World Savvy Monitor

March 2009

Economic Crisis in Russia

The worldwide economic downturn and low oil prices have hit Russia especially hard.  Russia’s reliance on energy exports – oil and natural gas make up 65% of all Russian exports and energy profits comprise over 50% of the nation’s federal budget – makes it especially susceptible to fluctuations in energy prices.  It is not surprising, therefore, that the recent collapse in the price of oil has had widespread ramifications throughout the country.  The stock market lost approximately three-quarters of its value in 2008 and continues to decline, the value of the ruble has been steadily depreciating, consumer demand has dwindled, and the 2009 budget is projected to show its first deficit in almost a decade. 

The industrial sector has experienced especially sharp losses, largely as a result of decreased domestic consumer demand.  With less demand, many factories have been eliminating jobs, reducing hours, and placing workers on indefinite “administrative leave.”  The consequent rising unemployment rate, coupled with increases in the cost of living, resulted in widespread protests in late January. 

As a further sign of the widespread effects of the economic crisis, in February Russian officials announced a 15% cut in the budget for the 2014 Winter Olympics, which will be hosted in the Black Sea city of Sochi.

Ukraine-Russia Gas Dispute

Russia and Ukraine began 2009 with a three week stand-off over gas prices, during which time gas flows to Europe were cut for nearly two weeks, resulting in widespread supply disruptions across Europe and forcing the European Union to attempt to mediate the dispute. 

The Russian gas monopoly Gazprom, the world’s largest natural gas producer, supplies a significant percentage of Europe’s natural gas, of which approximately 80% passes through pipelines in Ukraine.

On January 1, Gazprom cut off supplies to Ukraine amidst disputes over three core issues:  past debts supposedly owed by Ukraine, the price Ukraine should pay for gas in 2009, and the transit price for transshipment of gas to Europe. 

The EU brokered negotiations to mediate a deal and restore gas supplies, upon which many parts of Europe are largely dependent for heating.  A deal was reached in the form of a 10 year contract which it is hoped will provide uninterrupted supplies to the continent during this period.

The dispute affected close to 20 European nations.  Many nations were forced to institute energy rationing and resort to alternative energy.  It is reported that at least 12 people froze to death.

Though the purported cause of the dispute was the price of gas, Russia has long been angered by Ukraine’s deepening ties with the West and by its bid to join the North Atlantic Treaty Organization (NATO). The dispute has increased an already tense relationship between the European Union and Russia, and has also weakened Europe’s trust in Russia as a reliable energy exporter and in Ukraine as a reliable transit country. 

Click here to view a map of Europe’s major natural gas pipelines.

US-Russia Relations

In what was seen as a conciliatory measure to the Obama administration, Russia announced in late January that it would halt the deployment of short-range missiles in the Baltic.  The planned deployment of the missiles was largely in response to the Bush administration’s plans for a missile defense shield in Eastern Europe.

Russia is still actively vying with the US for influence among Russia’s former satellite states.  Seemingly motivated by the promise of a Russian aid package, Kyrgyzstan’s parliament voted on February 19 to close a US air base in the Kyrgyz city of Manas.  The base is the only US base in Central Asia and is key to supporting US and NATO forces in Afghanistan.  The US will have 180 days to vacate the base once the bill is signed.

Though the base has been the subject of popular disapproval in Kyrgyzstan, the move to close it came on the same day as Russian officials offered an aid package to Kyrgyzstan consisting of $2 billion in loans and $150 million in aid. 

Russia Spreads Its Influence

In February, Russian President Dmitry Medvedev met with Bolivian President Evo Morales to discuss increasing energy and defense cooperation.  Following the talks, Medvedev announced that Russia would supply Bolivia with helicopters to use in fighting against the illegal drug trade.  Last year, tensions between the United States and Bolivia resulted in Morales freezing US anti-narcotics operations in Bolivia.

Persecution of Dissidents 

Russia continues to persecute dissidents.  In the first two months of 2009, Russian police detained opposition party members, somebody murdered an outspoken critic of abuses in Chechnya, and three men were acquitted of aiding in the murder of an investigative journalist who exposed war crimes in Chechnya.

The outspoken critic, Umar S. Israilov, was murdered on January 13, while living in exile in Vienna.  Israilov officially accused Russia’s government of crimes in conjunction with the Chechen conflict, and his murder came four days after the New York Times sought an interview with Kremlin officials regarding Israilov’s accusations.

On February 19, the three men accused of aiding in the murder of investigative journalist Anna Politkovskaya were acquitted.  Politkovskaya was murdered in October 2006, after gaining prominence for exposing human rights abuses by the Russian army in Chechnya.  She was the 13th journalist to be killed in Russia during Vladimir Putin’s presidency, and the acquittal is seen as a public relations disaster for the government.

Presidential Term Limits

In December of 2008, Russia’s parliament passed a constitutional amendment to extend the presidential term from four to six years.  The amendment will take effect after President Medvedev’s term ends in 2012.  It is expected that the law is intended to pave the way for former President and current Prime Minister Vladimir Putin to return to the Presidency.