What Vladmir Putin Doesn’t Want You to Know about Russia

June 24, 2014

Sally Painter is a member of the Truman National Security Project’s Board of Directors and COO of Blue Star Strategies. Views expressed are her own.

Pay no attention to the man behind the curtain—Russia’s flexing behavior is a flimsy façade to cover for economic feebleness

A troubling sentiment appears to have taken hold in many corners of Europe in response to Russia’s aggression. While the transatlantic community scrambles to coordinate its response to the ongoing crisis, an unfortunate atmosphere of resignation is taking hold.

Not only is there a growing tacit acceptance that Crimea is a fait accompli, but some in Europe have even expressed admiration for Putin’s domineering leadership style, in contrast with the slow response of the democratic West.

Yet the image of Putin as a geopolitical chess master is the creation of the Kremlin rather than a reflection of facts on the ground. It is a shame that Russia’s official propaganda push has succeeded in sowing self-doubt and division in Europe.

To deal properly with the true threat of Russia’s revanchism, the West—and in particular a Europe which has been skittish about imposing serious sanctions—must realize that Vladimir Putin is far from invincible.

Putin’s propaganda war is based on portraying Ukraine as a failed state with Russia its rescuer, ignoring Russia’s instigation of the crisis in the first place. To succeed, Putin knows he must divide the West and prevent a coordinated response; an organized Europe could effectively call Russia’s bluff and reveal its weak political and economic position.

Based on nearly every concrete metric, Putin’s Ukraine gambit is indeed a high stakes bluff played from a position of weakness and isolation. While the crisis has boosted Putin’s short term political popularity at home, Russia’s economy is volatile and weak, its dependence on trade has increased, its military might is overstated, and its allies are few.

For instance, much has been made of Europe’s dependence on Russian energy. But it is Russia’s extreme natural resource dependence that makes it particularly vulnerable to outside pressure. The repercussions of any disruption of energy sales to Europe would be far, far greater for Russia than for the EU.

The Russian state is extremely dependent on both high energy prices and continued exports for its very survival. In 2013, a full 75% of Russia’s exports consisted of oil and gas. Hydrocarbons represent some 30% of Russia’s total GDP, and the revenue from these exports accounts for more than half of the country’s federal budget.

Without these critical hydrocarbon revenues, the central government will struggle to keep the lights on, much less launch a global confrontation. Domestic political instability could also spike as funds for maintaining domestic peace and spurring development in its often restive poorer and more isolated regions dry up.

Economically, Putin’s adventurism already has the Russian economy teetering on the verge of recession and potential crisis. Forecasts indicate that the seizure of Crimea and resulting economic uncertainty has shaved at least 1-2% off of GDP growth, and a Bloomberg survey of international economists gave Russia an even chance of entering recession in the next year.

Capital has fled the economy; outflows in the first quarter of 2014 were $50.6 billion, nearly as much as in the entirety of 2013. Then there is Russia’s highly leveraged relationship with global financial markets, meaning that well-placed financial sanctions could have a catastrophic effect on its foreign trade and investment.

Also under-recognized is the extent to which Russia’s food economy is highly dependent on the outside world. More than half of the raw materials used by Russian food processors are imported. In Russia’s major cities, more than half of milk and meat products are imported, and a full 70% of raw materials in the country’s meat processing plants must be imported.

Crimea’s dependence on the greater Ukraine is even starker, seeing as the peninsula receives three-fourths of its food from mainland Ukraine. But the real issue is water: the extremely dry Crimean region must get almost all of its water supply, both for agricultural and consumption purposes, imported from Ukraine.

Finally, Russia’s feared military might is drastically overstated. The Russian president may have been able to move faster than his democratic counterparts, but the forces at his disposal are puny in comparison. Accounting for just two percent of GDP, Russia’s economy is much smaller than that of the EU, and its defense expenditures are just one tenth that of NATO.

Not only is Russia much weaker than the US and EU, but its military industrial complex is also highly dependent on imports. Russia can’t expect to keep much of its attack capabilities functioning without the cooperation of Ukraine, the source of all of Russia’s helicopter engines as well as many of its rocket, missile, and aircraft parts.

And while Putin and his allies celebrate their pyrrhic victory over the West, Russia is more isolated than ever. The election of pro-EU President Poroshenko in Ukraine revealed the counterproductive nature of Putin’s gamble: he gained a small chunk of territory while pushing the rest of Ukraine more firmly towards the West. And without Ukraine, his much-vaunted Eurasian Union with Belarus and Kazakhstan will remain insignificant – comprising less than one-sixth the GDP of Europe.

European leaders shouldn’t be fooled – Putin’s swagger is calculated to cover the underlying precariousness of his position. Putin’s new legacy is a faltering, stagnating economy and a country totally dependent on its ties to the outside world yet increasingly isolated. The EU and NATO should stop being intimidated by bullying behavior and continue to ratchet up the pressure on Russia over its gross ongoing violations of international law.