The common wisdom is that Russian President Vladimir Putin is all about tactics and doesn't have a strategy. But things have changed. The collapse of the west through US President Donald Trump abrogating control of the US and its descent into a debilitating partisan slugfest, while Europe is riven by the Brexit fiasco and split by rising illiberalism, has cleared the ground for Putin to get on with the work of building up Russia’s standing in the rest of the world—the bigger, more populous and now richer half of the globe.
While European leaders spent their time haggling over EU job postings at the G20 and the US delegation did little more than show off Ivanka Trump's dress collection, Putin got on with some serious work in Osaka. He effectively took control of OPEC’s oil production targeting process and so has gained the power to set oil prices. He pulled Japan into Russia’s orbit by cutting an Artic LNG production investment deal. He confirmed a deal to sell S-400 surface to air missile systems with Turkish President Recep Tayyip Erdogan in the face of resolute US opposition. And those are the deals we know about.
For most of the last two decades Putin has been skillfully playing a weak hand, exploiting the cracks in the western alliance that has sprung up against him since the annexation of the Crimea in 2014. The general assumption has been that there is no substance to Russia’s foreign policies and they will go nowhere; eventually the Russian economy will stagnate and implode.
But that is increasingly looking like wishful thinking. The op-eds predicting Russia’s imminent end have been a permanent feature for years but they have become less frequent now the Russian economy is looking more robust than ever. True, growth remains anemic and Putin’s plan to “transform” the economy with 12 national projects is off to a very poor start, but the fiscal fortress he has built is now formidable. Russia has by far the most robust macroeconomic numbers of any major power while it has sanction-proofed the economy. Growth has been sacrificed for safety, which is causing Putin political problems at home as increasing numbers of ordinary Russians take to the streets to protest against smelly landfills, but with a triple surplus the Kremlin has the money to buy its way out of trouble and has launched a wide ranging, if as yet inefficient and ineffective, reform programme to deal with the biggest problems. The planned RUB27 trillion spending programme over the next six years has yet to have any material impact on ordinary people’s lives, but economists all believe that these effects will start making themselves felt in the second half of this year to some extent.
Putin is increasingly finding himself on the right side of the story as the world changes with the rise of the emerging markets. He is not alone in mistrusting the US, which he clearly has written off as an unreliable partner since it unilaterally withdrew from the Anti-Ballistic Missile Treaty (ABM) in 2002. That drove Russia into China’s arms, but Russia took most of the heat until recently. Trump's trade war with China has brought Beijing into open conflict with Washington. And China’s President Xi Jinping and Putin now stand shoulder to shoulder in defying the US hegemony.
“The US is isolated by Russia and China,” Putin quipped after meeting with Xi, who was the guest of honour at this year’s St Petersburg International Economic Forum (SPIEF) that kicked off on June 6. SPIEF is supposed to be about meeting international investors, but this year Russia's flagship investment confernce was all about China that signed about half of all the investment deals announced at the conference.
But Russia's foreign policy is not just about China. The first sign of a historical shift in the centre of gravity of global geopolitics eastwards was President George W Bush's decision to call a G20 summit to deal with the 2008 meltdown, not a G7 summit.
G seven to twenty
Russia was expelled from the G7 as a result of its military campaign against Chechnya – and it didn't care. Last year’s G7 summit hosted by Canada barely registered in the international press and is largely irrelevant today.
The G20 is a much bigger, much rougher playground than the elite G7 club of rich nations. Russia's relations with the west are in the gutter, but those with the likes of Brazil, India and the other emerging markets are flourishing. Putin pre-empted his Osaka appearance by giving a big interview to a major media outlet as he always does to prep the ground.
And it proved to be controversial as he told the Financial Times editor Lionel Barber that liberalism is obsolete. That comment brought down opprobrium, including an editorial from the FT saying that liberalism is alive and well. But is it? In the obligatory summit group photo of all the leaders in attendance – 28 presidents and prime ministers – those following liberal agendas were in the minority.
The G20 leaders are still important as they run the world’s richest countries, but collectively the GDP of the emerging markets is greater than that of the developed world (largely thanks to the size of China’s economy) and just two members – India and China – are home to almost a third of the world’s population.
And this change suits Putin who is at home in this rougher neighbourhood. You can see why he might think liberalism is dead as his most important partners in the G20 crowd, key to Russia’s foreign policy, are a much rougher bunch than the political elites from Harvard, Oxbridge and Sciences Po that run the G7.
The G20 is suppose to be a forum for the world’s leaders to deal with the geopolitical problems of the day and this year it failed to even address most of the main issues.
Russia has been causing trouble for everyone. It has frozen military conflicts in not only Ukraine, but also Transnistria, Abkhazia and North Ossetia, as well as all but taking over control of the Syrian conflict.
Yet Europe’s de facto leader German Chancellor Angela Merkel spoke barely six sentences to Putin, according to bne IntelliNews sources at the meeting.
Brexit had already thrown Europe into disarray, but the current wrangling over who gets what top job in the EU’s shake up hijacked the western leaders' agenda, as they spent most of their time meeting each other rather than the rest of the world’s leaders, ahead of a crucial vote in Brussels that started the day after they got back from Japan.
The US was not distracted by European politics, but its total ineptness under Trump made it an irrelevance. A video of Ivanka Trump in a pink $4,000 Valentino dress trying to crash a conversation between Merkel, UK Prime Minister Teresa May, IMF director Christina Legarde and French President Emmanuel Macron went viral as it showed her to be totally out of her league. But the fact that the video was released by France’s presidential office only underscores the divisions within Europe.
More generally Europe is divided from within, if you consider the relations between the “old” EU members like the UK, France and Germany with the “new” members like Poland, Hungary and Czechia.
The lack of unity in Europe was thrown into stark relief by the vote to readmit Russia to the Parliamentary Assembly of the Council of Europe (PACE) the week before: almost all the old members voted overwhelmingly to readmit Russia – the second set of sanctions imposed on Russia since 2014 to be dropped in six months – leading to a walkout by seven new members in protest, most of whom lie close to Russia’s border and voted to reject the motion.
Oil and energy deals
While the west was preoccupied with negotiations over jobs and Ivanka was walking about looking pretty, Putin was getting down to business.
The most important news to come out of the G20 was a deal struck between Putin and the Crown Prince of Saudi Arabia, Mohammad bin Salman (dubbed "MbS"), on extending the OPEC+ oil production cut agreement by six to nine months that left the quotas in place.
What is remarkable about this agreement is it usurped the regular biannual OPEC meeting due to start two days later in Vienna where the production cuts are usually thrashed out. Although Russia is a minor player in terms of total production, it is the single biggest exporter of oil and has the swing vote. Putin’s deal with MbS gives Russia leverage in OPEC and hands Putin the ability to control to some extent oil prices.
The relationship between Russia and Saudi Arabia has radically changed in the last few years. In the past Russia was reluctant to cooperate with OPEC, preferring to benefit from OPEC production cuts that drove up oil prices, unwilling to cut its own production. Now for the sake of politics Russia has agreed to forego some income to bolster prices but in return Putin has hijacked OPEC’s production setting mechanism, which has long been an American protectorate. What was supposed to be a temporary marriage of convenience is now looking more like a “catholic marriage,” according to a recent comment by OPEC secretary general Mohammad Barkindo, as cited by Bloomberg.
The Saudis are willing participants as they feel betrayed by the US’s drive to develop shale oil production and boost their own production at OPEC's expense. The US has overtaken Russia in terms of daily production of barrels of oil and broken their dependence on the Middle East but that has driven oil prices down and hurt Saudi Arabia, which turned to Russia for help.
Between Russia’s rapidly warming relations with Saudi Arabia, Syrian President Bashar al-Assad's almost complete dependence on Russia’s military and most recently Moscow’s support for Tehran, Russia has suddenly become a major player in the politics of the Middle East.
It is telling that as the US threatens war on Iran, Tehran rushed through a Free Trade Agreement with the Russian-led Eurasia Economic Union (EEU) to protect its supply chains. The EEU has been an object of ridicule as Russia dwarfs the other members of this trade club, but if Russia starts adding the Middle Eastern countries as members that would be a different story. It is probably no coincidence that in the same week Iran dropped the visa requirement for Chinese visitors.
But maybe the most telling deal the Russians did on the sidelines of the G20 was to persuade Japanese firms Mitsui & Co. and the Japan Oil, Gas, and Metals Corporation (JOGMEC) to buy a combined 10% stake in Russian independent gas producer Novatek's Arctic LNG project. The deal, signed during the G20 meeting, puts Japan into a joint LNG project with France's Total and China's CNPC and CNOOC, according to the Kremlin.
Japan is the kingpin in the US security system in Asia as bne IntelliNews reported in a the feature “Playing real Risk,” but the energy-hungry Japan is playing pragmatic politics and not only is Russia already supplying it with increasing amounts of LNG, China is rapidly expanding its influence in the South China Sea. Tokyo is starting to hedge its bets and the Japanese are not exactly a liberal democracy either.