President Vladimir Putin is more vulnerable than some may realize. By over-relying on oil and natural gas production to fund social welfare programs, Putin has exposed that his grip on power is finite, threatened by the eventual shift to clean and renewable energy.
In their article, “Origins of Democratic Breakdown? The Redistributive Model and the Postcolonial,” Dan Slater, Benjamin Smith, and Gautam Nair, find a clear correlation between economic downturns and anti-democratic coups. (1) This underscores a reality expressed by Paul Goble: Russians do not possess a general indifference towards democracy, but rather economic conditions and hardships force them to rely on the state regardless of its institutional design.
Similar to the United States, citizens in Russia typically gauge the success of leadership through the lens of economic growth, something President Putin recognizes. However, this growth is not measured by increased wages or low levels of unemployment; instead, it is viewed in terms of generous pension and social programs. Unlike the United States, which earns most of its revenue from taxes, as a rentier state, Russia derives a substantial amount of its revenue from natural resources like oil.
Compared to other states, Russia does not set its tax rate on oil and gas production through its tax code but rather by presidential decree. Capitalizing on the oil boom of the mid-2000s, Putin’s government passed Federal Law No. 184, establishing the Oil Stabilization Fund to increase the state’s control over revenue accumulated from the production and export of oil. Three years later, the Russian government amended its budget code to establish the Reserve Fund and the National Wealth Fund, funneling oil-specific revenues to welfare and pension programs, in addition to the federal budget. As a result, with revenue gained by state-owned shares in oil companies on top of a burdensome corporate tax policy, Putin has been able to adopt generous social programs to galvanize support and legitimize his rule and authority.
According to an updated examination of the resource curse’s effect on authoritarian sustainability, Michael L. Ross (2015) argues that support for democratic transitions is less likely to manifest when a regime can keep taxes low and government investment high. (2) Putin’s use of oil revenue to fund public works projects and extensive pension/welfare programs is a primary example of this.
Russian polling supports this relationship. A Pew Research poll conducted in 2006 found by an overwhelming margin—81% to 14% —that Russian citizens consider a strong economy to be more important than democracy; moreover, they found that 66% preferred strong leadership over democracy. During this time, Russian citizens began experiencing the benefits from Putin’s economic reforms and overhaul of the state’s process of collecting revenue from oil production.
Conversely, when economic growth slowed in 2011 and 2012, it precipitated mass protests similar to those Yeltsin faced during the 1998 recession. It is apparent that this relationship between public support and their perceived economic wellbeing is paramount to Putin’s power and illuminates the volatility of his over-reliance on oil.
If Western states like the US are compelled to restrict Putin’s power and subsequent illiberal behavior, targeting revenue streams produced by oil-related activities is the most conventional strategy.
However, while sanctions can be useful in disrupting these revenue sources, they produce a number of significant externalities that current US efforts underscore.
For one, the effectiveness of sanctions varies: according to a study produced by a senior fellow at the Peterson Institute, Gary Hufbauer (2007), sanctions succeed in only roughly a third of the cases they were implemented since the start of the 20th century. (3) In a New York Times article, he adds, “[sanctions must] have modest objectives and are aimed at countries that are not terribly powerful but have tasted a little flavor of democracy and have close economic connections to the sanctioning coalition.” Subsequently, sanctions are unlikely to be effective in producing regime change in Russia.
Second, sanctions are less effective when they lack a broad coalition of partners. Escribà-Folch and Wright (2010) posit that “sanctions are less destabilizing in oil-producing countries — because demand for oil is highly inelastic in most sanction-sending countries, making them reluctant to disrupt energy supplies.” (4)
A recent CRS report notes that this has been a significant issue hindering efforts to expand economic sanctions that were precipitated in response to Russia’s alleged interference in the 2016 US election. Due to the EU’s overall dependence on Russian oil and gas, several EU member states expressed opposition to implementing a second round of sanctions, especially those targeted towards Russia’s export pipelines like Nord Stream 2 and state-owned oil companies such as Rosneft and Gazprom. (5) During this time, the EU relied on 55% of its crude oil from foreign sources— 33% sourced from Russia. (6)
Finally, due to the high visibility of US foreign policy, leaders like Putin can direct public outrage caused by sanctioned-induced economic downturns toward a foreign entity. This generates what Escribà-Folch and Wright call a “rally around the flag” effect. (7)
After Obama issued a series of executive orders in response to Russian aggression towards Ukraine in 2014, such an effect occurred. During this time, Russian disapproval towards the United States peaked at 81%, while at the same time, Putin’s approval rating reached 89%, and government approval soared to an unprecedented rating of 66%. (8) Furthermore, nearly 70% of Russians polled that May stated, “Moscow should stick to its policies despite sanctions rather than look for compromise to ease the sanctions.” (9)
This begs the question: if Putin’s grasp on power is reliant on revenue generated through oil production, yet targeting these sources of revenue are ineffective and can, in fact, embolden Putin’s position, what can be done?
A simple answer is to make oil and natural gas less valuable by making them less necessary. The totality of these issues stems from the fact that states, like those in the European Union, are reliant on oil and natural gas to meet their energy needs. Consequently, because there is an extreme demand for something so inelastic, it disincentivizes states to impede their own energy supplies. A more practical strategy is for states to adopt a model where they are no longer reliant on these energy sources.
Additionally, by adopting and investing capital in sustainable energy sources produced domestically, it curbs the revenue streams leaders like Putin require to retain power — while robbing them of the ability to direct economic downturns towards foreign entities who are actively targeting them.
Renewable energy will eventually replace fossil fuels, if not through activism, then by necessity. In recognizing the effect this transition has on the power base of leaders such as Putin, it adds another foreign policy and security paradigm to the climate change debate, which, hopefully, will encourage more rapid adoption of clean and renewable energy.
1. Slater, Dan, et al. “Economic Origins of Democratic Breakdown? The Redistributive Model and the Postcolonial State: Perspectives on Politics.” Cambridge Core, Cambridge University Press, 14 July 2014, www.cambridge.org/core/journals/perspectives-on-politics/article/economic-origins-of-democratic-breakdown-the-redistributive-model-and-the-postcolonial-state/914DC86832043CDB7DBD1C169DB4E346.
2. Ross, Michael L. “What Have We Learned about the Resource Curse?” Annual Review of Political Science, vol. 18, no. 1, Nov. 2015, pp. 239–259., doi:10.1146/annurev-polisci-052213-040359.
3. Hufbauer, Gary Clyde. Economic Sanctions Reconsidered 3rd Edition. Peterson Institute for International Economics, 2007.
4. Escribà-Folch, Abel, and Joseph Wright. “Dealing with Tyranny: International Sanctions and the Survival of Authoritarian Rulers1.” International Studies Quarterly, vol. 54, no. 2, July 2010, pp. 335–359., doi:10.1111/j.1468-2478.2010.00590.x.
5. US Congressional Research Service. “US Sanctions on Russia” (R45415; Jan. 17, 2020), by Cory Welt, Rebecca M. Nelson, Kristin Archick, and Dianne E. Rennack Text in: Federation of American Scientist; Accessed: May, 27 2020.
6. “ From Where Do We Import Energy and How Dependent Are We?” Shedding Light on Energy on the EU, 2019, ec.europa.eu/eurostat/cache/infographs/energy/bloc-2c.html.
7. Escribà-Folch and Wright 348.
8. “Indicators.” LevadaCenter, www.levada.ru/en/ratings/.
9. Smeltz, Dina. “Analysis | New Poll Shows Russians Are Defiant in Face of US Sanctions.” The Washington Post, WP Company, 26 Jan. 2018, www.washingtonpost.com/news/monkey-cage/wp/2018/01/26/americans-want-to-keep-sanctions-on-russia-russians-want-to-defy-those-sanctions/.