Acknowledgments <strong>The</strong> authors would like to thank Chloe Cranston, Caroline Hattam, Nikolay Kozhanov, Orysia Lutsevych, Arbakhan Magomedov, Margaret May, Andrew Monaghan, Robin Niblett, Ľubica Polláková, Lilia Shevtsova, Zaur Shiriyev and Jake Statham for their invaluable work on various aspects of this report. <strong>The</strong>y are also grateful to the four anonymous peer reviewers who commented on an early draft. Responsibility for any errors of fact or analysis, as always, lies with the authors. Chatham House | v
Executive Summary and Recommendations <strong>The</strong> war in Ukraine, and Vladimir Putin’s bid to overturn the post-Cold War international settlement in Europe, have forced many Western governments to reappraise their approach to Russia. Until 2003, it was widely believed that a modernizing Russia might be accommodated into the international system as a constructive and benign actor. Variations on this view have given way to the realization that Russia, on its present course, cannot be a partner or ally, and that differences outweigh any common interests. Russia faces mounting internal difficulties, including a weakening economy and a political culture that stifles enterprise and society. <strong>The</strong> combination of these forces imperils both security in Europe and stability in Russia. <strong>The</strong> <strong>Russian</strong> challenge, which this report sets out to examine, is therefore twofold: it is a challenge to the West, in terms of managing the increasing threats Russia poses to international order; and to Russia itself. President Putin’s options are uncomfortably narrow. Russia’s longer-term interests would best be served by structural reforms at home and mutual accommodation with outside powers, small as well as great. But such policies would threaten the ability of Putin and his circle to hold on to power. While a reforming Russia would benefit from closer integration with the European Union, the Kremlin now opposes EU enlargement into its claimed ‘sphere of interest’ as adamantly as the enlargement of NATO. Putin has intensified the policies he adopted following his return to the titular presidency in May 2012: increased domestic repression; more centralized direction of the economy; the fomenting of anti-Western nationalism; increased defence expenditure; and the pursuit of hegemony over as much of the post-Soviet space as possible. <strong>The</strong>se choices have boxed the regime in. Russia needs reform, but the domestic political obstacles to it are daunting. At the same time, if Moscow maintains its current course – in both economic management and international relations – this will be increasingly dangerous for Europe and costly, if not disastrous, for Russia. <strong>The</strong> questions addressed in this report are how far those costs will rise, whether Russia can bear them, what will happen if it cannot, and how the West should respond in the near and longer term. control of its neighbourhood. <strong>The</strong> model is fundamentally at odds with a Europe that has moved on to a different conception of international order. As a result, the prospect of a strategic partnership with Russia, yearned for by many in the West, has become remote in the face of incompatible interests and irreconcilable values. Putin’s model plays strongly to the personal interests of the clans affiliated with his personal leadership, but it has been marketed to appeal to the patriotic instincts of the wider <strong>Russian</strong> population. <strong>The</strong> ruling group’s control of the economy and the levers of power – civil administration, the armed forces and the security organs – will not be easily shaken. However, the regime is now facing the most serious challenge of its 15 years in power. Over time, economic pressures, combined with the unsustainable extent of top-level corruption, will generate a growing imperative for change. <strong>The</strong> new model Russia is not sustainable, and Western governments need to consider their responses to various scenarios for change. An enfeebled economy <strong>The</strong> <strong>Russian</strong> economy has moved into recession. If and when it returns to growth, this will be sluggish at best. <strong>The</strong> influences dragging down <strong>Russian</strong> economic performance are structural, conjunctural and geopolitical. In the long term, the possibility of growth is severely limited by the decline in the economically active workforce and the constraints the Putinist system places on competition and private investment. Market pressures and external conflict pose additional challenges of uncertain duration. However long they last, Russia will find it economically difficult to sustain its current and planned levels of energy exports and its ambitious rearmament programme. By themselves, EU and US sanctions are unlikely to provoke such economic distress as to force Russia to step back in Ukraine. On the contrary, they provide the <strong>Russian</strong> leadership with a handy scapegoat for ‘stagflation’. <strong>The</strong> pressure on the regime exerted by sanctions none the less remains important while the confrontation continues. <strong>The</strong> critical element in the new geo-economic competition between the West and Russia is the extent of Western economic support for Ukraine. Deconstructing the <strong>Russian</strong> challenge Russia’s changed outlook on the West President Putin’s ‘new model Russia’ is that of an independent Great Power resuming its geopolitical position on its own terms. This reflects a deep sense of insecurity and a fear that Russia’s interests would be threatened if it lost Ukraine: a war of narratives and arms <strong>The</strong> conflict in Ukraine is a defining factor for the future of European security. <strong>The</strong> Kremlin perceives that Europe lacks the will to pay the necessary price to defend its principles. Moscow has underestimated the coherence and resilience of Ukraine, but this does not mean that it cannot achieve its core objectives: to wreck Ukraine if it cannot control it, to preserve Russia’s western borderlands as a ‘privileged vi | Chatham House
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