TL;DRussia Weekend Roundup

22 July 2023: Phantom menaces, plus texts and tunes

One of these days, I’m going to manage to write an issue of this newsletter that doesn’t focus heavily on Evgeny Prigozhin. This is not that day.

Just to keep things interesting, though, in about nine paragraphs from now, I’m going to pick an analytical fight with the head of the CIA. So, at least you have that to look forward to.

Oh, one other thing: Some of the readers of this newsletter might have the misfortune of following me on Twitter. If you are into that kind of thing but have misgivings about Twitter itself, please find me on Bluesky here, and/or on Threads at sam.greene76.

What I’m thinking about

Igor Girkin is in prison. Evgeny Prigozhin is not. Let that sink in for a moment.

The man, better known to the world as Strelkov, who started Russia’s war in Ukraine some nine years ago, who did more than anyone else to rally nationalists to Vladimir Putin’s cause, and who thus laid the cornerstone of Putin’s current regime — that man is in prison.

The man who sought to decapitate Putin’s army, who marched on Moscow, and who very nearly provoked open conflict within Russia itself — that man is free.

On the face of it, Girkin and Prigozhin have a lot in common. They are both prone to delusions of grandeur and enjoy cosplay. They both earn their living doing the Kremlin’s dirty work while providing plausible deniability (though Prigozhin clearly charges a lot more money). And they both spend way too much time on social media, mostly complaining about Putin’s propensity not to finish what he starts.

But at the end of the day, only one of these men launched an armed insurrection — and somehow, that’s not the one who’s in jail.

Now, I can come up with a bunch of explanations for this (some of which I put to the BBC World Service on Friday, if anyone’s interested—the segment starts at 08:17). Basically, my best guess is that Putin sees Prigozhin as a spent force, the further repression of whom may be more trouble than it’s worth, or not a burning priority, or both. The bigger problem, to continue the guess, is identifying Putin’s known unknowns: all the disloyal people who haven’t yet shown their cards; hence the apparent purges in the military brass and Friday’s arrest of Girkin. Add to that Putin and Defense Minister Sergei Shoigu’s evident desire to quiet criticism of the handling of the war, and Girkin’s arrest sends a useful signal to the rest of the armchair generals and military pundits that there are lines that shouldn’t be crossed.

But let me be clear: that’s a guess. I don’t have access to anyone who can tell me what Putin’s thinking, and even if I did, I’m not sure I’d believe them — and I certainly wouldn’t be able to verify it. I’m piecing together what I think the calculations and motivations are based on what I can observe, and I’ll be honest: I feel very much behind the ball, responding to events as they occur, rather than predicting them.

That caveat notwithstanding, I do feel fairly confident about one core premise of my analysis: the problems we can see the Kremlin trying to solve, and the problems it seems to be ignoring, are a reasonable proxy for how the Kremlin sees its near and longer-term challenges. This, in turn, is based on the assumption that the Kremlin is rational, even if I may not understand (and certainly don’t share) the calculations underpinning that rationality. As a result, it is probably safe to assume that the Kremlin doesn’t expend much effort solving problems it doesn’t think are serious and doesn’t ignore problems it thinks are pressing.

And so we come to the part where I feel like I have to argue with the Director of the CIA.

In discussing the whole Prigozhin saga with NPR’s Mary Louise Kelly, CIA Director Bill Burns explained the situation (pre-Girkin) as follows:

KELLY: President Biden recently said of Prigozhin, if I were he, I'd be careful what I ate. He also said, we're not even sure where he is. Do you know where he is? You saw this video that emerged that seemed to show him in Belarus. Is it real?

BURNS: Yeah, no, he's moved around a bit.

KELLY: Yeah.

BURNS: I think he's been in Minsk lately. I'm not sure he has any plans to retire in the suburbs of Minsk. But he's - but he spent time in Russia as well. And I think, you know, what we're seeing is a very complicated dance between Prigozhin and Putin. I think Putin is someone who generally thinks that revenge is a dish best served cold. So he's going to try to settle the situation to the extent he can. But again, in my experience, Putin is the ultimate apostle of payback. So I would be surprised if Prigozhin escapes further retribution for this. So in that sense, the president's right. If I were Prigozhin, I wouldn't fire my food taster.

Now, “apostle of payback” is a great turn of phrase. And on some level, of course, Burns is making the same argument I am (a phrase that suggests more hubris than was intended): Prigozhin is not Putin’s biggest problem right now. From there, however, our analysis differs, because our approach to analysis differs.

Burns’s assumption that revenge is coming (and ‘best served cold’) is based on an analysis of past patterns of behavior: because Putin has exacted revenge for disloyalty in the past, he is likely to do so in the future. Now, there’s nothing inherently wrong with that approach to analysis — except that it let us down in the run-up to the war. The full-scale invasion of Ukraine, with all of the risks and costs it entailed, was fundamentally a break from Putin’s past patterns of behavior. And so while we would be foolish to ignore the history, my own conclusion is that we need to temper our interpretation of those past patterns of behavior with an analysis of something more immediate, namely the ways in which the Kremlin is responding to stimuli in the moment.

Shifting to that kind of more proximate analysis changes the question we ask. Instead of asking ‘what has Putin done in the past’, in order to project that pattern onto the future, we ought to be asking ‘why did Putin respond to this stimulus in this particular way’, in order to project that thought process onto whatever set of circumstances might arise next. Long-time readers will know that I’m allergic to questions that involve reading Putin’s mind, but that’s not really the task. The task is to read Putin’s behaviors as reflections of the challenges and opportunities he perceives in the world.

In other words, Burns’s method assumes that Putin’s habits of action are stable, and thus that he will continue to do in the future things that resemble what he has done in the past. My method, by contrast, assumes that while Putin’s habits of mind are stable, his actions may not be. Why? Because circumstances change — and as circumstances change, Putin learns. Projecting past patterns of behavior into the future risks blinding ourselves to the impact of both changing circumstances and that learning process, and thus we risk being caught off guard. Again.

What I’m reading

While we’re on the subject of the problems the Kremlin does and does not try to solve, it’s worth turning for a moment to the economy — where a number of interesting things happened this week.

First, despite months and months of rhetoric threatening to punish Russians who fled the country if they didn’t return home, the Duma passed a law giving non-resident citizens the same 13% income tax rate as resident Russians. Clearly, then, Moscow has come to the conclusion that it is more important to keep self-exiled Russians working for Russian employers — and to keep collecting at least a bit of their taxes — than to return them home to Russia.

Second, the Russian Central Bank raised its core interest rate 100 basis points to 8.5%, the first rate hike since September 2022. By the Bank’s own explanation, this is targeted at reducing inflation, which is running 1-1.5 percentage points above the Bank’s 4% target. The question, into which iStories useful delved, is why inflation is high, and the answer appears to be a combination of the weakening Ruble, sanctions-induced import bottlenecks, the continued absence of broad-scale import substitution, and the economy’s stubborn inability to increase production despite operating at more or less full capacity. Economists out there may tell me I’m wrong, but if this diagnosis is correct, then trying to solve this problem with rate hikes attacks the symptoms but may exacerbate the root cause, by stifling the investment the economy needs to boost productivity and replace imports.

And that leads me to the third thing that happened, which actually happened a while ago, and wasn’t actually a thing. Basically, iStories had a fascinating report on Tuesday on Russia’s “successful” transition away from Western currencies in its foreign trade and financial transactions. The scare quotes are not to suggest that Russia hasn’t actually made this transition, but rather to question whether this should be considered a success. The folks at iStories clearly think it shouldn’t — and they point to the Central Bank’s own analysis. And that’s the thing that happened a while ago: a truly fascinating April 2023 article by senior Central Bank official Ksenia Yudaeva, arguing that transitioning too far away from Dollars and Euros would likely create more problems than it solved.

It’s not that point that makes Ksenia’s article fascinating. Full disclosure here: Ksenia and I worked together, a very long time ago, at the Carnegie Moscow Center. She was and, I’m convinced remains, one of Russia’s smartest economists, and maybe one of the smartest in the world. I cannot fathom and will not speculate about why she decided to remain at the Central Bank, a decision that has landed her on sanctions lists. But the first fascinating thing is just how good her article is: it contains no ideology, no propaganda, just a sober and sobering analysis of what’s going on in global trading and financial systems and the implications for Russia. It is an enduring and maddening tragedy that the Russia that is capable of this, is also capable of the war in Ukraine.

But I digress. Ksenia’s core argument is that the shifts in global trading and financial flows are going to create volatility, that Russia’s squeezed trading and financial flows mean that it will feel that volatility more than most, and that shifting away from the world’s core currencies will exacerbate that vulnerability and reduce Russia’s ability to respond to it. To solve that problem, she wrote, Russia will need to adapt, ensuring that the money it spends, the money it earns and the money it holds are all broadly in the same currencies. The really fascinating part of what she wrote, though, was her admission that Russia is largely solving this problem by “outsourcing financial services to the financial sectors of other countries”:

This involves both companies, who are no longer required to return their foreign-currency proceeds, and private citizens, who are now actively using other countries’ banking systems to pay for their travel and imports and to hold their savings.

This, she continues, involves three risks: the risk of secondary sanctions (if the US or the EU hit out at banks or countries doing too much business with Russia), the risk of other countries’ financial instability, and the risk of capital controls (particularly in many post-Soviet countries, where money does not always flow freely across borders). But Ksenia’s article suggests that rather than trying to end this outsourcing and repatriate this money — which would also, incidentally, mean more money for investment in Russia — the Kremlin’s policy is to let this outsourcing flourish. This, too, suggests a short-term focus on maintaining consumption and a degree of stability, at the expense of the longer-term health of the financial sector, the economy as a whole, and Russia’s hard-won fiscal and monetary management.

That’s probably enough on the economy for one week — and it’s not as though there was nothing else to read. In other developments:

• Back on the Prigozhin front, Mikhail Troitsky had an interesting (and troubling) essay in Bereg (albeit back on 3 July) arguing that the uprising may have increased the Kremlin’s appetite for nuclear provocation, by boosting Moscow’s sense of urgency and Ukraine’s and the West’s resilience to other kinds of threats;

• Still on the Prigozhin front, Le Monde’s Moscow correspondent Nicolas Ruisseau had on Wednesday an excellent report on the confusion and destabilization that the mutiny is still causing within the Russian armed forces;

• On the actual war front, Christopher Miller had a harrowing report in the Financial Times on the damage caused by Russia’s expansive use of landmines and the difficulty in overcoming them (which, nonetheless, doesn’t contain an answer to the question of why no one saw this coming);

• Just behind the front lines, Bereg on Friday published a series of interviews with Russian tourists who had been “forced” to drive to and from their Crimean vacation spots via Mariupol and other, more recently occupied Ukrainian territory. The responses alternate between morbidly amusing and predictably infuriating;

• On the ideological front, Vedomosti (which I almost never read anymore) published excerpts from new Russian school textbooks covering the war. All of the excerpts are predictably infuriating, but this one might be my favorite: “When finding out any information about what’s happening in Ukraine now, remember: the global industry of producing staged video clips, provocations, and fake photos and videos is a non-stop conveyer belt”;

• Still on the ideological front, Meduza reported on Tuesday that the Presidential Administration is gearing up for the 2024 elections with a target of an 80% vote for Putin — well in excess of the 70% target that has been set for most previous elections;

• Back to the economy, The Bell had two detailed and damning reports on the wartime redistribution of economic assets and power — one on the almost knee-jerk allocation of formerly Western-owned assets to Kremlin cronies (and in the case of Danone’s yogurt factories, to Ramzan Kadyrov himself), and another on the battle for control of Yandex;

• Finally, the FT continues its phenomenal investigative and data-driven reporting on sanctions evasion with a report from Tom Wilson on how the Russian oil trade has shifted from Geneva to Dubai.

Probably enough for one week, no?

What I’m listening to

This is a million years old — and the Jacques Dutronc song it’s covering is a million years older than this — but I just found it, and it makes me happy.