Putin aims to win a war of attrition by enhancing effectiveness and efficiency with the help of skillful economic technocrats
Multinationals should anticipate a continuation of current economic policies, as most of the economic management team members have retained their positions. The recent changes also indicate President Vladimir Putin’s preparations for a long war, mobilizing all necessary economic resources, suggesting that multinationals will likely see the conflict extending into 2025. This might also lead to increased military spending, if necessary, potentially resulting in budget cuts in other non-military areas.
Overview
- On May 10, Prime Minister Mikhail Mishustin was reappointed by Putin’s nomination, and most cabinet members retained their posts, with a few exceptions.
- Andrei Belousov, an economist with no military experience and former deputy prime minister, has replaced Defense Minister Sergei Shoigu, who now serves as the secretary of the Security Council, succeeding Nikolai Patrushev.
- Patrushev, a close confidant of Putin known for his hawkish stance on the West, has been appointed as Putin’s aide to oversee shipbuilding. Patrushev’s son, the former agriculture minister, was appointed as the deputy prime minister for agriculture.
- Alexei Dyumin, the current governor of Tula region and former bodyguard to Putin, has been appointed as a presidential aide to oversee the military industry, sports, and the State Council advisory body, further strengthening his proximity to Putin.
- There have been no major changes in the security apparatus, with the heads of the Foreign Security Intelligence, the Federal Guard Service, the Federal Security Services (formerly known as KGB), the National Guard, and the Minister of Internal Affairs retaining their positions. Foreign Minister Sergey Lavrov was also among those who were reappointed.
- Amid ongoing structural adjustments, the current chief of the defense ministry’s personnel directorate has been arrested on bribery charges following the arrest of Deputy Defense Minister Timur Ivanov in April.
Our View
In line with our expectations, Mishustin and most of his economic management team maintained their roles, as Putin’s economic team proved to be more effective in the wartime compared to his military generals. Yet, some of the latest appointments are worthy of attention to understand Putin’s plans.
Shoigu’s dismissal was anticipated following bribery scandals within the Ministry of Defense. His new position seems like a promotion but is essentially an advisory role with limited power. This move likely stems from longstanding criticism of his performance during the war and pervasive corruption and ineffectiveness within the ministry. On the other hand, the appointment of Belousov, a seasoned technocrat previously serving as economy minister and Putin’s economic aide, came as a surprise. Belousov is expected to bring extensive experience from leading drone production projects and high-tech and innovation initiatives within Russia. In our view, Belousov’s appointment underscores Putin’s intention to integrate economic oversight into military expenditure, which now exceeds 6% of GDP, and spur innovation and technological advancement in the sector. Recognized for his patriotism and religious convictions, and his vocal support for the annexation of Crimea, Belousov is seen as well suited to support Putin’s military strategy. Meanwhile, Chief of Staff Valery Gerasimov remains in his position but is expected to be replaced as the new minister becomes more established in his new role. Despite the apparent demotion, Patrushev will continue to wield significant informal influence on ideological matters. Following Patrushev’s reassignment, his direct communications role with the US national security advisor has shifted to Shoigu, although Putin remains the key decision maker, and Patrushev had already diminished in the eyes of the US as a viable negotiator.
Overall, the absence of significant changes within the government, apart from the Ministry of Defense, indicates Putin’s desire for continuity and stability amid the ongoing war, without major shifts in war objectives. The recent reshuffle reaffirmed Putin’s unwavering commitment to the war, ensuring that all necessary resources are properly utilized to support the war effort.
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