Peter Rutland, Professor of Government, Wesleyan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1778962022-02-25T23:14:52Z2022-02-25T23:14:52ZUS-EU sanctions will pummel the Russian economy – two experts explain why they are likely to stick and sting<figure><img src="https://images.theconversation.com/files/448761/original/file-20220227-31528-beh9li.jpg?ixlib=rb-1.1.0&rect=59%2C82%2C4932%2C3241&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Russians in Moscow and elsewhere flocked to ATMs to withdraw cash, fearful that the ruble will plunge further due to Western sanctions.
</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/RussiaUkraineInvasion/d625fc280ac4404597d38773962d0a59/photo?Query=ukraine%20sanctions&mediaType=photo&sortBy=creationdatetime:desc&dateRange=Anytime&totalCount=1834&currentItemNo=0">AP Photo/Victor Berzkin</a></span></figcaption></figure><p>The Biden administration, in extraordinary and rapid cooperation with allies over a period of three days, has doubled down on its vow to impose “<a href="https://www.reuters.com/world/biden-says-us-allies-will-respond-unjustified-attack-by-russia-ukraine-2022-02-24/">severe sanctions</a>” against Russia for its military aggression against Ukraine.</p>
<p>On Feb. 26, 2022, the U.S. and Europe agreed to cut off some Russian banks from the SWIFT messaging system, which is used to make trillions of dollars’ worth of transactions every day, an option so devastating it has been called “<a href="https://www.rferl.org/a/russia-swift-nuclear-option/31601868.html">the nuclear option</a>” of sanctioning. They also <a href="https://www.washingtonpost.com/business/2022/02/26/russia-central-bank-white-house/">vowed to prevent Russia</a> from accessing some of its foreign reserves, making it harder to offset the effects of the sanctions.</p>
<p>Two days earlier, the White House announced a <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/24/fact-sheet-joined-by-allies-and-partners-the-united-states-imposes-devastating-costs-on-russia/">multifaceted sanctions package</a> that cuts off Russia’s major banks and companies from Western financing and imposed direct financial costs on many of Russian President Vladimir Putin’s top allies. It <a href="https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/2914-2022-02-24-bis-russia-rule-press-release-and-tweets-final/file">also restricted</a> Russia’s access to semiconductor products and the technologies it needs to sustain its industrial sector and military capabilities. Western governments also sought to punish Putin personally in <a href="https://www.bloomberg.com/news/articles/2022-02-25/u-s-to-sanction-putin-joins-u-k-and-eu-to-target-president">separate sanctions targeting his personal assets</a> held abroad. </p>
<p>As <a href="https://keough.nd.edu/profile/david-cortright/">experts on</a> the <a href="https://kroc.nd.edu/faculty-and-staff/george-a-lopez/">effectiveness of sanctions</a>, we believe the combination of these measures comprise an unprecedented global attack on a national economy – in this case, Russia’s – the negative impact of which will increase by the hour.</p>
<h2>Powerful new sanctions</h2>
<p>In their Feb. 24 sanctions package, the U.S., its European allies and other supportive countries <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/24/fact-sheet-joined-by-allies-and-partners-the-united-states-imposes-devastating-costs-on-russia/">froze the assets</a> of Russia’s largest banks and several of the <a href="https://fortune.com/2022/02/23/meet-the-russian-billionaires-elites-sanctions/">country’s richest and most powerful oligarchs</a> and imposed other financial sanctions on them. </p>
<p>These measures cover nearly 80% of all Russian financial assets, which the <a href="https://home.treasury.gov/news/press-releases/jy0608">U.S. Treasury Department called</a> the “core infrastructure of the Russian financial system,” blocking <a href="https://home.treasury.gov/news/press-releases/jy0608">Sberbank, VTB Bank and other Russian banks</a> from accessing credit and currency markets and impeding the ability of state-owned and private entities to raise capital.</p>
<p>By imposing steep costs on these financial firms as well as on <a href="https://home.treasury.gov/news/press-releases/jy0602">Putin’s main allies</a>, such as Aleksandr Bortnikov, head of Russia’s Federal Security Service, and his son, Denis Bortnikov, who chairs VTB’s board, the sanctions should undermine the <a href="https://www.csis.org/programs/russia-and-eurasia-program/archives/economic-change-russia">investment and development that drives the Russian economy</a>.</p>
<p>The sanctions also include export controls that prohibit companies and countries from exporting technological equipment to Russia with components that use U.S.-built or U.S.-designed microchips.</p>
<p>Since the U.S. <a href="https://www.forbes.com/sites/georgecalhoun/2021/10/11/the-us-still-dominates-in-semiconductors-china-is-vulnerable-pt-2/?sh=6a5a4ba270f7">continues to dominate in making</a> the kinds of high-end semiconductors necessary for advanced technologies, this provides important leverage. The <a href="https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/2914-2022-02-24-bis-russia-rule-press-release-and-tweets-final/file">export controls target</a> Russia’s defense, aerospace and maritime sectors and will cut off Russia’s access to vital technology, which will likely lead to the atrophy of key sectors of its industrial base.</p>
<p>While Russia imports most of its semiconductors from China, <a href="https://fortune.com/2022/02/25/biden-ban-chip-semiconductors-exports-russia-ukraine/">these are the type of low-end chips</a> used to run washing machines, for example – not to operate a guided missile. Russia relies on <a href="https://www.wired.com/story/us-sanctions-crimp-russia-tech">U.S. semiconductor components</a> for many of its most important technological applications.</p>
<p>Similar export controls on semiconductor products <a href="https://asia.nikkei.com/Politics/Ukraine-conflict/Japan-to-impose-sanctions-on-Russia-and-restrict-chip-exports">are being imposed</a> by many others, including Europe, Japan and <a href="https://www.usnews.com/news/world/articles/2022-02-24/taiwan-to-join-democratic-countries-in-sanctions-on-russia">Taiwan</a>.</p>
<h2>‘Massive bank runs’</h2>
<p>And after intense pressure from <a href="https://www.bbc.com/news/world-europe-60527346">Ukrainian President Volodymyr Zelenskyy</a> and others, the <a href="https://www.bloomberg.com/news/articles/2022-02-26/u-s-weighs-sanctions-on-russia-s-central-bank-over-ukraine?srnd=premium&sref=Hjm5biAW">U.S. and European Union agreed</a> on Feb. 26 to cut off some Russian banks from SWIFT, which stands for the Society for Worldwide Interbank Financial Telecommunication and connects thousands of financial institutions around the world. This is especially notable because some countries, in particular Germany and Italy, <a href="https://www.politico.eu/article/pressure-on-germany-to-drop-opposition-to-russia-swift-ban-ukraine-war/">had previously been opposed</a> to this step.</p>
<p>When Iran was first cut off from SWIFT in 2012, <a href="https://carnegiemoscow.org/commentary/84634">it lost half</a> of its oil export revenues and 30% of its foreign trade. </p>
<p>The U.S. and allies also announced on Feb. 26 that they <a href="https://www.washingtonpost.com/business/2022/02/26/russia-central-bank-white-house/">would block the Russian central bank’s access</a> to some of its over US$600 billion in foreign currency reserves. Elina Ribakova, deputy chief economist for the Institute of International Finance, said this measure <a href="https://www.bloomberg.com/news/articles/2022-02-26/u-s-weighs-sanctions-on-russia-s-central-bank-over-ukraine?sref=Hjm5biAW">would have a dramatic effect</a> on Russia’s economy and banking system and lead to “massive bank runs,” a selloff of rubles and “possibly a full-on collapse of Russia’s financial system.”</p>
<p>Altogether, these sanctions – if sustained – should have a devastating effect on Russia’s economy, as well as curtail its strategic capabilities by hurting the powerful energy sector and military industrial companies, which are bulwarks of Putin’s regime.</p>
<figure class="align-center ">
<img alt="Two white men in dark suits face each other over a formal wooden desk." src="https://images.theconversation.com/files/448643/original/file-20220225-32670-4elyu9.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/448643/original/file-20220225-32670-4elyu9.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/448643/original/file-20220225-32670-4elyu9.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/448643/original/file-20220225-32670-4elyu9.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/448643/original/file-20220225-32670-4elyu9.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/448643/original/file-20220225-32670-4elyu9.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/448643/original/file-20220225-32670-4elyu9.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Both Russian President Vladimir Putin, left, and Federal Security Service director Alexander Bortnikov are now under financial sanction by the U.S. and Europe.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/VirusOutbreakRussiaPutin/49447c3a71ad436ba5f3edcd76d06388/photo?Query=Bortnikov&mediaType=photo&sortBy=creationdatetime:desc&dateRange=Anytime&totalCount=83&currentItemNo=5">Alexei Nikolsky, Sputnik, Kremlin Pool Photo via AP</a></span>
</figcaption>
</figure>
<h2>What makes sanctions stick and sting</h2>
<p><a href="https://sanctionsandsecurity.nd.edu/news/the-sanctions-decade-assessing-un-strategies-in-the-1990s">We’ve studied the effectiveness</a> of past sanctions both in terms of their economic impact and whether they attain their political objectives.</p>
<p>We’ve found two conditions are necessary for sanctions to be effective, at least when it comes to their economic impact: They must be multilateral, meaning they involve a broad coalition of governments, and they must be implemented by countries that have extensive commercial relations with the targeted regime.</p>
<p>Furthermore, the countries with deep ties to the target must accept the risks and costs that result from their actions.</p>
<p>That’s why the participation of a growing number of like-minded nations – including the U.K., Germany, France and other European states that <a href="https://ec.europa.eu/trade/policy/countries-and-regions/countries/russia/">have a much higher volume of trade</a> with Russia than does the United States – is so crucial in making these sanctions succeed.</p>
<p>This unity and collective economic clout explain why the <a href="https://www.cnn.com/2022/02/24/investing/ruble-russian-stocks-crash/index.html">Russian stock market went into a nose dive</a> and the ruble fell to a <a href="https://www.nytimes.com/2022/02/24/world/russia-ukraine-invasion-putin-biden.html">record low against the dollar</a> after Russia launched its invasion and the new sanctions emerged. As a result, Russia’s billionaires <a href="https://www.forbes.com/sites/iainmartin/2022/02/24/russian-billionaires-have-lost-nearly-90-billion-in-wealth-amid-ukraine-invasion/?sh=14c97eda3a60">lost an estimated $71 billion</a> on Feb. 24, and Standard & Poor’s and Fitch Ratings slashed the <a href="https://www.bloomberg.com/news/articles/2022-02-25/moody-s-puts-russia-and-ukraine-ratings-on-review-for-downgrade">country’s credit rating to “junk” status</a>.</p>
<p>Because the sanctions are multilateral in design and being implemented in close coordination with allies in Europe, Japan, Australia and other countries around the world, <a href="https://sanctionsandsecurity.nd.edu/news/the-sanctions-decade-assessing-un-strategies-in-the-1990s">our research suggests</a> they will have a significant impact on Russia. <a href="https://www.cnn.com/2022/02/22/business/sanctions-russia-ukraine/index.html">Previous estimates have suggested</a> aggressive sanctions like the ones being unleashed now could shrink Russia’s annual gross domestic product by 3% to 5% or more.</p>
<figure class="align-center ">
<img alt="A woman carrying a yellow bag hold her phone as she walks on the street past a sign showing how many rubles equals a dollar" src="https://images.theconversation.com/files/448641/original/file-20220225-32293-awe05n.jpeg?ixlib=rb-1.1.0&rect=0%2C109%2C3975%2C2605&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/448641/original/file-20220225-32293-awe05n.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=433&fit=crop&dpr=1 600w, https://images.theconversation.com/files/448641/original/file-20220225-32293-awe05n.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=433&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/448641/original/file-20220225-32293-awe05n.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=433&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/448641/original/file-20220225-32293-awe05n.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=544&fit=crop&dpr=1 754w, https://images.theconversation.com/files/448641/original/file-20220225-32293-awe05n.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=544&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/448641/original/file-20220225-32293-awe05n.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=544&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The ruble crashed to a record low after Russia invaded Ukraine and the West announced new sanctions.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/woman-walks-past-a-currency-exchange-office-in-central-news-photo/1238722510?adppopup=true">Alexander Nemenov/AFP via Getty Images)</a></span>
</figcaption>
</figure>
<h2>Bearing the costs of imposing sanctions</h2>
<p>Discussions are continuing and pressure may build to take other, more severe measures in response to the Russian assault, especially if its military is deemed to be guilty of <a href="https://www.axios.com/zelensky-international-court-russia-5accf664-3c56-45d2-9d8f-f854e4ecf0c3.html">committing war crimes</a>.</p>
<p>Other measures on the table include more direct product-based sanctions of oil, natural gas and aluminum. But they also <a href="https://www.nytimes.com/2022/02/25/briefing/russia-war-kyiv-ukraine-attack.html">would have more immediate negative consequences</a> for Europe, another test of endurance for the economic battle with Russia. </p>
<p>In this case, the impact of the very strong sanctions levied <a href="https://www.reuters.com/markets/europe/swift-block-deals-crippling-blow-russia-leaves-room-tighten-2022-02-27/">is hurting Russia now</a> and will increase substantially in the coming months. As long as the countries imposing the sanctions, as well as the companies and citizens who will also bear some of the costs, are willing to accept them, they will likely succeed in punishing Putin for his aggression against Ukraine. </p>
<p><em>This article has been updated to include new SWIFT and central bank sanctions.</em></p><img src="https://counter.theconversation.com/content/177896/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Cortright is affiliated with Win Without War. </span></em></p><p class="fine-print"><em><span>George A. Lopez is a Non-Resident Fellow with the Quincy Institute, Washington, D.C., and a U.S. Fulbright Senior Specialist in Conflict Resolution and Peace Studies, 2018-2023.</span></em></p>By working with allies, the Biden administration has been able to place severe sanctions on Russia – including targeting Putin’s inner circle and banning banks from SWIFT.David Cortright, Professor Emeritus, Kroc Institute for International Peace Studies, University of Notre DameGeorge A. Lopez, Hesburgh Professor of Peace Studies, Emeritus, University of Notre DameLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1591942021-06-09T12:39:49Z2021-06-09T12:39:49ZHow Joe Biden could increase pressure on Vladimir Putin if their June 16 meeting fails to deter Russia’s ‘harmful’ behavior<figure><img src="https://images.theconversation.com/files/405196/original/file-20210608-135197-1xrw33t.jpg?ixlib=rb-1.1.0&rect=0%2C37%2C3403%2C2118&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Your move, Mr. President. </span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/RussiaUSBiden/edd7d9c54b1f4ba59e8d04f22e471871/photo?Query=Putin%20AND%20biden&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=121&currentItemNo=113">AP Photo/RIA Novosti, Alexei Druzhinin</a></span></figcaption></figure><p>When U.S. President Joe Biden <a href="https://www.cnn.com/2021/06/07/politics/white-house-defends-putin-summit/index.html">meets with his Russian counterpart</a> Vladimir Putin on June 16, 2021, <a href="https://www.wral.com/biden-to-meet-with-putin-over-cybersecurity-concerns/19715138/">cybersecurity is certain</a> to be a key topic of discussion. </p>
<p>The U.S. accuses Russia of meddling in American elections and launching repeated cyberattacks, which, among what it called <a href="https://www.nytimes.com/2020/07/03/world/europe/russia-bounties-putin-afghanistan.html">other “harmful” transgressions</a>, <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2021/04/15/fact-sheet-imposing-costs-for-harmful-foreign-activities-by-the-russian-government/">prompted Biden to unveil</a> financial sanctions in April. This added to <a href="https://fas.org/sgp/crs/row/IF10779.pdf">existing sanctions targeting Russia’s oil sector</a>. </p>
<p>While the White House <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2021/05/25/statement-by-white-house-press-secretary-jen-psaki-on-the-meeting-between-president-joe-biden-and-president-vladimir-putin-of-russia/">says it has low expectations</a> for the meeting, hoping only to “restore predictability and stability to the U.S.-Russia relationship,” Biden’s <a href="https://abcnews.go.com/Politics/us-announces-sweeping-sanctions-russia-cyber-hack-election/story?id=77089976">threat to up the pressure on Putin</a> if Russia fails to change its behavior will likely loom over their upcoming chat in Geneva. He says he told Putin in a phone call “we could have gone further” with the sanctions, “but I chose not to do so.”</p>
<p>This leaves open the question of what “further” might mean – and could it be any more effective than past sanctions at changing Putin’s behavior?</p>
<h2>Russia’s strength – and weakness</h2>
<p>Experts who research global energy, <a href="https://scholar.google.com/citations?user=dCRySjIAAAAJ&hl=en&oi=ao">as I do</a>, highlight oil and natural gas as both Russia’s strength and its Achilles’ heel. </p>
<p>Russia is richly endowed with these resources and, since the early 2000s, it has been a <a href="https://www.eia.gov/international/analysis/country/RUS">top global producer and exporter</a>. Oil and gas make up <a href="https://warsawinstitute.org/russias-economy-becoming-heavily-dependent-hydrocarbons/">more than one-third</a> of Russia’s gross domestic product, and energy exports account for about <a href="https://tradingeconomics.com/russia/exports">half of government revenue</a>.</p>
<p>At the same time, the nation’s heavy reliance on oil and gas exports has made its economy highly vulnerable to fluctuations in global energy prices and to policy decisions that might reduce reliance of imports on Russian oil or gas – a dependence <a href="https://www.eia.gov/international/analysis/country/RUS">frequently noted</a> by <a href="https://www.e-ir.info/2020/02/24/the-energy-relationship-between-russia-and-the-european-union/">analyses</a> of its <a href="https://www.jstor.org/stable/24384335">energy sector</a>. For example, <a href="https://www.eia.gov/todayinenergy/detail.php?id=33732">70% of Russia’s crude oil exports</a> and more than <a href="http://www.gazpromexport.ru/en/statistics/">75% of its gas exports</a> <a href="https://www.e-ir.info/2020/02/24/the-energy-relationship-between-russia-and-the-european-union/">go to Europe</a>. </p>
<h2>Are current sanctions too weak?</h2>
<p>The U.S. and European Union imposed many of the <a href="https://www.econstor.eu/bitstream/10419/216248/1/CESifo-Forum-2019-04-p19-22.pdf">current sanctions</a> against Russia after it invaded Ukraine in 2014. The sanctions have primarily targeted the ability of non-Russian companies and government agencies to provide financing, goods, services and technology that help Russia explore and develop new oil reserves. The gas sector was <a href="https://www.atlanticcouncil.org/wp-content/uploads/2018/03/Impact_of_Sanctions_on_Russia_s_Energy_Sector_web.pdf">left out</a> by request of the EU. </p>
<p>A <a href="https://www.atlanticcouncil.org/in-depth-research-reports/report/the-impact-of-western-sanctions-on-russia/">key focus</a> was to prevent Western international oil businesses, which possess the world’s most advanced expertise and technological skills, from partnering with state-owned Russian companies in the Arctic, offshore in deep waters and shale fields. These are the areas with the greatest potential to expand Russia’s oil discovery and production going forward. </p>
<p>Analysts have been divided in evaluating the impacts of these sanctions. Some have described their effects as weak, pointing to continued increases in oil output that suggest Russian companies <a href="https://energy.skolkovo.ru/downloads/documents/SEneC/research04-en.pdf">have adapted to the imposed restrictions</a>. Other observers, however, <a href="https://www.atlanticcouncil.org/in-depth-research-reports/report/the-impact-of-western-sanctions-on-russia/">point to the Russian economy</a> as evidence they’re working. Russian GDP fell over a third from US$2.3 trillion to $1.5 trillion in 2020, which analysts attributed to factors including a drop in oil prices and the withdrawal of international financing. </p>
<p>I would also emphasize the negative impacts of the sanctions on the oil sector itself, which is largely related to Russian oil companies’ need for foreign expertise and technology.</p>
<p>Sanctions have made it harder and costlier to maintain and increase production levels. Recent data shows that <a href="https://www2.deloitte.com/ru/en/pages/energy-and-resources/articles/2019/oil-gas-survey-russia-2019.html">oil production costs have been increasing</a>, while many of Russia’s existing oil fields are producing less than they used to. </p>
<p>While <a href="https://www.eia.gov/analysis/studies/worldshalegas/">estimates suggest</a> Russia has the world’s second-largest shale oil reserves, developing these at a significant level requires Western expertise. If sanctions remain in place, some analysts project that Russian oil output <a href="https://rogtecmagazine.com/rpi-taymyr-will-support-the-drillers">will reach a peak and begin to decline by the middle of this decade</a>. </p>
<p>In other words, the Kremlin’s aggression in Ukraine and Putin’s use of cyberattacks is putting the future of Russia’s oil sector – and thus its economy – at risk. </p>
<h2>Ways to step up the pressure</h2>
<p>But so far, this hasn’t deterred Putin, as evidenced by <a href="https://www.reuters.com/article/usa-election-cyber-int/putin-likely-directed-2020-u-s-election-meddling-u-s-intelligence-finds-idUSKBN2B82PF">Russia’s meddling in the 2020 elections</a>, the large-scale <a href="https://www.npr.org/2021/04/16/985439655/a-worst-nightmare-cyberattack-the-untold-story-of-the-solarwinds-hack">SolarWinds cyberattack</a> and <a href="https://www.csis.org/analysis/unpacking-russian-troop-buildup-along-ukraines-border">Russian troops massing on Ukraine’s border</a> in March. </p>
<p>In April, <a href="https://abcnews.go.com/Politics/us-announces-sweeping-sanctions-russia-cyber-hack-election/story?id=77089976">when Biden announced the latest sanctions he said</a>, “If Russia continues to interfere with our democracy, I’m prepared to take further actions.”</p>
<p>So what else could Biden do to deter Putin if he keeps this up?</p>
<p>One approach would be to target specific projects that contribute significantly to current or future exports of oil and gas. </p>
<p>For example, sanctions could be imposed on any non-Russian companies helping to develop new oil or gas reserves in the East Siberian region. These projects – such as the <a href="https://warsawinstitute.org/vostok-oil-rosneft-starts-works-vankor-field/">Vostok Oil project</a> – have been <a href="https://www.statista.com/statistics/305356/oil-production-in-russia-by-region/">essential to Russia’s overall increase in production</a> since 2014. Sanctioning foreign investments in such Putin-backed projects would be a significant blow to Russia’s efforts to counteract production declines in older fields. </p>
<p>Another objective for increased sanctions might be the huge oil and gas project near <a href="https://www.shell.com/about-us/major-projects/sakhalin/sakhalin-one-of-the-worlds-largest-integrated-oil-and-gas-pro.html">Sakhalin Island</a>, in Russia’s Far East. Also an important source of growing oil production, Sakhalin depends to a considerable degree on Western and Japanese investment and expertise. It is a core part of Russia’s plan to <a href="https://www.reuters.com/article/us-russia-oil-exports/as-russia-expands-pacific-pipeline-a-third-of-oil-exports-go-east-idUSKBN1XV1LB">expand oil exports to China, Japan, Korea and Taiwan</a>. </p>
<p>Regarding major natural gas projects, Biden could try to limit foreign participation in the Arctic Yamal-Gydan liquefied natural gas facility. This giant project, <a href="https://www.maritime-executive.com/article/putin-inaugurates-yamal-lngs-operations/">another of Putin’s favorites</a>, uses the Arctic Route to ship gas to China and is also part of Russia’s plan to shift hydrocarbon exports to Asia. </p>
<p>In addition, the Biden administration could expand sanctions to include any export of U.S. technology, including separate components and replacement parts, for use by a Russian oil and gas company. This would make it a lot harder for Russia to develop its shale oil and gas fields, among Russia’s largest sources for future production growth.</p>
<p>Moscow also has <a href="https://www.hydrocarbonprocessing.com/magazine/2019/march-2019/columns/europe-russian-petrochemicals-industry-on-the-verge-of-large-scale-growth">big plans to upgrade and expand</a> its petrochemical sector, <a href="https://hsfnotes.com/energy/2020/12/29/russian-petrochemical-industry-gets-the-roadmap-and-achieves-its-first-milestone/#:%7E:text=In%202019%2C%20roughly%20only%2011,a%20lot%20of%20growth%20potential.&text=The%20Russian%20petrochemicals%20industry%20is,%2C%20Rosneft%2C%20LUKOIL%20and%20Gazprom">with more than $50 billion</a> in investment necessary. Limiting or prohibiting non-Russian companies and investors from helping out would make it harder for some of these projects to get funded.</p>
<p>[<em>The Conversation’s science, health and technology editors pick their favorite stories.</em> <a href="https://theconversation.com/us/newsletters/science-editors-picks-71/?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=science-favorite">Weekly on Wednesdays</a>.]</p>
<h2>A meeting of minds?</h2>
<p>Even though existing sanctions have brought less change to Russia’s anti-Western conduct than hoped for, their impact has deeply constrained the country’s ability to grow. </p>
<p>But continued cyberattacks aimed at the U.S. – including <a href="https://www.bbc.com/news/world-us-canada-57280510">those perpetrated by independent groups</a> operating within Russia’s borders – may convince Biden that more serious sanctions are needed. </p>
<p>It’s likely that this possibility will be on both men’s minds as Biden meets Putin for the first time as president.</p><img src="https://counter.theconversation.com/content/159194/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Scott L. Montgomery does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>When announcing financial penalties on Russia earlier this year, Biden hinted at the prospect of ‘further’ sanctions. An energy scholar explains what Biden may have meant.Scott L. Montgomery, Lecturer, Jackson School of International Studies, University of WashingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1418702020-07-08T16:16:16Z2020-07-08T16:16:16ZPutin’s contentious victory could mean dark days ahead for Russia<figure><img src="https://images.theconversation.com/files/346164/original/file-20200707-26-gsh8tg.jpg?ixlib=rb-1.1.0&rect=0%2C31%2C5184%2C3414&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A young man wearing a face mask reading "Against" in Pushkin Square in Moscow to protest the constitutional amendments that extended Russian President Vladimir Putin's tenure to 2036.</span> <span class="attribution"><span class="source">(AP Photo/Alexander Zemlianichenko)</span></span></figcaption></figure><p>The final plebiscite results on a huge package of Russian constitutional amendments that <a href="https://www.rferl.org/a/russian-constitutional-vote-putin/30699853.html">resulted in a 78 per cent “Yes” vote</a> must have seemed like “mission accomplished” to President Vladimir Putin.</p>
<p>Yet celebrations and <a href="https://www.themoscowtimes.com/2020/07/03/it-wasnt-about-putin-until-it-was-a70770">triumphant statements by the Kremlin</a> that “a plebiscite on trust in Putin ended with victory for the head of state” are likely much too premature. In fact, this victory may prove to be Pyrrhic — in other words, a win that takes such a devastating toll on the victor that it amounts to a defeat — and a turning point in Putin’s rule.</p>
<p>Certainly, <a href="https://www.nytimes.com/2020/07/01/world/europe/putin-referendum-vote-russia.html">outrage from opposition politicians like Aleksei Navalny</a> was to be expected. What’s more surprising is that so many others raised doubts about the results. Both internally and externally, there are disturbing signs of trouble to come.</p>
<p>On June 30, in an urgent national address, <a href="https://www.bbc.com/news/world-europe-53233386">Putin characterized the vote</a> on more than 200 amendments as utterly transformative and said it was about “the country in which we want to live … and want to pass on to our children.” The plebiscite was about saving Russia and securing the country’s future, he said.</p>
<h2>President for life</h2>
<p>What the Yes or No binary choice sought to camouflage, though, was the plebiscite’s central purpose: keeping Putin in power in perpetuity (or at least until 2036, when he would be age 84) by resetting the clock on his presidency. </p>
<p>Cynics about Russia may dismiss the criticism, contending that the Russian electorate may be sullen but that ultimately it’s supine. Certainly, there were outcries and even mass demonstrations following highly suspect elections in 2011, 2012 and 2018, but these were all brutally suppressed and <a href="https://www.npr.org/sections/thetwo-way/2017/12/25/573394432/russian-opposition-leader-barred-from-running-against-putin-in-2018">the opposition was contained</a>.</p>
<p>Yet 2020 is significantly different. The energy-dependent Russian economy is in dire straits, both because of COVID-19 and the dramatic fall in energy prices.</p>
<p>Not surprisingly, the tacit social contract that Putin seemed to have worked out with the population — namely that they would continue to benefit from an improvement in their standard of living in exchange for political acquiescence — has dissipated.</p>
<h2>Popularity has dropped</h2>
<p>The economy has tanked. Putin largely withdrew to his own lavish safe space as COVID-19 infected wide swaths of the country. Correspondingly, his popularity, <a href="https://www.themoscowtimes.com/2020/05/06/putins-approval-rating-drops-to-historic-low-poll-a70199">according to the independent Lavada Center</a>, declined dramatically to a new low of 59 per cent in the weeks before the vote. In this context, Putin’s personal appeal to the electorate conveyed more a sense of desperation than of confidence.</p>
<p>The fact that the government had to sweeten the non-divisible amendments package by introducing indexed pensions into the constitution, as well as <a href="https://www.dw.com/en/moscow-sets-up-gift-certificate-raffle-to-entice-referendum-voters/a-53780004">offering lottery prizes for voting</a>, all point to a significantly less assured Kremlin.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/346185/original/file-20200707-194405-l29po3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/346185/original/file-20200707-194405-l29po3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/346185/original/file-20200707-194405-l29po3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/346185/original/file-20200707-194405-l29po3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/346185/original/file-20200707-194405-l29po3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/346185/original/file-20200707-194405-l29po3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/346185/original/file-20200707-194405-l29po3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A protester holds a poster reads: ‘Putin forever?’ while standing in Pushkin Square in Moscow on the day of the vote of Russia’s constitutional amendments.</span>
<span class="attribution"><span class="source">(AP Photo/Pavel Golovkin)</span></span>
</figcaption>
</figure>
<p>What may also prove most damaging to the Kremlin over the long term are careful, measured assessments that are beginning to percolate throughout Russia. These include the analysis by Sergei Shpilkin, a distinguished electoral researcher who performed a very sophisticated data analysis from Russia’s Central Election Commission figures. He concluded the level of fraud in the plebiscite was “unprecedented,”<a href="https://www.newsweek.com/ballot-fraud-gave-russias-putin-22-million-extra-votes-says-expert-1515314"> with 22.4 million falsified ballots</a>. Without those votes, the turnout would have been only 43 per cent — a damming comment on the plebiscite’s legitimacy.</p>
<h2>Exit polling showed different results</h2>
<p>Furthermore, <a href="https://www.rferl.org/a/inside-the-nyet-campaign-russia-s-divided-opposition-and-the-doomed-battle-to-scupper-putin-s-vote/30701128.html">the anti-amendment “Nyet” campaign</a> credibly claimed that their exit polling showed that in Moscow and St. Petersburg, 55 per cent and 63 per cent respectively had voted No in the plebiscite. Because these are the centres of power in Russia, so many anti-government votes would be profoundly influential in terms of shaping current and future attitudes about Putin.</p>
<p>Externally, Putin also has problems. The day after the results of the plebiscite were announced, the European Union called on Russia to probe <a href="https://www.france24.com/en/20200702-eu-calls-on-russia-to-probe-irregularities-reported-in-vote-granting-putin-right-to-rule-until-2036">reports of massive irregularities</a>, including voter coercion, double voting and police violence.</p>
<p>The amendments also create an additional problem that is both external and internal.</p>
<p>The plebiscite constitutionally enshrined the principle that Russian territory cannot be “expropriated.” That makes it impossible for the current or future Russian governments to vacate the illegal annexation of Crimea.</p>
<p>If Putin‘s goal was also to enhance his legitimacy in the eyes of world leaders, this will create a momentous impediment to any future negotiation because no Western country has recognized the Russian annexation of Crimea. </p>
<p>What the Kremlin portrayed as an enormous victory that saved Russian culture and the country’s future may turn out to have dire unintended consequences. It should not be surprising then that Putin’s much manipulated “victory” could turn into ashes.</p><img src="https://counter.theconversation.com/content/141870/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Aurel Braun does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A plebiscite to amend the Russian constitution was a way for Vladimir Putin to extend his presidency to 2036. But many questions about the vote could mean trouble for the Russian leader.Aurel Braun, Professor, International Relations and Political Science, University of TorontoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/945952018-05-03T10:03:12Z2018-05-03T10:03:12ZRussia: how Western condemnation lets Putin off the hook<p>As Russians settle in for another six years under Vladimir Putin, they are waiting to find out how willing their government is to tackle the country’s pressing economic problems. This is hugely important for Russia, but also for the world. If the Russian economy improved, the Kremlin would be able to build its legitimacy on something other than nationalistic posturing and belligerent foreign policy, turning it away from what looks like a dangerous collision course with the West. </p>
<p>So far, the Putin government doesn’t seem keen to take the risk of announcing a bold economic programme. But in purely political terms, perhaps it doesn’t have to. The opprobrium and sanction of Western rivals provides ample material with which Putin can prop up his legitimacy.</p>
<p>The poisoning of <a href="https://theconversation.com/uk/topics/skripal-attack-51185">Sergei and Yulia Skripal</a> provided the UK with a badly needed <a href="https://theconversation.com/russian-spy-attack-offers-a-glimpse-of-britains-future-place-in-the-world-93605">diplomatic triumph</a> as it confidently declared that Russian government involvement was highly likely. And soon, the European Council, other European leaders and US President Donald Trump all lined up behind Britain’s diagnosis. Then came the latest <a href="https://theconversation.com/syrias-latest-chemical-massacre-demands-a-global-response-94668">chemical massacre in Syria</a>, which immediately drew international condemnation of the Assad regime, and by the same token of Russia, its foremost backer. A Russian veto once again <a href="https://www.theguardian.com/world/2018/apr/10/russia-hits-back-over-syria-chemical-attack-with-call-for-un-inquiry">blocked the UN Security Council</a> from censuring Assad, but drew the ire of other permanent members, especially the US.</p>
<p>Now, much of the flack Russia takes for its foreign policy and its alliances with governments like Assad’s may or may not be justified. But the West completely misses the effect it has on the dynamics of Russian domestic politics – and how international criticism is shaping the strategic direction of Putin’s fourth term.</p>
<p>Western observers often think of Russia as a one-party state headed by an <a href="https://www.nytimes.com/2018/04/02/opinion/vladimir-putin-most-influential.html">undisputed and all-powerful dictator</a>. But in reality, it’s something very different. Despite limited democratic competition and electoral choice, Putin still depends on some form of legitimacy and popular support. And given that Russia is a relationship-based society through and through, even he depends on a network of formal relationships that impose certain informal rules – the so-called <a href="https://www.rferl.org/a/interview-russia-alena-ledeneva-sistema/24944910.html">Sistema</a>. The direction of policies is determined not by who’s in government, but by whichever informal group close to the Kremlin can get Putin’s ear. </p>
<p>This “invisible” political competition is what the West overlooks. And it’s particularly relevant when it comes to the economy. After years of economic stagnation and <a href="https://theconversation.com/forget-putins-global-posturing-russias-biggest-challenges-for-2016-are-domestic-52340">decreasing real wages</a>, the Russian population is losing patience. To preserve its legitimacy, the government has two options: fix the ailing economy and provide increasing living standards and perspectives to its citizens, or ask the population for sacrifices by portraying the country as being in the midst of an epic clash of civilisations in which the president <a href="http://blogs.lse.ac.uk/europpblog/2018/03/16/no-easy-options-how-the-uk-could-put-pressure-on-russia-over-the-skripal-attack/">defends Christianity</a> against both the Muslim world and the hostile and depraved West. </p>
<p>The invisible competition between Russia’s various informal influencers will determine which route the Putin government will go down in the next six years. Clues as to how that competition is unfolding aren’t always easy to come by – but not long ago, at the Moscow State Institute for International Relations, I myself got a very telling glimpse.</p>
<h2>The beauty contest</h2>
<p>Held at the institute this spring, the <a href="http://www.stolypinforum.ru/o-forume-eng">Stolypin Forum</a> was organised by presidential candidate Boris Titov to promote his economic strategy. Titov is Putin’s Business Ombudsman, a role for which the Spectator magazine <a href="https://blogs.spectator.co.uk/2018/03/boris-titov-doesnt-want-to-be-president-but-hes-still-taking-on-putin/">dubbed him</a> the “anti-corruption tsar”. The forum brought together a wide range of reformists (Titov among them), opposition figures, religious leaders, and people close to Putin’s governing coalition to discuss an economic growth strategy for Russia.</p>
<p>The event can be seen as a continuation of what the Financial Times has dubbed a <a href="https://www.ft.com/content/590a20c4-43a4-11e7-8d27-59b4dd6296b8?mhq5j=e7">beauty contest</a> among three different economic advisors: Putin’s prime minster, Dimitry Medvedev, former finance minister Aleksei Kudrin, and Business Ombudsman Boris Titov, all of whom have developed their own reform strategies.</p>
<p>Medvedev’s strategy was considered the least ambitious and hence the most politically feasible, but all indications are that he has since <a href="https://carnegie.ru/commentary/68624">fallen out of Putin’s favour</a>, which reduces the chance that his strategy will be implemented. Kudrin’s reform programme is reminiscent of the US-led liberalisation policies of the Yeltsin era; he first presented it in January 2017 at the <a href="https://www.economist.com/news/europe/21715022-donald-trumps-election-many-russians-think-putins-model-winning-alexei-kudrin-wants">Gaidar Forum</a> – a gathering named after the neoliberal reformer responsible for the radical “Shock Therapy” reforms of the early 1990s. Titov’s proposal, meanwhile, is an <a href="http://www.gerhardschnyder.com/blog/2017/10/18/comments-on-the-stolypin-clubs-growth-strategy-for-russia">ambitious and comprehensive catalogue of reforms</a> spanning everything from monetary policy to the judiciary to education and skills. The long-term goal is to break Russia’s reliance on the export of raw materials and turn it into an exporter of high-value-added products.</p>
<p>But while the Stolypin Forum was meant to stay focused on economic issues, the Skripal Row and the Western reaction visibly dragged it off course.</p>
<p>Several discussions were hijacked by more extreme panellists, who deployed aggressive nationalistic rhetoric and conjured an image of the West as a dangerous enemy, hellbent on bringing Russia to its knees. Many clearly invoked the extreme nationalist school of thought known as <a href="https://www.ft.com/content/abb8cd48-fa58-11e5-8f41-df5bda8beb40">Eurasianism</a>, a tendency that has <a href="https://www.jstor.org/stable/pdf/40345272.pdf?refreqid=excelsior%3Ac1b57b0c234bead894bac08890da09a1">greatly influenced</a> certain sections of the Russian elite since the fall of the Soviet Union.</p>
<p>In this nationalistic climate, liberal reformers are struggling to make their voices heard. Defending economically and socially liberal views is associated with the same ideas that were – according to some – deliberately deployed to bring Russia to its knees in the 1990s. From there, it’s only a small step to considering would-be economic modernisers “un-Russian” and even traitors.</p>
<p>The chillier Russia’s diplomatic relations with the West get, the more likely it becomes that militarists and Eurasianists will beat out economic reformers in the race to influence Putin’s thinking. As a result, he may well choose to safeguard his legitimacy by sticking to the “collision course” option rather than by tackling complex economic issues. </p>
<p>Given the scale of Russia’s ventures abroad and the millions of people they affect, the stakes in this invisible competition are uncommonly high. That means the West must avoid fuelling the more extreme elements in Russia’s domestic political competition at the expense of reformers. The British diplomatic reaction to the Skripal affair may have looked like an easy victory for a weak government in search of positive press, but the confrontational approach it entailed may turn out to be good news for Russia’s warmongers.</p><img src="https://counter.theconversation.com/content/94595/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gerhard Schnyder does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Russian politics depends on a competition between different power networks. And hardline nationalists are winning at the expense of reformers.Gerhard Schnyder, Reader in International Management, Loughborough UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/930992018-03-16T14:17:21Z2018-03-16T14:17:21ZSome easy fixes for Russia’s flagging economy – if only politics didn’t get in the way<p>With the outcome of the Russian election <a href="https://theconversation.com/russian-election-what-to-look-out-for-90640">almost certainly</a> a return to power for Vladimir Putin, it’s perhaps more interesting to consider how he could improve the country’s flagging economy. This is more of a mystery.</p>
<p>Russia’s economy has been effectively <a href="https://www.wolframalpha.com/input/?i=real+GDP+per+capita+for+russia+uk+us">flatlining since 2010</a>. It has a population of about 140m people, is abundant in natural resources and enjoys practically universal higher education. But its GDP is about 50% of the UK, which translates into about four-fold gap in GDP per capita. </p>
<p>As well as an abundance of oil, timber and steel, which are sold to both Europe and Asia, there’s no lack of capital or labour. Russia is a <a href="https://www.reuters.com/article/russia-outflows/russia-c-bank-says-q1-net-capital-outflow-at-15-4-bln">net exporter of capital</a>, unemployment is fairly low and wages average <a href="https://tradingeconomics.com/russia/wages">a paltry US$700</a> a month, indicating an abundance of people eager to work.</p>
<p>Factors such as weather and size do not create similar development issues for countries such as Finland or Canada. Finland actually provides an opportunity to observe the stark contrast in development by looking at villages east and west of the border: it is accessible to everyone who has <a href="https://www.youtube.com/watch?v=G4JLGhnY0ok">access to Google Maps</a>.</p>
<iframe src="https://www.google.com/maps/embed?pb=!1m14!1m12!1m3!1d2483438.109214516!2d29.515780314392916!3d61.659199413116646!2m3!1f0!2f0!3f0!3m2!1i1024!2i768!4f13.1!5e0!3m2!1sen!2suk!4v1521131691404" width="100%" height="600" frameborder="0" style="border:0" allowfullscreen=""></iframe>
<p>Russia’s economy performance boils down to Russia’s governance. Namely: untrustworthy enforcement that <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6520.2009.00353.x/full">leads to very weak entrepreneurship</a>, isolationist trade policy that helps incumbent <a href="https://www.rbth.com/business/2013/02/20/wto_criticizes_russias_tax_on_imported_cars_23051.html">inefficient companies to stay afloat</a>, and the lack of predictability that makes it risky for people to invest. These issues are well-known and are <a href="http://en.kremlin.ru/events/president/news/56957">voiced by Putin himself</a> as well as <a href="https://meduza.io/en/news/2017/12/13/alexey-navalny-unveils-his-presidential-campaign-platform">his opponents</a>.</p>
<h2>Lack of security</h2>
<p>In Russia, the conviction rate in criminal cases is <a href="https://www.thetimes.co.uk/article/russian-conviction-rate-is-higher-than-under-stalin">above 99%</a> (compared to about 85% in the UK). Some people argue that this is a good thing – the police are efficient and they only get the bad guys. But <a href="https://www.amnesty.org/en/countries/europe-and-central-asia/russian-federation/report-russian-federation/">human rights groups point to</a> the use of torture and other ill treatment to obtain evidence, which puts the conviction rate into question. </p>
<p>Acquittal is seen as a failure of the investigator. The authorities have a “case solved percentage” <a href="https://lenta.ru/articles/2017/11/26/vayvay/">figure to achieve</a> – and acquitting lowers that. This leads to a culture of fear where people are afraid of stepping out of line. It creates an environment that prevents entrepreneurs from trying new things because you can get into trouble <a href="https://www.nytimes.com/2017/08/09/world/europe/vladimir-putin-russia-siberia.html">for improving your product</a>. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/210664/original/file-20180315-104635-ovzf67.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/210664/original/file-20180315-104635-ovzf67.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/210664/original/file-20180315-104635-ovzf67.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/210664/original/file-20180315-104635-ovzf67.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/210664/original/file-20180315-104635-ovzf67.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/210664/original/file-20180315-104635-ovzf67.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/210664/original/file-20180315-104635-ovzf67.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The risk of ending up on the wrong side of the law stifles innovation.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/crime-prison-cell-bars-724345753?src=WsRji3nzw09-PFfYLyh28Q-1-3">shutterstock.com</a></span>
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</figure>
<p>These issues are driven by the design of the enforcement system – and there is no reason why they cannot be improved upon. Russia could follow <a href="http://journals.openedition.org/pipss/3964">the lead of Georgia</a>, for example, which has relatively efficiently reformed its police system in recent years, so this is not impossible to fix.</p>
<h2>Trade issues</h2>
<p>The unpredictability of Russia’s political and economic environment is not entirely a domestic issue. Things like US and European economic sanctions, while targeting individual companies, <a href="https://theconversation.com/explainer-how-will-sanctions-against-russia-work-29920">affects the wider economy too</a>. This, after all, is the point of them. </p>
<p>But even without the sanctions, the state and non-state agents act in unpredictable ways which make investment risky. Imagine if you thought there was even a 10% chance you might have to abandon your home in the next five years: are you as likely to invest in a new roof and solar panels? For these reasons, there is little incentive to build long-term plans in Russia, which leads to slower development. </p>
<p>This is due to politics and fights over power between the powerful. It is, however, possible to deal with in our lifetime.</p>
<p>But perhaps the easiest and the most pernicious problem to resolve is that of international trade. Russia is a part of the Eurasian Economic Union (EEU), which includes neighbouring countries such as Kazakhstan and Belarus. Being a part of a trade union is generally a good thing – unless it stimulates the new member to trade with less efficient partners (economists call this <a href="https://www.youtube.com/watch?v=irpERJXoKxs">trade diversion</a>). </p>
<p>Being a part of the EEU does not help Russia much: 8.7% of Russia’s trade is with Belarus and Kazakhstan, and <a href="http://www.worldstopexports.com/russias-top-import-partners/">less than 2%</a> is with other countries of the EEU, while the Netherlands alone constitutes <a href="http://www.worldstopexports.com/russias-top-import-partners/">about 10% of Russian trade</a>. </p>
<p>Lower trade <a href="https://www.aeaweb.org/articles?id=10.1257/aer.20120549">fosters monopolies</a>, a smaller market makes entry for foreign firms unattractive, and higher prices due to lower competition makes consumers worse off. But there is nothing inherently politically impossible about opening up for trade. Some companies and industries might suffer because of the opening – but the list of suffering companies is already far too long. </p>
<p>Foreigners might buy off and move the profits of Russian companies overseas – but that’s <a href="https://www.reuters.com/article/russia-outflows/russia-c-bank-says-q1-net-capital-outflow-at-15-4-bln">already happening</a>. There’s literally no economic or political reason to maintain the isolation. </p>
<p>Yet, if anything, isolationism grows stronger. “Counter-sanctions” imposed by Russia on itself in 2014 that forbade imports of European foodstuffs and deprived all Russian pizza joints of mozzarella had no effect except for making food in Russia <a href="https://www.ceps.eu/publications/effects-sanctions-and-counter-sanctions-eu-russian-trade-flows">relatively more expensive</a>.</p>
<p>Russia’s economic growth is stifled by Russia’s institutions. There is a great potential for development, but politics continues to get in the way. Some changes are more plausible than others, but even the easiest one to implement is very unlikely. And without the bulk of Russians comprehending the costs they are bearing by maintaining the status quo – without their explicit desire for change – there’s very little that can be done.</p><img src="https://counter.theconversation.com/content/93099/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sergey V. Popov does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Russia’s economy is flatlining and the reasons boil down to poor governance.Sergey V. Popov, Lecturer in Economics, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/648422016-09-27T06:43:11Z2016-09-27T06:43:11ZWhat’s holding Russia back from ratifying the Paris climate agreement?<p>Indian Prime Minister Narendra Modi has announced that <a href="http://www.bbc.com/news/world-asia-india-37469603">his country will ratify the Paris climate agreement</a> in October, a significant boost in the campaign to have the agreement become legally binding by the end of the year.</p>
<p>India will join the 61 other countries that have formally signed up to limit future global temperature rise to a maximum of 2°C. But one important player is still missing. Russia, the world’s <a href="http://edgar.jrc.ec.europa.eu/news_docs/jrc-2015-trends-in-global-co2-emissions-2015-report-98184.pdf">fifth-largest greenhouse gas emitter</a> is unlikely to ratify by the end of the year. </p>
<p>Following a special climate event at the 2016 United Nations General Assembly, Alexander Bedtritsky, special adviser on climate to Vladimir Putin, <a href="http://tass.ru/obschestvo/3639933">confirmed that</a> “Russia will not artificially speed up the ratification process”. </p>
<p>Russian representatives have said they need more time to evaluate the effects of the Paris agreement on the Russian economy, which is <a href="https://theconversation.com/russia-a-global-energy-powerhouse-thats-much-more-than-a-petro-state-57766">heavily dependent on fossil fuels</a>. The government wants to <a href="http://kommersant.ru/Doc/2951538">draft a low-carbon development strategy</a> before deciding to ratify.</p>
<p>So far, the plan is to work out an analysis of the socio-economic effects of the <a href="http://kommersant.ru/Doc/2951538">ratification by mid-December</a>, and to later draft a strategy for low-carbon development. No certain deadline for ratification, which is due to take place by passing a corresponding legal act within Russia, has been set. </p>
<h2>The great climate debate</h2>
<p>Why is Russia dragging its feet? One reason is the fact that opinions on the merits of the Paris agreement are split within the country. Most senior officials and federal ministries support the treaty and informally speak in favor of quicker ratification. But opposition comes mainly from large private businesses, predominantly from the coal and steel sectors.</p>
<p>The companies, whose extracting and processing facilities are largely located in <a href="http://kommersant.ru/doc/3037549">Siberia</a>, claim that quick ratification, and the introduction of any kind of carbon price within Russia will cause serious socio-economic damage. This will affect vulnerable groups employed in the coal industry the most, they say. </p>
<p>These companies have secured support among powerful business lobby groups, <a href="http://kommersant.ru/doc/3042039">think-tanks and research institutes</a>. Together, these groups run anti-Paris agreement campaigns, including one on the “<a href="http://www.right4coal.ru">right to coal</a>”, in some of Russia’s resource-rich regions. Meanwhile, authors of <a href="http://kommersant.ru/doc/3042039">privately sponsored research papers</a> argue that the Russian economy will suffer severe losses after the agreement enters into force.</p>
<p>Most oil and gas majors, however, are keeping quiet, neither objecting nor openly supporting the new climate treaty. Representatives of the Russian gas giant Gazprom often talk about importance of <a href="http://www.gazprom.com/nature/kioto/%20or%20http://kommersant.ru/doc/2984626">switching to natural gas</a> to bring down greenhouse gas emissions, but rarely speak openly about the importance of the Paris agreement.</p>
<p>There are a number of pro-climate stakeholders, however. These include officials from federal ministries, think tanks and NGOs, as well as certain businesses, all of whom argue vocally for ratification. </p>
<p>Shortly before the Paris climate summit in December 2015, a number of Russian companies launched the <a href="http://climatepartners.ru/">Russian Partnership for Climate Protection</a>, including high-tech state-owned enterprise Rusnano, state-owned hydro-energy company Rushydro, state-owned banks Sberbank and Vneshtorgbank, private bank Alfabank, and a group of aluminium companies, Rusal. </p>
<p>Oleg Deripaska, the owner of Rusal and one of Russia’s richest oligarchs, has been quoted in the <a href="https://www.ft.com/content/34c3a69e-9d02-11e5-b45d-4812f209f861">international media</a> calling for a global price on carbon.</p>
<p>According to a <a href="https://b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/001/132/original/CDP_Carbon_Price_report_2016.pdf?1474453251">recent report</a>, three Russian companies have already embedded a carbon price into their business strategy.</p>
<h2>Bad economic climate</h2>
<p>There are other significant barriers to climate progress. The perception prevails that Russia can’t allow itself an ambitious domestic climate policy for economic reasons – namely, the lack of funding for emission reduction and energy efficiency measures. </p>
<p>Speaking at a recent joint China-Russia group meeting on climate change, a high-level official with the Ministry of Economic Development said that the core activities in carbon regulation in Russia should be concentrated around energy efficiency. This requires an <a href="http://kommersant.ru/doc/3096251">annual investment</a> of no less than €6 billion. </p>
<p>Energy efficiency was high on the Russian agenda from 2009-2011. But following the imposition of <a href="https://europa.eu/newsroom/highlights/special-coverage/eu_sanctions_en">international sanctions</a> over the conflict in Ukraine, the issue has been dropped. Regional subsidies for emission reduction and energy efficiency measures are being cut to zero for the <a href="http://kommersant.ru/doc/2636114">third year in a row</a>.</p>
<p>Another problem is the lack of access to international financing sources – here, once again, following international sanctions, a number of international donors and development institutions have <a href="http://kommersant.ru/doc/3069138">cut support</a> for emission reduction projects in Russia.</p>
<h2>Global posturing</h2>
<p>In spite of domestic controversies, Russia continues to speak in favor of the new global climate treaty on the world stage, trying to show its openness to climate efforts. </p>
<p>Some experts, including <a href="http://kommersant.ru/doc/2577921">economist George Safonov</a>, argue that by showing its readiness to fight climate and environmental challenges, Russia is both trying to set itself up as an important global player, and also improve its relations with the West on “neutral ground”. </p>
<p>Russia is also trying to develop climate and environmental cooperation with Brazil, India, China and South Africa, proposing to set up a <a href="http://kommersant.ru/doc/2961113">platform for green technologies</a>.</p>
<p>Will these international efforts be enough if Russia doesn’t step up and ratify with the other big emitters? <a href="http://kommersant.ru/doc/3096251">Experts have said</a> that if the Paris agreement enters into force without Russia’s signature, the country will lose its right to vote and take decisions in new climate working groups.</p>
<p>This would be a shame. However slow Russia’s ratification schedule is, it remains crucial to keep the world’s fifth-largest emitter on board for future climate negotiations. This means continuing to give it a seat at the table.</p><img src="https://counter.theconversation.com/content/64842/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Angelina Davydova teaches at the St.Petersburg State University at a joint MA Program (together with the Free University of Berlin) "Global Communication and International Journalism", which receives government funding from both countries. She is also a director of an NGO "German-Russian Office of Environmental Information" and works on a contract-basis for other NGOs ("German-Russian Exchange', "Bellona", "n-ost") and the German Development Agency (GIZ). </span></em></p>Russia is dragging its feet on climate action - and risks being left out in the cold.Angelina Davydova, Senior Lecturer, St Petersburg State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/557932016-04-05T10:44:03Z2016-04-05T10:44:03ZThe geopolitics of real estate: how Russia learned the political value of property<figure><img src="https://images.theconversation.com/files/115885/original/image-20160321-30949-11oa1q5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/papaorhum/16195302253/sizes/l">Oscar W. Rasson/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Over the past three decades, real estate has gained a new significance on the world stage. Many states have relaxed laws to open up national property markets to international buyers. This has not only intensified international business activities, but also offered states a new way of pursuing their global political ambitions. In particular, Russia – perhaps better known for its use of “hard” tactics such as <a href="https://theconversation.com/explainer-what-is-going-on-in-ukraine-now-51086">military interventions</a> – has <a href="https://set.kuleuven.be/phd/dopl/13-14/Friction3.pdf">proven to be</a> an adroit user of this “soft” power tool. </p>
<p>In Russia, real estate emerged as a marketable good in the early 1990s, when large-scale privatisation transferred ownership titles from the state to tenants. Initially, because of the political and economic turmoil involved in Russia’s transition from a one-party state to democratic republic, there was little international interest in the country’s property market. </p>
<p>But all this changed in the early 2000s. The election of Vladimir Putin as president, together with institutional reforms that increased transparency and rising oil prices, worked to <a href="http://www.tandfonline.com/doi/abs/10.1080/09668130802180975">initiate a period</a> of political stability and economic growth. Foreign investors and capital flocked to Russia to tap into the markets there. </p>
<p>At the same time, Russian investors and state institutions also <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2337449">invested in and built</a> real estate abroad; primarily in former members of the Soviet Union, but also <a href="https://www.utu.fi/fi/yksikot/tse/yksikot/PEI/raportit-ja-tietopaketit/Documents/Panibratov_netti_final.pdf">as far afield as Namibia</a>. </p>
<p>These two processes – driven by foreign actors in Russia and by Russians abroad – created a complex network of relationships and dependencies, which continue to affect the way international relations are negotiated today. </p>
<h2>Doing business</h2>
<p>The importance of real estate is particularly visible in the opposition between Russia and the rest of Europe over Ukraine. Foreign companies in Russia that own fixed assets such as offices, factories and retail facilities are obviously interested in the economic and political stability of the state. And their interests can directly affect negotiations between international powers. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/116201/original/image-20160323-28173-18fyb2k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/116201/original/image-20160323-28173-18fyb2k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=697&fit=crop&dpr=1 600w, https://images.theconversation.com/files/116201/original/image-20160323-28173-18fyb2k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=697&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/116201/original/image-20160323-28173-18fyb2k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=697&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/116201/original/image-20160323-28173-18fyb2k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=876&fit=crop&dpr=1 754w, https://images.theconversation.com/files/116201/original/image-20160323-28173-18fyb2k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=876&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/116201/original/image-20160323-28173-18fyb2k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=876&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Merkel - bowing under pressure?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/maxxp/6837062925/sizes/l">Maxense Peniguet/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>For example, German retailer Metro – which owns large shopping centres in Russia – actively <a href="http://sputniknews.com/europe/20151209/1031470447/german-business-protest-sanctions.html">opposed the sanctions</a> imposed on Russia in 2014, arguing that such measures would hurt their business. </p>
<p>It is believed in the business community that this kind of pressure has played a big role in <a href="http://www.wsj.com/articles/SB10001424052702303948104579535983960826054">preventing Germany’s Merkel government</a> from supporting tougher measures against Russia. Foreign business with stakes in Russia often act like indirect and informal lobby groups, representing Russia’s interests in their native nations.</p>
<h2>Leverage in London</h2>
<p>The investments of Russians abroad has also shaped the state’s approach to international politics. For example, Russian investment in residential real estate in cities like London <a href="http://www.theguardian.com/cities/2014/may/09/rich-russians-buying-london-property-real-estate">is very popular</a>, and gives the Russian state a certain influence in these places. </p>
<p>The strong presence of Russian wealth in London – <a href="http://openeurope.org.uk/intelligence/foreign-policy/uk-russia-sanctions/">worth £27 billion</a> or 0.5% of international assets in the city – is considered by some to be a factor in Britain’s stance towards Russia. </p>
<p>This was demonstrated by <a href="http://www.theguardian.com/world/2014/mar/03/uk-seeks-russia-harm-city-london-document">a confidential report</a> – photographed in 2014 – which suggested that Britain should not support the EU’s trade sanctions against Russia or close London’s financial centre to Russian citizens. Although the EU’s sanctions were still implemented, Britain’s initial reluctance to support them can at least partly be attributed to the presence of Russian capital in London. </p>
<h2>Show of strength</h2>
<p>The power of real estate can be symbolic, as well as financial – as shown by the international expansion of the Russian Orthodox church. Since the 2000s, the church has <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1725522">purchased numerous properties</a> around the world.</p>
<p>High profile members of the Russian political elite – including Putin himself – have linked the expansion of the Russian Orthodox Church to the project of <a href="http://www.tandfonline.com/doi/abs/10.2753/RUP1061-1940520303">the “Russian World”</a>. This is the idea that Russian civilisation is a community which spans beyond the country’s current territorial borders.</p>
<p>This <a href="https://rowman.com/ISBN/9781442253612/Putin's-Propaganda-Machine-Soft-Power-and-Russian-Foreign-Policy">has been interpreted</a> by some experts as an attempt by the Russian administration to “gain hold over Russian émigré communities”. For example, French officials <a href="http://www.independent.co.uk/news/world/europe/sainte-trinite-paris-welcomes-kremlin-funded-russian-orthodox-cathedral-as-french-court-tries-to-a6939601.html">have been criticised</a> for smoothing the way for a new Russian Orthodox church in the centre of Paris, declaring it to be a “symbol of Russian power”. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/116199/original/image-20160323-28209-jxn9jv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/116199/original/image-20160323-28209-jxn9jv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=302&fit=crop&dpr=1 600w, https://images.theconversation.com/files/116199/original/image-20160323-28209-jxn9jv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=302&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/116199/original/image-20160323-28209-jxn9jv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=302&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/116199/original/image-20160323-28209-jxn9jv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=380&fit=crop&dpr=1 754w, https://images.theconversation.com/files/116199/original/image-20160323-28209-jxn9jv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=380&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/116199/original/image-20160323-28209-jxn9jv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=380&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">All hail.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/kvoloshin/14647773523/sizes/l">kvoloshin/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>Russia has also sought to project its power through mega-projects such as sport stadia, urban regeneration schemes and new infrastructure. For example, developments in Sochi for the 2014 Winter Olympics were <a href="http://www.economist.com/news/europe/21581764-most-expensive-olympic-games-history-offer-rich-pickings-select-few-castles">overwhelmingly realised</a> by companies that were either government controlled or financially dependent on state-owned banks. By deploying the state’s resources in this way, Russia <a href="http://link.springer.com/chapter/10.1057%2F9781137371188_15">sought to highlight</a> its power and ability to get things done.</p>
<h2>Word of warning</h2>
<p>But while real estate has offered another way for Russia to pursue its national interests abroad, it has also created new vulnerabilities, which competing states can exploit. For example, the EU and US have restricted Russia’s access to some of its properties abroad, to pressure Russia over Ukraine. </p>
<p>The heavy presence of Russian capital and real estate interests in Ukraine itself is another source of vulnerability: since 2014, Ukrainian radicals <a href="http://www.wsj.com/articles/kiev-demonstrators-attack-russian-banks-1455977173">have regularly attacked</a> branches of Russian retail banks. </p>
<p>The outflow of Russian capital abroad also presents the country with a serious problem: that is, the erosion of tax revenues, investments and – perhaps most importantly – an educated workforce.</p>
<p>So, real estate abroad is more than just an economic process: it has become a “soft” power tool for states to influence each other, adding a new layer of complexity to international politics.</p><img src="https://counter.theconversation.com/content/55793/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mirjam Büdenbender receives funding from European Research Council.</span></em></p><p class="fine-print"><em><span>Oleg Golubchikov does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Real estate has become a ‘soft’ power tool in the world of international politics.Mirjam Büdenbender, PhD Candidate, KU LeuvenOleg Golubchikov, Senior Lecturer in Human Geography, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/523402016-01-06T11:41:18Z2016-01-06T11:41:18ZForget Putin’s global posturing – Russia’s biggest challenges for 2016 are domestic<p>After a remarkably fraught and complicated 2015, Vladimir Putin’s Russia finds itself still <a href="http://marketrealist.com/2015/12/sanctions-imposed-west-fueling-inflation-russia/">sanctioned</a> by the West for its conduct in Ukraine, dogged by <a href="http://www.wsj.com/articles/russian-ruble-falls-to-year-low-amid-oil-price-drop-1451334308">falling oil prices</a> and dicing with a deadly conflict in <a href="https://theconversation.com/why-putin-gambled-on-airstrikes-in-syria-and-what-might-come-next-48414">Syria</a>. And it’s increasingly difficult to foresee the challenges Putin and his country will face in 2016 – or how they will handle them.</p>
<p>Decision-making in Moscow has become highly consolidated and hostage to the whimsy of Putin and his group think-prone advisers. And whether in the domestic realm or in the international environment, trying to decode a Russian grand strategy is a monumental challenge for anyone who tries. </p>
<p>The predictable argument these days revolves around working out whether Putin has a strategy, or <a href="http://www.frontpagemag.com/point/260626/putin-has-no-long-term-strategy-says-daniel-greenfield">whether he is simply an opportunist</a>. Then there is the <a href="https://youngeuropeansnetwork.wordpress.com/2015/10/21/russias-foreign-policy-strategic-genius-or-grand-delusions/">often-argued trope</a> that Putin’s foreign policy, for example in Syria, “is for his domestic audience and aimed at keeping his hold on power” by appealing to nationalism and distracting away from domestic and economic failings. </p>
<p>What is certain is that Russia’s greatest challenges are domestic – and that Putin will spend 2016 desperately hoping that the price of oil starts to climb. If it remains <a href="http://www.cnbc.com/2016/01/03/saudi-arabia-iran-tensions-over-shiite-execution-boost-oil-futures.html">below the $40-a-barrel mark</a>, Putin will have to tough out a year (and more) under serious financial strain. He may then be forced to distract his internal audience further with foreign actions in Syria and Ukraine, while finding the <a href="http://www.themoscowtimes.com/business/article/calculating-the-cost-of-russias-war-in-syria/540015.html">associated price tag</a> increasingly trying. </p>
<p>That Russia’s long-term prospects are not encouraging is most obvious in the domestic realm. The wise approach would be to turn to domestic nation-building. There’s plenty to be done: illiberal domestic economic policies need to be addressed, as does the erosion of institutions due to corruption, while failing central bank policies are badly in need of reform. But, as Andrey Movchan <a href="http://carnegie.ru/commentary/2016/01/04/what-s-in-store-for-russian-economy-in-2016/ioik">has pointed out</a>, the 2016 budget leaves no hope for reform or for the development of viable alternatives to natural resources.</p>
<p>If nothing else, the Cold War made it clear that long-term power and security are to some extent dependent on what happens in the economic sphere. In other words, the US and the West did not win the Cold War so much as the Soviet Union collapsed due to an economic system that was built on sand. But while it seems that China has <a href="https://theconversation.com/chinas-five-year-economic-plan-is-rich-with-symbolism-50001">learned</a> that lesson from Soviet misadventures, Russia has not internalised this lesson.</p>
<h2>New year, new challenges</h2>
<p>As far as the economy goes, Putin has recently suggested that “<a href="http://www.ft.com/cms/s/0/ddce6cf6-a4d7-11e5-97e1-a754d5d9538c.html#axzz3ug1IzmNL">Russia has passed the peak of the crisis</a>” but not the crisis itself. Whether that is true remains to be seen. Most worrying for Putin is that 2014 marked the year that real household incomes <a href="https://themoscowtimes.com/articles/russian-government-failing-to-stem-rising-poverty-48384">declined for the first time</a>. To be clear, it is domestic economic policies coupled with declining oil prices that have been the major cause of this and not, for example, the Western economic sanctions placed on Russia after it annexed Crimea. </p>
<p>This, more than anything, will test the so-called “unspoken social contract” between the president and his citizens – that is, ever-increasing living standards in exchange for forgoing some democratic freedoms, turning a blind eye to corruption in exchange for an <a href="https://www.wilsoncenter.org/publication/vladimir-putin-and-the-rule-law-russia">otherwise rigorous application of the rule of law</a>. </p>
<p>There is no question that Putin retains <a href="http://www.ibtimes.co.uk/russia-vladimir-putin-approval-rating-hits-90-following-syria-bombing-campaign-1525181">very high domestic approval ratings</a>, but there are increasing signs of <a href="http://news.yahoo.com/russian-opposition-draws-thousands-anti-putin-protest-163725696.html">anger</a> towards the government’s approach to domestic economic issues. These issues range from large-scale <a href="http://rbth.com/society/2013/08/16/why_young_russians_are_leaving_the_country_28963.html">youth emigration</a>, more general demographic concerns such as <a href="http://yaleglobal.yale.edu/content/russian-demographics-perfect-storm">high mortality and low fertility</a>, to <a href="http://www.theglobalist.com/russia-public-health-alcoholism/">drastic public health anxieties</a>. </p>
<p>Putin’s consolidated power does give him a degree of freedom of manoeuvre in the short term – unlike most Western leaders – but he seems as yet unwilling to use that authority to address these domestic failings. Putin’s recent <a href="http://en.kremlin.ru/events/president/news/50864">Annual Presidential Address</a> was much more about blaming foreign actors for Russia’s economic woes than speaking to badly needed internal reforms.</p>
<p>If Putin and his government continue resorting to ostentatious foreign manoeuvring to divert attention from problems at home, they will soon run into trouble. If Putin’s commitment to Assad in Syria becomes more and more costly, both in terms of blood and treasure but also as a long-term strategy, that will be bad enough – but foreign policy, however spectacular, will also do nothing to head off the population’s bitterness over a sustained decline in household incomes.</p>
<h2>Global games</h2>
<p>Although a grand strategy that seeks to ameliorate both Russia’s domestic and structural limitations is often hard to discern, Putin will inevitably keep pursuing certain identifiable goals. He clearly wants to position Russia as an indispensable player in areas of critical global diplomacy, most obviously in the greater Middle East. But there are two sides to that coin – while increased conflict in the Middle East may benefit Russia due to a spike in oil prices, Russia does have real security concerns regarding its geography and radical Islamic terrorism. </p>
<p>Putin will also continue to influence the activities and behaviours in what he considers Russia’s natural sphere of influence. Russia’s approach to Ukraine is a reminder that Putin is willing to <a href="http://www.themoscowtimes.com/news/article/nemtsov-report-details-human-and-financial-costs-of-war-in-ukraine/520571.html">sacrifice economic hardships for what he sees as primary security concerns</a>. To that end, Putin will also attempt to undermine US and EU influence whenever he deems it in his interest to do so. His recent decision to officially proclaim <a href="http://www.ft.com/cms/s/0/6e8e787e-b15f-11e5-b147-e5e5bba42e51.html#axzz3wHPEB9Ow">NATO’s expansion as a threat to Russia’s national security</a> demonstrates how far the two camps have drifted apart.</p>
<p>This is dangerous ground. As Dmitri Trenin <a href="http://carnegie.ru/commentary/2015/12/15/russia-needs-plan-c/in4j">has recently argued</a>, an acute foreign policy crisis could trigger the collapse of not just the system, but the entire country. This is an unlikely scenario – and one should always be wary of <a href="http://warontherocks.com/2015/12/the-seven-deadly-sins-of-russia-analysis/">questionable assumptions</a> when it comes to analysing the strength of the Russian regime. But if Russia’s foreign policy is primarily used for shoring up domestic approval, it follows that setbacks in this arena coupled with falling oil prices and household wages could do serious damage to the Kremlin. </p>
<p>From a Russian point of view, <a href="http://www.birmingham.ac.uk/schools/government-society/centres/iccs/news/2015/11/p-jack-matlock.aspx">and with some justification</a>, years since the Cold War have been deeply unfavourable to Russia. There is no doubt that Putin seeks to regain what he sees as Russia’s rightful place as a global power, but without addressing Russia’s domestic shortcomings it will never be a truly great power; and nuclear sabre-rattling or <a href="https://www.washingtonpost.com/opinions/putins-anti-obama-propaganda-is-ugly-and-desperate/2016/01/04/57647c48-b0c4-11e5-b820-eea4d64be2a1_story.html?wpmm=1&wpisrc=nl_opinions">personal attacks on foreign leaders</a> will not change that cold hard fact.</p><img src="https://counter.theconversation.com/content/52340/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Simon J Smith receives funding from the Economic and Social Research Council for research on the Drivers of Military Strategic Reform.</span></em></p>The past year hasn’t worked out so well for Russia – and the Kremlin’s ability to weather the storms ahead is looking shaky.Simon J Smith, Lecturer of International Relations, Staffordshire UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/372492015-02-17T10:52:41Z2015-02-17T10:52:41ZForecast for Ukraine: stormy with rays of sunshine<p>A year after the <a href="http://www.worldaffairsjournal.org/article/euromaidan-ukraine%E2%80%99s-self-organizing-revolution">Maidan revolution </a>of 2014, Ukraine is at a critical juncture. </p>
<p>The conflict with Russia has been escalating. Estimates of casualties exceed <a href="http://www.un.org/apps/news/story.asp?NewsID=50001">5,000</a>, with some reports putting the number at 50,000. The cost of the war in the East is anywhere between <a href="http://www.atlanticcouncil.org/news/transcripts/ukraine-s-economic-reform-insights-from-the-newly-minted-minister-of-finance">US $5-10 million</a>. And despite the ceasefire signed in Minsk February 12, <a href="http://www.bbc.com/news/world-europe-31495099">fighting</a> on the ground continues. </p>
<p>The Ukrainian currency Hryvna has lost <a href="http://www.ft.com/intl/cms/s/0/7f8f36c4-ad49-11e4-bfcf-00144feab7de.html#axzz3QyqAl819">two thirds</a> of its value in a year and continues to fall. </p>
<p>So far, Ukraine has met its obligations to foreign creditors, but the reserves of the National Bank of Ukraine have been almost <a href="http://www.tradingeconomics.com/ukraine/foreign-exchange-reserves">depleted</a>. The issue of pervasive <a href="http://www.theguardian.com/news/2015/feb/04/welcome-to-the-most-corrupt-nation-in-europe-ukraine">corruption</a> has <a href="http://voxukraine.org/2015/02/03/talk-with-tomas-fiala/">not</a> been addressed. Unfortunately, the new government appointed in early December has <a href="http://www.bbc.com/news/world-europe-30846185">little</a> to show so far by way of successful structural reforms.</p>
<p>February, however, has brought some glimmers of hope. </p>
<p>The International Monetary Fund has just <a href="http://www.nytimes.com/2015/02/13/world/europe/imf-approves-17-5-billion-bailout-for-ukraine.html?_r=0">announced</a> a $17.5 billion financial support package to stabilize Ukrainian economy. The newly <a href="http://www.rferl.org/content/ukraine-parliament-approves-prosecutor-general-shokin/26840464.html">appointed</a> General Prosecutor of Ukraine has asked to remove the immunity of several judges in a key court in Kyiv accused of illegal rulings. And despite the problems in implementation at least a new peace agreement attempting to resolve the crisis in the East was actually <a href="http://www.nytimes.com/2015/02/13/world/europe/ukraine-talks-cease-fire.html">signed</a> in Minsk. </p>
<p>Yes, the IMF support is spread out over four years and might be not <a href="http://blogs.ft.com/beyond-brics/2014/12/10/guest-post-the-cost-of-not-bailing-out-ukraine/">enough</a> to instill confidence into foreign investors and domestic business and consumers. It seems probable that the new peace agreement is <a href="http://eurasiangeopolitics.com/2015/02/12/what-to-make-of-minsk-2/">likely</a> to follow the fate of an earlier cease-fire agreement and fail. And the General Prosecutor’s action could be a <a href="http://www.kyivpost.com/content/kyiv-post-plus/new-prosecutor-general-seeks-arrest-of-coalition-enemies-in-the-judiciary-380453.html">sign</a> of an internal political fight over power rather than a genuine attempt to clamp down on corruption.</p>
<p>But, from our from our daily experience of interacting with policy makers in Kyiv, it does seems clear that Ukraine is undertaking some fundamental steps to become a democratic state. </p>
<h2>Strength born out of crisis</h2>
<p>The conflict in the East and annexation of Crimea has solidified the civil society in their desire to reform the country. </p>
<p>Ukraine has a new president, a new <a href="http://www.nytimes.com/2014/10/27/world/europe/ukrainian-parliamentary-elections.html">parliament</a>, and a new <a href="http://www.euractiv.com/sections/europes-east/rada-approves-new-ukraine-government-310538">government</a>, which includes many new faces. </p>
<p>The parliament consists of eight factions, and most of the parties represented in the Ukrainian parliament did not exist a year ago. Several key ministers in the new Ukrainian <a href="http://en.wikipedia.org/wiki/Second_Yatsenyuk_Government">government</a> are technocrats, including <a href="http://www.ft.com/intl/fastft/244731/foreigners-land-top-minister-posts-ukraine">foreign nationals</a> who were granted Ukrainian citizenship: Finance Minister <a href="http://en.wikipedia.org/wiki/Natalie_Jaresko">Natalie Jaresko</a>, Health Minister <a href="http://en.wikipedia.org/wiki/Alexander_Kvitashvili">Alexandr Kvitashvili</a>, and Economy Minister <a href="http://en.wikipedia.org/wiki/Aivaras_Abromavi%C4%8Dius">Aivaras Abromavičius</a>.</p>
<p>These are drastic changes. Take, for instance, Minister Jaresko. She was born in Chicago in 1965, raised and educated in the US, holds a master’s degree in public policy from the <a href="http://en.wikipedia.org/wiki/John_F._Kennedy_School_of_Government">John F. Kennedy School of Government</a> in 1989. Jaresko moved to Ukraine in 1992 and had been an investment banker until her appointment to the Ukrainian government in December 2014. Never before has the Ukrainian government had a Harvard-educated finance minister with successful industry experience. </p>
<h2>Gradual not radical change</h2>
<p>The situation with the new government and the parliament, however, is neither black nor white. “There is this tendency to either see the second coming of Christ or the apocalypse when it comes to change in Ukraine,” <a href="http://www.nytimes.com/2015/01/04/sunday-review/the-next-battle-for-ukraine.html">says</a> Samuel Charap, senior fellow for Russia and Eurasia at the International Institute for Strategic Studies. “But the reality up till now is that they have always muddled through.” </p>
<p>Alongside the shiny new technocrats there are also the old timers, most notably in the jobs of president and prime minister. As John Herbst, a former US ambassador to Ukraine <a href="http://www.usatoday.com/story/news/world/2015/02/04/economy-second-front-in-ukraine-war/22861353/">puts it</a>, the products of the “old system, .. have been slow to move on necessary reforms…[and] are supported in part by Ukraine’s super-wealthy oligarchs who stand to lose special privileges — such as protection for their businesses, public finance and immunity from prosecution — in a reformed system.” It will take time for them and other veteran elites to adapt or be replaced through political process. </p>
<p>At the same time, the new Ukrainian leadership can – and should – be credited with a number of achievements since it came to power, including:</p>
<ol>
<li><p>Fast and efficient renewal of cooperation with the IMF and other Western donors, and commitment to structural reforms.</p></li>
<li><p>The formulation of an anti-corruption <a href="http://www.kyivpost.com/content/company-news/ukraine-parliament-passes-important-laws-to-tackle-corruption-369122.html">strategy</a> that includes transparency <a href="http://voxukraine.org/2014/12/02/getting-to-ultimate-beneficiary-goal-and-means/">measures</a> and an <a href="http://www.fcpablog.com/blog/2015/1/22/ukraine-new-anti-corruption-law-aims-to-clean-up-the-garbage.html">independent bureau</a> tasked with “cleaning up the garbage” (the Ukrainian equivalent of airing dirty laundry.) What is particularly encouraging is that the <a href="http://www.kyivpost.com/content/ukraine/anti-corruption-bureau-gets-161-applicants-for-top-job-380451.html">applicants</a> for the top job at the bureau include a number of highly respected and independent individuals with strong track records of fighting corruption. </p></li>
<li><p>Deregulation that includes – among the most important measures – limiting the investigative powers of the Public Prosecutor’s office in order to <a href="http://www.lexology.com/library/detail.aspx?g=20543c57-6694-497e-9351-23eb99314f52">curb</a> that office’s ability to harass business and individuals. </p></li>
<li><p><a href="http://www.europarl.europa.eu/news/en/news-room/content/20140915IPR62504/html/European-Parliament-ratifies-EU-Ukraine-Association-Agreement">Signing</a> the EU Association Agreement, which provides for political association and free trade between Ukraine and the EU. </p></li>
</ol>
<h2>Structural reforms key</h2>
<p>Ukraine today is still vulnerable. As we’ve outlined there are structural reforms taking place but are there enough of them and are they taking place fast enough? </p>
<p>It is also the case that every success – and every weakness – of the Ukrainian government will be met by increased pressure from Russia. </p>
<p>In August 2014, Ukraine <a href="http://www.nytimes.com/2014/08/10/world/europe/ukraine.html?_r=0">reclaimed</a> territory back from the separatists only to be confronted by what the rest of the world identified as a direct Russian <a href="http://www.cnn.com/2014/08/28/world/europe/ukraine-crisis/">invasion</a>(although the Kremlin denied this.) In January 2015, as world markets worried about Ukraine’s <a href="http://www.economist.com/news/europe/21639565-without-lot-more-western-help-ukraine-faces-default-edge">solvency</a>, Russia threatened an early <a href="http://www.businessinsider.com/russia-could-drive-ukraine-bankrupt-by-calling-in-3-billion-loan-2015-1">recall</a> of its US$ 3 billion loan. And then, the following week, more Russian army units were observed <a href="http://www.washingtonpost.com/opinions/russias-new-invasion-of-ukraine-should-lead-the-west-to-reassess-its-strategy/2015/01/21/4c146368-a0de-11e4-903f-9f2faf7cd9fe_story.html">crossing the border </a>into Ukraine, securing additional territorial gains for the separatists. </p>
<p>Ukraine desperately needs help to survive the next several months. It needs time for the civil society to mature and for its governance structures to be cleaned up. When structural reforms get underway, the weather will become less stormy. </p>
<p><em>This article was co-written with Olena Bilan, Dragon Capital and VoxUkraine. The authors would also like to thank Olena Shkarpova and the editorial board of VoxUkraine for help in developing this piece.</em></p><img src="https://counter.theconversation.com/content/37249/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tymofiy Mylovanov is a co-founder and a member of the editorial board of VoxUkraine.org, a group of global and local economists, lawyers, and political scientists writing on policy and reforms in Ukraine. </span></em></p>A year after the Maidan revolution of 2014, Ukraine is at a critical juncture. The conflict with Russia has been escalating. Estimates of casualties exceed 5,000, with some reports putting the number at…Tymofiy Mylovanov, Assistant Professor, Economics, University of PittsburghLicensed as Creative Commons – attribution, no derivatives.