What Will Happen With Russia?
I, like many, have been quite concerned for months about what will happen with Ukraine. Even if it does fight off Russia completely and regain and secure its borders, the country has been demolished, countless citizens have been murdered, many more have been traumatized and terrorized, and rebuilding the nation will be no easy task. But I have also wondered a lot about Russia. And much of this wondering relates to energy and its economy.
First of all, it’s worth noting that, aside from the many Russians who have invaded Ukraine and died in the process, the country is losing population from a massive exodus of citizens who do not want to be drafted and who do not support the invasion. People — often more educated, more skilled, and with a more open mind than your common Ivan — have had enough and are leaving Russia with a dimmer future in order to pursue a new life elsewhere. “Over 3.8 million Russians left from January to March this year, according to the Federal Security Services’ own estimates,” Fortune writes. In August, before the recent “mobilization” and exodus, The Economist had a headline titled “Much of Russia’s intellectual elite has fled the country.” “On Oct. 4, Forbes Russia reported that the number of people who have left the country since Putin ordered the draft could be as high as 700,000,” Reuters reports.
Russia has a rich history in the arts, in sport (a couple of my favorite tennis players are Russian, including the former world #1), and in science and technology. There’s no denying that. However, the country already had a problem with economic diversification before this large-scale emigration. And that problem is related to energy — dirty energy. “The oil and gas sector accounted up to roughly 40% of Russia’s federal budget revenues, and up to 60% of its exports in 2019,” Wikipedia writes. Much of Russia’s economy and development depends on oil & gas revenues, and those won’t last forever. Europe and the US have been turning off the spigot, and it’s hard to see right now how they would decide to turn it on again even once this war is over. Why create dependency on the nation again or help boost it economically after all of this? For now, Russia has been able to find an outlet and buyers for its oil and gas anyway — it’s a big global market and some nations, like China and India, have been fine getting a better deal on Russian oil. However, the market will shrink. In Europe, 13% of new cars sales are fully electric and 21% have a plug. In China, 22% of new cars are fully electric and 30% have a plug. It will take time for growing EV sales to make a serious dent in oil demand, but it will happen. With more limited markets and less demand overall for oil, an economy centered on oil will start to feel the crunch in very real ways.
So far, that all ignores the question of what will happen with Vladimir Putin. Dissent is no longer being totally wiped out — it’s growing and is even coming from big Putin supporters at times. With so many people opposed to Putin’s militaristic efforts having left country, however, there is less potential for mass dissent — but almost no one is happy with how things have been going since Russia invaded Ukraine. People are losing their sons and husbands, the “patriots” who expected Ukraine to become part of Russia in a matter of days are disillusioned, the economy is in the trash, those in the upper echelons of the military are embarrassed, and oligarchs and other members of the business community are frustrated. Many wonder if Putin’s days are shorter in number than we typically presume. If his rule does end and he’s toppled, who takes his place? Who takes over Russia, and will they look to bring back the brains and diversify away from fossil fuels? Or will they be even more entrenched in the fossil fuel world? How hard will it be to rebuild the Russian economy with eventually dwindling fossil fuel revenue?
If Putin does remain in power, well, it’s hard to see much changing. The society will remain massively unbalanced economically, and even if Russian energy revenue declines, the oligarchs will remain rich and the poor majority will continue to get by month to month. John McCain said Russia was “a gas station masquerading as a country.” It would remain a gas station, just a smaller one or one bringing in less revenue. The country won’t be turned from a gas station into a Starbucks.
I think Putin’s departure is more likely than not in the next few years (but it’s clearly very hard to predict). I just have a hard time seeing the people demand a more open and democratic system of rule now that millions have fled. It seems more likely that a power-hungry, money-hungry person will look at the pot of gold sitting in the oil & gas industry and will be sure to keep it flowing and reap the benefits rather than try to restructure everything and give up the short-term economic benefits of sitting on top of the food chain. More likely than not, the highly corrupted state will remain highly corrupted and certain well connected people will score big even while budgets are drained and the poor get poorer. From Wikipedia:
“Russia was the lowest rated European country in Transparency International‘s Corruption Perceptions Index for 2020; ranking 129th out of 180 countries.[110] Corruption is perceived as a significant problem in Russia,[111] impacting various aspects of life, including the economy,[112] business,[113] public administration,[114][115] law enforcement,[116] healthcare,[117] and education.[118] The phenomenon of corruption is strongly established in the historical model of public governance in Russia and attributed to general weakness of rule of law in Russia.[119] As of 2020, the percentage of business owners who distrust law enforcement agencies rose to 70% (from 45% in 2017); 75% don’t believe in impartiality of courts and 79% do not believe that legal institutions protect them from abuse of law such as racketeering or arrest on dubious grounds.[120]“
With or without Putin, it’s hard to see that changing. Just as it’s hard to see whoever is in power ignoring the short-term benefits of black gold and investing in an energy and economic transformation. While neighbors in Ukraine will continue their fast-paced push into solar power, battery storage, electric vehicles, and Starlink-based communications, who in Russia is going to lead a drive into the same, and a cleaning up of its oil & gas industry? Who in Russia is going to make the historical giant a more modern, more diversified, more robust economy?
Featured image:
- Interactive Visualization: OEC — Russia Product Exports (2019)
- Data Source: BACI — HS6 REV. 1992 (1995–2019)
- CC0 (public domain)
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