Russia Is Steered Back Toward Petro-Stagnation

The “historic” trip of King Salman bin Abdulaziz al Saud to Moscow, last week (October 4–7) was an affair long on ceremony, featuring a massive delegation, but rather uncertain regarding the real results. The first ever royal visit (which had been rescheduled several times) was supposed to have great significance for relations between Russia and Saudi Arabia, at least in terms of removing mutual reservations against often incompatible political ends and paving the way for expanding economic ties. President Vladimir Putin organized the greeting in the Kremlin with all the proper pomp and fanfare, but was uncharacteristically laconic in his remarks (Kommersant, October 6). The king found it opportune to touch upon a wide range of topics, from Jerusalem and Yemen to the plight of the Rohingya in Myanmar; whereas, Putin only mentioned the “substantive and trust-based discussion,” which, given the depth of disagreements on Syria, was hardly the case (Kremlin.ru, October 5).

King Salman’s consent to this extended trip is interpreted in Moscow as the recognition of Russia’s greatly expanded role in the Middle East, underpinned by its effective intervention in the Syrian war (Nezavisimaya Gazeta, October 5). In fact, the Saudi court is far more concerned about the erosion of the United States’ role as the regional security guarantor and about the complications with the hereditary transfer of power to the new royal generation led by Crown Prince Mohammad bin Salman (Carnegie.ru, October 5). The ambitious prince had already established a rapport with Putin, but his command of the Saudi intervention in the Yemen war was not exactly triumphant, and success in the management of the deliberately provoked Qatari crisis is far from definite. So his father has had to provide certain reassurances to the key global powers (Gazeta.ru, October 5). The ruling monarch’s primary concern is about curtailing the influence of the inherently hostile Iran, but Putin cannot make even a symbolic gesture in distancing Moscow from Tehran because the sustainability of his Syrian enterprise depends too heavily upon the Iranian connection (RBC, October 5). What Putin was eager to do was to sell to King Salman the much-advertised S-400 surface-to-air missile system (which has not yet been exported to Iran), but Saudi air defense needs are going to be fully covered by the US THAAD system (Kommersant, October 5).

The main topic of Russian-Saudi top-level conversation was actually oil. And the key question on the agenda was the follow-up to the agreement on production cuts, reached between Russia and the Organization of the Petroleum Exporting Countries (OPEC) in November 2016 for six months, and later prolonged until March 2018 (Gazeta.ru, October 7). Putin presented a rather elliptic take on this question before the talks, but Russian experts keep arguing that it is the only way to prevent yet another collapse of the oil price (Kommersant, October 5). The calculations of profit from propping up the price are rather abstract. Whereas, the fast development of new technologies continues to push down production costs, particularly for shale oil and other unconventional projects. Also beyond doubt is the fact that global demand is falling due to gains in energy efficiency, notably prioritized by China (Forbes.ru, October 6). Russia is lagging badly in this high-tech end of the energy business and is concentrating instead on organizing old-fashioned cartels among producers. This has included Venezuela, which Putin granted a postponement in debt payments when President Nicolás Maduro paid a visit to Moscow right before the Saudi king’s arrival (Newsru.com, October 6).

This oil diplomacy is based on more than just production-cut agreements or attracting foreign investment to Russia’s aging and over-exploited energy sector. In fact, it appears Putin is abandoning previous attempts at modernization and steering Russia back to the track of a traditional petro-state, with all its well-known ills and debilitating deficiencies. The draft 2018–2020 state budget, for that matter, envisages zero growth, a contraction of the tax base, and cuts in expenditures, particularly after the presidential elections in 2018 (Ekho Moskvy, October 3). Russian former finance minister Alexei Kudrin argues that a reduction to the country’s military burden could generate healthy economic growth by stimulating diversification, but Putin rejects such ideas (Vedomosti, October 5). Even in the seriously stressed 2017 budget, new amendments were urgently introduced to fund undisclosed defense projects (RBC, October 6). Russia’s irreducible dependency upon oil and natural gas export revenues, which until recently was perceived as a high-risk vulnerability, now is seen as normal—and actually reducing risks related to the development of high-tech businesses outside the state’s control (Nezavisimaya Gazeta, October 5).

This economic trajectory involves the further decline of average incomes and painful cuts to social expenditures, but the Kremlin has apparently concluded that the electorate no longer expects prosperity (Gazeta.ru, October 6). The trickle-down effect from petro-revenues has practically disappeared, although various elite groups in Russia are still able to satisfy their corrupt appetites (RBC, October 6). Putin counts on their loyalty and encourages the predatory behavior but still finds it necessary to intensify the fear factor. The unprecedented series of firings of regional governors for no apparent reason other than the supreme will is presently the main means of disciplining the elites (Carnegie.ru, October 4). The new appointees, who are typically outsiders with no connections to local clans, are eager to follow Putin’s orders. But their problem is that no meaningful orders to implement anything resembling a coherent policy are forthcoming (RBC, October 6). These new governors’ main task, therefore, amounts to ensuring that the cuts in the distribution of social expenditures produce no street protests. But the underlying assumption in the Kremlin about the passive acceptance of impoverishment by the disheartened urban middle classes is far from solid (Rosbalt, October 5).

The example of Saudi Arabia has become rather appealing to Putin (particularly since Russia has the added benefit of possessing nuclear weapons), while Venezuela demonstrates the remarkable ability of a petro-populist regime to survive. However, there is clear incompatibility between this economic primitivism and ambitions to claim a “great power” status in global affairs; nonetheless, the state’s propaganda machine is always available to cover up the leadership’s blunders. For a ruler who neither holds sufficient power on the global stage nor is able to employ it toward a meaningful purpose, stagnation is a perfectly comfortable state of affairs. Putin’s cynical view that Russia is ready to sink into the petro-quagmire can, however, be disproven by the popular energy the country has historically been able to muster to assert the people’s right to a brighter future.