Russia: Economic and security challenges

Norhan Al-Sheikh
Tuesday 25 Feb 2020

Belabouring under US and European sanctions, Russia will continue to focus on domestic issues in 2020, while nonetheless remaining influential in the international domain, writes Norhan Al-Sheikh

Russia’s domestic challenges remain its guiding compass and priority. Prime among these is the demographic composition of the country where youth comprise no more than 10 per cent of the population. This challenge is compounded by the fact that Russia is one of the world’s least populous countries in terms of population growth, which affects economic development in the world’s largest country. 

Related to this are the increasing aspirations of the Russian people, especially the youth, where the communications and information revolution, spurring openness to the outside world, especially to the European Union, has led to a clear change in the needs and aspirations of Russians whose lifestyles, standards of living and welfare were previously unknown. This factor is a pressure point against the Russian government that is trying to fulfill its people’s aspirations to win their approval.

This comes at a time when Russia has faced economic difficulties over the past four years as a result of the sharp decline in oil prices, the revenues of which are the backbone of the Russian economy, coupled with the escalation of sanctions by Washington and its allies, especially Europe, which led to a decline in foreign investment flows to Russia. However, 2019 witnessed the relative recovery of the Russian economy, recording positive figures, according to the International Monetary Fund (IMF). The IMF estimated Russia’s growth rate at 1.2 per cent, and it is expected to rise to 1.9 per cent in 2020.

In the Global Competitiveness Report 2019, issued by the World Economic Forum, Russia ranked sixth globally out of 141 economies in the market size index, which is one of 12 indicators on which the competitiveness report builds the ranking of world countries. Per capita gross domestic product amounted to around $11,320.

The country’s reserves of gold and foreign exchange increased to $489.5 billion, while investment recorded a moderate increase compared to the previous year, after reaching its lowest levels in the beginning of 2018. However, the Russian economy did not recover its full strength, and economic performance is still far from being as solid as it was a decade ago. At that time, oil and investment prices hiked, and with it the Russian economy. The growth rate reached seven per cent, and in 2013 Russia ranked third globally in terms of the volume of foreign direct investment.

Security challenges are no less important. On 10 December 2019, the head of the Russian Federal Security Agency, Alexander Portnikov, announced the success of the agency in the fight against terrorism (which included thwarting in 2019 50 terrorist attacks and dismantling 78 undercover cells affiliated to terrorist organisations). Ten days later, a shooting occurred in front of the headquarters of the agency, in the heart of the capital, Moscow, killing one member of the agency, which brought the elimination of terrorism to the top of Russian priorities. 

In light of these challenges, a host of Russian policies, on the domestic and foreign fronts, have emerged in 2020.

— Continuing competition and confrontation between Moscow and Washington on a wide range of issues, foremost among which is competition for energy markets, especially the European market, which is the largest and most important market for Russian gas and oil. The shale gas revolution rendered the US a prominent source for exporting liquefied gas to the rest of the world, especially Europe, which is the most important global market for gas, being the closest and most economically profitable to Washington.

Added to this is competition in the arms market and the US’s attempt to block Russian deals for what it regards as its traditional markets, and the threat of a renewed arms race in light of US withdrawal from the Intermediate-Range Nuclear Forces Treaty (INF), and the ambiguity of the future of the new Strategic Offensive Reduction Treaty (START) that is due to expire in February 2021.

— A marked improvement in Russian-European relations, especially in the wake of the European Union’s refusal of US sanctions on the Nord Stream 2 project to transfer Russian gas to Europe, and Germany and Europe’s commitment to proceed with the project, confirming the relative independence of the European approach from Washington. This was also reflected in French President Macron’s comments about a “new European security structure” in cooperation with Russia, the resumption of French-Russian 2+2 talks after a seven-year hiatus, and the holding of a “Normandy Quad” summit on the Ukrainian crisis between the leaders of Russia, France, Germany and Ukraine on 9 December in Paris, after a hiatus of four years.

— Strengthening the Russian-Chinese strategic partnership, supported by the fact that China has become one of the largest Russian gas markets after the opening of the Siberian power line to transfer Russian gas directly to China on 2 December 2019. That is in addition to economic partnership and security and strategic cooperation on the bilateral level, and through collective frameworks, such as BRICS and the Shanghai Organisation, and a coordination of positions on various regional and international issues.

— A greater focus on the Gulf, which was reflected in the first Russian-Chinese-Iranian manoeuvres in the northern Indian Ocean and the Sea of ​​Oman in December 2019, and the development of Russian partnerships with Arab Gulf states, especially Saudi Arabia and the UAE, in light of President Putin’s visit to the two countries in October, the signing of the agreement on continuing coordination on oil prices by reducing production to maintain prices within the OPEC+ formula, economic cooperation and attracting Gulf investments to Russia, and technical cooperation in the areas of energy and space.

This coincides with the continuation of high-level strategic cooperation with Iran in all fields within the framework of a Russian approach based on parallelism in Russian policy, and pushing towards a system of collective security in the Gulf that is inclusive of all parties.


— Russian policy in the Middle East will adopt the same trends, which include the centralisation of a peaceful settlement to the Syrian crisis through the completion of consensus on the Syrian constitution in preparation for elections, and support for the Syrian army to liberate Idlib from terrorist groups and reclaim control. Russia will also maintain the centrality of its partnership with Egypt in various economic, technical and strategic fields, as well as coordination on regional files, foremost of which is Libya, although Russian interference in the Libyan file will remain cautious and indirect, and in no way will it be the same as in Syria.

These articles were first published in the newly released Outlook 2020: Egypt’s Projections of Regional and Global Issues by the Egyptian Centre for Strategic Studies (ECSS).


*A version of this article appears in print in the 27 February, 2020 edition of Al-Ahram Weekly

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