Russia

A survey of recent writings on Russia by western scholars reveals a widely-held view that the largest of the 15 post-Soviet republics has continued to decline in the 21st century.

Yet an examination of the data suggests that Russia has actually risen in comparison with some of its western competitors. Read more

The furore over allegations that Lech Walesa collaborated with Poland’s communist secret police in the 1970s shows that the past is ever present in the countries that once made up the Soviet bloc. Intelligence files, real or fabricated, have often been used to destroy political opponents or settle scores, while laws on lustration and ‘de-communisation’ have played an important role in the efforts of central and eastern European states to define their post-communist identities. Vladimir Putin has also been an active participant in these ‘history wars’, rehabilitating the symbols and personalities of the Soviet period to encourage patriotic sentiment at home and labelling countries that try to erase their Soviet legacies as inherently Russophobic.

Divergent attitudes to the past are likely to remain a potential flashpoint in relations with Russia, yet it is no longer clear that the efforts many of these countries devote to repudiating the communist era serve any useful purpose in promoting or consolidating political change. Most of them completed their democratic transitions years ago and the danger of a communist revival is now wholly non-existent. If there is an internal threat to the open, pluralistic, market-oriented societies that successfully emerged from the wreckage of the Soviet experiment, it comes from a different direction altogether. In particular, it comes from a populist, authoritarian right that wants to build an illiberal Europe of closed borders and closed minds. Read more

In the spring of 1987, I flew to Moscow with a team of several dozen US officials to negotiate what would become the last trade and economic agreement between the United States and the Soviet Union. In reality, it became a bit of a blueprint in addressing the privatisation of the Russian economic system under then General Secretary of the Soviet Socialist Republics Mikhail Gorbechev. Over the course of several days the Soviet and US teams addressed most sectors of the economy from finance and tourism to legal structures and manufacturing. Although our approach was far from perfect, it laid a foundation, along with perestroika and glasnost, that allowed Russia to prosper for more than 25 years.

Since that time, I have watched as Russia has gone from state-centric decay, to black-market driven. I have seen the system devolve from broken socialist idealism, to rampant capitalist greed run amok. Read more

For much of the early 2000s, Brazil, Russia, India, and China (the Brics) were seen not just as “the engine of new demand growth and spending power,” as Goldman Sachs researchers put it in 2003, but also as the likely begetters of a new international order, in which the US – and the west more generally – would play a much less significant role.

Today, the idea that the Brics could lead the way to this new order seems more distant than ever. Read more

Investors in Russian equity and debt enjoyed, on average, a relatively better year than peers in other major emerging markets. The rouble-denominated Micex gained 17 per cent in the year up to Christmas week, while the dollar denominated RDX added only 0.3 per cent – the difference being accounted for by the 16.5 per cent year-to-date fall in the value of the rouble versus the dollar. Over the same period, the MSCI EM Index lost 17 per cent and the MSCI World Index was off 4 per cent. The yield gap applied to Russian sovereign debt, and that on issues from the biggest corporations, contracted substantially despite the cut to sub-investment grade by two rating agencies earlier in the year.

Valuations started 2015 excessively cheap because of political and economic fears that proved unfounded. The conflict in eastern Ukraine did not spread further and sanctions were not added to. Domestically the government’s response to falling oil revenues and tough macro conditions was pragmatic and effective. For sure nobody can say that 2015 has been a good year for Russia; what we can say is, “it could have been a lot worse”. Read more

Moscow seems intent on re-engaging with the international community after being relegated to the sidelines following the conflict in Ukraine. The Kremlin is not necessarily becoming more accommodative to the west, but there are changes in several areas that suggest President Vladimir Putin wants to play a more active role internationally.

The fight against global terrorism is the most recent and perhaps most significant example of how Putin has re-emerged as a key player. His role at the recent G20 meeting in Ankara stands in stark contrast to the meeting in Brisbane a year ago when he left early after being shunned by the other leaders. Russia has also tried to play a more active role in the Middle East. Moscow proved productive in the Iran negotiations over the summer and that Russia is now circulating a proposed constitutional reform plan for Syria in the UN points in the same direction. Read more

To hear some Russia watchers say it, Vladimir Putin will fight to the last Russian air bomb to keep Bashar al-Assad of Syria in power. But will he?

I argue not only that Putin could and should let Assad go, but also that Putin’s own record of behind-the-door diplomacy offers a clue as to how the Syrian dictator could step aside without losing face. Read more

For both liberals and conservatives in the Russian government, western sanctions and oil price volatility present new challenges and opportunities. Both camps hold the key to Russia’s economic and political stability.

The conservatives, led by Igor Sechin, dominate the oil industry through the state-controlled national champion Rosneft, where Sechin is chief executive. The liberals, represented by prime minister Dmitry Medvedev, finance minister Anton Siluanov, deputy prime minister Arkady Dvorkovich and central bank governor Elvira Nabiullina, steer the country’s fiscal and monetary policies. Read more

As always, there is a great deal of noise around the Russia story and that makes it difficult for investors to identify the core issues with the greatest impact on risk. There is a lot of concern and speculation over the next steps in eastern Ukraine and the possible consequences for sanctions. Russia is also viewed as being among the most exposed to any deterioration in China’s growth outlook and from the yuan devaluation. On top of which is the daily battering from the sliding oil price.

There can be no argument that Russia is in a very precarious and even dangerous position. The 4.6 per cent preliminary estimate for GDP contraction in Q2 confirms that. But, cutting though the noise and discarding extrapolations and exaggerations, there are two core issues which investors should now be most focused on and which will provide guidance as to whether investment risk is deteriorating or improving. Read more

Much has been said over the last six months about the collapse of the Russian economy as a result of sanctions and the falling oil price, on top of other negative factors such as bureaucracy and corruption, high inflation, inefficiencies in production, ageing infrastructure, a failure to innovate and diversify and capital flight. A slew of economic data point to a deep recession, and US President Barack Obama describes Russia’s economy as being in tatters. No one seems to be denying the long-term negative impact on the economy; even the government expects two tough years ahead, a prediction regarded as hopelessly optimistic by many economists.

However, anecdotally at least, it doesn’t feel like a financial meltdown here in Russia. Read more

Margrethe Vestager is one of the most influential women in Danish politics but it was her recent decisions as European Commissioner for Competition to take on both Google and Gazprom that turned her into a globally recognised figure.

The two cases are very different. Google’s dominance may be a fleeting one and its alleged ability to impose on its customers an inferior service – search algorithms favouring its own products – is limited by the availability of competing search engines. Gazprom, in contrast, fits better the textbook idea of a monopolist: switching to alternative energy sources is a considerably less trivial exercise than making Bing your new homepage. Read more

As revelations about cyber-attacks launched against the US last autumn show, Russia is engaged in a relentless intelligence war against the west. Other targets of Russian cyber-warfare have included Germany, Estonia, Romania, Ukraine and Georgia. As James Clapper, the US director of National Intelligence, recently told the US Senate, the Russian threat is “more severe than we have previously assessed”. The ability of Russian hackers to successfully access the State Department and White House computer networks should serve as a wake-up call. The US and its Nato allies must respond by developing a more effective tool kit for dealing with this threat. Read more

The Russian rouble has moved from above 70 to the US dollar in late January to around 50 in mid-April, making it one of the best-performing currencies in the world this year. This is particularly remarkable as the dollar has been quite strong during this period, continuing to appreciate against the euro. So, what is behind this sudden rouble strength?

For most of last year, the rouble traded on the oil price and geopolitics, so it could be assumed that either of those two factors has changed materially. The oil price has moved from $56 to $60 per barrel this year, and the so-called Minsk II agreement was reached on February 12. Is that enough to explain the recovery? Probably not, especially considering that the oil price has been flat over the past two months while the rouble rallied the most. The rouble thus seems to have de-correlated from the oil price, at least partially and temporarily. And there has been fairly broad international scepticism over the Minsk II agreement (which we do not share by the way), making it difficult to believe that that is the reason behind the rouble’s strength. Read more

By Taras Kuzio of the University of Alberta

This week, St Petersburg hosted a bizarre gathering organized by the Rodina (Motherland) party of 150 European fascist and nationalist-populist political parties united in their opposition to the EU and US and in support of Russia’s annexation of Crimea and invasion of eastern Ukraine. Rodina is the loyal nationalist ally of President Vladimir Putin’s United Russia party and consequently plays a similar role to the Radical Party’s alliance with the Serbian Socialist party. Read more

By Yoel Sano, Head of Political Risk, BMI Research

Following Russia’s annexation of Crimea and its destabilisation of eastern Ukraine, a military confrontation between Russia and the West over the Baltic states is no longer unthinkable. Under what circumstances could this happen? How would such a conflict play out, and what might happen once such a war ended?

The notion of large-scale warfare in Europe – even without the nuclear dimension – would send shockwaves around the world, threatening to overturn the entire post-Cold War order. If the North Atlantic Treaty Organisation (NATO) failed to defend the Baltics or were to lose against Russia, then Asia and the Middle East would also be destabilised, as doubts grew over the reliability of the US as an ally. This would usher in a much more unstable geopolitical climate, akin to the 1930s. Read more

When General Motors, citing “very challenging long term prospects,” slammed the brakes on its Russian investments this week, the Kremlin said it was making a big mistake. Russia’s car market would eventually rebound from the crisis and the US auto company “would find itself among the losers,” said Dmitry Peskov, spokesman for President Vladimir Putin. Read more

Blink and you missed it. The day after the US Federal Reserve appeared on Wednesday to put back the date of its long-awaiting interest rate rise, analysts at Bank of America Merrill Lynch wrote to clients: “Emerging market currencies temporarily halted their losing streak with a dovish Federal Open Market Committee sending the USD lower.”

“Temporarily” is right. The Brazilian real closed at about R$3.21 to the dollar on Wednesday from its open of R$3.24, a rare day’s gain in a two-month slide. But on Thursday it was back on course, falling quickly beyond R$3.30 before recovering a bit, an intraday move of nearly 3 per cent. In less dramatic manner, the Turkish lira, Russian rouble and South African rand all resumed their downward slides, too. Read more

So, how would you go about bailing out a war-zone? The IMF’s rescue plan for Ukraine, agreed by the fund’s executive board last week, has to grapple with an extraordinary combination of problems. On top of the usual party pack of issues endured by IMF borrowers – a collapsing currency, a large debt burden, a corrupt and sclerotic economy – Ukraine faces the unusual challenge of a belligerent nuclear-armed neighbour fomenting a civil war.

In this context, the critical question of whether to restructure private sector debt becomes an unusual one. The IMF made obvious mistakes in previous crisis countries such as Argentina and Greece, where debt restructurings were delayed until the situation had gone critical. This experience suggests a rapid early reduction in net present value, including a cut in face value if necessary, to tip debt dynamics towards stability. But where there is a large and completely uncontrollable risk that might instantly change the situation, there is a strong case for giving Ukraine medium-term breathing space rather than a once-and-for-all write-off. Read more

A long awaited plan by the European Union to import Caspian gas moved forward this week as construction work began on the Trans Anatolian Natural Gas Pipeline (Tanap) in Turkey.

Tanap is the central link in the EU-backed Southern Gas Corridor, a jigsaw of existing and planned pipelines designed to diversify Caspian energy export routes and reduce European dependence on Russian gas. Initially, the 3,500km SGC network will transport gas from the giant, BP-led Shah Deniz field in offshore Azerbaijan, but could in future draw supplies from other Caspian and central Asian countries and even the Middle East, changing the energy map of the whole region. Read more

By Andrew Foxall of The Henry Jackson Society

Unwilling to go to war with Russia, the west’s main levers for persuading Vladimir Putin to back down over Ukraine are economic sanctions. Their importance was underscored last week, when the US announced new measures against 14 individuals and two entities. While the attention-grabbing name on the US list was Aleksandr Dugin, the academic-turned-policymaker whose musings on ‘Eurasianism’ has led some to refer to him as “Putin’s Brain”, another entity was the little-known Russian National Commercial Bank (RNCB). Read more