In Syria, Desperate Times Call for Desperate Spin

President Barack Obama maintains Russian President Vladimir Putin’s military actions in Syria are the acts of a desperate man with an economy sinking under the weight of Western financial sanctions. These penalties have indeed done some damage. But far more important to Russia’s economy are lower oil prices and slumping demand in Asia — and Moscow thinks it has already left the worst behind.

Obama has labored to characterize Russia’s military campaign in support of beleaguered Syrian strongman Bashar al-Assad as a sign of Russian weakness, rather than an indication that America’s nearly five-year bid to oust Assad is failing. On Sunday, Obama mocked Russia’s strategic vision, telling CBS’s 60 Minutes that “running your economy into the ground and having to send troops in, in order to prop up your only ally,” hardly constitutes effective leadership. He went on to dismiss Russia’s growing role in the Syrian civil war as a lone-wolf campaign that has failed to garner international support.

Not surprisingly, Russians see it differently. Putin told an investment conference Tuesday that the country’s economic crisis may have already peaked. Finance Minister Anton Siluanov said in an interview Monday that Russia is “turning the corner,” thanks in large part to the economic stabilization policies Moscow has put in place. He said the Russian economy would start growing again next year. By contrast, the World Bank expects Russia’s economy to continue shrinking next year, before growth resumes in 2017.

Either way, Russia’s economic woes and shrinking budget have not weakened the bear. Moscow’s defense spending rose by more than 30 percent in the first seven months of 2015, the World Bank noted recently.

Russia’s economy has been reeling over the past year; its GDP is expected to contract 3.8 percent this year, its worst performance since 2009 during the global financial crisis. But that’s hardly because of U.S. and European sanctions alone, which have targeted Russia’s energy, finance, and defense sectors.

Unlike energy sanctions on Iran, which directly targeted Tehran’s ability to make money by exporting oil, sanctions against Moscow were not designed to cripple Russia in the short term. They are meant to limit Russia’s ability to access Western capital and technology that Moscow needs for oil and gas projects. That includes Arctic exploration and tapping Russia’s abundant deposits of shale oil, both of which will be critical to maintaining the country’s oil and gas output in the next decade. Yet neither currently plays a big part in Russia’s production of exports of oil and gas.

A much bigger factor is the low price of oil, which has fallen about 50 percent from the summer of 2014. Cheaper prices translate into emptier government coffers: Siluanov said oil and gas revenues that in 2014 made up more than half the Russian federal budget have slipped to just over 40 percent.

“There is an effect from sanctions, although it pales in comparison with the oil price decline,” Clifford Gaddy, a Russia expert at the Brookings Institution, told Foreign Policy.

Andrey Kostin, the chief executive of state-owned VTB Bank, said in a recent interview that cheap oil and economic sluggishness in Asia were the two biggest problems for the Russian economy, followed by Western sanctions. The World Bank calls cheap commodity prices, including oil, the “dominant” factor for Russia’s economic performance.

That’s not to say that sanctions have no impact. Just by raising questions about what kinds of deals are permissible can have a chilling effect on investment, trade, and joint ventures that go beyond the boldfaced names in official sanctions designations.

“It’s a compliance nightmare,” said Elizabeth Rosenberg, a former U.S. Treasury official and director of the Energy, Economics and Security Program at the Center for a New American Security in Washington. “They have broad ramifications beyond the sanctioned people and companies.”

But other U.S. activities may have played a bigger part. U.S. production of oil and gas has contributed to a global glut that has pushed down prices, which has hit Russia (and other petrostates such as Venezuela, Iran, and Iraq) especially hard. U.S. natural gas output has helped push down gas prices in Europe, Russia’s biggest export market, while booming U.S. oil production has fed the global oversupply that is expected to last well into next year.

Russia itself is also to blame for its economic woes, in part: Like members of OPEC, Russia has continued to pump oil despite the plunge in prices. In September, Russia pumped 10.74 million barrels of oil a day, a record level.

Gaddy, who co-wrote a Putin biography, says Obama’s insistence that sanctions are enough to deter Putin betrays a fundamental misunderstanding of the Russian president’s power base. Those affected by the penalties — longtime members of Putin’s inner circle — have more to lose by defying the president than by pressuring him to ease up abroad.

“They would not dare, under any circumstances, tell him to back down,” Gaddy said. “There are worse options for them than sanctions hurting them.”

And rather than a knee-jerk reaction to domestic economic weakness, Gaddy said, Russia’s intervention in Syria is a way to elbow the country back onto the main stage of international affairs — especially in a part of the world which has long been in Moscow’s orbit.

“The future of Assad is secondary to Putin,” he said. “This isn’t Russia wanting to be odds with the U.S. They want in; they want to be part of the decision-making process. They’re making a bold move to try to force the U.S. to the negotiating table with Russia.”

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