This Week’s Highlights

• Alexander Baunov of Carnegie believes President Vladimir Putin’s announcement of constitutional amendments and overhaul of the Cabinet indicate he plans a partial retirement in 2024, as does sociologist Konstantin Haase. However, while leaving the Kremlin, Putin will keep a pivotal role, perhaps as chair of the newly empowered State Council, in Baunov’s view. The Carnegie.ru editor sees no return to the "tandemocracy" of 2008-2012, while Tatyana Stanovaya of R.Politik sees just that. As for ex-Prime Minister Dmitry Medvedev, Bloomberg’s Leonid Bershidsky argues that he is now on a glide path toward retirement, while Dmitri Trenin of Carnegie counters that Medvedev, by assuming the deputy position at the Security Council, remains in line to succeed Putin. According to Baunov, however, it will be one of the younger governors that Putin will install as a presidential figurehead in 2024.
• Russia’s new premier, Mikhail Mishustin, enjoys a reputation in Russia’s business circles as one of the country’s most effective technocrats and earned rave reviews as the head of Russia’s Federal Tax Service, according to Reid Standish and Amy Mackinnon of Foreign Policy. Russians can expect a shift in emphasis from taxation to the allocation of funds as Mishustin draws on his management skills to make government spending as orderly and transparent as taxation became under his leadership, according to Anton  Tabakh of the credit-rating agency Rus-Rating. Chris Giles of the Financial Times wrote in his 2019 in-depth look at the successful digitization of the Russian tax service, which Mishustin engineered: “This is the future of tax administration—digital, real-time and with no tax returns.”
• John Dizard of the Financial Times writes that “news from Russia is supposed to be dark and foreboding,” but, “in the real world, Russia is adopting expansionary economic and social policies that appear to be financially sustainable.”
  • According to MSCI indices, Russia had the best performing equity market in the world last year.
  • Russia now has a 3 percent budget surplus and foreign exchange reserves larger than its foreign debt. 
  • At the time of Putin’s ascent to power 20 years ago, Russian oil companies and the Russian state needed an oil price above $110 to balance their accounts. Now they can break even with an oil price of about $45.
  • Much was made of Saudi Aramco’s IPO and its 5 percent dividend. Russia’s Lukoil, though, has a 20-year record as a public company and still has a 7 percent dividend yield.
• Frank Rose urges the Trump administration to seek extension of New START while launching a serious bilateral dialogue with China on arms control and strategic stability issues.
• The United States apparently does not view Russian control over Syria as a direct threat to American interests, so there are no external checks on Russia’s ability to impose itself upon the Assad regime, according to Lina Khatib.
• When it comes to information warfare, Russia is like a hurricane, while China is like climate change, according to Jean-Baptiste Jeangène Vilmer and Paul Charon of France’s Institute for Strategic Studies.

I. U.S. and Russian priorities for the bilateral agenda

Nuclear security:

• No significant developments

North Korea’s nuclear and missile programs:

• No significant developments

Iran and its nuclear program:

• No significant developments

Cold War/saber rattling:

“Who Killed Détente? The Superpowers and the Cold War in the Middle East, 1969–77,” Galen Jackson, International Security, Winter 2019/2020. The author, an assistant professor of political science at Williams College, writes that:

• “Standard explanations for the demise of U.S.-Soviet détente during the 1970s emphasize the Soviet Union's inability to put aside its communist ideology for the sake of a more cooperative relationship with the United States. Soviet resistance to reaching a stable accommodation during this period, many analysts maintain, was especially evident in the Middle East, where Moscow is said to have embraced the ‘radical Arab program’ vis-à-vis Israel.”
• “Such accounts do not fare well, however, in light of the historical evidence. Instead, that evidence indicates that the Soviet Union was eager to cooperate with the United States to achieve an Arab-Israeli agreement. The Richard Nixon and Gerald Ford administrations, however, were not interested in working with the Soviets in the Middle East, and instead sought to expel them from the region. These findings have important implications for scholarly debates about whether great power rivals can cooperate on issues where their strategic interests are overlapping, as well as for contemporary debates over U.S. policy toward countries such as China, Iran, North Korea and Russia.”

NATO-Russia relations:

• No significant developments

Missile defense:

• No significant developments

Nuclear arms control:

“Deterrence, modernization and alliance cohesion: The case for extending New START with Russia,” Frank A. Rose , Brookings, 01.16.20. The author, a senior fellow for security and strategy in the Brookings Institution’s foreign policy program, writes that:

• “[T]he Trump administration should pursue the five-year extension of New START within the following context:”
  • “First, the administration should seek a bipartisan commitment from Congress that as part of a decision to extend New START, Congress will continue to fund the modernization of U.S. strategic nuclear forces.”
  • “Second, in conjunction with the extension of the treaty, the United States and Russia should release a joint statement that establishes a formal mechanism to: 1) address the strategic concerns of the other side; and 2) begin laying the foundation to develop a new arms control and strategic stability framework to replace New START when it ultimately expires.”
  • “Third, the Trump administration needs to begin a serious bilateral dialogue with China on arms control and strategic stability issues.”
  • “[T]he Trump administration should develop mechanisms to ensure close coordination with allies on the future of arms control policy.”

“The overwhelming case for no first use,” John P. Holdren, Bulletin of the Atomic Scientists, 01.13.20. The author, a former presidential advisor on science and technology and a professor of environmental policy at the Harvard Kennedy School of Government, writes that:

• “Declaring a policy and posture of no first use of nuclear weapons offers the most conspicuous opportunity not yet taken for the United States to devalue the currency of nuclear weapons in world affairs. Importantly, this step could be accomplished by a U.S. president on his or her own authority, without need for authorization or agreement by the Congress. Doing so would bring multiple benefits.”
  • “Notably, it would immediately raise the global credibility of the U.S. stance against nuclear proliferation.”
  • “It would reduce the incentives of potential adversaries that don’t have nuclear weapons to acquire them.”
  • “And it would reduce the risks of nuclear use through accident or miscalculation.”
  • “It would also render unnecessary the continuous striving to develop and deploy nuclear capabilities that would make U.S. nuclear first use against a nuclear-armed adversary advantageous and therefore credible.”

Counterterrorism:

• No significant developments

Conflict in Syria:

“Bashar al-Assad’s Hollow Victory. Subservient to Patrons and Profiteers, the Syrian Regime Is Weaker Than Ever,” Lina Khatib, Foreign Affairs, 01.17.20. The author, director of the Middle East and North Africa Program at Chatham House, writes that:

• “Assad may have entered battle thinking that his regime could retain the authority it enjoyed before 2011, but today his goals are likely more modest. Their circumscription, however, does not make Assad’s current priorities less dangerous. They may even be more so. In order to demonstrate to the world that he remains in control and that relations with his regime should be normalized, Assad will undoubtedly seek to take back all of the country’s former territory.”
• “Already, Syria has been granting Iran and Russia economic and security privileges, such as government contracts in the oil sector and control over naval bases, in return for their assistance in the conflict. Russia, in particular, has greatly expanded its interests in Syria by pressuring the regime to grant economic contracts to Russian companies and placing Russian loyalists in high positions in the Syrian army.”
• “The United States apparently does not view Russian control over Syria as a direct threat to American interests, so there are no external checks on Russia’s ability to impose itself upon the Assad regime. Having reinstated himself by dint of a heavy Russian hand, Assad will rule Syria not as a sovereign nation but as one whose viability depends on Russia.”
• “Such an endgame may not have been Assad’s original intention, but he will have to live with it, because his control over the country has been reduced to bare bones.”
• “Western countries should not normalize relations with Syria on the grounds that Assad is the only available option. They should instead seek to understand Syria from the bottom up, so that they can apply leverage to the cracks in its system to ensure that any support programs for Syria are not used by the regime to feed its domestic profiteers and external patrons.”

Cyber security:

• See “China-Russia: Allied or Aligned?” section below.

Elections interference:

• No significant developments

Energy exports from CIS:

• No significant developments

U.S.-Russian economic ties:

• No significant developments

U.S.-Russian relations in general:

“Beware Trump’s admiration for Putin, Xi and Erdogan. The US president has made little attempt to hide his respect for strongman leaders,” Edward Luce, Financial Times, 01.16.20. The author, a columnist for the newspaper and its U.S. national editor, writes that:

• “It is this time next year and Donald Trump is preparing for his second inauguration… It would be rash to dismiss the odds of this happening. The pressing question is what Mr. Trump would do if it does. The answer is to pay attention to what he says since he usually means it. In particular, listen to the praise Mr. Trump showers on autocratic counterparts, such as China’s Xi Jinping and Russia’s Vladimir Putin.”
• “Mr. Trump has repeatedly congratulated both men on their power. He called Mr. Xi ‘president-for-life’— not a term anyone in China uses. ‘I think it’s great,’ Mr. Trump told donors. ‘Maybe we’ll have to give it a shot someday.’ Against the advice of staff, he also congratulated Mr. Putin on his re-election in 2018. It is notable that Mr. Trump has not said a negative word in public about his Russian counterpart. Contrast this with the belittling language Mr. Trump uses for his democratically elected counterparts in Europe and elsewhere.”
• “The impact on aspiring, or actual, authoritarian leaders of being confirmed in power is instructive. It is typically the moment when the gloves come off… To judge by what Mr. Trump says, his chief preoccupation is settling scores with his enemies.”

II. Russia’s domestic policies

Domestic politics, economy and energy:

“Putin Is Planning a Partial Retirement,” Alexander Baunov, Foreign Policy/Carnegie Moscow Center, 01.17.20. The author, a senior fellow at the Carnegie Moscow Center and editor in chief of Carnegie.ru, writes that:

• “One takeaway [from Vladimir Putin’s state-of-the-nation address on Jan. 15] was clear. No one individual will have the vast range of constitutional powers that Putin has enjoyed since the year 2000 in his four terms as Russian leader—or indeed be able to serve four terms as Putin has done.”
• “Putin has now set out the road map for the transition he wants Russia to make in 2024, the year he finishes his current and almost certainly last presidential term. It is a picture of continuity, in which Putin can still keep a pivotal role, even if not necessarily the most prominent one in public. Planned changes to the constitution will limit the power of the Russian presidency and also mean that Putin himself will not be eligible to run for president in 2024.”
• “This will not be a repeat of the years 2008 to 2012, when Putin took the job of prime minister and Dmitry Medvedev served four years as president. Putin was evidently displeased with the experience of that ‘tandemocracy,’ as it was sometimes called, and how he was unable fully to control his protégé, Medvedev.”
• “A third force, the State Council—currently a little-noticed advisory body in the Kremlin—is set to have a new enhanced role above everyone.”
• “Russia will still need a presidential figurehead, a new head of state with considerable powers, especially in foreign and security policy. Who does Putin and his team intend to fill that role in 2024? Probably not the new prime minister, Mikhail Mishustin. … Another change announced on Wednesday was that the governors of Russia’s regions will get increased powers. It is more likely that the candidate to be the next president will emerge from among their ranks. Several contenders are already being mentioned, among them two security officials who served Putin in the Kremlin and are now governors: Alexey Dumin, who heads the Tula region, and Dmitry Mironov, the governor of Yaroslavl.”
• “In the new more complex constitutional configuration, the Kremlin Security Council (not to be confused with the State Council) is set to have a more important role as arbiter of disputes and center of strategic decision-making. Staffed by Putin’s inner circle, it is likely to be his personal Politburo over the next four years. So by being Putin’s deputy in that body, Medvedev keeps the job of being a fallback option for president.”
• “Another proposed constitutional amendment stipulates that any future president needs to have lived in Russia for 25 years without a break and have never had a foreign passport or residency permit. That looks set to push Alexei Navalny, who studied in the United States at Yale University in 2010, out of the running. What’s more, it will exclude other pro-Western figures in the Russian elite who have studied or worked in the West.”
• “The message delivered to the public is that Putin’s titanic efforts to rebuild Russia after the collapse of the Soviet Union have accomplished their goal, and that no other single person is required to bear this burden of leadership. The executive roles will be shared out.”
• “Moreover, the newly amended constitution will make Russian law preeminent, which means the country will no longer be bound by foreign legal constraints from the European Court of Human Rights and the Council of Europe, which has been an irritant for the Russian government in many years in upholding human rights complaints from Chechnya in particular.”
• “Putin himself sees no threat domestically but fears enemies abroad. His inner circle still fears that the West could use the remaining political institutions as a weapon against him. By setting the rules of the 2024 transition and announcing these constitutional changes so early, he is trying to stay ahead of the game and wrong-foot his top enemy: the West.”

"What  Putin's pension says about the nature of dictatorship,” Konstantin Haase, Vedomosti, 01.16.20. The author, a sociologist and instructor at the Moscow Higher School of Social and Economic Sciences, writes that:

• “The president wants to redistribute the balance of power on the top floor of the government. The beneficiary of these changes may be himself. Putin may be ready to retire, transitioning the presidential seat to the chair of the State Council.”
• “Sitting in this chair, Putin will be able to keep three keys in his hands.”
  • “If the State Council becomes the constitutional panel of governors and part of the government, the first key is economics. Budget programs and national projects are implemented ‘on the ground,’ that is, in the regions, by the governors. This means that the panel representing them will have the opportunity to adjust economic policy and intervene in the work of the federal government.”
  • “The second key is the security forces. The chairman of the State Council, controlling the governor’s [sic] corps, will have control over the Federation Council. With whom now, according to the proposals made in the presidential address, the president will consult, appointing power ministers.”
  • “The third key is the judges. According to the same scheme, controlling the governors, the chairman of the State Council will control the Federation Council, which may receive powers to recall judges of the Constitutional and Supreme courts.”

“Putin's Power Puzzle: Russia's President Loses a Cabinet and Gains an Exit Strategy,” Nikolas K. Gvosdev, The National Interest, 01.16.20. The author, a senior fellow at the Foreign Policy Research Institute and a contributing editor to the magazine, writes that:

• “Medvedev is not being cast aside. Instead, he will assume a new position as the deputy head of the Security Council, a position that is being described in some circles as a de facto vice president. …Whereas Leonid Bershidsky argues that Medvedev, while remaining a part of Putin’s power structure, is now on a glide path toward retirement, Dmitri Trenin counters that Medvedev, by assuming the deputy position at the Security Council, remains in line to succeed Putin.”
• “I see Putin keeping his options open. He could return to the premiership or he could remove himself from the day-to-day challenges of governing but retain an all-important veto power by becoming head of the parliament and/or chairman of the State Council. But what all of these changes would allow is a leadership transition but one on Putin’s agenda and with him surrendering key levers of power on his own timetable. In this, Putin appears to be emulating steps taken both by Lee Kuan Yew in Singapore and Nursultan Nazarbayev in Kazakhstan (and Nazarbayev’s steps, in turn, appear to be based on a variant that was prepared for Putin’s consideration in 2008).”
• “This represents a major challenge to U.S. policy, which seems to be predicated on waiting for the ‘day after’ Putin before any sort of normalization of U.S.-Russia relations can take place. It means that Putin may not fully depart from the Russian scene for years after 2024. At the same time, if the power that is concentrated right now in the Russian presidency is partially redistributed to several figures, it could create the basis for a ‘collective Putin’ to assume different pieces of the power puzzle under the supervision and guidance of ‘elder Putin’—ensuring that his vision and approach will continue into the mid-twenty-first century.”

“Monday Take,” PONARS-Eurasia, 01.15.20:

In a broad overview of Russia’s recent government shake-up, Regina Smyth argues Putin is laying the groundwork for several paths to retain power beyond his term limits, while working to forestall popular protest among those tired of his reign. For Brian Taylor, Putin aims to retain primary power beyond his 2024 presidency under the veneer of popular support and democratic legitimacy, while Nikolai Petrov notes the changes impose checks and balances on Putin’s close associates.

“Putin’s Cosmetic Constitutionalism,” William E. Pomeranz, Wilson Center, 01.16.20. The author, deputy director of the center’s Kennan Institute, writes that:

• “Putin clearly is weighing several options, yet it appears unlikely that he would launch this major project without resolving the succession issue to his own personal advantage.  Moreover, there is no indication that Putin aspires to the alternative role of retired elder statesman, especially when he is poised for even more foreign policy successes through 2024 and beyond. Therefore, until he declares otherwise, these multiple constitutional reforms still point to a single and highly predictable result: Putin remains in charge.”

“Putin revamp hinges on the illusion behind Russia’s social contract. The ruler and most of the ruled know concrete reality of power trumps law-based state,” Tony Barber, Financial Times, 01.16.20. The author, the newspaper’s Europe editor, writes that:

• “Learning the lesson of the 2011-12 unrest, Mr. Putin has left it unclear what formal position, if any, he foresees for himself after 2024, when the second six-year term of his latest spell in the presidency reaches its end. This deliberate lack of clarity deprives the small, regularly harassed anti-Putin opposition of a focus on which to direct public discontent.”
• “As for Mr. Putin, his popularity may not be quite what it seems, according to Lev Gudkov, director of the Levada Center, Russia’s most reputable pollster. He says Russians draw a distinction between Mr. Putin the president, whose prestigious office the people respect, and Mr. Putin the individual, of whom they have a lower opinion. Mr. Gudkov estimates that about one-third of Russians have a positive attitude to Mr. Putin as a person, while 10 to 12 percent have a negative attitude and the rest are indifferent.”
• “In normal times, high levels of public apathy are no threat to a repressive political system. But if the indifferent masses grow tired of the illusion that is Russia’s version of a social contract, it may be a different story.”

“Chinese Dreams, Russian Realities,” Michael McFaul and Kathryn Stoner, The Moscow Times, 01.21.20. The authors, respectively the director and deputy director of the Freeman Spogli Institute for International Studies at Stanford University, write that:

• “Some autocrats grow their economies; other autocrats destroy their economies. For every China, there is a North Korea. For every Singapore, there is a Zimbabwe. After 20 years in power, Russian President Vladimir Putin has performed better than Robert Mugabe in Zimbabwe, but has accomplished nowhere near what Deng Xiao Peng has in China or Lee Kwan Yew in Singapore. As Putin now proposes institutional changes to lock himself into power even longer, only the most hopeful should assume that the next 10 (or 20?) years of Russian dictatorship will perform any better than the last 20 years.” 
• “In proposing a complex mix of constitutional and political changes, Putin is seeking more time in power. Autocrats make mistakes, especially after 20 years in the job. Perhaps some of his proposed changes, which will be adopted without resistance, might produce unintended positive consequences for greater pluralization, and even democratization, in the long run. Around the world over the past several decades, more power to the parliament usually has produced more accountable governments compared to presidential systems. Putin’s proposed reforms could eventually lead to more checks on executive power. The short-term result, however, is clear: more Putinism.” 

“Vladimir Putin plots to remain Russia’s puppet master, Editorial Board, Financial Times, 01.16.20.

• “If there were any real question over whether Vladimir Putin would step back from power when his fourth presidential term ends in 2024, it has been answered. The Russian president has launched a constitutional shake-up, pitched as a modernizing move to decentralize power. In reality, it aims to create a framework in which Mr. Putin can continue indefinitely as string-puller-in-chief, albeit with a different title. Russian pundits have long dubbed it the ‘Deng Xiaoping model.’ Yet acting as paramount leader without formally being head of state might be trickier in today’s Russia than it was for the architect of modern China.”
• “Whether the Russian people will go along with the plan is less clear… Maintaining support has relied on fulfilling unspoken grand bargains with the people—to raise living standards, then to restore Russia as a great power, epitomized by the 2014 annexation of Crimea. Both efforts have stalled. The economy and real incomes have been stagnant for several years.”

“Russia Prepares for a New Tandemocracy,” Tatyana Stanovaya, The Moscow Times, 01.20.20. The author, founder of the political analysis firm R.Politik and a nonresident scholar at the Carnegie Moscow Center, writes that:

• “President Vladimir Putin’s state-of-the-nation address on Jan. 15 made it quite clear that he will step down from the presidency in 2024—or earlier—as the Russian constitution requires, but only after he has put in place a system enabling him to influence his successor. This means a return to a tandemocracy like that seen in 2008-2012, when Putin stood down and served as prime minister under Dmitry Medvedev to adhere to the constitutional ban on more than two consecutive presidential terms.”

“Who Is Russia’s New Prime Minister? How an obscure taxman just became Putin’s No. 2,” Reid Standish and Amy Mackinnon, Foreign Policy, 01.16.20. The authors, journalists with the magazine, write that:

• “When Russians woke up on Wednesday morning, most had likely never heard of Mikhail Mishustin, the head of the country’s tax service. But by the time they went to bed that night, Mishustin had been named as Russia’s new prime minister after a day that included a flurry of proposed changes to the constitution and a series of dramatic shake-ups that saw the government resign en masse.”
• “It is unclear whether Mishustin is a temporary placeholder or could be groomed as a potential successor down the line. A largely anonymous figure, Mishustin enjoys a reputation in Russia’s business circles as one of the country’s most effective technocrats and earned rave reviews as the head of Russia’s Federal Tax Service. During his tenure, he helped modernize Russia’s notoriously inefficient and corrupt tax system, earning him the moniker ‘the taxman of the future’ in a 2019 Financial Times profile.”

“Russia’s role in producing the taxman of the future,” Chris Giles, Financial Times, 07.29.19. In this profile from last year, referenced above, the author, who is the newspaper’s economics editor, writes that:

• “A few minutes’ walk from Red Square in Moscow stands a Soviet-era high-security building housing Russia’s Federal Tax Service. But inside, there is nothing Soviet about the technology on display. Standing in front of a huge video wall, Mikhail Mishustin, head of the tax service, prepares to show off its capabilities. ‘Where did you stay last night?’ he asks. When I reply, his staff zoom in on a map to Hotel Budapest on the screen. ‘Did you have a coffee?’ His staff then click on the food and drink receipts in the hotel from the previous evening. ‘Look, it sold three cappuccinos, one espresso and a latte. One of those was yours,’ Mr. Mishustin declares triumphantly. He was right.”
• “This is the future of tax administration—digital, real-time and with no tax returns. The authorities receive the receipts of every transaction in Russia, from St. Petersburg to Vladivostok, within 90 seconds. The information has exposed errors, evasion and fraud in the collection of its consumption tax, VAT, which has allowed the government to raise revenues more quickly than general Russian economic performance.”
• “The new system is directed more at shopkeepers than oligarchs. Russia still scores poorly on international league tables of corruption, being ranked only 138 out of 180 on the Transparency International corruption perceptions index, with concerns including cronyism, a lack of independent media and a biased judiciary. But reducing tax evasion among ordinary Russians and highlighting corrupt tax officials have helped raise revenues and clean up the system.”
• “Normally economists and policymakers learn to do technology. Mr. Mishustin says, ‘We built the technology and are now becoming economists.’”
• “Russia built two huge data centers and legislated so that companies had to submit every invoice between businesses. It also mandated every retailer to buy new cash registers that were linked securely and directly to the data centers. In real time it can now check every invoice to ensure VAT refunds it pays are linked to invoices where companies have remitted the same money to the authorities. Then using artificial intelligence, it can quickly find patterns in the data and companies which have many broken links, allowing the authorities to target certain companies for a tax audit. Since everything is linked, it can also spot tax officials with a low collection rate from the companies for which they are responsible.”
• “A few clicks after looking at my hotel coffee, the Russian system can show the sales and prices of all coffees sold across the country, or any other good or service. The system uses AI not just to identify retailers or restaurants that might be selling less than expected by using cash transactions off the books, but also reads receipts to give nationwide statistics.”

“Enter Mishustin: The New Russian Prime Minister’s Agenda,” Anton Tabakh, Carnegie Moscow Center, 01.21.20. The author, director for regional ratings at Rus-Rating and associate professor at the Higher School of Economics, writes that:

• “Russians can expect a shift in emphasis from taxation to the allocation of funds as Mishustin draws on his management skills to make government spending as orderly and transparent as taxation became under his leadership.”

“A demographic trap and low growth are Putin’s biggest challenges,” John Dizard, Financial Times, 01.17.20. The author, a columnist with the newspaper, writes that:

• “News from Russia is supposed to be dark and foreboding, like an unending second chapter to one of its 19th century novels. Westerners expect to read about sanctions, secret services, mercenaries in sandy countries, conspiracies in Ukraine or interference in foreign elections.”
• “In the real world, Russia is adopting expansionary economic and social policies that appear to be financially sustainable. These are intended to overcome what Vladimir Putin and the rest of the Russian leadership consider their most serious challenges: a demographic trap and low growth.”
• “Everyone at the top of a system, whether in Silicon Valley or the Kremlin, wants immortality. The cabinet and policy shake-up announced on Wednesday by Mr. Putin seems intended to achieve that through institutionalization. State power will be (somewhat) decentralized. Tax rates will remain flat and stable, while investment protection standards will be raised. Part of the budget surplus will be redistributed to mothers and schoolchildren.”
• “You might be surprised that, according to MSCI indices, Russia had the best performing equity market in the world last year. The MSCI Russia index (US$) rose 50.1 percent, and has risen another 4 percent in the first half of January. Even so, Russian financial assets are still cheap. The MSCI Russia index has a dividend yield of close to 7 percent and a price/earnings ratio of 6.1.”
• “After Western sanctions were imposed in the wake of the 2014 Ukraine/Crimea invasion, Russia aggressively deleveraged its finances and imposed strict budget measures and social austerity. The policies were not popular, but they have paid off with structural stability. Russia now has a 3 percent budget surplus, foreign exchange reserves larger than its foreign debt and a rapidly developing domestic capital market.” 
• “At the time of Mr. Putin’s ascent to power 20 years ago, Russian oil companies and the Russian state needed an oil price above $110 to balance their accounts. Now they can break even with an oil price of about $45.”
• “The central bank has conducted an orthodox monetary policy, while banking regulators have purged the commercial banking system of weak actors. Even with rate cuts in the past year, Russia has base rates close to 6 percent compared with an inflation rate of about 4 percent.”
• “Even with all this increased domestic investor interest and last year’s rally, Russian equities are still relatively cheap, certainly within the emerging market universe. Much was made of Saudi Aramco’s IPO and its 5 percent dividend. Russia’s Lukoil, though, has a 20-year record as a public company and still has a 7 percent dividend yield. Is corporate governance in Saudi Arabia that much better than in Russia?”
• “The Russian leadership, including Mr. Putin, have their own reasons for institutionalizing better corporate disclosure, reducing corruption and shifting away from oligarchical model. Their real concern is they need to keep young and talented people in the country and even attract immigrants from the ‘near abroad.’”

“How Will Putin’s Reforms Pan Out for Russian Business?” Alexey Eremenko, The Moscow Times, 01.17.20. The author, a consultant at Control Risks and a former reporter for the newspaper, writes that:

• “Elite actors had been growing increasingly nervous due to the uncertainty. This halted any serious economic development and stoked infighting. The bureaucrats simply stopped doing anything for fear their opponents would use it against them, while the power players were scrambling for resources and seeking to strengthen their positions. This led to incidents like the Baring-Vostok and Golunov cases.”
• “The uncertainty is now lifting, although it hasn’t gone completely, and that is a good thing. At the very least, it means increased economic activity from the government. This time, it won’t just take the form of pressure on Yandex; it should ignite the long-awaited progress of the national projects, the supposed locomotive of public welfare growth.”
• “This, coupled with lavish new expenditures promised by Putin—including cash incentives for having more children—valued at no less than $10 billion, should boost public income. That means public consumption would revive the plodding national economy and that companies in stagnating industries could hope for sales growth.”

Defense and aerospace:

• No significant developments

Security, law-enforcement and justice:

• No significant developments

III. Russia’s relations with other countries

Russia’s general foreign policy and relations with “far abroad” countries:

• No significant commentary

China-Russia: Allied or Aligned?

“Russia as a Hurricane, China as Climate Change: Different Ways of Information Warfare,” Jean-Baptiste Jeangène Vilmer and Paul Charon, War on the Rocks, 01.21.20. The authors—director of the Institute for Strategic Studies (IRSEM) of the French Ministry of the Armed Forces and head of IRSEM’s Intelligence and Strategic Foresight Program, respectively—write that:

• “Disinformation studies have been engaged in a pivot to Asia. A growing number of scholars and governmental experts around the globe who were once fixated on Russian operations are now increasingly concerned with Chinese operations, especially since the beginning of the Hong Kong crisis. The danger in this evolution is looking at China through a Russian lens, an already widespread mistake. As J. Michael Cole rightly noticed, ‘Applying the Russian model to the PRC’s efforts would be both misleading and dangerous as we seek to counter its more nefarious impact.’ Both cases are very different, and any intellectually rigorous analysis encompassing both should start by contrasting them.”
  • “[The] first difference is exemplified in this quote from Rob Joyce, the National Security Agency’s senior cybersecurity adviser: ‘I kind of look at Russia as the hurricane. It comes in fast and hard. China, on the other hand, is climate change: long, slow, pervasive.’”
  • “[A]nother difference is their ethos: Even though it clearly and often acts immorally (as the world has witnessed in Xinjiang and Hong Kong), China is more preoccupied with its moral image (respectability) on the international stage… Russia, on the other hand, not only cares less about its reputation (it has less to offer but also less to lose), but on the contrary it cultivates an image of a strong state using security and military with audacity, and given the worldwide reputation of its intelligence services, it can always use the ‘too obvious’ argument to deny.”
  • “Third, they are differentiated by their targets. China’s target is more specific: It is mainly its diaspora, the ‘overseas Chinese community’ conceived in a broad manner (and which in itself is similar to Russia’s approach of its ‘compatriots abroad’). … Russia, on the other hand, in its main interference cases—for example, the American and French elections—targeted the general population, and more specifically some political and ideological parts of it (far-right, far-left, anti-Europe, anti-NATO, etc.).”
  • “Fourth, another difference—and a consequence of the previous point—is the narrative: Being mostly preoccupied with its image, China is egocentric or narcissist. … On the other hand, Russia stopped prioritizing positive messaging in 2009 after the Georgian war, when it realized it was not working, and focused instead on negative messaging: Its goal is not to convince others that Russia is great, but that their Western society is decadent, weak, divided, etc. In other words, China is mainly engaged in self-promotion, while Russia focuses on discrediting others.”
  • “Finally, another distinction could be that in foreign and security policy, as in other areas, the Chinese administration suffers from greater fragmentation and dysfunctionalities, which limit its effectiveness… However, these difficulties being common in most bureaucracies around the globe, the same could be said about Russia, where security and intelligence services are also overlapping and competing with each other, leading to turf wars. Therefore, the difference may be one of degree—in particular due to the specific trajectory of state formation in China—but probably not of nature.”
• “In any case, all the previous points make it clear that we should not look at Chinese disinformation with Russian glasses. Overall, that is because China has ‘a holistic approach in which language and messaging are used in tandem with other elements of statecraft, including diplomatic, military and economic efforts.’” 

“Russia and the slowdown of the Chinese economy,” Riikka Nuutilainen and Jouko Rautava, Bank of Finland, January 2020. The authors, a senior economist and an advisor at the bank’s Institute for Economies in Transition, respectively, write that:

• “Like the rest of the world, Russia has to deal with China’s slowing economic growth. Those repercussions, however, are particularly challenging in Russia’s case.”
• “The increase in trade with China to levels that seem more natural for neighbors has supported Russia’s own growth, but it has also increased Russia’s reliance on commodity exports. Moreover, the blossoming of economic relations with China is largely based on energy projects in which the Russian state and state-owned companies play key roles in further enhancing their already excessive roles in the Russian economy.”
• “Russia’s ‘pivot to Asia’ has thus far only manifested itself in the form of increased energy exports to China and growing imports from China. Energy increasingly dominates Russian exports to China and trade diversification is minimal, making Russia increasingly vulnerable to energy demand shocks in China.”
• “Russia could experience difficulties in finding alternatives to Chinese demand.”
• “Given Russia’s lopsided export structure and tense relations with the West, adjusting to China’s slowdown could be a major challenge for Russian policymakers.”

Ukraine:

“Top Conflicts to Watch in 2020: A Crisis Between Russia and Ukraine,” Thomas Graham, CFR.org, 01.08.20. The author, a distinguished fellow at the Council on Foreign Relations and a senior advisor at Kissinger Associates, Inc., writes that:

• “One of the highest rated concerns in this year’s [CFR] Preventive Priorities Survey was the outbreak of a severe crisis between Russia and Ukraine following increased fighting in eastern Ukraine, and/or a major military clash in contested areas. In contrast to the results of the survey, I would argue that the likelihood of such a crisis is actually low.”
  • “For the past several months, Russia and Ukraine have pursued confidence-building measures, such as prisoner exchanges and separation of forces in eastern Ukraine (the Donbas), to reduce the risk of serious conflict.”
  • “Moscow has little interest in escalating the fighting: Instead, it is focused on persuading the European Union to ease sanctions that have been dragging its economy.”
  • “Kyiv has little capacity for a sustained military effort and worries about whether Europe would have its back, especially as French President Emmanuel Macron appears intent on pursuing détente with Russia.”
  • “The Donbas separatists themselves have little room for maneuver, absent strong backing from Moscow.”
• “The low likelihood of a crisis, however, does not mean that the Russian-Ukrainian dispute is close to resolution. Russian leaders have yet to be reconciled to Ukraine’s independence. Russia’s security and prosperity, they believe, require that Ukraine be tightly bound to Russia.”
• “To help resolve the conflict, the United States, in conjunction with its European allies, needs to support Ukraine while pressing it to enact the reforms needed to grow its economy and state capacity. Washington also needs to step up diplomatic engagement with Moscow to make some tough compromises that satisfy Russia’s minimal security needs while strengthening Ukraine’s statehood.”

Russia's other post-Soviet neighbors:

“Integration on Hold for Russia and Belarus,” John Lough and Katia Glod, Chatham House, 01.14.20. The authors, an associate fellow of Chatham House’s Russia and Eurasia Program and an Academy Robert Bosch Fellow, respectively, write that:

• “Two December meetings between presidents Vladimir Putin and Alexander Lukashenka failed to deliver Moscow’s hopes of securing Minsk’s acceptance of closer alignment between Russia and Belarus.”
• “Minsk is likely to pursue three options: dragging out the negotiations with Moscow, while continuing to declare its commitment to closer union with Russia; seeking alternative sources of energy and credits; and reforming the economy to lower its dependency on Russia.”
• “For the moment, Moscow does not appear to be in a hurry, believing that Lukashenka and Belarus are going nowhere and that concessions by Minsk are only a matter of time.”

“Unsettled union: The future of the Belarus-Russia relationship,” Yauheni Preiherman, European Council on Foreign Relations, 01.21.20. The author, director of the Minsk Dialogue Council on International Relations, writes that:

• “The current rise in tension between Belarus and Russia stems from a reform of Russian oil taxes. Minsk insists that Moscow should either stop providing subsidies to Russian oil refineries (designed to compensate them for their losses under the reform) or offer the same subsidies to Belarusian refineries. In response, Russia has begun to condition all its economic relations with Belarus on deeper integration within the Union State. Minsk agreed to negotiate on the issue, but declared that it would not allow any supranational body to limit its sovereignty or circumvent parity-based decision-making.”
• “In fact, the talks stalled due to fundamental disagreements on three issues: oil, gas and the coordination of tax systems. Neither side wants to make serious concessions in these areas.”
• “The real question hanging over the Russia-Belarus relationship concerns its development in the long term. If Belarus fails to diversify its economy and diplomatic relationships, it will eventually find itself in a more perilous situation. The country will … become more vulnerable to Russian pressure.”
• “Belarusian sovereignty remains important to European security. Moreover, the EU would struggle to improve its relations with Russia if Belarus descended into chaos. In this sense, a stable Belarus is key to easing tensions between Russia and the West in eastern Europe.”