Sergei Guriev on the political economy of Putin’s war in Ukraine

02 March 2023

Putin’s corrupt, centralised and interventionist regime had undermined economic growth in Russia. In order to restore his popularity at home, he resorted to violence abroad

image credit: Oesterreichische Nationalbank

On 10 January 2023, prominent Russian economist Sergei Guriev delivered his Global Economy Lecture on the political economy of Putin’s war in Ukraine. The event was jointly organised by Oesterreichische Nationalbank (OeNB) and the Vienna Institute for International Economic Studies (wiiw). It took place at the Kassensaal of OeNB.

In his welcome speech, OeNB Governor Robert Holzmann set the tone for the evening by asking a few key questions on which Sergei Guriev’s presentation later focused: What were the reasons for Russia’s invasion of Ukraine? What impact will it have? How can the West engage with a defeated Russia? And what does the war in Ukraine mean for the economic future of the EU?

Chair Robert Stehrer, Scientific Director of wiiw, then introduced keynote speaker Sergei Guriev. Guriev is currently a professor of economics and provost at Sciences Po in Paris, and was the chief economist of the European Bank for Reconstruction and Development (EBRD). His research focuses, among other things, on the nature, stability and legitimacy of authoritarian regimes. He has made significant contributions to the field of economics, particularly in the areas of political economy, labour economics and economic development. In addition to his academic work, Guriev is well known for his role as a political commentator and as an advocate of political and economic reforms in Russia. He has been a vocal critic of the Putin regime and has spoken out against corruption and the erosion of civil liberties in Russia.

Slow growth undermined Putin’s popularity

At the beginning of his lecture, Guriev spoke of the declining popularity of President Vladimir Putin before the Ukraine war and of how this was linked to the slow pace of economic growth following the financial crisis in 2009. He emphasised the importance of popularity for a political leader in an authoritarian political system like Russia.

Putin’s regime, which is based on corruption, the centralisation of power and state intervention, undermined Russia’s economic growth in the years leading up to 2019, and this in turn damaged the president’s popularity. Hence, according to Guriev, the Russian president needed the annexation of Crimea, in order to restore his flagging popularity at home. Indeed, Putin’s approval ratings rose again to around 80% after the annexation of Crimea.

However, this popularity boost was short-lived: with the outbreak of the Covid-19 pandemic, Putin’s popularity again dropped to around 60%. Guriev sees this as one of the major reasons for the subsequent attack on Ukraine. In his opinion, war was seen by Putin as a means of staying in power. According to the keynote speaker, the omnipresent corruption in Putin’s Russia is not a systemic defect, but an important instrument of political rule.

In his lecture, Guriev also explained how Putin underestimated the impact of the Western sanctions imposed after the attack on Ukraine. At least initially, these caused a real shock to the Russian economy, sending the rouble spiralling downwards, driving up inflation and spooking Russian consumers. Western companies leaving Russia, the severity of the sanctions – above all, the seizure of the Russian Central Bank’s foreign exchange reserves in the West, worth over USD 300bn – and the sharp decline in trade all dealt the country’s economy a heavy blow. The West’s embargo on the export to Russia of high-tech products such as semiconductors and machinery has exacerbated the situation.

Western oil sanctions are working, according to Guriev, because they are forcing Russia to sell its oil at way below world market prices, which is having an impact on the Kremlin’s ability to finance the war. Even though Russia has managed to withstand the initial shock of the sanctions and to adapt economically to them, the growth prospects for the country are bleak, especially in the medium to long term.

Guriev ended his keynote lecture with an assessment of the political repercussions of the invasion for both Russia and the world generally. In his opinion, Russia under Putin has evolved from a mild dictatorship to an open one that is based on oppression and fear. He believes that the longer the war lasts, the greater will be the hardening of the political regime. He also suggests that in the countries of the Global South, which has not condemned Russia’s war, Moscow is exploiting anti-colonial sentiments and the grievances that the West created through its mishandling of the distribution of Covid-19 vaccines.

Regarding China, Guriev said that although trade between the two countries is growing strongly, China is not supplying Russia with weapons or cutting-edge telecommunications equipment. Only Iran and North Korea have so far supplied Moscow with military equipment and ammunition.

Sergei Guriev concluded that Putin failed to understand the unity of the West, the resilience of Ukraine’s resistance and the level of endemic corruption in his own army. He argued that the reason for this failure is that dictators like Putin shut down any and all critical thinking and feedback systems, isolating themselves in echo chambers, where they are surrounded by yes-men.

Sergei Guriev’s presentation is available for download here.