Storm clouds from Crimea

The invasion of Crimea was a reality check for all of us that assumed that Russia had been integrated into a rule-based global system and was working fairly rationally. As I have blogged before, most of us were wrong about this. Rational arguments work to a considerably smaller extent in an autocratic system, and in Russia, they seem to work less and less. In my previous blog entry, I made the renewed assumption that the world in and around Russia worked along the principles of rationality and predicted that this contradiction will ultimately lead to systemic problems. It is, therefore, worth a look to see where this assumption leads us: does rationality dictate peace or war?

Many suggested that the Crimean crisis showed Putin moving towards a “real” autocracy: I have also blogged about the way the Russian president apparently closed out many of the “Politburo 2.0”, to avoid criticism and took the decision of invading Crimea with a small group of trusted advisors. Brian Whitmore, Sean Guillory and Kirill Kobrin pointed out, in The Power Vertical Podcast last week, the undoubtedly meaningful difference between “advisors” and what they called the “collective Putin” – that is, a sort of limited, yet, collective decision-making that used to be the norm in Russia. But is there really a difference in quality or is there only a difference in quantity?

It’s the arms industry, stupid

I am quite sceptical about the existence of this “real” autocracy. However autocratic a political regime gets, decisions always require the consent of some key players. The number of these players may be reduced – also known as an autocratic turn – but they cannot be eliminated and their “quality” can hardly be changed either. No autocrat can expect to create a docile group of “advisors” from a powerful collegium of quasi co-rulers overnight. If Putin attempted to do this, he would probably fail, and it is hard to believe that a person of such political experience would overlook this. What we are witnessing here is, at best, an attempt of Putin to reduce the number, but more likely only to rearrange the setup of the team whose support he needs to remain in power.

This is hardly news. A year ago, I blogged about the realignment of the elite. Then, two main groups seemed to be in formation: one consisted of Rosneft CEO Igor Sechin, the so-called “orthodox chekists” and the arms industry, and managed to unseat defence minister Anatoly Serdyukov; the other seemed to be made up of Sechin’s business opponent, Gennady Timchenko, other members of Putin’s business/judo/dacha circles such as Russian Railways chief Vladimir Yakunin, Bank Rossiya’s main shareholder Yuri Kovalchuk and Vyacheslav Volodin, the Kremlin’s main spin doctor: they seemed to have solidified their grip on Moscow through the re-election of mayor Sergey Sobyanin.

While there is no indication that Volodin’s group has lost of its influence in the past year, it is a fact that the arms lobby, led by Rostec chief Sergey Chemezov – also the newly appointed head of the lucrative Uralkali – increased theirs. Sergey Shoigu, the new minister of defence, though a rival of vice-PM Dmitry Rogozin, was eager not to repeat the mistake his predecessor – snubbing Rostec – and therefore has played along with the arms lobby so far. In fact, the modernisation of the Russian army gained such pace – especially after the announcement of Putin’s 613 billion USD worth modernisation programme – that Shoigu is often labelled the most efficient minister in the Russian government. Furthermore, Russian authorities set ambitious targets for arms exports: following a rapid growth in the past years, Russia is already second only to the US globally and plans to increase its arms sales more than threefold, to 50 billion USD per year by 2020.

The influence of the arms industry is visibly growing, and is here to stay. In fact, some even pointed out more subtle links between Russia’s aggressive Ukraine policy and the arms industry than just keeping the modernised military occupied. According to an article in Sovershenno Sekretno, Russia’s military modernisation surprisingly depends on Ukraine, or, more exactly, on a factory in the city of Zaporizhia called Motor Sich as well as some Ukrainian shipyards. It is probably not just a coincidence that, in the midst of the annexation of Crimea and a seemingly imminent threat of Russia invading Eastern Ukraine, Motor Sich reinforced its cooperation with Rostec. While the annexation was surely the product of a much more complex process of deliberation, it’s quite easy to see how the arms lobby was interested in increasing the pressure on Ukraine, or even declaring a war on the country.

And while the arms industry increased its influence, Vladimir Putin put another plan in motion: the creation of a power network of loyal technocrats, appointed to important positions related to financial oversight and the fight against corruption. These include Elvira Nabiullina, the governor of the Central Bank, Tatiana Golikova, the chairman of the Court of Audits, Yevgeny Shkolov, the Kremlin’s appointee to oversee asset declarations of officials, as well as a number of key parliamentary deputies. This informal group, or rather, centralised network has, step by step, increased its influence together with the arms lobby.

The annexation of Crimea further underlined this process. The first two high-ranking Russian officials to be appointed to the peninsula were Oleg Belaventsev, the presidential envoy to Crimea and Oleg Savelyev, the head of the newly created Ministry of Crimean Affairs. Their appointment reflects the continuation of the classic game called „conflicting authorities” in which two officials from different power networks are appointed to oversee basically the same policy field. This time, Belaventsev, a long-standing ally and former colleage of the minister of defence Sergey Shoigu represents the silovik block, while Savelyev, a protégé of Dmitry Kozak, the chief organiser of the Sochi Olympics, represents Putin’s newly formed „technical block”. For the third group, so far no positions have been assigned in Crimea – even though they were probably hit the hardest by Western sanctions –, and neither have been, obviously, for the government’s „liberals”.

As I have blogged before, the annexation of Crimea primarily served Putin’s interests: it practically gave his much-contested third term a communicable vision, legitimation if you will. Keeping the elite on tight leash is another important goal of the Russian president in his third term. It shouldn’t come by surprise that the two groups that could successfully align their interests with Putin’s gained influence in the past year. This indeed heralds a major rearrangement of Putin’s “Politburo”, maybe even an attempt to narrow it somewhat, but by no means could it be the harbinger of “classic” authoritarian rule.

No room for narrowing

Narrowing the number of essential supporters would only work under certain circumstances, notably, if popular support for the ruler were continuously high, preventing the elite from trying to change the course of the government. Despite Putin’s popularity soaring, this is not the case. A January poll found 73% of Russians opposed to armed involvement in Ukraine. A March poll found 74% supporting a potential war. This impressive turnaround is probably the product of the Russian government’s methodical and heavy propaganda, not some instinctive Russian nostalgia for the country’s status as a global power. Russian society has become much more individualistic and materialistic in the past decades, as shown by opinion polls. Only a persistent but small fragment of the society is really keen on restoring Russia’s grand power status at all costs.

As soon as the harsh economic realities of Putin’s war become visible and tangible for citizens, public sentiment may just take a similarly quick back turn again. As long as nationalist fervour is there, no one among the elite will openly (or even confidentially) question Putin’s decisions, as it would be a political suicide. Airing the dirty laundry in public would be uncharacteristic for Russia’s politics anyway. This, however, does not mean that there is no latent split inside the Russian political and business elite already. As long as problems can be communicated and resolved behind the scenes, the elite will prefer just that, and Putin can remain the decider. But what happens if a considerable part of the elite feels that their voice is not heard any more? What if they become to feel cheated by the president, who promised them that they would weather Crimea with a couple of scratches and bruises? What if the nationalist fervour, fuelled by the government, is trumped by economic realities?

These economic realities are, supposedly, there. Business News Europe estimated that annexing Crimea would cost Russia 443 billion USD this year, without any economic sanctions, crushing any chance of economic growth this year. Capital outflow in the first three months of this year has already topped the figure for the entire last year, and, according to World Bank estimates, can reach 120-150 billion USD in 2014. Crimea itself could cost the Russian budget as much as 7,3 billion USD only this year, wiping out the emergency reserves of the Russian budget. Needless to say, the Crimean economy cannot be developed overnight, even if the Russian government names it a special economic zone: with political and operational risks this high, Crimea will likely suffer from the lack of FDI in the foreseeable future. Can these losses be offset by the peninsula’s gas reserves? Hardly.

Having to face economic realities will have its effects both on the Russian elite and Russian voters, but not immediately and probably in vastly different time frames. Some argued that Western sanctions would in fact serve as an argument for Putin to urge further repatriation of the ruling class’s assets. This may be true, to some extent, but even so, they will be disgruntled by the prospects of losing their estates in Provence or their assets in London. Some argued that the endurance of the Russian population is legendary. Again, true, but we live in a different world now with an increasingly emancipated Russian middle class and a large part of the population relying on an ailing Russian industrial sector.  How long this period of patience mixed with fake enthusiasm will last is anyone’s guess, but it will end sometime.

Putin must feel this danger. One of the main reasons why he called Barack Obama last week and seemed to favour a “diplomatic solution” was probably that he had increasingly become aware of longer-term dangers of the present approach. With the federalisation of Ukraine, proposed by Sergey Lavrov to John Kerry last week, Russia could close the books on Ukraine as a victory. Everything less than that would come down as a defeat. This is as far as Putin can afford to go to avoid losing face. Should the West play along? Probably not. However, there is a huge risk to this approach.

Under the present circumstances, from Putin’s point of view, the only possibly alternative of finding an end game may as well be trying to maintain the present level of nationalist propaganda, which would, of course, first require creating a situation in which it can be maintained.

In other words, to keep on attacking.

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