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After Stormy 2014, Putin's Russia Braces For Fateful New Year

The Ukraine crisis in 2014 brought Vladimir Putin's Russia to loggerheads with the West. With so many of Russia's gambles still up in the air, 2015 could be a year of reckoning.

It was the best of times for Vladimir Putin in 2014 -- and it was the worst of times.

The best came on March 18 with his triumphant chest-thumping speech to parliament marking Russia's annexation of Ukraine's Crimean Peninsula.

And the worst came on December 15-16 when the ruble lost more than 20 percent of its value, tumbling to record lows as oil prices sank and the cost of Western sanctions became manifest.

Over the past year, Putin challenged the West and upended the existing international order with the first forceful change of borders since World War II. And with the costs only now becoming apparent, 2015 is shaping up to be one of the most consequential in Russia's post-Soviet history.

Will Putin's pivot to Asia, and particularly China, pay off? Will the Eurasian Union turn out to be a viable alternative to the European Union? Will Russia's energy-dependent economy be able to cope with falling oil prices? And will Russians continue to support Putin if living standards plummet?

"I don't see anything that Russia has been able to achieve with other global actors as being sufficient compensation for what it has lost with the West," says Matthew Rojansky, director of the Wilson Center's Kennan Institute. "Which isn't to say that what it had before was perfect. Russia was never treated the way it should have been as a full partner of the West. It was never given the kind of respect that Russians always wanted. But that said, Russians now don't seem to have it from anyone."

Alexander Motyl, a political science professor at Rutgers University, says that Putin made a "strategic mistake" with his Ukraine strategy, as a result of which "he has fundamentally, totally, completely, absolutely lost Ukraine."

"Putin brought about the Maidan euro-revolution," Motyl says. "He essentially destroyed [former Ukrainian President Viktor] Yanukovych. He lost Ukraine and he transformed Russia into a rogue state that is now becoming, rapidly becoming, a supplier of raw materials to highly developed China, which -- unlike the West -- is not a wimp and will insist on paying as little as possible for all the goodies that it gets."

Economic Pains

Although any potential benefits from the pivot to Asia will come in the future, the costs of the break in Russia's relations with the West are already being keenly felt.

Cut off from access to Western credits, Russian companies -- particularly the state firms run by members of Putin's inner circle -- are facing serious debt-payment problems. State oil producer Rosneft, headed by Igor Sechin, scrambled to repay $7 billion in dollar-denominated loans on December 21 and must pay another $20 billion in 2015. Total corporate debt is more than $550 billion, according to "The Economist."

Such difficulties, coming during a period of sharply declining global energy prices, have slammed the ruble, which lost more than 40 percent of its value against the dollar in 2014 and continues to decline.

Although the government has stocked away healthy reserves from sunnier times, some analysts -- such as economist Anders Aslund -- have warned of a looming default that could come as soon as 2015. Bloomberg reported this month that the price of default insurance in Russia is now comparable to that in countries like Lebanon and El Salvador.

In addition, Russia's Central Bank is predicting capital flight will reach $128 billion in 2014, compared to $56 billion the previous year.

A Decisive Year For The Customs Union…

2014 was also a mixed year for the Customs Union, Putin's top-priority project for reintegrating the former Soviet space. The three current members managed to ratify the treaty that will transform the Customs Union into the Eurasian Economic Union (EEU) as of January 1, 2015. And Armenia is on track to become the bloc's fourth member -- with Belarus, Kazakhstan, and Russia -- the same day.

At the same time, the prospect of a bloc that includes Ukraine seems impossibly remote.

Moscow's unilateral imposition of bans on EU food products is a basic test of whether the new Eurasian Economic Union will become a genuine multilateral organization or another Russia-dominated virtual project in the Eurasian space.
Moscow's unilateral imposition of bans on EU food products is a basic test of whether the new Eurasian Economic Union will become a genuine multilateral organization or another Russia-dominated virtual project in the Eurasian space.

However, the Ukraine crisis has exposed "the cracks" in the bloc, says Kataryna Wolzcuk, a professor of politics and international studies at the University of Birmingham. She says Moscow's unilateral imposition of bans on European Union food products is a basic test of whether the EEU will become a genuine multilateral organization or another Russia-dominated virtual project in the Eurasian space.

"For one member of the Customs Union to impose such sanctions when the other Customs Union members did not fundamentally challenges its existence," Wolzcuk told RFE/RL. "Either Russia turns a blind eye to the fact that Western food products can enter via Belarus and Kazakhstan, or Russia must make Belarus and Kazakhstan impose sanctions on Western products as well."

She notes that Belarus and Kazakhstan have also failed to join Russia's food bans imposed on Ukraine. Moreover, Russia has claimed the EU's free-trade agreement with Ukraine -- which has been signed, but then suspended -- contradicts the Customs Union, but none of the other Customs Union members has joined Moscow in pushing those claims.

For this reason, Wolczuk says, 2015 will be an "interesting, even decisive year" for the Customs Union.

…And On The Home Front?

The dramatic events of 2014 on the international stage are having equally dramatic repercussions inside Russia. On the one hand, Putin's popularity has never been higher and the fashion for pro-government patriotism seems to grow stronger by the day.

At the same time, however, emigration rates are soaring, with more than 186,000 leaving the country in 2013, according to the Russian government, compared to just 33,000 in 2010 and 36,000 in 2011.

But is Russia heading in a positive direction domestically?

"It doesn't seem to be the case," says the Wilson Center's Rojansky. "There is not a lot of creativity or energy or dynamism and certainly not much pluralism coming out of Russia these days."

Sean Guillory, a fellow at the University of Pittsburgh's Center for Russian and Eastern European Studies, sees an "attempt at Russian autarky" in the country's inward turn.

"You have basically an anticosmopolitan campaign going on in Russia where things that are seen as Western are being denounced," he says.

The poor economic situation, however, is increasingly affecting ordinary Russians. Gazprom has said it would like to raise domestic rates next year. In December, about 100 Russians took to the streets in Moscow to ask the government's help making payments on dollar-denominated mortgages as the ruble tumbles.

In addition, a recent national survey found that 73 percent of Russians think the government works on behalf of a small elite, while only 3 percent said the government works for the benefit of average people.

Alena Ledeneva is a professor of politics at University College London and author of the 2013 book "Can Russia Modernize?" She says Putin will come under increasing pressure both from economic elites, as the economic pie shrinks, and from the public.

She says it is not unlikely that the government of Prime Minister Dmitry Medvedev will be replaced, although the basic governing mechanism of informal power networks -- called sistema -- will endure.

"It looks like the oppressive measures have not quite worked -- and Putin has been quite active on that front -- so maybe liberal ones would," Ledeneva says. "It is more likely in my view that sistema will get rid of Putin than that Putin will get rid of sistema."

She believes Putin has been taking greater and greater risks in recent months as a result of the pressures converging in the Kremlin.

Analyst Rojansky agrees that Putin does not have as much "political capital" as he had one or two years ago.

"He's using his political capital," Rojansky says. "He's also using, of course, Russia's wealth, in order to weather this storm. And the longer it lasts and the more intense it is, the fewer resources he's going to have."

And the crisis in relations with the West is likely to last a long time, he adds, comparing the West's view of the Crimea annexation to the West's nonrecognition of the Soviet Union's annexation of the Baltic states after World War II.

That annexation was "a permanent point of tension and one of many casus belli for the Cold War," just as Crimea could produce years of tensions.

Rutgers's Motyl says it is a perilous time for Putin.

"Can a regime which is corrupt, kleptocratic, inefficient, ineffective, and prone to profoundly enormous strategic miscalculations such as Putin's -- can such a regime survive in the medium to long term if it is, at the same time, promoting the isolation of an increasingly weaker economy and an increasingly brittle state?" Motyl muses.