THE INSIDERS: Oil money, conflict and the age of diminished expectations in Russia

By bne IntelliNews September 30, 2015

Yuval Weber of Moscow’s Higher School of Economics -


At the mid-June opening of Russia's “military Disneyland” – officially titled “Patriot Park” – President Vladimir Putin took the opportunity to announce that 40 new intercontinental missiles would be added to Russia’s nuclear forces and that the theme park itself would be “an important element in our system of military-patriotic work with young people”. The declarations fit the mood of “heightened patriotism and military rhetoric” that has come to dominate Moscow since Crimea was wrested from Ukraine following the Euromaidan protests that ousted the pro-Russian president Viktor Yanukovych and relations between Russia and the West deteriorated to levels unseen since the Cold War.

The announcement indeed harkened back to the Cold War, but not solely to tit-for-tat charges between Moscow and the Pentagon over missile counts. Increasing military spending and ideological fervor in a stressed fiscal environment echoes less the direct superpower showdowns of the 1950s and 1960s, and more the far more conflictual phase of the 1970s and 1980s that started with an energy boom and ended with a political bust – the collapse of the Soviet Union.

Although it seems like a distant universe, the last two decades of the Cold War saw the two superpowers reduce tensions in Europe yet simultaneously conduct a series of proxy wars across the decolonizing countries of Africa, Asia and Latin America. The many – but often small and sometimes dubious – conflicts and client states of that era emerged from sustained energy output and high prices that expanded Soviet military capabilities and generated American misperception about Soviet security aims outside of Europe.

The oil money that seriously bolstered the Soviet budget in the late 1960s and early 1970s did not cause foreign policy expansionism directly, but altered political negotiations in the leadership: it empowered “hawks” to prevail over “doves” and pursue an alternative, expansionist foreign policy in the “Third World” at the same time Leonid Brezhnev and Andrei Gromyko were pursuing détente and arms controls with the West in Europe.


Unlike conventional considerations of how energy and conflict are related, political scientists do not believe that energy directly causes conflict. Instead, increased energy revenues allow a state to increase capabilities and thus have the ability to pursue more policy choices. Without the difficult trade-off embodied in the classic phrase “guns or butter” in which governments must decide whether to emphasize defense or social spending, energy wealth (and particularly sudden influxes) allows for both: guns and butter. When fiscal realities change (energy prices decline as importers go into recession or reduce their energy usage habits), the once-flush petrostate is then left with increased foreign policy commitments and increased social commitments when it has less money for both.

At that time in the 1970s, hawks in the International Department of the Communist Party, which was formally responsible for relations with foreign communist parties dating back to the 1920s-era Comintern, articulated that the Marxist-Leninist struggle abroad found a natural home in the socialist-oriented national liberation movements in developing countries. As the main thrust of Soviet foreign policy centered over European security and relations with the Western bloc, bringing détente and consumer goods previously unseen in the Soviet Union through greater commercial relations, the developing world figured less important. The oil money seemed to make everyone happy: the top leadership achieved relaxation of tension with the West, hardliners were mollified and continued to support Brezhnev by increasing confrontation outside of Europe, and the Soviet population enjoyed a higher standard of living.

The subsequent decline in energy prices in the late 1970s/early 1980s created the dire economic conditions that led, in part, to Mikhail Gorbachev’s bold selection as Party Secretary to try and turn the country around. Hampered by fiscal shortfalls that cut into the ability of the USSR to import goods, inefficient internal production mechanisms that created fiscal overhang of too much money chasing too few goods, a massive military presence in Europe, and the consequences of the previous era’s expansionism outside of Europe (including a full guerrilla war in Afghanistan), Gorbachev lambasted his predecessors for leaving him such a short deck. He coined the phrase “Era of Stagnation” to argue that when times were good, Brezhnev satisfied everyone, but those didn’t last, leaving the country in an age of diminishing expectations and ruing lost opportunities. As John Maynard Keynes had remarked in 1937, “the boom, not the slump, is the right time for austerity”, and the failure of Gorbachev’s efforts meant that the Soviet Union ended as a going concern when the money ran out.

Greasing the policy wheels

Contemporary Russia shares aspects of the 1970s and 1980s, albeit with significant departures. Unlike Brezhnev, Putin amassed far greater political control over internal rivals while achieving public popularity by the time the mid-2000s energy boom replenished Russian coffers. That good fortune allowed Putin to direct public spending much more easily than Brezhnev was ever able to, including following orthodox macroeconomic policies such as paying off external debt and investing heavily in public infrastructure, alongside raising living standards through higher pensions and public sector salaries.

It has also permitted vast increases of military spending – first in absolute terms as the size of the federal budget increased in the 2000s, and then in marginal terms following the conflict with Georgia and the insecurity generated by Nato’s expansion.

The oil money gave Putin more policy options – increased social spending and increased defense spending – yet the fiscal pressures of a low energy price environment, continued sanctions, and reductions in social benefits as a result of increasing diplomatic commitments to Crimea and separatists in Ukraine (alongside recent moves into Syria to bolster Russia’s client Bashar al-Assad) are not easily solved without serious domestic repercussions.

The question facing Putin going forward is not whether the Russian public will accept lowered living standards as a result of recession – that’s already happening; but whether increased public support is sustainable in an age of diminished expectations.

Yuval Weber is Assistant Professor of International Relations at the Higher School of Economics, Moscow. Follow him at: @yuvalweber


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