What may lie behind Russia's actions

I am not going to analyse what Putin might or might not have as motives for what Russia has been doing over the last month – not whether this is his macho, ego, tsar, KGB type of personality disorder or behaviour but point to one thing which I think is also behind this.

There are reasons to believe that the Russian economy is deteriorating a bit and has done for some time. I think average Russians have experienced this and that this might have become a political challenge for him domestically over the coming months.

To give a few samples: Russians have on average had 10-20% real annual wage increases over the last 10 years. The average Russian makes 4 times more today than what he did 20 years ago. Over the last year though these real wage increases have dropped dramatically and is now below 6%.

The Russian economy is depending on a high oil price to keep subsidies and low energy prices in their domestic market. This has become pretty costly over the last year when oil prices haver stagnated.

Russia has enormous health issues for which little positive has happened throughout the last 20 years – in sharp contradiction to what we have seen among other BRIC countries as a sample. Again an illustration: 20 years ago an average Russian man had a life expectation age of 63 years, the same as the Chinese at the time.

Today – the Chinese men are expected to live until they reach 74 years of age while the Russian man still get not older than 63 years. High alcohol and smoking is generally seen as the reason for this.
Russia has seen capital outflow increasing enormously this year and this might continue at a higher speed should Russia see their stock market falling as well as see their currency depreciating. This could have a rather devastating effect.

One could add more factors but the bottom line looks to be that on a political conflict level for which economic sanctions could be on the agenda I feel Russia is at higher risk than Western countries. Russia could threaten the supply of oil and gas to countries like Germany and Poland. In the end I don’t think they can afford going that route.

Putin has seen an enormous gain in popularity domestically from his foreign policies over the last month. My feeling is that this came at a time when needed as domestic issues in terms of the economy might have well put his position under strong criticism as Russians in general are facing difficult economic times.

Financial weakness was the main reason why the old Communist regimes so easily fell a part during the period 1981-1989. There were strong uprising in the early 80s many places but the old USSR system was so weak financially that they could not even supply petrol to armoured vehicles. The political uprising could not be met by armed forces - as they simply didn't have the financial strength.