What Comes After the Collapse of Putin’s Russia?

According to respected blogger Brian Wang, Russia is close to collapse… Putin’s Russia, that is. More

Brian points to a Wall Street Journal article which weighs Russia’s problems with debt and over-dependency on commodities, against Russia’s assets (in the light of Russia’s famous kleptocratic corruption).

A clandestine war in Ukraine could drain the public purse, as could bailouts of Russian banks and other politically important companies if European and U.S. sanctions restrict their actions too severely. Add the prospect of the central bank intervening as the ruble hits the lower end of its target basket price, and it’s not hard to imagine a vicious-cycle that accelerates the reserve depletion.

… The current backdrop of slowing growth, mounting inflation and a falling ruble stems from flaws that precede the Ukraine-spurred sanctions, says Frances Hudson, global thematic strategist at Standard Life Investments , which has $313 billion assets under management. She points to an over-reliance on commodity exports and failure to take advantage of past booms to diversify the economy.

Foreign investors would be wise to review that history.

Not only are foreign lenders proven over the time to be “pretty low on the food chain,” says Standard Bank’s Mr. Ash, but past records also show a generalized opposition to creditor interests, backed up by debtor-friendly courts inherited from the Soviet era. He notes that during the recent global crisis, banks’ non-performing loans surged disproportionately in Russia even though the overall economy’s balance sheet was in a relatively healthy state before. It is evidence, Mr. Ash says, of an ingrained “unwillingness to pay.”

Given that cultural predilection, the grinding economic pain of sanctions, along with waning oil and gas revenues and a falling ruble – which makes foreign debt payments more expensive – could easily foster a dangerous, self-reinforcing cycle. _WSJ Moneybeat

Russia’s “reserves” could disappear quickly in such a financial death spiral. Of course in Russia, the nation’s “reserves” are whatever the corrupt oligarchy says they are. They may even count funds that have already been embezzled and transferred to private Swiss accounts.

“A decrease of oil prices might actually lead to a more nationalist Russian foreign policy, but it also means that Vladimir Putin’s personal power might be threatened.”

In turn, Dr Cadier predicted that would mean Vladimir Putin might need a diversion, like greater intervention in Ukraine or some other action that will appeal to the high level of nationalist fervour that he has cultivated.

Cheap oil may seem like a great idea, but the consequences in places like Russia are difficult and dangerous to predict. _Et tu, Brut?

Putin had always counted on oil prices being his friend and comrade, for financing his grand new Eurasian Empire. He was willing to go out on the limb in many ways, to spend extravagantly, invade other countries, and to prevent the diversification of Russia’s economy, based upon his eternal faith in friendly oil prices.

Oil prices may bounce back to the $80 bbl range next year. But that is still well below the corrupt oligarchy’s fiscal breakeven point — which has been estimated to lie between $100 and $150 bbl, depending upon government expenditures and covert embezzlement drawdowns.

Commodity prices are subject to cyclical upturns and downturns. In market economies, essential commodities prices tend to rise and fall. It is the fool who extrapolates temporary trends far into the future without taking account of balancing factors. Putin may have miscalculated.

So what comes after the collapse of Putin’s Russia? Russia has no “backup plan” to Putin. If Putin is assassinated, or dies of “natural causes,” a violent succession may be in the offing. That might lead to a wider European war, or even nuclear detonations, in the absence of another Yeltsin to moderate fiery Russian tempers.

Russia is one of those “countries” such as Yugoslavia or Iraq, that is not really a country at all, but rather an artificial construct under autocratic rule. Remove the autocratic oversight and watch how quickly parts of the “country” spin off.

This is the opposite of the situation in Anglospheric countries that are organised primarily around trade and financial rules. If you relax the autocratic oversight in such trade-oriented countries, cohesiveness will often increase by virtue of improved trade and opportunity.

The bottom line is that Russia could “collapse” in many different ways. What comes after Russia’s “collapse” depends upon the nature of the collapse and what is left in the aftermath. At this time, too many variables are in wild flux to make a reliable prediction.

China Waiting to Make its Move

China will move in on Russian assets in the far East, when the time is right. China wants to improve its own military and economic situation first, and to gain more control over Russia’s military industrial production and technology. China may even feel the need to help engineer a nuclear exchange between Russia and the west, to prepare the terrain as it were.

Anything that would weaken both Russia and the west would be a great boon for China.

Signs of breakdown in today’s Russia

Russia’s economy has dropped from parity with Italy ($2 trillion) to parity with Spain ( roughly $1 trillion). Russia can no longer claim to rank alongside “the global superpower” California.



Russia’s military expansion foundering in corruption and isolation

The Kremlin’s trouble holding the Russian military together

Russian temper tantrums disconnected with underlying reality

If these problems with China’s economy are not solved, Beijing may be forced to move on Russia before it is ready

Russia is making enemies of people bright enough to adopt all the tools of asymmetric warfare. Making threats, creating enemies, and broadcasting a false narrative to the world are all becoming trademarks of Putin’s Potemkin Russia.

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2 Responses to What Comes After the Collapse of Putin’s Russia?

  1. Timur says:

    And what comes after the collapse of the liberal western countries?

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