Political Monitor

Country Political Risk Snapshot - Russia

Country Risk, Risk Index

Country political risk snapshot Russia

RISK RATING: MODERATE

FORECAST TREND: STABLE

Russia has been rated a MODERATE risk on the Political Monitor Asia Political Risk Index with a score of 26 / 100. The relatively low risk score will surprise many analysts given recent tensions with the West over conflict in Ukraine and the resultant impact of economic sanctions.

However, Russia is well positioned to weather these headwinds. Positive key influencing factors include relatively low levels of external debt; a Gini coefficient (which measures inequality) lower than the regional average; secure food supplies; and relatively low levels of poverty.

RECENT EVENTS AND OUTLOOK

While the economic impact of Western sanctions against Russia have been well documented – including stock market declines and foreign exchange outflows – they have failed to dent the underlying social and political structures upon which President Vladimir Putin relies. His popularity has risen in recent months as he has effectively made the West scapegoats for economic troubles and pursued a broader strategy of engagement with countries resisting US leadership. Most notable is Russia’s relationship with China with which trade flows are growing as the two countries embrace a form of energy and financial interdependence.

Recently, Russia and China signed over 40 agreements covering energy, finance and infrastructure. And while most attention was paid to energy deals it is a US$24 billion currency swap between the countries two central banks that signals how little impact sanctions will have when Russia has an energy hungry country like China looking to hedge against the US.

But it is the support of Russia’s middle class that will matter most to Putin over coming months and there are clear signs as to how he has kept them onside. Relatively low levels of poverty and inequality (as measured by the Gini coefficient) are an important measure of Putin’s success in ensuring enough of Russia’s population have shared the spoils of the commodities boom, a point missed by much of the Western media as they focus on Moscow’s oligarchs and new rich.

This underlying support will serve as an important buffer for Putin against domestic opposition and sustain him in his battle with the West. Trade and finance deals with the likes of China will aid him in this endeavor. Accordingly, Russia’s outlook is rated as STABLE.

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