How to handle the new Russia

The war in Georgia has led to a surge of anti-western sentiment in Russia. The fact that Americans and Europeans broadly sympathised with Georgia – when it was Mikheil Saakashvili’s attempt to take South Ossetia by force that started the war – infuriates many Russians. As a member of the ‘Valdai club’ of think-tankers and journalists that met Vladimir Putin, Dmitri Medvedev and their ministers in September, I heard that Russia is preparing to turn its back on the West. There was talk of a ‘multi-vector’ foreign policy, based on partnerships with China, Iran, Turkey and the Arab world. A lot of Russians seem to believe that American plans for ballistic missile defence in Central Europe, and NATO expansion into Ukraine and Georgia, are part of a scheme to encircle and weaken Russia. Some Kremlin courtiers even claimed that if Ukraine tried to join NATO it would provoke a war between Russia and the US.

But despite the bluster and rhetoric, another Cold War is inconceivable. One reason, as President Medvedev himself observed, is that “the Cold War was an ideological confrontation, which is not the case today”. Russia does not offer a particularly attractive political or economic model to other countries. Another reason is that Russia is too weak. Its economy is less than 3 per cent of world GDP (on a purchasing power parity basis) and is forecast (by the Economist Intelligence Unit) to remain below 3 per cent in 2030. By then, the EIU predicts, China will be at 23 per cent of world GDP, the US at 17 per cent, and the EU-27 at 16 per cent. That affects Russia’s military potential – today it spends only a tenth of what the US spends on defence. In most parts of Latin America, Africa and Asia, China rather than Russia is seen as the power that could rival the US.

Although Russia’s economy has been growing fast, at around 7 per cent a year, it suffers from grave structural weaknesses: over-dependence on hydrocarbon exports, low manufacturing productivity, weak service industries and a poor record on innovation. The leading Russian companies know that in order to succeed at a global level they need to buy foreign firms, raise money on international markets and hire the best talent. Even Russia’s oil and gas companies, whose output is beginning to decline, cannot thrive without foreign technology, expertise and capital. They lack the financial muscle to invest in major exploration projects or overseas acquisitions without access to foreign credit markets. None of them can build a deep-water oil or gas rig without foreign partners.

Medvedev seems to understand that a prolonged period of frosty relations with the West would damage his plans for modernising Russia. “Any conflict evidently creates problems for the economy,” he said. “But when we have to choose between protecting the lives and dignity of our citizens, no matter where, and economic value, you know our choice.”

Russia’s problem is not only economic weakness, but also strategic isolation. For all the talk of a multi-vector world, and the support Moscow has given to authoritarian regimes like Venezuela, Burma and Uzbekistan, it has almost no friends. The only country that followed Russia into recognising the independence of South Ossetia and Abkhazia was Nicaragua. Even Belarus baulked at that. As the next article shows, Beijing’s relations with Moscow are far from warm.

Historically, Russia has a poor record of befriending its neighbours. The American diplomat George Kennan once observed that Russia’s neighbours have to choose between becoming its vassals or its enemies. Today’s Russian leaders insist on their right to “privileged relations” with neighbouring states – and regions further afield such as former Yugoslavia. The implication is that Russia has a droit de regard over what goes on in such places. The EU and the US should therefore focus on ensuring that Russia’s neighbours remain sovereign and free to choose their own foreign policy.

The West should deploy both soft tactics, designed to diminish Russian paranoia about western intentions, and hard ones, to dissuade Moscow from acting rashly. On the soft side, the West should encourage economic ties with Russia. The US should not block Russian membership of the WTO, because if Russia becomes more integrated into the global economy, its business leaders will have a greater stake in good relations with the West. The US should also postpone the deployment of missile defences to the Czech Republic and Poland, since for the time being there is no threat from Iranian ballistic missiles.

And in private western leaders should tell the Russians that they would forego enlarging NATO into Ukraine and Georgia – so long as Russia made significant concessions in return, such as supporting the EU mission in Kosovo and accepting limits on its forces in Abkhazia and South Ossetia. The West should be willing to make that concession not because Russia merits a veto on applications to NATO, but for three reasons. First, most Ukrainians oppose membership. Second, putting Ukraine into NATO could damage the alliance’s credibility, since the article five defence commitment would be difficult to enforce in a place like Crimea. Third, it would strengthen hard-line nationalists within Russia, a country whose history and religion started in Ukraine and whose defence industry and navy are partly based there.

At the same time NATO needs to take concrete steps to ensure that article five is credible, notably in the Baltic states. The EU must do more to integrate Ukraine and Georgia into its policies, and for Kiev, if not Tbilisi, it should hold out the clear prospect of membership.

On the hard side, the EU and the US should be prepared to use their economic leverage. Western leaders should tell Medvedev and Prime Minister Putin, in private, that Russia must not compromise the independence or territorial integrity of countries such as Belarus, Georgia (minus Abkhazia and South Ossetia, which are lost for good), Moldova and Ukraine. If it did, Russia would pay an economic price. The US and the EU could prevent Russian companies from buying firms or raising capital in their markets. And they could limit the transfer of advanced and sensitive technologies to Russia.

Just before the war in Georgia, some of Medvedev’s advisers were starting to say – in public – that Putin’s style of leadership was damaging the economy. During and after the war, of course, such dissent became impossible. In the long run, however, we may see real arguments over Russia’s global role between, on the one hand, business leaders and the government’s economic liberals, and on the other, the security establishment grouped around Putin. Western policy should seek to strengthen the former.