14 January 2016

The Business of Russia Is Politics

Posted by Oleg Svet & Samuel Bendett on January 11, 2016

Since the Crimea crisis of February 2014, the Obama administration has tried to use sanctions to persuade Russia to change its course on foreign policy. But for reasons that would seem irrational by Western standards, the Kremlin is increasingly impervious to business or economic considerations. In describing the difference between American and Russians, Putin recently referenced a quote in "Gone with the Wind" where the American heroine states that she cannot imagine starving. Putin went on to say that, "in the concept of a Russian person there are objectives [other than starvation]." In a similar vein, reflecting on international sanctions Russia's deputy prime minister recently told the World Economic Forum that the Russian people will go through any misery -- "tighten our belt, eat less food, suffer any privations" -- in order to defend their president and country against aggression by the West. Economic sticks and carrots have had and will continue to have a limited impact on Russia. For Putin and his advisers politics matters above all else.

Moscow's current approach runs counter to Washington's focus on the economy. Former U.S. President Calvin Coolidge famously stated that "the chief business of the American people is business." In more recent times, when then-governor Bill Clinton ran for president, his campaign advisor James Carville famously coined the phrase "It's the economy, stupid" to divert the electorate's attention from his candidate's perceived weakness in other areas, such as national security and foreign policy; the strategy worked. In every presidential election we rediscover that in the vast majority of instances, the issue that above all else (including national security) dominates the thinking of the American electorate is the economy.

Under Putin, the business of Russia has completely become politics. International politics is all about power and influence, even if the Russian economy suffers as a result. In fact, while Putin's regime has weathered the economic storm that came about as a result of sanctions, the only ones that have suffered have been the Russian people: their income declined by roughly 12 percent between 2013 and 2014; it then declined an astounding 34 percent between 2014 and 2015. The Kremlin, meanwhile, has remained steadfast in its general approach to Ukraine.

Moscow's approach to the Middle East reflects the same mentality. In July 2015 the Public Investment Fund - the sovereign wealth fund of the Kingdom of Saudi Arabia -- announced that it had agreed to invest $10 billion in Russia. This was the largest ever foreign direct investment deal in Russia's history. This money was to be spent on agricultural projects, medicine, logistics, and the retail and real estate sectors. Riyadh's intention to invest in Russia was above all strategic: Before the deal Saudi King Salman talked with Putin over the phone about ways to bridge their differences over the Syrian civil war and the regime of President Bashar Assad. Since the start of the war, Riyadh has supported the mainly Sunni opposition to Assad, while Moscow has come out on the opposite end -- in support of Assad's regime, thus allied with Iran, also a Saudi opponent. Saudi Arabia's historic investment in Russia was an attempt to bring the Kremlin closer to Riyadh's side.

In June 2015, Mohammed bin Salman al-Saud, Saudi deputy crown prince and defense minister, visited Russia during the St. Petersburg Economic Forum, where the investment was initiated with a memorandum of understanding, and took part in a meeting between Putin and global investment head funds. This was not the first time that Riyadh tried to use economic diplomacy toward strategic ends. In a 2013 meeting between Putin and Saudi intelligence chief Prince Bandar Bin Sultan, Saudi Arabia offered to buy $15 billion worth of Russian arms and pledged not to challenge Russian gas sales in Europe. In return, the Kremlin was to ease its support of Assad and agreed not to block any U.N. Security Council Resolutions on Syria.

However, recent evidence shows that Riyadh's economic diplomacy has failed. Just a few months after Riyadh's historic investment, the Kremlin doubled down on its strategy in Syria and announced that it will be conducting airstrikes in support of the Assad regime. Given Russia's current economic difficulties, Saudi Arabia's historic investment should have budged the Kremlin at least a bit on Syria - and would have in any other country on earth. But in Russia it did not.

What the financial dealings between Riyadh and Moscow also indicate is the resilience of Putin's geopolitical moves and countermoves that serve to check both Western and Saudi ambitions. With Riyadh deeply involved in the Yemen crisis -- where it is backing forces fighting the Iranian-allied Houthi movement -- Moscow appears to have enough breadth in its foreign policy to negotiate arms deals with Gulf states while openly supporting a regime in Syria that they deem undesirable. Putin also demonstrated that he can hedge his bets simultaneously against the West in Ukraine and against a group of Arab nations.

Such actions are reinforced by the currently trending desire in Washington to stay away from any direct involvement in the Middle East, where "leading form behind" places greater burden on Washington's regional allies and forces them to find greater wiggle room amid less-than-perfect choices. In the hope of getting the Kremlin's support on geopolitical issues, Saudi Arabia and other Gulf countries have in recent years increased their investments in Russia. Again, despite the infusion of foreign investment, Moscow has not made any real political concessions in return.

Washington should reconsider its approach to Russia. Obama's strategy has been to put economic pressure on Putin in the hope that his regime will change course on Ukraine. The Saudi strategy was essentially the flip side of the same coin, focused on providing economic incentives in the hope of bringing about a favorable political outcome in Syria. Such moves have not worked: Russia has not budged on Ukraine, while in Syria the promise that Moscow will join the global coalition to counter the Islamic State has turned out to be an illusory one. If the United States hopes to deter Moscow from pursuing policies that clash with Western interests and persuade it to truly join the global fight against ISIS, it should first recognize that the Kremlin's center of gravity is politics, not economics. Policies that address Putin's political calculus will succeed; those that provide economic incentives or disincentives will not.

(AP photo)

Dr. Oleg Svet and Mr. Samuel Bendett are international security experts based in Washington, DC.

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