To force a change in Russia’s behaviour in a way that leaves Ukraine sovereign and whole, Western policymakers must create a real threat to Putin’s regime. This threat must be perceived by Kremlin officials as outweighing that presented by a military and political retreat. Properly designed and applied sanctions, allied to Ukrainian military success on the battlefield, offer the best chance of accomplishing this.
Unlike ‘classic’, formalized dictatorships that appeared resilient to sanctions, the Putin regime maintains its stability through a peculiar combination of fear and rent distribution. The regime’s backbone is an informal patronal network known as the ‘vertical of power’. Within this network, loyalty is sustained using rents as ‘carrots’ and fear as a ‘stick’. Putin wields power only for as long as his subjects and the country’s elites believe that he will hold it indefinitely and thus be able to punish disobedience and reward loyalty. Yet this loyalty will last only as long as elites value their future gains from rents more highly than the potential gains from abandoning the regime.
Under the right conditions, a hitherto stable authoritarian regime such as Russia’s can quickly and dramatically become unstable. A change of expectations creates a dynamic similar to that of a bank run. The meltdown of the Soviet Union was arguably the most famous case, but similar collapses have occurred in post-Soviet states that inherited parts of the former Soviet patronal networks. An obvious trigger for a revolution or internal coup is a fiscal crisis that prevents the regime from distributing rents. So-called ‘limited access order’ regimes such as Russia’s – that is, ones that depend on the personified allocation of rents – are generally more susceptible to fiscal crises than liberal democracies. Even if regimes manage to partly substitute one source of rent with another, cuts and reallocations of rents fuel elite grievances detrimental to the regime’s stability.
In short, Russia’s vertical of power is rigid, fragile and vulnerable to changes in the flow of rents. It is vulnerable to changes in expectations among the elites and to events that might undermine Putin’s reputation as tough and near-invincible. It is crucial for the regime to show both its internal and external audiences that the status quo will hold. Compromise (for example, over Ukrainian sovereignty) could undermine the leader’s reputation and jeopardize the vertical of power. From this perspective, the invasion of Ukraine serves as a signalling game in Putin’s relationship with the West, particularly in the context of the ultimatums presented by Russia to NATO in December 2021, although they were also necessary as a signal to the Russian public.
Despite the failure to achieve his initial goals, Putin does not want a compromise settlement in which Ukraine would retain its sovereignty and obtain meaningful security guarantees. Unless Putin manages to impose on Ukraine a peace deal on terms allowing Russia to destroy Ukraine’s sovereignty and national identity while also pushing NATO back to its pre-enlargement borders, he is unlikely to halt hostilities unless their continuation poses a greater threat to regime stability and survival than retreat does.
While the value of oil rents is equivalent to less than 10 per cent of GDP, cutting them off would be the most effective way of destabilizing the regime.
This is where an enhanced oil-price cap could come in. The primary source of political rents in Russia is its oil and gas sectors. These rents are redistributed through the federal budget, as well as through extra-budgetary channels via a network of offshore companies. The latter are formally private but effectively controlled by the regime. While the value of oil rents is equivalent to less than 10 per cent of GDP, cutting them off would be the most effective way of destabilizing the regime. A credible threat to eliminate oil rents is thus a potentially powerful tool for changing – or at least constraining – Russia’s behaviour, whether or not Putin is in power.
