Vladimir Putin Takes Back Office With Natural Gas As Leverage
By Christophe Adrien
Protests in the streets of Moscow could worry foreign investors about Russian (NYSEARCA:RBL) markets as The Kremlin continues to hammer out its political future. Vladimir Putin, the recent winner in the election for the Russian presidency, has remained in the forefront of Russian (NYSEARCA:RSX) politics for over a decade and has, according to the Kremlin, gained the support of the people by making Russia (NYSEARCA:RBL) a viable world power. Putin’s popularity, however, is beginning to wane as his authoritarian motives become more apparent to the Russian people.
In recent years, Russia has encouraged an increase in foreign investment, most notably from France (NYSEARCA:VGQ) (1) and other European countries, to bolster Russia’s ailing industry as part of Putin’s plan to increase Russia’s economic prowess. This move came as Russia flexed its political muscle by backing various dictatorial regimes in the Middle East (most recently Assad’s regime in Syria), contrary to the wishes of its European partners (NYSEARCA:VGK) (2). Such acts of defiance in foreign policy are not new to Russia’s current regime which has sought to create the image of a strong, independent Russia in the post-Soviet era.
Putin has, in the last decade, carefully crafted an image of Russia intended to intimidate foreign powers as well as seduce his own people. But Putin’s recent bid for a second run at the presidency has many Russians questioning his motives. While had no close runners up in the recent election, his second turn in office could have dire consequences for the Russia we see today.
Putin has brought some measure of stability to Russia. Following the collapse of the U.S.S.R. alcoholism skyrocketed leading to a dramatic increase in chronic alcohol-related illnesses. Productivity plummeted, and Russia suffered in consequence. Under Putin, the Kremlin actively confronted the issue (3), demonstrating that the central government had the capacity to be effective if properly managed. This in turn encouraged confidence from Russia’s European partners who felt more secure in their investments. Putin’s iron fist, in essence, has kept Russia afloat. Of course, this new found sense of security has wavered when Putin used this same iron fist on his position with Syria which will ultimately further isolate the country. Such bellicose foreign policy would prove entirely counterproductive to Russia’s financial future if Russia did not have its most valuable bargaining chip. Putin’s foreign policy, while highly criticized by European powers, certainly benefits from the vast reserves of natural gas (NYSEARCA:UNG) upon which most European countries depend for energy. Using natural gas (NYSEARCA:UNG), Putin has wedged Europe between a rock and a hard place. Therefore, Europeans have little room to argue with Russia over foreign affairs.
Protests in Moscow, among other cities, are reminiscent of a dormant political culture not seen since 1917. As Putin regains the presidency, investors might expect a continuation of the status quo (i.e. a steady ebb and flow of foreign investments and defiant foreign policy). In the eyes of many of the Russian people, Putin’s iron fist, which has brought a greater sense of stability to the country, now threatens their democracy. More protests are likely to take place in the near future (4) which would put the fragile Russian economy at risk. In an attempt to regain support, Putin will likely implement aggressive foreign policies which have classically served him well in the polls. These actions, in turn, might encourage foreign investors to pull out of Russia, and strain relations with a majority of the world’s nations. The consequences may prove disastrous for all involved.
Conversely, a Putin victory may indeed extend Russia’s current state of affairs. If the past three decades of Russian history have proved anything, it’s that Russians have come to expect defeat. Besides having a strong leader who deems himself the “Russian Bear,” Russians have few boosts left to their image. With natural gas (NYSEARCA:UNG) as a means to strangle Europe at will, there likely will be no option for foreign investors to withdraw their investments despite their desire to do so. Putin has been, and may well remain, a source of Russian strength and pride. A second Putin tour as president will likely be tolerated until the next elections.
Bottom Line: Russia’s (NYSEARCA:RSX) elections will prove less dramatic than those of other world powers. Putin’s return to the presidency will afford Europe (NYSEARCA:VGK) more of the same. Investing in Russia (NYSEARCA:RBL) is a gamble as their industries outside of natural gas are unremarkable and subject to turmoil in years to come.
Christophe Adrien is an associate writer for Wall Street Sector Selector. Born in California, Christophe Adrien spent his formative years in France. He attended university in Oregon and has earned a Master of Arts in Teaching degree from Oregon State University. At university, Christophe conducted extensive studies in the field of History, specializing in the political cultures of France and Russia. Christophe speaks English and French natively, is fluent in Spanish, and has experience with German, Russian, and Latin. Having travelled the globe extensively, Christophe has cultivated a unique view of the global economy, its origins, and the current state of global affairs.