Changing Course in Moscow

Over the past decade, Russian foreign policy has experienced a number of dramatic shifts. Following 9/11, Russia pursued a strategic partnership with the United States, pledging cooperation in Afghanistan while downplaying its long-standing opposition to NATO expansion and European missile defense. But then, during Vladimir Putin’s second presidential term, Russia took advantage of rising energy prices to push back against the United States and the West, seeking to undermine pro-Western regimes in Georgia and Ukraine, and even threatening to point nuclear missiles at European countries that hosted U.S. missile defense facilities. The resurgence of Russian power in opposition to the United States and the European Union reached its apex with the August 2008 war in Georgia.

Since the war, Russian foreign policy has begun to swing back toward cooperation with the West. The public face of this new course is Dmitry Medvedev, who succeeded Putin as president in 2008. Its fundamental premise is the belief that Russia needs better relations with the wealthy world -- especially the United States and the European Union -- in order to modernize its economy. Both the 2008 war in Georgia and the onset of the global economic crisis discredited the notion that Russia’s energy riches had decoupled its economy from the rest of the world. The war sparked a large-scale outflow of foreign capital, as international investors increasingly saw Russia as a risky and unpredictable place to keep their money. This capital flight was then greatly exacerbated by the fallout of the global financial crisis: by early 2009, the main Russian stock market index had fallen by more than 90 percent from its May 2008 peak while foreign direct investment dropped by more than 45 percent between 2008 and 2009. The global recession has been particularly savage in Russia: in 2009, Russian GDP declined by almost 8 percent, whereas U.S. GDP fell by 2.6 percent during the same period.

As the aftereffects of the war and economic crisis continued to unfold, the argument made by Putin and his advisers that Russia had overcome its post-Soviet decline and again become a major world power seemed to unravel. Moscow was stunned to find that almost none of its supposed allies -- including Belarus, China, and Kazakhstan -- recognized the independence of Abkhazia and South Ossetia, which Russia had fought to “liberate” from Georgia. Similarly, Moscow’s campaign to expel U.S. forces from the Manas airbase in Kyrgyzstan was undone in June 2009, when Bishkek realized Washington would pay more to keep the base than Moscow could pay to close it.

Medvedev’s new foreign policy strategy essentially argues that Russia’s limited influence is a direct result of its lack of global competitiveness. In today’s world, economic prowess matters more than military might. This new strategy aims to harness Western investment and technology in order to develop the Russian economy, reducing its dependence on oil and gas sales while promoting technological innovation. Since the West is the principal source of the investment and technology that Russia needs, there is no room for pointless confrontations. Supporters of the new course, who include senior economic officials, businessmen, and academics (especially at the Institute of Contemporary Development, of which Medvedev is the nominal chair), argue that Russia should pursue what Medvedev has termed “modernization alliances” -- especially with the United States and major EU states such as Germany, France, and Italy -- in which Russia offers investment opportunities and greater political cooperation in exchange for foreign capital and know-how.

In his state of the nation address last November, Medvedev argued that the success or failure of Russian foreign policy should be judged by a single criterion: “whether it contributes to improving living standards in our country.” And in what may have been a subtle dig at Putin, he suggested that Russia focus on accessing foreign capital, technology, and ideas, rather than “puffing out its cheeks” to threaten others. This argument was advanced further in a Foreign Ministry strategy paper that was leaked to the Russian press in May. It made a detailed case for improving relations with the United States and Europe, though it also stressed Russia’s continued commitment to restoring its global standing and to playing a dominant role in the former Soviet region.

Russia’s new course has already produced some results, most importantly in relations with the United States. In part, the warmer tone between the two countries is the result of the Obama administration’s “reset” policy, but Moscow, too, has proven more receptive to Washington’s outreach than in the last several years. In recent months, Russia and the United States signed the so-called New START nuclear arms reduction treaty, cooperated on sanctions against Iran (always a sensitive subject in Moscow), and agreed to open new supply routes for the U.S.-led war in Afghanistan. In June, Medvedev traveled to Silicon Valley to drum up investment for a high-tech center the Kremlin is building outside of Moscow. His biggest success was convincing Cisco Systems to invest $1 billion in Russian technology ventures, providing a tangible vote of confidence on the part of the U.S. business community.

Yet it remains too early to pronounce an end to the West’s difficulties with Russia. Although Medvedev is constitutionally responsible for steering Russian foreign policy, Putin remains powerful as prime minister, especially in light of speculation that he will return to the Kremlin in 2012. Below the offices of president and prime minister, Russia’s bureaucracy is unwieldy and resistant to change, and much of the military and security services remain overtly hostile to the West. And as the leaked Foreign Ministry document suggests, Russia has not given up its great power ambitions, even though it may desire better relations with the West. Finally, a fusion of state and corporate power in Russia has given oligarchs and managers of state corporations the ability to block initiatives that threaten their economic interests -- such as opening up the Russian economy to foreign competition.

It is also impossible to separate the new direction in foreign policy from the economic downturn, which has cast doubt on Russia’s post-Soviet economic model of relying on a heavily centralized, state-dominated energy sector to the exclusion of innovation and entrepreneurship. When the Russian economy was booming, Moscow felt confident enough to ignore many of the policy preferences of the United States and the European Union. But as oil prices fell and Russia’s economy started contracting, this hubris became harder to maintain. If oil prices start climbing again and Russia’s fiscal situation improves, Moscow may well conclude that an energy-fueled status quo is preferable to the expensive and uncertain prospect of modernization. If so, the case for better relations with the West could be badly undermined -- which suggests that Western leaders have an interest in taking advantage of the current moment to emphasize they are serious about putting relations with Russia on a new foundation.

How can the United States convince Moscow that it has more to gain from enhancing its cooperation with the West, regardless of oil prices? A major reason why U.S.-Russian relations have been so unpredictable is that the relationship is largely focused on hard security issues and not on economic ties. Last year, U.S.-Russian bilateral trade was only $25.3 billion (less than one-twentieth of U.S.-Chinese trade), and only four percent of foreign direct investment in Russia came from the United States. The Obama administration should do more to encourage trade with and investment in Russia, including launching a strategic economic dialogue with Moscow and making a concerted push in Congress to repeal the Jackson-Vanik amendment. Russia’s ascension to the WTO is particularly important, since membership would make a reversion to energy-driven mercantilism more difficult. The United States should put the ball firmly in Russia’s court, identifying as a priority Russia’s membership in the WTO by the end of the year and providing technical assistance to overcoming outstanding disputes (including addressing Georgian objections).

The United States should also give Russia incentives to deepen cooperation on security issues. Above all, Obama needs to make a concerted push for rapid Senate ratification of the New START treaty. Without ratification (or with a long delay), Medvedev will have little to show for his accommodation on Afghanistan, Iran, and elsewhere, while Obama’s own credibility, and therefore ability to negotiate further agreements with the Russians, would be badly undermined.

In addition, Washington should be open to discussing Medvedev’s proposal for a new agreement on European security that would give Russia a greater role. Moscow released a draft treaty in late 2009 that went over poorly, particularly among Europeans who feared it was designed to undermine NATO. But its underlying logic of granting Russia a stake in Western security is compelling. The United States loses nothing by talking about Russia’s proposal (without neglecting NATO’s own defense capabilities, especially in Eastern Europe).

At this point, hints about a new course for Russian foreign policy remain mostly that: hints. It is possible that they have much to do with the troubled state of the Russian economy -- and could fade once the economy recovers or if Medvedev is sidelined after 2012. Yet Medvedev compellingly argues that as long as Russia’s economy remains underdeveloped and dependent on resource extraction, the country’s foreign policy ambitions will always outstrip its capabilities. Although the United States has reason to be concerned about the extent of these ambitions, it has an interest in solidifying Moscow’s commitment to a foreign policy that prioritizes domestic development over threats to its neighbors. Washington should do what it can to show that if Moscow is serious about modernization alliances, the United States will do what it can to help.