On the eve of the crisis Russian foreign policy changed dramatically. The phrase "Russia has got up from its knees" lost any shade of irony and became an unassailable truth. Moscow was demonstrating that it was ready to spend any amount of money to look like a superpower. The crisis had a cooling effect, but it turned out that the Russian Government was prepared to save on anything but not on foreign policy ambitions.
A useful crisis
At the end of last year the world financial crisis played a positive role in international politics by effectively preventing a cold war into which Russia and the West were sliding after the war in the Caucasus. Beginning from August of 2008 Europe was seriously discussing imposing sanctions against Moscow, NATO declared that the relations with Russia could not be "business as usual" and the European Union suspended the discussion of an agreement on partnership and cooperation with Russia. There was no sign that tensions would go away any time soon.
Moscow showed no inclination to backtrack, to apologise or make peace. On the contrary, throughout the year the Kremlin was seeking actively to increase Russia's international weight. Even before the war the new foreign policy concept proclaimed that the unipolar world was history and that Russia had finally got up from its knees. Moscow launched an ambitious plan of concluding a new European Security Treaty. In September Russian Foreign Minister Sergei Lavrov told the UN General Assembly in New York that he felt no isolation, indeed, Russia's voice had come to be heard even louder after the war with Georgia.
However, the financial crisis cancelled out everything that the Russian authorities were so proud of. It changed the Russian foreign policy priorities overnight, as President Dmitry Medvedev practically admitted in his year-end interview to the Russian TV channels. Asked about his main foreign policy goals in the following year, the head of state first said that of course it was necessary "to ensure a worthy place for Russia in international relations". But what he said next sounded unexpected: "but it seems to me that there is no more important task today than overcoming the consequences of the global financial crisis". Surprisingly, as late as June of last year Dmitry Medvedev claimed that the crisis would not affect Russia and Russia would help to resolve it as rich companies would make investments abroad and Moscow would become a world financial centre and the rouble would turn into a reserve currency.
By December 2008 a new draft foreign policy strategy was developed, which for the first time urged the need not to spend too much on high-profile international projects. According to the drafters of the document, Moscow should pursue a very pragmatic foreign policy that "rules out wasteful confrontation, including a new arms race".
The situation in which Gazprom, the flagship of the Russian foreign policy, found itself was also indicative. Two of its most powerful foreign projects were under a question mark by the end of 2008. The head of East European Gas Analysis, Mikhail Korchemkin, notes that the master scheme of the development of the gas sector until 2030 published by Gazprom does not include the South Stream and the Caspian Gas pipeline projects. It was clear on the eve of the New Year that Gazprom could lose $20 billion of revenue because it had started looking for Western partners prepared to finance such projects as Nord Stream and Shtokman. Gazprom was ready to diminish its share of these projects in return for additional investments by its partners.
The gas inertia
However, awareness of the need to try to save money and to review policy ran into the force of inertia. In the new year Russia entered with a new large-scale and ambitious conflict, the gas war against Ukraine. Both Gazprom and Prime Minister Putin claimed that the causes of the conflict were purely economic. All the calculations prompted that the conflict broke out over a mere $614 million in fines that Russia demanded and that Ukraine said it would pay only under a court ruling.
Some argued that the gas crisis could have favourable economic consequences. Pro-Kremlin analysts claimed that after realising that Ukraine was such an unreliable transit country, European consumers would understand the importance of building new pipelines from Russia that would follow different routes thus boosting the chances of Nord Stream and South Stream. That is not what happened in reality.
In the short term, Gazprom lost several million euros due to suspension of gas supplies. But the biggest damage was caused to its reputation. Public opinion in Europe felt that Gazprom was at least as much to blame for what happened as Ukraine. The retaliation was not swift, but powerful: at the end of April the European Parliament approved the "third energy package" that would liberalise the gas market in Europe. In fact it debars Gazprom from the European gas market. In the context of the crisis, political ambitions were doubly counterproductive.
Lessons for others
Russia's rhetoric in the months that followed also showed that Moscow had no coherent line of behaviour in the context of the crisis. President Dmitry Medvedev repeatedly said that many ambitions had to be given up because of the crisis. He recalled his own idea that the rouble should become a world reserve currency and Moscow a world financial centre admitting that such projects are best forgotten in current conditions.
However, the Russian authorities refused to revise their foreign policy, crisis or no crisis. Deputy Prime Minister Sergei Ivanov, addressing the Munich Security Conference, said that the Russian foreign policy was consistent and therefore needed no adjustments. Foreign Minister Sergei Lavrov in his traditional January press conference concentrated on the conclusions that the Western countries should draw from the crisis. They were to blame for the crisis and it was for them to derive lessons from their own mistakes, he claimed.
When Kommersant's correspondent asked the Minister whether the crisis would affect the massive Russian expansion to Latin America, which began at the end of last year, the building of the union state with Belarus, which was still to be completed, the ideas of the strengthening of the CIS, for the sake of which the Federal Agency for CIS Affairs had been created, and the South Stream and North Stream projects, the Minister's answer was unequivocal: "I don't think that the projects you have mentioned have been shelved because of the crisis." Indeed, in his opinion, "these projects would help to cope with the negative consequences of the global financial crisis".
Speaking about the crisis, Mr Lavrov noted that "every cloud has a silver lining" because "the global financial and economic crisis forces everyone to focus on pressing issues and not on virtual projects". Paradoxically, however, Sergei Lavrov included among pressing issues the development of a new European Security Treaty, the strengthening of the CIS, EurAsEC and the CSTO. He said: "The CIS countries should not be hostages to anyone's geopolitical projects. It is inadmissible to confront them with an artificial choice: you are either with us, or against us." It was clear from the context that the Minister was referring to the West and not Russia. "As for the CIS and the spheres of influence, we do not seek spheres of influence," he said.
Political luxury
Indeed, throughout the year Russia has continued to behave in the world as if there was no crisis. While the economists are in panic, geopoliticians feel quite comfortable. Kommersant has calculated that Russia spent about $10 billion in just three days of active foreign policy, from April 2 to April 4. First, Moscow granted Belarus a $1 billion credit (the second part of the $2 billion credit agreed upon in November of last year); it contributed $88 million to the budget of the union state. It spent considerable amounts on Kyrgyzstan, which had declared its plan to close down the American military base at Bishkek's Manas airport. Russia promised it a free grant of $150 million and another $300 million as a 40-year loan at a symbolic interest rate of 0.75% with payment deferred by seven years. Besides, Russia committed itself to extending Kyrgyzstan a $1.7 billion loan over four years at LIBOR +3% rate.
Finally, Russia wrote off $180 million of Kyrgyzstan's debt. It intended to contribute about $6 billion to EurAsEC's anti-crisis fund.
Russia permits itself broad foreign policy gestures in spite of the fact that the Russian stock market lost 70% of its capitalisation since the start of the crisis; that prices for commodities, which fuelled growth, have dropped dramatically; that easy Western loans that promoted growth were gone and that Russia had failed to diversify its economy. One of the few growing spending items in time of crisis is state propaganda. The authorities, convinced that Russia is finally up from its knees, are prepared to exert far greater efforts to make that confidence unshakeable at any cost.