Wary of Future, Russia Confronts U.S., EU Now

Why have Russia's relations with the United States and the European Union deteriorated so far and so fast? Disputes over NATO and EU expansion, arms control, war in the Balkans, and international competition for influence within several of Russia's neighbors have generated plenty of mutual mistrust.

But Kremlin fears for Russia's future add to the tensions in important ways. Western governments are now struggling to cope with a stronger and more assertive Russian government and its impact on their interests. But Russian anxiety over how long that strength will last plays a growing role on its foreign and domestic policy calculations.

The latest source of trouble comes from U.S. plans to install 10 missile interceptors in Poland and a powerful radar system in the Czech Republic. The Bush administration insists the plan is meant to deter an attack from Iran. The Kremlin argues that it's really aimed at Russia.

Gone are the days of Russia as a post-Soviet basket case. Since President Vladimir Putin took office in 2000, the country's GDP has grown by about 6.8 percent per year. Inflation, a constant threat for much of the 1990s, has settled into single digits. Oil prices have risen sharply, filling Russian coffers with cash. The country's foreign exchange reserves are now third deepest in the world.

This revenue has helped bring new stability, allowing Putin and his team to take a more active role abroad. Despite the U.S.'s insistence that the new missile defenses have nothing to do with Russia, the Kremlin says it feels threatened and deceived. Russian officials argue that they "accepted" NATO expansion into the Warsaw Pact states in exchange for a U.S. commitment not to place missile defenses there -- and that the current plan violates that agreement.

But Russian officials have a much more immediate reason for "standing up to the West": it's popular at home. Anti-Americanism is cresting in many parts of the world, and Russia is certainly no exception. In addition, Russian nationalism continues to foster animosity toward a European Union that has, like NATO, expanded onto former Soviet territory. As a result, Kremlin resistance to Western "encroachments" is sure to further boost its domestic popularity.

Nationalism aside, however, there's a nagging fear in the Kremlin that Russia's new strength won't last. Russia faces three emerging threats that analysts of its foreign policy often ignore.

First, the Russian population is shrinking. Rising tuberculosis and HIV infection rates and high consumption of both cigarettes and alcohol have brought life expectancy for men to 59 years. In 2000, there were about 146 million Russian citizens. Today there are about 142 million. A recent UN survey warned that the population might well fall by 40 million over the next four decades. That's not an encouraging forecast for the economy's long-term prospects.

Second, the government is not investing enough of its oil profits back into energy infrastructure. The International Energy Agency has formally expressed concern over "creeping nationalization in the oil sector," noting that as production turns from fast maturing fields toward others that will prove more difficult and expensive to develop, a Russia that discourages potential foreign investment will struggle to maintain production levels over time.

In other words, just as more money is needed for investment in new infrastructure, the Kremlin has chosen to spend less. The IEA has also raised concerns over the inadequacy of Russia's "fiscal, legal and regulatory reform" programs. In short, the Russian government and its supporters among the commercial elite are buying short-term political strength at the expense of investment in the country's long-term growth.

Third, many of Russia's most successful businessmen still view their country as a wealth generator but not as a sound long-term investment bet. Any substantial uptick in political uncertainty could generate destabilizing levels of capital flight. In particular, legislative elections in December and a presidential election next March increase the risk that investors, fearful that particular friends in high places might lose their influence, will safeguard assets by moving them abroad.

The Kremlin is well aware of these longer-term vulnerabilities. Russia's ruling elite may calculate that winning domestic support by challenging the world's wealthiest and most powerful governments will be easier from today's position of strength than from a future position of relative weakness.

For the next several years, the Russian economy, buoyed by strong growth in domestic consumption, will continue to grow. Foreign direct investment will continue to flow into many sectors of the economy. High oil prices will bolster Russian surpluses. But fears for the longer-term future help persuade the Russian elite that it's better to break domestic opposition now while political critics, independent media, and civil society organizations are weak and the government is both popular and flush with oil money.

That Russia's more confrontational foreign policy flows from domestic considerations will make it tougher for U.S. and European negotiators to find ways to resolve future disputes. If the Kremlin would rather obstruct than deal, hope is slim that the slow, steady deterioration in Russia's relations with the West can be reversed anytime soon.

Ian Bremmer is president of Eurasia Group, a political-risk consultancy. He is the author of the book "The J Curve: A New Way to Understand Why Nations Rise and Fall." He can be reached via e-mail at research[at]eurasiagroup.net.


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