Why Putin Doesn’t Need To Pander To The West

Yves here. When sanctions were imposed and tightened against Russia, and oil prices plunged, conventional wisdom in the US press was that the Russian people would not tolerate a decline in living standards and therefore Putin’s days were numbered. In fact, Putin’s approval ratings rose and even most of his opponents in the Moscow intelligensia fell in behind him. Some analysts pointed out that sanctions seldom succeed and were unlikely to work on Russia. That view has become more prevalent as Russia has proven to be less dependent on oil revenues than widely assumed and Russia’s foreign currency reserves have stabilized.

By Colin Chilcoat, a specialist in Eurasian energy affairs and political institutions. Originally published at OilPrice

It’s quiet on the eastern front – as quiet as a conflict between world superpowers can be. Since February’s cease-fire agreement, relative calm has prevailed in Ukraine and world events elsewhere – Iran and Yemen – have shifted the global focus. Still, the West’s frigid relationship with Russia is no less chilly and antagonism, not cooperation, remains the modus operandi. Long-term, the stalemate looks to continue, but can either side afford such a result? And if not, who cracks first?

The prevailing judgment is that Russia cannot. And at surface level it’s a fair assessment. The Bank of Russia predicts the economy will contract by between 3.5 and 4 percent in 2015 and by another 1 percent in 2016; the ruble, while stable, is still down approximately 40 percent since June of last year. In all, former Finance Minister Alexei Kudrin believes the events in Crimea will cost the Russian economy as much as $200 billion over the next three to four years. The political and economic situation is fraught with grey area however, and no one turns grey to green quite like president Vladimir Putin.

As Putin embarks on his 16th year at the helm – I’m counting 2008-2012 – he faces a situation not too dissimilar from his first year in office: a sluggish economy, falling standard of living, high capital flight, and low foreign direct investment. Russia’s demographics look good and its equity market is a top pick for 2015, but in the short-term, the country’s macro indicators don’t yield much hope.

Now, as in 2000, Putin will ride oil through to the finish. In that regard, the World Bank forecasts favorable price growth to the quarter-century mark. By 2018, Russia’s Minister of Economic Development Alexei Ulyukaev expects the economy to out-perform high-income economies globally. The longevity of such a strategy is questionable; it’s risky – and probably the only realistic course of action – but Putin doesn’t have to wait out the rough patch, only his competitors.

In Europe, the cracks are beginning to show.

On March 16, the United States effectively removed any easing of sanctions from the table – the State Department will continue to support and enforce sanctions as long as Russia continues to occupy Crimea. Germany, in song with the US, remains committed to the cause and German Chancellor Angel Merkel reiterated the nations’ shared ideology in statements to the European Council on March 19. That same day, European Union leaders collectively agreed to back sanctions until the Minsk accord bears fruit. Individually, the agendas differ significantly.

EU officials believe that up to half of the member nations are ready to scale back sanctions. Among the most vocal in their discontent are Austria, Cyprus, Hungary, Italy, Greece, Slovakia, and Spain.

Greece in particular is inching closer to Russia. The nation is on the brink of default and has yet to agree on bailout terms with EU officials. Newly elected Prime Minister Alexis Tsipras will meet with Putin in Moscow on April 8 – a meeting that many believe is to establish a back-up plan to EU financing. Tsipras’ trip follows that of his Energy Minister Panagiotis Lafazanis, who returned to Greece March 31 after securing Russian commitments to participate in an upcoming tender for deep-sea oil and gas exploration in the Ionian Sea.

In Hungary, Putin and Hungarian President Viktor Orban have finalized a $10.8 billion loan agreement that will see Russia finance the expansion of Hungary’s Paks nuclear plant. Whether it’s providing genuine aid or not, Russia’s message to the EU is clear – it won’t be stopped.

The growing piecemeal arrangements make obvious the sanctions’ limits – there’s not much further they can go – and demonstrate that nobody wants to be the last one to the table when the sanctions do indeed drop.

Russia possesses tremendous opportunity for growth and with no lack of suitors – east or west – Putin is in no hurry to pander to the US or EU hardliners.

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  1. ProNewerDeal

    Yves, sorry for this rant, I just get disgusted at US propaganda er “Conventional Wisdom”

    “When sanctions were imposed and tightened against Russia, and oil prices plunged, conventional wisdom in the US press was that the Russian people would not tolerate a decline in living standards and therefore Putin’s days were numbered.”

    By this “logic”, the US press & “conventional wisdom” should not be shocked that Venezuelans approve the elected Chavez/Maduro gov’t, who have a solid record of improving median income person living standards from their time ~1999 now, IIRC dramatic improvements like 1/2 the infant mortality, 2X the Univ students, increased life expectancy, etc.

    Also by this “logic”, the US Media & “conventional wisdom should be shocked that the USians are “tolerating a decline in living standards” since at least the 2000 Supreme Court Court. Why have not BushJr & now Obama’s “days were numbered”. At least Putin can point much of the blame on the Median Russian Igor’s decline on foreign PTB’s behavior like the US/EU sanctions, whereas Obama & Bush43 themselves ARE the PTB or are paid puppets of the PTB causing the decline in Median USian Jane’s living standards, with trying to slash Social Security/Medicare, bailing out the 2008 Global Financial Crisis Criminals, killing Medicare For All while Individually Mandating Jane Public into buying a Oligopolistic Crapified Health Insurance, not raising the Minimum Wage, harming Union organizing & collective bargaining, etc. Median wealth, income, life expectancy, job security are down or flat since 2000. Obama Reagan V & BushJr Reagan IV and the US powerful economic oligarchs & poli-trick-ians are grossly incompetent on US living standards relative change, flatly sux ballz, whether compared to other nations in the same time period like Canada or Venezuela; or to historic US time periods, like the New Deal America Era ~1933-1980.

    The US “Conventional Wisdom” from the hacks like Thomas Friedman, Fareed Zakaria, David Brooks, are grossly incorrect much more frequently than they are correct in their proclamations, yet “surprisingly” do not get fired for their incompetence at their stated job (their real job is US PTB propagandists) while lecturing Muricans, many of which are vastly unemployed or underemployed (engineers & lawyers driving taxis or “Ubering”, etc) that they aren’t sufficiently competent.

  2. steviefinn

    You do great rant – Americans & Europeans are getting the same shock therapy that was appiled to the Russians in the nineties, but the majority obviously don’t know this. It seems as though some of the once Soviet bloc countries have become dissillusioned with the ‘ We have democracy, we are free, we have a system where anyone ( but not everyone ) can become rich ‘. etc etc. Throw in a couple of trade treaties & the next crash & maybe, despite the medias ongoing cheerleading of our deformed version of Capitalism, enough people might realise the truth, which to me anyway, is that Putin whatever his faults seems to be trying to get the best deal he can for the people of his country, whereas in the West – all that now seems to matter, is to get the best deal for those who have best access to the trough.

  3. V. Arnold

    The main problem with the U.S.’s assessments of Russia, is a total lack of understanding of their culture or languages. That alone disqualifies most from any informed assessment of Putin or Russia.
    Diplomacy from the U.S. isn’t knowledge based; it’s the barrel of a gun.
    99.99% of the reporting is just a howl; if it weren’t so blatantly ignorant. The hubris and hyperbole are just astonishing.
    Why, for example, aren’t Stephen Cohen or Dmitry Orlov featured by the MSM?
    Okay, rant over, carry on…

    1. Sam Adams

      I’d add mericans have no conception of Russian history and its impact on the choices Putin makes.

      1. V. Arnold

        Bingo! Americans (I hate that moniker), rather U.S. citizens, have no sense of history; either actual U.S. or, the greater world in which they live. WWII? That’s just hilarious; absolutely no clue what-so-ever!
        Russians lived it, fought it, died for it, and survived it: And defeated Hitler to boot.
        And Obama is going to intimidate a man who could kick his ass in seconds? That’s just beyond ridiculous. The leaders of the U.S. are living in a self generated fantasy. Very dangerous, and more than a bit ruthless.
        I’m just waiting for the day Europe wakes up from their dream, to the reality they are actually dealing with, and not a course rational humans would follow. They know! Denial is strong there…

        1. rusti

          And Obama is going to intimidate a man who could kick his ass in seconds? That’s just beyond ridiculous.

          I’m not sure what the implication is here? Sounds like a good slogan for Arnold at least for when he hops in the Clown Car.

          As far as intimidation goes, if I were Putin I’d be scared that Obama is either incapable (or unwilling) to control the more suicidal war-mongering factions in the US and that they continue to act in a provocative manner regardless of potential consequences. That is to say, not like a “rational actor”.

          1. V. Arnold

            I’m not sure what the implication is here? Sounds like a good slogan for Arnold at least for when he hops in the Clown Car.
            Oh, the ad hom is special. Grow up.
            Obviously you do not understand the situation.
            Putin is genuinely a tough guy; Obama is only as tough as those backing him up.
            I’ll not waste more electrons responding to a nothing comment.

            1. rusti

              I’m not sure how in the world you interpreted my comment if you think it was a personal attack.

              1. ran

                V. Arnold thought you were referring to him/her when you were presumably referring to the ex California gov. and lousy actor Arnold S.

                1. rusti

                  Ah! That must be it. How foolish of me to have not even glanced at his username to understand how that could have been confusing.

                  1. V. Arnold

                    Indeed, that explains a lot. An unfortunate, but surprising coincidence. Cheers.
                    I’ve been out of the western hemisphere for well over a decade; so also out of touch with local homilies.

    2. ira

      As an aside, is this your name (V. Arnold) or is it a tribute to the great mathematician ?

    3. NotTimothyGeithner

      I think a larger problem is “American exceptionalism. ” Americans don’t grasp we might not be as popular as Tom Hanks in 1998 or much less that it’s even possible for Americans to not be liked.

      Even if we just followed “golden rule” approach and minimal knowledge of geography to Crimea, we should see the Russians point and the complete ludicrous nature of DC’s bumbling policies. People aren’t going to like being told what to do by ferners. Back in ’04, Kerry not Dubya took heat over Euros wishing Kerry luck.

      1. digi_owl

        The nation also miss a sense of close up threat.

        The last time something out of the east tried to event the score between them and USA, the latter almost hit the button on nuclear war.

        Watching USA do international politics is like watching someone keel over from an autoimmune response.

        1. NotTimothyGeithner

          Our elites aren’t dismissed either. Kerry and Clinton both voted for the Iraq War and became diplomats afterwards. Obama voters should have gone crazy.

          Harry Reid, Nancy Pelosi, and Debbie Wasserman Schultz should have all been dismissed from their leadership posts, but their underlings lame the anti-incumbent environment for defeats instead of questioning why there was an anti-incumbent sentiment.

          On the GOP side, Jeb is running for President. Of course, the 41-Romney class is so repulsive Jeb is their only real option. They fear a Conservative nut they can’t control more than an FDR type.

          The perspective in the non black areas of DC is that things are great. No one is ever held accountable.

          1. dsa

            The federal employee part of D.C. is a total bubble. Austerity has just reached this crowd, but they are still insulated by federal benefits and due process. It’s 1995 there still (not that any year has been good for workers since 1972.) They’re next on the table for eating by the elites. It seems to be in slow motion, however, when compared to state workers, particularly teachers, which are in the process of being fired all, to make way for privatization.

  4. James Levy

    The strange irony for me is that conventional wisdom is driven by an insider mentality that tells the opinion-makers that they are “in on the real deal” and have to prevaricate to bring the plebs along for their own good, but these same opinion-makers are as ignorant and deluded about what is going on as the marks they wish to play. You have a whole class of people who consider themselves “in the know” yet are absolutely clueless about reality and prone to endless groupthink and self-deception (self-serving deception might be more apt). This creates the funhouse mirror effect one gets gazing at the talking heads on the tube or reading their pieces in the Journal or the Times.

    1. Carla

      Try reading “National Security and Double Government” by Michael J. Glennon. Only 118 pages, and it explains a lot about our so-called foreign policy–and the funhouse mirror.

  5. Larry

    Interesting bit about Tsipiras meeting with Putin on April 8th for possible alternative funding. Everything I have read here at NC indicates that Russian financing for Greece is a non-starter. Though I do wonder if the Troika’s treatment of the new Greek government has changed their options a little bit.

    The rest of the piece seems in keeping with Russian history. Russia has strong interest in self-defense. Russia will work strategically with the West if it views the West as cooperating with it’s needs for security. If those needs are violated, Russia will defend itself. And Russians have an unbelievable abilty to endure a great deal of suffering. As Ian Welsh has pointed out as well, Russia is sovereign. It has large amounts of resources and can provide for it’s people. No proxy war is going to bring down Putin.

    1. MyLessThanPrimeBeef

      Speaking of Ian Welsh, there was a link to his article about making the rich and powerful work for us in yesterday’s Links.

      It reminded me of what I wrote recently.

      The Department of Agriculture, to a small organic farmer, is certain powerful.

      To make it work for us, why not, as I wrote before, make it grow food for us?

      The Department of Transportation – it can make cars, airplanes, trains, trucks, etc.

      And we the people can tax the government based on what much it has produced.

      And we da People can inspect its facilities to make sure they meet all regulations.

  6. Jackrabbit

    conventional wisdom in the US press

    MSM boosterism and transcription seeks to shape conventional wisdom. (Previous comments have recognized this.)

    But this is raises an interesting and critical issue that is little discussed (except, maybe, among bloggers themselves). Critical analysis can sometimes make it difficult to reach a wider audience. Using the term ‘Party Line’ would turn many off, even though it expresses a truer state of affairs. One of the 60’s slogans was “Question Authority”. People don’t seem to appreciate the dangers of unquestioning acceptance of what they hear from the MSM echo chamber.

    I doubt that I am the only one that has noticed when some part of the official narrative is accepted so as to make an important point. There are times that I think to myself: if this person knows enough, is aware enough, to make this (larger) point, how can they not see that they are are also accepting a flawed narrative as part of their analysis?

    But I like it when the official narrative is accepted so as to knock it down, as Yves aims to do here. IMO it works better (and is more fun) when that narrative is lambasted, not just refuted.

    H O P

  7. susan the other

    A nuclear deal with Hungary, through which a river runs. The Danube, emptying into a delta on the Black Sea (right?). That kinda looks like defensive strategy which could include Austria. An oil exploration deal with Greece that the EU nixed once before – so this means that if the EU is unable to come to terms with Greece, Greece will leave the EU high and dry and go with Russia. Also looks like defensive strategy. Just in case the US-NATO alliance is as crazy as Nazi Germany.

  8. The Heretic

    The example of Russia should be used to puncture the myth that the keys to prosperity are exports and trade surpluses. A country needs to export only if it needs forex to purchase materials, products or services from abroad. Russia probably has most of the necessary raw materials and internal production capability to meet most of its internal demand. So, provided Putin understand MMT, he should be able to spur internal Russian innovation and demand, so as not to need the west.

    1. NotTimothyGeithner

      I think Putin is sympathetic to that course, but he doesn’t lead a classic political party or a cult of personality as much as an alliance of anti-Yeltsin, anti-Communist hardliners.

      His star rose from opposing Yeltsin as a non-communist, but he still has to be restrained in his policy movements. Putin didn’t renationalize the energy industry directly, but the takeover of Gazprom gives the state major authority without legislative changes and forces other companies to play ball.

  9. Rosario

    Well considering the only front (at least topically) gunning for Russia is the American-European “alliance” I don’t think they have much to worry about, unless India, China, and the rest of the world that doesn’t really care for the United States doesn’t count. The only thing that could hurt Russia is the power of American finance, particularly the bond market, but they seem to be dealing with that problem fairly well.

  10. Angry Panda

    1. Sanctions or any type of pressure against a civilian population (including strategic bombing as in WW2), historically, have not worked very well. Usually the population just views this as an act of aggression, and the elites use the nationalist angle to shore up their positions – precisely the opposite of the “logic” used to justify a sanctions-like approach (the civilians will quail in terror and beg their governments to surrender). Yes, there are always exceptions in history, and yes, it is theoretically possible to do enough damage to cause the elites of a given nation to contemplate surrender. But Russia is highly unlikely to be one of those special cases – especially as it remains neither geographically nor politically isolated in the world.

    2. Specifically in the case of Russia any sanctions from the West, by their definition, also ignore that popular opinion has dramatically shifted to anti-West (and, more explicitly, anti-U.S.) since 2003-2004, i.e. Iraq 2. Before Ukraine, before even Georgia’s victorious little war in 2008 (widely viewed over there as a war against a U.S. proxy – interpret that as you will). This is partly why the “liberals” over there themselves say, oh, we can’t get much more than 10% of popular support even if we’re lucky – it’s because their statements along the lines of “we should be like the West” consistently run into the brick wall of “but we don’t like the West!”

    Ukraine has made the whole thing even worse – because now slavic people are actually dying, by the thousand, a mere stone’s throw away from Russia’s borders, all over a U.S.-instigated coup d’etat. But even without Ukraine – this bears repeating – the U.S. was. Not. Liked.

    So obviously sanctions from the U.S. or the Europeans are not going to compel the populace to run and surrender. Rather, quite the opposite. Nor – as some at State appear to think – would this prompt the elites to throw off the current government and come crawling to the U.S. embassy – because one, the elites aren’t idiots (surrendering to the Americans would cause a lot more internal instability than staying pat and taking the living standards hit), and two, because no-one there seriously believes the U.S. can do that much damage economically. Again – there are other nations in the world. Also, everyone has faith in oil coming back, eventually, but even if it never does – another key point – no-one believes things will be as bad as they were back in the 90s, which is already something to rally the demos around.

    3. None of it matters.

    A key issue with U.S. policy-making is that results never matter. Ever. Policies will be perpetuated almost in a vacuum, for as long as they can be – for decades, if necessary, because they were initiated, and at the time someone had a slide deck showing wonderful outcomes. The end. See Cuba, the island of, but that isn’t the only example.

    Eventually, in all cases, either the situation goes into a new phase and the U.S. forgets about it and moves on (Afghanistan I, Iraq II pre-ISIS), or the implementation will become its own reason for being (Cuba, Iran). Since results don’t matter, mistakes or losses are not recognized, and there is no need to change anything.

    So – sanctions against Russia, Putin is evil, Ukraine should be a puppet state, and let’s put some bases in Latvia. This has been going on for years now (see Ukraine’s 2004 elections). And will continue to go on because results. Do. Not. Matter. The ultimate in imperial inertia, if you will.

    Of course, in the meanwhile, some people get dead, and some other people get even more anti-american in their views. But in this case, it’s just some slavs, right? I mean, they’re hardly white people if you think about it…

  11. RBHoughton

    My problem with Russian news is ignorance of Russian language. I have to rely on the English-language press in Moscow which belongs to British and American purveyors and follows a predictable line. Putin does not seem to mind this provocation. I guess he is solely concerned to ensure the Russian-language media gets it right. That leaves Russia Today as my main source which so far seems to report carefully. Fingers crossed.

    I was ashamed to see Putin at Melbourne shunned by the world’s leaders who would not eat food at the same table. This childish behaviour was a repeat of the thoughtless acts at Mandela’s funeral. It seems that national politicians in their international role are simply making money and having fun. If the media gets more diligent will we soon be witnessing the girls and intoxicants too?

    It is a bit silly to suppose that sanctions work. What we have seen throughout history since commerce first became a weapon of war (the Continental System) is that trade always finds a way. The effect of sanctions is not to prevent a country buying / selling what it wants but to increase prices for its purchases and reduce them for exports. When one looks at the way elected parliaments globally are on their knees before the men of commerce, it should not be difficult to understand the real purpose behind a sanctions regime.

    1. V. Arnold

      Good points. Knowing a language is the key to it’s culture. U.S. citizen’s provincialism is not only ignorance, but dangerous.
      I also find RT reliable in its reportage; much more so than the bulk of western propaganda and its purveyors, the MSM.

  12. ewmayer

    @Carla: Thanks for the Glennon reference – FYI, I found this PDF version freely available online at the Harvard National Security Journal website.

    And here is a link to the Boston Globe Review:

    It has long been the province of conspiracy theorists to claim that the real power of government is not wielded by the obvious practitioners of statecraft — presidents, members of Congress, the judiciary — but by secret or semi-secret entities, real wizards whose hidden machinations send us to war, sell us out to enemies, siphon public treasure into private hands. Depending on your talk show or paranoia of choice, these are the bankers, oil barons, one-worlders, war profiteers, Bilderbergers, Masons, Catholics, Jews, or Trilateralists. Our formal institutions, in this scenario, are stage sets, Potemkin villages; our officials are puppets; we are an unsuspecting audience.

    Michael Glennon, a respected academic (Tufts’s FLETCHER SCHOOL) and author of a book brought to us by an equally respected publisher (Oxford University Press), is hardly the sort to indulge in such fantasies. And that makes the picture he paints in “National Security and Double Government” all the more arresting. Considering Barack Obama’s harsh pre-election criticisms of his predecessor’s surveillance policies, for example, Glennon notes that many of those same policies — and more of the same kind — were continued after Obama took office. “Why,” he asks, “does national security policy remain constant even when one President is replaced by another, who as a candidate repeatedly, forcefully, and eloquently promised fundamental changes in that policy?”

    The answer Glennon places before us is not reassuring: “a bifurcated system — a structure of double government — in which even the President now exercises little substantive control over the overall direction of US national security policy.” The result, he writes, is a system of dual institutions that have evolved “toward greater centralization, less accountability, and emergent autocracy.”

    Lambert, does that not meet the general criteria of the “tinfoilers'” Deep State?

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