Russia will have a hard time recovering from this war, whatever the outcome.

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Failing to have succeeded in bringing Ukraine to its knees in a few days, Vladimir Putin has only one solution left: to destroy the cities and massacre the civilian population to obtain a ceasefire under conditions which, he, could be favorable to him. Not only is he not even sure of winning this crazy bet, but he can be sure that his people will pay dearly for these acts of barbarism.

Tatiana Kastouéva-Jean, director of the Russia Center at Ifri, summed up the mistakes made by Putin on March 16 before the Association of Economic and Financial Journalists (Ajef): “He underestimated the will of the Ukrainians to defend their freedoms and the reaction of the West, he overestimated the capacity of its army and the resilience of its economy. He still has “two factors of uncertainty. Support from Russian society and external support, especially from China and India.”

For Putin, it will end badly

For him, personally, the game is done. His image as head of state is definitely damaged, no more leader of a democratic state will want to shake his hand. And the cost of this war will be fatal to him. It is only a matter of time, but in this case the time may be long. The oligarch Sergei Pougatchev, today a refugee in Nice after having distinguished himself in France by the acquisition of Hédiard and the financing of takeover of France-Soir by his son – two adventures that went wrong – affirms in The Weekend Echoes that the end should be near. “The country is falling to ruins. Either it will end in a coup or someone is going to assassinate him. This will necessarily take place in the next three months. Such an outcome at such an early date would certainly please millions of people in Ukraine and around the world. But it would be better not to count too much on such an acceleration of history.

A former KGB officer and former director of the FSB (Federal Security Service), Vladimir Putin is an organized and cautious man of power. And the way its services control information means that the vast majority of the Russian population has a completely distorted view of current events; do not imagine that the tens of thousands of people who came on March 18 celebrate the eighth anniversary of the annexation of Crimea all did it out of obligation.

“Our sanctions have devastated
the Russian economy.

As for the oligarchs, their ability to intervene is perhaps more limited than we think here. Tatiana Kastouéva-Jean, who has at least five categories, willingly emphasizes their divisions. There are those who made their fortunes during Yeltsin’s time, those close to Putin, the civil servants placed at the head of the oil and gas groups to manage them, the former members of the security services thus rewarded and the wealthy leaders without any influence on the Kremlin… It is unlikely that these diverse personalities, who do not form a coherent group, will be able to exert real pressure on power. The brutality of the president’s methods also encourages them to be cautious, whatever their grievances with the current policy.

It is true that the measures taken against them by the European Union and the United Kingdom and the fact that major Russian banks have been cut off from the Swift network while the Russian Mir network is poorly developed abroad poses great problems for them. More generally, for the Russian economy as a whole, the freezing of the Central Bank’s foreign currency assets, which prohibits it from intervening to support the course of the rouble, was a severe blow that the strategist Putin did not hadn’t anticipated. At the end of December 2021, it took just under 75 rubles to get a dollar; March 21th, it took 104.

In less than three months, the ruble has lost a third of its value, although the Central Bank has raised its key rate to 20% in an attempt to protect it. The Moscow Stock Exchange has been closed since February 28 (trading resumed on March 21 on government bonds, but not on shares) and, in London, the listing of Russian companies has been suspended since March 3: there is no it was no longer possible to determine their course. Between the beginning of the year and the evening of March 2, Gazprom had lost 83% of its value, Lukoil and Rosneft more than 92%!

A Jgot dangerous

“Our sanctions have devastated the Russian economy”, says Ursula von der Leyen, President of the European Commission. It’s not wrong, but you have to be right. That’s not what will make Vladimir Putin stop fighting tomorrow; the real effects will only be felt in the long term. The Russian economy can still resist. It should also be noted that the ruble had temporarily fallen to 141 rubles per dollar before returning to around 104. A comparison with previous crises helps to understand why.

In the spring of 1998, Boris Yeltsin’s economic situation in Russia has deteriorated sharply. The difficulties are not new: failing to succeed in bringing in taxes, the State finances its expenses by going into debt. To attract capital, it offers very high remuneration on ruble-denominated government bonds, the GKOs. To take advantage of this windfall, Russian banks borrow abroad in foreign currency and lend to the state in roubles. As a result, they are highly exposed to currency risk.

This dangerous game ends up causing concern abroad while, inside, the political situation deteriorates. In March, the Chernomyrdin government resigns, Sergueï Kirienko succeeds him. Faced with capital outflows and the threat of devaluation, the Kirienko government and the Central Bank announced on August 17 that transactions on GKOs were suspended and a three-month moratorium on banks’ external debt was decreed.

Six days later, Boris Yeltsin dismisses Kirienko. The decision to let the ruble float led to a 70% devaluation over the last five months of the year, prices soared at a rate that reached 100% at the beginning of the following year, and GDP fell by 5 .3%. Vladimir Putin was appointed head of government in August 1999; on December 31, he assumed the interim presidency of the Federation following the resignation of Boris Yeltsin and was elected to this post in May 2000.

Small detail which is important: the year 1998 was marked by a dizzying fall in the price of oil. It averaged 12 dollars a barrel in August, if we take as a reference the price of Brent North Sea, when Kirienko takes these emergency measures. It even fell to 9.9 dollars in December before rising to over 25 dollars in December 1999.

In 2014, oil, again

In 2009, Russia was affected like the rest of the world by the financial crisis of the previous year, but it experienced a crisis of its own in 2014, with the annexation of Crimea, the international sanctions that followed, a further fall of the ruble and the stock market. Here again, the price of oil plays a role: it was high at the start of 2014, at more than 100 dollars a barrel from January to August, but then fell sharply to fall back to 50 dollars in January 2015 and 30 dollars in January. 2016, which further complicated the situation.

For Vladimir Putin, the power of a country is measured by its territory, its population, its stock of gold.

The current crisis started with a barrel at a high level. 96.8 dollars per barrel of Brent on average in February, a peak at 133 dollars at the beginning of March and an average of 106 dollars over twenty trading days to March 21. Very clearly, if the countries which disapprove of the invasion of Ukraine want to influence Russian decisions, they must act, as producers or consumers, to lower the price of the barrel and reduce their purchases from Russia as much as possible. As Sylvie Matelly, Deputy Director of the International Institute of International and Strategic Relations (IRIS), explained to journalists from Ajef, for Vladimir Putin, the power of a country is always measured by its territory, its population, its stock of gold!

And, one might add, the strength of his army. He did not see that real power today lies in integration into global financial and trade flows as well as information flows, unlike China, which understood this development as early as the 1990s. This last observation is interesting, because it can lead to relative optimism concerning Beijing’s attitude with regard to Ukraine, but also concerning the risks of a military operation on Taiwan. The Chinese leaders have no desire, at least for the moment, to cut the commercial bridges with the West which their country still badly needs. Moreover, their action is part of the long term: Taiwan can wait…

The curse of raw materials

Putin is still in another era. And, in spite of a high technical level reached in certain fields (armaments, space), Russia is still by many points very close to the developing countries victims of the “curse of raw materials”. This well-known concept reminds us that, for a country, having a subsoil very rich in hydrocarbons or metals is not necessarily an asset, contrary to what one might think.

When this wealth does not excite the covetousness of other states and does not drag you into repeated wars, it is confiscated by a minority: not only do the people not benefit from it, but this wealth is not used to develop the ‘economy; those who control it have no interest in encouraging the formation of other centers of wealth creation, which would counterbalance their power. Russia is a perfect illustration of this theory, with its oligarchs sitting on gas and oil fields and its high level of corruption.

In the latest ranking from Transparency Internationalwhere the first country is the least corrupt, Russia arrived 139^and out of 180. (Despite the sympathy that Ukraine may inspire in us today, it is clear that it is not very well placed either, at 123^and rank…)

Thus, to really stop contributing to the financing of the Russian war effort, it would be necessary to go so far as to decree an embargo on Russian gas, as Pascal Lamy would likeex-director general of the World Trade Organization and ex-European commissioner, who cannot be accused of ignoring economic realities.

Reduce our consumption of hydrocarbons

But, if we cannot immediately reach unanimity on this point in Europe, we could at least begin to reduce our consumption of gas and also of oil, by following the new recommendations formulated by the International Energy Agency Friday, March 18 in a ten point program. It is hard to see, in France, less than three weeks before the first round of the presidential election, the president-candidate Emmanuel Macron impose a reduction of 10 km/h in the maximum speed on the motorway, but nothing prevents each citizen, on an individual basis, to draw inspiration from these recommendations. In addition, it would be good for everyone’s wallet and good for the climate.

In the longer term, it is certain that Russia will take time to recover from the consequences of this conflict desired and decided by its president. It is not about to get out of the curse of raw materials: many well-educated young people, who could have helped to direct the economy towards innovative sectors, seem ready to leave the country, when they have not already done.

According to the estimates of an economist from the University of Chicago, 200,000 of them had already gone into exile before March 8. There is nothing more to expect from President Putin, but we must not despair of the Russian people…