Coronation, Coronavirus, and the Economy: The Economic Backdrop of a Fifth Putin Term

In a carefully choreographed sequence of events that unfolded on March 10 at a parliamentary reading of proposed constitutional reforms, Russian President Vladimir Putin made a “surprise” visit to the State Duma to endorse a last-minute proposal by Duma member Valentina Tereshkova, the first woman in space, to reset the clock on his term limits, allowing him the option to run for a fifth term as president in 2024. While Putin has not committed to this option, he has effectively ruled out becoming head of the State Council, a role many analysts expected him to adopt at the end of his current term. Though he has refused to make his intentions clear, the events of March 10 give Putin the option of seeking a fifth term as president.

The announcement coincided with news of dual economic shocks. The first was a 30 percent drop in oil prices resulting from Russia’s March 6 withdrawal from the OPEC+ format, under which it had cooperated with other oil producers to limit production, and Saudi Arabia’s decision to up its market share by dramatically boosting production. This was in turn sparked by the global COVID-19 pandemic, which in Russia, as in other countries, has upturned life, roiling financial markets, emptying restaurants, and flattening growth prospects.

This confluence of events—a constitutional overhaul, an oil price war, and a global pandemic—shifts the economic backdrop of Russian politics at a particularly sensitive juncture, creating more uncertainty and higher stakes for the government even as it attempts to pitch stability amid a public health crisis.

In certain ways, the coronavirus outbreak has already worked in Putin’s favor. Unlike the large protests that broke out last summer over the banning of opposition candidates from municipal elections, opposition to Putin’s March 10 announcement has felt notably muffled. The tepid response is most likely due to widespread coronavirus fears and, in Moscow, a ban on gatherings of more than 5,000 people. While the ban was justified as a public health measure, it also happened to go into effect just after the government received opposition requests for permission to hold protests on March 20 and 21. Moreover, since January’s Federal Assembly address opened the door for Putin to remain in power beyond 2024 in some capacity, the March 10 announcement came as less of a surprise.

But while few expected Putin to depart from politics in 2024, the move to extend his grip on power via additional terms as president—a pathway he himself had previously seemed to reject—marked an astonishing retreat from the spirit of political renewal encapsulated in his January address, at which Putin acknowledged Russians’ desire for change amid record low trust in the authorities (according to a recent Levada Center poll, only 35 percent of Russian respondents in January named Putin among the Russian politicians they trusted most—a 24-point drop from November 2017). For many Russians, even those who generally support Putin, the prospect of a 32-year presidency justified in the name of “internal, evolutionary stability” evokes Soviet-era stagnation and contradicts the image of a more responsive and technocratic government.

A nationwide plebiscite scheduled for April 22 on the proposed constitutional reforms is designed to provide a veneer of democratic legitimacy for the constitutional amendments, including Tereshkova’s proposal to “zero out (obnulit’)” Putin’s presidential clock. Changes related to the presidency have been baked into a single “yes/no” vote with other amendments designed to create enthusiasm, such as banning gay marriage or defining ethnic Russians as the country’s “state-forming (gosudarstvoobrazuyushchii)” nation—a longstanding demand of nationalist groups. Few doubt that the amendments will pass given the Kremlin’s vast organizational and informational resources, though there are now reports that the referendum could be delayed amid authorities’ concerns that the coronavirus will dampen turnout. Polls taken before the March 10 announcement suggest attitudes toward the constitutional changes are, at best, ambivalent.

Support for Western-style democracy in Russia has long been modest among both experts and society at large, and many Russians appear resigned to the continuation of something like the status quo for the foreseeable future. Nonetheless, the history of protests in post-Soviet Russia suggests a willingness to push back against more blatant attempts by the state to limit political rights. The starkest example is the 2011-12 protests against Putin’s initial return to the presidency by swapping roles with his hand-picked successor, Dmitry Medvedev. As the Kremlin is no doubt aware, this latest political maneuver could similarly test public tolerance for what many Russians see as an assault on their freedoms and the curtailment of political choice.

The coronavirus outbreak, meanwhile, adds an additional layer of complexity. Uncertainty surrounding the outbreak’s effects on Russia seem to have pushed concerns around the constitutional reforms and Putin’s future role into the background. Depending on the severity of the outbreak, the duration of any emergency measures, and whether the referendum is moved back from April 22, will all have an impact on how the public at large processes and responds to the proposed changes.

Given this uncertainty (which the coronavirus outbreak and oil price war only exacerbate), the Kremlin has an even greater imperative to make good on promises to deliver material improvements to Russians’ lives. The mandate to kick-starting growth via a massive $319 billion state investment plan—the so-called National Projects—has not changed.

But amid a downturn in economic activity—which may quickly turn into a global recession—and a crash in oil prices, the baseline economic conditions for achieving that growth have shifted. According to forecasts from Bank of America, at an oil price of $45/bbl, GDP growth in Russia will drop to 0.8 percent in 2020 from an already modest 2 percent; at $30/bbl, GDP contracts 1.5 percent. Real incomes are expected to fall as well. The value of savings will dip with the price of the ruble, while the cost of imports—both commercial goods for consumers and inputs for Russian manufacturers—will increase. Any additional delays to public spending will therefore become all the more consequential.

A stressed economy will provide the backdrop for a momentous political transition—or non-transition.

There are two somewhat contradictory maxims about Russians’ relationship to politics and the economy that have received wide circulation in the West. One, popularized in the mid-2000s, posits that Russians will stay out of politics if their wallets are growing. The other, popularized after 2014, is that Russians will endure cuts to their wallets in the name of international respect and prestige. With international adventures in Ukraine and Syria generating less attention and less political support for the Kremlin, the former may now be the more relevant: polls show that Russians’ foremost concerns are socioeconomic and that there is waning appetite for foreign adventures.

In this context, two outlying scenarios are possible.

In the optimistic scenario, a competent government response to the dual shocks of coronavirus and an oil price war allays the worst effects. A forthcoming stimulus package could take steps toward boosting demand, and Russia, through intelligent public policies and a degree of luck, may avoid the worst of the coronavirus. Under this scenario, the ruble could stabilize at around 70 to the dollar sooner rather than later (it is less sensitive to oil prices fluctuations than in 2014), and National Project spending remains on track. Saudi Arabia, its economy less resilient to lower oil prices, would come back to the table, and oil prices would tick up this summer. The Russian economy stagnates in 2020 but does not enter recession, and the government’s response to dual crises instills confidence among Russians and a sense that their country is, overall, on the right track. If Moscow gets its response right, opposition to the constitutional reform never gains widespread traction.

A more pessimistic scenario sees the government botching its response to COVID-19 (though it shut its borders to foreigners on March 16, Russia’s response is well behind that of other affected countries in both Europe and Asia). The number of infected in Moscow and other major cities rises exponentially, and it emerges that Russia does not have the medical infrastructure to test a large number of patients quickly or to effectively treat large numbers of seriously ill patients. As in other countries, the pandemic severely depresses aggregate demand, helping, along with low oil prices, to tip the Russian economy into a recession.

Meanwhile, low oil prices inhibit the Kremlin’s ability to apply stimulus measures, and Russia is forced to keep spending down its substantial reserves. Such spending mitigates the worst effects of the downturn but is insufficient to halt it entirely, in part because social expenditures do not sufficiently offset the drop in real incomes experienced from near-zero growth. In this scenario, economic pain and anger at mismanagement of the coronavirus pandemic undermines faith in the Kremlin at a time when public trust in the authorities is already dropping. These developments could contribute to the emergence of a new wave of protests during the summer that complicate efforts to pass the constitutional reform package in a delayed referendum.

Of course, a range of scenarios between these extremes are possible—and indeed more likely. Russians will likely not fault their government unduly for economic hurt resulting from a global pandemic if they believe that its mitigation efforts are having an effect. Nor do they necessarily fault their government for a collapse in OPEC+ talks and Riyadh’s declaration of an oil-price war. If sustained low oil prices wear on the economy though, Russians may pressure their government to negotiate, given the close correlation between oil prices and Russian economic growth. Even if the Kremlin does benefit from stoking confrontation with the West, shutting down U.S. shale producers is unlikely to have the same political resonance as, say, annexing Crimea.

In the context of new stresses to an economy that was already strained, Russians’ willingness to swallow both another attempt at putting off real political reform and, potentially, a fifth Putin presidency, may be severely tested. The stakes for the Russian government—and for Putin—of managing these challenges effectively are high.

Jeffrey Mankoff is a senior fellow with the Russia and Eurasia Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Cyrus Newlin is an adjunct fellow (non-resident) with the Russia and Eurasia Program at CSIS.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Jeffrey Mankoff
Senior Associate (Non-Resident), Europe, Russia, and Eurasia Program
Cyrus Newlin

Cyrus Newlin

Former Adjunct Fellow (Non-resident), Europe, Russia, and Eurasia Program