Politics in Pictures: Russia

The conflict in Ukraine

On 25 November, Russian vessels attacked and seized three Ukrainian naval vessels in the Kerch Strait between the Black and Azov Seas. In response, Ukrainian President Petro Poroshenko announced a period of martial law in the outlying provinces. The Kerch strait is a critical maritime chokepoint, and the incident marks a serious escalation of the conflict between Russia and Ukraine, which has festered as the 2015 Minsk II Agreement has failed to yield results.

Russia's increasing involvement in Ukraine has been driven by its desire to reestablish its status as a 'great power' despite its diminishing economic and global political influence.

A further military escalation over Ukraine is unlikely, but high tensions will persist. Meanwhile, Russia will likely face additional sanctions from the US and the EU targeting Russian individuals and entities, however significant measures that target new economic sectors—such as oil exports or sovereign debt—remain unlikely in the near-term.

Domestic challenges for Putin

Putin faces domestic political pressure over the lack of political and social reforms; passage of an unpopular pension reform bill sparked protests across the country. Putin has used geopolitical issues to rally domestic political support in the past, but his current approval ratings are at their lowest level since just before the annexation of the Crimean peninsula in 2013.

Russia's fiscal situation has benefitted from stronger oil prices in 2018. While the most recent drop in prices could put a dent in Russia's fiscal cushion, Putin said recently that current prices around $60 barrel are “absolutely fine.” The 2019-21 budget plan, which has been the first in several years to envision a budget surplus, anticipates a drop-off in oil prices to around the $60 level, and will remain broadly achievable.

Longer term worries about the stability of Russia's finances persist, however, mainly due to the political pressures on the government to spend in order to fulfill Putin's lofty campaign promises. The government estimated the cost of meeting these commitments at 8 trillion RUB (or 130 billion USD) over the next six years, or 1.4% of annual GDP.

The Kremlin's pattern of spending in response to political challenges will come to the forefront ahead of key parliamentary elections in 2021 and presidential elections in 2024, particularly if public discontent continues to worsen.

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