Russia, the Global Sanitary Crisis and Oil Meltdown: Revisiting Power and the Enemy Russia in Global Affairs, April 2020

All superpowers are hit, the only differences being transparency, preparedness, anticipation, reactivity and efficiency in managing the pandemic crisis. Under Trump, the United States has thus far been scoring worse in all categories but transparency.

Of course, Russia can be resilient (recent history has proven this) and it may cope with the sanitary crisis. Its fiscal and monetary reserves, cautious budget, some successes in import substitution and the ruble depreciation are assets to avoid an economic meltdown. Russia’s power in global affairs is undisputable: it is in a unique position to make strategic, sudden and/or unexpected decisions that have an immediate, regional or global, political or economic effect. And it does so frequently―cutting gas supplies, building huge oil and gas supply systems, taking parts of Georgian or Ukrainian territory by surprise, successfully exporting nuclear technologies or sophisticated weapon systems, orchestrating friendship with China, intervening in Syria, setting up a strategic oil alliance with Saudi Arabia (as it did in November 2016), and allowing it to collapse (as did in March this year). When President Putin decides where Russia’s strategic interests are at stake, Moscow acts accordingly, using all tools at its disposal. Typically, hard power is often preferred to influence and soft instruments, and state-owned companies are mobilized to implement the country’s strategic interests.

However, Russia’s ultimate aim of exerting power faces four fundamentals challenges.

First, whereas Russia’s nominal gross domestic product (GDP) has grown more than four times over the past two decades (with two recessions), the number of the poor is rising again. The World Bank data shows that population decline has not reversed and has reached 20 million. According to the October 2019 study made by Russian Higher School of Economics, only 7.5 % of the population meet the core middle class criteria (education, professional status, and revenues).

Second, Russia has many partners in the world, but how many genuine friends? It notably borders North Korea, China, Iran, Central Asia and the European Union (EU), but it seems obvious that relations with the EU are historically tighter, more diverse, and more balanced. Russia is far from being isolated of course, but it is on its own. Many in Europe would like to see trust, stability and mutually beneficial trade and investments, rather than hybrid warfare and sanctions. One can reasonably assume that the same goes for many Russians.

Third, Russia’s external activities still largely hinge on oil and gas supplies, security issues, and prompt use of tactical opportunities here and there, like in the Central African Republic. Such policies are certainly strategic from the Russian point of view, but are they sufficient to make Russia stronger, safer and more prosperous in the future? Aren’t they increasingly counterproductive? Russia has been overrun by the fall in oil demand related to Covid-19 and its global economic impacts; the OPEC+ collapse has created resentment among smaller OPEC members. While Trump has been celebrating the latest OPEC++ deal whereby the United States (US) has given no firm commitment to cut supplies, Russia has agreed to an unprecedented reduction of 2 million barrels per day. And the prices will not recover any time soon. Billions invested into Nord Stream 2 are in the sand due to US sanctions. A lucky paradox is that the 2014 sanctions prevented Rosneft from throwing billions into high-tech Arctic oil projects that would have never been profitable. Oil and gas prices are now depressed, and recovery is a distant and uncertain future. Gazprom’s arbitrage liabilities pile up to several billions. Russia’s budget is conservative, but is resiliency an end per se?

"In spite of all its power and might, Russia has not enough under control. The fate of a superpower cannot rely on hydrocarbon prices and exports."

The current situation highlights another flaw if one considers Russia’s security strategy. It is about preserving national interests and confronting today’s and tomorrow’s enemies. Environmental degradations of all kind are like the Covid-19 virus―they pose a greater threat to Russia than North Atlantic Treaty Oragization (NATO), the US, China, Iran and North Korea combined. They can destroy Russia’s economy and the relative well-being of its people. Tanks, missiles, spies, active measures, submarines or space weapons are helpless to confront them. While chances are low that Russia’s neighbors or “enemies” attack Russia, chances are very high that Russia will be hit increasingly, suddenly and brutally by the enemy it is ignoring. What matters are mitigation policies through regulation and market incentives. Yet Russia is doing way too little to counter the daunting threats of climate change and environmental degradations.

Russia’s carbon dioxide (CO2) emissions have decreased more than those of the EU or the US over the past thirty years. But this unique achievement is not policy related, it is related to the collapse of the Soviet Union. Russia remains one of the largest CO2 emitters in the world in volumes and per capita, even if its specific weather and geography are accounted for. With the largest territory in the world, how can Russia not take these threats more seriously? It is a matter of time before the economic and social pain now caused by the virus will hit again, possibly by draughts that will destroy harvests, or by permafrost melting that will destroy the infrastructure on which Russia’s gas industry is now built, or by floods, fires, virus and diseases. And Intergovernmental Panel on Climate Change (IPCC) scientists tell us that time is running fast before sharp climate warming becomes irreversible. Meanwhile, the low-carbon technology race is also moving fast. But for achievements in the nuclear industry, Russia merely appears on the map of frontier technologies.

In tomorrow’s global affairs, power will increasingly rest on a combination of economic diversification, private sector investments and innovation, green finance, non-financial disclosures, artificial intelligence, digital networks and systems, low-carbon technologies, health and education, and the wider agricultural value chains. At global level, it is the ability to showcase leadership, to have companies with credible and attractive credentials by international standards and a commitment to common global goods: peace, development, environmental protection, gender equality. At governance level, the challenge will be decentralization and regionalization. Cities will play an increasing political and environmental role. Moscow is a good example for that. Russia’s oil and gas resources and security concerns are strategically important but will need to be discounted as the world is changing.

In the post-Covid-19 world, Russia could take several steps, sudden, strategic, much in the spirit of its way of acting in global affairs, but for different purposes and with different internal implications. It could fully recognize the extent of the threat coming from environmental degradation and climate change. It could make a comprehensive fair assessment, within a period of twenty years, of how much there is to win if Russia embraces the energy transition, versus what it would cost if it does not, and how inevitable losses of currently existing dominant structures can be mitigated.

Russia could provide low-carbon steel to the EU and the world. It could be one of the world’s key carbon sinks. It could expand in the value chain of low-carbon technologies thanks to its metals, know-how, and cheap ruble. It could become a leader in the low-carbon hydrogen value chain. It could produce low-carbon fertilizers and agricultural products and expand in that value chain as well. With higher energy efficiency gains, it could free up billions of upstream investments into other sectors. While this would create immense value and jobs to its economy, it would also dramatically improve the well-being of Russians, and prevent the country from being exposed to climate change threats. Adaptation is necessary, but it cannot be the only policy. The Covid-19 outbreak is telling: nations can be better prepared to prevent a pandemic outbreak and deal with the situation, but a global problem requires a global treatment, no one is an island and can pretend not to be affected. Environmental degradations elsewhere in the world will also inevitably backfire on Russia. And global warming cannot be allowed to become a substitute for energy efficiency policies. Ignoring these threats and the immense potential benefits from action is simply putting the fate of the nation, and of the world, at risk. And preventing any reset with the EU.

The Covid-19 virus pandemic, oil and gas price crisis, economic recession, and recovery strategies will accelerate changes in the world: green finance will increasingly drive global investments and corporate strategies; low-carbon technologies will continue to spread because they are increasingly competitive and beating gas, coal and oil. Many countries hit by climate change and with little emissions per capita will hold the biggest polluters responsible and will inevitably also point at Russia. The European Green Deal will happen, with the aim to reach carbon neutrality by 2050. At some point, the US, Japan, South Korea and Australia will follow through. This is now the direction of history: it is neither an ideology nor a hoax, but a rational, pragmatic and economically effective global process. As COP26 is now delayed, there is still more time to resolutely join that global effort. In fact, raising Russia’s nationally determined contribution, starting a conversation on how the EU and Russia could work towards that goal and ending attempts to undermine the EU are in Russia’s most strategic interest.

Read the article on Russia in Global Affairs website