Russia’s Roulette

Vladimir Putin, nine years ago, described the Soviet Union’s collapse as the “greatest geopolitical catastrophe” of the 20th century. While one argue whether that was much of a catastrophe given how dysfunctional the Soviet Union had become in its last few decades, from a Russian perspective that might make sense.

Will this year be seen as the “second greatest geopolitical catastrophe” of the next century – again from a Russian perspective.

A few years ago, Putin had developed a seemingly stable polity where Russia earned large sums of revenue from oil, gas and some minerals and arms exports. These revenues kept a few cities shining, but more importantly allowed him to pay for a large circle of crony capitalists and KGB friends.

But Putin’s decisions this year have been remarkable for underestimating the economic and political consequences for his country. Errors that may eventually doom his regime and, worse, put Russia on a path of accelerating and inevitable decline.

His first error was to get into a fight over the Crimea. The assumption that an economic arrangement between Ukraine and the European Union was a sufficient threat to Russian interest to entail the forcible conquest of the Crimea was questionable. But his seeming belief that the political consequence would be limited was grossly wrong.

The Iranians, it seems had warned the Russians soon after that Western sanctions were far more formidable than they had realized – and that Moscow needed to realize what they were getting into.

What is more surprising is Putin’s failure to recognize that the background to all this was falling oil prices. Was that unpredictable so early in the year? I am not so sure: the fact that the gap between supply and demand would tilt heavily in favour of the former seemed pretty evident. The US was producing oil like crazy and China, the largest importer, was slowing down. Plenty more supply than demand and prices would inevitably fall.

The combination of all this has unnerved Russia’s capitalists, as one would expect given the country’s highly politicized economy. Capital flight has followed. As Russia’s finance minister noted, the economic losses from sanctions were only $ 40 billion, from sliding oil prices they were about $ 100 billion but capital flight had cost the economy $ 150 billion. Sentiment is king.

Having seemingly underestimated the West’s response and the costs of such response, Putin has now turned to Asia to compensate. This has largely meant China and Beijing has proven, no surprise, a tough savior. And if China has its own shale revolution in a few years, then Russia will fall even further much faster.

A Russo-China partnership in which Russia is very much the junior partner should be seen as a distinct possibility if Moscow remains alienated from the West.

Coming to India is all very well, but the truth is India’s $ 2 trillion economy is too small to compensate for the tumbling oil prices, let alone lost Western markets. We can only give Putin a few deals of a billion dollars or so.

Putin has been remarkably wrong in so many ways in foreign policy that he should serve as a cautionary tale to other strongman who fail to read the stars about the future of the world.

Copyright © 2014 the Hindustan Times

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