The Coup May Be Over, the Revolution Is Just Starting

We continue to watch the fascinating developments in Russia. While the coup has failed and Yevgeny Prigozhin is either in exile or meeting a worse fate, the reality of the situation is that Russia is on a path to internal strife. These events were eminently predictable. In fact, my team and I have been predicting them since day one of the Russian invasion in Ukraine. Here is what we said in a February 24, 2022 analysis:

Russian history is replete with examples of how aggression does not pay dividends for the country. The same advantages that have afforded Russia a near perfect record when playing defense – a vast expanse into which it can withdraw almost endlessly – make it difficult to project power over a long period of time. Ukraine itself is a large country. Although it neighbors Russia, supporting troops that far into hostile territory will be challenging.

Over the past 200 years, almost every Russian war of aggression has therefore ended in a bungled, embarrassing, tragedy that then bore fruits for a revolution.

Policymakers are not always aware of their material constraints. They may misjudge them. Or they may completely ignore them, irrationally. As such, the constraint-based framework is not always right, initially. However, if our assessment of the material constraints facing Russia in Ukraine is correct, then there will be consequences for President Putin for having misjudged them.

We reiterated this forecast in a recent commodity analysis as well, positing that internal strife in Russia would be one of the critical geopolitical risks that provide a tailwind for commodities:

Russian destabilization: The war in Ukraine has been a disaster for Russia militarily, geopolitically, and potentially – in the near future – politically. Domestic political insecurity could create an environment unconducive to capital investment – to put it mildly. Regime change could create complete chaos in the world’s largest exporter of commodities. This could lead to a severe decline in production. Russia has already announced oil production cuts amounting to 6.7% of its exports. While these cuts are flagged as retaliation for Western sanctions, that may simply be rhetorical cover for problems with maintaining production given a lack of Western technology and knowhow.