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RUSSIA


  
  

 

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 433,491 346,520 310,000 16
         
GNI per capita
 US $ 2,610 2,140 1,750 97
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: (26/11/13)

2013 marked a downturn in Russia's financial fortunes and increasing instability in the North Caucasus but an upsurge in credibility on the international stage after President Putin brokered a deal with Syria over the governments use of chemical weapons, preventing military strikes by the US. But, while the Kremlin is bolstered by that deal, its heavy-handed attempts to clench its grip on the extensive former Soviet space have not been so successful, with the EU apparently posing a more attractive option for Eastern European FSU countries.

On November 7, the Russian economy minister acknowledged for the first time that Russia's economy would lag behind global growth in the next 20 years. Aleksei Ulyukayev forecast that Russia's economy would grow by an annual average of 2.5 per cent during that period – down from an earlier projection of 4 per cent. Russia's $2 trillion economy has slowed sharply since Putin's return to the Kremlin in May 2012 and Ulyukayev said the slower growth risked delaying the achievement of ambitious goals for economic development laid out by Putin when he began his current term.

The health of the Russian economy, as is well known, relies on oil and gas production and sales, and Russia is working within much narrower margins than it used to. Russia's oil production figures are impressive, yet misleading. Rosneft and Gazprom helped push Russian crude oil production to a post-Soviet-era high in 2012, with average production increasing by 0.1m barrels a day from 2011 levels to 10.4m barrels, placing Russia among the world’s largest crude producers, alongside Saudi Arabia. However, analysts questioned whether new oil fields are being developed fast enough for this increase in production to continue? Thane Gustafson, an expert on Russia’s oil industry at Georgetown University in the US, said that virtually all new Russian production has come from fields that were discovered during the Soviet period, and a drop in Russian oil production is predicted for 2015 if more money is not put into exploration. At the same time, domestic consumption of oil is rising, meaning that Russia is exporting less, so generating less revenue.

The US overtook Russia in 2013 as the leading producer of natural gas, largely due to its investment in shale, and the days when oil and gas revenue alone could drive Russia’s economy and strengthen Putin's political prowess are drawing to a close. The Kremlin has recognised that new oil fields need to be developed and is reluctantly opening up to competition to allow that to happen. On September 10th, Reuters reported that Novatek, Russia's largest independent gas producer, has secured preliminary backing from the China National Petroleum Corp (CNPC) and leading Chinese banks for its plans to build a liquified gas project at Yamal in the Arctic Circle. But CNCP and those banks will only finance the project if the Kremlin agrees to allow Novatek to export the gas that it extracts from the plant to China. Currently, state-run Gazprom is the only company allowed to export gas from Russia but, on September 10, an anonymous source told Reuters that the Russian Energy Ministry had circulated a proposal that would allow liquified natural gas exports by companies that hold licenses to build plants, or to send the gas for liquefaction to a plant determined by the government. The draft also proposes allowing liquified natural gas exports by companies with state holdings of at least 50 percent - if they send gas abroad from offshore fields, or from production-sharing agreements. Out of necessity it seems that 2014 might herald the beginning of the end of Gazprom's monopoly.

The most publicised domestic policy effecting Russia's image abroad during 2013 was Putin's ‘anti-gay’ policy. A law passed in June effectively disallows all gay rights rallies in Russia and could be used to prosecute anyone voicing support for homosexuals! That law, and another banning same-sex couples from adopting children, are part of a highly conservative stance on social issues taken by Putin since his return to the Kremlin in May last year. In addition to concern about the abuse of human rights for gay Russians, are fears justified, that gay athletes from any country competing at the Olympic Games in Sochi in 2014 could be prosecuted for openness about their sexuality. The outrage against Putin's policy is widespread outside Russia, but public opinion - relaxed on this issue abroad, is unlikely to have any impact: for example, Prime Minister David Cameron rejected the idea of boycotting the Games and, in response to a letter from comedian Stephen Fry who said British athletes shouldn't compete, Cameron tweeted, "I share your deep concern about the abuse of gay people in Russia. However, I believe we can better challenge prejudice as we attend, rather than boycotting the Winter Olympics."

For the Kremlin, the Olympics poses more pressing challenges. Self-styled Caucasus Emirate leader Doku Umarov has called on his fighters to prevent the Games from taking place. Sochi lies next to the Caucasus, the Russian Federation's most volatile region, and the Games could well be used by insurgents in the ongoing conflict there to raise the profile of their cause. On November 3, to counter the threat, Putin approved a series of strict counterterrorism laws, obliging the relatives and ‘acquaintances’ of militants to pay for any damage caused by terrorist attacks.

Russia has stepped up its counter-terrorism measures (or has been seen to be doing so, at least) since the Boston Marathon bombing in April, which was carried out by two ethnic Chechen men, one of whom spent time last year in the North Caucasus province of Dagestan bordering Chechnya. It's thought that the pair may have been ‘lone wolves’ who did not have direct links to Daghestan's separatist groups. Even so, the Islamist insurgency there is ongoing, led by the 'Caucasus Emirate', that seeks to create an Islamic emirate in the North Caucasus - and violence in the region is ongoing.

The majority of attacks planned against Moscow and elsewhere in Russia continue to be instigated by groups from the North Caucasus and the region is unstable: blighted by organised crime, corruption, poverty and, increasingly, Islamic extremism. Putin is struggling to maintain his grip there and the Sochi Games will likely be heavily guarded.

On the wider international stage, Russia's confidence received a huge boost after Putin brokered a deal in mid-September with Syria's leader Bashar al-Assad over his alleged use of chemical weapons, thus enabling US President Barack Obama to backtrack on plans for military intervention in the war-torn Middle-Eastern state.

Capitalising on the lack of appetite for military involvement in Syria from most of Europe and the American population, Putin managed to orchestrate a diplomatic solution to the potential further use of chemical weapons by the government in Syria by getting al-Assad to join the Chemical Weapons Convention. While Putin called the deal an "an important step towards the resolution of the Syrian crisis" that showed the "serious intention" of President Assad "to follow this path", the rebels in Syria say the development will not stop the war. That obvious fact doesn't knock Putin's triumph at all: Until September, Putin had been seen by some, as ‘the stubborn goat’ who stood in the way of UN intervention in Syria, but his diplomatic involvement gave him credibility as an unshakable force while securing Russia's lucrative arms trade with Syria as the war rages on – a win-win situation for the Kremlin. In addition to which, many people thought that the Russian initiative was a worthy intervention deserving even moral applause, as well as the feeling that the US ‘owes Moscow one’ for resolving a truly difficult situation for this president who had promised, if elected, to get the US out of its middle- eastern wars.

That development has opened up other Middle-Eastern countries to Russia. In November, Russian ministers met top officials in Egypt (which has been an ally of the US since the 1970s) for “historic talks” on a possible arms deal. The meeting followed the US' decision to cut defence aid to Egypt in response to the ousting of President Mohammed Morsi and shows not only that Russia is becoming a more attractive bedfellow, but that it was a world-class and not too expensive supplier of modern armaments. Gulf Arab rulers have been alarmed by the speed with which the West abandoned its former partner, Egypt's former President Hosni Mubarak and, although most disapprove of Moscow's support for Syria's President Bashar Al-Assad, they do like the fact that Russian policy has been unwavering from the beginning.

But those diplomatic gains have not been seen in Eastern Europe. Moscow is attempting to build up a trade alliance with former Soviet republics, starting with the Customs Union signed between Russia, Kazakhstan and Belarus in 2011, and working towards a “Eurasian Economic Union”. It doesn't want its neighbours and former vassals – particularly Ukraine, which given the history, is viewed by some Russians as part of Russia – to fall out of its orbit. Ukraine, Moldova, Lithuania and Georgia want to sign free-trade and political association agreements with the EU and, in an effort to prevent that from happening, Russia began a trade war with Ukraine in August, banning the import of several goods from the country. The strategy was widened and Moscow went on to ban imports of Moldovan wines and spirits, Georgian mineral water and Lithuanian dairy produce. Those products are the largest export earners of those countries and the trade war, along with threats to cut off gas supplies, was designed to squeeze them into submission. A meeting between the FSU countries concerned and the EU in Vilnius in late November will determine whether or not that strategy has had any effect.

Subsequently it has now become clear that Putin has succeeded in terms of Ukraine (see that country report), who have chosen for a complexity of reasons to stick with Moscow, and turn away from the EU. Probably an unpopular decision in Ukraine generally but this really is ‘high politics’ at the crunch, with economics and future prospects far behind.

This should be seen in the context of Putin’s primary ambition in office, to restore as far as is possible, Russia’s Empire from both its Tsarist days, and through its time as the alternative world superpower, the Soviet Union. It could be said that his former agency the KGB, got him, via a meteoric career ‘coming from nowhere’ into office, with that objective in mind. He certainly has appeared to be single minded about this vision. He succeeded in his first set of objectives to knock into shape the new Russian Federation, staving off democracy and keeping a grip on each of the Republics, as well as the armed forces.

If his predecessors at the time shortly following the 1991 collapse of the USSR had shared Putin’s vision, and if post-soviet circumstances had been different, then there would have been a good chance of success, but that is now 22 years ago –long enough for the rulers of the independent former Soviet republics to savour their independence and to have found less ‘controlling’ alternatives than thraldom to Moscow. As can be seen from this issue’s Kazakhstan report, China, a very necessary and logical ally to Putin, nevertheless remains perhaps in an overwhelmingly strong position in much of resource-rich Central Asia; and in Europe, the European Union is seen to have so much to offer those FSU republics west of the Urals, but there is a cost to that; the price to pay is that EU membership requires real democracy and the end of state-led corruption; in short the rule of law; so Putin requiring none of those things, quite the contrary, is not defeated yet and indeed latterly as we now know, has hauled in the Ukraine back to economic subservience.

With the spotlight turning on Russia as the Games draw closer, and with little chance of Putin becoming more tolerant overnight, issues such as strife in the Caucasus and discrimination against homosexuals and the political opposition, may become more widely publicised abroad, but it's doubtful that any improvements will be seen. There is nothing yet approaching a widespread public demand for real democracy in Russia. Putin's desire to expand Russia's influence, if not mastery, in the former Soviet Union and in the Middle East is clear, if not particularly well funded, and he will likely continue on the path that he's set until the presidency is up for grabs again in 2018.

 

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