From Russia… not with love

My family and I visited the Russian Federation (the official name) or simply Russia, in April/May this year to attend a family wedding. I am after all married to a Russian girl, and the wedding was the perfect opportunity for our twins to see their Babouchka (grandmother). The set took place over three days, covering three functions – all three confirming the intimate relationship Russians have with vodka.

I was criticized by some for my decision to take our children to a country at war, and although the wedding took place in Sochi, a city on the Black Sea – not so far from Ukraine – I confirmed it was completely safe for us to visit beforehand. Sochi is a very popular holiday destination for Russians, as well as foreigners, and was the previous host city of the Winter Olympics.

Sidenote: Sochi is a very beautiful modern city. Even in spring, it is only an hour’s drive from a tan on the black pebble beach of the Black Sea to a ski slope in the Caucasus.

Besides visiting my family and enjoying a run by the sea every morning, I saw it as the perfect opportunity, as an economist, to try to get some insight into the point of view of ordinary Russians on the war between Russia and Ukraine. Sochi gave me the opportunity to talk to many people about their perspective on the war.

But things were about to change.

There are still many (mainly) Middle Eastern airlines flying the Moscow route, but it is mainly (only) Russian airlines flying domestic routes. We encountered full planes and crowded airports. No sign of war anywhere!

On the way back, we faced problems at customs. Since our daughters have dual citizenship, they weren’t allowed to leave Russia with their South African passports – the way they arrived – because Russia doesn’t recognize dual citizenship – apparently? Believe me, Russian customs officers are as rude and unfriendly as most customs officers anywhere in the world and an individual’s rudeness is directly related to the size of the stamp they are waving…. So we could leave our nine-year-old daughters in Russia, they would feed them and give them shelter, these friendly customs officers said, or we had to get Russian passports for the girls.

So, there we were in the middle of the night, my wife half-hysterical, the girls in tears, with no money and nowhere to go.

Since Russia was excluded from the SWIFT system, “Western” credit cards do not work in Russia.

Fortunately, we still had our Russian SIM cards and at 3:00 am we booked into a ’boutique hotel’, generous description… I also managed to borrow 100,000 RUB, or about 20,000 RUB, from friends.

We weren’t able to start the passport application process until a few days later due to public holidays, but at least we were able to move into the small, modern apartment in Moscow of the bride whose wedding we attended. It gave me another opportunity to explore Moscow and see with my own eyes the impact of the war on the capital.

Here are my impressions…

There is no sign of war anywhere. There were no soldiers, tanks, or any other sign of the army. Some preparations were made in Red Square for the May 9 celebrations, but not much else.

The economy seems to be pumping, in Moscow and Sochi at least. Everyone I spoke to said business was good, all the supermarkets are well stocked with a variety of goodies we can only dream of. As in the rest of the world, people are complaining about rising prices, but the ruble has come back strong after plunging just after the invasion of Ukraine in late February, when interest rates rose sharply.

Subsequently, interest rates were again reduced and the ruble now trades at higher levels than before the invasion.

The effect of the sanctions against Russia will take some time to be felt in the economy – I estimate that the Russian economy may shrink by almost 10% this year, but we are certainly not talking about an economy free fall. I have spoken to many Russians who are very confident in their ability to withstand any economic sanctions from the West, because there are ways around them.

“In fact,” many say, “they are already considering finding alternatives to Western sanctions, and Russia’s immense raw material wealth can still be used as a weapon to defend its economy.”

But what really surprised me was that not only did I see no signs of war, but also that people don’t talk much, if at all, about the war. The official media factually report the war only in the news hours and it is often not even the main news of the bulletin.

A Putin-loving taxi driver told me he wasn’t sure about everything and there was a lot of fake news. Sound familiar?

I managed to strike up a few conversations about the war and learn a bit more about the different views of Russians on the war, but it was a few personal stories that really stuck with me. There was this guy, a big Putin fan, whose mother who lives in Ukraine had to flee before the Russian invaders arrived. Families are torn apart but he remains a Putin fan

“Do ordinary Russians support the war? is a question I have been asked many times.

Like any disagreement, there are many moving parties in this conflict. It should be remembered that Russia and Ukraine were once the same country, and Ukraine is a relatively young country. In fact, the Russians call Ukraine a little Russia. There is also a historical context which is important, for example the role of Ukraine (alongside Germany) during the Second World War. The composition of the Ukrainian population, for example Catholic in the west and Orthodox in the east. The promise after the fall of the Berlin Wall that NATO would not expand to the east…

I’m also pretty sure that Ukraine, one of the most corrupt countries in Europe, discriminated against Russian speakers from the East, but to what extent I’m not sure. Some say that Russians were prevented from speaking Russian, others say that Russian churches were burned down and Russians were even killed. This happened mainly in the eastern region of Donbass.

Also remember that Krim (or Crimea as the West calls it) “belonged” to the Russian part of the USSR and the majority of Crimeans today are ethnic Russians. I’m also pretty sure that most people in Donbass and Krim would want to be part of greater Russia.

So context is important, but let me come to the question: “Does the ordinary Russian support the invasion of Ukraine?”

I don’t think that’s the right question. I think the questions we should be asking ourselves are:

  • Does the average Russian support his military forces?
  • Does the average Russian support the invasion of Ukraine?
  • Does the average Russian support Putin?

May 9 is the day the Russians celebrate their victory over Nazi Germany. It is a day of great pride for their military forces and all towns and villages have statues and such to celebrate their ‘boys’ and also many ‘girls’. And wherever their forces are, they will support them. The only reason this war drags on is because “Russian forces are disciplined and exercise restraint. If they wanted to, they could have taken control of Ukraine a long time ago. Nothing can oppose the Russian army”. That’s what most Russians say.

But does the average Russian support the invasion of Ukraine?

It depends. I would say that most Russians support the idea that Donbass and Krim (and maybe other regions as well) should be part of Russia’s future. For the rest of Ukraine, I felt like most Russians just didn’t care.

When it comes to Putin’s support, there are fanatical Putin supporters as well as some vocal Putin haters. Proponents (and some detractors) believe that Russia is a vast country full of diversity and that a “strong” leader is essential. Others see Putin as a mad dictator.

That said, where do I think it will all end?

  • With or without Putin, it is out of the question for the Russians to leave Donbass and Krim; they are now part of Russia.
  • I don’t foresee popular support for Russia to invade the rest of Ukraine. Putin may attempt to do so, but given Russia’s setbacks in the war so far, it could lead to his demise.
  • I don’t think Putin is as sick as some Western media reports. I also doubt that a palace revolution is imminent. Putin’s personal security measures are second to none, and bear in mind that a powerful man cornered can be extremely dangerous – I’m talking nuclear here… Besides, Putin isn’t crazy; he is very rational.
  • What really worries me is that accidents happen in wars, and an accident involving Russian and NATO forces can just spiral out of control. Again, I’m talking about nuclear conflict.

During all these observations, my biggest concern was that the Russian Department of Internal Affairs was on par with South Africa’s – otherwise we would be stuck in Russia for many more months. Fortunately, the Russian administration is incredibly efficient, competent and friendly. Literally hours after applying for passports we had them in our hands and we could leave Russia.

I think the Russian invasion was a mistake and a strategic mistake. Putin wanted to prevent further eastward expansion of NATO, and it will now accelerate. Putin wanted to incorporate (parts of) Ukraine into Russia. Instead, he contributed to a new Ukrainian nationalism. Putin also grossly underestimated the West’s reaction (sanctions) and hopelessly overestimated the capacity of his forces.

The most likely outcome of this conflict is a low-level civil war that will last for a very long time.

Sanctions against Russia will remain in place, (some) commodity prices will remain high, inflation could become stagflation, global growth will suffer and financial markets will be affected.

In these circumstances, a good asset manager will perform the “normal” analysis, but will also keep a close eye on global geopolitical developments. Is it possible that China is using the Ukrainian hijacking as an opportunity to stop Taiwan? No one has definitive answers to all questions, but we must remain vigilant and well informed. We live in interesting times.

Dawie Roodt is Chief Economist of the Efficient Group

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