Winter in Moscow: Putin wrestles with economy, sanctions, Syria and Kremlin factions

It was a delayed start to the Russian winter that is echoing in political events in Moscow.

Putin plays with dogs in the snow

Putin plays with dogs in the snow

In January, after an abnormally warm December, real winter finally came to Moscow. The city was covered with white snow; light frost and winter sun brought some joy into the lives of Moscovites, a feeling they have desperately lacked due to the hardships brought by the current economic crisis.

According to some well-informed sources, severe winter also rules inside the Kremlin’s corridors.

The economic situation inside Russia is truly desperate.  Three major factors are driving the situation: The endless fall of world oil prices, western sanctions against Russia for its actions in Crimea and Donbass and Russia’s intervention in the Syrian civil war sent the country into a deep spin. There is no light at the end of the tunnel.

The general mood in the Kremlin can be summed up by this Russian joke:

  • (Putin dreaming in his bed) I’d like to inform all of you that the current price of the barrel is $130 and it continues growing; the ruble exchange rate is R37/$1 and the dollar continues to fall…
  • (A whisper awakening Putin) Mr. President, Mr. President …
  • Damn, this jerk Peskov (Putin’s press secretary) who spoiled the President’s dream!

But wishful thinking aside, Russia’s political leadership is increasingly concerned about the country’s economic situation. Putin’s major achievement after 16 years in office – stability – is seriously endangered. The first signs of growing civil discontent are already visible. Local political experts believe that if current tendencies in the economy prevail (and they are likely to) this popular discontent could take on massive proportions.

For the time being, the Russian government may be able to cover holes in the social articles of the state budget through several stabilization funds. However, as Finance Minister Alexei Ulukayev bluntly put it, those funds will ultimately last till December 2016. After this date, Russia will have expended all its financial reserves.

The key conundrum raised by western sanctions is quite clear for the Kremlin: Without serious movement in implementing the Minsk agreements, these sanctions will not be lifted. This is regardless of any speculation to the contrary in the Russian and foreign press. Moreover, the “Crimea” part of the sanctions will never be lifted because, from the Kremlin’s view, the problem of Crimea does not exist at all – it is an integral part of Russian territory now and forever.

And then there is Syria. In launching his Middle Eastern operation last September, Putin was inspired by the words of his beloved emperor Napoleon: “First we’ll get into combat, and then we shall see.” Of course, by going into Syria, Moscow was seeking to save the Assad government from an imminent end, distract world attention from the Ukraine crisis and re-establish Russia as the world’s leading power, at least militarily.

However, as of today, Putin’s reliance on the second part of Napoleon’s words, “we shall see,” seems to have encountered a slight miscalculation. Russia is stuck in Syria, and an end of Moscow’s involvement in that part of the world is definitely not on the horizon. With the economy in its current state, Russia cannot afford to engage in prolonged and costly overseas military operations.

A senior Russian military officer recently confided in private conversation: “Maximum we can sustain there (in Syria) for another half a year. After that … we will have to, — no, we will be forced to make drastic decisions about our participation.”

All this boils down to one huge, two-horned problem for the Kremlin: How can it cope with the Syria crisis and handle the economy at the same time? As usual in Russia, the pressure to make drastic decisions immediately precipitated a bitter under-the-carpet fight among the Kremlin’s various political clans.

A little history needs to be given to explain such infighting. Over the last two years, the so-called “siloviki” faction of former officers of the Russian security services have grown to occupy predominant positions inside in the Kremlin. They rose to power following an outburst of Russian “patriotism” (read nationalism) based on annexation of Crimea, Russian support of separatist movements in Donbass and the military deployment in Syria. They also exerted heavy influence on Putin.

Thus, for two years Russia adopted an unprecedented military budget and invested heavily in its military-industrial complex. It was because of the sivoliki faction’s influence that Putin’s long-promised program of further economic reforms, and in particular, the next wave of privatization of state companies, has been indefinitely postponed.

This was due to the influence of the siloviki faction’s two most prominent representatives. The first is Putin’s former chief of staff and now president of the Rosneft state corporation, Igor Sechin. The other is deputy prime minister in charge of Russia’s military-industrial complex Dmitry Rogozin. Both of these men convinced Putin in 2015 that: a) oil prices will stabilize by the end of the year at the level of $50/barrel and b) western sanctions are good for Russia because it will stimulate Russian industry to produce goods previously imported from the West, under a so-called import replacement program.

But the reality is that global oil prices are currently hanging at less than $30/barrel. The import replacement program also proved to be a huge flop. Its only result was that it exposed how far corruption, like a huge cancer growth, has penetrated to all levels of the Russian state and industry.

And now a few words bout Putin. There are different ways to assess Putin as a statesman and individual. But those who know him note one quality – loyalty. Putin has always been loyal to his friends and supporters. He has also never forgiven those who, from his view, betrayed him. And now, according to several well-informed sources in Moscow, he feels betrayed, and he is very angry about it.

Sechin and Rogozin, while continuing to occupy their high positions, sources stress, no longer enjoy the president’s trust and support.

Faced with the challenge of finding ways to preserve stability in the country, Putin has turned to another faction inside the Kremlin for support — the so-called “liberals.” The great majority of this faction is made up of  technocrats, professional economists and lawyers. The group includes Prime Minster Dmitry Medvedev, his deputy Arkady Dvorkovich, former Finance Minister Aleksey Kudrin, president of Sberbank German Greff and others.

The above sources maintain that slowly but surely, Putin is tilting toward the liberal faction. Some important steps in this regard have already been taken: State financial support to state energy companies has been cut almost completely; Russia’s military budget has been decreased almost 30%, state investments in the military-industrial sector have also been drastically cut.

However, as observers in Moscow note, it’s still too premature even to start talking about “liberalization” in the Kremlin. These are just the very first, stumbling steps in this direction. By themselves, they are incapable of resolving existing problems. At most, such steps can only be described as a very shy tendency for reform.

The siloviki faction is far from serenading and giving in. Most likely, the main battles in the Kremlin will take place this spring around the privatization issues. As of now, it’s almost impossible to say who will prevail in a political system where all final decisions are made by one person – Vladimir Putin. Much of what happens depends on his moods and thoughts at the moment.

The upshot is that so far, it is severe winter in the Kremlin with a shy hope for a warmer spring.

Jim Davis is a political analyst and consultant.

The opinions expressed in this column are the author’s own and do not necessarily reflect the view of Asia Times.

(Copyright 2016 Asia Times Holdings Limited, a duly registered Hong Kong company. All rights reserved. Please contact us about sales, syndication and republishing.)



Categories: AT Opinion, Middle East

Tags: , , , , , , , , ,