Given the 2008 Russian invasion of Georgia and escalating conflict between Russia and the Ukraine, JPMorgan asks, where is Russia on the road to recreating something like the Soviet Union as an economic, political and financial counterweight to the West?
Via JPMorgan's CIO Michael Cembalest,
This is more art than science, but I think there are ways of quantifying it.
Let’s take all Warsaw Pact/ CoMEcon/Soviet orbit countries of the 1980s (this is a big region; its current GDP is similar to Russia, and its trade is 2.5x larger).
Some have willingly and enthusiastically re-entered the Russian sphere of influence, such as early entrants and applicants into the Russian-sponsored Eurasian Economic Union (e.g., Belarus, Kazakhstan).
At the other end of the spectrum, there are countries that exist under the umbrella of NATO and/or the European Union (Poland, Baltic States, etc).
In the middle, there are 2 variations: countries with their own political and economic ambitions, but which differ in terms of the risk of being subject to Russian military and economic influence.
We then examine economic, human capital and geologic indicators and figure out how much of each has re-entered the Russian orbit. For example, when looking at the first bar showing the current GDP of countries in the old Soviet Bloc, ~70% now falls under the NATO/EU umbrella, and another 8% is at low risk of Russian influence.
[10]
While today’s Russian orbit countries interact with more economic independence than the “vassal states” of the old USSR, let’s assume for the sake of argument that this orbit functions as a coordinated bloc. As shown in the chart, the Russian orbit now includes much of the fossil fuel and mineral wealth of the old Soviet Bloc, and in the case of oil, most of it. There have also been substantial Russian orbit gains in arable land. However, when looking at broader measures of economic strength (GDP, trade, capital formation, portfolio investment, patent filings/ innovation), most has either been integrated with the West or with China (e.g., Mongolia), or is in my (subjective) view at low risk of an “unwilling” integration with Russia.
While the Russian Federation may be plotting an increasingly divergent course from the West, the economic and political independence achieved by most Soviet Bloc countries in the early 1990’s does not appear at risk of being meaningfully reversed or morphing into USSR 2.0.
* * *
So far...
