Friday, October 24, 2014

The Power Vertical

Russia's Next Crisis

Former Finance Minister Aleksei Kudrin
Former Finance Minister Aleksei Kudrin
What would happen if Russia's current political turmoil were compounded by an economic crisis?
Last week, a think tank associated with former Finance Minister Aleksei Kudrin raised that question, and the answers were -- to say the least -- not pretty for the Kremlin. And today, the ruble fell to a three-year low on falling oil prices, which dropped by 4.5 percent over the past week.
The government insists there is no cause for alarm. Deputy Prime Minister Arkady Dvorkovich told RIA-Novosti that the authorities are "prepared for any scenario" and "have the reserves necessary for dealing with a crisis, if there is one."
Nevertheless, whether Russia's $513 billion in foreign reserves will be enough to weather an economic downturn sparked by contagion from the eurozone and falling oil prices must be causing a lot of sleepless nights in the Kremlin.
A report released on May 24 by the highly respected Center for Strategic Research commissioned by Kudrin's newly formed Committee of Civic Initiatives warned that Russia could descend into violence and chaos if the authorities continued to crack down on opposition protesters or if the economy slides:
Our research shows that the crisis has become irreversible. regardless of the scenarios of its further development. Maintaining political stability, let alone a return to the pre-crisis status quo, is no longer possible ... At this stage we view the probability of such a scenario as high because the escalation of violence has already started. As it spreads, the return of the protests to a peaceful course is becoming less and less likely.           
The report noted that "the middle class in the largest cities is de facto lost for the authorities." An economic downturn would undoubtedly cause them to lose the working class as well, leading to rural and industrial unrest.
At a press conference presenting the report, Kudrin -- who won accolades for steering Russia through the 2008 financial crisis -- said a recession in Russia is "possible and even likely," adding that there was a 50 percent chance that this would be "a destabilizing factor for political problems."
An economic downturn would, indeed, land the second half of a one-two punch against President Vladimir Putin and his ruling circle.
As I have blogged in the past, rising living standards in Russia over the past decade led to the creation of an embryonic middle class that once made up the bedrock of the regime's support. But once that class became secure in its wealth -- as was the case in South Korea, Indonesia, and elsewhere -- it began to seek political freedoms, causing it to lose patience with Putin's authoritarian rule.
Having lost the middle class, which has taken to the streets against him, Putin turned to the working class, which is now the backbone of the Kremlin's social base. A deep recession risks turning them against him as well.
"In connection with the problems in the countries of the eurozone, notably in Greece, the world economy can expect a new strong shock. In the meantime, in Moscow, they are busy with everything under the sun except preparations for a new wave of crisis," a May 25 editorial in opined.
"Of course, fears do not always come true, but if they do come true, it certainly does not have to be in full. But the atmosphere is heating up before our eyes. The flight of capital from Russia is speeding up. Oil has become cheaper," the editorial continued.

"The Russian budget, half of whose income is provided by selling energy, will encounter real difficulties yet this year if the oil price simply stays fixed at today's level. And if it so happens that it stays below $100 for quite a long time, it will simply become impossible to describe what is happening other than with the words 'economic crisis.'"
If the worst-case scenario does come to pass, the results could be nasty. The opposition to Putin is comprised as much of nationalists and radical leftists as it is of pro-Western liberals.

(Note to readers: Tune into "The Power Vertical Podcast" on June 1, where I will discuss this issue at length with my regular co-host Kirill Kobrin, managing editor of RFE/RL's Russian Service.)

-- Brian Whitmore

Tags: Russian economy,Russian opposition

This forum has been closed.
Comment Sorting
by: Eugenio from: Vienna
June 01, 2012 07:18
"Russia's Next Crisis", "Russia's current political turmoil" :-))))). Ah, the RFE/RL clowns are really desperate in trying to divert people's attention from the fact that their "wonderful" country is going towards a financial bankrupcy at home and (one more) military defeat abroad :-)). And yes, please do continue asking me for "proofs" that you, US-made Beavuses and Buttheads, are just a nation of useless inept bankrupt losers :-)).
In Response

by: M from: M
June 01, 2012 14:38
Is it all what you are able to say.
As your Marx said: you are on the history garbage tip, unfortunately comrade you didn't notice it, yet.
In Response

by: Eugenio from: Vienna
June 02, 2012 08:52
No, M, unfortunately for you, this is not all I am able to say. Just a little bit more data on the REAL CRISIS which is happening right here in the EU right now (and not the imaginary one in Russia):
(a) yesterday (Friday) the Central Bank of Spain (this country blessed by god to be a member of the EU) annonced that the capital flight from SPAIN during the month of APRIL only constituted more than € 66,000,000,000!
(b) and following this news - and demonstrating once again what a great system is that of free capitalist market economy - ALL the major stock exchange indicators in the "advanced" "industrial" "democracies" collapsed: the German DAX by 3,20 % in one day (and Germany, as we know, is the industrial motor of Europe), the US Dow by 2,22 % in one day, the French CAC 40 by 2,21 % in one day etc.
And while the roof is already falling on your heads, you continue talking about the "Russia's Next Crisis" :-)).
All this RFE/RL promoted discourse really reminds me of the stories that Joseph Goebbels was telling the Germans in January of 1945 about the "Wunderwaffe" with which the Deutsche Reich was going to destroy all of its adversaries in one night. And then - 6 months later - there was no Wunderwaffe, no Joseph Goebbels and no Deutsche Reich. There was only a bunch of ruins. That's what happened to those who did not want to face the reality back in Jan. 1945 and that's what will happen to you, guys, for this very same reason a couple of months from now.

by: Aibek
June 01, 2012 12:58
Rising living standards in the middle class also preceded the fall of the Soviet Union. However, Putin is unlikely to repeat Gorbachev's "mistake" of allowing greater freedoms. And despite what we read in the news, the numbers of people protesting still represent only a tiny percentage of the population.

Still, the continuing massive outflows of cash from Russia show that the moneyed elites agree with this article.
In Response

by: Jack from: US
June 01, 2012 14:57
money outflow from Russia is similar to money outflow from EU and from Middle East. With EU is heading toward collapse, with US-instigated wars in Middle East, money flee EU, Middle East for safe heaven in US. As EU is the largest trading partner of Russia, Russia is also affected, i.e. money flee Russia for US. Have you watched euro and ruble going down against dollar in recent months? US government makes troubles abroad so as to attract foreign buyers into US treasury bonds, which otherwise would have gone down the drain long time ago, with US economy collapsing as a result. So US government is instigating wars for a reason - to force foreign investors to pile money into US. That's how US is parasiting on world's financial system.
In Response

by: William from: Aragon
June 02, 2012 23:41
Certainly the price of oil is being manipulated in this manner, Jack. Have you noticed how the price of oil goes up due to "instability in the Middle East" when nothing has really changed, apart from the issue of a strongly-worded press release from the White House about Iran, Yemen or some other Middle Eastern country?

by: Dragomir from: Australia
June 01, 2012 14:49
Russia as undemocratic country should be prohibited to sale of oil,gas , minerals and any commodities because all of them by mistake were placed in to soil of undemocratic country.Full unrestricted exploration shall be given to western more democratic country for a 1oo years at least.Al Jazeera should be appointed to educate Russia in all aspects of democracy.I am hoping you do agree with me.By the way you will be free to set out price list . Hopefully once exploration is over Russia will be full
democracy to take care of environmental recovery.

by: Mark from: Victoria
June 01, 2012 16:46
What would happen if Russia's current political turmoil - largely in the minds of the handful of protesters, the perennially dissatisfied elite and their western supporters - were to be compounded by its being struck by a piece of deorbiting space junk roughly the same size and shape, which removed Russia from the map as efficiently as a giant surgeon might? Seriously; if we're going to play "what if?" based on nothing more than a temporary drop in oil prices, which are constantly fluctuating, why not go apocalyptic? Last August the spot oil price was $85.06. Did Russia collapse? Did Medvedev weakly beckon the liberal elite to take the leadership of the country from his failing hands? Was Kudrin - never so popular with the west when he was the actual Finance Minister as he apparently is now that he's a political dissident - carried through the streets on the shoulders of his cheering countrymen? Are we going to be treated to a flutter of seditionist excitement every time the world oil price hiccups?

What would happen to Russia if there were an economic crisis right now? Perhaps Kudrin's think tank found that the answers were not pretty, but you should have asked him how pretty the situation looked for countries that did not have a $500 Billion reserve fund to fall back on. And if the prospect causes a lot of sleepless nights in the Kremlin, what must it be causing in Washington, mortgaged to the hilt to China?

If there is an economic crisis, and there is an excellent chance there will be considering Western Europe is teetering on the brink of the abyss, development will slow or stop, and energy prices will fall steeply. Will they stay low for years? Well, what do you think? Does the west loathe Russia so deeply that it is prepared to undergo years of deprivation and economic contraction in order to bring it to heel or destroy it?

Better ask the voters.

by: Mike from: Prague
June 02, 2012 15:35
This is an interesting post. But I don't see the direct connection between the economic crisis (lower ruble and oil/gas demand) directly translates into a loss of support by the working classes. Unemployment is now at 5.8%, real wages are increasing 10% y/y. Increasing domestic demand can maintain the political support of the working class and can offset part of the headwinds of the European crisis. The only way Putin can lose the support of the working class is by a sharp increase in unemployment and inflation.

What the political opposition really needs at the moment is not the working class, but a set of credible charismatic leaders. But for that to even happen, we need to see greater signs of division among the Kremlin elite (resignation of politicians who then join the opposition). I don't see a way for the Kremlin to start censuring the Internet - they are way behind the curve in that - and so I agree that it is a matter of time until the 'power horizontal' begins to take hold.

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From RFE/RL's News Desk:


Russian President Vladimir Putin has accused the United States of escalating conflicts around the world by imposing what he called a "unilateral diktat."

Putin made the remarks in a combative speech to political experts at the Valdai International Discussion Club, in Russia's Black Sea resort of Sochi.

Putin said the United States has been "fighting against the results of its own policy" in Iraq, Libya and Syria.

He said risks of serious conflicts involving major countries have risen, as well as risks of arms treaties being violated.

He also dismissed international sanctions over Russia's actions in Ukraine as a "mistake," saying they aimed at pushing Russia into isolation and would end up "hurting everyone."

We did not start this," he added, referring to rising tensions between Russia and the West.

(Based on reporting by Reuters, AP, Interfax, TASS)


German Chancellor Angela Merkel has urged Russian President Vladimir Putin in a telephone call to push for a quick resolution of the ongoing gas dispute with Ukraine as winter looms.

The call by Merkel to Putin on October 24 comes as representatives of the EU, Russia, and Ukraine are due to meet again next week in EU brokered talks aimed at solving the gas dispute between Kyiv and Moscow.

Merkel also underlined that upcoming elections in areas of eastern Ukraine controlled by Russian-backed separatists must respect Ukrainian national law.

Pro-Russian insurgent leaders are boycotting a parliamentary snap poll on October 26 in Ukraine and are holding their own election in the Lugansk and Donetsk regions, home to nearly three million people, on the same day instead.

(Based on reporting by AFP and Reuters)



The United Nations says the conflict in Ukraine has forced more than 800,000 people from their homes.

Around 95 percent of displaced people come from eastern Ukraine, where government troops have been battling pro-Russian separatists.

UNHCR, the UN refugee agency, told a briefing in Geneva that an estimated 430,000 people were currently displaced within Ukraine -- 170,000 more than at the start of September.

It said at least 387,000 other people have asked for refugee status, temporary asylum, or other forms of residency permits in Russia.

Another 6,600 have applied for asylum in the European Union and 581 in Belarus.

The agency said it was "racing to help some of the most vulnerable displaced people" as winter approaches.

It also said the number of displaced people is expected to rise further due to ongoing fighting in eastern Ukraine.


Three alleged militants have been killed by security forces in Russia's volatile North Caucasus region.

Russia's National Antiterrorism Committee says that two suspects were killed in the village of Charoda in Daghestan on October 24 after they refused to leave an apartment and opened fire at police and security troops.

One police officer was wounded.

Also on October 24, police in another North Caucasus region, Kabardino-Balkaria, killed a suspected militant after he refused to identify himself, threw a grenade towards police, and opened fire with a pistol.

A police officer was wounded in that incident.

Violence is common in Russia's North Caucasus region, which includes the restive republics of Daghestan, Kabardino-Balkaria, Ingushetia, and Chechnya.

Islamic militants and criminal groups routinely target Russian military personnel and local officials.

(Based on reporting by Interfax and TASS)


A lawyer, who represented an alleged victim of the notorious Orekhovo criminal group in Moscow, has been assassinated.

Police in the Russian capital say that Vitaly Moiseyev and his wife were found dead with gunshot wounds in a car near Moscow on October 24.

Moiseyev was representing Sergei Zhurba, an alleged victim of the Orekhovo gang and a key witness in a case against one of the gang's leaders Dmitry Belkin.

Belkin was sentenced to life in prison on October 23 for multiple murders and extortion.

Last month, another of Zhurba's lawyers, Tatyana Akimtseva (eds: a woman), was shot dead by unknown individuals.

The Orekhovo group was one of the most powerful crime gangs of the Moscow region and in Russia in the 1990s. Its members are believed to be responsible for dozens of murders.

(Based on reporting by TASS and Interfax)







From RFE/RL's News Desk:


Ukrainian Prime Minister Arseniy Yatsenyuk is warning that Russia could attempt to disrupt Ukraine's parliamentary elections scheduled for October 26.

Yatsenyuk told a meeting of top security officials and election monitors on October 23 that "It is absolutely clear that attempts to destabilize the situation will continue and will be provoked by Russia."

Yatsenyuk said "we are in a state of Russian aggression and we have before us one more challenge -- to hold parliamentary elections."

The prime minister said Ukraine needs the "full mobilization of the entire law-enforcement system to prevent violations of the election process and attempts at terrorist acts during the elections."

Interior Minister Arsen Avakov said authorities have ordered some 82,000 policemen on duty for election day.

He said 4,000 members of a special reaction force would be among those maintaining order during polling hours and would be concentrated in "those precincts where there is a risk of some terrorist acts or aggressive actions by some...candidates."

The warning by Yatsenyuk comes on the heels of three violent attacks on parliamentary candidates in the past week.

The latest, against Volodymyr Borysenko, a member of Yatsenyuk's People's Front Party, occurred on October 20 when Borysenko was shot at and had an explosive thrown at him.

He allegedly survived the attack only because he was wearing body armor due to numerous death threats he had recently received.

Elections to the Verkhovna Rada, the parliament, will be held despite continued fighting in the eastern part of the country between Ukrainian government forces and pro-Russian separatists.

Voting will not take place in 14 districts of eastern Ukraine currently under the control of the separatists.

Those separatist-held areas -- in the Donetsk and Luhansk regions -- are planning on holding their own elections in November.

Additionally, Russia's illegal annexation of Crimea in March means the loss of 12 seats from the 450-seat parliament.

Polls show President Petro Poroshenko's party leading with some 30 percent of respondents saying they would cast their vote for the Petro Poroshenko Bloc.

It that percentage holds on election day it would mean Poroshenko's bloc would have to form a coalition government, likely with nationalist groups who oppose conducting peace talks over fighting in the east.

(Based on reporting by Reuters and Interfax)



Moscow has denied claims of an incursion by a Russian military plane into Estonia's airspace.

A Russian Defense Ministry spokesman told Interfax news agency on October 23 that the Ilyushin-20 took off from Khrabrovo airfield in the Russian enclave of Kaliningrad on October 21.

The spokesman said the reconnaissance plane flew "over neutral waters of the Baltic Sea" while on a training flight.

On October 22, Estonia’s Foreign Ministry summoned the Russian ambassador in Tallinn, Yury Merzlakov, after the Estonian military said the Russian plane had entered its air space.

In a statement, NATO said the Ilyushin-20 was first intercepted by Danish jets when it approached Denmark, before flying toward non-NATO member Sweden.

Intercepted by Swedish planes, the alliance said the Ilyushin entered Estonian airspace for “less than one minute” and was escorted out by Portuguese jets.

NATO has stepped up its Baltic air patrols and Moscow has been accused of several recent border violations in the region amid heightened tensions between Russia and the West over the Ukraine conflict.

Last month, Estonia accused Russia of abducting one of its police officers on the border.

Russia claims Eston Kohver was seized inside Russia on September 5, while Estonian officials say he was captured at gunpoint in Estonia near the border and taken to Russia.

The European Union and United States have called for the immediate release of the Estonian security official, who is facing espionage charges in Russia.

Meanwhile, the Swedish Navy has been searching for a suspected submarine sighted six days ago some 50 kilometers from the capital, Stockholm, although it said on October 22 it was pulling back some of its ships.

Swedish officials have not linked any particular country to the suspected intrusion and Moscow has denied involvement.

(With reporting by Interfax, TASS, and the BBC)


A Moscow court postponed to next week a ruling on a move to take control of Bashneft, an oil company from tycoon Vladimir Yevtushenkov.

The judge said on October 23 that the next hearing will take place on October 30 after the prosecution requested more time to prepare its case.

Prosecutors filed the suit in September to regain state ownership of Bashneft, citing alleged violations in the privatization and subsequent sale of the company to AFK Sistema investment group.

Yevtushenkov, the main shareholder of the conglomerate, is under house arrest on suspicion of money laundering during the firm's acquisition in 2009.

Yevtushenkov, 66, was arrested on September 16.

He is ranked Russia's 15th richest man by U.S. magazine Forbes, with an estimated fortune of $9 billion.

(Based on reporting by Reuters and TASS)

11:11 October 23, 2014


According to a report in the pro-Kremlin daily "Izvestia," deputy Kremlin chief of staff Vyacheslav Volodin told a meeting of the Valdai Discussion Club in Sochi that Western politicians "do not understand the essence of Russia."

"Volodin stated the key thesis about the current state of our country: As long as there is Putin there is Russia. If there is no Putin, there is no Russia," Konstantin Kostin, head of the Foundation for the Development of Civil Society, told "Izvestia."

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The Power Vertical is a blog written especially for Russia wonks and obsessive Kremlin watchers by Brian Whitmore. It covers emerging and developing trends in Russian politics, shining a spotlight on the high-stakes power struggles, machinations, and clashing interests that shape Kremlin policy today. Check out The Power Vertical Facebook page or