Putin facing financial pressures



March 28, 2022


Dr. Tahseen Mahmood Aslam points out to the attempts aimed at besieging Russian leadership

The Western bloc is relentlessly increasing Putin facing financial pressures with a view to deflate all ambitiously aggressive plans they accuse Russia is bent upon following that aim to ultimately become the hegemon in the region as it previously was. Putin is considered as an oligarch badly stuck in the past who wants to restore the past glory of the former Soviet Union and would not stop at anything until achieving his goal. Many analysts point out that Putin and his cohorts in the Kremlin is the last vestige of the Soviet power and control that will not budge from rewinding the historical clock and reinstituting the towering dominance in the areas once part of the mighty communist empire. This sentiment is not new in historical annals and Putin facing financial pressures is the latest addition to such hubristic assertion of a past full of dominance and glory who wants to snatch it from the jaws of past.
Vladimir Putin’s rise to power was accidental a from a lowly state functionary he stepped in the high office succeeding widely unpopular Boris Yeltsin in 2000 as president of the Russian Federation through highly suspicious yet quite normal practices of the Kremlin. Putin facing financial pressures had the nerve to take over the badly rattled country that was reeling from a chaotic transition to market capitalism leading to a sovereign default in 1998, a 5.3% drop in economic output and a dramatic devaluation of the national currency. Putin would thrive in the chaos with the unexpected help from the energy sector that provided him the unique opportunity to redraw the map of his rule.
The turnaround was remarkable as Putin facing financial pressures presided over steep rise in energy prices and huge demand from both developed and emerging economies resulting in immediate gains to the Russian state. Between 1999 and 2008, the country’s GDP per capita skyrocketed from $1,330 to $11,635, a spectacular though a rise embittered by inequality that enabled Moscow to drastically cut the central government’s debt that fell from 100.7% of GDP to 6.5% over the same period of time. In 2012, Russia officially joined the World Trade Organisation (WTO), a moment that definitely aligned the nation with the global economy and was personally hailed by US President Barack Obama. However, a decade later, the revival that took years to materialise threatens to come undone in months by the unfortunate invasion of Ukraine.
The result is that the Western countries have slapped an ever-expanding and hard-hitting raft of sanctions against Russia with the aim of crippling the costly war apparatus and forcing a ceasefire. The European Union, in coordination with allies, has targeted everything from luxury goods and aircraft components to semiconductors and state-owned media. In a shocking move, the West went directly after Russia’s Central Bank, cutting off lending and blocking the access to nearly half of its $640 billion in foreign reserves. The ruble went into freefall, inflation shot up and the stock market was abruptly closed with no reopening in sight. It was not all as a swarm of Western companies, such as Apple, Netflix, Ikea, H&M and even McDonalds, the first American fast-food restaurant to ever set shop in the Soviet Union, have fled the country under intense pressure from concerned investors and outraged consumers. Financial experts warn that the economic forecast for Russia will fall from a projected 3% growth to a 15% contraction in 2022 with a default on sovereign debt is seen as a matter of time.
True to the classic insensitivity of besieged arbitrary leaderships, the Kremlin appears unbothered by the dire warnings coming from Western capitals, who promise harsher punishments if the situation deteriorates. Putin has dismissed the sanction by stating that there are some questions, problems and difficulties but in the past Russia has overcome them and it will happen again. Putin’s resolve leaves Western allies wondering how much pain he would be willing to tolerate in order to subjugate Ukraine’s will to his geopolitical paranoia. It is quite well-known that Russians have a long history in defying external pressure and an ingrained belief in a strong state, two attributes that have served to strengthen and prolong Putin’s rule.
Faced with near universal censure, Putin is holding his ground and doubling down on his contempt for the West and his spite for what believes to be NATO’s encroachment into Russia’s sphere of influence. Putin and his close circle of officials have said the West is an empire of lies that sanctions are akin to a declaration of war and that any shipment of military support bound to Ukraine will be considered a legitimate target for retaliation. The Kremlin has also warned it will seize and nationalise the assets of the foreign companies that pull out of the country, including their production facilities, offices and intellectual property. It is emphasised that in the end, this will all lead to an increase in Russian independence, self-sufficiency and sovereignty.
Despite the bravado exhibited by Putin and his cohorts, for a country of 146 million people that has for years moved deeper and deeper into the world economy, a sudden shift to autarky would represent a formidable, onerous and possibly unattainable challenge. The room for reinvention is very narrow as Russia has a very tight relation with Western technology, software and investment and if that aspect is taken away there’s isolation and self-sufficiency though self-sufficiency in very modest terms. Oil and gas exports account for about 40% of Russia’s federal budget, which among its lines features national defence spending, estimated to be worth $61.7 billion in 2020.
The EU has long been aware of its heavy dependency on Russian oil and gas but has done little to alleviate its addiction. Following the sanctions imposed against the Kremlin in 2014 over the annexation of Crimea, which the bloc forcefully condemned and never recognised, EU purchases of Russian gas actually increased, hitting an all-time record of 166 bcm in 2019, the year prior to the pandemic. Last year, the European Union spent €98.9 billion buying fuel from Russia, amounting to 62% of total imports. The energy-thirsty bloc bought 155 billion cubic metres (bcm) of gas, disbursing at least €15 billion. This is the reason that the EU recently unveiled an ambitious roadmap to cut Russian gas imports by two thirds before the end of the year but leaders failed to agree on a final deadline to completely wean them off.
The question of energy imports has become so glaring and problematic that it has somehow eclipsed the other penalties that the EU has slapped on Moscow in record time and with extraordinary unity. Washington’s decision to ban all Russian energy imports has only served to put the EU in a more awkward position. Despite pressure from the US, Ukraine and its own Eastern member states, the bloc has so far refused to directly target Moscow’s most profitable source of income and probably this is the loophole Putin is very willing to exploit as he is consciously aware that German Chancellor Olaf Scholz has said that energy imports were of essential importance for daily lives of people. Owing to this Putin’s one-dimensional yet lucrative economic model is, for the time being, spared from total ruin as Russia is guaranteed a smaller but reliable source of revenue that can satisfy its most pressing needs though this lifeline bodes ill for hopes of aggressive designs of Putin and his fellow oligarchs holding power in the Kremlin. TW

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Dr. Tahseen Mahmood Aslam is an educationist with wide experience


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