In 2016 the Russian economy is expected to contract by 0.7%, an improvement on the 3.7% contraction experienced in 2015. Nonetheless, the Russian economy will remain subdued amid low commodity prices and Western-imposed economic sanctions.
The main developments in Russia’s Near Abroad will be increased tensions in Central Asia due the expansion of the Eurasian Economic Union (‘EEU’) and a rising terrorist threat emanating out of Afghanistan.
The conflict in eastern Ukraine will continue to simmer without erupting, as will the stalemate in Nagorno-Karabakh.
Major possible disruptors in the former Soviet Union include a coloured revolution in Armenia, spillover of the Afghan war into Tajikistan, or Turkey closing the Dardanelles to Russian shipping, a development that would have serious economic repercussions for Russia. Although these events are unlikely, they have the potential to be game-changers and are therefore important areas to watch for any possible movement.
TENSION IN CENTRAL ASIA & THE CAUCASUS
The EEU will continue on its path to incorporate Kyrgyzstan in 2016. However, this development, along with the membership of Kazakhstan and Kyrgyzstan, has ostracised Tajikistan and Uzbekistan, which have poor relations with the current members of the Union.
Tajikistan, the poorest of the former Soviet states, faces the highest risk of economic and political instability in 2016. With an underdeveloped economy and a poor population that is heavily dependent on remittances, the country is particularly vulnerable to the economic troubles that have afflicted Russia, where most Tajik migrant labourers work.
The threat of the Afghan conflict spilling over into Tajikistan adds to the precarious situation in the country. Should ISIS in Afghanistan manage to seize the main smuggling routes through Tajikistan or seize more ground close to the Tajik border, the situation in the Muslim-majority country may become unstable. If Tajikistan experiences an increase in Islamic extremist groups operating in or near to its borders, the effect on the highly connected Central Asian states would be disastrous.
The relationship between Armenia – another EEU member – and Azerbaijan will continue to be troubled by hostility in 2016 as the two neighbours continue their long-running dispute over Nagorno-Karabakh. Both countries maintain friendly ties with Russia, which has often stepped in to mediate ceasefires and to calm tensions in Yerevan and Baku. This will occur again in 2016 as the Kremlin seeks to reduce tensions following the outbreak of violence in Nagorno-Karabakh in 2015. The status quo in the southern Caucasus will therefore remain.
However, in the unlikely event of a colour revolution in Armenia, the situation will become unpredictable. Such a movement would prove disastrous for the country and the region and likely result in yet another frozen conflict in the former Soviet space, similar to that in eastern Ukraine.
THE RUSSIAN ECONOMY: STAGNATION
Although economic growth will remain negative in the coming year, the Russian economy will stabilise. The defence sector will continue to prosper, as orders from existing customers are confirmed, owing to the fact that Russian military technology is among the world’s most advanced.
As robust subsidiaries and Russian-imposed sanctions on agricultural exports begin to bite, Russia’s agricultural sector will also see growth.
Despite the growth in these key sectors, the outlook for the economy as a whole is bleak, as structural problems continue to hinder growth. The economy contracted 3.7% in 2015, a result of the combination of low commodity prices and economic sanctions. Although the economic outlook remains poor, it will begin to stabilise in 2016.
The Russian government may consider expanding arrangements similar to the Belarusian “Free Economic Zones” with other countries in the former Soviet space in a bid to attract long-term investment. For the Kremlin this type of arrangement strikes an appealing balance, allowing for more capital inflows while retaining control over the size and identity of the actors entering the economy.
However, Russia’s partners in the Union will begin to diversify their trade away from Russia in 2016 as they attempt to insulate themselves from the spillover effects of the Russian recession.
RUSSIA & UKRAINE: MAINTAINING THE STATUS QUO
The conflict in Ukraine will continue into its second year in 2016 as the War in Donbass continues. Due to the separatists’ access to superior Russian military technology and manpower, it is unlikely that the Ukrainian Armed Forces will make any substantial progress in conquering rebel-held areas in the south-east of the country. The war will continue along its seasonal patterns, with fighting at its peak in mid-winter, and mid-summer, and trailing off at the beginning of March and end of August.
Any political compromise or deal is unlikely, as both sides remain resolute to not give up any territory. Should the Kremlin feel confident that it has seen off any potential movement in Ukraine for NATO membership, a political compromise would be possible in the medium term. However, Russia will be reluctant to back down from supporting the separatists in the coming year given that it will damage their image as defendants of ethnic Russians and as reliable allies. However, given the fact the Kremlin is close to strategic overreach in Ukraine (making any rebel offensive unlikely), Kiev might decide that it is time to regain control of its borders.
THE KREMLIN’S EUROPEAN CHARM OFFENSIVE
Due to the damage to Russia’s reputation in Europe after the annexation of Crimea, attempts will be made to improve European sentiment towards Moscow in the coming year. This will take the form of a subtle public relations campaign highlighting a softer, less menacing Russia.
Russian involvement in the Syrian conflict and its role in airstrikes against both ISIS and other opposition groups will be at the forefront of engagement between European and Russian leaders. Cooperation with European nations is likely to be on Moscow’s agenda in 2016. France, in particular, will be sought out as a partner in the fight against terrorism, a move motivated by the fact that both countries experienced major terrorist attacks in the second half of 2015.
With public perceptions in both France and Russia remaining rather positive towards one another, increased cooperation, even if only on a superficial political level, is likely.