The Economic Crisis in Russia and Its Political Contexts
INSS Insight No. 647, December 25, 2014
Zvi Magen, Sarah Fainberg .
http://www.inss.org.il/index.aspx?id=4538&articleid=8438

APPROVED: Signs of a severe economic crisis in Russia, threatening the
stability and future of Vladimir Putin’s regime, are multiplying. The
economic sanctions imposed on Russia are among the main triggers of the
crisis, along with the sharp decline in the price of oil, which – according
to Russian officials – is the result of deliberate anti-Russian activity
initiated by the United States. However, it is too early to eulogize Putin’s
rule. He still enjoys widespread public support and projects a sense of
being in control of the situation. Nonetheless, the trend is one of crisis
whose key feature is uncertainty. It is impossible to predict the scope and
duration of the Russian economic decline and its possible negative impact on
the nation’s governmental and social stability. This uncertainty means that
the potential for exacerbation of the Russian-Western conflict remains.

Signs of a severe crisis of Russia’s economy are multiplying, which
threatens the stability and future of Putin’s regime. The economic sanctions
imposed on Russia are among the main triggers of the crisis, along with the
sharp decline in the price of oil, which – according to Russian officials –
is the result of deliberate anti-Russian activity initiated by the United
States.

This crisis is directly linked to developments on the Ukrainian front. The
ongoing, low-intensity Ukrainian conflict has turned into a manifest Russian
defeat. Ukraine has cut itself off from Russia’s influence and forged closer
relations with the West, lowering Russia’s chances of establishing a viable
Eurasian Union under its leadership. Adding to Moscow’s predicament, the
West, led by the United States, has imposed strong economic sanctions on
Russia because of its Ukrainian policy. As a result, Russia currently faces
a very challenging economic reality that is forcing it to try to annul some
of the steps were taken against it.

From the perspective of the United States, Russia’s difficult situation
seems well-suited (at least better than in many years) to US attempts to
promote its global strategic objectives. Yet Washington has a list of
demands that Russia will find hard to accept. The willingness of the United
States to ease the strong pressure exerted on Russia hinges on Moscow’s
readiness to concede its assertive policy in eastern Ukraine in particular
and in Russia’s post-Soviet neighbors in general, for the conflict over
Ukraine is neither an accidental nor a stand-alone issue. The Russia-US
conflict (in effect, a Russian-Western conflict) is about gaining
comprehensive influence on the post-Soviet space and for this reason it will
not end with a compromise over Ukraine alone. Therefore any arrangement
palatable to the West will also presumably involve elements connected to
other post-Soviet territories in dispute.

In tandem with the Ukraine crisis, recent months have seen increased Russian
activity across the Middle East. Russia’s relations with several Sunni
states – including Egypt, Saudi Arabia and other Gulf states, Jordan, and
Lebanon – have been upgraded, mitigating the coldness that characterized
these relations following the outbreak of the so-called Arab Spring. Russia
has signed arms deals, some of them quite large (e.g., with Egypt) with most
of these states, while maintaining good relations with its traditional
allies: Syria, Iraq, and Iran. Most prominently, after years of strong
tension, relations between Russia and Turkey have improved. President Putin
visited Ankara in late November, and the two countries signed an agreement
on a new gas line from Russia through Turkey to Europe. It seems that as
part of its strategy vis-à-vis its complex international situation, Russia
has chosen to increase its involvement in the Middle East so as to convert
its achievements in the region into leverages of influence on the West,
especially on issues pertaining to Eastern Europe. Indeed, within just a
two-month time period, Russian activity in the Middle East has scored
substantive successes that could form the new basis for a Russian-Western
dialogue on Ukraine and other issues.

Furthermore, Russia is seeking to find new ideas that would serve as a basis
for a compromise, ultimately resulting in the lifting of Western sanctions.
Moscow’s current Middle East activity is insufficient to that end, and
therefore Russia must come up with alternatives. It may be that the Syrian
conflict will serve as a new focus for this Russian calculation. In
practice, Russia remains the main supporter of Bashar al-Assad’s regime and
can topple it should it choose to do so. A development of this nature would
in fact be congruent with the interests of the US administration, and it may
be that this is the background to recent Russian moves in Syria: Putin’s
Middle East envoy, Deputy Foreign Minister Mikhail Bogdanov, recently met
with rebel leaders in Syria, Hizbollah leader Hassan Nasrallah, and the
Syrian leadership itself; Russia and Iran have been in contact, possibly
hinting at the intention to formulate a joint proposal for a Syrian
settlement; and Syrian, Iraqi, and Hizbollah representatives met in Tehran,
another sign of possible consultations on Syria’s regime. There have also
been indications that Russia intends to hold a conference on Syria’s future,
including discussions on Assad’s mandate. It may be that an initiative was
already formulated by Russia and Iran whereby a new Syrian government,
comprising opposition elements, would be declared in the course of an
international conference that would also decide Assad’s status (his removal
or his incorporation in the new government in a minor capacity). Such a
development would mean a new political reality in Syria whose principles
would be shaped cooperatively by the West, Russia, and Iran, with the
backing of the pragmatic Sunni nations in the Middle East.

This formula will likely neither be accepted by the US administration nor
prompt it to lift the sanctions, because the future of Syria is hardly the
only issue dividing Washington and Moscow. The December 14, 2014 meeting in
Rome between Secretary of State John Kerry and Foreign Minister Sergey
Lavrov dealt with the Middle East crises that are of utmost interest to
Russia: the civil war in Syria, the Israeli-Palestinian political process,
and the negotiations with Iran over the nuclear issue. In exchange for
lifting the sanctions, Russia would presumably have to cooperate with the
United States on these three issues, as well as on the Ukrainian crisis. For
its part, the US administration is signaling its willingness to advance new
understandings with Moscow: President Obama has yet to implement further
sanctions on Russia already approved by Congress. But because it is hard to
imagine Russia doing an about-face, lowering its profile on the
international arena, and adapting its policies on key issues in the Middle
East so that it is more aligned with the United States, the sanctions regime
on Russian economy is far from over. Therefore, it is almost certain that
the severe economic crisis unfolding in Russia has not yet reached its peak.

It is too early to eulogize Vladimir Putin’s rule. He still enjoys
widespread public support and projects a sense of being in control of the
situation. But the trend is one of crisis whose key feature is uncertainty.
It is impossible to predict the scope and duration of the Russian economic
decline and its possible negative impact on the nation’s governmental and
social stability. This uncertainty – in addition to domestic disagreements
over appropriate policies – means that the potential for exacerbation of the
Russian-Western conflict remains. It may be that the economic pressure will
spur Russia to show flexibility and compromise with the West in order to
contain the economic challenge, with its domestic and international
repercussions. On the other hand, if Russia persists in maintaining its
recent policy on the international arena, not only will the economic crisis
and its international impact worsen, but the difficulty in promoting
coordinated moves among the great powers and collaboratively address crises
in areas of dispute – including in the Middle East – will be further
aggravated.