As the pressure mounts, Putin remains defiant

As Putin maintains his bluster, the combination of sanctions caused by his meddling in Ukraine and low oil prices are buffeting the Russian economy, writes Stephen Blackwell

As the rouble sank against the US dollar, Putin scheduled a long and exculpatory press conference. Photo: Andrey Rudakov / Bloomberg

At his marathon press conference last week, Vladimir Putin left his audience in no doubt that he sees the US and its European allies as the main source of Russia’s current misfortunes. As well as denouncing “illegitimate and illegal” sanctions against Russia, he also hinted that the recent steep decline in oil prices was a conspiracy hatched by the US and Saudi Arabia. Mr Putin was also defiant on the main cause of discord between Russia and the West, namely the simmering crisis in eastern Ukraine. What the Russian president did not do was offer any clues as to how his country can steer its way out of economic crisis.

Mr Putin did not betray any concern for his domestic position. Russians are noted for their stoicism, having shown great resilience when tested by the worst excesses of communism and the destruction wrought by two world wars. But the middle class that has prospered under Mr Putin now find their lifestyle under threat. The Kremlin’s bargain with the people, whereby it imposed authoritarian leadership in exchange for higher living standards, is now at risk. Luxury goods and foreign travel will be increasingly inaccessible. For many newly affluent Russians, the good times are over at least for now. Increased interest rates will also hurt small businesses, thus undermining the drive towards increased economic diversification.

With the Russian economy in crisis, the US and its allies continue to turn up the heat. Last Tuesday, Barack Obama signed into law Ukraine Freedom Support Act of 2014, which provides for additional sanctions on Russia and military aid to Ukraine. It is structured in such a way as to give the White House considerable flexibility if Russia makes any further moves on Ukraine. This was followed by an executive order from Mr Obama banning the export of goods, technology and services to the Crimea Peninsula, which was annexed by Russia last March. This was supplemented by new sanctions on Russian and Ukrainian companies and individuals in coordination with similar measures by the EU and Canada.

Domestic opposition to Mr Putin remains muted. Even the sharp economic slowdown predicted for next year would be bearable compared to the chaotic 1990s, when systematic financial mismanagement and corruption eventually wiped out personal savings and led to Russia defaulting on its debt.

Opinion polls still show strong support for Mr Putin. Reflecting an emerging siege mentality, the Kremlin also appears to be preparing the population for hardships ahead by appealing to national resilience against foreign foes.

Although western leaders can take some satisfaction from forcing Russia into a corner, there are potential hazards ahead. A collapse of the Russian economy would damage the European recovery as well as have an impact further afield. At present, Moscow is unlikely to aggravate tensions in regions such as the Middle East. Given his support for the Assad regime in Damascus and genuine concerns about nuclear proliferation, Mr Putin will not for now impede the campaign against ISIL or the nuclear talks with Iran. However, mooted trade ties with Iran and North Korea suggest that Russia is ready to develop closer relations with new allies in Asia.

Moscow remains determined not to back down over Ukraine. The country is the key to the vast expanse of land between the Baltic and Black Seas. Dominated by the Polish-Lithuanian Commonwealth in the Early Modern era, Russia has sought to maintain its grip on this area over the last two centuries as an essential buffer that served it well against invasions by Napoleon and Hitler. Russia thus sees a neutral Ukraine as an essential strategic interest.

Assuming the Kremlin is not set on permanently destabilising Ukraine, the key issue appears to be what form of autonomy for eastern Ukraine all parties could agree on. The problem is that the level of distrust, caused on the one hand by Russian evasiveness over its interference in a sovereign neighbour, and on the other hand by Moscow’s anger at a perceived western bid to draw Ukraine into Nato and the EU, is now such that it is difficult to see a way forward.

Mr Putin’s epic press conference last week gave observers little reason to doubt the authenticity of his persecution complex. In his remarks to the media, Mr Putin illustrated his suspicions about western designs when he warned: “once they’ve taken out his claws and his teeth, then the bear is no longer necessary. He’ll become a stuffed animal.”

He did, however, offer to work to solve the crisis in eastern Ukraine so long as an agreement was based on “fundamental international principles, including the right of self-determination”. This statement does offer the glimmer of an opening. Now that Moscow finds itself in a tight corner, this might be the time for a new diplomatic initiative. Otherwise, the danger is that an isolated Russia might retreat into a more extreme form of isolationist nationalism while embarking on policies designed to further undermine the post-Cold War international order.

Stephen Blackwell is an inter­national politics and security ­analyst