Explainer: What is behind the attempted coup in Russia and how will it affect the country’s economy?

Let’s begin with a brief chronology of events. On the evening of June 23, Yevgeny Prigozhin, the head of the Russian private military company Wagner, launched into a rant against the leadership of the Russian defense ministry. Prigozhin accused the leadership of incompetence, theft and corruption. He also stated that the official data on deaths in the “special operation in Ukraine” underestimated by up to 10 times.

A few hours later, Prigozhin said that the defense ministry forces had attacked formations of Wagner PMC, as the group of mercenaries is officially known. He declared a “March for Justice” and said he intended to “sort it out” with the defense leadership. In particular, he announced an “act of retribution” against Commander Gerasimov and Defense Minister Shoigu.

The next day, on the morning of June 24, Russian President Vladimir Putin addressed the nation with a message, urging Wagner PMC forces to surrender. Putin accused the firm’s leadership of treason and promised that the organisers of the uprising and participants would be punished accordingly. When this article was being written, PMC Wagner forces had already taken regional centres in the south of Russia – the cities of Rostov-on-Don and Voronezh – without a fight. They were moving towards Moscow.

Wagner PMC columns continued to move without encountering any organised resistance, with the exception of several attempts to bombard the formation by air (there were at least four separate helicopter sorties). An anti-terrorist operation has been declared in Moscow and major cities of the Central Federal District.

The key question now is how monolithic the state will prove to be; it is this that determines how far the insurgency will go and how severe the consequences for Russia will be. But it is also interesting what to expect from the outcome of the uprising to the world.

Prigozhin’s demands

Prigozhin says the main objective of the “March of Justice” is the overthrow of the military leadership, but with a caveat – so far, he has never made accusations about the president and commander-in-chief of the Russian armed forces, Vladimir Putin. On the contrary, hr has always publicly emphasised his loyalty to the president personally.

After the Putin address, the situation changed somewhat. Prigozhin said that he did not agree with the president’s position and that he did not consider himself or his troops traitors to the motherland. He said they were opposed to thieving officials, though he still did not accuse Putin directly.

Prigozhin has been involved in major criminal schemes in the Russian Federation over the past decades. His company, Concord, used its political connections to gain a monopoly position to supply state institutions (including educational institutions and military units) with foodstuff. When Prigozhin talks about corruption in the army and the government, he knows what he is talking about – he is part of this system.

Prigozhin’s image as a Robin Hood was created precisely by the forces of state propaganda, since the beginning of active participation of the Wagner PMC in combat operations in Ukraine. The Russian government awarded him the title of “Hero of Russia” and boosted the image of the Wagner PMC members in the country. It was only in the middle of the day on June 24 and only in St Petersburg and Moscow that they started taking down the posters urging people to join private military companies,

Despite the media image of Prigozhin, he is an oligarch who participates in corrupt schemes and makes money from officially illegal activities in Russia and maintaining the private paramilitary forces. He is no different from those he accuses of corruption. That is why his uprising does not directly threaten the existing system but only individuals within this system. In this, his rhetoric coincides with that of the Russian liberal opposition. For example, Prigozhin has already been publicly supported by exiled opposition leader Mikhail Khodorkovsky.

Many have hastened to compare the situation to the 1917 Russian Revolution (this is what Putin did in his address) or to 1991-’93 (the failed attempts at military coups to prevent the collapse of the USSR). All of these examples have external and structural similarities, but are fundamentally unsuited to describe specifically the events surrounding the Wagner uprising, primarily for economic reasons, the underlying basis of the uprising and the declared objectives.

These previous situations brought radical changes that were designed to solve a set of problems and contradictions for which there were no other resolutions.

Prigozhin’s demands, however, have no such justification. Wagner’s principal position is to continue the war in Ukraine but it has not outlined how the economic and political structures should be changed. It only wants the “undeserving” to be overthrown. This can be characterised as a coup. A coup never solves existing contradictions and is solely an indicator of a split in the upper circles (economic, political, military) that want to organise a redistribution of shares in the existing system, rather than replacing the system with something else.

The economics of the revolt

What can be said about the economic sustainability and sustainability of the rebellion at the moment?

Wagner PMC does not have its own infrastructure, which would allow it to replenish its ammunition and personnel. The group does not have stocks of food and fuel or the logistical systems that could provide them. Private military companies do not have their own political or administrative resources that could deal with these tasks in the territories under their control. This means that the assault should be quick and in principle the issue will be resolved soon.

There is a threat of dispersal of private military company forces and the beginning of partisanship and urban guerrillas. This would complicate the political, economic and military situation in Russia, but would mean the end of an active phase of the conflict. Searching for guerrillas without bases, supplies and funding within the country, and taking into account their current technological capabilities, is a matter of time.

The real challenge to the regime is an internal split within the country’s elites and the power structures. The duration of the uprising and its outcome will show the degree of this split.

The economy after the revolt

Predicting the outcome is a thankless task. However, the economic consequences are more predictable – they are partly visible now, and will be partly obvious in the short term.

Since Saturday morning, the ruble rate in exchange offices of Russian banks dropped against the dollar and euro by almost 10%. Experts expect the decrease of the official ruble exchange rate against the dollar on Monday at the level of 10-15 rubles in comparison with Friday. Stock quotes and capitalisation of Russian companies are falling amid the growing uncertainty. The decision to open trading on the Moscow Exchange on Monday has not been made yet.

Regardless of the outcome of the uprising, it demonstrates the weakness of the regime. Moscow’s negotiating position with its counterparts that continue active trade with Russia will weaken, allowing them to dictate even less favourable terms for the sale of major export products (primarily hydrocarbons). Depending on the length and activity of the conflict, logistics may suffer – there are two major ports in the south.

But the main thing is that there is absolutely nothing to fear from foreign businesses. Prigozhin’s rebellion is not aimed at changing the form of ownership or regulating the flow of capital. On the contrary, it is an opportunity for the business of countries friendly or neutral to Russia to acquire promising assets at a discount. These are the consequences that will come regardless of the outcome of the fights going on today.

For Ukraine and people of Russia, regardless of the outcome and defeat of one or the other side in the internal conflict, this will mean a tightening of the internal political regime and more fierce action on the military fronts.

Dan Pototsky, a graduate of Zhejiang Gongshang University, is a consulting adviser on markets and a junior research specialist. He is a contributor to China Daily and the South China Morning Post.