The standoff between Russia and the West has been central in shaping the global system for the past two years. Stratfor expects it to stay in place in 2016, though the levels of conflict and potential cooperation will wax and wane from issue to issue. The war in eastern Ukraine is likely to become a long-term frozen conflict, with fighting less intense than that seen in 2015 but periodic skirmishes continuing between Ukrainian security forces and Russian-backed separatists. The Minsk Protocol will continue to serve as the backbone of diplomatic negotiations. However, Russia and the separatists have a different interpretation of the Minsk agreement’s political components than Ukraine and the West do, and these differences will prevent a broader political and military settlement from being reached in 2016.
Moreover, the United States and the European Union are almost guaranteed to keep sanctions against Russia in place this year, unless Moscow proves willing to relinquish access to and control of the border between Russia and the separatist territories and allow monitors from the Organization for Security and Co-operation in Europe into Donbas. Moscow is unlikely to give in on either issue.
In the meantime, Russia and the West will continue fast-paced military exercises and weapons buildups focused on the European borderlands. NATO will add troops to its rotational deployments in Central and Eastern Europe, and Russia will add air and defense assets in areas such as Belarus and Kaliningrad. There will be no direct military conflict between Russian and NATO forces, but both sides will build up deterrence capabilities and shore up their respective security alliances.
Russia will continue its military involvement in Syria, which will complicate its relationships with Turkey, the United States and Europe. Russia will coordinate with these powers to deconflict the battlefield, particularly regarding cooperation against the Islamic State, although Moscow’s reinforcement of Syrian President Bashar al Assad’s government will entail targeting Sunni rebels and runs the risk of mission creep. Russia’s role in Syria will most notably undermine its relationship with Turkey. As Turkey draws closer to its NATO allies, Moscow will be cautious in how far it takes its confrontation with Ankara. The two countries will enact tit-for-tat trade restrictions and delay joint energy projects. Both countries will also compete for influence in the Caucasus — particularly in Azerbaijan — and try to shape the talks over the Nagorno-Karabakh dispute.
Russia Focuses on Security and the Economy
The Russian economy will continue to be a major priority for Moscow in 2016. The Kremlin has taken steps to insulate it from the effects of the Western sanctions, including seeking investment from Russia’s neighbors to the east, using Russian banks for financing and postponing large projects that require either foreign investment or technology restricted under the current sanctions. Russia probably can withstand another year of sanctions, but beyond 2016 they will jeopardize the country’s financial stability and ability to maintain current levels of energy production. Therefore, out of necessity, Moscow will be more accommodating with its Western energy contracts in 2016 as it works to increase energy ties with the east by prioritizing regional pipeline integration projects, such as the Eastern Gas Program and the Eastern Siberia-Pacific Ocean oil pipeline.
Economic growth in Russia will be relatively flat; the Russian Ministry of Economic Development has forecast growth of 0.7 percent for 2016. The economic decline that sent Russia into a recession will slow, as will capital flight and drops in industrial production. Major Russian industrial firms will have fewer international debt payments due in 2016 ($16 billion, compared to more than $30 billion in 2015). This will make it easier for these firms to receive financial assistance from the government or to broker assistance from major Russian banks to restructure their debts. The ruble is expected to remain volatile; the Russian Central Bank intends to step in only periodically to support the currency. This volatility could help Russian industrial and energy firms whose export revenues are in dollars, but it will put further economic strain on the Russian people, who are already experiencing high inflation and rising poverty rates. The weak ruble will exacerbate Russia’s socioeconomic issues. Not only will the currency’s weakness limit travel opportunities, but also the price of imported consumables not otherwise included in the Russian consumer price index calculations will increase. These circumstances could give rise to social unrest across the income spectrum, including medium- and high-income earners.
Growing economic pressures will lead to protests across Russia. The Kremlin will allow minor protests related to economic conditions to take place, but it will attempt to defuse any large and well-organized protests that take on more of an anti-Kremlin tone. Moreover, increased anti-Islamic State rhetoric from the government could fuel an uptick in ultra-nationalist unrest that culminates in protests and vigilantism targeting immigrant communities, similar to incidents seen in 2013. The Federal Security Services will attempt to use threats from the Islamic State and other Islamist militant groups to expand its security and intelligence powers within and outside of Russia. In addition, ahead of parliamentary elections in September, the Kremlin is likely to crack down on opposition groups and leaders in an attempt to keep them from organizing a more widespread movement.
Infighting among members of the Kremlin elite will intensify in 2016. Disputes involving major energy firms’ political backers, the ministers of finance, economy and energy, and even the security services will erupt over the future of Russia’s energy policies. Points of contention will include financial assistance for big energy firms and projects, whether to privatize Rosneft, and the possible end of Gazprom’s monopoly on natural gas pipelines. Disagreements will emerge among the various security services and military forces over who holds the portfolios for handling the ongoing situations in eastern Ukraine, Syria and other hot spots, and debates will arise over the balance of power, influence and financial resources among the security and military groups. Russian President Vladimir Putin’s ability to manage these disputes is declining, which will lead him to rely more on ultra-loyalists who have some distance from the core areas of contention.
Ukraine’s Domestic Troubles
The persistent conflict in eastern Ukraine will be only one of many serious challenges for Kiev in the next year. Far-right and nationalist groups will continue to undermine the Ukrainian government and hamper Kiev’s ability to follow through with its political concessions to the separatists. This, in turn, will guarantee that Donetsk and Luhansk will remain beyond Kiev’s political control, though certain economic links could be restored out of necessity for both sides over the course of the year.
The unpopularity of painful austerity measures and the slow pace of legal and judicial reform are likely to lead to a significant shake-up in Kiev in 2016, potentially including the replacement of embattled Ukrainian Prime Minister Arseniy Yatsenyuk. Nevertheless, Ukrainian President Petro Poroshenko will likely maintain Kiev’s pro-West course. Access to Western financial support and security assistance from NATO and the United States in particular are key to the survival of the Ukrainian government.
After contracting 10 percent in 2015, Ukraine’s economy will begin to slowly rebound in 2016, although high inflation and unemployment will continue to spur protests and occasional unrest. Kiev’s economic links with Moscow will likely weaken as the two countries debate debt repayments, energy and electricity supplies, and Ukraine’s implementation of a trade deal with the European Union that takes effect Jan. 1. Trade in resources such as energy supplies and agricultural goods will decline between Ukraine and Russia as Kiev gradually reorients its economy and broader strategic interests away from Russia and toward the West.
Political and Security Concerns in the Former Soviet Space
The Ukraine crisis will continue reverberating throughout the former Soviet Union in 2016. Belarus will gradually strengthen its economic ties with the West, but it will maintain its military and strategic alignment with Russia. Belarusian President Aleksandr Lukashenko will work to avoid the establishment of a Russian air base in his country in a bid to keep from creating more tension between Minsk and the West, but his position could change if NATO builds up its presence in neighboring Poland and the Baltic states.
In Moldova, a corruption scandal linked to the pro-EU government will create greater support for the country’s pro-Russia parties, but the paralysis in Moldova’s political system will ensure that Chisinau remains deadlocked on the issue of strategic integration with either Russia or the West. The Baltic states will make further strides toward energy diversification away from Russia this year as infrastructure and energy links are built up between the Baltics and Poland. These countries will also make more progress toward regional security integration; however, a permanent NATO or U.S. military presence there will not materialize in 2016.
Georgia will receive stronger Western security support in terms of exercises and involvement in the country’s new NATO training center, but actual NATO accession will remain off the table. Georgia will increase its economic ties with Russia in areas like energy and trade, even as Tbilisi stays strategically oriented toward the West.
The long-standing frozen conflict between Armenia and Azerbaijan over Nagorno-Karabakh could see significant change in 2016 as Russia tries to push along a negotiated deal involving a transfer of territory to Azerbaijan in exchange for economic and security guarantees for Armenia. Russia’s moves in the southern Caucasus will draw greater Turkish and U.S. attention as both work to counterbalance Moscow’s influence. If the talks over Nagorno-Karabakh collapse, an uptick in military hostilities can be expected. That said, a Russian-brokered diplomatic shift back to the status quo is more likely than a full-scale military conflict over the disputed territory.
A range of issues, including ongoing economic troubles, the return of migrant workers from Russia and the threat of rising Islamist militancy, will make Central Asia prone to heightened instability in 2016. Economic vulnerabilities will force some countries, such as Kazakhstan and Uzbekistan, to lobby for major foreign investment through planned privatization programs. Though this may garner minor interest and investment, neither country has undergone the kind of regulatory reforms that would inspire foreign investors to confidently go there.
Given their proximity to northern Afghanistan, Uzbekistan, Turkmenistan and Tajikistan will be particularly at risk from a security perspective, though the governments in these countries have an interest in playing up the Islamist militant threat as a reason to crack down on domestic opposition elements. Russia and the United States will also have an incentive to emphasize this threat as both pursue competing border security initiatives in Central Asia. Military cooperation between Azerbaijan and Kazakhstan, including joint exercises, will increase in the Caspian Sea as the West continues pursuing alternative energy projects like the Trans-Caspian Pipeline. At a Caspian Sea summit in Astana in August, Russia could voice support for working to delimit the seabed, although no major energy projects are likely to begin in 2016.
Annual Forecast 2016 is republished with permission of Stratfor