Wednesday, August 3, 2016

Russia’s long-term aims and how the west will respond


How should we read Russia, and Vladimir Putin’s game plan with respect to the US, the west and Ukraine?

My own view is that Putin is in waiting mode, reflected by the fact that Russia has stepped back from further military intervention in Ukraine and seems to be adopting a holding pattern in Syria. In both conflicts Russia would likely have to commit significant military resources to ensure delivery on its strategic objectives, and this side of elections to the Duma (September 2016) and perhaps also the presidency (March 2018) this just presents too many risks.


Rather, when viewed from Moscow, political trends in the US and Europe look set to play to Russian interests. Russia’s game plan is to bide its time, waiting for the west to be forced into compromise. That said, Putin probably won’t be able to help himself from meddling in political events unfolding in the west – email hacks, etc – as the temptations and opportunities are simply too great to be resisted.

What are Russia’s long-run strategic objectives?

Putin’s agenda seems still to be to see Russia return to parity as a global power with the US and China – to sit again at the global great power table. He wants Russia to be respected by its peers and for Russian strategic interests also to be respected. And as a global power Russia, according to the Putin doctrine, is entitled to its own sphere of influence, and buffers against rival powers are a key part of its defensive doctrine. For Moscow, this naturally falls in the near abroad, particularly including Ukraine.

Russia sees it as its “defensive” right to be able to intervene in and shape developments in the near abroad, rather as the US has shown a willingness to intervene in the past in its “backyard” in central America (Nicaragua) and the Caribbean (Grenada and Cuba), and even Latin America.

Beyond that I think Putin wants the US and the west to respect Russia’s right to determine its own form of governance, the principal of “sovereign democracy”, and to refrain from intervening in Russian domestic affairs, which are the preserve of Russians. Regime change and coloured revolutions are to be resisted, as they only bring disorder and chaos, as has been proven from Putin’s perspective at least in the Middle East (Iraq, Libya, Egypt, Yemen and Syria), the CIS (Georgia, Ukraine and the Krygyz Republic) and ultimately lower standards of living. And I think also Putin sees the west and Russia as natural “Christian” allies against a looming clash of civilisations and the threat from Islamic extremism and terrorism.

Ultimately I think Putin sees the west as facing a crisis of identify and centrifugal forces, as western liberal democracy and multilateralism, multiculturalism and social liberalism clash against more diverse national cultural norms and identities.

In Europe this is being played out by the over-enlargement of the EU and the now seemingly failed attempt to impose a common European identity, which is simply lacking. Brexit and the rise of anti-establishment forces on the right and left are symptoms of these trends, which Putin thinks will work in his favour. He would also argue that the success of anti-establishment candidates in the US (Trump and Sanders) is a reflection of these same trends.

For Putin, the west is already morally and ideologically bankrupt, racked by double standards – a case of “do as I say, and not as I do”, lecturing to others over the free press, democracy, human rights and rule of law/lack of graft, when from Putin’s perspectives western elites hardly follow these norms themselves, and too often can be bought and subject to outside manipulation. There is also a strong anti-Americanism (or anti western imperialism) inherited from the Soviet era, which still runs through Russian society in general and I think Putin in particular.

Putin’s own electoral clock is also ticking, and focused first on the Duma elections in September, then the presidential elections in March 2018. For Putin, elections are not viewed through the Western prism of success being a 50 per cent plus one victory, but as a bellwether of the success of policy. Putin sees it as essential not just to win elections but win them very, very well, so as to take no chances with the security and stability of the state. Regime change risks instability, and would risk setting back Russian economic development – and what Putin sees as years of good work put in by his administration in rebuilding a strong Russian state.

Defeat in elections simply cannot be tolerated, as his own mission to rebuild Russia’s great power status is simply too important a project to be risked on fluffy western concepts of democracy. Power is something to be taken, held/defended, or entrusted in him by the Russian state and the Russian people. He has the baton and will continue to run with it until a greater Russian power is able to prise it from his grasp. Putin is in power to shape Russian history and he is looking to mark his place in Russian history as Putin the Great.

The Duma elections look set to be challenging for the ruling United Russia party, as the impact of difficult economic conditions and years of economic mismanagement and corruption has understandably sown discontent. Opinion polls suggest that while Putin himself is popular, with a seemingly unassailable lead, Russians do pin frustrations at their own difficult economic circumstances on the “government”, perhaps as a legacy from the later Soviet-era.

Putin is seen almost in a paternalistic light perhaps itself cultivated as a cult of personality: “he has the best interests of Russia at heart, and failings are surely the fault of others less able/committed in the administration”. United Russia is unlikely to lose the Duma elections, but it might not do well enough to afirm that Putin himself is unassailable in the presidential elections. A good/acceptable result for United Russia is probably 60 per cent plus. Just over 50 per cent would be failing, as it would leave too much to chance in the run up to the presidential elections.

If as I suspect United Russia polls in the 50-60 per cent range or less, I expect Putin to respond by reshuffling the government, probably ousting PM Medvedev and bringing in a reform minded name such as Alexei Kudrin.

In appointing Kudrin, Putin will not be thinking of risking real economic reforms this side of presidential elections, but hoping to build bridges with the west, to signal a desire to change so as to win western support for moderation of sanctions. This will be increasingly important for Putin as he will want the Russian economy growing more robustly in the run-up to the 2018 presidential elections. He will aim to give a reform sop to the domestic and foreign audience, probably in the form of a new prime minister. Kudrin, who was recently brought back as an economic policy adviser to Putin, is surely being set up for the role. But don’t be hoodwinked; the kind of economic reforms that the Russian economy desperately needs are in no way, shape or form likely to be those that are delivered, as they would ultimately threaten the “power vertical” through which Putin rules, and he is not going to risk that in the run up to elections.

Kudrin’s likely appointment, “responding” to the will of the people to be expressed in the Duma elections, will also likely dovetail nicely with the US election and with centrifugal political trends in Europe, building to the European Council decision in December 2016, which is the next major decision point for western sanctions on Russia.

In the run up to this big decision, Putin will be eager to send a message that he is open to reform and that the west should not spurn the opportunity to move away from the prospect of a new Cold War, by supporting reform elements in the administration such as Kudrin and easing back on sanctions. There are clearly those in Europe who will be eager to grasp the opportunity, seeing any rapprochement with Russia as worth the chance. Such European forces either see everything through the prism of business, or share Putin’s ideological vent, or are simply peacemakers/compromisers, or perhaps just misunderstanding Russia’s strategic intent.

In all the above I see the US elections as critical. With strong leadership from the US, I doubt that European leaders will break rank – US economic power and the security guarantee probably still count for too much.

In terms of the two US election outcomes, and how they likely will shape relations with Russia, and Putin’s reaction functions:

Hilary wins: The assumption is that this would brings the least change in terms of US policy towards Russia, which will likely remain hawkish. Indeed, Hilary may well prove a tougher adversary than Obama (some might say that would not be difficult), with one reaction likely to be for the US finally to provide Ukraine with lethal defensive military assistance. If Hilary wins I think Putin would likely quickly move to show more assertive intent, to signal to her that deals still have to be cut with Russia. In this scenario we might see a speedy move to a military escalation in Ukraine, perhaps in the conflict in Nagorny Karabakh and even in northern Kazakhstan, with pressure on incumbent President Nazarbaev to name a pro-Russian successor.

Trump wins: This undoubtedly would be viewed as a positive by Moscow both because of Trump’s campaign rhetoric of cutting deals with Putin and because of some of the advisers he has surrounded himself with (Manofort). It is difficult to precisely figure out Trump’s foreign policy mantra, but I don’t think that it would be one of isolationism, but rather a move away from a western multilateral approach (the Obama mantra) to a more unilateral and transactional approach to foreign affairs.

Promotion of US security and business interests will come ahead of pushing US and western values (democracy, respect for human rights, the free press and a liberal social agenda), and this could dovetail well with Putin’s own vision and strategic objectives as noted above. Trump could well see Russia as a good long-term global partner in addressing common security risks, eg ISIS in Syria and elsewhere – I could even imagine joint US-Russian military operations under a future President Trump. And if this means surrendering to Russian strategic objectives, or identifying and accepting “spheres of influence” then I think a Trump presidency would be fine with this, with Russia having to assume the responsibility in assuring security in its sphere of influence, for example, against Islamic extremism and terrorism in central Asia and Syria/Iraq. If the price of all this is accepting the status quo in Crimea, for example, then Trump would likely see this as a price worth paying for the bigger picture goal of mutual security against the bigger risks posed from Islamic extremism and terrorism.

I could imagine this new Trump doctrine including the US pulling back from traditional alliances such as Nato – recent comments raising doubts as to whether the US would honour Nato mutual defence commitments I think had substance. The message to the Baltics and Poland and other eastern European “allies” would be let’s be realistic, the US cannot defend you against Russian aggression, as we no longer have the financial resources or military capability. So either work for new security arrangements between countries in the region, to counter the perceived threat from Russia, or cut deals with Russia to reduce that threat. Learn to live with/alongside Russia, and allowing everyone to focus on the bigger threats now globally.

The hope in all this is that Putin does not have territorial ambitions in Europe beyond perhaps Ukraine – and thid seems to be the view of Trump and his foreign policy team. The assumption is that Moscow sees in Europe opportunities to express its influence and dominance through economic and energy sector channels, while military options have risks and ultimately will weigh on Russian economic development. But essentially Trump would redraw the security map of Europe, with a weaker Nato and indifference to the future of the EU (indeed, Trump probably prefers a weaker EU also as he would see this also advancing the US’s economic interests). The hope would be that with a weaker EU and Nato, Moscow would feel less threatened by the west in its own backyard, and would feel less inclined to take defensive/offensive action.

There are obviously numerous potential problems with the above new Trump “doctrine”.

First, Trump likely will have difficulty selling all the above to the US Congress, which if united around one thing it is a hawkish view now towards Russia. How on earth will Trump sell all this to Russia hawks in the Republican Party such as John McCain, the chair of the armed services committee? Russia simply lacks any real lobby in Congress, aside from some related to business, particularly the banking/energy lobby.

Second, it also assumes that Putin will see the Trump doctrine as lasting, and not view it as a temporary weakening to be exploited while the opportunity lasts, eg by taking Ukraine while the west is weak, divided and unwilling to act. It assumes that Putin can be trusted as a partner for the new Trump presidency.

Third, the EU and NATO have, at least in my view, been cornerstones of peace, stability, security and prosperity across a large swathe of the European continent over the past 30 years since the collapse of the USSR and the Warsaw Pact.

However, numerous tensions continue to simmer across the region – continuing challenges keeping the peace in Bosnia and Herzegovina, in Serbia/Kosovo, and with long historical, border and inter ethnic tensions and strains across the region. Without the EU/Nato anchor, how are these likely to play out? We could see the region engulfed by insecurity as the US steps back.

Trump might argue that with the US stepping back, European countries will be forced to sort out their own problems and learn to live together in peace. 

Unfortunately that is not the recent or historical experience of the continent. 

And with the far right and far left and populist forces now being unleashed across the continent, as a result of fears over immigration/security concerns, surely the risks are building. But perhaps with the US stepping back, would Russia assume a greater and more constructive role in conflict resolution in the region – and would countries in the region such as Poland and the Baltic states be willing to take a back seat again to Russia? I have very severe doubts, especially as Moscow would likely be pushing a very different agenda, of subservience to Moscow and perhaps also a very different model of governance and with difference social values, at least to some.

All the above suggests that considerable challenges face us in terms of understanding the risks emanating from strains and likely changes in the Russia-western relationship. Russia’s strategic goals are perhaps relatively easy to work out – much easier perhaps than likely future foreign policy approaches and impacts from a Trump presidency in the US. The Trump approach seems to be to throw all the cards in terms of security and defence structures on the floor and to hope that they fall to produce new and better options – but the assumption is that both the US and Russia now have overarching mutual interests in fighting terrorism and promoting business and trade that will encourage the hands to be rebuilt to mutual advantage. The Trump approach has very real and significant risks, and as a result is likely to face opposition from entrenched opposition from within the US Congress and from the foreign policy and defence establishment. But I guess if he wins the election it will have been on a mandate to take on these very same interests and to do things differently. Whether Trump is actually as anti establishment as he makes out is debatable, and only time will likely tell.

Timothy Ash is head of EMEA credit strategy at Nomura. A version of this post was issued as a note to clients. The views expressed do not necessarily represent the house views of Nomura International plc.


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