Putin’s rule depends on creating foreign enemies — and domestic ‘traitors’
"Laundered Money Could Be Putin’s Achilles’ Heel"
He initiates conflict abroad to bolster support at home. But has he overreached this time?
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President Vladimir Putin chairs a meeting with Russian business executives at the Kremlin in Moscow on Feb. 24. (Aleksey Nikolskyi/Kremlin Pool/Sputnik/EPA-EFE/Shutterstock)
To most outside observers (and many Russian experts .. https://www.ft.com/content/09c93ff8-13e6-43f6-901a-787483d46866 , too) Vladimir Putin’s actions this past week look shockingly reckless — from his speech denying Ukraine’s right to exist to the recognition of two breakaway regions of eastern Ukraine to an all-out invasion on multiple fronts. So irrational .. https://www.nytimes.com/2022/02/18/world/europe/putin-russia-ukraine.html .. does his behavior seem to some that they have suggested that pandemic-induced isolation has unhinged him, heightening his paranoia and aggrievement.
Whatever his mental state, Putin’s actions seem at cross-purposes with his goals. He says he wants to keep Ukraine out of NATO, and NATO out of Ukraine; although Ukraine is no closer to joining the alliance than it was, the Russian president has galvanized the West into opposing Russia and supporting Kyiv. He says he wants to bolster Russian security, but he has dragged his nation into a war that no one but Putin seems itching to fight. Many analysts believe .. https://www.ponarseurasia.org/transnistria-writ-large-for-donbas-several-battlefields-mark-ukraines-challenges/ .. that Putin wants a veto over Ukrainian foreign and domestic policy, but tearing up the Minsk Agreement, which had kept a fragile peace in eastern Ukraine since 2015 — and which would have increased the clout of the breakaway regions — deprived him of exactly that veto. And while the sanctions announced by the United States, the European Union, Britain, Canada and Japan may not bring his regime crashing down soon, they will certainly make Russians poorer and unhappier.
That the benefits in Russia’s cost-benefit calculations are evident only to its president presents a problem both for understanding the current situation and predicting Putin’s next move. To solve this puzzle, it’s helpful to take the Ukraine crisis out of the realm of foreign policy and put it into the world in which Putin spends most of his time: that of Russian domestic politics. Viewed in that light, the war represents a continuation of Putin’s efforts to govern by presenting Russia as threatened by external forces bent on its destruction, and himself as the only leader who can successfully oppose them.
To maintain and consolidate his power in the face of such challenges, Putin has spent much of the last decade restructuring Russian politics around the idea that the nation faces existential threats from outside its borders, aided by traitors within. That framing tars all domestic opposition as tools of foreign powers and justifies the evisceration of independent media, civil society and political parties besides his own; it calls on ordinary Russians to make seemingly endless sacrifices for the greater good. Putin appears to have hit upon the idea that anyone who opposes his rule is a puppet of foreign interests when he saw public protest upend Georgian and Ukrainian politics .. https://www.journalofdemocracy.org/articles/transitions-from-postcommunism/ .. from 2003 to 2005; he concluded (cynically or sincerely) that such unrest could not possibly be authentic. He made that theme central to his reelection campaign in 2012, and he has run with it ever since. He has used restrictive laws against “foreign agents” and “undesirable” organizations to hound and imprison hundreds of journalists, activists and opposition politicians.
Over the same period, Putin has made the purported external threat more concrete for Russian citizens by throwing the country into wars and confrontation on a regional and increasingly global scale. Grabbing Crimea in March 2014 and sponsoring separatist revolt in eastern Ukraine later that year led to mounting Western sanctions and a cycle of geopolitical escalation that led directly to the current crisis. An intervention to prop up a Syrian regime that the West was working to topple fits into the same narrative. So, too, does using Russian arms to defend regional strongmen — Alexander Lukashenko in Belarus and Kassym-Jomart Tokayev in Kazakhstan — against popular protest portrayed by Russian state television as instigated by the United States and Europe.
When we see his pursuit of domestic control and his foreign policy as part of the same strategy, each catalyzing the other, what Putin has done in recent days begins to make more sense. From the standpoint of domestic politics, exactly what Putin achieves at the negotiating table or on the battlefield is less important than maintaining a geopolitical confrontation sufficient in scale to justify his domestic repression and, ideally, with no end in sight.
That still leaves many unanswered questions. While the logic of domestic politics justifies creating international crises, does it really support all-out war against one of Russia’s largest neighbors, which is being armed and supported by the West? In making this choice, Putin is taking a gamble on his ability to shape and even direct Russian public and elite opinion. It’s a risky one. The story the Kremlin is telling about rooting out Nazis who supposedly run Ukraine is, after all, utterly absurd.
Moreover, while polls show that large majorities of Russians support recognizing the breakaway regions and agree with Putin in placing the blame for the conflict on NATO, Russians rank the crisis over Ukraine and relations with the West as Putin’s two biggest foreign policy failures. Meanwhile, marginally more Russians have a positive opinion of Ukraine than a negative one, and most feel that Russia and Ukraine should have friendly and equal relations.
Putin’s gamble is that a combination of military success, a powerful propaganda machine and widespread repression will keep domestic discontent under control and, crucially, keep the elite on his side. It is possible that the gamble will succeed, that the fusion of domestic dictatorship and imperial ambition may prove effective. Nevertheless, there are good reasons to be skeptical.
Surprisingly large protests (“solo pickets,” as the Moscow Times puts it .. https://www.themoscowtimes.com/2022/02/24/dozens-of-russian-anti-war-picketers-detained-reports-a76559, are the only lawful form of protest in Russia) have appeared on the streets of Russian cities. These are likely to be easily suppressed — the Russian nongovernmental organization OVD-Info reported that more than 2,200 people were arrested on Thursday and Friday — but unease is mounting. The Committee of Soldiers’ Mothers, a grass-roots group that emerged to oppose Russia’s destructive war in Chechnya in the 1990s, has publicized harrowing pictures of the poor conditions in which soldiers are being housed and fed along the border with Ukraine and launched a video campaign against the war. Any combat deaths on the Russian side are likely to feed this nascent movement.
Discontent is likely to be fueled, too, by Western sanctions that will have both targeted and widespread effects. We simply do not know what price Russian elites are willing to pay for a war that few of them may actively support. While moving against the president from the inside is extremely dangerous, impatience with the costs to the elite of Putin’s rule, and the sense that something should be done about it, may grow rapidly behind the scenes.
If that happens, a war Putin started to solidify his position at home could prove to be his undoing.
Swift: ejecting Russia is largely symbolic – here’s why
"Laundered Money Could Be Putin’s Achilles’ Heel ""We will take their yachts, their luxury apartments, their money, their ability..."" "
Published: March 1, 2022 2.00am AEDT
Author Alistai Professor of Financial Economics, Loughborough University
Disclosure statement Alistair Milne has written a number of research papers for Swift and has presented on several occasions at SIBOS, the annual conference of the Swift community. The views expressed here are his own and not those of his employer or any other institution.
Partners Loughborough University Loughborough University provides funding as a member of The Conversation UK.
Russia’s invasion of Ukraine is horrifying. Western leaders, fearing a broader war, are responding primarily with economic sanctions. A prominent economic sanction has been Russia’s exclusion from the international payments messaging system Swift, presented as a powerful means of undermining its economy.
But for a payments expert such as myself, this is something of a myth. Yes, Swift messaging systems are a critical part of international economic activity. They provide extremely secure communications, developed over five decades, dovetailing with the many and varied operations of commercial banks in international transactions. Swift systems would also be a prime target in any cyberwarfare, though thankfully they are well defended.
The reality, however, is that limiting access to Swift is less practically effective than most media coverage supposes. It is an important symbol of global repudiation of Russia’s exercise of military force, but not much more. It is other measures, such as blocking the central bank of the Russian Federation from transacting internationally, which is undermining confidence in the rouble.
Bank queues in Moscow as rouble crashes. EPA
To understand the limited practical effect of ejection from Swift, it’s worth looking at Iran. The US has applied and periodically reinforced trade prohibitions against Iran ever since 1987. This culminated in Barack Obama’s executive order in February 2011 to freeze all the US assets of Iran’s government, central bank and financial institutions. Iranian banks were ejected from Swift only later, in March 2012. This was only supplementary to direct restrictions on Iranian businesses and financial intermediaries.
Iranian banks could and did still arrange payments in and out of Iran, using banks in third countries that were willing to take a margin on these transactions. That was never easy, with the US authorities imposing fines totalling .. https://crsreports.congress.gov/product/pdf/RS/RS20871/301 .. nearly US$5 billion (£3.7 billion) on European banks for providing this service to Iran. Exclusion from Swift did not prevent them from doing this.
So what is Swift for exactly?
How Swift works
Swift .. https://www.swift.com/ .. was founded in 1973 to provide secure messaging for international payments. It is a Belgian member-owned co-operative, with around 11,000 member banks from 200 countries and territories. It provides messaging systems for instructing and then monitoring interbank payments and trade finance, integrated into banks’ processing systems worldwide.
The acronym is apposite, since speed is an important part of payments, but its origins are reflected in the rather archaic full version, Society for Worldwide Interbank Financial Telecommunication. Nowadays, of course, these communications are internet-based.
Today, Swift handles around 40 million .. https://www.swift.com/about-us/discover-swift/fin-traffic-figures .. payment messages each day. If we assume that without such a messaging system, each payment would take a bank clerk a few hours to process, the saving might be about US$100 per transaction. This would mean that Swift adds value of around US$4 billion per day or US$1 trillion per year to the global economy.
The key point is that Swift does messages and their supporting technology and standards; it has no role in payment execution. Suppose a London bank wants to send funds to a bank in Moscow. It may use Swift messaging to communicate the payment, but not to execute it. The actual execution can be done in various ways: using roubles held as a pre-existing balance with the bank in Russia; or acquiring roubles from sale of either sterling in the foreign exchange market, or of rouble assets such as Russian government bonds.
None of this depends on Swift. There is no fundamental problem with transferring funds using some other secure messaging system. Russian banks might, for example, instead arrange payments using the SPFS .. http://www.cbr.ru/eng/psystem/fin_msg_transfer_system/ .. system, which was established after the 2014 invasion of Crimea by the Russian central bank. This is currently used by a handful of international banks in Germany and Switzerland linked to Russian banks.
Or they could use the CIPS network .. https://www.cips.com.cn/cipsen/7052/7057/index.html , which was created by the People’s Bank of China for the purpose of cross-border payments in renminbi with indirect participants in many countries. They could even use WhatsApp to instruct the necessary transactions.
Payments for Russian energy exports .. https://theconversation.com/ukraine-im-surprised-the-oil-price-hasnt-hit-us-130-a-barrel-yet-energy-trading-expert-qanda-177942 , for example to Gazprom, are even less Swift-dependent. When operators buy oil or gas from Gazprom, they make payments in either euro or US dollars into bank accounts held by the Russian energy company. So if the intention of sanctions is to block payments for Russian gas, the tool is not Swift; it is sanctions on Gazprom and its banking facilities.
You don’t hurt Gazprom through Swift. Konstantin Lenkov
None of this is to say that there will be no economic impact in ejecting Russian banks from Swift. It will affect lower value payments, such as those in small business supply chains, because Swift makes payments processing so cheap and easy. When you multiply the saving across many thousands of payments, it clearly adds up, but it’s nowhere close to a game-changer.
The long haul
The uncomfortable fact remains that economic sanctions, if they are to be more than symbolic, necessarily impose costs on both sides and might have to be imposed for a long time. Russia has spent a decade preparing for the current war and any consequent economic sanctions.
It has invested hugely in its military alongside brutal repression of domestic political discussion to eliminate opposition to war. Its military operations are not dependent on either external financing or external supplies. It has restructured its economy, at substantial cost in terms of standards of living, turning itself from a major food importer to a net food exporter and reorientating much of its trade, for example to India and Egypt.
Financial and economic pressures on the Russian economy are now mounting rapidly. Above all, these will be impacting the Russian middle classes as the rouble crashes and interest rates shoot up. Other more targeted sanctions are hitting wealthy Russian individuals.
It is conceivable that all this could lead to a rapid collapse of the Putin autocracy, but we should not engage in wishful thinking. Wide-ranging economic sanctions on Russia may be needed for a lengthy period of time. Ejection from Swift is a symbol of these efforts, not a powerful economic tool that can constrain Russia’s actions in Ukraine at little cost to ourselves.
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