Russia scrambles for cash; Let’s kick her while she’s down

Yet again, Russia has shut off natural gas deliveries to Ukraine. The natural suspicion is to believe that Russia is attempting to destabilizing the Ukrainian government, following Moscow’s invasion of Georgia. However, another alternative is more likely: Russia is scrambling for cash. Russia has already shaken down her former friend, Belarus, and now news that Gazprom (already in debt) has barely begun to feel the pain from falling energy prices:

Gazprom shuts off gas links to Ukraine – International Herald Tribune
Russia, meanwhile, is reeling from the fall from more than $100 in the price of crude oil since a peak last summer. Gazprom is deeply in debt even as the market is moving against Russia in a serious way.

While still high today, natural gas prices will inevitably fall and further wallop the Russian economy that is reeling from the sharp drop in the country’s other pivotal export, crude oil.

Natural gas is pegged to the price of oil, but with a six month delay. Gazprom is still receiving payments linked to last summer’s historic spike in oil prices, but they will decline sharply after the second half of 2009.

If this is true, Russia’s crushing collapse back to earth has barely begun. We may even see a second debt-default by Russia.

While Putin ousted Russia’s “Deng Xiaoping” and aborted efforts at reform, the basic problem that Russia has is that it’s too large to fit comfortably with the rest of the Central Asia states but too backwards and weak to meaningful project power on its own. Different regions of Russia should be encouraged to fall into the orbits of different economic powers, with Outer Manchuria and beyond naturally orbiting China, while the country’s western expanse is naturally a slightly bigger version of Poland.

manchuria

Further, alternatives to the Russia’s wealth (oil and natural gas) should be developed. Domestically, this means pushing forward on congestion charges, biodiesel, fuel cells, and other technologies. In Europe, China, and Japan, it means encouraging our allies to reduce their consumption of oil and natural gas in ways that work best for them.

2008 was a wake-up call: we saw what happens when Russia thinks she is strong. It’s time to guarantee that will not happen again.

14 thoughts on “Russia scrambles for cash; Let’s kick her while she’s down”

  1. The best case for the US to move to radical energy use efficiency and to switch a lot more to alternative energy (while sharing or selling the techniques and technology to the rest of the world to use as well) is that it will reduce the economic power and freedom of action of lots of bad actors in the world who tend to work against the interest of the US and other democratically inclined actors.

    I should have written this on my blog.

  2. Chinese immigrants flood Russian Far East

    “”Life is so much better here,” he said. “In China, the competition is cruel and there is huge pressure on people. Here there is space and nature. I can walk by the sea or feel the fresh air in the forest. In China, there is barely a tree left.”…/…Since then, hundreds of thousands of Chinese have followed the path north. Each year the pace is accelerating. Such is the influx that locals and some analysts predict a seismic demographic shift.

    They say the Chinese will change the ethnic makeup, and there are fears that they eventually may gain control over huge swathes of eastern Russia.

    Sergei Buchma, the deputy president of an association of Russian-Chinese entrepreneurs, runs a business center in Vladivostok where eight Chinese companies with an annual collective turnover of $10 million are based.

    “Ten years ago they were all shuttle traders,” he said. “Now they are big managers, some of them turn over millions of dollars a year. They already control half of the economy here. Within 30 or 40 years they will have economic control of this whole area.”

    Statistics fuel the Russian fears. In the Vladivostok region, the population density is 15 times lower than in the Chinese areas just across the border”.

    Russia faces demographic disaster

    Chinese power will eclipse Russia’s to a greater degree with each passing year. Even though they have resolved their border issues, the two giants will face each other across potentially unstable Central Asian states and along a vast Siberian frontier, whose Russian side is demographically empty and resource rich.

  3. Purpleslog,

    Well said!

    Lere,

    It is striking how Russia is becoming irrelevent — perhaps not enough to save us from defauting on our security obligations [1], but happening nonetheless.

    The collapse of Russia’s political border in the west — and its racial-ethnic-cultural one in the east — brings to mind Russia before Peter the Great.

    The world could have used Deng Xiaoping-style reforms in Russia. But Putin aborted them, sending Russia into an interesting (if violent and deadly) collapse.

    [1] http://www.tdaxp.com/archive/2008/11/18/supplier-failure.html

  4. Dr.Barnett had a link to an article by a former ambassador claiming that we are currently kicking the Russians while they are down.

    http://thomaspmbarnett.com/weblog/2008/12/the_great_game_around_afghanis.html

    My view is that the ambassador is way too conspiratorial in his thinking. US military planners are simply trying to secure an alternative supply route to Afghanistan now that Mr.10% is president of Pakistan and logistics through that country are becoming somewhat unreliable.

    What I think is more interesting in that article is the news that China has completed a railroad to it’s western border with Kazakhstan and is currently extending that railroad to connect to the Kazakh rail system. That means that the capability to send intermodal shipping containers from Chinese factories to Europe entirely by train is becoming closer to reality. Perhaps Catholicgauze would be the one to comment on the implications of this interesting new bit of geography. It does help to make both Russia and the Somali pirates less relevant.

  5. Resentment far from Moscow:
    “The first rumblings of discontent came after the government announced a hike in custom duties on imported used cars to help Russia’s auto companies (run mostly by Putin cronies). Importing used cars from Japan is a major source of livelihood in the Far East, which responded with major protests that quickly became political. Some demonstrators openly denounced Putin, Medvedev, and United Russia; many angrily demanded television coverage. After a week of protests, a peaceful rally in Vladivostok was brutally broken up by the riot police on Dec. 21; several journalists, too, were beaten and arrested. While television news ignored the incident, many mainstream newspapers did not. Remarkably, several local legislatures in the Far East have backed the protesters’ demands. So far, the government has refused to budge. But what will happen if the ranks of protesters swell from hundreds to hundreds of thousands?”[1]

    This is a link rich article about how the fall in oil revenue will serve to highlight internal tensions among the power structure:
    [2]

    Russia is not a normal country and we would be foolish to consider it as such, thus.

    MiT: Re-opening the overland trade routes across Asia would be a great thing. Technically, it should be possible across Russia, but it has not worked out that way.

    [1]
    http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2009/01/02/a_brewing_storm_in_russia/

    [2]
    http://www.huffingtonpost.com/robert-coalson/a-test-for-russias-unity_b_154944.html

  6. Mark in Texas,

    What I think is more interesting in that article is the news that China has completed a railroad to it’s western border with Kazakhstan and is currently extending that railroad to connect to the Kazakh rail system. That means that the capability to send intermodal shipping containers from Chinese factories to Europe entirely by train is becoming closer to reality

    I don’t know if the economics of transportation works here (the goods would have to be less time sensitive than air freight but more time sensitive than sea cargo), but the China-Kazakh connection is useful for us. [1]. We will integrate central asia into the global economy by tying them into the economies of the wealth-generating economies of East Asia. Far better for Kazakhstan to be looking to growth and to the future through China than to Putinism and the past through Russia.

    ElamBend,

    This is a link rich article about how the fall in oil revenue will serve to highlight internal tensions among the power structure:

    Russia is not a normal country and we would be foolish to consider it as such, thus

    Excellent post!

    China survived the destruction of the Cultural Revolution between her ‘Mikhail Gorbachev’ (Liu Shaoqi) and his natural successor (Deng Xiaoping). It’s not impossible that Russia can withstand Putinism, and return to the reform that aborted December 31, 1999.

    [1] http://www.tdaxp.com/archive/2008/10/12/that-other-pipeline.html

  7. Russia halts natural gas delivery to Europe. [1]

    I don’t recall the Soviet Union doing this through the Cold War… but Russia’s willing now, as part of a bargaining dispute with a third party.

    If there is anyone able to get Europe of its addiction to natural gas, Putin may be the man.

    We should help them along, by developing better batters [2], solar tech [3], and other technologies that together can help Europe reduce their consumption of Russian oil and natural gas.

    You don’t need to be part of a ‘GOP Cold War Lobby’ to think it’s risky to have a whole continent’s energy supply dependent on the internal politics of Gazprom, Inc.

    [1] http://www.radionetherlands.nl/news/international/6125170/Russia-halts-natural-gas-supply-to-Europe
    [2] http://www.autobloggreen.com/2009/01/07/stimulus-package-could-include-big-bucks-for-advanced-batteries/
    [3] http://domesticfuel.com/2009/01/06/solar-leads-record-year-of-green-investment/

  8. There are a number of interesting economic consideration to a rail line connection between China and central Asia. At this point in time (assuming that the Obama administration wants to continue our efforts in Afghanistan) there is interest in developing alternate logistics routes into Afghanistan other than via Pakistan. This means that China and the US could team up to pressure the World Bank, the UN development agency and other international development agencies to bankroll and support an improvement in the railroad systems of central Asian countries.

    Railroads haul loads in both directions. Most of the commentaries I have read about Ukraine’s economic problems have mentioned the idled steel industry capacity. Some of this capacity could be used in the upgrading of the central Asian railroads. Once the transportation infrastructure is upgraded, western China would be a market for Ukrainian steel. So far, development of western China has been limited by the need to spread improved Chinese infrastructure west from the coast. If factories in western China were serving central Asia and eventually Turkey and Europe, China would have another node from which economic development was growing.

    And if your goal is to kick the Russians while they are down, you might want to change the railroads of Central Asia to the 4 foot 8 and a half inch gauge that is standard in the US, Europe, Turkey and China instead of the 5 foot gauge that is the Russian standard. Among other things, it would make it militarily more difficult for the Russians to return, aside from making railroad shipping between China and Europe a lot easier.

  9. Michael,

    Afghanistan’s geography dictates it will be supplied from Central Asia (as in the Soviet invasion), Pakistan (presently), or Iran (the future, possibly [1,2]).

    Likewise, Russia has already thrown up protectionist barriers to Sino-Russian trade, and is currently preventing natural gas transshipment via Ukraine [3]. Hard to imagine that Trans-Siberian train communication is any less susceptible to Russian shenanigans.

    That said:

    That is clever!

    Presumably, Russia’s continuing decline and the background need for rail shipment will lead to a shift in central asian gauges sooner or later. Speeding this up in Central Asia, and thus moving those countries further into the Core’s orbit and away from Russia’s, is smart.

    [1] http://www.bloomberg.com/apps/news?pid=20601103&sid=aMFkfCK2mw1Y&refer=us
    [2] http://www.tdaxp.com/archive/2009/01/08/obama-should-help-iran-move-to-the-seam.html#comment-216059
    [3] http://www.tdaxp.com/archive/2009/01/07/must-be-a-disinformation-op-by-the-cold-war-lobby.html

Leave a Reply

Your email address will not be published. Required fields are marked *