Vladimir Putin in jeopardy on all sides as Russia’s economy stumbles

December 18, 2014

Russian President Putin is seen on a screen during his annual end-of-year news conference in Moscow

MOSCOW – What a difference a plunging ruble makes. A few short days ago, Russian President Vladimir Putin was a strategic genius, outplaying Western leaders everywhere – in the Middle East, in China, and especially in Ukraine. Today, he’s the destroyer of his country and his political life could be in jeopardy.

I’ve long thought that he has pursued a pre-World War Two course which could only end badly – a course in which his power is maximized by crushing internal opponents, expanding empire and using the military to frighten neighboring countries into submission. It’s true that all nations seek advantage, sometimes ruthlessly, but in the West, a politics has evolved which generally seeks win-win outcomes and avoids zero-sum confrontations. That usually means tacitly accepting U.S. hegemony and U.S.-sustained international rules of the game, and to that, Putin cannot reconcile himself.

Putin has increasingly developed a contempt for a Europe which has no central power, no centrally-controlled military force and a lingering economic crisis. He measures himself, as did the Soviet Union, against the United States; he has no kind of relationship with President Barack Obama, but he does recognize, and resent, the power of the United States. His actions this past year in Ukraine have been a calculated defiance of the American-sponsored international order – pulled off, apparently, with panache (and thousands of casualties in the former Soviet republic).

This assumption of co-equal status now dissolves. On Monday night, the Russian Central Bank hiked interest rates to 17 percent in a failed effort to stop the free-fall of the ruble, which is down 56 percent against the dollar this year. It has been on a rollercoaster ride since – up 9 percent early Tuesday but down 17 percent by nightfall, hitting 100 to the euro. On Wednesday, it gained slightly again — just as Apple ceased to sell its products in Russia, citing the monetary turbulence. On Thursday, the president did a 3-hour press conference in which he generously allowed anyone to call the last few days a crisis if they wished, but he wouldn’t join them.

And so the high political talk in Moscow — some of which I’ve been privy to over the past few days — is not of the need for Russian Central Bank Governor Elvira Nabiullina to go (though she may); but of something much more fundamental. The talk is of the need for major policy change; or, more radically, regime change.

The argument for both is the same. The bloodless taking of Crimea from Ukraine earlier this year, and support for the pro-Russian separatists in the eastern Donbass region, gave Putin the glow of a national hero. But now, Russia is suffering, and will suffer more, from the fall in oil prices and the effect of Western sanctions. Putin could not avoid the oil price fall, but he brought on the sanctions. His geopolitical victories of the past year now look like dangerous, and irresponsible, strutting.

He’s in charge; he takes the blame. What can he do? He might attempt to tough it out. The ruble may steady. Oil prices may rise again, even if not soon. The country’s reserves are still large — and even if it is bleeding cash, those reserves should be a cushion deep into 2015. Some analyses see the Western reaction to this as overheated, as wishful Western thinking that Russia is going down.

Politically, he has no obvious challenger; the demonstrations of three years ago have not been repeated; the polls, till now, show continued support. Masha Lipman, a top analyst of the Russian political scene, says that the liberal camp, so active in the protest movements of 2011-12, has shrunk to a hard core with little popular appeal. There are also signs that the rhetoric on Ukraine is changing. Both Prime Minister Dmitry Medvedev and Foreign Minister Sergei Lavrov have called for an agreement to keep the eastern Donbass region in Ukraine, which may placate Europe and Washington.

Putin has another problem. The men around him and in the fractious circles of Russian power are losing too much and are itching for change. The challenge to a tough-it-out course will come from within and resistance could spark a bare-knuckle fight over the legitimacy of Putin’s wealth, and that of his closest allies, that could become ugly.

One option for the Russian president is to bring in a stronger figure than the obedient Medvedev to the prime minister’s office. The most radical choice would be Alexei Kudrin, post-Soviet Russia’s longest serving Finance Minister (2000-2011). His economic and social liberalism would be at least an implicit criticism of Putin’s reactionary rhetoric. Many believe he is the only political figure who can contradict the President and retain his respect. Last month, he told a Reuters conference in Moscow that the Ukraine adventure, and the retaliatory sanctions — strengthened this week by the U.S. Congress –— were badly weakening the economy and must be addressed.

There are more conservative choices, who may be more amenable to a president who likes a strong state and capitalists too weak to be independent of him. Conservatives like Igor Sechin, a former deputy prime minister who is now executive chairman of Rosneft, Russia’s oil giant. He’s said to have a secret service past. Unlike the president’s, it was unofficial. He has efficiently integrated into Rosneft the large assets held by Menatep, the oil company which had belonged to the jailed Mikhail Khodorkovsky. He is a full member of the Siloviki, the former intelligence officers whom Putin instinctively promotes and protects. The drubbing given to the price of his product has taught a hard lesson in the workings of the globalized economy: but where Kudrin wants to reshape Russia so that it can better cope with that, Sechin is more likely to seek protection from it through state ownership and controls.

Putin has very little time. The long good stretch of Russian growth and geopolitical strut is over, and a nerve-grinding period of adjustment and appeals for belt tightening and patience is the best he can hope for. The worst is a bitter internal struggle over a financial abyss – a nightmare for Russia, for Europe and the world.

PHOTO: Russian President Vladimir Putin is seen on a screen during his annual end-of-year news conference in Moscow, Dec. 18, 2014. REUTERS/Maxim Zmeyev

30 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Putin shows his insecurities on his sleeve, which comes out as arrogance. Why is he so jealous of the US and President Obama? Obviously he feels threatened.

Posted by darlinsass | Report as abusive

It is in adversity that all the masks must eventually come off. Will we see Hitler’s face under Putin’s mask? We live in interesting times.

Posted by OneOfTheSheep | Report as abusive

With the sanctions against US products in Russia, maybe there’s a market for the roubles instead of Charmin.

Posted by smokeymtnblues | Report as abusive

Predator pretending that its prey.

Posted by Redford | Report as abusive

Putin is incompetent. He drives Russia’s economy into the sewer, so that he can re-capture the lost territory…. of Chernobyl?

Incompetent. Ignorant. Irrelevant.

Posted by AlkalineState | Report as abusive

Putin was pushed to do what he actually did by the western imperialism.All he has to do is clean the country from the oligarchy and return Russia back its people. This could send a revolutionary wave across south eastern Europe. And of course nuke Poland only for example.

Posted by Macedonian | Report as abusive

It just breaks my heart to watch this.

If you ever held any misconceptions of the brutality and callousness of western capital markets, this latest FX route of the Ruble should work well to dispel any doubts. What Washington and Wall Street want, they will get.

What a difference a few years makes.
When lawmakers had the will to expend their political capital necessary to reign in the destructive affects of the financial sector, it was our Treasury secretary – maybe presciently – who insisted that FX products be removed from under the umbrella of derivatives regulation proposed under the Dodd-Frank act.

I can only hope Putin and the Russian people are able to withstand this.

Posted by Laster | Report as abusive

Macedonian explains: “Putin was pushed to do what he actually did by the western imperialism.”

Good, then our plan worked. He looks like an idiot now, and Russia is failing. “Pushed.” Thanks for that.

Posted by AlkalineState | Report as abusive

This article reflects the mindset of those being on the propaganda front rather than reality. It can be compared to the North Korean propaganda of US being in the destruction during the 2008 crisis.

Posted by wirk | Report as abusive

AlkalineState expresses the view that they are happy the plan has worked. So by default they also except that the US rule the world and will one day turn on the countries that have supported them or conversely feed them to the growing god China. The main comment in the article is the fact that Europe have learned to live with US hegemony I for one am fed up with British troops being killed for an American ideal and desire to control the world or my government being controlled jointly by Washington and Brussels.

Posted by Moties001 | Report as abusive

Don’t worry Moties001. Nigel Farage will fix everything, lol.

Posted by smokeymtnblues | Report as abusive

Putin is a product of the Soviet system. Like the Soviets he favoured military spending over the domestic economy, and unsurprisingly he has also produced the same result as the Soviets: the collapse of Russia’s finances.

Posted by pbgd | Report as abusive

Poor Lilliputin “was pushed to do what he did”?? Are you joking, macedonian? Surely not that muscle-bound macho he-man who rides on tigers, wrestles bears, and flies with cranes? Or are his 62 years finally beginning to show despite a recent face-lift?

Posted by pbgd | Report as abusive

Moties001 writes: ” I for one am fed up with British troops being killed for an American ideal and desire to control the world…”

Ah yes, a brit complaining about imperialism and its adverse effects is like an Afghan war lord complaining about the lack of safe schools and good teachers in his neighborhood. Too late :)

Posted by AlkalineState | Report as abusive

The West for a long period of time was trying to get into some kind of confrontation with Russia, NATO expansion ,Chechnya, AMD, Georgia and then Ukraine. Mr Putin openly told the Western thugs that he is not happy with that. After the turmoil in Ukraine, Poland is pushed into confrontation with Russia by selling weapons to Ukraine, training sniper units on its territory and finally sending troops to fight on the Ukrainian side. There are already reports of some of them being killed by the Russian separatists. Same thing with all the Baltic states where Russian minority is present. The west will not stop until Russia falls apart and its wealth divided by the big corporations. I said corporations because the term countries is fictional. Countries exist on a map only because they are run by big corporations and not their citizens.

Posted by Macedonian | Report as abusive

From the Russian perspective, it’s pretty obvious that Putin’s geopolitical gambles was spurred on by continued NATO push into the traditional Russia/Soviet sphere of influence. This of course is nothing new since Moscow has been protesting NATO’s relationhip with other Eastern European nations for some time now. However, the fact that the equation now involves Ukraine is the main reason why Putin’s response is more forceful and direct this time around. After all, Russia needs access to the Black Sea from a strategic standpoint and Ukraine’s closer relationship with NATO will undoubtedly jeopardize that immensely.

All of this brings about another important question which is the role of NATO in all of this. To put it plainly, why is NATO still around? It is a military alliance created as a counterbalance to the Soviet Warsaw Pact. Well, the Cold War is long over and these days NATO is behaving more like a world police organization that certainly doesn’t shy away from using force as evident by its “Readiness Action Plan”. Is such a international SWAT team conducive to peace or even necessary? If anything it will encourage other nations to form international military alliances of their own, potentially starting another Cold War era like stand-off. If there is going to be a apocalyptic World War 3, one cannot understate the role of NATO in bringing about that reality.

Posted by blah77 | Report as abusive

This is a superb piece. Mr. Lloyd should perhaps refer to the new world order as the new economic order in which economic relationships dictate policies. Indeed, in this view, US hegemony is implicit in all of the structures that govern it: UN, WTO, etc., etc. The EU is resurgent in this order. (For example, the REACH initiative is directing much of manufacturing in the world.)

Putin is a communist. He doesn’t understand economics at all. Russia is poised to profit immensely in this economic order, but his obsession with antiquated world views and his total ignorance of economic principles and economic and cultural might (soft power) are ruining the immense potential that Russia has.

It is a truly sad, sad state of affairs brought about by exactly one man’s ignorance, which was doubly sadly empowered by a deluded plurality of Russians.

Hopefully Russians will eventually look at the prosperity of Asia (Japan, China, South Korea, etc.) and realize that the new economic order is no threat to Russia.

Posted by cleanthes | Report as abusive

I don’t see why we, the USA & friends, put sanctions in place. Nobody does that to us when we invade other countries. I don’t see how we’re improving the world economy, or ours, by making others suffer.

Posted by TigerFalls | Report as abusive

Take me through this slowly. Putin was doing well until he brought about this world slowdown which wrecked the price of oil? How did he manage that? Little old Russia sat in the corner on its Dunces stool brought down the price of oil without any help from America?

How times change, and so fast too. We can expect Putin to shout Uncle before the end of 2014. Come on, be serious, this game of chess is only in its early phase and you cannot really imagine that the shaky governments of France, Germany, Britain and America will gain any credibility for trying to destabilise Russia? What mockery of history this scenario will make in 2114 when survivors of the 2016 Holocaust reflect on the lunacy behind this debacle.

Posted by baglanboy | Report as abusive

Thank you, John-

Good article~ from a refreshingly human perspective.

Posted by neighbornick | Report as abusive

Pariah tzar of pariah state.

Posted by UauS | Report as abusive

“Putin has increasingly developed a contempt for a Europe which has no central power, no centrally-controlled military force and a lingering economic crisis.”
I’d surely and respectfully disagree, as Putin has developed a contempt for a Europe, because he’s been buying European politicians probably since he was a KGB operative in Eastern Germany in the 80th. The most prominent example of which is the recent German Chancellor Gerhard Schröder.

Posted by UauS | Report as abusive

He has no choice now, he will test NATO in Estonia or Latvia. He has to be the hero.

Posted by poeds | Report as abusive

Here are the main culprits that are pushing Vladimir Putin over the edge

http://www.npr.org/blogs/parallels/2014/ 10/28/359601443/why-does-saudi-arabia-se em-so-comfortable-with-falling-oil-price s?utm_campaign=storyshare&utm_source=fac ebook.com&utm_medium=social

Posted by locomo | Report as abusive

A genius is genius any time.So far the life people in his country is not affected much.He has not yet played all cards.He has said “if there are new sanctions we will react”He is waiting the development of the negotiations with Ukraine.Surely Ukraine is in worse condition than Russia.Slowly EU has become bystanders.They are also waiting the development of negotiations going on with Ukraine with rebels.It has been proved beyond doubt that Ukraine army can not fight with rebels for many reasons,more so due to financial crunch.Putin is indeed genius.He has ket China,India and Turks ready to by his oil.Artificial prices of oils can not sustain.More than Russia other small produces are suffering.Those who are benifitted like China,India are raedy to support Russia in other ways.Yes situation is bad but Putin can hold.Britain,France,Germany have big stake in Russia for which at least so far Russia has not acted but can act.Putin kept cash to survive.Let’s see who bows.Let’s see as a game played by one man Putin against eleven.So far he batting.Western countries know cricket better than US.They only know base ball to hit,come what may,war or world war.They have money.EU do not,nor Ukraine.Obama should have send his personal emissary.Kerry is too American.

Posted by gentalman | Report as abusive

The sanctions are still not nearly strong enough. This routine collapse of their currency will never thwart their ruling billionaire elite or change their policy of returning to military expansion.

Posted by Alex77 | Report as abusive

This is a Russian issue to be solved exclusively by the Russian people, and in the traditional Russian way.

Posted by WestFlorida | Report as abusive

keep dreaming. it is very good for the ego

Posted by adnan00 | Report as abusive

Putin in is a predictable corner, and he has put himself there. The world moves on.

Posted by AlkalineState | Report as abusive

Here’s the one who killed the passengers of the aircraft Malaysia.This pilot Ukraine. His name Voloshin. This operation was conducted CIA. In Ukraine, fascism US money.
https://www.youtube.com/watch?v=IlvaP8Px 0Jo
https://www.youtube.com/watch?v=-w9gpj-8 aiM

Posted by ipp | Report as abusive