Russia’s Worsening Economy Means Less Aggression Abroad, More Repression At Home In 2016

For Russia in the new year, trends shaped by earlier developments in 2015 will continue to intensify.

Russia’s domestic economic situation will steadily worsen, although according to many analysts, at least in 2016, the Kremlin will have enough resources to sustain the status quo. The number of local protests (such as the recent protests by Russian truck drivers against new highway tolls) will steadily increase across the country. But in 2016, they are not yet likely to reach the level that would create real problems for the system.

Nonetheless, the regime’s paranoia about its survival will keep intensifying in light of the worsening economic situation. Hence a new set of more repressive laws is likely to follow, and the overall intensity of the repressions will increase. Expect more opposition activists jailed, more limitations on civil and political freedoms, and more prohibitive laws. Some remaining quasi-independent media may become victims of a new wave of repressions.

In the economic domain, currency control laws (which have already started to emerge) might multiply due to the scarcity of dollars. This would include new bans on imported products (Russia’s so-called “anti-sanctions”) and bans on holding foreign accounts. The same lack of rubles might induce higher taxes, fines and fees, as well as delays in salary and pension payments.

In the foreign policy dimension, the important development is that the Kremlin is running out of resources in light of collapsing oil prices and a deepening recession. This could lead to less aggressive Kremlin adventures on the international stage. Experts already predict that Russia’s military budget will soon be downsized. As I have shown elsewhere, Russia is a typical petrostate: it tends to get more aggressive when oil prices peak, and tends to avoid military escalation when oil prices are low. Therefore the scarcity of oil revenue in 2016 might push Russia towards a more compromising stance on its Ukraine and Syria policy. The recent appointment of Boris Gryzlov into Ukraine’s contact group may indicate a step in that direction. It is unlikely that the Kremlin has resources for a substantive military escalation in Ukraine as of now.

The Kremlin desperately needs higher oil prices to refill its budget. In an attempt  to inflate oil prices, the Kremlin may attempt to rekindle conflicts in the Middle East, for example between Saudi Arabia and Iran. But despite recent tensions between the two countries, experts suggest that military escalation between them is unlikely, as neither Iran nor Saudi Arabia wants to engage in a military confrontation with each other.

To ensure that Russia stays in line, however, it is necessary for Western sanctions to remain in place. The Kremlin’s engagement in Syria doesn’t seem to have influenced Washington’s position on sanctions, but in the EU the situation is more complicated, as the Kremlin has been courting some of the EU members and lobbying for their abolishment. Moscow had some success with Italy when Rome unexpectedly blocked the automatic extension of EU sanctions in December 2015 (although Italy’s foreign minister later denied this). For now, the sanctions will remain in place for at least another six months. But we can expect to see greater resistance to emerge from countries whose leadership is closer to Putin (such as Hungary) or whose trade is more closely intertwined with Russia the next time that sanctions come under reconsideration.

Finally, the development of shale oil might have fundamentally altered geopolitical realities. As hydrocarbon markets become increasingly competitive, the petrostate politics that had a dramatic influence on international trend in the past few decades might fundamentally change. The very concept of a “petrostate,” of which Russia is a prime example, might eventually fade out. We may be at the beginning of this process in 2016.