Monday, November 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.

The Power Vertical Feed

In this space, I will regularly comment on events in Russia, repost content and tweets I find interesting and informative, and shamelessly promote myself (and others, whose work I like). The traditional Power Vertical Blog remains for larger and more developed items. The Podcast, of course, will continue to appear every Friday. I hope you find the new Power Vertical Feed to be a useful resource and welcome your feedback. More

19:16 November 21, 2014


On this week's Power Vertical Podcast, we use the one-year anniversary of the Euromaidan uprising to look at how it changed both Ukraine and Russia. My guests are Sean Guillory and Alexander Motyl.

09:14 November 21, 2014
09:11 November 21, 2014


09:09 November 21, 2014


From RFE/RL's News Desk:

Ukrainians are marking a new national holiday on November 21 -- the anniversary of the start of Kyiv’s Euromaidan protests that led to the ouster of the country’s former pro-Kremlin regime.
Ukrainian President Petro Poroshenko signed decree on November 13 that declared the holiday for annual “Day of Dignity and Freedom” celebrations.
The protests began with a few hundred people who met spontaneously on a vast square in central Kyiv of November 21, 2013 – disappointed by then-President Viktor Yanukovych’s rejection of a landmark deal with the European Union in favor of closer ties with Russia.
After that first night, as the protests quickly swelled to tens of thousands of demonstrators, brutal police efforts to disperse the crowds with batons and teargas backfired.
As the crowds got bigger, the protesters began to call for Yanukovych’s ouster – which came in February 2014 after more than 100 people were killed in clashes with police that failed to end the demonstrations.

U.S. Vice President Joe Biden was expected to announce an increase in nonlethal U.S. military assistance to Ukraine on November 21 as he meets in Kyiv with Ukrainian President Petro Poroshenko and Prime Minister Arseniy Yatsenyuk.
The talks come on the first anniversary of the start of the Euromaidan protests in Kyiv that toppled Ukraine's former pro-Kremlin regime.
As Biden arrived in Kyiv on the evening of November 20, U.S. officials told reporters that he will announce the delivery of Humvee transport vehicles that are now in the Pentagon’s inventory of excess supplies.
They said Biden also would announce the delivery of previously promised radar units that can detect the location of enemy mortars.
The U.S. officials, who spoke on condition of anonymity, did not specify a dollar value for the assistance. 
Russia on November 20 warned the United States not to supply weapons to Ukrainian forces.
Russian Foreign Ministry spokesman Aleksandr Lukashevich cautioned against "a major change in policy of the (U.S.) administration in regard to the conflict" in Ukraine. 
He was commenting on remarks by U.S. President Barack Obama's choice to fill the number two spot at the State Department, Anthony Blinken, who told a congressional hearing on November 19 that lethal assistance "remains on the table. It's something that we're looking at."
The U.S. State Department's Director of Press Relations Jeffrey Rathke on November 20 told reporters that "our position on lethal aid hasn't changed. Nothing is off the table and we continue to believe there's no military solution."
He added, "But, in light of Russia's actions as the nominee mentioned [on November 19] in his testimony, as he indicated, this is something that we should be looking at."
The aid expected to be announced by Biden on November 20 falls short of what the Ukrainian president requested during a visit to Washington in September when he appealed for lethal aid - a request echoed by some U.S. lawmakers in response to what NATO allies say is Russia's movement of tanks and troops into eastern Ukraine.
In September, Washington promised Ukraine $53 million in aid for military gear that includes the mortar detection units, body armor, binoculars, small boats, and other nonlethal equipment for Ukrainian security forces and border guards in the east.
The United States and its European allies have imposed several rounds of economic sanctions on Russia for its seizure of Crimea and incursion into eastern Ukraine.
(With reporting by Reuters, AP, AFP, dpa, and TASS)

Russian Olympian hockey player Slava Voynov – who plays with the Los Angeles Kings NHL hockey team – has been charged with felony domestic violence against his wife.
Voynov faces one felony count of spouse abuse with a maximum penalty of nine years in prison. If convicted, he also could be deported.
Prosecutors say Voynov “caused his wife to suffer injuries to her eyebrow, check, and neck” during an argument at their home in October.
Voynov has been suspended from the NHL since his arrest early on October 20 at a California hospital where he took his wife for treatment.
Voynov’s attorney, Craig Renetzky, says his client didn’t hit his wife.
Renetzky blames the charges on a misunderstanding between police and Voynov’s wife, who speaks very little English.
Voynov – who played on Russia’s team at the 2014 Sochi Winter Olympics -- faces arraignment on December 1.
(Based on reporting by AP and Reuters)

NATO says Russia's growing military presence in the skies above the Baltic region is unjustified and poses a risk to civil aviation.
NATO Secretary General Jens Stoltenberg said in Tallinn on November 20 that the aircraft regularly fail to file flight plans or communicate with air controllers and also fly with their transponders off.
Speaking at the Amari air base, he said alliance fighters have intercepted planes more than 100 times in the Baltic region alone so far this year, a threefold increase over 2013. 
He did not say how many of the intercepted aircraft were Russian.
Stoltenberg also said that, overall, NATO aircraft have conducted 400 intercepts to protect the airspace of its European alliance members in 2014 -- an increase of 50 percent over last year.
(Based on reporting by AP and AFP)


16:55 November 19, 2014


Konstantin Eggert has a commentary in "Kommersant" on Russia's anti-Americanism. He opens like this:

"Sometimes I have this feeling that there are only two countries in the world - Russia and the United States. Of course, there is Ukraine, but it either to join us or the Americas. Russian politicians and state television are constantly in search of the 'American hand' in all spheres of our life. In Soviet times, the United States was formally considered to be our number one military and ideological enemy. But even then it didn't occupy such a large space in the minds of the political leadership and citizens. And the paradox is that, on one hand, officials and the media regularly talk about the decline of America as a great power, and on the other declare it to be the source of all evil in the world. This contradiction does not seem to disturb anybody."

And closes like this:

We still have not been able to use the opportunity that we were given with the collapse of the communist regime - to arrange our lives based on liberty and civic virtue. And today, we, as a people, want to go back to the starting point, to beat everyone. And the Soviet Union, with its absence of sausage and freedom, again suddenly seems sweet and dear. But it won't happen. I will put it banally: you can't go into the same river twice.

Read the whole thing here (in Russian, with audio)

15:53 November 19, 2014


MIchael Weiss, editor-in-chief of The Interpreter magazine, appearing on Hromadske TV to talk about Russia's information war.

Michael and Peter Pomarantsev recently co-authored an excellent report "The Menace of Unreality: How the Kremlin Weaponizes Information, Culture, and Money." Both also appeared recently on The Power Vertical Podcast to discuss the report.

15:42 November 19, 2014


Oleg Kosyrev has a snarky and clever blog post on the subject up on the Ekho Moskvy website. 

1) The United States is the ideal opponent. "It is big and strong and your self-esteem increases when you fight somebody really influential."

2) The United States is not fighting with Russia. "They aren't really interested. They have enough of their own problems and dreams. It's nice to fight somebody who is not fighting you."

3) It is a substitute for the authorities' inability to benefit Russians. "How convenient. Who is to blame for rising food and gas prices? The U.S.A.. Who is to blame for the fact that Russian has political prisoners? The U.S.A. Who is to blame for people demonstrating on the streets? The U.S.A. Who is to blame for the fact that independent international courts denounce the Russian court system? The U.S.A. You can even blame the U.S. for the fact that the light doesn't work in the entrance to your apartment building."

Read it all (in Russian) here.

15:23 November 19, 2014


14:47 November 19, 2014


From RFE/RL's News Desk:


Ukraine says it will not tolerate pressure from any other country over whether or not it seeks to join NATO.

Foreign Ministry spokesman Yevhen Perebyynis spoke made the remark to reporters in Kyiv on November 19, after the BBC quoted Kremlin spokesman Dmitry Peskov as saying in an interview that Moscow wants "a 100 percent guarantee that no-one would think about Ukraine joining NATO."

Hitting back with a reference to Russia's annexation of Crimea and support for pro-Russian separatists in eastern Ukraine, Perebyynis said Kyiv would like guarantees that Moscow will not interfere in Ukraine's internal affairs, send in troops, or annex Ukrainian territories. 

The U.S. Ambassador to Ukraine, Geoffrey Pyatt, told journalists on November 19 that any decision on seeking to join NATO could be made only by the Ukrainian people, not by Russia, Europe, ar the United States.

The Canadian Ambassador to Ukraine, Roman Waschuk, made a similar statement on November 19.

(Based on reporting by UNIAN and Interfax)


President Vladimir Putin says that Russia is ready for cooperation with the United States as long as Washington treats Moscow as an equal, respect its interests, and refrains from interfering in its affairs.

Putin spoke November 19 at a Kremlin ceremony during which he received the credentials of foreign envoys including John Tefft, the new U.S. Ambassador to Moscow.

Putin said, "We are ready for practical cooperation with our American partners in various fields, based on the principles of respect for each other's interests, equal rights and non-interference in internal matters." 

The remark echoed a formula Putin set out in a foreign policy decree at the start of his third term in 2012.

Tefft, 64, is a career diplomat who previously served as U.S. ambassador to Ukraine, Georgia and Lithuania. 

His posting starts at a time when ties are badly strained over the Ukraine crisis. 

Tefft replaces Michael McFaul, who was ambassador from January 2012 until February 2014. 

(Based on reporting by Reuters and TASS)



Russian Foreign Minister Sergei Lavrov has signaled that a landmark nuclear arms treaty with the United States is not in jeopardy despite severe tension over Ukraine.

Speaking to Russian lawmakers on November 19, Lavrov said the 2010 New START treaty "meets our basic strategic interests and, on condition of its observance by the United States, we are interested in its full implementation."

The treaty, one of the main products of President Barack Obama's first-term "reset" of ties with Russia, requires Russia and the United States to have their long-range nuclear arsenals under specific ceilings by 2018.

But Lavrov said the Conventional Armed Forces in Europe (CFE) treaty, which President Vladimir Putin suspended in 2007, is "dead" for Moscow. 

NATO has refused to ratify a revised version of the CFE treaty without a full withdrawal of Russian troops from Moldova and Georgia.

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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