BACKGROUND: Economic crisis, the conflict in Ukraine and international sanctions are transforming the political regime in Russia, also affecting relations between the central government and peripheral regions. Moscow has struggled to suppress separatism in the North Caucasus over the past 20 years. It is not surprising, therefore, that the international crisis caused by Russia’s invasion of Ukraine reverberates in the North Caucasus. Russia’s aggressive policies in Ukraine have a direct impact on the political and economic situation in Russia’s most unstable periphery. Regional authorities in the North Caucasus have begun to voice unusual concerns, demanding justice from Moscow. The signs of muted discontent that is apparently brewing in the North Caucasus suggest that the existing order dominated by fear of the all-powerful central state may start crumbling.

For example, the influential Dagestani newspaper Chernovik termed a conference devoted to countering religious extremism in the city of Makhachkala on August 6 a “breakthrough” event. “For the first time the representatives of the republican authorities publicly voiced arguments that describe the activities of the law enforcement agencies not only as insufficient and overburdened with formalities, but as carried out with excesses that result in the opposite effect – exasperation of the masses, provoking intra-religious conflict,” the newspaper wrote.

As a rule, regional authorities in the North Caucasus do not criticize the combat operations of the police and security services against the insurgents. Without civilian oversight, the security services routinely break the law and are shielded from prosecution by the Russian federal government. This situation, according to some observers, results in a continual cycle of violence as the victims’ friends and relatives take revenge against the government or extend their passive support to the insurgents. Dagestan has been the most volatile North Caucasian republic in the past several years, and some local observers have arrived at the conclusion that the conflict in the republic is political and, therefore, needs a negotiated political solution. An understanding is growing in Dagestan that Moscow is not interested in reaching peace in the republic as it is fighting a colonial war against non-Russians.

IMPLICATIONS: Apart from the tacit disagreement on such a major policy issue as counterinsurgency, economic discrepancies emerge in forms that are previously unheard of. Russian authorities have launched a campaign of shutting down regional banks. A number of Dagestani banks were shut down in the past year under the pretext of fraud, money laundering operations and even providing support for the republic’s insurgents. Several regional banks were shut down in North Ossetia and the republic is on the verge of economic collapse, according to some analysts. North Ossetia’s Prime Minister Sergei Takoev made a frantic statement that the closing of banks in the republic “undermined confidence in the fairness of business laws” in Russia. This appears to be a campaign of expropriation that is practically eliminating the North Caucasus’ regional banking industry. On August 30, one of the few large profitable enterprises in Dagestan, the Kizlyar brandy factory was appropriated by Moscow as “federal property.”

It appears that calculating its present and future losses because of the poor economic outlook, Moscow has decided to collect as much revenues and assets from the regions as possible, but in a clandestine, indirect way. The North Caucasus used to be more privileged compared to other Russian regions because of its separatist aspirations, but Moscow currently appears intent on cutting those privileges.

The North Caucasian republics are not necessarily poor. Dagestan, for example, reportedly has at least 1 billion tons of oil reserves. This is a large resource for a republic with a population of barely 4 million. Yet, Moscow does not allow these oil fields to be developed as it fears losing control over this region. The approaching economic downturn will raise these pressing issues with ever greater urgency – why does Dagestan have to survive on financial handouts from Moscow, when it can potentially flourish on its oil reserves?

On September 8, President Putin disbanded the Ministry for Regional Development, but the Ministry for the Development of the North Caucasus remained in place. It is unclear, however, what this ministry will do as the government has significantly scaled down its plans for developing world class ski resorts in the North Caucasus. Moscow’s grandiose plans for constructing one resort in each of the North Caucasian republics never seemed realistic and were seemingly devised as a ploy to appease regional elites against the backdrop of the Russian government’s lavish spending on the nearby Olympic sites in Sochi. After the Olympics and facing many other pressing issues, the fairytale about ski resorts in the North Caucasus was practically renounced by officials.

The absence of actual or even potential prospects for life improvement in the North Caucasus combined with the tightening of regional economic policy will likely have serious consequences for Russia’s rule in the region. Much depends on how the conflict in Ukraine evolves and how hard the sanctions will hit Russia’s economy, but the fault lines have become evident. The Russian government faces financial overstretch at home as an effect of its government’s expansive (and expansionist) foreign policy. The restive North Caucasus region is a key indicator of how Moscow will cope with domestic pressures. While Moscow can always rely on crude force in this peripheral region that is largely populated by ethnic non-Russians, even there it will also have to offer some benefits in order to retain control over the situation.

As the Russian government’s foreign policy gamble will require more resources, its ability to provide benefits to domestic audiences will decrease further. Regional elites in the North Caucasus already show signs of weariness about Moscow’s inattention to their interests and outright plundering of their resources. This incentivizes the central government to adopt some radical changes in regional policies. Moscow should either opt for granting the regions greater autonomy in developing their existing resources and capabilities or move in to establish a greater degree of direct rule. At this time Moscow appears to signal that it has opted for the latter in the North Caucasus.

CONCLUSIONS: Facing foreign policy challenges, the Russian government chooses to draw more resources from the regions and establish greater control over them. However, the allegiance of the regional elites has its limits and fault lines appear to emerge in the North Caucasus. Although no region in the North Caucasus is likely to challenge Moscow directly at this point, the tensions already manifest themselves in unusually open and nervous statements by regional officials. As the Russian leadership continues on a collision course with the neighboring countries and the West, its foreign policy challenges will mount. This will have a direct impact on domestic stability and prompt the government to adopt significant changes, especially so in the North Caucasus, a region that is regarded as potentially disloyal.

AUTHOR’S BIO: Valeriy Dzutsev is a Senior Non-Resident Fellow at Jamestown Foundation and Doctoral Student in Political Science at Arizona State University.

(Image Attribution: Wikimedia Commons, Creative Commons)