October 19, 2016

HE PLAYS IT VERY WELL, BUT PUTIN FUNDAMENTALLY HOLDS A WEAK HAND: Putin’s Boasting Hides His Fear of Sanctions:

Russian President Vladimir Putin was in Goa, India this weekend at the annual BRICS summit, where the big announcement was that Igor Sechin’s Rosneft had bought a controlling stake (49 percent) in the Indian Essar Oil company. At a press conference for the announcement yesterday, Putin was asked if Russia would consider softening its counter-sanctions against the United States and the European Union. “Screw them,” he said. . . .

The bravado was surely music to the ears of his Russian audience. But Putin was sounding a distinctly different note two weeks ago, when he submitted a law to the Russian Duma withdrawing Russia from a long-standing plutonium disposal agreement with the United States. Among the preconditions for the resumption of the treaty named in the document one in particular stands out: “The United States must pay for the damages incurred by the Russian Federation as a result of the aforementioned sanctions, including any costs born from counter-sanctions the Russian Federation was forced to undertake.” (This language was of course not mentioned in Russian coverage of Putin’s bill. What the Russian people instead heard on TV was that Putin Almighty was sticking it to the United States.)

The economic reality is harsher. The Russian Government, looking ahead to a future where oil prices stay at around $40/barrel, recently announced that it will slash its budgets for next year, including a cutting its health care budget by one third, down to $6 billion for 126 million people, which includes spending on research. And yet all these budget cuts still have the Russian Government running a deficit well into the future. Russia’s reserve fund is expected to drop to $15 billion by the end of the year by some analysts, and could run out as early as mid-next year. Though the IMF is predicting that the Russian economy will return to growth next year, it maintains a gloomy outlook for the next few years out, arguing that growth “remains subdued given long-standing structural bottlenecks and the impact of sanctions on productivity and investment.”

EU Foreign Ministers are meeting this week, and Russia is on the agenda. New European sanctions seem unlikely—Austria today joined Hungary, Cyprus, and Greece in signaling opposition—but recent developments in Syria appear to have forestalled any talk of easing the sanctions currently in place. For his part, Secretary of State John Kerry yesterday announced that the United States was mulling imposing additional sanctions on Russia in connection with Syria. We will see if anything comes of it.

President Putin is indeed screwing someone over, but it’s not the West; he is screwing over his own people, over and over again, millions of whom are paying the price for their leader’s personal ambitions and interests. Critically, however, Putin’s decisions are also hurting those in his inner circle, and his regime is suffering and weakening.

We, on the other hand, hold a strong hand and are playing it badly. That’s called “smart diplomacy.”

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