News Comment

Sunday 21 September 2014

Putin faces economic wind chill from strategic cold war blunder

How Russian leader handles retreat after backing wrong horse in Ukraine will be key to his fate.

Eddie Hobbs

Published 27/07/2014 | 00:00

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Russia's Prime Minister Vladimir Putin holds a tranquilliser gun as he visits the academy of sciencies Ussuri reserve in Russia's Far East in 2008
Russia's Prime Minister Vladimir Putin holds a tranquilliser gun as he visits the academy of sciencies Ussuri reserve in Russia's Far East in 2008

Russia is very different today from the one following Putin's succession from Yeltsin. Its economy has grown tenfold after collapsing two thirds during the 90s, and while Putin may, eventually, be at risk from within, due to his miscalculated strategy in the Ukraine - a game where he'd hoped to exploit US and European divisions, his fate is still in his own hands, tied to the quality of his retreat and his management of the economy.

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In the latest Gallup poll, Putin's popularity has soared after annexing the Crimea from 54pc last year to 83pc this week, although the effect of economic sanctions has yet to reach the street. Meanwhile, Ukraine's fledgling coalition has collapsed, triggering fresh elections in October.

Neither is it necessarily in the world's best interests if Putin is replaced. He is, by some measure, one of the least fearful Russian leaders in its history and thoughts of a post-Putin westernisation of Russia are at best fanciful and at worst catastrophic.

I arrived in Moscow during Putin's first presidential year in 2000, took a two-hour trip across the vast Russian capital, followed by an overnight train 400km south. Exhausted, I found my bags had arrived before me; British Airways had a Muscovite drive the distance and return home the same day. First lesson: Russians are hardy and distances have a different meaning.

Next morning, shuffling past an Uzi-carrying security guard to change dollars to roubles, I joined the orderly queue inside the bank. Not there, I was told, here. Spinning around I met an elderly dandy openly trading inside the bank at a better rate than the bank displayed. Laughing as I left, I asked my guide if everyone was paid off - the guard, the staff, the manager? Yes. Second lesson: in Russia the absolute rule is that no rules are absolute.

That afternoon I visited a flea market; about 200 competing stalls on a city centre car park. All the shops were owned by the same businessman. Some other enterprising local had tried to duplicate the venture nearby. He and his business clan were eliminated. Next lesson: Russians prefer monopolies and respect power.

What I learned is that Russia is neither European nor Asian, it is Russian. No understanding of what's occurring on the borders of Russia can be understood without grasping what has gone before, looking at it from both sides and not just from the West - whose secret agencies are accused, with some justification, of dabbling in the internal affairs of Ukraine, ranked 144th out of 177 countries for corruption by Transparency International, 17 places above Russia.

In 1922, Ukraine and Russia co-founded the Union of Soviet Socialist Republics. Hardly a surprise since the Rus emerged near Kiev in the 9th Century, but the focal point changed to Moscow after the Mongol invasion.

Suffering and resilience, hallmarks of the Russian character, were forged out of successive superpower invasions and not just the tyranny of some of its rulers; the Mongols first crossed the Volga in 1238, the Ottomans in 1571, burning Moscow to the ground and leading to a wave of wars that, arguably, only finished in 1783 when Russia annexed the Crimea.

Twice Russians have been besieged at Sevastopol, first outnumbered five to one by a British and French-led allied army from 1854 to 1855 and again outnumbered two to one by German, Romanian, Italian and Bulgarian forces in 1941. Khrushchev, in a symbolic gesture in 1954, handed the Crimea to Ukraine to celebrate the 300th anniversary of Ukraine's entry to the Russian tsardom and to soften the bitterness of the Stalin-led extermination by famine or 'holodomor' in Ukrainian, a genocide that wiped out up to seven million in the early 1930s. Napoleon invaded in 1812 with the largest army ever assembled, estimated at 680,000, burning Moscow before a devastating retreat through the snow. But what colours the Russian sense of reclaiming its position as a world power is its accurate reflection that it crushed Nazi Germany, first at Stalingrad and then at Kursk, long before the US and Britain managed to breach the Atlantic Wall in Normandy. Its reward, paid for by the deaths of at least 27 million, was the expansion of the Russian empire west.

Gorbachev agreed to German reunification on the quid pro quo from US President Bush and German Chancellor Kohl that NATO would not encroach east, which is precisely what NATO did. Russia felt humiliated by its economic collapse and increasing sense of encirclement by an alien culture - that of a West which promised to put missile defence systems near its Polish border. Underlining Putin's worries is a determination to avoid a Ukraine-style Orange Revolution at home stoked by western agencies against which Putin has become openly hostile and accusatory.

The destruction of Malaysian Airline Flight MH17, coming the day after President Obama said, "we have made clear that Russia must halt the flow of fighters and weapons across the border", has handed the initiative to Putin's opponents, narrowing the rift he'd hoped to exploit between the US and Europe.

Tighter US sanctions zeroing in on market financing for crucial Russian behemoths like Gazprombank and Vnesheconombank, to be followed by harsher European sanctions, is striking deep within Putin's oligarchy. That the Russian economy is on the verge of recession despite oil at $100 a barrel is a telling indictment of the economic miscalculation from backing the wrong horse in Ukraine, arguably Putin's first major strategic blunder.

In the globalised world, a new cold war is being waged with economic weapons where the West is strongest despite Russian supplies of oil and gas. Capital flight from Russia is accelerating at more than twice the speed of last year when €46bn left and foreign direct investment has collapsed 50pc. The likelihood is that, while this phase in European tensions will end in a rebalancing of relationships between Russia and the West, it will merely mark a pause in what HG Wells wrote of human history - a race between education and catastrophe.

Sunday Independent

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