THE BELL WEEKLY: Shoigu removed, Belousov to become defense minister

Hello! This week we look at the surprise removal of Sergei Shoigu as Russia’s defense minister and dig into his replacement, Andrei Belousov, and what his priorities will be.

What to expect from Belousov as the new defense minister

Russian President Vladimir Putin sprang a Sunday night surprise with the shock dismissal of longtime defense minister Sergei Shoigu. He’ll be replaced by Andrei Belousov, a civilian economist and long-term economic advisor to the president.

Putin is constitutionally obligated to renominate government ministers following his inauguration last week. Unlike in 2018, when Putin reappointed Dmitry Medvedev as his prime minister within a couple of hours, this time the president bided his time. It took three days to announce the anticipated reappointment of Mikhail Mishustin as prime minister.

But Putin saved the big news for May 12, firing defense minister Sergei Shoigu and nominating Belousov as his replacement. Shoigu was in turn appointed secretary of the Security Council, replacing one of Putin’s closest allies Nikolai Patrushev (Kremlin spokesman Dmitry Peskov promised that Patrushev would also get a new position “in the near future”).

Who is Andrei Belousov? 

Belousov is often dubbed Putin’s closest economic advisor. There is some truth in that. He has worked directly with Putin in various roles since 2008. “A statesman surrounded by enemies," was how one government source described him to The Bell in 2018. Since being appointed first deputy prime minister in 2020, Belousov has lived up to that description, actively sniffing out and seizing excess profits from commodities companies to bankroll his notion of a high-spending powerful central government.

• Andrei Belousov was born in 1959. He graduated from the prestigious Moscow School of Physics and Mathematics No. 2 and the economics faculty at Moscow State University. He followed in the professional footsteps of his father, a famous Soviet economist who worked onpreparing the Kosygin economic reforms in 1965. After the fall of the Soviet Union, Belousov worked at the Institute of National Economic Forecasting at the Russian Academy of Sciences, then set up his own Center for Macroeconomic Analysis and Short-term Forecasting. In 2006, German Gref made him his deputy at the economy ministry and in 2008, when Putin began his four-year term as Dmitry Medvedev’s prime minister, Belousov became director of the government’s department of economics and finance. By then he had become renowned as a competent economic forecaster, his reputation burnished by successfully predicting the 2008 economic crisis in a report published three years earlier.
• Inside government, Belousov became known as Putin’s man. In 2013 he was appointed to a key role as economic aide to the presidential administration. All papers and economic proposals intended for Putin came through Belousov, a federal official told The Bell. In 2020, Belousov became first deputy prime minister with responsibility for economic policy in a major government reshuffle that saw Mishustin replace Medvedev.
• Belousov has his own vision of how Russia’s economy should operate and works hard to bring his ideas into reality, another official said. Crucially, Putin listens to him. Belousov is an uncompromising believer in the state and sees a “circle of enemies” surrounding Russia, another source told The Bell. “In 2014 he was the only one of Putin’s economic circle to support the annexation of Crimea,” they said.
• Belousov has always urged for increased government spending. Back in the mid-2000s, as Gref’s deputy, he argued with then Finance Minister Alexei Kudrin that the oil windfalls kept in the Stabilization Fund should be spent on infrastructure projects rather than saved.
• To build up the government’s bankroll for spending, Belousov constantly tried to find new sources of revenue. In 2018 he proposedseizing 500 billion rubles ($5.5 billion) of “extra profits” from leading commodities companies and using the money to pay for Putin’s proposed May decrees, a vast plan for state investment. At that time, the oligarchs combined forces to fight back, prompting Belousov, who doesn’t mince his words, to call them “idiots and fools.” Belousov later managed to force through a highly controversial hike in sales tax from 18% to 20%, which brought the budget even more money.
• After the invasion of Ukraine, business found it harder to fight off government demands. In 2023, Belousov secured a one-time budget contribution of 300 billion rubles ($3.2 billion) through a windfall tax. The government is currently preparing an “adjustment” to the tax system, the key elements of which could be an increase in income tax to 20% and corporate tax to 25%, which could generate up to two trillion rubles ($22 billion) a year.
• Belousov has also seen success in developing Russia’s military-industrial complex, which the government does not officially regulate. One of his biggest successes has been a national project overseeing drone production, for which the government distributed preferential loans and passed special regulations.

Why has he been appointed now? 

Belousov’s appointment as defense minister was so unexpected that, at first, many observers found it hard to believe.

• There’s nothing unique in itself about having a defense minister without a military background. In fact, none of Putin’s appointments in the role have: Sergei Ivanov (2001-07) came from foreign intelligence; Anatoly Serdykov (2007-2012) was a tax officer; Shoigu worked in construction, as a party official and head of the emergency situations ministry. Nonetheless, Belousov is the most overtly civilian defense minister, having never served in law enforcement or even completed national service. Instead, he’s mostly worked as an economist in academia and then in government roles focused on the domestic economy.
• A late-night Sunday briefing by Putin’s spokesman Peskov made it clear that the Kremlin wants Belousov to monitor and improve how the country’s rapidly growing military budget is being spent. Spending by the defense ministry and the security services has more than doubled to 6.7% of GDP — approaching “the mid-80s situation, when security spending was 7.4% of the economy,” Peskov said. Belousov’s tasks are “to fit the security budget into the national economy so they match the dynamics of the current time” and to make the defense ministry “absolutely open to innovation, to the introduction of all advanced ideas and to create the conditions for economic competitiveness.”
• It's not hard to believe Peskov’s explanation is genuine. He even slightly underplayed the extent to which the economy has been militarized. Spending on defense and national security is set to exceed 8% of GDP this year. The rapid growth of the military-industrial complex has pushed the economy into overdrive. Therefore it makes sense to put a trusted economist in charge of overseeing a third of the government’s entire expenditure. But there could still be another motive behind the ministerial switch. As Ukraine’s arsenals are depleted and Western aid is delayed, Russia is making military progress after months of stagnation on the front lines. If Putin believes victory is getting closer, it makes sense to replace the PR-hungry Shoigu with an office-based economist less concerned with promoting his own role.

Why the world should care

That the defense ministry will now be led by a competent state economist shows that the Kremlin is digging in for a long war. It also implies an “everything for the front” mentality that promises no good news for business or the wider Russian population.

Promotions for Putin’s friends, Chemezov’s allies

Shoigu’s shock departure overshadowed some other notable changes in the government.

• Belousov’s previous role overseeing domestic economic policy will be shared between two other deputy prime ministers, Alexander Novak who is responsible for energy and relations with OPEC+, and Denis Manturov, who has served as deputy PM and trade and industry Minister since 2023.
• Novak has been at the head of Russian energy policy since 2012, first as energy minister then, since 2020, as deputy PM. He’s earned a good reputation as a safe pair of hands, free from scandal and capable of delicate negotiations such as the OPEC+ oil deal, said Sergei Vakulenko of Carnegie Center Berlin. Under Novak’s guidance, the oil industry had coped with Western sanctions and managed to work round the price cap. He’s due a promotion, and his role as deputy prime minister did not really recognize that, Vakulenko added. 
• Manturov is one of Rostec head Sergei Chemezov’s men. The latest round of government appointments suggests that Chemezov’s influence is growing. Alongside Manturov’s important wartime roles overseeing industry and the import substitution drive, he has also taken leadership of overseeing the sale of assets belonging to foreign companies leaving Russia. Most of the biggest deals were signed off directly by his ministry. (You can read more about how this happened in the story of the dizzying career of businessman Armen Sarkisyan here). Now Manturov will work solely as deputy PM, with his ministerial role having been handed to another of Chemezov’s men, former Kaliningrad governor Anton Alikhanov. 
• Two posts also went to the children of Putin’s friends and one to a relative of the president himself. Nikolai Patrushev’s son, Dmitry, previously agriculture minister, was promoted to deputy prime minister (his ministerial post goes to his former deputy Oksana Lut). Yury Kovalchuk's son, Boris, was made head of the Accounts Chamber (a position vacant since Alexei Kudrin moved to Yandex in 2022). And the new energy minister is Kemerovo Region governor Sergei Tsivilyov, who is married to the daughter of Putin’s cousin.
• Another key government official whose future was under question, digital development minister Maksut Shadayev, remains in post. We wrote in detail about Shadayev’s performance during the war here. In short, he’s been one of the most effective ministers and is popular in the IT industry. In the fall of 2022, he was the only leading official who secured an exemption for his industry from mobilization. It was for precisely that reason that he fell out with the security bloc, prompting rumors he would be dismissed. It's possible he would not have survived without the changes in the defense ministry.

Why the world should care

Despite the consistent promotion of his relatives and children of his allies, Putin’s new government remains technocratic. There is no evidence of a military or security emphasis to the new appointments. The technocrats, such as Novak and Shadayev, were not removed and managed in some cases to strengthen their positions.