With a month long conflict between Russia and Ukraine, several theses have been proposed by authors, experts and scholars. Here, Dmitry Kochegurov presents four different ones adding to the ongoing discussions.
Position №1. «Calm era of stability»
The 2000s – early 2010s without exaggeration will be remembered by Russian Millennials as one of the most economically successful and attractive periods in modern Russian history. Russia was in transition to capitalist country and has made a good progress in political reforms. Its economic growth was quite impressive, and the intention of rulers to build a right-wing oriented liberal democratic state stood in stark contrast with the Soviet era. Effective market reforms and the rise of the price of oil have helped Russian economy. First decade of the 21st century was completely marked by solid rates of economic growth (5-10% per year) and was labeled «welfare 2000s». Exceptional macroeconomic performance of Russian economy let Moody’s and Fitch raise Russia’s long-term sovereign credit rating to the investment grade in 2003 and 2004. Since 2000 real incomes of the population and GDP per capita have more than doubled. Despite permanent social inequality and chronic barriers in upward social mobility, many people really believed in opportunity for prosperity and success. Russian society was confident in immediate and near future economy and personal finance, then consumer will spend more than save. We can even talk about the origin of the same set of ideals which form the «American dream» in Russia, when each new generation lives better than the previous one. In its foreign policy Russia made serious efforts to integrate with the West and even join the EU and NATO on equal terms. If leaders of the USA and EU wanted to build strong historically unprecedented long-term relations with Russia, this was the greatest time. Unfortunately, these relations have experienced a significant deterioration after the beginning of the Ukrainian crisis in 2014.
Position №2. Crisis over Ukraine.
It began in February 2014 following the Ukrainian Revolution of Dignity and expanded in 2021-2022. 15 December 2021 Russia issued demands to the USA and NATO. The American side was given the necessary explanations of the logic of the Russian approach to Ukraine in a detailed form. A special project of bilateral treaty on «security guarantees» included demilitarization and denazification of Ukraine; preventing Ukraine and other states that were previously part of the USSR from joining NATO; the removal of multinational forces stationed in Ukraine and NATO’s Eastern European member states. NATO rejected these requests. 21 February 2022 Russian president Vladimir Putin signed two Executive Orders on the Recognition of the DPR and the LPR, and 24 February announced that Russia was initiating a «special military operation» in the Donbas. This caused a reaction of the West and new packages of sanctions.
Position №3. Impact of sanctions on Russian economy and society
It would be wrong to deny the impact of old and new sanctions in general. The authors stick to the point that sanctions are the main source of economic decrease. Comparing to the 2000s, the 2010s was labeled «lost decade» from hopes for further economic growth and historically unprecedented levels of living standards to continuous stagnation. In order to increase sources of budget revenue, it was made the decision to rise VAT (value added tax) and implement an unpopular pension reform that caused protests in 2018. Due to possible geopolitical risks, the volume of foreign direct investment in Russia has decreased. Russia possesses big gold and foreign exchange reserves, but they seem not to be because half were arrested and the second half is hard to change in international banks. A possible disconnect from SWIFT is closer than ever to reality. Russian users have lost the opportunity to pay for foreign services and use cards abroad. Customers will not be able to pay with cards of Visa and Mastercard payment systems abroad and on foreign websites. One of the main victims of Western economic sanctions has become the national currency. Over the past decade, it has depreciated against the dollar by more than three times from 30 rubles to more than 100 rubles for dollar. For some Russians the fall of the course of ruble turned into a personal disaster because the price of imported goods and services or the price of tourist trips abroad increased. Also, the mass exit of brands will lead the fact that trade will loss in quality. Sanctions affected the national debt, and also the stock market – the capitalization of Russian companies seriously decreased. So, sanctions could seriously hit the Russian financial sector that is why it was made the decision to raise its key rate to 20% and require exporters to sell 80% of their currency earnings. However, frankly speaking, despite the heavy blow that the Russian economy has experienced, it has enough strength and potential to recover in long-term period.
Position №4. The Russian Enigma.
But the most important thing that the West should understand is that sanctions will not force Russian president to deviate from the chosen political course and Russian citizens to walk on the streets and oppose the special operation in Ukraine. Demilitarization and denazification of Ukraine is the so-called «red-line» and issue of extraordinary importance for Russians. For long American political experts paid a little attention to the factors of Russia’s external behavior. People described Russia as a country that does not respond well to pressure from the outside like «besieged fortress». Russian folk community has a high threshold of stamina and at the same time remains one of the most passionate in the world. The more it faces any pressure – the more it will strive to protect its national interests. Also, it is an ambiguous question to ask how sanctions would be sensitive for the USA and EU.
The conclusion: Russian economy and its political establishment have felt the effect of sanctions, but they will unlikely lead to the final goal thought by those favoring sanctions on Russia. Probably less offensive approach could make Russian-American relations more productive. It would be better to determine foreign policy priorities towards Russia; to end the discussion of the domestic political regime in Russia; to suspend the expansion of NATO and guarantee non-nuclear status of Ukraine; to review sanctions against Russia and use it more selectively.
Dmitry Kochegurov is a Research Fellow at the Institute for the US and Canadian Studies (ISKRAN), Moscow, Russia, with inputs from Ashish Kumar Singh.
