Russia's Shifting Political Landscape, Part 4: Putin's Challenges

George Friedman
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Posted: Feb 06, 2012 12:01 AM

Although Russian leader Vladimir Putin likely will retain control after the March presidential election, he has recognized that the Russian political landscape has shifted since the beginning of his more than decadelong rule. Putin has acknowledged that the time when he was needed to consolidate or "save" the country from instability and insecurity has passed. However, he also understands that Russia is under constant threat because of its fractious nature and incessant pressure from abroad.

Therefore, Putin will seek to strike a balance between accepting a less consolidated state -- allowing the Communists and the protest movements to have some sort of say -- and keeping the Kremlin united under himself and populated with strong minds capable of weathering the challenges ahead. It will not be an easy task, and transitions such as this never go smoothly, so Russia's political landscape will remain volatile in the near term.

The real issue is not whether Putin can handle the struggles, but how long it takes him to sort through them and how much damage his image will sustain in the meantime. This is important because Putin is dealing with numerous issues other than domestic politics. When political instability struck Russia in the past, Putin tackled each problem in order; this time, several problems are occurring all at once, and in the lead up to a presidential election. Putin needs a strong, united and focused team to tackle the numerous challenges facing Russia, but the anti-Kremlin movements are preventing the formation of a united group that can create effective solutions for the country. In the coming months, as Russia's political volatility continues and Putin examines his strategy, the perception that he is becoming less powerful will continue both inside and outside Russia. The perception of Putin as weak is important, as it could complicate some issues Moscow is dealing with this year and in years to come.

Russia's Economic Challenge

First, Russia is reassessing its economic situation. The country's economy has recovered since the 2008 financial crisis, and Moscow had started implementing some expansive plans for the future. The modernization and privatization programs -- which the Russian people viewed favorably -- were to bring in possibly hundreds of billions of dollars in investment and advanced technology over the next few years and modernize the Russian economy. But these plans depended on European investment, and Europe's various financial and economic crises have forced many to backtrack on their commitments to Russia's programs. Furthermore, the perception that Putin is weakening and that Russia is politically unstable has discouraged many investors.

The Kremlin now faces the possibility of scrapping the programs. The Russian government might be able to fund pieces of the programs, but it would drain much of the Kremlin's savings. The Kremlin's budget is based mostly on oil and natural gas revenue. While prices for both are at record highs, the government is unsure whether oil will remain at about $100 per barrel and is already restructuring its pricing for natural gas with European customers at a much lower rate. Overall, the government wants to make sure it has a sufficient financial cushion if energy revenues fall precipitously.

These economic uncertainties are feeding the country's political problems. The Kremlin clans, Communists and protest movements are divided on how to handle the economic problems in the future; the siloviki and Communists want a more nationalist and consolidated approach, and the civiliki and many of the protest groups want a more liberal and free-market strategy. In recent years, Putin left such decisions to Alexei Kudrin, who was finance minister, but with his defection and possible alignment with the protesters it is unclear if anyone can sort out the economic challenges until the political crises are resolved.

Perceptions of Russian Power

Russia's other main challenge is the next stage of rebuilding its influence in its former Soviet periphery. Russia plans to further institutionalize its relationships with many former Soviet states and anticipates the formation of a Eurasian Union by 2015. Russia also had started to consider taking advantage of the European financial and economic crises by purchasing assets and forming new ventures with many European states. But this was all based on the assumption that Russia would be strong and steady. The political uncertainty has eroded the perception that Russia (and Putin in particular) is strong.

Moreover, some countries -- especially the United States -- have started taking advantage of the volatility inside Russia to play up the perception that the country is unstable. The U.S. State Department and new U.S. Ambassador to Russia Michael McFaul have not hidden their support for the anti-Kremlin movements; the State Department revealed its funding for some groups, and McFaul met with protesters the week he arrived in Moscow as ambassador. The United States is trying to use the instability to shape the view of Russia abroad and to keep the Kremlin focused on internal matters rather than its resurgence.

This comes as the United States and Russia are locked in a standoff over missile defense and Washington's support for Central Europe. Russia has grown more aggressive over the issue in recent months, with Moscow planning to increase security pressure on Europe, while the United States wanted to avoid talks on the situation, as it is preoccupied with other issues such as Afghanistan and Iran. The United States is using Russia's internal political volatility both to wear away the perception that Russia is as strong as it claims and to buy time.

Putin will need to resolve the instability in Russia's political scene as soon as possible so that he can turn to the other large concerns facing the country. The longer he is focused on domestic politics, the more the country's economic challenges are exacerbated and the perception of his power is weakened. Putin is quite likely to resolve Russia's political problems, though he will have to restructure his inner circle and account for groups that are not under his control (but do not seriously threaten his power).

The longer it takes Putin to do all this, however, the weaker the rest of the world will believe he is. Of course, perception is not necessarily reality, and this is particularly true of Russia -- as Winston Churchill famously said, "I cannot forecast you the action of Russia. It is a riddle wrapped in a mystery inside an enigma." Russia is still a relatively powerful country, and its perceived weakness will not keep it from continuing to act assertively as it reclaims its place as a strong and steady country overseeing its former Soviet sphere.

Reprinted with permission of Stratfor.