President Vladimir Putin opened his marathon year-ender news conference in December with comments on the state of the Russian economy, and immediately began coughing. Some political observers noted that Mr. Putin tends to cough when he’s uncomfortable about something. If so, he had plenty to be nervous about. His number one worry: the effect of plummeting oil prices on Russia’s energy export-dependent economy, a factor that will play a defining role for Russia in 2016.
OIL
“We calculated the budget for next year based on this very figure, a very optimistic one of $50 a barrel,” Putin explained. “However, now it is what — $38? Therefore, I believe we will have to make further adjustments.”
Russia’s GDP is down by 3.7 percent, Putin said, inflation is at 12.3 percent and real disposable household income is falling, but he insisted the economy “has generally overcome the crisis, or at least the peak of the crisis.” The crisis itself, he conceded, is not over.
Economic predictions are worrying. Russia’s foreign currency reserves have dropped by more than $140 billion since early in 2014, now standing at $360 billion.
A December 14, 2015 article in the Russian financial journal Vedomosti reports that, according to calculations of the Ministry of Finance, an oil price of $40 a barrel in 2016 will increase Russia’s budget deficit to 5.2 percent of the Gross Domestic Product. The Reserve Fund, which the government uses to cover budget deficits, “will be exhausted almost completely in a year.”
WESTERN SANCTIONS
Russia’s economy will continue to be under pressure as well from United States and European Union sanctions invoked after Moscow annexed Crimea. They are hitting Russian state banks hard, making it impossible to get long-term loans in the West. Russian officials close to President Putin have been slapped with asset freezes and travel bans. Russia’s state oil industry can no longer buy services and technology from the West. Sanctions are expected to remain in effect until a ceasefire in separatist-controlled eastern Ukraine, spelled out by agreements reached in Minsk, goes into effect.
SOCIAL UNREST
Russian citizens are feeling the brunt of Russia’s economic woes, caused not only by oil prices but also by Moscow’s own counter-sanctions against the West that have deprived consumers of imported fruits and vegetables. Russia’s row with Turkey over the downing of a Russian warplane near the Syrian-Turkish border is causing more pain, with vacation tours to Turkey shut down and Turkish tomatoes and other foods disappearing from the shelves of Russian stores.
So far, however, most Russians are not blaming Vladimir Putin for their woes. Putin’s approval ratings remain stratospheric, hovering around 85 percent. What few opposition voices do exist are marginalized. Fed a steady diet of diatribes against the U.S., many Russians point their fingers at the West for making their lives difficult.
December saw protests from long-haul truck drivers in some Russian cities angry over having to pay increased tolls, and from Moscow residents shocked by new parking fees in the capital’s sprawling neighborhoods. But demonstrations have been relatively small and efficiently shut down by the police.
2016 could bring more expressions of economic anger but, so far, there is nothing to match the street protests of 2011-2012. Some participants of those demonstrations are still in jail.
INTERNATIONAL CONFLICTS
As 2015 ended, the air forces of both Russia and the United States were trying to avoid each other in the skies over Syria. Diplomats say that Russia, which went into the conflict to bolster Syrian president Bashar al-Assad, expected to be there for about six months but Moscow’s air campaign has only intensified, with Vladimir Putin warning he has even more weapons that he can bring to the fight, if necessary.
In late 2015, the U.S. and Russia linked up for some intense diplomacy in an effort to get warring parties to agree to a ceasefire and create an interim government in Syria, but details of that process are devilishly complex. The Syrian government and opposition forces are supposed to sit down to talk at the beginning of 2016, but that deadline is slipping, with no guarantee negotiations will get off the ground.
The conflict in Ukraine has slowed, transforming into a “frozen conflict” that is likely to persist well into 2016.
Russia’s annexation of Crimea is a fait accompli, even if the United States vows never to legally accept the region as part of Russia. The fighting has diminished, but both the U.S. and Russia continue to chide the other for not pressuring its allies (the Ukrainian government for the U.S. and the Donbas region for Russia) to carry out the Minsk ceasefire agreement.
For now, the U.S. seems to be putting the issue on the back burner as it grapples with Syria. After a meeting with President Putin in Moscow in December, U.S. Secretary of State John Kerry told Russian state TV: “We don’t want this to be a problem. We are not looking for a confrontation. We would like to see a normal relationship with Russia.”
RELATIONS WITH THE U.S.
Average Russians are more interested in the plummeting value of their currency, the rouble, than they are in the U.S. presidential elections, but Vladimir Putin has inserted himself into the race by praising Donald Trump.
Russians, however, are worried about the U.S., and many are asking whether there could be war between the U.S. and Russia.
The idea may seem far-fetched to some Americans, but the Russian media landscape has been militarized as a result of the conflicts in Ukraine and Syria. State-controlled TV, which reaches about 90 percent of the population, broadcasts nearly hourly reports on the air campaign in Syria, flashing Star-War-like pictures of the latest missiles and other weapons Russian forces are using. Russian officials, including President Putin, make veiled threats about using nuclear weapons.
Tectonic plates are shifting. Igor Ivanov, Russia’s former Foreign Minister, calls the Ukraine crisis “a point of no return between Russia and Europe.”
“Relations between the two sides can and will never be the same again,” he warns. “We are entering a new, no doubt very lengthy, stage of Russia–Europe relations.”
Ivanov believes there are possibilities for Russia and the U.S. to work together in the future, but he believes “both sides will have to let go of the illusions and fantasies about the recent past, cast off emotions and mutual grievances, and start to assess, realistically, the possibilities.”
Some in the United States share Ivanov’s worry. But with presidential election fever gripping the U.S., the pressure to vilify Russia is growing.
In 2016, things definitely will not be the same. On the streets of Moscow, the mood is tangible. Both countries are sinking into a morass of negativity, where trust has been broken. It will take a miracle to bring it back soon.
