When The Tail Wagners The Dog
By Benjamin Picton, Senior Macro Strategist at Rabobank
Vladimir Lenin once said that “every cook has to learn to govern the state”. That seems an apt observation given the events of the weekend, where a one-time hotdog vendor colloquially known as ‘Putin’s Chef’ launched a mutiny of sorts against the Russian government. Yevgeny Prigozhin, the leader of the Wagner Private Military Company, claims that his aborted march on Moscow over the weekend was a “march for justice”. In a video rant on Friday he pointed an accusing finger squarely at Defence Minister Sergei Shoigu and commander of the Russian forces in Ukraine, Valery Gerasimov, implying that both men were incompetent and self-interested in their prosecution of the war. Notably, Prigozhin’s critique did not extend to Putin, who he claims was deceived into launching the war in Ukraine in the first place by the top brass of the Russian General Staff.
A lot has happened over the last three days, but the market reaction has been muted thus-far. Brent crude opened 65 cents a barrel higher and has rallied a further 36 cents, wheat futures have opened slightly higher, gold is up $7/ounce and the US 10y yield has fallen 1bps since Friday close. Asian stocks are going pretty much nowhere early in the session. Another round of weak PMI data out of Europe and the US on Friday has been largely lost in the hubbub.
The finer points of Russian politics tend to be opaque and poorly understood by many of us here in the West. Tensions between Wagner and the regular armed forces of Russia are long-running. Prigozhin has for months been critical of Russian logistics, which he claims had failed to provide his fighters with sufficient ammunition and supplies at critical stages of the war in Ukraine. There is more than a suggestion that this has been deliberate, given the jockeying for favour between Prigozhin and senior members of the General Staff. Nevertheless, PMC Wagner has been prominent in the few successes that the Russian forces have had in Ukraine. This should come as no great surprise since PMC Wagner is much more battle-hardened that the regular Russian armed forces. Wagner has been fighting in Ukraine since 2014, and has also been active in Syria, Sudan, Libya and Mali in that time. Prigozhin’s fighters were the driving force behind the capture of the city of Bakhmut after months of attritional fighting, and months of criticising the leadership of the regular army.
Tensions came to a head last week when Prigozhin accused the Russian military of hitting a Wagner camp with a friendly-fire missile barrage. PMC Wagner abandoned their positions in Ukraine and marched into Russia, where they secured the Southern Military District headquarters in Rostov-on-Don, a crucial command point for the war and the gateway to Russia’s most fertile oil and grain producing regions. From Rostov, Wagner advanced north to Voronezh, and apparently coming within 125 miles of Moscow before an agreement brokered by Belarussian President Alexander Lukashenko lead to the mutiny being abruptly called off. This was not before Vladimir Putin gave a televised address on Saturday, accusing the mutineers of “treason” and confirming that he had given the order to the Russian armed forces to put down the rebellion.
Wagner forces have now pulled back to Belarus and positions in Ukraine after Prigozhin said that pressing on would mean that “Russian blood would be spilled”.
Questions abound:
How is it that Wagner were able to come so close to Moscow with so little resistance?
How were they able to mobilise and move without the Federal Security Service (the Russian spy agency) knowing about it beforehand?
Why did Prigozhin back down so quickly when he seemed to have the advantage?
One of the more interesting theories is that the mutiny was an elaborate Maskirovka that gives Vladimir Putin a face-saving opportunity to scale back the war in Ukraine, while providing political cover to move against internal enemies in the Kremlin. The real test of this theory will be what happens to Prigozhin. The agreement brokered by Lukashenko included guarantees of safety, but Putin had been unequivocal earlier when he said that anyone involved in the mutiny “will be punished inevitably... Our actions to defend the fatherland from such a threat will be brutal.” If we take Putin at his word here, Prigozhin has surely signed his own death warrant.
Western Leaders have largely kept quiet on the events in Russia (lest Putin use any hint of Western involvement as a rallying-point), but Joe Biden did suggest that the rebellion reveals how weak Putin’s grip on power really is. That could be the case, but Sun Tzu said that you should never back your enemy into a corner. Putin appears to have observed this maxim by giving PMC Wagner an out (at least temporarily), but what is the endgame here for Putin himself? Does he use this putsch to consolidate his grip on power as some have suggested? Or does the ease with which PMC Wagner shook the Russian state fire the starting gun on his eventual downfall? A power vacuum in a state with a 6000-strong nuclear arsenal is a terrifying prospect.
