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By Daisy Sindelar, RFE/RL
2008 was a very good...half-year for Russia.
From its historic victory against Canada in the world ice hockey championships
to skyrocketing oil revenues and growing international muscle, Russia spent at
least the first half of the year the way it likes -- a winner on all fronts.
The signs were auspicious as early as January 2, 2008, when world oil prices
passed the $100-a-barrel mark for the first time.
In energy-rich Russia, where the economy depends almost exclusively on
resources, a single $1 rise in oil prices can translate into $1 billion in extra
revenues a day. So by July, when prices hit their peak at $147 a barrel, Moscow
appeared unstoppable.
It continued its revenue-fueled advance through Europe and Asia, buying up
billions in energy holdings.
The EU's failure to progress with its plans for the Nabucco pipeline allowed
Russia to inch closer to a monopoly on natural-gas shipments to Europe via its
proposed South Stream and Nord Stream pipelines.
Moscow also remained the foreign-policy bully, delighting in the failure of
Georgia and Ukraine to advance further in their NATO membership bids, and
maintaining a fighting stance over Washington's Central European missile-defense
plans.
The Kremlin even pulled off a potentially tricky political transition that moved
Vladimir Putin from the presidency to the premiership with no apparent loss of
power or public affection.
His presidential replacement, Dmitry Medvedev, proved a competent but
unremarkable successor who appeared content to stay in Putin's shadow.
Paul Quinn-Judge, a Russia expert with the International Crisis Group, describes
the first seven months of the year as a heady combination of "hubris and oil."
"This hubris reached its highest point when [Georgian President] Mikheil
Saakashvili tragically gave them the opportunity to go to war in South Ossetia,"
says Quinn-Judge. "It was certainly seen in Moscow, and I think by Vladimir
Putin personally, as a once-in-a-lifetime opportunity to take on one of his
biggest enemies and most disliked people, and he moved in. Since then, the
situation has changed totally."
Reversal Of Fortune
The August war -- and Russia's subsequent recognition of independence
declarations in South Ossetia and Abkhazia -- was seen by many observers as a
brazen move to reimpose Moscow's will on its "near abroad." But Russia, in the
end, drew only mild censure from the West.
The United States, a key Georgia ally, was the most vocal of the Western
countries in condemning Russia. It sent humanitarian aid to the Black Sea on
NATO warships, but stopped short of a stronger response.
The European Union, whose energy needs have driven a more pragmatic Russia
policy, had sharp words for Moscow, but waited only three months before resuming
talks on a key partnership deal.
But if the Georgia war passed largely without penalty, a far bigger blow was
awaiting Moscow in the form of the gathering global economic storm.
Although its early ripples could already be felt in Russia months before the
Georgia campaign, the massive scale of its impact is becoming clear only now.
Oil prices dipped to $50 a barrel and lower, depriving Russia's monolithic
economy of its primary revenue source.
Some estimates put capital flight since August at over $200 billion, as Russian
and foreign investors flee a ruble that has sunk to a four-year low against the
euro and which is being steadily devalued against the U.S. dollar.
The power struggle over TNK-BP -- which ended with the British chief of the
Anglo-Russian joint venture being forced out the country -- was one of several
high-profile cases to raise doubts about conditions for large-scale investment
in Russia.
The stock market has dipped over 70 percent on the year, and the country's
credit rating has been cut for the first time in nine years.
Despite the fall in oil prices, November 2008 marked a sharp dip in the
country's industrial output -- the first month to register such a fall since
early 1999.
Finally, a Russian economic official on December 13 announced that Russia had
entered a period of recession, thus bringing to a definitive end a period of
robust growth that had lasted for nearly a decade.
'Putin's Russia Has Reached Its End'
Perhaps the most visible symbol of the sudden halt in Russian prosperity is the
collapse in the construction market. In Moscow and St. Petersburg, numerous
ambitious corporate projects now stand unfinished, with no certainty of
completion.
Most notable among them was the Federation Tower, a
proposed skyscraper at the center of a new international business center that
was slated to become the tallest building in Europe.
In late November, developers said the credit crisis had left them unable to
secure financing needed to complete the building, and that demand for its office
space had dried up.
"In the impoverished 1990s, we built the Church of Christ the Savior. It was a
symbol," says Mikhail Delyagin, director of the Moscow-based Institute for
Globalization Studies. "The Federation building complex is a new symbol -- a
symbol of Putin's Russia. And halting its construction is no less significant a
symbol. It's a symbol of the fact that Putin's Russia has reached its end."
Indeed, Russia's economic collapse may strike a serious blow to the political
legitimacy of Putin, whose long-standing popularity is almost entirely dependent
on the country's prosperity.
"He is very angry at the West -- and, typically, the United States, whom he
feels to be responsible for the economic crisis, as if it has nothing to do with
him," says Quinn-Judge. "He's still deeply ideological and not very practical.
The most interesting thing is that he's looking more and more fallible in his
policies, and he may come under pressure eventually by somebody within his own
group to temper his policies."
In early November, as the economic picture grew increasingly grim, Medvedev
announced proposals for constitutional reform that would extend the presidential
term from four to six years.
The plan was seen as paving the way for Putin's eventual return to the
presidency.
It is highly unlikely that a viable contender could appear in Russia in the
coming years to challenge Putin's authority. But the economic belt-tightening
may force Putin to scale back on the aggressive foreign policy that has been a
cornerstone of his popular appeal.
That vulnerability may lead to a shift in one of Moscow's most critical
relationships, that with Washington.
Fresh Start With U.S.?
Russia's first gesture to the United States after the November win of Barack
Obama was a threat to position missiles in Kaliningrad if the United States
proceeds with its missile-defense plans in Poland and the Czech Republic.
Since then, however, both Medvedev and Putin have signaled a willingness to
re-examine the Russian-U.S. relationship under Obama.
"There has been this sense for the last couple of years that the Russians have
been overestimating their power and probably overestimating the weakness of the
United States," says Andrew Kuchins, who directs the Russia and Eurasia program
at the Center for Strategic and International Studies in Washington.
"We're not sure how long this economic slump is going to last, but it's going to
force them to return to a structural economic reform agenda, and to tone down
some of the most belligerent aspects of their foreign policy," he added. "So I
think there's an opportunity for the new Obama administration."
Kuchins says this new softening could mean progress on the nuclear-security
agenda, which suffered from the withdrawal from key arms agreements such as
START II and the ABM treaty.
The original Strategic Arms Reduction Treaty, which sets limitations on the
nuclear stockpiles held by Russia and the United States, is due to expire next
year.
Its renegotiation -- and continued talks on missile defense -- could allow
Moscow and Washington to reach a more cooperative partnership than has been seen
in recent years.
As a year that came in with a bang prepares to go out with a whimper, many are
wondering if history will remember 2008 as the year Russia peaked. Kuchins says
it's "certainly possible."
"The global financial crisis has reminded the Russians that not only are they
more integrated into the world economy than they ever had been, but that it also
makes them vulnerable to external shocks," he says. "I suspect that the Russians
are going to recover. But I still think that the external conditions are such
that they will be hopefully chastened a bit more than they have been for the
last few years."
RFE/RL's Russian Service contributed to this report
Copyright (c) 2009 RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036. www.rferl.org
... Payvand News - 01/03/09 ...
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