Russia review

By Ron Hall

Russia is vast. It spans eastern Europe and Northern Asia and is the largest country in the world by area, covering over 17,125,191 square kilometres (6,612,073 sq mi), and encompassing one-eighth of Earth’s inhabitable landmass with a population of 145.5 million. It is one of the largest mineral producers in the world and mining is one of the country’s most important industries. Most Russian metal production is however exported – Russia is the world’s biggest supplier of palladium and third largest producer of nickel and aluminum. It is also a major exporter of coal and steel. That may change – Russia’s war with Ukraine could have severe impacts on supplies of commodities as western imposed sanctions in reaction to the invasion begin to bite. In retaliation, Russia may yet launch countersanctions and shut off energy supplies to the west. While the US has imposed a ban on Russian oil, the EU, heavily reliant on Russia for its energy needs, is still debating joining the embargo. The EU gets about 40% of its gas and 30% of its oil from Russia, and has no easy substitutes if supplies are disrupted. Russia has now threatened to turn off gas supplies to Europe in the case of an EU oil embargo and has demanded payments in rubles.

Commodity prices jumped immediately following the invasion. Russia supplies about 10% of the world’s nickel, which is used in lithium-ion batteries and to produce stainless steel. On March 8, and nickel prices more than doubled to over $100,000 a ton.  LME nickel prices have since dropped to about $30,000 per ton but remain well above pre-invasion levels. High nickel prices have added to the troubles of electric-car makers who were already struggling with rising costs of raw materials such as lithium and cobalt over the past few months.

Western companies, including energy producers BP and Shell have been severing ties with Russia, abandoning or exiting their operations and investments there. Glencore, which has a 10.5% stake in the Russian EN+ Group, the parent company of Russian aluminium producer Rusal, said recently on that it is reviewing its stakes in Russian entities, including a 0.57% stake in oil giant Rosneft. Rio Tinto has also said it is closely monitoring the situation in Ukraine and related sanctions. It, too, has an alumina refinery joint venture with Rusal in Australia. Canadian miner Kinross Gold has suspended operations in Russia, where the company has more than 2,000 employees at two mining properties and its Moscow office. Kinross also donated $1 million to the Red Cross’s Ukraine humanitarian appeal.

After several weeks of fighting, there is no clear understanding of how this war will end and much depends on President Putin and his goals in orchestrating the invasion. Against the backdrop of Russia’s market-rate GDP losing a third of its value between 2013 and 2020, some see it as a doubling down of his ultimate strategy to seek legitimacy from restoring Russia to a “superpower status,” as existed during the communist era.

After the collapse of the Soviet Union in the early 90’s, then President Mikhail Gorbachev introduced reforms known as Glasnost and Perestroika that allowed for more freedom of speech and government transparency, a somewhat drastic change from the policies of his predecessors. Anti-Soviet dissenters and nationalist parties in the republics seized this opportunity to protest and gather support for their independence movements. involved restructuring and modernizing the Soviet economy, reducing government control of industries and allowing some privatization. The Communist Party had voted to end one-party rule, opening the government to direct political opposition, and the newly created legislative body, the Russian Soviet Federated Socialist Republic (RFSR) voted to officially leave the Communist Party of the Soviet Union (CPSU) and declare Russian sovereignty.  The independent RSFSR held elections, and Boris Yeltsin became the first popularly elected president. Gorbachev resigned his leadership to Yeltsin who eliminated the CPSU, and officially dissolved the Soviet Union on December 24, 1991.

For a time, there was hope for a new East-West relationship replacing the gloom and depression of the Cold war years. The Soviet Republics used their new freedom to feed growing independence movements and the former superpower was then replaced by 15 independent countries including Ukraine the others  being Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Russia, Tajikistan, Turkmenistan, and Uzbekistan.  There are now concerns that the war may extend the into some if not all these former Soviet states.

At the time of collapse of the Soviet regime, the rapid institution of Yeltsin’s reforms came as a shock to most Soviet citizens who were unsure of how to act without strict government regulations and oversight, leading to even more social unrest. The 90’s were characterised by the chaotic disintegration of the Soviet Union and the advent of the so-called oligarchs. Because the Union was founded on communist principles, all means of production from oil to electricity to farming was state-owned. When the Soviet Union fell, a corrupt, sometimes violent scramble ensued to take ownership of the country’s industrial infrastructure. Some of those who were vying for control took it by any means necessary. As a result of their new business ownership, these individuals amassed significant wealth and ended up with the power necessary to manipulate the government alongside Boris Yeltsin. They constituted an oligarchy, a system of government in which a small group of people is in charge – the oligarchs.

By the time Vladimir Vladimirovich Putin began his first term as president in 2000, the government – run in part by the oligarchs – was highly dysfunctional and he went to work centralizing his authority and moving the oligarchs out of politics. Some of them fled the country. Others were exiled, imprisoned or had their property seized. Those who remained largely agreed to stay out of politics and leave that to Putin. But under his leadership, Russia has gradually experienced a democratic backslide and a shift to authoritarianism with his rule characterised by endemic corruption, the jailing and repression of political opponents, the intimidation and suppression of independent media and a lack of free and fair elections.

Putin’s war thus provides a distraction for a Russian society that is fragmented, primarily due to economic inequality, making antagonism between the rich and poor a significant problem. This antagonism counterpose the “haves” (Putin’s political elite and closely associated oligarchs) against the “have-nots” (most of the population) in a battle of interests in which the former has the overwhelming advantage. Establishing a more equitable balance will be critical for the future of the Russian economy and ultimately for global stability. But in April 2021, following a referendum, Putin signed into law constitutional amendments including one that would allow him to run for re-election twice more, potentially extending his presidency to 2036.

This war could have many years left to run.