Russia’s Crisis Is Over for Now. But Brinkmanship Is on the Rise Globally.

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If you went off the grid this weekend and skipped Russia’s rapid-fire insurrection, you might be forgiven for thinking you didn’t miss much as far as markets and economics are concerned. Vladimir Putin is still the president of Russia. His war in Ukraine continues. Oil will likely take on a bit more of a geopolitical risk premium, but supplies are generally unchanged. Western investors have few direct connections to Russian markets since the onset of sanctions last year. 

So what’s the big deal?

As far as Russia itself is concerned, the aborted march on Moscow by the paramilitary Wagner Group and its chief, Yevgeny Prigozhin, was a kind of dry run for the day Putin does finally exit the scene. No one knows when that moment will come. But when it does, it will be an intense geopolitical shock to markets. 

And for the wider world, the chaos in Russia is part of a growing trend of high-stakes political brinkmanship that could throw global growth off course. In Iran, China, and even the U.S., parties that see themselves as locked out of their rightful place in the political order are taking big risks in order to effect change. Any one of those gambles could suddenly go wrong, with serious economic consequences.

In case you really were off the grid, here’s what transpired in Russia. On Friday, Prigozhin lashed out at the Russian Ministry of Defense for what he described as an attack on Wagner’s forces by the Russian military. He called on his troops to march on Moscow. Over the next 18 hours or so, Wagner troops fired on Russian aircraft and occupied a military command in Rostov-on-Don in southern Russia. A convoy began to make its way toward Moscow, only to be called off mid-Saturday after Prigozhin spoke to Putin ally and Belarussian dictator Alexander Lukashenko. Prigozhin will now apparently enter exile in Belarus, and his Wagner forces will receive something of an amnesty.

This sequence of events is an unequivocal disaster for Putin. His adversaries are emboldened. “Now the country and the world know it’s possible to rebel against Putin without being put down, because Putin is weak,” wrote former political prisoner Mikhail Khodorkovsky.

To understand that weakness, it helps to think about whether or not the events that transpired were really a “coup.” Prigozhin for one said it wasn’t. A coup, in its simplest form, is an attempt to seize executive power from a leader. “Prigozhin’s rebellion wasn’t a bid for power or an attempt to overtake the Kremlin,” wrote Tatiana Stanovaya, the founder of the analysis firm R.Politik. Instead, he was attempting to force Putin’s attention to the future role of the Wagner Group, which Prigozhin saw as being at risk. In that sense, Prigozhin’s actions weren’t a disruption to the normal flow of power in Russia; they were a continuation of it. 

Putin has often been described as the most powerful individual in the world, even more than the U.S. president, because he has unfettered control of his state. Prigozhin’s mutiny shows that reading to be incomplete. The former Yemeni dictator Ali Abdullah Saleh once said he was “dancing on the heads of snakes.” He maintained power by playing his domestic rivals off each other, but they remained deadly dangerous. Putin’s control of Russia is similar. He remains president because he has sufficient power—in this case the loyalty of the Ministry of Defense—but his control isn’t absolute. And it could end suddenly, without much warning to outsiders. When it does, we’ll all be left wondering who has control of the nuclear weapons, what will happen to the forces at the new leader’s control, and whether the oil will keep flowing. 

Saleh’s dancing kept him in power for more than 30 years. In 2017, he took a wrong step. He turned on his former allies, and they killed him.

The lesson is that the best clues to who has power are sometimes the most obvious. Prigozhin had a private military and a willingness to use it, or at least threaten to. If he weren’t so strong, he probably still wouldn’t be alive. Though as former CIA Director David Petraeus said on CNN today, “He should be very careful around open windows in his new surroundings.”

That lesson about power also matters outside of Russia. Iran is forcing the U.S. to pay attention to its issues, even if Washington would rather not. The U.S. withdrew from the nuclear-weapons deal under the Trump administration and increased sanctions. Now, a set of so-far-inconclusive talks are widely reported to be under way, also involving the status of hostages held by Iran and access to its frozen funds. The Biden administration might have been perfectly happy with the ambiguous status quo, but, as Iran expert Vali Nasr explained, “the Iranians have decided to, basically, change that calculation.” Iran, like Prigozhin, has enough hard power that it can force its adversaries to pay attention. That’s why Saudi Arabia reached a surprise deal with Iran earlier this year. Unless and until some kind of accommodation is reached, the risk of a conflict that upsets markets and energy flows in the region remains elevated.

China, too, is driving an endless cycle of interest in Taiwan because Beijing now has the military capabilities to credibly threaten to retake the island. Just as in Russia and Iran, it’s hard to say how events would play out if China actually opted to use its power. But its willingness to push the limits is exerting constant downward pressure on markets as supply chains shift and investors reconsider their exposure to China.

Washington isn’t immune to this kind of brinkmanship. The debt-ceiling crisis was hardly resolved before the possibility of a government shutdown in October came into view. Republican members of the House have little in common with the unsavory autocrats in Russia, Iran, or China, but as far as markets are concerned, the dynamic is similar. A group of hard-liners understands that it can get what it wants only by threatening the political order. And there’s a real risk that their brinkmanship will go too far and cause lasting economic damage.

These issues of power and how it’s seized are at their most alarming when real violence is a possibility. Several Russians are dead in the wake of the Wagner insurrection. But even when the stakes are lower, the possibility of a sudden rupture to the flow of finance and economics is likely closer than many investors realize.

Write to Matt Peterson at [email protected]

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