Russia in details: events and trends in Russia over the last week (10.09-16.09)

Events and trends in the Russian Federation over the week of September 10^th – 16^th

Conclusions

1. The successful offensive operation of the Armed Forces of Ukraine in the Kharkiv region led to an information shock in the Russian Federation, confusion among official propaganda bodies, and changes in public sentiment. The possible announcement of a general mobilization is currently the main fear for Russian elites and society. The informal “war party” calls for such a step, the number of supporters of which is growing, their representatives harshly criticize the authorities for indecision, and this becomes a challenge for the FSB and the Kremlin.

2. The SCO summit in Samarkand was not a breakthrough for Russia but was devoted to mutually beneficial cooperation and logistics. Moscow has not been able to monopolize the summit’s agenda and is unlikely to use the SCO in its geopolitical maneuvers. Although certain opportunities are opening up for them, they require resources and time, which the Kremlin does not have, given the war in Ukraine.

3. The countries of Central Asia are trying to diversify their foreign economic and energy policies, hedge risks in connection with the war in Ukraine, and sanctions both within multilateral forums such as the SCO and through separate tracks. Kazakhstan is a vivid example as it recently announced the redistribution of its energy market.

4. The Azerbaijani-Armenian armed clashes on the state border concern the battle for new regional logistics, which Azerbaijan wants to control and is ready to do so by force. In this situation, Russia and Azerbaijan are situationally on the same side, as Moscow also needs new logistics in the region to bypass Western sanctions.

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Summit of SCO leaders in Samarkand: Russia’s failed attempt to breakthrough through the East

The Shanghai Cooperation Organization (SCO) has changed significantly over the past 20 years, although its influence on international processes remains modest compared to the same traditional platforms of the G7 and G20. The SCO was founded in 2001 and declared its main goal to be “the fight against terrorism, separatism, and extremism”, clearly capitalizing on the global anti-terrorist and security consensus that emerged after the terrorist attacks of September 11^thand the start of the US war in Afghanistan, which was supported by almost all countries of the world including Russia.

Over time, as the international system has changed, the SCO began to gradually expand its geographical coverage and the scope and topics of cooperation among its member countries. Discussions on multilateral trade, investment, energy, transport, and logistics were added to joint security cooperation. In 2017, India and Pakistan joined the SCO, significantly expanding both the importance of the organization itself and its geography, creating a basis for further convergence of the Central and South Asian markets.

The gradual geopolitical strengthening of the SCO was influenced by international events, particularly the US war in Afghanistan, which dragged on after 2003 and eventually turned into an endless conflict that Washington began to lose. The US invasion of Iraq in 2003 led to an even more significant increase in anti-Western sentiment. Regional players’ high ambitions led to the fact that, at some point, China and Russia began to use the SCO platform in opposition to Western forums and formats of multilateral cooperation. Although the SCO cannot be compared with NATO or the EU in terms of the level of integration of participants and international political influence, it is one of the formats that today is considered an alternative to all Western ones, which unites countries that believe in the inevitable formation (and want it) of a multipolar world, in which non-Western countries will play a more active role in world processes. Western institutions will not dominate as they did after the Cold War’s end.

The accession of India and Pakistan to the SCO, and this year – Iran, shows this trend very clearly. Currently, the observer countries include Belarus, Mongolia, and Afghanistan. Dialogue partner countries (the first step to full membership) are Turkey, Cambodia, Sri Lanka, Azerbaijan, Armenia, and Nepal. The UAE, Saudi Arabia, Egypt, and Qatar will join them in the future. In other words, these are all those non-Western countries that share each other’s views on a multipolar world and want to play a more active and significant role in world affairs rather than being subservient to the West. At the moment, despite its military and political limitations, insignificant practical impact on the global system, and lack of integration mechanisms, the SCO is one of the largest regional organizations in the world, which unites countries that together makeup 30% of the world’s GDP, 60% of the territory of Eurasia and 40% of the world’s population.

For the Russian Federation, the SCO is one of the formats (along with the meetings of the BRICS countries and, to some extent, the G20) where Moscow can demonstrate its diplomatic activity. Supposedly, this is where they are not isolated and where there are countries that can discuss world affairs in a language understandable to Putin. Some will even come to the position of the Russian Federation with a partial understanding. This is a convenient format for Vladimir Putin with an audience seen by Russian elites as a potential anti-Western platform. According to them, it can assemble a possible “global anti-Western coalition”, or at least compensate for Russia’s losses from confrontation with the West by pivoting to the east and south.

From the point of view of practical and short-term interests, Russia uses the SCO summit to try to agree on a format of partnership with the participating countries that would allow bypassing Western sanctions, compensating for economic losses, transferring part of foreign trade to eastern markets, and starting to reorient the energy infrastructure as the ties with Europe break down. Simply put, Russia needs alternative logistics, and this is precisely what Putin’s diplomatic mission was focused on.

This, in particular, is eloquently evidenced by the meeting of Vladimir Putin with the President of the People’s Republic of China, Xi Jinping, at which both sides demonstratively emphasized that by the end of this year, their trade turnover will increase to a record $200 billion. Putin proposed to extend for five years and expand the transport corridor “Russia -Mongolia-China”: increase capacity, build a gas pipeline in the east of Mongolia, expand the railway itself, and update the locomotive fleet. The meeting of the Russian leader with the presidents of the countries of Central Asia was devoted to the same topic. In a meeting with the president of Uzbekistan and the prime minister of Pakistan, Putin proposed expanding an energy corridor from the Russian Federation to South Asian markets through Kazakhstan and Uzbekistan and hinted that the basic infrastructure already exists but needs to be completed through Afghanistan. The Russians will persuade the Afghan Taliban to conclude appropriate agreements and coordinate their efforts with Pakistan, which seriously influences the Taliban authorities in Kabul. In addition, the Russian authorities have long been developing relations with the Taliban. Uzbekistan has even launched several logistics projects in Afghanistan, including constructing the Trans-Afghan Railway from the Uzbek city of Termez.

However, it should be noted that Russia’s opportunities within the SCO are limited mainly because the SCO is an organization focused on mutually beneficial economic cooperation rather than geopolitical adventures and confrontation with the West. Therefore, it will be difficult for Russia to promote aggressive narratives against the West or to convince countries to openly violate Western sanctions or support the war in Ukraine: no one will do it and is not going to, sacrificing their positions and the organization itself. In addition, in recent years, the SCO has come under the greater influence of China and the Chinese strategy, which consists not at all in the escalation of the confrontation with the West, but in the slow, balanced development of joint projects in the field of logistics, trade, economy, investment, and, if possible, promotion of horizontal integration between the countries of the region. In other words, China has a somewhat longer-term and less aggressive strategy for using the SCO than Russia, and Moscow will not be able to monopolize its agenda, as the Samarkand summit showed.

China actively uses the SCO to get closer to the countries of Central and South Asia, to promote its logistics and infrastructure projects, and is not yet ready to create alliances that compete with Western formats. It clearly understands that the global anti-Western coalition, which the Kremlin is dreaming of, is now impossible because its potential participants are too different and have disputes among themselves. The idea that would unite them all is still missing. Therefore, Beijing is betting on economic expansion and the creation of logistics in its interests. For example, the Chinese agreed to invest money in the construction of the Rogun HPP and the second section of the Dushanbe-Kulma highway in Tajikistan, launched a railway route to Afghanistan through Kyrgyzstan and Uzbekistan (the first alternative to Pakistani land routes), and began the construction of a new corridor through the southern regions of Kyrgyzstan to Uzbekistan.

In light of Western sanctions due to the war in Ukraine, the countries of the region are increasingly in need of alternative land routes for communication and transshipment of goods, especially as Russia ceases to be a reliable partner, mostly due to sanctions to which no one has yet had time to adapt, uncertain how they will develop, and whether secondary US sanctions will follow them. Therefore, for such countries as Uzbekistan and Kyrgyzstan, expanding transport and railway communications at the expense of China is a logical step in light of creating routes alternative to Russian ones. The same project of the 4,380-km railway corridor “China-Kyrgyzstan-Uzbekistan” should connect the Chinese Kashgar in Xinjiang with the Uzbek city of Andijan, will allow the countries to expand access to common markets, increase the export of goods and receive more money from customs duties.

Russia could join these projects, support them, and even get involved, using it to circumvent Western sanctions and refocus on Eastern markets. However, this would require significant capital investment and time, which Russia does not have, given the situation in Ukraine.

Kazakhstan is another example of partners’ uncertainty regarding Russia and its future role in regional and world processes. In the current conditions of the global oil market redistribution, Kazakhstan will try to strengthen its position in diversifying export directions, possibly increasing revenues and production volumes and reducing its dependence on the Russian Federation and Western foreign companies operating in the country.

In June, the President of Kazakhstan, Kassym-Jomart Tokayev, called the Western oil companies’ work conditions in the country not entirely fair (terms of distribution of received oil and distribution of costs). However, he noted that in the case of revising the conditions, it should be done in a way that would not harm the country, and ultimately changing the rules of the game would be “absurd from the point of view of Kazakhstan’s long-term interests“. At the same time, Tokayev also criticized Russian companies and how they gained access to the country’s hydrocarbon deposits.

The scheme of production sharing agreements is standard for countries with significant reserves of hydrocarbons but do not have the technology and funds to develop these reserves.

By 2015, Kazakhstan was in the top 10 countries regarding economic growth rates. The oil industry was a significant component of the country’s economic boom that began after 1999. However, since 2014, the rate of economic growth has slowed, and today the country is out of the top 100 in the ranking of countries in terms of GDP growth.

Therefore, the intention to restore the importance of oil production in the country’s economic growth is natural and understandable. In addition, a certain tension in relations with the Russian Federation resulted in Moscow blocking oil exports from Kazakhstan. It is not surprising since the volume of undersupplied oil by Kazakhstan was compensated by Russia, which is threatened to shrink its own sales market due to sanctions.

Kazakhstan is the largest oil producer in Central Asia and is among the top ten oil exporters, with the 12th largest proven crude oil reserves worldwide. Therefore, its current share of the world oil market of 1% (1.4 million barrels per day) has a small potential for growth under the conditions of the right policies for production companies, transit partners, and buyers.

Contracts on product distribution by crucial companies are concluded until 2033-2041. The prospects for establishing long-term contacts for the development of oil deposits after 2040 may be less optimistic, given the desire of many countries to reduce the consumption of petroleum products and the plans of the transition of the EU to carbon neutrality by 2050 and China’s by 2060.

Kazakstan’s key oil export opportunities include three routes: CPC (Caspian Pipeline Consortium) to the Russian port of Novorossiysk on the Black Sea – a key route for the last 20 years for access to global markets, with a capacity of 1.3 million bar/day (b/d), the Kazakhstan China oil pipeline – 200 thousand b/d, and the Caspian oil pipeline system Baku-Tbilisi-Ceyhan – deliveries in the amount of 30 thousand b/d. In addition, Kazakhstan reached the preliminary goal of delivering 70,000 barrels per day via an additional route through Azerbaijan.

Dependence on supply routes from the Russian Federation, which will soon fall under the oil embargo, is an additional motive for Kazakhstan to diversify its dependence on supply routes and mining companies. Even five years ago, CPC was believed to be the key export route until 2040. In August, Tokayev directly instructed the government to diversify export routes due to Russia’s efforts to block the CPC.

In anticipation of the embargo on Russian oil and taking into account the volume of consumption of the resource by China, and its territorial proximity, it is the EU and Chinese markets that will become a priority for Kazakhstan and, accordingly, new ways of supply. But the formation of alternative supply routes is a severe challenge.

The summit in Samarkand did not become and was not a “star time” for Putin to find allies, as they cannot be found there. The SCO summit showed that Russia will lose to China in the struggle for Eurasia and that other countries are already starting to look for a development model that would minimize the risks of cooperation with Moscow. Particular opportunities for Russia certainly exist, but these will require resources and competent mid- and long-term policies. Whether Kremlin will do so is not an obvious question yet.