POSITIVE, NEUTRAL AND NEGATIVE SCENARI FOR RUSSIA

Positive Scenario 

1. Russia succeeds in maintaining its unity while keeping its ambition at bay to create an alternative world order in which the US no longer holds the dominant role. China and the US continue to contest the economic sphere, where Russia’s options are limited by long-term weaknesses, including an ageing and shrinking population, continuing dependence on oil and gas—with oil in particular a commodity of declining importance in global markets—and profound deficiencies in the business environment. However, China’s focus on economic security and its reticence to take on a global diplomatic role leave room for Russia to manoeuvre in this space, attempting to establish itself as a counterbalance to the US and NATO and retain limited influence on the global scene. This outcome would see Russia continuing to play a limited international role, a role for which it is currently vying through proxy battles in, for example, Syria, Ukraine, Libya and Yemen. This might lead towards greater collaboration with the US and NATO on the global stage, while China continues to rise as an economic power and increases its influence in Central Asia. This positive outcome for Russia complicates the picture for NATO in some areas. But in general, it is to NATO’s advantage to see a stable Russia, because instability and decline are likely to accentuate Russia’s sense of victimhood and evoke an aggressive and unpredictable response. Outcomes positive to Russia maintaining its unity are also considered positive to NATO. If Russia can maintain its limited influence on the world stage, that could help balance China’s global influence. Hitherto, Russia has been a conservationist power struggling against Western attempts to change the status quo. By 2040, the Western powers may come to share this desire to protect a status quo challenged by China, and may find more common cause with Russia. As Russia’s relations with Europe are much deeper than its relations with China, and although a powerful Russia will always defend its interests in what it sees as a challenge from the West to its independence and territorial influence, Western powers may find it to be an ally in curbing China’s reach.
2. The increasing pressures of a failing economy as Putin’s grip on power fades persuade his successors to embrace an alternative model. The stakeholders in ‘Putinism’—particularly the so-called Siloviki (members and former members of the state security apparatus) and the oligarchs created in the post-Soviet chaos—either lose influence or swing their weight behind the new model. Russia’s traditionally conservative population,worn down by a steady decline in living standards, accepts the need for a new direction. New leaders concentrate on improving the business environment, attracting foreign direct investment, cleaning up the banking sector, reducing the dependency on oil and gas production and increasing investment in R&D to revive Russia’s economy. Russia aligns its foreign policy more closely with NATO interests and seeks to build bridges with Europe and the US. The key assumption under this scenario is that Russia’s current path is unsustainable, and that some resolution of this contradiction will inevitably occur. The situation is analogous to the collapse of the Soviet Union, when what had appeared to be stable suddenly was not, and change was possible where stasis had previously appeared inevitable. However, among the possible profiles of the post-Putin era, this appears the least likely. In fact, it is hard to see how it could come about. No Russian leader has succeeded in aligning the country with Western liberal principles, and few have tried. Conservatism runs deep in the Russian population—among the rising generation even more than in the veterans of the Soviet era. However, the current economic model leads into a blind alley and the administration shows little sign of getting to grips with the deep challenges it faces. Russia faces a stark choice between fundamental reform and continued decline.
3. Russia succeeds in adapting its energy sector to exploit new opportunities as world demand shifts, sustaining export and fiscal revenues and boosting economic growth. While oil is unlikely to remain a reliable staple for the economy, Russia has other advantages in this sector. It hosts the world’s largest gas reserves (19.8% of the proven world total) and is likely to see ready markets in Asia and Europe for many years to come. Europe’s gas dependence suggests it will remain a faithful customer. At the same time, Russia is also investing in supporting Asian markets. For example, energy giant Gazprom is building a liquified natural gas (LNG) plant on Sakhalin Island in Eastern Siberia. Sakhalin-2 will be one of the world’s largest integrated, export oriented oil and gas projects and Russia’s first offshore gas plant, ideally positioned to supply LNG to China and other Asia-Pacific countries. Global warming, which threatens livelihoods and habitats around the world, may also bring land areas into production that were previously out of bounds and Russia could be a beneficiary. Melting permafrost and rising sea levels pose a threat to Russian industry and infrastructure in its far north, but could also open up vast new areas to economic exploitation and clear Arctic shipping routes connecting the country with promising export markets. Russia is warming faster than the planet as whole on average, and the government will be forced to mitigate the negative impact on health, industry and livelihoods . Melting permafrost will also require retooling of the existing oil industry to operate in the warmer environment. However, the impact could be offset in part at least by easier access to Arctic reserves that would otherwise have remained uneconomical. The positive scenario would be enhanced by greater diversification of the economy, away from mineral resource extraction and non-tradable sectors, a path extolled by generations of Russian leaders but shunned in practice. Diversification would free Russia’s economy from the wild price swings that characterise commodity markets and provide a more reliable source of employment, foreign exchange and fiscal revenues.

Neutral Scenario

1. Russia’s increasing weakness leaves it with little option but to accommodate itself to China’s sphere of influence, becoming in effect a ‘little brother’ to China’s dominant global presence. This outcome would be deeply unpalatable for Russia’s leadership, and the regime would go to some lengths to avoid it. However, the magnitude of the challenges Russia faces over the coming decades may leave it with no choice, and whether by design or by default, it may find itself able to prosper only on China’s terms. Russia would use the prospect of a deeper relationship with China as leverage to extract concessions from the West. In these circumstances NATO members could find themselves in the difficult position of having to accede to Russian demands or lose Russia to China’s orbit.
2. Russia continues to put off catastrophe amid an increasingly strident foreign policy and weak economy. Under Putin, the country has put off an economic reckoning for two decades. It may continue to do so for some time to come, under Putin or his successor. Russia is bound by a series of constraints which together make a substantial shift in policy hard to bring about. But Russia has many challenges and advantages. It occupies a vast and diverse landmass, strategically positioned between the established markets and power centres of the West and the rising power in the East, and is able to leverage this location to extract concessions from both sides. It boasts a nuclear arsenal and formidable conventional forces, and a seat on the UN Security Council. It is favoured by deep reserves of natural resources, including oil and natural gas, and has a long history of global influence upon which to draw. These strengths provide considerable resilience, and despite the mounting challenges it confronts, the state may be able to persevere with its current model for many years to come, though it is unlikely to prosper doing so. Instead, Russia will lose ground on the global stage as other economies advance more quickly, reducing its share in global trade and GDP. In these conditions, Mr Putin’s successor will face an even broader array of challenges than Putin already has. The next leader is unlikely to enjoy Putin’s high (though declining) levels of popularity and will have to work harder to maintain the support of the administration’s traditional allies. Declining living standards will test public support too, reinforcing the recourse to a grand nationalist narrative that rallies popular support and gives the administration legitimacy. A successor will be more anti-western and nationalist than Putin, and pursue Putin’s policy direction with even more vigour. Liberal reformists will remain marginalised in the political system, and many will follow colleagues into foreign exile. Russia will become a louder and more troublesome antagonist to the West as its economic decline deepens.
3. Russia remains dependent on the hydrocarbons sector in a shrinking global market, condemning it to sustained decline. Russia’s oil sector faces many challenges, some connected to the country’s general economic difficulties and some specific to the sector itself. Oil exploration and development is an investment-intensive industry, with the pay-off often coming many years after the outlay. As conventional reserves are depleted, it also requires access to advanced technology if marginal reserves are to be exploited profitably. Russia is challenged in both areas, with a cash-strapped state in a weak position to support domestic industry and international sanctions driving away potential foreign investors and locking out critical technology. Russia’s oil industry faces long-term decline for as long as sanctions remain in place, and since these are a response to policy positions the leadership will find difficult to relinquish, such as the annexation of Crimea and military involvement in Ukraine, they are unlikely to be lifted for some years to come. In these circumstances an undiversified Russian economy becomes subject to volatile energy markets, with its fortunes largely determined by global energy consumption patterns. To the degree that the world turns away from fossil fuels, Russia finds its budget constrained by falling hydrocarbons revenues, with a knock-on impact on its ability to sustain economic growth and fulfil its investment agenda. Even under this scenario, Russia’s ability to sustain hydrocarbons output will depend on overcoming the barriers imposed by western sanctions, leaving the country increasingly dependent on Chinese investment.

Negative Scenario

1. Above all, Russia fears irrelevance as the US and China contest for global dominance, which is one reason why it is willing to expend resources on proxy adventures distant from its ‘near abroad.’ As its economic weight declines, its capacity to project global influence may also wane, sapping its capacity to act as a global power. Russia shorn of its global role would be a novel prospect, and one at odds with the country’s sense of identity, manifested both in its people and in the strategic vision of its leadership. Under these conditions, the social contract between the people and their leaders would break down, with the potential either for increased autarchy or mounting social unrest. This would curb Russia’s expansionist capacity, a development that NATO might welcome in the short term. But failure on this scale would also replace the relatively stable Russia NATO currently finds on its doorstep with a chaotic and unpredictable neighbour, and one that feels increasingly besieged by the West. In an alternative version of the negative outcome, Russia may exploit spaces left by the reorientation of US foreign policy towards Asia as it seeks to contain China’s rise—a trend already underway. While America’s economic relations with Russia are limited, Europe’s dependence on Russian gas supplies and closer integration in other markets means it cannot disengage to the extent the US can. In these circumstances, Eastern Europe would receive less US/Western attention and would become a more fruitful target for Russian influence, sowing division within Europe and NATO as a whole. NATO already faces internal tensions and divisions, and with American attention elsewhere could find itself prey to Russian grey zone activities- -operations such as use of unmarked military forces that lie between the strictly legal and demonstrably illegal--on its own territories.
2. Authoritarianism deepens in response to rising political dysfunction. An ailing Putin hangs on to power, wrong-footing rivals by playing one prominent figure off against another and using the prospect of succession to keep his closest collaborators from defecting. However, his health declines (he has already exceeded the average life expectancy for Russian males), and his demise finds the country in a severely weakened position and without a clear successor or succession mechanism. A new leader struggles to hold together the Putin-era power coalition and battles to maintain his authority before a disaffected population. The economy, burdened by corruption and inefficiency, falls into a deep malaise, denying the administration the resources with which to address growing protests and failing confidence. The regime’s focus turns to consolidating the national resistance economy, with self-sufficiency becoming an even higher priority than it already is. Demographic trends continue unabated, leaving the country with a sharply reduced workforce supporting an older population and denying the state vital fiscal resources. Innovation ceases, while a hostile West maintains crippling sanctions on the regime. Military investment declines, leaving the country reliant on asymmetric and grey-zone tactics, which Russia unleashes to shore up domestic support. Tracking of nuclear materials becomes haphazard. Restive regional administrations become more resistant to central authority and the threat of separatist violence rises--whether in the form of increased activity in areas such as Chechnya and North Ossetia where violence is already endemic, or new outbreaks of separatism in regions such as Tatarstan and Yakutia. An increasingly vulnerable state lashes out at foreign enemies, raising the stakes for NATO as it seeks proportionate responses and increasing instability in Russia’s immediate neighbourhood and its ‘far abroad.’
3. Russia fails to diversify and its hydrocarbons sector atrophies through lack of investment, weighing on the state’s capacity to meet its economic targets. Russia must invest in exploiting new energy reserves to replace its declining traditional fields. To do so it must either persuade western powers to remove sanctions, which may require concessions that the leadership would consider humiliating, or find alternative sources of investment and know-how, which may mean offering equally unpalatable concessions to China. If it is unable to replace reserves and adapt its energy sector to changing world conditions, or to find alternative drivers of growth, it is likely to face a relentless decline in revenues, ultimately rendering its economic model unsustainable. In these circumstances, it becomes harder for Russia to achieve its ambition of consolidating its relevance and influence on the world stage. Where influence is shifting from the incumbent superpower to the rising one, Russia risks being squeezed out of the picture and finding itself with little leverage in global affairs. A weakened Russia with no clear way forward may become increasingly unpredictable and aggressive as the regime turns to increasingly repressive methods to maintain its authority. At the extreme, Russia’s territorial integrity comes into question. Separatist tensions may flare and a weaker centre would be less able to counteract those pressures. The result might be a gradual (or sudden) weakening in the glue that holds the federation together, with regions such as Chechnya, Tatarstan, Ural or Siberia breaking off, de facto or de jure, from the rump Russian state. This, during the transition to a new status quo at least, would be a strongly negative scenario for NATO, with the risk of unrest or warfare on its borders and control over Russia’s nuclear arsenal removed from central government control and fragmented among a collection of actors with questionable competence and varying degrees of hostility towards the West.