Russia could suffer economic blowback from Syria intervention

Russia could suffer economic blowback from Syria intervention

Russia’s domestic economy risks a further blow from the ongoing military operation in Syria.

Already damaged by low oil prices, capital flight, inflation and western sanctions, Russia’s domestic economy risks a further blow from the ongoing Russian military operation in Syria.

The downing on November 24 by Turkey of a Russian military jet is expected to further increase Russia’s military engagement in Syria and its already high military expenditures at the price of domestic capital investments. The incident will also strain the Russian economy as Russo-Turkish economic relations and investor sentiment towards Russia worsen.

The news of the downed Russian Sukhoi Su-24 strike aircraft by a Turkish Air Force F-16—which was the first instance of a Russian warplane being shot down by a Nato member since the 1950s—sent stocks spiraling as markets in Russia, Turkey and Europe reacted to the news. The Russian ruble and the Turkish lira also fell.

With Russia already placed on ‘downgrade review’ by Moody’s since March, the news is expected to further dampen investor sentiment in Russia. Reacting to the plane’s downing, Russia, which is Turkey’s largest export market, took strict economic action against Turkey. It immediately restricted areas of tourism and trade, leaving Turkish trucks stranded at the border and confiscating large quantities of Turkish food.

By Thursday, Russian Prime Minister Dmitry Medvedev ordered a range of economic sanctions against Turkey, including “restrictions and bans on Turkish economic structures operating on Russian territory, restrictions and bans on deliveries of products, including foodstuffs, as well as on labor and services.” These sanctions could foreseeably impact the Russian construction sector, where Turkish companies are heavily involved in significant ways.

The sanctions can also negatively impact Russian consumers, who face increasingly limited options for consumables following earlier Russian sanctions on Western products, for which, incidentally, Turkish products filled the consumer void. If Turkey retaliates in response to Russia’s economic actions, the impact on the economy of Russia, which invested around $25 billion mostly in Russian gas supplies in Turkey last year, will be sizeable.

Without structural reform, the ongoing cost of Russia’s military operation will also dent its domestic economy. With one of the world’s highest military budgets, Russia’s military expenditure as a percentage of GDP has risen year-on-year for the past five years. And while Russia’s GDP is expected to contract by over 4% this year, military expenditures as a percentage of GDP will rise to a record high in 2015 not seen since the Soviet era.

Despite these risks to the domestic economy, President Vladimir Putin’s decision to strike against opposition forces in Syria still garners strong public support at home. That support will likely grow following the downing of the Russian fighter jet and the terrorist attacks that took the lives of Russian nationals in Egypt and Mali.

Indeed, since the bombing in Egypt of the passenger jet that took the lives of 224 Russians, polls conducted by Moscow’s Levada Center show rising approval—now at 55%–for Russian airstrikes against Syrian targets.

It remains to be seen when, and if, economic concerns will begin to chafe this public support in Russia.

Categories: Economics, Europe

About Author

Marina Peunova

Marina Peunova is an analyst with expertise in Europe and Russia. She has written extensively on Russian foreign policy, Islam in Russia, the rise of the Russian and European Far Right, as well as global migration. Marina holds a master’s degree in International History and Politics from the University of Geneva’s Graduate Institute of International Studies and a bachelor’s degree in History from Georgetown University.