This page has been archived and commenting is disabled.
Guest Post: Is Putin's Luck About To Run Out?
Authored by Jan Winiecki, originally posted at Project Syndicate,
With the Winter Olympics underway in Sochi, Russia is again in the global spotlight – and President Vladimir Putin is taking the opportunity to present his country as a resurgent power. But, beneath the swagger and fanfare lie serious doubts about Russia’s future. In fact, long-term price trends for the mineral resources upon which the economy depends, together with Russia’s history (especially the last two decades of Soviet rule), suggest that Putin’s luck may well be about to run out.
Mineral-resource price cycles generally begin with a rise lasting 8-10 years, followed by a longer period of stable, relatively low prices. Given that prices have been on an upswing since the middle of the last decade, they should begin declining within two years, if they have not done so already. Moreover, the last price trough lasted more than 20 years, implying that Russia cannot expect simply to wait it out.
But, beyond acknowledging the need to cut spending – an obvious imperative, after the estimated $50 billion cost of the Sochi Olympics – Putin has not signaled any concrete plans to tackle Russia’s economic weaknesses.
Russia faced a similar challenge in the 1970’s and 1980’s – and, like Putin today, its leaders failed to do what was needed. According to former Prime Minister Yegor Gaidar, who led Russia’s only post-Soviet government that was oriented toward systemic change, the socialist command economy exhausted its growth potential by 1970.
Under non-totalitarian circumstances, the threat of stagnation would have generated strong pressure for systemic reform. But the Soviet Union’s aging communist leadership, encouraged by the OPEC-generated oil-price explosion and the discovery of massive hydrocarbon reserves in western Siberia, took a different tack, using natural-resource revenues to finance continued military expansion.
In an effort to appease the public, the Soviet leadership increased food imports – both directly (meat imports, for example, quintupled from 1970 to 1980) and indirectly (by increasing feedstock imports). While this strategy worked in the short term, it caused food consumption to increase far beyond what the economy could sustain.
As a result, the Soviet economy became even more dependent on resource revenues, making it extremely vulnerable to price fluctuations in international commodity markets. When mineral prices began to decline in the early 1980’s – reaching their lowest point in 1999 – the economy, which had already been stagnating for about five years, went into a free-fall.
Today, the Russian economy is no more resilient than it was in the late Soviet era, with commodities, especially oil and natural gas, accounting for around 90% of total exports and manufacturing for only about 6%. If anything, the economy’s dependence on exports of fuels and industrial minerals has increased, meaning that smaller price fluctuations have a greater impact on Russia’s fiscal and external position. Indeed, some observers – including the Central Bank of Russia (CBR) – have predicted that the country’s current account could slip into deficit as early as next year.
A lasting deficit would eliminate the major economic difference between Putin’s Russia and its Soviet counterpart during the 1980’s – namely, the financial buffer that has been accumulated over the last decade. It is this buffer – which amounted to $785 billion in the 2000-2011 period – that protected the economy from a larger shock when the global financial crisis erupted in 2009, and that has financed Russia’s foreign-policy initiatives, including its recent cooperation with Ukraine.
The CBR’s warning of twin fiscal and current-account deficits assumed that oil prices would remain steady, at $104 per barrel in 2015. But my expectation that oil prices will decline over the next 3-7 years suggests that Russia’s medium-term prospects are actually considerably worse.
In short, Russia will soon have to confront diminished macroeconomic health, with few options for restoring it. Russia’s uncompetitive manufacturing sector certainly cannot pick up the slack, and this is unlikely to change, given Putin’s unwillingness to pursue the needed shift to a more knowledge-intensive economy.
This new reality will not only affect Russia’s foreign-policy and imperial ambitions; it will also undermine the relative social and political stability that has characterized the last decade. Without resource revenues, the government will struggle to finance the policies and programs that are needed to placate ordinary Russians. In this context, the Sochi Olympics, intended to herald Russia’s triumphant return as a global power, may soon come to be regarded as a swansong.
[ZH - It seems pretty clear what Putin needs - higher oil prices... makes you wonder what his next plan is...]
»
- 17361 reads
- Printer-friendly version
- Send to friend
- advertisements -
Makes me want to go to a bar with a deck...for a cold one or two
kind of funny article, considering it is on ZH.
Russia and China and Iran, Syria, Brazil, India, Turkey, will be just fine. I thnk it is the US and EU and Japan that are of more concern.
Higher oil prices to follow as well as gold prices.
When is Dennis Gartman going to be suggesting gold in USD tems?
kind of funny article, considering it is on ZH.
Russia and China and Iran, Syria, Brazil, India, Turkey, will be just fine. I thnk it is the US and EU and Japan that are of more concern.
Higher oil prices to follow as well as gold prices.
When is Dennis Gartman going to be suggesting gold in USD tems?
kind of funny article, considering it is on ZH.
Russia and China and Iran, Syria, Brazil, India, Turkey, will be just fine. I thnk it is the US and EU and Japan that are of more concern.
Higher oil prices to follow as well as gold prices.
When is Dennis Gartman going to be suggesting gold in USD tems?
kind of funny article, considering it is on ZH.
Russia and China and Iran, Syria, Brazil, India, Turkey, will be just fine. I thnk it is the US and EU and Japan that are of more concern.
Higher oil prices to follow as well as gold prices.
When is Dennis Gartman going to be suggesting gold in USD tems?
So does posting 4x helps you believe your own bullshit ?
Putin will keep his job a hell of a lot longer than any of us.
Rather you should be asking if "President Obama & Friends" can keep all this un-controlled chaos going and to what end?
There's a metaphor in their somewhere for the Captain of the U.S.S. Taylor who ran his ship aground far from it's destination!!!
Who's the Zionist Yid who wrote this "piece"?... Let me guess?
Someone from the Soros/Kagan Foundation!
How do you make a wealthy Jew moan? Make him pay more than "retail" for his dream of controlling the World!
This article made no mention of the fact that Putin can take his shirt off for photo opps. They don't just rely on natural resources.....
I will let the Putin Mancrush team to take issue with the rest of this article.
I'm just thankful Obozo doesn't take off his shirt.
I'm thinking Obama would be more likely to take off his pants.
"Oil prices will decline for the next 3 to 7 years" ??
Right -- because supply is infinitely elastic and the developing world population is contacting?
Because the value of paper currency is decreasing, and wages are not keeping up to inflation.
Russia has plenty of advanced weapons and weapons technology. Russia sells 1/5th the weapons to the world compared to Weatern Israel(US). They need to step that up. There should be Russian nuke bases through out the world. They could easily bring in $400 billion a year in weapons sales!!
Great idea! Russia should sell nukes to any and all.
What will be will be. Why all the puffery?
You would think that the world's number one supplier of oil would have some ability to control the price of oil by constricting supply, no? This article is juvenile and worthless.
But that doesn't change the fact that Russia is still doomed. Demographics is destiny, as has already been mentioned upthread.
even as oil and nat gas prices rise today...I wonder how hyperinflation fits into the Russian story....nominally they could fund a couple of trips to the moon but the US$ may not buy a lot of rocket fuel when oil prices are insane due to loss of value of the reserve currency...
under a new gold backed reserve all countries would have to behave a bit better....or lose their gold....
the end of the dollar reserve system will be a difficult but net good thing. It will be hardest on those who benefitted most...the citizens of the USA....but Russia will need some changes too...
This article had me at "Prime Minister Yegor Gaidar."
Heh heh heh.
;) ;)
Isn't he that guy on "Project Runway"?
This article is a stretch. It has like two dots to connect and they are not even on the same piece of paper. Putin and some trader's TA on commodity prices. This is the retarded kind of analysis that got us into Iraq.
Putins got Europe by the balls. Ukraine will be back under his power soon.
Let's hope so.
About the worst gift the World could receive right now.
Winiecki sounds distinctly Polish and not usually the source of favourable comment on Russia, then again Russia is the only European country not subject to the US imperial edict and that clearly rankles in some quarters
Winiecki sounds distinctly Polish and not usually the source of favourable comment on Russia, then again Russia is the only European country not subject to the US imperial edict and that clearly rankles in some quarters
Russia's total debt is 500 billion.
The US' total debt is 17 trillion.
Now who's luck is about to run out?
Facts are homophobic and anti-Mrrcan.
Remember, America is the worst but everything else is worse - the logic of democracy.
Corruption still runs rampant in Russia. Putin is believed to be worth an estimated 700 billion. He just climbed higher and faster than any of the other thieves. This country should be among the very best countries in the world to invest money in. The people should be wealthy and they should have a proper government.
If anyone has any questions on the virtues of dictatorship verusus capitalism (with all its flaws) all you have to do is look at Russia. A waste of potential for decades
Maybe Vlad can pay for the olympics with some of his billions?
No?
I suppose, maybe when he gets to a trillion then he might be able to find a billion or two.
I suspect that many of the 'pro-Russian' posts are simply a response to the general stupidity of the psyop produced propaganda in the media. Russia is in no way worse than the Western nations, it may even be better at the moment. This does not suggest support for Russia, nor that it is an ideal system, it simply implies how awful Oceania has become. The anti-Sochi campaign should be clear with all the dupes posting photos of falling curtains as examples of 'totalitarianism'.
While Russia is certainly corrupt its situation stems from an attempt to escape the severe World Bank debt feudalism that was imposed by the West. There can be no deeper corruption than the sinkhole ultra-capitalist economy/democracy that is currently imposing terror famine, industrial urbanisation, ssri dytopia, and eternal two-minutes love-hate. The amount of ideological control is astounding, and pointing this out does not equate to love for Russian corruption, rather it just suggests that Oceania is the worst system in history (and it could get worse if the structural problems are not addressed, there are foundational problems in American history just as in any other country).
Project Syndicate was a respectable source of info once upon a time. That time has past. Maybe the Rupert bought them or something, but now it is merely tripe and propoganda. Pretty sad that all the unbiased sources of news are rapidly vanishing from the planet.
The west has now almost the same totalitarian leadership. Not the same yet, but getting there.
But the west does not have too much mineral resources, even the US is import dependent.
So guess what, both sides will be in deep shit soon.
You make your own luck.
Short answer... no.
the floor for oil has been set? if anything it will go up, up, and away, period! russia is in a good place. far better than the 70's, 80s, 90s, 00s!!!
it's the gcc, swf's that are in jeopardy. riyadh sa is never going back to lowering opec... never! nor are the rest of any persian gulf countries including all of africa!!!
n.a. canada is certainly not going to produce below its cost when their economy is near collapse?
forget s.a., if you get my drift,... and mexico's oil is pure unadulterated muck!
in summary they can't afford it, or the rebellions it will foment even with iran shut down via sanctions???
if anything the russians will control the flow of eurasia black and blue gold-- once the saudi's weaponize themselves with pakistani nukes, etc.,...
ref: http://www.arriyadh.com/eng/ {(about riyadh in the year 2013/ tourism)(lots of mouths to feed with more than 23k sheiks on the payroll)}
http://allafrica.com/ http://gccreport.com/sovereign-wealth-funds/ {(just what happens when energy starved eu goes belli-up?)(scroll down gcc- swf's risky bets, etc., etc)}
jmo