Putin has been ruling the Russian Federation for a long time with the Dimitry Medvedev interregnum being nothing but a proxy rule of the former. When Putin succeeded Boris Yeltsin the US and the Western European bloc had hoped for a chaotic continuation that Russia had witnessed during the regime of Yeltsin, but they were only shocked and jerked out of their dream by the resolute and dour nature of the new leader
The Ukraine crisis has been throwing interesting spin offs. The mystery over the crash of the Malaysian Airlines jet is yet to be solved. The US and the West have imposed sanctions against Russia. Moscow has retaliated by stopping the import of fruits and meats from the European Union countries. Crimea, strategically important part of Ukraine, has become a part of Russia. Amidst all these hullabaloo, the man who has shot into the centre of this volatile political and military hailstorm is none other than Vladimir Putin, the President of Russia. The US and the West regard him as an obstacle in front of their grand design of dominating Russia, the eastern Europe and the Central Asia. But now the all important question is: Will economic sanctions be really able to weaken Vladimir Putin?
There is a basic difference between the present situation and what was there during the time of the Cold War when the state structure in the former Soviet Union was certainly less personalized. Putin has been ruling the Russian Federation for a long time with the Dimitry Medvedev interregnum being nothing but a proxy rule of the former. When Putin succeeded Boris Yeltsin the US and the Western European bloc had hoped for a chaotic continuation that Russia had witnessed during the regime of Yeltsin, but they were only shocked and jerked out of their dream by the resolute and dour nature of the new leader.
At the initial stage Putin’s attitude was greatly influenced by the development over Kosovo. Russia had at first tried its utmost to prevent the US and the NATO from attacking Serbia. But this had failed. As the invasion protracted without producing any quick result the Russians mediated and arranged for a peace keeping and administration of the territory by the US ansd NATO forces with an explicit understanding that the Russian Federation will have a substantial role in it. But the Western bloc reneged on its promises and Moscow stood humiliated. In more recent times Russia was suspended from the G-8 group of countries under US initiative and Barack Obama, the US President rubbed salt to the wound by describing Russia as a regional power only which cannot compete with America’s global influence.
From the Orange Revolution of 2004 to this year’s forcible eviction of Viktor Yanukovich, Putin has always held the CIA responsible for all the turmoil that Ukraine had to pass through in recent times and therefore, given Putin’s background of a former KGB functionary, his tussle with the Western bloc has assumed a strategically important proportion although the Russian Federation is not in the best of economic health now. Its rate of gross domestic product growth has been declining for the last couple of years and according to some experts it may hit a zero growth rate figure this year. Till now it has not and the GDP growth rate now stands at 0.5 percent. But most of the regional governments are now running on debts. The first six months of 2014 has witnessed flight of capital amounting to $ 76 billion. For the whole of 2013 this figure was much lower, only $ 63 billion. Compared to the first half of the last year, foreign direct investment has fallen by nearly 50 percent during the corresponding period of 2014. All these can be directly ascribed to the Ukraine crisis in spite of the fact that the price of oil, now the mainstay of Russian economy, steadily remained over $ 100 a barrel.
In the complex political scenario over eastern Europe,Russia and the Central Asia Vladimir Putin is now the central figure. The US and the West has accused him of harbouring a former Soviet style imperial ambition. It may not be prudent to pass any judgement on this accusation but Putin’s reign is fundamentally different from that of Yeltsin on two counts- first he has vastly increased the space for the State in Soviet polity and economy and secondly he has cracked down heavily on the oligarchs who enjoyed patronage from Yeltsin as well as the US and the Western bloc.
But to what extent can economic sanctions have its impacts on the Russian Federation and Putin? Strategic experts agree that Russian GDP rate will come down, credit line for Russian companies will run dry, there will be very little technology transfer as well as direct foreign investment and flight of capital will take place. But at the same time the same experts warn that it would be foolhardy to conclude that these sanctions will be able to bring Russia down to its knees. According to them the Russian state structure has enormous resilience and most probably it will be able to absorb the shock. They cite two examples- the great Russian recovery after the second world war and the country’s turn around after the chaotic 1990s.
But the West also knows that Russia can also hit back with its two most potent weapons- oil and natural gas. In spite of an unusually warm last winter and the resultant storage of 40 billion cubic metres of natural gas which is ten percent of its annual consumption, Europe stands vulnerable in the face of any Russian supply cut off. Till now Russia has not retaliated in such a manner but there is no guarantee that it will not do so in future. The continuing rise of bellicosity between Russia on one hand and the US and West European countries on the other and the approaching winter are enough to keep the Europeans anxious. Moreover the bulk of the storage is in Germany and Hungary and it is open to conjecture as to what extent these two countries would agree to share the resources with other European nations. More serious will be the condition of Ukraine whose storage of gas can sustain it for four months only in the event of a total Russian cut off. As Russian exports accounts for 60 percent of Ukraine’s and one third of Europe’s total gas consumption, Vladimir Putin has left enough indications that oil and gas might turn out to be useful weapons in his hands.
Even after the crash of the Malaysian Airlines jet with the widely bandied allegation that this was the handiwork of Moscow backed Ukrainian secessionists, the above mentioned facts had perhaps tempered reactions from the Western bloc to some extent. Even now the West appears to be wordly wise and behind all of its economic sanctions there are shadows of avenues of retreat. The US and the Western Europe cannot brush aside the fact that Russia is world’s second biggest oil supplier and the biggest exporter of natural gas and particularly the Central and East European countries depend on them to a great extent.
Import-export figures point out that Russia has an advantage. Moscow exports ninety percent of its natural gas and eighty percent of its crude oil to Europe whose thirty percent of total gas consumption comes from Russia. Of the East European countries, Hungary and the Slovac Republic are nearly totally dependent on Russian oil and in 2010 more than 90 percent of imported gas in Poland, the Czech Republic and Slovakia was supplied by Russia. For Hungary this figure stood at seventy percent and for Germany 40 percent of its gas supply came from Russia.
Conversely, it also establishes that the Russian economy is heavily dependent on European energy market. In fact fifty percent of the Russian budget is financed by revenues from oil and gas sales in Europe in which Ukraine serves as the most important transit country. After Crimea’s integration with Russia, the western part of Ukraine, through which passes much of the oil and gas pipelines, has become vital in spite of the fact that secessionists have their bases in the eastern half. Most of the strategic experts are of the view that jeopardizing its European energy market where Ukraine is also a customer will be Russia’s last option. Natural gas forms forty percent of Ukraine’s total energy consumption and sixty percent of it is supplied by Russia which also enjoys a monopolistic control over Ukraine’s import of crude oil.
Putin’s persona has now become a central issue in the Ukraine crisis. The Russian President may have a grand idea of recreating the old Soviet empire or at least its erstwhile sphere of influence. That is why Russia has been trying hard to give a definite shape to a Eurasian Union although it faces opposition from some of the Central Asian states. One such is Kazakhstan whose President Nursultan Nazarbayev has expressed in no uncertain terms that his country would, in no case, agree to lose sovereignty. Belarus also sings almost in the same tune. Russian absorption of Crimea has strengthened the belief among Western leaders that Putin would constantly try to expand the Russian territorial border.
Putin is an outcome of the dismemberment of the Soviet Union but he has retained some of the institutional features that had contributed behind the destruction of the latter and this has given the West an opportunity to strike at him without jeopardizing continued supply of Soviet gas and oil. Quite in consonance with his autocratic style of functioning Putin has actively pampered quite a few of his favourite oligarchs who now control vital sectors of the economy like energy and finance. Among them the names of Gennady Timshenko, Igor Sechin, Yuri Koralchuk and Nikolai Shamalov may be mentioned. Among them Timchenko is the chief of the Volga group, a giant investment firm and a key figure in Novatek, the second biggest gas producer of Russia. Sechin, a former intelligence figure, is the Chairman of state owned oil firm Rosneft. Both Koralchuk and Shamalov are the biggest share holders of the Rossiya bank. So the Berezovskys and Khodorovskys of the Yeltsin era are gone but a new set of their successors has taken over. Western economic sanctions have targeted not only the oligarchs but most of the institutions they head.
There is however a question as to what extent these sanctions would be able to cripple Putin’s wings as oil and gas, the two mainstays of Russian economy have largely been left untouched. Strategic experts are of the view that even if oil and gas were brought within the limits of sanctions, it may have been difficult to browbeat Russia. According to some of them the value of Russian oil and gas( a complex computation and analysis of how it is produced, collected and distributed in the economy) has been maximum during Putin’s tenure, surpassing hugely the corresponding figures during the times of first Leonid Breznev and some of his little known Soviet successors and then Mikhail Gorbachev and Boris Yeltsin. In the 1990s, during the time of Yeltsin this value of oil and gas was at its lowest point. This had caused Russian weakness and its crawling before the US and the Western Europe.
This time the task before the Western powers is harder. Increased value of oil and gas means increased revenue at the hands of Putin and by dint of a strong administration he can channel the resources to the sectors of economy he thinks fit. At this juncture defence and security apparatus are the two areas attracting the maximum amount of allocation. But most important Putin has used this increased revenue to ensure that Russia has no debt to foreign governments or supranational institutions.
Even if the West focuses its attention on Russian oil gas as the target area for next phase of sanctions, its success will be uncertain. Russia now exports seven million barrels of oil per day which is much more than that of Iran, another sanction-hit but oil-rich country. In the 1990s Russian oil production had fallen by five million barrels per day and the shortfall in world market was covered up by the OPEC through increased production. This is no longer possible today as the OPEC itself is at the end of its tether. So there will be a huge shortfall in the supply side all over the world if Russian oil is brought under the purview of sanctions bringing in its wake severe recession. Secondly in the event of Russian oil not being available in the market, the price of crude oil would have to be enhanced by nearly $80 per barrel. This is clearly not just possible.
So Putin may continue to enjoy a strong strategic position. But the West can certainly hope that economic sanctions will bring hardship for the common people in Russia and make Putin unpopolar at home. Meanwhile some recent surveys indicate growing unpopularity for the Russian President. According to one such survey 55 percent of the Russians want to see a new man,other than Putin, emerge as the President of Russia in the 2018 election. Only 26 percent people wish for Putin’s reelection. Moreover while only 14 percent people want to see continuation of Putin’s policy by his successor, a whopping 41 percent want a new leader and a new policy.
By Amitava Mukherjee