Global Outlook 2017: Russia checklist

by Svyatoslav Kaspe The most interesting topic in Russian politics this […]

by Svyatoslav Kaspe

The most interesting topic in Russian politics this year are the presidential elections – regardless of whether they will be held on schedule (March 2018) or moved up to the autumn (a frequently discussed scenario that now appears to have been abandoned).

The degree of uncertainty is extremely high, so much so that it is not even clear if Vladimir Putin will run for reelection. It is telling that people in and around the Kremlin are apt to use a deliberately vague expression – “the main candidate” – when discussing the upcoming campaign. However, there is little mystery about the underlying mechanisms that make these elections so crucial to Russian politics.

For one thing, the election campaign will see domestic political factions and interest groups battling it out to protect, strengthen or expand their spheres of influence. Each will attempt to sway the course of the electoral campaign and to profit from its outcome, whatever that might be. This will truly be a case of bulldogs fighting under the rug, except this time there is a possibility that the whole thing – and not just the scraps and bones – will be on public view.

For another, every major policy decision taken by the Kremlin over the next year will be determined mainly by its perceived impact on the presidential race. Domestic and foreign policy challenges will both be evaluated by the same yardstick.

With those provisos in mind, here is a list of themes worth following closely in Russian politics over the next year.

How are the liberals doing?

The top ranks of government – especially senior economic posts such as the Finance Ministry, the central bank, and the Center for Strategic Development and Higher School of Economics – are packed with financially savvy technocrats, known as “liberals” in the Russian political parlance. One of their leading stalwarts, Economy Minister Alexei Ulyukayev, was recently arrested on bizarre charges of extorting bribes from Rosneft, the state-owned oil giant. Rosneft is headed by Igor Sechin, one of the most powerful figures in Russia and a close friend of Mr. Putin’s.

Ordinarily, one would have assumed that Mr. Ulyukayev’s removal would weaken the liberals. But if anything, the group appears to be consolidating its power. Maxim Oreshkin, a former deputy finance minister and graduate of Moscow’s Higher School of Economics, smoothly filled Mr. Ulyukaev’s shoes. Cooperation between the Economy and Finance Ministries – which often clashed over policy, even when they spoke the same language – has actually improved. These developments help buttress the position of Alexei Kudrin, the former finance minister and friend of Vladimir Putin, who holds no public office but is said to wield enormous influence behind the scenes.

In terms of policy, the liberals’ continued ascendancy suggests that the decision has been made not to abandon tried-and-tested austerity measures before the presidential elections. If so, the many voices calling for inflation fighting to be replaced by a monetary and fiscal stimulus, backed by increased state investments, will be ignored. Any sudden purge of leading economic officials would be a serious blow to Russia’s hard-won macroeconomic stability. That amounts to the Kremlin shooting itself in the foot, since the survival of the Russian regime depends to a large degree on state finances.

The siloviki – who’s in charge?

The government agencies responsible for the state’s monopoly on violence – the Federal Security Service (FSB), the Ministry of Internal Affairs (MVD), the Investigative Committee, the Prosecutor General and others – do not comprise a single corporation and have not sided with another of the main political factions. Instead, the security establishment (the so-called siloviki) is riven by internal conflicts and power struggles between ad hoc coalitions that constantly change in terms of their composition, allies and opponents.

Tensions have waned after a surprise reorganization announced by Mr. Putin in April 2016, but will probably resume as the elections approach. Attention will be focused on the main beneficiary of the reshuffle, the National Guard – a new super-ministry for combating terrorism and crime led by Viktor Zolotov, the longtime chief of Mr. Putin’s (and before him President Yeltsin’s) personal bodyguard. By later this year, the National Guard will have completed its organization and consolidated its control over a force estimated at up to 400,000 troops, paramilitaries and police. Its future depends on how much power it will be able to secure from the other agencies.

A Duma with teeth

The central institutions of Russian government – the State Duma (de jure) and the Presidential Administration (de facto) – are also undergoing profound changes. Both the parliament, chaired by Vyacheslav Volodin, and President Putin’s executive office, headed by Anton Vaino and his first deputy Sergei Kiriyenko (who oversees the whole sphere of domestic policy), have been substantially revamped and are gearing up for action. Just what direction they will take is still unclear.

The State Duma, which has served as a rubber stamp for more than a decade, started to show its teeth by introducing amendments of unprecedented scope to the 2017 budget. The Presidential Administration seems to be on hiatus, perhaps because it still has key positions to fill (especially among Mr. Kiriyenko’s domestic politics team, which had previously worked for Mr. Volodin before he took over the Duma chairmanship). Nevertheless, a conflict between Russia’s executive and legislative branches appears to be inevitable and will probably deepen over the course of 2017. This could disorganize the presidential campaign and make it less predictable.

What about Navalny?

Alexey Navalny is the sole surviving leader of Russia’s “non-systemic opposition” who can command significant electoral support. His popular appeal is strengthened by his aggressive anti-corruption rhetoric, undoubted charisma and fearless personality. The key question is how the authorities choose to handle him.

The obvious choice would be to declare Mr. Navalny ineligible to participate in the elections. For this purpose, the recently reopened embezzlement case against him would do nicely. However, if the decision is made to go lightly on Mr. Navalny, it could mean that the Kremlin has decided to go for elections that can plausibly be presented as honest and competitive.

There are even wild rumors that Mr. Navalny has long been quietly groomed as the president’s true successor. (As corroboration, it is noted that the opposition leader has never spoken directly against Mr. Putin.) Even if one dismisses such speculation as mad hallucinations, it illustrates the prevailing mood of uncertainty and the feeling that anything is possible.

OPEC and oil prices

Russia’s decision to go along with the OPEC agreement to cut global oil production was clearly politically motivated. The deal’s economic impact was plainly harmful to the Russian budget and oil producers. However, it shows a readiness to think strategically for the medium term.

The Kremlin’s top priority is to do whatever it takes to raise oil prices. Its hope is to lay the groundwork for a stronger economy when the elections take place – either nine or 15 months from now. Whether this gambit succeeds depends on whether OPEC’s output cuts generate a sustained increase in the oil price. This will hinge on a host of other factors, including whether OPEC members abide by their commitments and how shale oil producers in the United States respond.

Who is Donald Trump?

One of the biggest sources of uncertainty for the Russian leadership is the new U.S. administration. Will President Trump be putty in Mr. Putin’s hands, a bit like the early George W. Bush, or will he turn out to be a real tough guy like Ronald Reagan?

The Kremlin still cherishes the hope that bilateral relations with Washington will improve, despite any fallout from the hacking scandal. This hope was buttressed by the nomination of Rex Tillerson, the former Exxon CEO who has had extensive business dealings with Mr. Putin and Mr. Sechin, to the post of Secretary of State. Provided Mr. Tillerson gets past stormy confirmation hearings in the Senate, a honeymoon period between the two countries is always possible. It has certainly happened before.

However, if President Trump decides to boost his image at home by cracking down on Russia, it would strike a direct blow at Mr. Putin. In that case, the Russian president would do whatever it takes to demonstrate his toughness. He would probably respond domestically, because this is an easier and less costly alternative to acting in the international sphere. This adds one more risk factor to the upcoming presidential campaign.

Syria drawdown

Another wild card is Russia’s military involvement in Syria. The deeper the country gets drawn into the conflict, which was supposed to be an easy opportunity to showcase Russia’s global reach, the higher the risk that losses there will have a negative impact at home.

The recent announcement of a limited withdrawal of Russian forces (including the Admiral Kuznetsov carrier group) shows the Kremlin’s sensitivity to this danger. Even successes like the seizure of east Aleppo in December can be quickly offset by reverses elsewhere, such as Daesh’s seizure of Palmyra from government forces.

Getting sucked into a war with no clear timeline for victory is not a winning formula for a presidential campaign. It is more likely to discredit “the main candidate,” whoever that may be. The more viable alternative would be to reshape the candidate from a military leader into a peacemaker, someone who will end the war – if not in Syria, then at least for Russia. Seizing this opportunity would take a certain measure of boldness and imagination, but it cannot be ruled out.

The leader vanishes

We are beginning to hear reports that President Putin may soon disappear from public events and the media for as long as several months, due to “personal reasons.” It is impossible to gauge the credibility of such reports; as in the famous etching by Francisco Goya, “the sleep of reason produces monsters.” However, Vladimir Putin has vanished for extended periods before, and the prospect always makes political elites nervous.

If something like this happens in 2017, given Russia’s unsettled domestic politics, we could end up with something like a Mexican standoff. Various political and interest groups would hold each other at gunpoint, with nobody daring to shoot. Such standoffs always have the potential to erupt into sudden violence, a Hobbesian “war of all against all.”

This situation is well worth monitoring. If Vladimir Putin drops out of sight, the bulldogs might emerge from under the rug.

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Source: Geopolitical Intelligence Services



The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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