Speakers discuss recent foreign and domestic policy developments in Russia, including the proposed changes to Russia’s constitution, oil tensions with Saudi Arabia, and the Russian response to COVID-19.
GLASSER: Well, hi. Good afternoon, everyone. It’s Susan Glasser from the New Yorker. I’m delighted to welcome you to this CFR conference call on Russia: “Policy, Power and Public Health.” There’s obviously a lot to discuss today.
We have three very distinguished Russia watchers with us: Tom Graham, who is a distinguished fellow at the Council on Foreign Relations; Steve Sestanovich, who is the George F. Kennan senior fellow for Russian and Eurasian studies at the Council; and Celeste Wallander, who is president and CEO of the U.S.-Russia Foundation. I want to thank all three of them for being with us today.
I have learned enormously from all of them over the last two decades, which is how long it has been, amazingly enough as of, I believe, next week that Vladimir Putin has been in power in Russia. And, you know, some people now saying that in many ways perhaps this coronavirus will pose the biggest test to his leadership of those two decades. You know, we’ve all watched many cycles of Putinology come and go, and many greatest tests of his presidency that ended with him more or less where he began it.
So I would be wary of saying where this one is going to end up, but no question that as of—just as of today Russia not only is in lockdown but President Putin has given his latest speech to the country and said the deadly threat of the virus remains. It could affect everyone. The numbers in Russia out today suggest that infections are up to close to one hundred thousand, although deaths remain low, so far. It’s clear we may not have a full picture yet of the true extent of the outbreak there. But clearly it is growing, as opposed to receding, inside Russia.
And the country will remain basically on lockdown until at least the middle of May. This is coming after Russia spent the early period of the outbreak hitting Europe and then the United States somehow acting as though it were exempt from things. And yet, Tom, I think we want to start with you today. In many ways, what we’re seeing is a sort of classically Putin response to an external crisis. You know, but it’s outside of his control. And, you know, we all expected that this would be the year that Putin would have his plebiscite and extend his rule, essentially, to make his president for life. And yet, the script has not gone according to plan.
Do you see this as a temporary interruption in sort of the unbroken narrative of Putinism? Or is this something that could actually change the trajectory of things in Russia?
GRAHAM: Thank you, Susan. You know, the short answer is we’ll have to wait to see. But I think you’re absolutely right that Putin really had big plans for this year. And it’s turned out to be a big year for him, but not exactly the way he anticipated. And so the goal I think he had at the beginning of the year was to demonstrate his mastery of the Russian political system. He was going to highlight his and Russia’s standing on the international stage. And then he was going to jumpstart the economy to help tamp down some of the socioeconomic discontent that you see rising over the past couple of years in Russia.
So if you go back to the beginning of this year, Putin reshuffled the government, demonstrating once again that he controls the fate of all senior officials in Russia. He replaced Medvedev by Mishustin, the head of the tax service, with the goal of jumpstarting the economy. Mishustin has a reputation for being a very professional manager. And he was going to accelerate the implementation of thirteen national projects in health, education, infrastructure, productivity that were going to get the economy out of the doldrums and raise living standards for all Russians.
And then he introduced the constitutional amendments that you’ve just mentioned. And after some debate over them, the final version would keep Putin in power until perhaps 2036, and beyond. And all that was supposed to be ratified in the plebiscite on April 22. And then he capped all of this with the massive military parade in Red Square, in front of a high-ranking international audience, celebrating Russia’s role in the victory of Nazi Germany seventy-five years ago.
And then the COVID crisis came along, something that Putin hadn’t anticipated and something that he assured Russians he had under control, until it really broke out in March, and then accelerated through April, and will into May as well. And so the first thing he had to do was postpone his plebiscite. Ten days ago he reluctantly postponed the May Day celebrations. The economy is not going to be stimulated in a positive way this year. It’s going to decline by 5, 8 percent, perhaps larger, the projections that we see.
And so this big year for Putin has turned into one of real—a real challenge for him. He has been subjected to significant criticism because of the way he’s handled the crisis. First, the assurance that they had everything under control. Then, when the crisis becomes a major issue in Russia, Putin delegates responsibility of this, first to Mishustin, who can’t handle it, and then to the Mayor of Moscow Sobyanin, who’s been really the voice of dealing with this crisis for Russia over the past several weeks.
Now, what this means for Putin over the longer term depends very much on how this crisis evolves. And we don’t—we’re only in the early stages. If the economy—if the oil prices begin to go up in the fall, if the pandemic has been dealt with effectively by the fall, then Putin may be OK. But if this continues longer, if we get a resurgence of this in the fall or next year, then I think there’s serious implications for Putin. Not so much for the population as it is with the—with the elites, who will see him as less than a satisfactory leader in what are difficult times domestically and internationally.
GLASSER: Tom, I want to dig into this a little bit before we move on to Steve and ask you about Putin’s potential vulnerability. What’s interesting to me is that he had already seen, in effect, a pretty significant decline in his popularity even before this coronavirus crisis hit. And, you know, you’ve really seen a sort of overall increase in skepticism towards the key institutions, you know, that Putin has built over the last two decades. Increased skepticism of state television. And his own poll numbers down in the, you know, probably inflated, you know, sixty percentile, somewhere around there, right what they were before the invasion of Crimea. What was driving that? And how much will that hamper his ability to respond to the crisis now?
GRAHAM: Well, you know, what was driving it was the socioeconomic conditions that grew out of the—his activities and aggression against Ukraine, that led to the sanctions, a drop in oil prices at that time six years ago, that created significant economic and socioeconomic problems. And then what immediately precipitated the collapse in his rating was the decision to reform the welfare system in a way that was going to raise the retirement age and impacted on every Russian, and for many of them in a negative way. So his rating dropped about twenty points at that time and it’s been hovering around sixty since then. You know, it’s at sixty right now.
What will happen will depend a lot on how this—the virus plays itself out in Russia as well as the energy issue. If Putin can make a credible claim that when the worst is behind Russia that he has done a better job than the United States and Western Europe, then I think the impact on his standing is going to be minimal. If he can’t make that, then I think you have significant consequences and you will see the growing socioeconomic discontent.
But we need to remember that this is an elite-based system and so the important thing is how the elites react, and if the elites begin to lose confidence in Putin’s leadership, then we’re going to see a dramatically different situation and a situation where Putin most likely would not be able to succeed himself in 2024 as he now plans to do.
GLASSER: So, Steve, let’s pick up there on this question of the economics, which seem to one way or the other be pretty all-important as to Putin’s trajectory right now. First of all, you know, how crazy is it that, you know, Russia and Saudi Arabia would embark on an oil price war in a circumstance like this? Is it—how should we understand it?
Is this just simple hubris? Is it, you know, ignoring of the bigger reality of the pandemic that was about to catch up with them? Why on earth would they have embarked upon this course, which, to outsiders, seems pretty nutty?
SESTANOVICH: Well, this is a crisis in global energy markets that had been building for some time. You had oversupply because you’d had a—partly, perhaps, above all because the three big producers, Russia and Saudi Arabia and the United States, were all going at full tilt and the United States had actually become the principal producer.
And, you know, the word in Moscow is that this was all, you know, a scheme concocted by and pushed on Putin by Igor Sechin, who’s the head of Rosneft, his long-time associate who has thought that this was a way of knocking out American shale oil, of sort of solving the problem of oversupply by taking the number-one producer, the United States, down a peg.
But let me turn to the sort of broader economic context, since I think this is—this is a story that has—you know, is at its heart about Russia’s dependence on energy for the economy. But it’s not only that.
As Tom says, there is a question as to how the impact on Russia will compare with other countries as a—for its implications for Putin’s management and political position, and right now you could say it’s sort of, broadly, similar to the U.S. You know, the IMF is projecting a decline in GDP for both countries, about 6 percent.
The response in both countries has been to kind of increase stimulus packages to try to keep things afloat, and in both countries you have the political leadership sort of moving slowly to grasp the full dimensions of the—of the economic crisis. But I would say there are three big differences that we need to pay attention to.
One is, as Tom suggested, that going into this crisis the state of the Russian economy was already poor. You know, Donald Trump likes to say this crisis, you know, ruined the greatest economy in the history of the world. Putin would not be able to say that. You know, you’ve had median family income going down at five years in a row now, I think it is. You had some strength—the accumulation of strong foreign exchange reserves; very low, you know, foreign debt—but these reflect very conservative economic policies that had had some negative consequences: you know, not much growth; rather austere by global standards. You know, last year’s government surplus was almost 2 percent of GDP. You’ve had now, for half a decade, growth that’s been, essentially, flat, 1 (percent), 2 percent at most. You’ve had stalled diversification. You’ve had not a lot of foreign direct investment. In the first quarter of this year, foreign direct investment was almost zero, and that not the result of the—of the pandemic, although at the end it was, but down from ten billion (dollars) a year earlier. So, you know, a context that’s worse.
Second big difference is, of course, as we were saying earlier, the enormous dependence of the Russian economy on energy. You know, this is—oil and gas are almost two-thirds of Russia’s exports. They’re almost a third of the state budget. And when prices drop two-thirds in a hurry, it has a tremendous effect on tax collection because of the way the government collects duties on energy exports. What the government collects from oil exports will go from $7 a barrel this month to a dollar next month, and in this context, companies are being told they have to have huge production cuts. They’re, needless to say, fighting about who is supposed to do what and there are special complications for Russia in this context because of the difficulty, actually, of capping a lot of wells. This is climate and geology and so forth. But it makes it—it makes Russian producers very, very reluctant to cut production, which makes a lot of people predict that they will cheat on these—on these cuts.
And the third big difference in thinking about the how—what Putin’s response to this crisis can be is that the resources for responding to the crisis are less. The Russian government has been for, as I’ve said, very deficit averse. They are—you know, one Russian banker said this week, you know, basically, the Kremlin’s idea is that we should spend as little as possible to solve this problem. They don’t—they have come up with an increasing number of measures, deficit—I mean, of deficit spending, which they—as I said, they don’t like to do. The economics minister said, well, you know, we’re not in the EU. We don’t have the—a currency that counts as a reserve currency so our resources are more limited.
Even so, they’re now going to third and fourth stimulus packages, and liberal Russian economists are all calling for more extreme measures. There’s a liberal economics caucus that has formed, people saying, you know, you can’t just have a couple of percentage points of GDP stimulus if you really want to get out of this. The problem is that, you know, when Putin’s ministers tell him what the impact of that is going to be on these treasured sovereign wealth funds that they’ve built up, the answer is those could go in a hurry. The finance minister said, you know, we’ll probably spend half of one of the sovereign wealth funds this year and it could be exhausted next year.
So this is—they face this crisis in, you know, not in a situation of strength and the question is really just how deep the impact will be, how long lasting. I think there’s a possibility, given these constraints, that Russia will turn out to be one of the hardest hit by the global recession and the crisis in energy markets. You know, my friend Andrey Kortunov quoted Warren Buffett this week, saying you only know when the tide goes out who’s swimming naked. And I think his implication is it may be Russia and Putin that have been swimming naked.
GLASSER: Well, there’s an indelible image for us. (Laughter.) (Inaudible)—but—(laughs).
So what do you think, Celeste? First of all, are we talking about Putin naked swimming? And second of all, like, what I’m amazed by is, given all the sort of negative surround-sound, you know, how Russia has continued to project a sort of assertive, you know, not our problem on the world stage, certainly, in dealings with—you know, Ukraine, you have not seen this, at least so far, turn into an action-forcing event that would change the otherwise not very good frozen dynamic. How do you see it playing out in terms of Russia’s external policies, both with its near abroad and also with the United States?
WALLANDER: Well, thanks, Steve, for that image. (Laughs.) It does link back, though, to what Tom was describing. You know, one of the implications of Putinism, the political system of Putinism, I’ve often said, is you have a system where no one wants to tell the emperor he’s not wearing any clothes. So maybe that—we’re all kind of coming together with some similar images which are disturbing. (Laughter.) But I think—
SESTANOVICH: Let’s try to use that one, Celeste, now. (Laughs.) We’ve all gotten it out. (Laughs.)
WALLANDER: OK. Thanks, guys.
So, you know, as I was listening to Tom and Steve—and I’m thinking, you know, what do you advise President Putin if you’re looking at the situation that each is describing—you know, one of the things you’d want to advise as a foreign-policy or national-security adviser to President Putin, if you’re unlucky enough to have that position, is, boy, this would be a really good time to turn the corner on relations with the United States.
This would be a really good time to solve that sanctions problem—well, multiple sanctions problems now; sanctions as a result of the war—occupation and intervention in Ukraine, sanctions related to Russia’s intervention in Syria, Venezuela, the problems emergent over the bet Russia’s made in Libya, maybe backing the wrong side, or at least supporting the wrong side; election interference.
This would be a really good time to say, you know—not to maybe admit you did it but say, yeah, we’re not going to do it anymore, and come up with some nice clear ways to indicate you’re not going to do that anymore.
And then, of course, the other big issue that is problematic in U.S.-Russia relations has been Russia’s military activities, the kind of risk-taking actions it’s taken in the air and on the sea and the Baltic, in the Black Sea, and now even in the Mediterranean, and the development in getting ready to deploy and even brag about some very destabilizing not just new weapon systems but operational modalities to implement Russian military doctrine and concern that Russia’s experimenting with ideas about eroding American capabilities in space, implementing standard operating procedures, which include cyber, so non-kinetic methods for dealing with American military superiority.
I mean, that whole package—you know, the problems in U.S.-Russia relations are not because President Obama and President Putin didn’t like one another. They were because of some of these really fundamental structural problems in the U.S.-Russia relationship and the assessment of many, many individuals and parties and interests on the American side that Russian actions across the board in the international realm are threatening to American interests and those of our allies and partners.
All of those things you’d want to be able to sit down and address to maybe lift sanctions, to create some maybe better conditions for foreign investment someday, to get at that issue of dependence on the extractive industries that Steve looked at.
But even if President Putin were inclined to listen to that national-security adviser, which I doubt he would, the coronavirus makes it all the more difficult to engage in the kind of diplomacy, the intensive kinds of meetings, most of which would need to be not just bilateral between, you know, American officials responsible for each of those areas, but multilateral—other countries, because Ukraine, Syria, probably Venezuela, and certainly Libya, those are all issues where the international community needs to be involved and be part of the solution and need to be part of a negotiation. And that’s really hard to do right now when you don’t have international travel, when you have to practice social distancing.
And even if you could put together, you know, one or two meetings that would be consistent with the conditions we’re facing, the kind of intensive diplomacy at a working level, you know, to prepare, lay the groundwork, to build some trust and lay the groundwork for decisions at the level of leaders, it’s just all the more complicated. And then if you pile on top of that the fact that the United States is in an election season now, heading into the second half of 2020, it’s hard to see how you make advances on any of those diplomatic fronts.
I will note that President Putin seems to want to find some way out of some of these problems. I’m not sure he’s willing to make compromises in a fundamental way on Ukraine and implementing Minsk or on Syria, although there’s evidence that we’ve just seen in the last weeks that the Russian government is getting kind of tired of, you know, the political positioning that Assad has taken in Syria, which makes an international multilateral negotiation on a peace arrangement harder.
But he has—but it is intriguing that Putin has once again come out and said that Russia not only is ready to extend the New START Treaty without conditions, but has also been willing to put on the table, the negotiating table that we can’t get to right now, looking at some of those new destabilizing weapon systems that up till now Russia hasn’t been willing to talk about in a potential—you know, we’re a long way away, but even to talk about the potential for those being addressed in an arms-control regime.
So I don’t see the international system helping Putin escape the domestic political challenges and economic challenges that Tom and Steve have laid out. And I don’t see where the crisis—you know, there’s been a lot of nice talk about we’re all in this together. Yes, pandemics, as part of globalization, make us all in that—all in this together. But the really sticking issues at the core of the downturn in U.S.-Russia relations don’t seem to me to be amenable just because we all recognize that we’re facing some common challenges at this point, I’m afraid.
GLASSER: Well, those are excellent points. Just to clarify, Celeste, before we get to questions from our very big audience out here, which we’re going to do in just a minute, but just to clarify, Celeste, so your basic view is essentially, regardless of the imperatives now being driven by the worsening economy and the pandemic, you don’t see any significant progress on any of those issues between the U.S. and Russia until after our election, whatever its outcome?
WALLANDER: I think that’s right, other than—you know, if the Trump administration were to change course on its position on New START, which is—you know, and to kind of accept victory when it’s offered to us in the United States—I mean, Russia is ready now to extend New START on conditions that we hadn’t even demanded previously.
But because of its position that any move along that route would have to include China, which is clearly a nonstarter, and Putin’s not going to be able to bring China to the table, I don’t see where it’s really in the power of—it’s in the space that President Putin would be willing to move into or that President Trump would be willing to or able to, given the domestic constraints on his foreign policies relating to Russia.
GLASSER: Yeah. And that’s just—I guess my final question before we bring in the audience is around Russia and the subject of the U.S. election. You know, obviously there’s been a lot of controversy not only about Russia’s actions in the 2016 U.S. election, but we forget, because our political reality has been so transformed here domestically about the coronavirus, but there’s quite a lot of controversy already over the question of Russia’s activities in this 2020 U.S. election. What have you seen, as a Russia watcher, so far? Do you believe that this is going to be a field of operations once again for a Kremlin information operation on Trump’s behalf?
WALLANDER: Yeah, we’ve certainly seen that Russian social media and internet presence has been active on a whole host of issues, most recently on spreading disinformation and misinformation on the coronavirus. Sort of a different line of—a vector of activity to, you know, fuel differences and, you know, a sharpening of partisan angst and anger in the United States. And we certainly have seen, when we get public statements from the—from the intelligence community, or from individuals who have served in the intelligence community in the United States, they’ve made it pretty clear that they’re seeing a lot of activity from Russian sources. It’s different than it was in 2016.
The methodology—they adapt those methods. They learn from mistakes. They learn how to, you know, hide the new intrusion sets or, you know, agencies that are engaged in election interference. But it was pretty clear that there was a very active operation in 2018 which was not terribly effective, and which was successfully countered by the U.S. government and also private actors who worked to learn from what had happened in 2016, and counter those. But everything I am hearing is that there is plenty of activity. And frankly, 2018 was, you know, small change because it wasn’t a presidential election. 2020 is the big game, because it’s the presidential election.
GLASSER: Well, I’m not sure that’s a reassuring—(laughs)—take on things. This is a great presentation. And I know there’s a lot of questions out there. So let’s just go ahead. I believe you can put yourself into the queue. And I guess I would just remind everybody is we do have a lot of people listening in, so try to really make it a question. And we’ll get in as many as we can. Thank you.
OPERATOR: Thank you. Ladies and gentlemen, as a reminder this call is on the record. At this time we will open the floor for questions.
(Gives queuing instructions.)
And we will take our first question from Ed Cox of Patterson Belknap.
Q: Yes. Taking the other point of view from Celeste, what are the chances here with respect to Putin and staying in power of foreign adventurism, like he did with respect to Crimea? And I’m not sure it’s exactly related, but what does the problems in Russia mean with respect to their condominium with China, which is unnatural in a historical context?
GLASSER: Thanks. Great question. Celeste, do you want to try that?
WALLANDER: Sure. I tend to be—I tend to think that the particular mix of weaknesses that Tom and Steve laid out so well will not lead to kind of a wag the dog—(laughs)—you know, wag the dog sort of scenario that would encourage the Kremlin to look for some kind of crisis or adventure abroad. I don’t think the—first of all, I don’t think that that was the reason for intervention in Crimea, nor was it the reason for intervention in the Donbas.
The reason for those interventions was the Kremlin saw it losing influence and decided to take action to prevent the loss of influence. And then, in the case of Crimea, pretty skillfully turned that into a popularity success. Similarly with Syria, the intervention in Syria was to save Assad. He was losing in the summer of 2015. And so the intervention was to prevent a color revolution or a regime change. And then, you know, the publicity machine turned on and made the Russian intervention look very powerful and energetic—and did a good job. But that wasn’t the reason for the intervention.
So I tend to be skeptical that the Kremlin would intervene out of a need to be popular. That doesn’t mean that it wouldn’t—that the crisis would prevent the Kremlin from being willing to intervene if it perceived a significant loss somewhere in, you know, the Eurasian periphery, or somewhere that was important to either business oil markets or, you know, certainly relations. But simply being drive by the problems at home, that’s not one of the scenarios that really keeps me up at night.
SESTANOVICH: Susan, can I add one other thing to that?
SESTANOVICH: I think it’s important to note how Putin’s own rhetoric as the attention that he gives to foreign policy suggests what he thinks is on the minds of ordinary Russians. If you look at what Putin talks about, he hardly mentions foreign policy. If you look at his state of the union from January, very little foreign policy. If you look at what he emphasizes as the key themes that he thinks the voters want to hear about it, it’s all pocketbook issues. He understands. And I assume he’s being very, very well briefed on this by, you know, pollsters and people who go out and try to gain a sense of this. The clear message he’s sending and the way he talks about this is he knows people care about their, you know, wellbeing, health care, education, food on the table.
GLASSER: Tom, do you want to weigh in or should we go to the next one?
GRAHAM: No. I would just add that I think Steve is absolutely right. But the other thing is that the successes that he was touting back in 2014-2015 in Ukraine and Syria don’t look as successful today, six years—five and six years later. So you’re not going to get a lot of mileage out of that. You know, we’re still in Ukraine. We haven’t solved that problem. Ukraine hasn’t collapsed the way we anticipated. We have sanctions, yes. Maybe, you know, the oil price is much more of a problem for our economy than sanctions, but sanctions still are a—are a problem. And we’ve alienated the West. And for many, many Russians, particularly elite Russians, not being able to operate comfortably in the West is a big problem. So the foreign policy doesn’t look as successful how as it did, you know, five or six years ago. So I think that’s an additional problem that has led him to focus a bit more on the domestic problems.
GLASSER: So we’ll take another question then. Thank you.
OPERATOR: Thank you. Our next question comes from Manik Mehta with Bernama News Service.
Q: Yeah, hi. Thank you for allowing me to ask you a question.
This relates to Russia’s position in the ongoing U.S.-China differences. What position does Russia take here? And we hear reports that Russia is trying to take advantage of the ongoing differences and strike a posture that could, you know, make the two—that is, U.S. and China—go into a deeper kind of a conflict. What is your take on that? Thank you.
GLASSER: Celeste, do you want to take that, or Tom?
WALLANDER: I’ll take a quick shot at it. You know, clearly many of the Kremlin’s core interests and concerns about both the global system and the United States’ role, and position, and leadership of that are shared by China. I mean, I think there’s a—there is something of a common interest driving a lot of Russian and Chinese cooperation, whether that is having one another’s back in the U.N. Security Council on issues of intervention and security, whether that is, you know, questioning American leadership in certain multilateral fora when we’re not already, you know—(laughs)—shooting ourselves in the foot as leaders in multilateral fora. So I think that there is both an exploitation of problems in the U.S.-China relationship, but I think it’s mostly driven by the Putin leadership’s own interest in the kinds of problems and challenges there are in the U.S.-China relationship.
In other words, it’s not just exacerbating the relationship in order to exacerbate the problems in the relationship, and offering China—you know, whether it’s energy deals, or diplomatic backing, in a transactional way. It’s also in many cases in Russia’s interest. So I think both things are going on. And that makes it harder, because that means it’s not necessarily a choice that Putin can turn on or off in a way that—because to turn off cooperation with China goes against some of the main elements of Russian strategy itself. But let me turn it over to Tom and see what he thinks.
GRAHAM: Yeah. No, I—you know, I would just add here, yes, I mean, Putin obviously sees some advantage to this tension between the United States and Russia. But there are limits to how far he’d like to see that go. And I think we’re probably approaching those limits at this point. The deterioration in our relations with China also has significant economic consequences. Global trade has consequences—will have consequences for energy markets. And Putin very much depends on the ability to sell commodities into a growing international economy. If that doesn’t happen, then he has even more domestic problems than he has at this point.
So I think it’s a very delicate balance that Putin is trying to manage. And it’s one where he is really not the prime player. He has to react to this. It’s Beijing and Washington that make these decisions. He has very little influence over the outcome. And I would make one final point here: If you look at this from the standpoint of Russian national interest over the longer term, you know, Russia really doesn’t benefit over the long term from being too close to China, becoming a natural resource appendage to the Chinese economy. It really needs to find a way to normalize relations with the United States and the West to get the technology and the investment that it needs in order to grow its economy over the long term.
Putin, I think, understands that, if not willing to make the concessions or compromises he needs to normalize relations with the West. But I think there’s a growing number of people inside Russia, and within the elites, that realize that the continued alienation of the West is a long-term losing strategy for Russia.
GLASSER: All right. Do we have another question?
OPERATOR: And we’ll take our next question from John Connor with Third Millennium.
Q: Yeah. Can you hear me?
GLASSER: Yeah, thank you.
Q: OK. So I’m in a little bit of a quandary as to why it is we try to work things out with Putin at this point in time, when he’s in such a weak position. And I’m wondering why we can’t have a strategy where we use his vulnerability, since the kleptomaniacs have parked their assets largely in Britain and the U.S., and identify those assets very precisely and, with secrecy in legislation, in effect, confiscate those assets on behalf of a trust for the Russian people, who have been terribly decremented in the last thirty years.
Having worked up close and personal with the potential middle class over there, I just—it’s crushing to see how insulted the Russian people are by this man being their dictator decade, after decade, after decade. So I understand you guys have a foreign policy orientation, but it seems to me that we have a chance to get Putin’s attention in a very dramatic and meaningful way, because our economy, our system here, is being utilized by him at a point in time when he’s actively made himself our enemy and is trying to undermine our system, and our democracy, and our economy. So why can’t we have a more aggressive strategy?
GLASSER: Well, Steve, do you want to take a crack at that one? I think we also would be interested in what you think our strategy is at this point towards Russia, and whether we have one or not.
SESTANOVICH: Sure. Well—(laughs)—you know, polls show that the Russian people now think that Putin serves the interests of oligarchs more than of the security service and national security establishment. For many years that hasn’t been true. But there’s a kind of perception, that I think has to do with economic difficulties at home, that he only serves the interests of the elite. The problem for the United States has been how to actually influence that relationship, and to figure out whether putting pressure on oligarchs, on Russian fat cats who buy condos in New York, actually creates problems for Putin or opportunities.
Putin has in general said to people who are, you know, sanctioned by the West: Look, you’ve got to bring your wealth home. He has been all in favor of not letting people park their ill-gotten gains abroad, because he figures that gives them a kind of independence from him. He wants the money back, for a lot of different reasons. (Laughs.) But one of them is this perception that if you’ve been abroad you have an opportunity to escape. And this has been a kind of dilemma in American policy. We are trying to figure out whether there are policies that can actually put pressure on Russian businessmen that don’t either harm our own interests or actually strengthen Putin.
I mean, I’ll give you an example of this. The Treasury Department was trying to figure out how to put sanctions on Rusal, which is a big aluminum company that is run by Oleg Deripaska, who is one of Putin’s associates, big oligarch. And the effort to try to put sanctions on Rusal ended up driving American businesses so crazy that the Treasury Department had to back off it. So the effort to use sanctions has been a kind of vexed one. The administration has found itself pushed by the Congress to try to add more and more sanctions. And it’s not only been forced to do so, but to accept the idea that it can’t lift sanctions without congressional approval. There are more and more bills that are still around that are aimed at this. There is a continuing effort to try to use sort of anti-kleptocracy measures of the kind that you describe, John. But I think there’s also an awareness on the part of American policymakers that these are difficult tools to operate.
GLASSER: Tom, did you want to add anything on that front, as far as whether there is a concerted effort to do anything that would relate to financial interests overseas, and to working in a strategic way against Russia?
GRAHAM: Well, I mean, Steve has—I think has laid this out quite clearly. You know, certainly we’ve realized that that’s an issue. We’ve tried to figure out ways that we can use it that actually advance our interests without doing incommensurate harm to some of our own interests. The other point is that it’s—you know, it’s very difficult to do because, you know, the situation for oligarchs is that they’re ultimately dependent on Putin. It doesn’t work the other way around. You know, Putin may be at the top of this system, but an individual oligarch depends on the goodwill of the Kremlin and of Putin personally in many cases, in order to retain his own assets inside Russia. So if we sanction an individual, that individual doesn’t express his displeasure to Putin. He in fact asks Putin what he needs to do in order to—in order to get some help from the state to maintain his—to maintain his property or his industry, how he can bring the money back in order to help Russia. So, again, it’s a very difficult problem in order to figure out in a way that we can use it effectively to advance our interests and not, in fact, fortify Putin’s position inside Russia itself.
GLASSER: All right. We probably have time, hopefully, for a couple more questions.
OPERATOR: Our next question comes from Lyndsay Howard with Bloomberg.
Q: Thank you. Can you hear me?
Q: OK, great. Thank you. So short question to our distinguished panelists, and really a pleasure to have the time to listen to them hold forth.
What I keep wrestling with, having worked in this space a bit myself, is that with the elite-based system and even with let’s say the pandemic reaches very high numbers—not that we will know the real numbers—and let’s say that the oil markets continue with greater turmoil, what does it really take for changes to impact Putin? Because I just can’t see a scenario where he—his internal grip on power despite these elites changes. So could I ask: What numbers, what conditions, what really bites, given this entrenched kleptocracy?
GLASSER: Excellent question. (Laughter.) Who wants to jump in on this one?
GRAHAM: I’ll take a stab at that, Susan, if you want me to.
GRAHAM: Yeah. I mean, look, you know, Putin has a system that is very resilient, but it isn’t as if there aren’t limits to how long it can—it can survive under adverse conditions. And basically, there is a deal between Putin and the elites, and it’s—I see it as sort of in three parts. First is that Putin is going to protect the elites, the oligarchs, from external enemies, the United States and the West in particular at this point. Second, he’s going to protect the elites against mass socioeconomic discontent that would spill out into—out into the streets, destabilize the system. And then, finally, that he is going to protect the elites from themselves; that is, that he is capable of managing the competition among the elites in a way that keeps everybody in the game in a satisfactory fashion. And if those three conditions—or Putin can’t meet those three conditions, then the elites begin to look for an alternative.
If you look at the situation now, it’s already difficult. If the pandemic turns out to be worse than anticipated, the oil prices stay low for a long time, a number of things happen.
One, the Kremlin—the Russian economy doesn’t receive the amount of money—the amount of cash that it needs to distribute among the elites to keep everybody happy, so people get forced out who were part of the elite. That hasn’t been the situation over the past several years. The decision-making group narrows. The group of individuals who have access to those resources narrow. And that, I think, amplifies elite discontent.
It would also have socioeconomic consequences. And there’s a question of how long the Russian people will endure sitting at home, being sort of passive, and when they’ll decide to come out in the streets in a more coordinated fashion largely for socioeconomic reasons, which they’ve done over the past several years. But then you have a clever sort of political operator, someone in the elite who can then galvanize that socioeconomic discontent for political purposes.
And then, finally, as I’ve already indicated, I don’t think the foreign policy looks like an overwhelming success at this point. And there certainly is an element within the Russian elites that would like to normalize relations with the United States, sees that as necessary for Russia’s long-term survival.
So all these things come together, I think you get a substantial element within the elite that begins to think about how you deal with Putin and how you sort of push him aside in a way that is not overly destabilizing for the system.
Now, it’s going to be very difficult for us to detect a lot of that in the initial phases. We’ll probably—just one of those events that we’ll see that was inevitable after it’s already happened. But I think it’s something worth thinking about, and thinking about how we go about sort of seeing indicators that the system is moving in that direction.
GLASSER: So, Steve—
SESTANOVICH: Susan, can I add one thing here?
GLASSER: Yes. Please do.
SESTANOVICH: I think it’s wrong to ask a question about what kind of problem Putin can’t solve because a lot of these are problems that, you know, he’s in one fashion or another dealt with in some form. This is a worse set than he’s had before.
But the real question isn’t so much is the problem too great for Putin to manage; it’s does he make mistakes in managing it. Putin often makes mistakes. I think he has not handled succession very well in the past. And it’s not so clear to me that he’s handling it all that brilliantly right now, even leaving aside the pandemic. You know, creating this prospect of being in office for sixteen more years, that is supposed to kind of win support?
Second thing I’d add to this is we shouldn’t assume that the elite at a certain point will just decide they don’t want Putin anymore and will organize against him. What the elite—many in the elite may want in this—not a single elite; they’re divided among groups and institutions—they may want a weakened Putin. That would already be a kind of change. And it may be that the result of this crisis will not be so much that Putin has to retreat from power as that he has to exercise it more carefully, more hesitantly. He may be taken down a notch by the set of circumstances that we’ve been talking about in this hour. These are tough ones, and he may recognize that the only way to hold onto power is to accept less of it.
GLASSER: Celeste, I’m going to give you the last word. While we’re talking, I’m looking at a story that says Russians’ trust in Vladimir Putin has fallen to a fourteen-year low according to the state-funded VTsIOM polling agency. Given what—you know, Steve’s thoughts about, you know, the weakening, at a minimum, that Putin faces, do you agree? How does he come out of this?
WALLANDER: Yeah. I think Tom and Steve have it exactly right, you know, that they’ve drawn our focus to the fact that this is—it is—we should talk about Putinism and not just Putin, and Putinism is more than just that person at the center. There are these different elements of the elite—some which cooperate, some which compete—which are getting nervous. They may have different preferences—I mean, the hard part to—well, the hard part for them and the hard part for us to understand is that they have different preferences over, you know, who should be rising up.
And I really—I really agree—I think Steve put it extremely well—that it’s—what we should be thinking of is less the overthrow of the system than a substantial moving around of the deck chairs, not just, you know, for—to make it look nicer, but that there could be a redistribution of power where everyone agrees to keep Putin. The big challenge in an authoritarian system like Putinism is right now, if Putin isn’t the arbiter among the elites, as Tom described so well and explained so well, then someone’s going to lose and someone’s going to win if someone else is at the center, if someone else is the orchestrator in the middle. So those who are benefitting the most from the—from Putin being the one, being that manager of elite and elite interests, and deciding who gets to keep their money and who gets to make more money, that’s a zero-sum game; that is, someone’s going to lose and someone’s going to win. So one of the challenges for the elite is if you want someone else to be playing that role, you’re going to be threatening others in the system who are going to block it.
So something which is more akin to what Steve described of a redistribution of power, and it’s hard to figure out what that redistribution would look like. Would it be a redistribution more towards elements of the business community who are able to compete on global markets, who can bring innovation and foreign investment into the economy? Or will it—will it double down into the extractive industries, you know, where those individuals already have some strengths and certainly a lot of money? And it’s—I can’t tell you and I wouldn’t presume to tell you which direction it’s going to go in, but I think looking at the forces—the forms of the challenge, the degree to which there’s public discontent, and who can bring some solutions to the Putin inner circles might help determine the kind of processes that—and possibly dynamics that Tom and Steve described so well.
GLASSER: Well, I think we are out of time and it’s exactly 4:00, so I want to thank Tom, Steve, and Celeste. It’s wonderful to hear your insights and also to hear your voices—(laughs)—in this strange moment that we find ourselves in. And thank you to all the great questions out there. I believe there is much more CFR programming, including an 11 a.m. event tomorrow, a Foreign Affairs webinar on climate change. But thank you, again, to everyone for spending some of their afternoon with us, and we are officially done. Thank you again.
WALLANDER: Thank you.