Is global thermonuclear war unthinkable? Not in Moscow. As Russia’s economy takes a deep dive into a shallow pool, the Kremlin’s war planners are busy laying the groundwork for large scale global violence.
Under mounting Western pressure this year, Russian leaders have been repeatedly and unambiguously reminding the West of the ultimate weapon at Moscow’s disposal—nuclear mutual assured destruction. The Russian military is also rearming and conducting massive exercises, preparing for a possible global war.
… The Russian economy has continued to stagnate and may go into recession in 2015. A contraction in household income is also expected. The finance ministry is considering cuts in budget spending, but it seems defense expenditures will continue to grow. The defense budget in 2015 is planned to reach an all-time post–Cold War high of 4.2 percent of GDP or 3.3 trillion rubles ($81 billion). In 2012, defense spending was 3 percent of GDP; in 2013, it reached 3.2 percent; and in 2014, it was 3.4 percent (Interfax, October 16). Overall federal budget spending to finance Russia’s massive intelligence services and other militarized services is almost as big as the defense budget per se. And as the new cold war–type standoff widens in scope and the Russian economy flounders, the Russian people will be increasingly paying for guns instead of butter. __ Russia Prepares for War
Although the price of oil is staying well below Russia’s fiscal breakeven, Putin is pushing Russia more forcefully onto a quasi-wartime economic footing — boosting military, intelligence, and propaganda budgets in prodigal fashion.
Global oil & gas prices are the key to whether Putin feels forced to speed up his war plans, or whether he feels that he can plan for war at his leisure. If Russia plunges into recession due to a deep and lasting global slump in commodities markets, he may feel he has no choice but to let slip the dogs of war.
Russia’s dependence on energy exports—and, consequently, its economy’s vulnerability to commodity price fluctuation—was highlighted by the 2009 world financial crisis. As oil plunged from $147 to $34 per barrel, the resource-based economy contracted by almost 8 percent—the largest drop among the G20 top industrial nations.
… “The problem of being a petro-state is that the natural resources trend corrupts the institutions,” said Sergei Guriev, rector of the New Economic School in Moscow and a leading expert on Russian political economy. “This is what is called the ‘resource curse.’ This is a trap, where democratic political and economic institutions do not develop because rents coming from natural resources provide incentives to the elite not to develop institutions.”
… Russia’s production may shrink by as much as one-fifth, from the current 10.4 million BPD to 8 million BPD as early as 2020. In the opinion of a top expert, Thane Gustafson, sometime in the coming decade, the Russian state “could well see oil revenues decline, even as its reliance on them grows,” and the “tide of money” that has enabled the Kremlin to meet “everyone’s growing expectations” may vanish.
… With an effectively bankrupt state pension fund and a rapidly aging population, the Kremlin’s ability to prevent a full-blown pension crisis will require a huge influx of gold and hard currency reserves. At a time when soaring household utility prices (tariffs) are a leading source of dissatisfaction with the regime, the diminishing energy revenues will endanger the regime’s ability to subsidize the costs.
… among the most destabilizing consequences of the continuing dependence on oil and gas will be the Kremlin’s declining ability to secure the elites’ loyalty. Fiercely protective of their share of the politically apportioned riches of Russia’s state capitalism, powerful clans will squabble to secure the same share of a diminishing pie, in the process threatening the stability of the regime. “Putin’s unchallenged power” rests on a tripartite foundation: “oil and gas money, the Federal Security Service, and television,” a Russian observer noted last December. Today, one leg of this tripod is beginning to look wobbly. __ Political Economics of Russian Oil & Gas
Actually, all the legs of Putin’s power rest on oil & gas money. None of the others will stand without it.
Russia is spending more on its weapons programs. But as industrial infrastructure inside Russia continues to deteriorate, Russia will be forced to turn to China for weapons manufacture as never before. This will mean turning over complete plans of Russian weapons systems to a larcenous Chinese defence industry that has never hesitated to steal whatever it deems of value.
China will negotiate as many “good deals” with Putin as possible, assuring the Kremlin that China is standing with Russia in its fight against US, NATO, and EU “imperialism.” And then when the moment is right, China is apt to turn on Russia and take what it wants.
Would Russia still be Russia without Siberia? That is the question that more people will be asking, as Russia shrinks.
Russia is being forced to depend on China for tech and cash it can no longer get from the West because of the growing sanctions. As much as Russian leaders loathe and fear NATO, many also resent being forced to grant China access to Russian markets, raw materials and military technology in payment for help coping with the sanctions. Russian leaders believe they can handle China and Chinese leaders believe their economic power will give them unprecedented control over Russia. Someone has miscalculated here and it is as yet unclear who. While China gains more raw materials and export markets along with improvements to its locally developed weapons, Russia is forced to halt its efforts to diversify its economy away from dependence on raw materials exports. The diversification depended on Western tech and investment. That has been halted for the moment and the Chinese can’t replace it. Many Russians see this as a bad decision and that helps fuel the growing popular opposition to the government. __ Cost of Empire
… the Russian state “could well see oil revenues decline, even as its reliance on them grows,” and the “tide of money” that has enabled the Kremlin to meet “everyone’s growing expectations” may vanish. __ Political Economy of Russian Oil & Gas
Those predictions were made long before the recent slump in the price of oil. In other words, the oil & gas sector was already in decline before the price shock hit. Russia desperately needed outside help in order to modernise its O&G production, but Putin’s temper tantrum in Ukraine put the brakes on that strategy.
Just as Hitler was ignored, appeased, and pampered up to the point that he initiated blitzkrieg, so has Putin been ignored, appeased, and pampered . . . perhaps to the point that he goes nuclear?
Russian propaganda claims that Putin is being forced into a war-like stance by the west. But no one forced Putin to invade Georgia, Crimea, eastern Ukraine — or to threaten Europe with invasion and nuclear war. No one forced Putin to bleed Russia’s resources to support a corrupt political elite, a massive propaganda apparatus, and a weapons industry that is far too outsized for a shrunken Russia — with a GDP less than the state of California GDP. Imagine if California were to threaten nuclear war against Europe?
Even China understands the threat that Putin represents. But China will wait to act against Russia until it believes it has gained as much profit, military strength, and global standing to get away with it. It doesn’t hurt that Putin is making enemies out of virtually every other country in the world except China.
Predictions are difficult, especially about the future. The key to making semi-accurate predictions is to understand as many of the dynamic forces acting upon the system as possible. Even then, the system is always subject to the unpredictable “Black Swan” event.
Nevertheless, HFTB. PFTW. Consider how you might participate in a Resilient and Dangerous (R&D) community. It is never too late to have a Dangerous Childhood.
The Putin strategy in a nutshell:
Smaller businesses are being crushed, accelerating a long-term trend under Putin in which Russia’s economy has become ever more concentrated in state hands and reliant on natural resources — especially oil and natural gas. __ http://www.bloombergview.com/articles/2014-10-17/putin-should-worry-about-oil-not-blackmail
Everyone talks about the “$450 billion” in reserves that the Kremlin is supposed to have. Better call the bank for confirmation. Since Putin returned to the presidency, Russia has been spending at the limit (and beyond) of oil prices, although you would never know it from reading Kremlin propaganda, eg RT, etc. If accounting is to mean anything, it must mean something on a running, real-time basis.