Strategy

Prediction: Russia builds a new Soviet Union

Back in power, Putin sees an opening for Russia to regain the clout it once had in the U.S.S.R.

(Source images: Canadian Press; iStock)

What it means to you:

A resurgent Russia will escalate east-west tensions but also create new investment opportunities for foreign investors.

Russian Prime Minister Vladimir Putin likes to be photographed riding stallions, shirtless, and frequenting judo matches sporting his black belt. Cheesy? Perhaps, but the one-time KGB officer isn’t faking a rugged side. And in 2012, the world may well discover just how tough the Russian leader is. Last October, Putin announced his intention to swap jobs with Dmitry Medvedev after the Russian elections in March, taking back the more powerful role of president that he had held until 2008. Shortly after this news, Putin laid out a plan to reunite Russia with its former Soviet neighbours. Having once called the collapse of the Soviet Union “the greatest geopolitical catastrophe of the 20th century,” he now sees an opportunity to rectify that wrong. Writing in Izvestiya, a Moscow newspaper, he assured this wasn’t an attempt to “recreate the USSR,” but added, “close integration based on new values and a political and economic foundation is imperative.”

Of course, Putin first needs to take back control of the Kremlin, at a time when his personal popularity is under fire. (He was publicly booed at an event in November.) Meanwhile, last month marked the largest show of dissent since the fall of the Soviet Union, when tens of thousands took to the streets over alleged tampering by Putin’s United Russia party with parliamentary elections.

Russia’s opposition is no match for the man, however. Cyril Kopytin, a risk analyst at RBC Capital who previously worked for Rosbank, Russia’s largest private bank, closely follows economics and politics back home. He’s convinced that after the recent outburst of emotion cools, “the protesters, lacking leadership or an action plan, will return to their reality of a ruling United Russia, deteriorating economy, growing corruption and worsening quality of living.”

Putin’s strength rests on the fact that he represents the interests of well-organized power groups, including the secret police and the military, says Andrei Korobkov, a politics professor at Middle Tennessee State University. “And his popularity is still way above anyone else” who could realistically run for president.

The post-Soviet generation of engaged and wired Russians who are loudly finding their political voice remains small in number for a country of Russia’s size. Social media has limited Putin’s ability to “simply crack heads,” says Lauren Goodrich, a Eurasia specialist with Stratfor, a geopolitical analysis company based in Texas, but few doubt his willingness to use force if he perceives a real threat. Putin’s real opposition are the nationalists, she says, who view him as too moderate. He also remains popular with the silent, conservative majority. “I don’t even think Putin has to steal the election,” says Gooderich. “He is going to get it.”

Putin has reason to believe this a good time for Russia to step back forcefully onto the world stage. The country, which became a full member of the World Trade Organization last month, has recovered relatively well from the financial crisis. Prior to that downturn, it was far more politically aggressive, emboldened by high demand for its commodities and membership in the vaunted BRIC club of emerging economic powers. Putin openly used Russia’s vast energy resources and military muscle to impose his will on neighbouring states.

Today, Russia remains heavily dependant on oil revenues, but its debt is low, and forecasts predict that its economy will outperform all other central European, eastern European and Middle East countries. Russia is fiscally sound enough to offer a US$20-billion bailout to the European Union, and with the eurozone in trouble, Putin sees the so-called Eurasian Union of former republics as a way to counter U.S. influence. Gooderich expects Putin to rapidly expand the economic partnerships Russia has in place with Kazakhstan and Belarus to include other members of the Collective Security Treaty Organization, the military alliance between these nations signed in 1992. The goal is to have most former Soviet states in the union by 2014.

The talk in the Kremlin is about an economic club, but if the plans extend to common security, that would bring it much closer to recreating the Soviet Union. “If that happens,” says Gooderich, “we have a whole new beast on our hands.”