Post-Inaugural Tension

Ivan Khilko analyzes the political situation in Russia following Vladimir Putin's return to the Kremlin.

Today, Vladimir Putin returns to the Kremlin for another six-year term.  While Sunday’s “March of Millions” in Moscow drew at least 20,000 anti-Putin protesters, its participants are unlikely to change much, given the finality of Putin’s re-election.  Despite a hunger strike and demand for election surveillance videos by Astrakhan mayoral candidate Oleg Shein, the post-election optimism felt in the country seems to have subsided.  This is a prudent time to ask what, if any, consequence the anti-Putin movement has had on the political mood in the country, as well as what effects it could have on Putin’s future term(s) as president.

For starters, the impact of the protest movement was initially overblown as it was concentrated in the big cities of Russia and largely overlooked the other less densely populated regions.  While much has been said of the new Russian middle class that has developed since 2000, it is unlikely that its members will do much to change the prevailing mood of political apathy in the country.  The problem is that most Russians see demand for political change as frivolous in comparison with their day-to-day struggles.

Putin is lucky: such concerns are easy to respond to in the short term, a fact which he has already acknowledged by promising populist fixes (such as raising pensions) when he comes to power.  In places that receive very high Russian subsidies, such as Chechnya and the other troubled republics of the Caucasus, support for Putin and United Russia is close to unanimous, even accounting for voting irregularities.  Despite the fact that Putin himself recently quit the ruling party, support for United Russia doesn’t seem likely to change soon without a concentrated campaign to wean these places off of government support and create a healthier economic climate.

Written by Ivan Khilko

Ivan Khilko is an Economic Analyst in the Russia Practice at the law firm Akin Gump Strauss Hauer & Feld, where he specializes in political and macroeconomic trend forecasting and energy issues in the CIS countries.  Ivan holds a MA in Economics from Fordham University and a BA in Economics from the University of Chicago.

The question of what will lead to a significant shift in the population’s political attitudes becomes one of divining the drivers that could anger the residents of the “regions” sufficiently to effect change.  This could be a cut in pensions, health care, or education; or a hike in Russia’s notoriously low income tax.  The economics of the first Putin regime, as well as those of Dmitry Medvedev, were driven by the sound policies of former Finance Minister Alexei Kudrin.  Kudrin recently left the position over a row with President Medvedev promising to stay out of the new cabinet and possibly establishing his own party. Despite the healthy state of the federal budget (a consequence of Kudrin’s rainy day oil fund), the economy is still based almost entirely around the oil and gas sector, leaving it vulnerable to global changes in these markets.

While concerns over Iran and Syria have driven up current oil prices, there will likely be a breaking point at which they will crash ($140-$160 per barrel, according to most analysts).  The threat to gas prices comes in the form of shale gas, largely from the United States, where a vibrant spot market in gas threatens to undercut Gazprom’s monopoly and the long-term, higher-priced contracts it demands. Lower oil prices and a decrease in demand for Russian gas could lead to the types of cuts in social services outlined above, leading to discontent within the large contingent of the country that relies on them.

The other hope for change in Russia’s political landscape is noted in a recent post on the Financial Times’ Alphaville blog, which presents a number of positive (and surprising) recent demographic trends.  After a significant and consistent population decline in the 2000’s, Russia’s population grew by 3 million people between 2010 and 2011.  While some of this could be attributed to migration, other statistics in the article show an increase in the number of births relative to deaths.  If these trends continue, Russia could see an Arab Spring scenario wherein a large number of young people dissatisfied with their job prospects rally for political change.  And while another graph shows an increase in the number of people employed, without diversification away from the hydrocarbon sector such increases will be unsustainable.

Without a push to diversify the economy and root out corruption, Putin’s populist policies may not be enough to pacify the Russia’s population in the future.  It remains to be seen what steps he will take now that his presidency is assured and he no longer has to appease an angry urban middle class.  If the new Putin is anything like the old Putin, they will likely be short-sighted and disappointing.


The SAIS Review
The SAIS Review