LONDON -- The whole Russia macro policy framework is shaped much more by the geopolitical setting, than actual inflation. Almost no one gets this. Russian policy is in “war economy settings", keeping defenses elevated, and putting a high price on durability/resilience for the long haul battle with the West.
On the latest US bout of sanctions, I sense the Russians are worried, as the scope of the latest Congressional bill is much broader than anything else seen so far.
They have been taken aback by all this. There had been a sense that, while existing sanctions might not be taken off quickly, at least there would be no new sanctions. Russia could learn to live with the status quo, and assumed that sanctions would eventually be signed off by a Russia-friendly President Trump.
But Moscow now is finding it hard to read DC, and does not really know how this whole sanctions gig is going to evolve. True, Trump might veto this latest Congressional bill, and might stall implementation, if it is signed into law. But DC is so uncertain, that Moscow is worried.
It is ironic that Putin always plays up his tactics of keeping the other side guessing about his behavior and next steps. Actually the boot is now on the other foot, and Moscow is finding it near impossible to read Washington. Again ironic that, for many people, Moscow played no small part in the election of Trump as president, and now has to suffer the consequences.
This latest sanctions news comes at a bad time for Putin:
First Russia’s economy might post real GDP growth this year, but at 1-2% it is hardly stellar. Few Russians will materially feel the benefit before the presidential elections next March. Weak growth is a reflection of deep structural problems in Russia’s economy -- and Putin's unwillingness over his 18 years in office to address these. The buck, or ruble, stops with Putin.
Second Oil prices look set to have a negative bias. That leaves oil/commodity dependent Russia looking vulnerable again.
Third There is an emerging undercurrent of dissent in Russia these days. Brave people are willing to demonstrate, and criticize. Putin still looks like a slam dunk for re-election in 2018, but it might be a bit too close for Putin's liking.
Timothy Ash is a senior sovereign strategy analyst at Blue Bay Asset Management in London.
Posted June 15, 2017
The hope that the Trump presidency would quickly move to improve relations with Russia, and for example secure sanctions moderation, were soon dashed amid the on-set of the Flynn-gate scandal.
Russia is toxic in DC at the moment and there seems to be little hope that the Trump presidency can deliver any meaningful improvement in the relationship with Russia without throwing yet more media, political and legal spotlight on itself. Indeed, rather than that momentum in the US Congress at present seems to be to tighten the sanctions regime around Russia by codifying existing sanctions maintained by Executive Order, through legislation, piggy backing off new Iranian sanctions legislation.
Sanctions for Decades
If codified, and likely extended, it will be very hard to lift sanctions - they are likely to last for decades.
The question then is how Russia responds to the realization that its hopes of sanctions moderation and normalization in the relationship with the US are unlikely to be delivered on. Given that Putin seems to be working on a strategic geopolitical play to rebuild/re-assert Russia’s super power status, the question is do we see Moscow further push its agenda, by further external military interventions, perhaps in Ukraine, Central Asia, Transcaucasia or the Middle East?
The prospect of this is perhaps made more likely by the looming Russian presidential election due in March 2018, the weak state of the Russian economy and deteriorating prospects for oil prices, still the mainstay of the Russian economy. Recent demonstrations in Moscow around housing redevelopment plans might make the Putin administration more willing to look for foreign adventures, and especially while the West is still seen as weak, divided and unable to act in a unified way.
On specifics the current Russian – Ukraine stand-off in Eastern Ukraine is simply unsustainable. The underlying problems of Russian strategic (territorial or at the least forcing it back under Russia’s sphere of influence) claims over Ukraine, and Ukraine’s desired Western orientation have not been resolved.
We have a large Russian force deployed in DPR/LPR and Western Russia, and an increasing and increasingly capable Ukrainian military force being built to counter this.
There are two armed camps of hundreds of thousands of troops on either side, with hundreds of tank/artillery pieces, aircraft, missiles, etc, arrayed against each other.
Ukraine’s military doctrine has, meanwhile, been changed to being set against Russia, and its parliament recently declared its intent to join NATO.
It seems hard to imagine that this build up ends without a major conflict and a distinct winner and a loser – albeit timing that conflict is difficult. Likely it is still a medium to longer term threat. But as the annexation of Crimea, and Russian military intervention in Ukraine proved, these things are hard to predict.
Few political attempts are being made to close the gaps. As time passes, Ukraine is drifting further from Russia, which inevitably is going to grate in Moscow. The Trump White House seems naïve in terms of its Russia/Ukraine views, as reflected in its attempted reach out (back door channels) to marginal Ukrainian oligarchs/politicians as a means to seek some peace deal.