This article was originally published on the author’s Substack “Sic Transition Gloria.”

There’s little reward for being right when few care what you say and you’ve mistimed the market of ideas. Much of the 2010s for us suffering Russianists was lost to Washington parlor games about a Russia resurgent. 

Yet amid all that static, Russia’s decline began precisely during its boom years, hastened then by its mistakes recovering from the Global Financial Crisis in 2008-2009. It’s worth revisiting this genealogy now that the failures of the war on Ukraine since 2022 have, finally, buried talk of resurgence and replaced it with the dawning realization that Ukraine has swallowed Russia’s capacity to preserve its imperial pretenses in its so-called Near Abroad.

By no means the end of the road for Russia’s influence, the war seals a qualitative decline of Moscow’s power that cannot be denied, nor arrested without radical changes to its political economy. This decline follows from over twenty years of short-sighted, misguided, or counter-productive policies, the bill for which has now come due. 

Tempting as it is to consider an alternative history of the 1990s, one where the Clinton administration and Western Europe forged a consensus to offer more aid to rebuild Russia and the broader region, doing so was impossible. Not only were there too few reliable institutions to call upon and the policy prescriptions adopted by Russia’s liberal reformers did not map onto their public’s preferences. 

It was not the IMF, the Washington Consensus, or foreign finance that foisted principles of “sound money” and finances upon Russia. Russians and other national elites did that job themselves out of necessity, using foreign interlocutors to pursue their own agendas when it suited them. Their respective societies are still living with the consequences. When Russia adopted a ruble peg to the U.S. dollar in 1994-95, it was a textbook policy intended to restrain inflation and prove to foreign investors the adults were in charge. Money would be sound and the cost of imported consumer goods would fall. 

But it also meant that businesses’ costs rose in real terms compared to their foreign competitors. The explosion of barter in Russia, effectively half of all economic activity by 1997-98, was partially downstream of an overvalued ruble whose stability lived and died with the price of oil, levels of oil exports and, after 1996, the confidence of foreign investors buying Russian sovereign bonds. They took a gamble that the world’s second-largest nuclear power was too big to fail. It was not. 

The default on Aug. 17, 1998, is the foundational event that led to Putinism as we understand it. Within weeks, it hung a yoke around the neck of the country’s political elite and liberal technocrats: the inviolate necessity that the country run twin budget and trade surpluses at all costs to maintain stability. Logical and correct at the time, this consensus would later accelerate Russia’s decline and inflame the same tensions that erupted into economic coercion time and time again and into full-fledged violence in Georgia and then Ukraine. 

These twin surpluses were ultimately antithetical to the provision of public economic goods across Eurasia. Russia’s economic relationships with neighbors took an imperial tenor by structure, not just the force of Russian leaders’ chauvinism or inability to accept the agency of those living in their former imperium. Coupled with Russia’s reliance on energy to finance its revival, the beginnings of decline appeared during the boom years of the 2000s, hidden from view by the overwhelming scale of the surge in energy revenues and the Kremlin’s growing assertiveness. They lay in how the windfall was spent and the logic of stabilization the technocracy still clings to today, now tasked with stumping up money and resources for the war no matter what.

Russian Economy Returns to Growth, but Economists Warn Rebound May Be Short-Lived

Oil and gas may be levers of power, but the Kremlin has been hostage to both because of the macroeconomic settlement that emerged from the default. The ruble peg only survived as long as it did because of oil exports until the 1997 Asian Financial Crisis knocked prices down by a third. Energy export earnings were crucial to ensure the currency’s stability as anyone with brains and enough cash parked their earnings outside of Russia. 

Then came the post-default compromises needed to remonetize the economy away from barter and stabilize national finances. The tax reforms for the oil and gas sector began in 1999 and were finalized in 2001 to fit into........

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