Diary

Russia Passes The Tipping Point...Be Afraid

You’ve probably heard how President Putin ordered the bulldozing of mountains of banned imported food recently in retaliation for the West’s economic sanctions on Russia for its actions against Ukraine. This highhanded peremptory destruction by the autocratic Putin of vitally needed food outraged ordinary Russians who have been suffering the depredations of life in a declining country whose annual inflation rate is about 16%, interest rates about the same, and where the currency continues to depreciate. So why did Putin do this, enraging his own population and amusing the West?

Many observers here surmise that he was just indulging in a fit of pique, throwing a tantrum. But he is a cold, shrewd, calculating ruthless KGB bastard. He just doesn’t do emotional things without a plan. There is always a purpose to all his actions. So what could it be?

Russia is in big trouble, without a doubt. Chrystia Freeland, ex-editor of  The Financial Post, wrote a book on Putin’s Russia over 10 years ago where she tried to explain Russia’s seeming inability to modernize its economy along Western standards to compete in the global marketplace as China has succeeded in doing. Her conclusion is that the Russian oligarchy, headed by ex-KGB executives such as Putin, intentionally prevented that kind of modernization because it would inevitably lead to the creation of independent competing power centers and force the kind of democratization of Russia that the cadre of old Soviet-era intelligence people like Putin absolutely didn’t want. Instead, the Putin plan has been to develop the enormous fossil fuel resources of Russia and use those revenues to prop up the Russian economy and pay for its expansive military ambitions.

However, the recent bear market in oil, which will last for a few years, according to most analysts, has left Russia in a huge pickle. With continually declining revenues there is no reprieve in sight for Russia’s state budget or its economy. So what to do?

So we come back to this recent public display of wanton destruction of food. I think Putin is signaling to the U.S., and to hesitant members of his own national security establishment (a heads-up for the last Putin regime holdouts to liquidate their assets in London, Zurich, etc., because, after this, the price Russia will pay is world ostracism…but you gotta do what you gotta do) , that the die is cast, that plans that have been in the offing for months now, contingency plans and scenarios, are just about to be executed. (When the Spanish conquistador Hernando Cortez landed in the New World he had his ships burned, so as to better motivate his men, by sending the unequivocal signal that there were only two ways forward, to fight and win, or to die. Putin’s destruction of food stocks may have been calculated to exert a similar psychological effect on his population.)  The message this August may be that, because Russia is becoming weaker all the time, and is getting desperate, that extraordinary measures are being put into effect…and this time Putin means business. It’s way too late to implement reforms in the Russian economy, reform policies that should have been initiated 15 years ago. There is only one way out now for Putin and Russia, and that is initiating a means to ratchet up the oil price to over $100 per barrel in a lasting and decisive way, to start generating the revenue that can pay for all the necessary food and consumer goods and military expenditures that Russia needs right now, not 5 years from now.

So, what does that mean? In a supply and demand driven world it requires curtailing the global supply in order to jack up the market price of oil. So how about hitting Saudi Arabia with a powerful cyber attack that will take down its electricity grid and its pumping stations in its oil fields, crippling the country and taking its bounteous oil reserves off the world market? And combining that action, maybe, with fomenting an insurgency guerrilla movement inside Saudi Arabia, with Iran’s gleeful assistance? Putin blames the Saudis for his nation’s problems in the first place because, if only they  had been reasonable and NOT gone along with the American plan last fall to increase oil production, exactly in order to hurt Russia, then all this present war-like Russian reaction would not have been necessary.  As always, Putin undoubtedly is shaking his head, it is the West’s continuing lack of respect for Russia’s existential needs that is the source for the coming tribulations.

And who likes the Saudis anyway? They have fostered the spread of a Salafist Islamist movement worldwide, they are more anti-democratic and anti-modern than even Putin’s Russia (anyone care for a ringside seat at a Saudi state beheading?), and it wouldn’t be surprising if Shell Oil’s go-ahead for Arctic drilling announced today by the Obama administration was something anticipatory of an upcoming radical restructuring of the global oil market (Western oil companies and the Russians also have recently been staking out claims for drilling in the extremely expensive and inhospitable venue of the Arctic…does this make any sense in an economic environment where the geopolitically naive oil analysts (they don’t have any visceral appreciation for the World War II legacy of toughness of the Russian bear mentality) continue to expect a bear oil market for the foreseeable future?). Putin’s action would also save the recently downturned fracking industry in North Dakota, and the U.S. will not go to war for the greasy Saudi monarchy if Putin is resolute. But, as in all war scenarios, many things can go spectacularly wrong. And all this will cause another financial meltdown here and in Europe and a deep global recession as stock markets plunge and consumer confidence is shattered…but it’s still better than flirting with a nuclear war with Russia over the butt-kicking they’ll give the Saudis. So be afraid…be very afraid.

P.S.  For those skeptical of my analysis here I ask that you just consider this: For the past year Russia has been flying provocative nuclear bomber patrols around America’s borders, and there have been ‘demonstration’ cyber attacks, just tweaking banking systems in the U.S., etc. What the hell do you think is going on? Putin and the hardliners in Russia are sending signals to the U.S. that they are serious, but not crazy, so an arrangement between Russia and the U.S. can be worked out, provided that both powers respect each other’s interests and spheres of influence.

Now if all of this earnest sabre-rattling by Russia is complete baloney, a complete fraud, then, yes, my analysis here tonight is also complete baloney. Putin and his hardliners will just swallow hard and…give up, in the face of the sternness of Barack Obama, ha ha ha, and the sanctity of Saudi society…double ha ha ha. But you have to know the Russian-Soviet culture. They have killed millions of people throughout their history in pursuit of their interests. They pride themselves on stopping Hitler’s war machine when the Western allies were just learning the ropes in World War II.  The Russians, once they make up their minds, don’t fool around. Think about it.