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28.06.2013

Russia After Putin: The Demographic Challenge

Russia is experiencing major changes affecting its demographics and its energy sector. To address these and other challenges, Russian President Vladimir Putin is instituting changes to Russia's political system.

Editor's Note: This is the second part of a three-part series on Russia's leadership after President Vladimir Putin eventually leaves office. Part 1 revisited Putin's rise to power; Part 2 will examine Russia's demographics, energy sector and Putin's political changes; and Part 3 will explore whether the political systems Putin has built will survive him.

Demographic Shifts

Russia's population of 143 million is expected to decline by nearly 10 percent by 2030, according to most estimates. The drop is mainly among ethnic Russians. By contrast, the population of Muslims, both indigenous and immigrant, is actually increasing. The decline of ethnic Russians and the increase in the Muslim population means Muslims will comprise 16 percent of the population by 2030. Some estimates put this figure at more than 20 percent due to illegal immigration.

The increasing Muslim share of the Russian population has spawned an ultranationalist backlash. Over the past three years, large nationwide protests have demanded immigration reform and an end to subsidies for Muslim parts of the North Caucasus. A rise in ultra-Orthodoxy played into this, with religious-based vigilante groups trying to take responsibility for Russian security. The decline in the population of ethnic Russians has also put the Russian military under pressure. Moscow is having to downgrade its ambitions of maintaining a 1 million-man army to maintaining an 800,000-strong military. The country's demographic changes have also prompted debate inside the Kremlin regarding whether and how Muslims should be integrated into the army.

In another major demographic change, the first generation born after the fall of the Soviet Union is coming of age. Approximately 21 percent of Russians were born after the fall of the Soviet Union. This shift has changed the mind-set of the population. The new generation never knew a world dominated by Russia and the United States during the Cold War, and they were too young to understand much of the chaos of the Yeltsin era. Most of this generation's experiences occurred under a stable and relatively strong Russia under Putin. Thanks to the Internet, the younger generation also has had many more opportunities for exposure to the outside world than were previously possible. Russia's Levada polling unit estimates that more than 50 percent of Russians now use the Internet, up from less than 10 percent in 2006.

Because of these changes, political discourse has become much more varied inside Russia -- something that has put extraordinary pressure on the Kremlin. Anti-Muslim sentiment, the generational changes and the expanded political consciousness all came to a head in 2011 and 2012, when large anti-Kremlin protests swept the country. The protests seemingly caught the Kremlin off guard. Moscow scrambled to respond, instituting a series of sweeping changes to government policy, demoting or purging key government members, and then cracking down on the protesters. In light of the new situation, the Kremlin has reconsidered how best to maintain control.

Energy Shifts

At the same time as these demographic changes, global energy fluctuations deeply affected Russia's stability. The Russian economy is mostly based on energy, with half of government revenues coming from oil and natural gas. And one of the primary sources of the Russian government's political leverage abroad is via energy relationships with other countries.

Energy as an economic base and revenue mainstay has served the current Russian government well. One of the reasons Putin was able to consolidate the country so effectively in the 2000s is because global oil prices were so high, giving the Kremlin plenty of cash to implement its plans. Meanwhile, Russian dominance of the natural gas market in Europe gave Moscow the wherewithal to re-expand its influence into the former Soviet sphere, rolling back Western influence in many cases.

But when energy prices or demand drops, the Kremlin loses government revenues and much of its influence on its western neighbors. This occurred in 2009, when the global financial crisis was underway and the price of oil fell to approximately $60 a barrel. The Russian economy slumped, with gross domestic product dropping 8 percent, and Kremlin finances were saved only because the government tapped into its massive reserve funds. Currently, the Russian budget is based on the assumption that oil will remain above $90 a barrel. The Kremlin has essentially decided to gamble the future stability of the country on that assumption, though its currency reserves still stand at approximately $530 billion and it has various rainy day funds of approximately $171 billion.

Another uncertainty on top of oil prices is whether Europe will remain Russia's primary consumer of natural gas. After years of seeing Moscow use its natural gas supplies to manipulate them politically, many European states have created ways to diversify away from Russian supplies, such as by building liquefied natural gas import terminals. The possibility of a glut of liquefied natural gas on the market and further developments in shale gas technology threaten Russia's position, particularly in Europe. Because of this, Russia is altering its aggressive stance on energy in Europe in favor of more consumer-friendly arrangements. Russia is also trying to buffer falling European demand by finding customers in Asia, where Moscow is striking deals with China and Japan. Historically, it has not succeeded in this regard, however.

Many challenges remain that threaten the Russian energy sector, which in turn could destabilize the government and country. Many reforms must be considered, such as the liberalization of the natural gas sector, ending Gazprom's present monopoly. In addition, Russia must continue its consumer-friendly policies to maintain its customers. All of this will require changes to the Kremlin's strategy, something that is creating ripples throughout Russia's political elite.

A 'New' Political System

With so many fundamental changes impacting Russia, the old arrangement of government decision-making has fallen apart. Putin is revamping the system with four main goals. First, he wants to create a system in which personalities can be interchanged more easily so he is not reliant on specific people to keep the system afloat. Second, he wants a system that is not vertically built of two clans, but instead be defined in collective sectors. This is so that should one person fail, then other sectors will not be affected. Third, the system should have neutral players popular with the Russian people, or at least to whom the Russian people can relate. And fourth, the system must have a method by which a new generation can rise to the top, creating a succession plan for the elite.

This new system has been dubbed the Politburo 2.0, a title initially used by a Russian consulting group called Minchenko but now common in the Russian media. Politburo 2.0 has some similarities to the Soviet Politburos of old, specifically during the Stalin era. At that time, Politburos were rarely formal entities, but more a collection of Stalin's most trusted elites able to make decisions and policy in their respective fields. Acting as decision-maker over this elite, Stalin ultimately shaped Soviet strategy.

Currently, the Politburo 2.0 system is bifurcated into an internal elite that serves as the primary decision-maker inside the country and an outside tier of technocrats. Including Putin as arbitrator, the Politburo has 10 members, though this number is not fixed.

As under Stalin, this Politburo is not a formal organization. Its members' roles can be shifted to deal with changes in Russia. Currently, the 10 people on the Politburo are not technocrats, but overall strategists for Russia's social, political, economic, military, security and business interests. The technocrats under the Politburo do not hold true power or play roles in decision-making. In place of two clans with their own hierarchy, Putin is creating an overarching group of people, each of whom has his own portfolio where they make their decisions, creating a balancing effect, but none of whom is competing with each other.

The current Politburo is made up of those Putin trusts most who have proven themselves to be competent strategists, though the personalities can be interchanged by Putin as needed. Each Politburo member has a base of power to draw on. For example, Igor Sechin oversees the oil sector, Sergei Shoigu the military and Sergei Ivanov the security circles. The one exception is Dmitri Medvedev, who is more of a representative of a series of second- and third-tier reformers (such as Arkady Dvorkovich, Igor Shuvalov, and at one time Alexei Kudrin) who are not powerful enough on their own, but under Medvedev collectively hold weight.

Three Politburo members oversee decision-making in energy: Igor Sechin, Dmitri Medvedev and Gennady Timchenko. Sechin mainly oversees the oil sector, but is attempting to expand into natural gas; Medvedev's loyalists (such as Alexei Miller) head up Gazprom, which is expanding into oil; and Timchenko is an oil and natural gas trader with interests in private natural gas firm Novatek. These three men see the energy sector in very different ways, with Putin as top decision-maker and arbiter.

There are a few outliers within the Politburo: Chief of the Presidential Staff Sergei Ivanov, who keeps the intelligence sectors in check, and current Moscow Mayor Sergei Sobyanin who oversees the running of Moscow. Ivanov has long been one of Putin's most trusted loyalists, and has been willing to step back when needed. Sobyanin is currently jockeying to succeed Putin and is attempting to remain neutral among all the circles.

Unlike the clan system, there are potential replacements outside the Politburo keeping pressure on those within. Under the 10 within the Politburo are a series of second-tier main players who are all vying to move up. As mentioned, the existence of these people pressures the elite to keep to Putin's agenda and perform their jobs competently. Putin can swap out the Politburo members with those from the second tier as needed. For example, Medvedev's power is currently diminishing and his loyalists have been falling away. Medvedev could be swapped out by someone like former Finance Minister Alexei Kudrin, who could make decisions as a prime minister and in the financial and energy sectors. Alternatively, Medvedev's roles in the political sector could be filled by someone like Vladislav Surkov, who once was a civiliki leader before falling out of favor.

As other people in Russia prove themselves as competent technocrats or strategists, they can move up into the second tier, meaning that this group is constantly changing and shifting, especially as a new generation begins to be groomed for the future.