The Devil's Dance

Scenarios of the Future of Russia

Welcome to the Devil’s Dance. I’m Thane Gustafson, and for the past forty years, I’ve been a teacher and consultant on Russian affairs, traveling all over Russia from my base at Georgetown University in Washington DC, focusing especially on energy, technology, environment, and the politics of all three.

Today is the most fateful time in Russian-Western relations since the fall of the Soviet Union. As the war in Ukraine settles into what looks like a bloody stalemate, it has faded from the headlines. But make no mistake. The war’s broader consequences are still unfolding; they are unpredictable and highly dangerous; and we will be living with them for decades.

I’ve started this column to try to help us—you and me both—think about the possible futures ahead. This first installment will offer a broad framework; subsequent ones will focus on specific issues. Please join me for this and future posts. I welcome your comments and suggestions.

Thinking about the future

History rarely unfolds in a straight line. What we expect seldom comes to pass; and what actually happens is often what we least expect.

Thirty years ago, a colleague and I wrote a book called Russia 2010, in which we attempted to “peer around the corners of history,” as we put it, to imagine the possible futures of Russia. At the time, the range of possibilities seemed almost limitless, ranging from a coup by Russian securocrats to an economic miracle driven by Russian entrepreneurs in a market economy. As a plausible middle road in-between, we conjured up a conservative-nationalist authoritarian regime, which we called “Two-Headed Eagle.” How did we do? Remarkably, elements of all of these scenarios came to pass. “Two-Headed Eagle” came closest, except that the Russian Eagle has now stopped looking at the future, and is looking solely at the past.

What would a similar scenarios exercise look like today? In the scenarios business, the devil is in the uncertainties and surprises. So it has proved to be in Russia over the last thirty years. The same lesson will hold true now as we attempt to peer forward into the coming decades. The new drivers include the rise of China, the end of neoliberal globalization, the continuing threat of pandemics, and the growing specter of global warming. But it is above all the uncertainties and surprises that will shape the ultimate playing field.

The war will be a game-changer, in three time frames, each with its own uncertainties. Here is my list:

·       The Great Unwinding: The first is the present massive unwinding of three decades of investment and trade relations between Russia and the West, as hundreds of Western companies pull out of Russia. Are they now gone forever, and if so, how will Russia adapt? Will the longer-term impact be as great as it now seems to be?

·       Energy Security, Markets, and Climate: The second is the re-emergence of energy security and energy prices as the world’s top concerns, temporarily pushing climate to the back of the stage. But as climate change returns to the fore—as it inevitably will--how will the narrative of “Save us from global warming!” fit together with that of “Save us from the Russians!”?

·       Russia the Pariah State? The third set of uncertainties deals with the longer-term future of Russia. Will Russia, as the result of the war, continuing sanctions, and the decline of its energy revenues, decay into an impoverished pariah state, or does it have options that could insure its survival as a great power? Is a pariah state in the world’s interest?

These questions will be the basic themes of my coming posts. Here are some examples:

The Great Unwinding: How Far Will it Go? How Long Will it Last?

The short-term result of the Western exodus from Russia is chaos. Over a thousand Western companies have declared that they are closing their stores and factories; banks are ending their dealings with Russian counterparties; joint ventures are being terminated. The Kremlin is retaliating with counter-measures, aimed at punishing “businesses from unfriendly countries” who pull out of Russia. Western companies are desperately looking for buyers for their stakes; they are struggling to get paid and to transfer money out of the country, while seeking to provide for their many thousands of Russian employees, and to negotiate terms for possible re-entry later on. “But in most of these exits,” says one Western banker, “they’re going to have to dance with the devil.” Yet how long will the unwinding continue, if and when there is a settlement of the war?

The other face of the Great Unwinding is the upheaval in Russian energy exports. As Europe debates putting embargoes on Russian oil and gas, it is not just Western companies that are unwinding; Russian companies are doing so as well. At this writing, Russia is cutting off gas exports to one European country after another—Poland and Bulgaria first, and then Finland. The key uncertainty is how long will it take Europe to free itself from dependence on Russian gas—two years, or five, or more? As for oil, the threat is reversed: if the European Union can overcome the objections of Hungary, Russian oil exports to Europe will be halted within the next two years. But can an oil embargo actually be enforced? By what means?

It is indeed the Devil’s Dance. Other devilish metaphors spring to mind. “The devil is in the details,” is one familiar saying. Undoing long-standing contracts and commitments is turning out to be so complex that, as the Russians say, “the devil himself would break a leg.” But as a German saying also reminds us, “When the devil is busy, he sends a lawyer.” One predictable result of the unwinding will be years of disputes and litigation, with plenty of lucrative business for courts and lawyers. The biggest uncertainty about the Great Unwinding, in short, is how prolonged and messy it will turn out to be, how far it will go, and how much collateral damage there will be along the way.

Energy Security vs. Climate Policy: The Coming Decarbonization Wars

The second major source of uncertainty ahead will be the coming massive change in traditional Russian-European trade relations, as Russian energy exports to Europe decline and Russia attempts to find substitutes. Beginning in the mid-2020s, a new phase will begin, as climate issues return to the fore. Europe’s next-generation green program, “Fit for Fifty-Five” will lead to a whole new zone of conflict between Europe and Russia, as Europe imposes tariffs on high-carbon imports. One battleground will be Russian steel, which is mainly smelted with coal. Another will be ammonia, potentially a source of hydrogen but currently produced with Russian gas. Russian petrochemicals too will come under attack. Each of these battles will involve prolonged litigation and diplomatic battles.

Russia the Pariah State? The Long-Term Impact of Sanctions and Energy Transition on Russia

The third dimension of game-change, the long-term repercussions of the invasion on Russia’s future, is the most uncertain of all, for two main reasons. The first is the evolution of global climate politics; the second is the long-term impact of sanctions.

First, on climate: despite the recent recovery in oil consumption, most projections of global energy trends continue to predict a peak in oil demand sometime in the 2030s, accompanied by slower growth of gas demand and a sharp decline in coal. The consequences of a decline in oil consumption would be catastrophic for Russia’s “hydrocarbon model,” which remains the foundation of its economic and political system and the basis of its international power. Though Russia has alternatives (such as agricultural exports), they would not come close to making up for the sharp decline of its hydrocarbon export revenues. The big uncertainty on this front is when the peak will come, as the Putin era nears its end.

Second, the long-term impact of Western sanctions is uncertain. Russia is already finding short-term ways of adapting to sanctions, both through substitution and workarounds; but their long-term effect will continue to be to impede Russia’s access to next-generation technologies and services. The main question is, How long will sanctions be maintained? The present united front of the West may well erode, particularly if the United States, the EU, and Ukraine disagree over the terms of a settlement to the war. In addition, as soon as actual hostilities end, the battle over reparations will begin. The West will attempt to use the lifting of sanctions as a bargaining chip to induce Russia to contribute to the recovery of Ukraine, but very likely to no avail. The result could be a lengthy stalemate. Sanctions could be around for a long time.

The consequence, if the West continues to treat Russia as a pariah state, could be that Russia becomes an increasingly isolated and impoverished country. Yet this is potentially the most dangerous prospect of all. By mid-century the West would face a wounded and vengeful country with 36 000 miles of borders, armed with over 7000 nuclear warheads. Sooner or later, the West will have to decide how, and on what terms, to attempt to end Russia’s isolation and draw it back into the global economy. That time is not yet; indeed, it may be decades away; and it will require a new Russian leader and a new generation of Russian elites. But they will need to be full partners in the enterprise. Of all the possible scenarios of the future, this one will be the most devilishly difficult to construct, yet ultimately the most necessary for the safety of the world.

I hope these reflections have been useful. More to come. Stay tuned.

Thane Gustafson is the author and co-author of eight books on Russian affairs, including most recently Wheel of Fortune: the Battle for Oil and Power in Russia (2012), The Bridge: Natural Gas in a Redivided Europe (2020), and Klimat: Russia in the Age of Climate Change (2021), all with Harvard University Press.