“Putin must be confident, including when it comes to Russia’s economic stability. “The extent to which this trust is justified deserves a separate analysis,” wrote Federico Fubini in his newsletter “Whatever it Takes” (which we reported on in our review on Monday). The Economist conducted part of this analysis. Accordingly, from now on, Vladimir Putin will find it increasingly difficult to protect the majority of Russians from the costs of war (which he has succeeded in doing so far, in terms of military losses that have been “shifted” to the poorest and poorest). peripheral provinces, as Marco Imarisio recalled in Corriere).
According to the British weekly, the first sign that should worry the Kremlin is the fall of the ruble: in September a year ago, 60 was enough for one US dollar, today 100 are needed. And “the decline is at the same time a symbolic blow.” For ordinary Russians who identify a strong currency with a strong country, it is the cause of tensions in the Russian state.” Because the devaluation of the currency puts the Finance Ministry on a collision course with the Russian Central Bank under the leadership of Elvira Nabiullina, who on August 15 raised interest rates to 12% (with a jump of 3.5 percentage points) and even another point in September.
On the one hand, the Ministry of Finance, in line with the wishes of the “Tsar”, wants to spend more money not only on military spending (which, according to rumors, could rise from 3.9 to 6% of GDP). Bloomberg ), but also on the social security front with a view to the presidential elections in March 2024, in which Putin will not be satisfied with victory, but wants to win in a landslide.
On the other hand, the central bank is resisting because it fears that inflation is getting out of control. And he sees a convergence of unfortunate economic relationships. “Low oil prices for much of this year have reduced the value of exports. Meanwhile, Russia has found new sources of everything from microchips to carbonated drinks. The resulting increase in imports increased demand for foreign currency and reduced the value of the ruble. A depreciating currency increases inflation as the cost of these imports rises. The same applies to fiscal stimulus, Nabiullina warned in a recent statement. Consumer prices rose 5.5% in the year to September, compared with 4.3% in July. There is evidence of “second-round effects,” where inflation today leads to more inflation tomorrow.”
Nominal wage growth is more than 50% of the pre-pandemic rate, even as productivity growth remains weak. Higher wages increase costs for companies, which pass them on to consumers in the form of higher prices.”
The tightening of monetary policy desired by Nabiullina therefore appears to make sense. But as I said, higher interest rates cause problems for the Treasury. Slower economic growth means higher unemployment and lower wage increases. Higher interest rates also increase the cost of financing, impacting both mortgage holders and the government itself.
If we don’t want to raise interest rates, the only viable option, according to the Economist, is to boost energy exports. But the prospects are somewhat unclear: on paper, two factors speak in Russia’s favor. One of them, as Fubini also recalled, is the rise in oil prices: since July, Saudi production cuts and the easing of fears of a global recession have helped the price of Brent crude oil rise by almost a third, to as much as 3.5 percent has risen to 97 dollars per barrel. The other factor is the narrowing price difference between Ural, the top grade of Russian crude, and Brent, which has risen from $30 in January to $15 today. Although G7 members have banned their shippers and insurers since December from transporting Russian oil to countries that still buy it unless it is sold for less than $60 a barrel, Russia has a “shadow” -Established a fleet of oil tankers owned by middlemen in Asia and the Gulf and uses government funds to insure shipments.
“However,” says the Economist, revenues from Russia’s oil exports are unlikely to increase any further. Higher prices could depress consumption in America; and China’s recovery from the zero-Covid policy appears to be over. Reid the Anson of Kpler, an analytics firm, estimates that America, Brazil and Guyana together could increase production by 670,000 barrels a day next year, offsetting two-thirds of Saudi Arabia’s current cuts. Futures markets suggest prices will fall throughout 2024. And if Russia exports more oil to compensate, that would accelerate the fall in prices.” There is also talk in the EU about reducing imports of Russian liquefied natural gas. And European nuclear power producers are reducing their dependence on Russian uranium.
As is well known, the pro-Ukraine front is showing clear signs of fatigue. The “Wheat Battle” with Poland and other Eastern European countries, the recent victory of the Social Democrat Robert Fico in Slovakia with the slogan “Not a single bullet more for Kiev” and the compromise in the US Congress on new financing for Ukraine are frozen for the time being just the most recent evidence of this. As Fubini wrote again: “Putin is beginning to recognize new signs of our vulnerability and opportunism, which must give him hope in his heart.”
But in the long term, Moscow could also be “war-weary,” the Economist concluded: “If inflation problems continue in Russia, the dispute between the government and the central bank will only intensify.” The temptation, ahead of next year’s presidential election Spending money will increase tensions and force the central bank to either raise interest rates to crippling levels or give up the fight, leading to an inflationary spiral. Alternatively, Putin could cut military spending, but his plans for 2024 show he has little interest in doing so. The longer his war lasts, the more battles he will have to fight at home.”
Because that’s exactly what Natalia Drozdiak had already reported on Bloomberg at the beginning of June: “A climate of profound pessimism is spreading among the Russian elite due to President Putin’s war in Ukraine, and even the most optimistic see a conflict as “frozen.” best possible outcome for the Kremlin. Many of the country’s political and business leaders are tired of the war and want it to end, even if they doubt that Putin will stop fighting.”
Four months have passed since then and Vladimir Putin has shown not the slightest sign of wanting to change course. It is unlikely that he will do this before the spring vote (and even more unlikely that the Russian elites will have the strength to convince him to do so). But after that, who knows. Admittedly and by no means a given, he is faced with a still compact pro-Kiev front.