Monday, August 24, 2015

The Slow Fall of Vladimir Putin?

What will the future hold for Putin?

Vladimir Putin - Russia's strong-man president - seems to have been successful in his annexation of Crimea. Despite many objections from the U.S. and the E.U. in particular, he seems to have gotten things his way.

Putin has the oligarch vote

However, what many commentators seem to forget is that Russia is not really a democracy. The 'success' that we award Putin is based on our (Western) view of what keep politicians strong, namely popular support. But in Russia that's really not all that important. Ask any governor or oligarch: What is the source of your influence? They won't respond 'the people'. Instead it is the that fact that business and politics are more intertwined than in the U.S. or the E.U. A successful business in Russia is by definition influential as it provides access to power. And vice versa.

Multinationals pull out of Russia

Foreign companies are starting to suffer from the sanctions against Russia and its conflict with Ukraine. Carlsberg, the Danish brewery with global reach, saw its share price plunge 7 percent on 19 August  when the company reported lower operating profits than expected, according to CNBC/Reuters. Carlsberg has closed two of its breweries there due to a "deteriorating macroeconomic climate" in both Russia and Ukraine. For Russia to see a big multinational close down its direct investments there is a bad omen. Fewer foreign investments will only lead to lower Russian growth, higher unemployment and greater instability in the region. If history is anything to go by, the will spell greater social unrest, protests, violence, etc. Ultimately, Russia might see itself expelled from international organizations like the WTO if the country reacts to this changing climate with protectionism - which is highly likely. Already, as the BBC reports, Putin is handing out decrees ordering the destruction of Western - or partially Western - products like cheese, bacon, tomatoes and fruit coming into the country - to the dissatisfaction of ordinary Russians who struggle to make ends meet.


So for the moment, Putin seems to have played his cards right. For now, he has the support of the people because he has successfully created the narrative that it is the West that is trying to bully Russia - and not the other way around. But as we're seeing, money is starting to flow out of Russia. That was expected, of course, but the extent - and speed - with which this has occurred should be a source of concern for Putin. His power rests on the shoulders of oligarchs, and they are the ones paying the price for Putin's politics. For how long will they continue to support him while they see the international markets react against them?

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