05.12.2014)
There
is wide recognition among Russia’s political and financial elites the
country will continue to be in conflict with the West for the
foreseeable future.
Russia’s
President Vladimir Putin’s incredible poll numbers tell him he has the
support of the public for the policy agenda he chooses. This makes both
Putin and Russia feel confident.
For years Putin has made it abundantly
clear in his speeches Russia is not happy with the global status quo.
His address to the Federation Council this week is evidence of this. As
far as Putin is concerned, the entire international system is rigged
to Washington’s advantage. The very existence of the U.S. dollar ensures
Washington and its closest allies will never allow a fair playing
field. That said, Putin is not eager to see the current global system
collapse. He wants more political equality, but he also knows Russia and
other emerging powers face punishment for challenging and breaking
with the Washington designed global consensus.
©
Sputnik. Sergey Guneev
Russian President Vladimir Putin before delivering State of the Nation address, 2014.
Thus, broadly speaking Russia sees itself
preparing for conflicts ahead, a war by other means if you like. The
military should always be prepared for contingency plans, but the
conflicts Putin has in mind focus on finance, trade, and economic
warfare. And, preparing for war, the Kremlin is taking a long view
Western sanctions on the back of the Ukraine crisis have been a renewed
wake-up call. Sanctioning an individual or individuals and their wealth
rarely changes a country’s domestic or foreign policy choices. But
sanctioning the energy sector’s ability to go to international markets,
for example, exposed dangerous weaknesses. Since then Kremlin has been
conducting “stress tests” across numerous sectors searching for other
weaknesses. Putin is hoping for the best, but expecting real challenges.
Going on a war footing is never easy.
Sanction are Pinching, but What Really Hurts is Price of Oil
To-date food import bans have been met
with very little negative blowback. Consumers are not worried
about food; they have something else on their minds. The real concern is
growing inflation and the painful drop in the ruble’s value
on international exchanges since early 2014. Sustained lower oil prices
have crimped fiscal appetites and forced Russia to consider its own form
of budget austerity. Many individuals have had to consider personal
austerity, as well. Soon we will know how many Russians decided to stay
home during the upcoming winter break. This in itself will be an
interesting economic and political indicator.
The Russia-West Standoff: Both Determined, Russia Well Prepared
Since the advent of the “sanction season”
both sides are sticking to their proverbial guns. Aches and pains, yes,
but so far no broken bones or a trip to the emergency room. Russia’s
balance sheet is very robust. The country can easily and comfortably
cover all foreign debt obligations and expected a small budget deficit
to the end of 2015 without going to international markets
for refinancing or new borrowings. This includes the condition of Russia
being in recession for most of the year. Also, a weak ruble adds
security to the budget. And additionally, import substitution will
continue apace, such as of military spare parts once sourced
from Ukraine. All in, Russia is prepared while the West scrambles
to fight off divisions among themselves.
What is next from the West? US President
Barack Obama and German Chancellor Angela Merkel keep saying they are
committed to maintaining a tough line against Russia, but they are vague
about what further sanctions could entail. Indeed, there is not a whole
lot more the West can do against Russia without inflicting massive
assaults on their own economies. Threatening Russia like Iran or North
Korea is simply not tenable. Europe would freeze in winter and oil
prices would skyrocket. Such conditions would create the truly
unthinkable – a hot war that would later be called WWIII.
Russian World Order?
Since the Great Recession of 2008 Russia
has been acutely aware of its vulnerabilities. Being too closely
integrated into western financial institutions was one of them. The
Ukraine crisis was just a reminder that Russia must develop safeguards
against weaknesses and dangers generated in the West, particularly those
found on Wall Street. But it would be a mistake to believe that Putin
wants to pull Russia out of the current global economic system. Putin is
hardly looking to design a “Russian world order.” Russia merely wants
fair access to international markets; it wants its companies to be truly
international, and fair trade for all. And if you have been listening
for the past 14 years, Putin wants institutions like the BRICS and the
G20 to do the heavy lifting when it comes to global policy making.
But make no mistake, Russia is resolved
to protect its sovereign rights in ways European countries have learned
to deny themselves. The West’s media claim that Putin’s language is
bellicose and threatening is a gross exaggeration. In fact, he simply
wants it recognised that Russia should not be denied a respected
position in the world. In the meantime, Russia and Russians are doing
much to make this happen even if Washington continues down the path
of confrontation.
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