For a few crazy hours last weekend, Vladimir Putin’s presidency looked like it might be on the brink.
The dramatic revolt of the Wagner mercenary group culminated in an armored column making its way to Moscow. As the convoy crossed the country, preparations were made in the capital for an impending conflict.
Although a resolution was negotiated before the weekend was over, the surprising events have changed the narrative about the stability of Putin’s government.
Now, questions are being raised about what could threaten his control of the country for more than two decades. As in the past, the economy is an important part of the debate.
Since the invasion of Ukraine in February 2022, the Russian economy has been a primary target of sanctions for Western nations seeking to support Ukraine.
However, for much of 2022, European countries continued to buy Russian oil and gas, while Moscow found new energy partners in China and India. This led the country to a record trade surplus of $227 billion (€211 billion). These bulging coffers helped Putin keep money flowing to various sectors and interest groups.
A shield against sanctions
That generosity also helped keep anti-Putin sentiment down, according to Chris Weafer, an investment adviser who has worked in the country for 25 years.
“It allowed the government to stabilize the economy and subsidize areas like the auto sector, which is politically very important because it is a very large employer, especially in regions of Russia where it could be the only employer,” he told DW, referring to large protests that took place in car-producing regions during the 2009 financial crisis.
There are signs that the situation has started to change this year. Elina Ribakova of the Bruegel think tank even sees a connection between the economic situation and the recent aborted coup.
He says the revolt led by Yevgeny Prigozhin was as much about access to increasingly limited resources as anything else. “Had we seen higher oil prices, Putin could have comfortably continued handouts to his former chef as well as social spending,” he said. “At the moment, Russia’s economy is almost entirely dependent on higher commodity prices.”
Energy revenues have arguably been Moscow’s main shield against sanctions and have given the Kremlin the ability to fuel its war effort and supplement social spending at home.
Kirill Rogov, a Russian political scientist who founded and heads the political network Re:Russia, explains how Putin has used large profits to keep various groups on board.
“The most important thing is the redistribution of income through infrastructure projects and other economic projects, which involve a lot of people and create economic activity,” he told DW. Another key group that achieves generous social spending are pensioners, who represent more than a third of the entire population.
Staking the whole house with oil
Rogov believes it was high oil prices that convinced Putin he could invade Ukraine in the first place. Therefore, if oil prices fall, the natural consequence of this economic dependence would likely be more political instability in Russia.
“I think in the case of low oil prices for two years, we can expect a real deterioration in the standard of living and then, protests,” Rogov said.
He believes an external shock, which could drastically reduce oil prices, could prove fatal for Putin’s presidency. “It will destabilize the system and diminish the elite’s belief in the long-term stability of Putin and the long-term stability of his regime.”
Chris Weafer agrees that the value of monthly oil revenues remains probably the most influential factor driving decision-making in the Kremlin.
“If these numbers go down, Putin will not allow the finance ministry to continue burning financial reserves because it will leave them geopolitically vulnerable,” he said.
A number down
And those monthly oil revenues are falling dramatically compared to the 2022 windfall.
Last month, the country’s finance minister, Anton Siluanov, admitted that Western sanctions, which have forced Russia to sell oil at a discount to countries such as India and China, have started to affect revenues.
According to official data, energy revenues fell by more than 50% in the first quarter of 2023. “This is now the key issue in the economy,” Weafer said. “In September, we’re probably going to look at a budget adjustment to reduce spending. It can’t happen in the military, so start reducing spending in the broader economy.”
At this briefing, the Finance Minister stated that non-energy revenues were “on track”. But Elina Ribakova says the reality is that Russia is now a war economy that is almost entirely dependent on both war itself and its oil revenues.
“Most of the industrial spending is boosted by military spending,” he said, adding that areas such as agriculture and auto manufacturing are struggling.
Could the oil burn the house down?
Weafer says talks about a power change in the Kremlin have become much more open and public than they were before, even before the coup attempt. He believes a leadership change prompted by economic turmoil remains a ways off, but says Putin’s position depends on keeping elites happy.
He, Ribakova and Rogov agree that a collapse in oil prices would be fatal for Putin, although Ribakova is highly skeptical that the system itself will change. “Of all these different scenarios of a post-Putin Russia, the probability of a democratic and stable Russia is, in my opinion, very low,” he concluded.
However, Weafer says, monthly oil earnings should be watched very closely by anyone interested in events in Russia.
“It’s like a hang glider,” he said. “The bit in the middle is called the ‘Jesus cart’ because everything hangs from that in the hang glider. And if that breaks, the next person you talk to is Jesus.”
“Putin’s ‘jesus cart’ is monthly oil flows. That’s the critical factor, hanging it all up,” Weafer said.
Source: DW
