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Mar 28, 2016 | 10:54 GMT

Second-Quarter Forecast 2016: Former Soviet Union

Russia will try to shape negotiations with the West over the conflicts in Syria and Ukraine while confronting other issues closer to home.

Russia: Connecting Syria to Sanctions

This quarter will be defined by Russia's efforts to reshape the Syria crisis and, relatedly, to negotiate away EU sanctions. As Russia draws down its forces in Syria and as the Geneva talks on the conflict continue, Moscow will attempt to look more like a partner for a Syrian solution than like an aggressive interventionist. Russia still has significant influence in Syria politically and militarily, however, and it can ramp operations back up if it deems necessary. All of this will frame Russia's talks with the United States and the European Union. Above all, Russia is trying to change the atmosphere in the lead-up to two important events in the third quarter: the NATO summit in Warsaw and the EU sanctions decision.

Any decision to lift or ease EU sanctions against Russia prior to their expiration at the end of July would require a unanimous vote from all 28 member states, which will not happen this quarter. But an extension of the sanctions once they expire would also require unanimity. Russia will use the next few months to lobby the countries that are most amenable to easing sanctions, such as Italy, Hungary and Greece, to vote in Moscow's favor come July. Moscow is also inviting important EU leaders and European business elites to the St. Petersburg International Economic Forum in June for the same purpose.

Germany is the country to watch. Voices within Germany, the European Union and the United States are calling on Berlin not to let Moscow off the hook for its actions in Ukraine. But Germany is also looking for a way to slow the flow of refugees from Syria, an issue Russia is tying to its withdrawal from Syria and to the Geneva talks. From bilateral visits to multilateral engagements in Minsk and Normandy, diplomacy between Russia and the European Union will dominate the second quarter. Russia will also maintain its presence in Ukraine, though no major military escalations — or political concessions, for that matter — are expected.

In the meantime, Russia's saber-rattling toward the West is likely to rise leading up the NATO summit, despite the drawdown of forces in Syria. Russia's threats will be motivated by countries such as Poland, Romania and the Baltic states, which are pushing for permanent forces and an increased NATO presence in their regions.

Russia and Japan will hold high-level meetings and summits this quarter in what will appear to be a warming relationship. But Russia will not budge on the issue of the disputed Kuril Islands, and Japan will probably not lift sanctions until others (such as the European Union) do. Moscow will invite Tokyo to participate and invest in some large investment projects, particularly in energy, along the Arctic and in the Far East. The United States is pressuring Japan to keep its money and technology out of Russia, but Japan seems open to finding compromise on economic matters this year.

Potential Rifts in Russia

The Kremlin's plan to stave off economic crisis is slated to go into effect during this quarter. The plan includes increased state investment into the Russian regions, the automotive sector and the banks. At the same time, the Kremlin will likely enact more budget cuts, and some large firms can be expected to sell assets at home and abroad. Though the Kremlin will move forward with plans to privatize some firms, such as Russian Helicopters and Alrosa, it will still struggle to do the same with larger firms, such as energy giant Rosneft. The most important privatization to watch this year concerns energy firm Bashneft; Lukoil may be looking to challenge Rosneft for the firm's acquisition, sparking a battle between the energy giants that would require the intervention of the Kremlin. Moscow will also debate whether to curb Gazprom's domestic and export pipeline monopolies, though it is unclear if a decision will be made on the issue this quarter.

Meanwhile, the Kremlin will prepare for parliamentary and regional elections that will be held in the third quarter. The Kremlin is designing deals with opposition groups to try to bolster ruling United Russia's position come September, pressuring (and possibly reshuffling) the governors, and circumventing plans for protests. The Kremlin's biggest conundrum this quarter will be what to do with Chechen President Ramzan Kadyrov, who announced in the first quarter that he will not seek re-election. Thus far, it looks as though Kadyrov's announcement was intended to force Russian President Vladimir Putin to give him support and a mandate to continue ruling Chechnya.

Volatility in Ukraine

For Ukraine, a major political shake-up is probable this quarter (and sooner rather than later), including overhauls of the Cabinet and ruling coalition, though early elections are unlikely to be called or held. Despite surviving a no-confidence vote in the first quarter, Prime Minister Arseniy Yatsenyuk is likely to step down in favor of a new government led by parliamentary speaker Volodymyr Groysman. As long as early elections are avoided, much-needed financial assistance from the International Monetary Fund is likely to resume this quarter, and Ukraine should stay financially afloat.

Given Ukraine's political volatility, Kiev is unlikely to follow through on key political aspects of the Minsk agreement, such as granting autonomy to the separatist regions and recognizing elections in the Donbas region. The conflict in eastern Ukraine is not going away, though major offensives by the separatists are unlikely. Kiev will continue to confront pro-Russia separatists on one hand and far-right ultranationalist groups on the other, but the Ukrainian government will not fall.

Elsewhere in the Former Soviet Union

The ripple effects of the standoff in Ukraine between Russia and the West will continue to manifest across the periphery of the former Soviet Union. In Belarus, the government will deepen economic ties with the West to offset lingering financial issues, but it will maintain strategic military and security ties with Russia. Moldova, which has been in the midst of a political standoff between pro-Russia opposition parties and the pro-EU government, will stabilize somewhat in the quarter. The frequency of anti-government protests will drop off, but Moldova's foreign policy will remain deadlocked. The Baltic states will keep pursuing alternative energy sources and will diversify away from Russia while seeking a stronger commitment from NATO, but no permanent NATO presence will be established in the area this quarter.

In the Caucasus, Georgia will build economic ties with Russia while looking for greater commitments from NATO in the lead-up to the Warsaw Summit; full NATO membership will elude Georgia this quarter and beyond, however. Azerbaijan will escalate the Nagorno-Karabakh dispute between itself and Armenia as it tries to divert attention from domestic economic difficulties. Still, major military hostilities are unlikely to break out. Russia and Turkey will try to influence talks between the two countries through their respective allies.

In Central Asia, economic issues stemming from falling remittances and growing unemployment will provoke protests and political instability in the region. Kazakhstan and Uzbekistan have plans to alleviate the pressure by privatizing firms, but they will have trouble finding international buyers. The threat of militant spillover along the Afghanistan-Central Asia border will be a concern, so Russia and the United States will continue to compete for security partnerships in the region. Tajikistan will increase security cooperation in areas such as counterterrorism with other countries, especially China, but will remain strategically aligned with Russia.

All images are courtesy of Getty.

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