Economy on mind as Russia pivots from Ukraine to Syria, experts say

Russia's rouble is weak. The country's main export, oil, is worth less than half what it was two years ago. State companies and banks continue to bear the burden of Western sanctions imposed as punishment for Russia's role in the Ukraine crisis.

Now in a move that could resuscitate Russia's economy, the country appears to have redirected attention away from Ukraine and towards Syria, where it has an opportunity to build ties with the West.

"I don't think these days the Kremlin sees any advantages to being in the Donbas, and many costs - economic, military and, above all, political," Russia expert Mark Galeotti said, referring to Ukraine's Donetsk Basin, which has been at the heart of a pro-Russian separatist rebellion for more than a year and a half.

Russia's government has not officially announced a redirection of focus away from eastern Ukraine, where it says it only supports the separatists' cause and has adamantly rejected accusations of providing troops or weapons for the conflict.

But the Ukraine conflict has significantly calmed down since late September, when Russia began a bombing campaign against rebels and terrorist organizations in Syria.

As Russia started its bombing campaign in Syria in support of that country's government, separatist forces in Ukraine almost simultaneously announced an impending end to their conflict.

That coincidence "suggests that the Ukrainian story was left behind as Russia was shifting its focus on Syria," Maria Snegovaya, a columnist for one of the most respected newspapers in Russia - the business-focused Vedomosti - told dpa.

Galeotti agreed: "This was part of the rationale for the Syrian intervention - to win credit with the West so that it will help or allow Russia to extract itself quietly [from Ukraine] without demanding some kind of public submission."

Syria serves as a political distraction within Russia and as a geopolitical opportunity for President Vladimir Putin to restore a relatively normal partnership with the West, said Matthew Rojansky, head of the Russia- and Ukraine-focused Kennan Institute in Washington.

"There is a growing sense in Russia that there is little left to gain in eastern Ukraine, both because of the considerable cost of sanctions ... and because Ukraine itself is not likely to make dramatic moves in the next few years," Rojansky said.

Money issues also play a role in the calculus.

The likelihood that Russia will seek a resolution in Ukraine "keeps increasing as the Kremlin keeps running out of its resources available for running wars," Snegovaya told dpa.

Russia's federal reserve fund is on track to be exhausted this year, Snegovaya explained, citing a prediction that the country's finance minister made last month.

In December 2014, the head of Russia's largest bank, state-owned Sberbank, waxed optimistic about the rouble, saying the currency would likely recover in six months. His wish did not come true.

Fast-forward to December 2015, and the top banker, German Gref, completely reversed his stance, predicting that the rouble's value will continue to decline.

Even President Vladimir Putin, who told the nation in December that the worst of the economic crisis was over, admitted in the same press conference that 2016's federal budget was based on an overly optimistic oil price of 50 dollars per barrel.

In little more than a week, the price of a barrel of crude on the London Stock Exchange fell to its lowest point since mid-2004: about 36 dollars.

Plummeting oil prices are extremely hazardous to Russia's stability. In the mid-1980s, a drastic drop in the commodity's price precipitated the collapse of the Soviet Union.

"A sustained depressed oil price will take a greater toll on Russia's finances than Western sanctions," said Alexander Cooley, head of Columbia University's Eurasia-focused Harriman Institute.

"The Kremlin has used Western sanctions as a domestic rallying point," Cooley told dpa. "The Russian public appears willing to accept economic hardship as a cost of a more assertive foreign policy and Russia's self-defined role as an influential global player."

Cooley predicted that the Ukraine conflict will become frozen as the central government refuses to give the separatist regions the autonomy that Moscow demands.

"Let's be honest, even in the best-case scenario, the Donbas is going to be an awful mess for years to come," said Galeotti, a professor at New York University and prolific author on Russian security issues.

But he added: "by this time next year I expect that most of the sanctions, except those linked to the Crimea annexation, will have been lifted or suspended."

"It's more likely than not that Russia's direct role in the Donbas conflict will end some time in 2016, though that need not mean the end of the conflict overall," Galeotti said.

Last update: Tue, 12/01/2016 - 17:56

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