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Managing Russias Economic Decline

Published: February 19, 2014 (Issue # 1802)


One reason why Russians support their countrys invasion of Crimea is because Russia looks strong again. The Russian military appears well-equipped, disciplined and efficient. Gone are the undersized Soviet-era recruits, the cartoon Rambos of the Chechen campaigns and the officers in banana republic-style oversize hats of the 1990s. These guys look like real soldiers like U.S. GIs.

This picture of strength obscures the fact that the Ukrainian misadventure stems not from strength but from weakness. The need to use force comes from Russias failure to interest Ukraine in a voluntary alliance. Russias economic and political system is so utterly unattractive that Ukraine, like former Soviet satellites in Eastern Europe and other former Soviet republics, wants to have nothing to do with it. This is the reason so much of Ukraine has opted to join the West.

For 20 years, Ukraine had a system that was very similar to Russias until its latest kleptocrat, the utterly shameless and supremely greedy former President Viktor Yanukovych, finally ran it into the ground. The choice to adopt a more open, competitive, rules-based Western-style system is natural for a democratic Ukraine. Putinism can only work in a country that, like Russia, earns $350 billion annually by exporting its oil and gas.

But even Russias phenomenal natural wealth cant support indefinitely an economic system that produces little and instead efficiently breeds parasites. Even with high oil prices and output, the Russian economy is sputtering. Capital and brains are fleeing the country, investment is shrinking, and inflation is on the rise. The Central Bank has already been forced to devalue the currency to make petrodollars go farther in ruble terms.

It is the beginning of the end for the Russian economic boom. The natural gas market is shrinking, and prices are under pressure thanks to new fracking and gas liquification technologies. While Russia goes on pumping oil, the rest of the world is developing renewable sources of energy and energy-saving technologies. Oil from shale has boosted U.S. oil output to its highest level in 25 years, whereas Brazil is planning to triple its deep-sea oil production in the next 15 years, to cite just two examples.

Instead of peak oil, when supply of black gold would start to diminish, analysts now talk of peak oil demand as proven reserves are revised upward. In the U.S., gasoline use per car peaked in 2004 and has now fallen to its lowest level since 1984. The administration of U.S. President Barack Obama wants automakers to double their average gas mileage by 2025 to nearly 55 miles per gallon.

Oil prices are likely to fall in the next five years. Besides oil, gas, metals, weapons and chemicals, Russia sells very little to the rest of the world. This means an inevitable decline in export earnings and a diminishing role for Russia in the world economy.

This was going to happen anyway, but by invading Crimea and refusing to acknowledge that those are Russian soldiers the Kremlin has declared that it is no longer bound by international rules and that Russia refuses to act as a member of a community of nations. This means economic isolation, falling foreign investment and lower credit ratings.

And then there are imminent international sanctions. True, sanctions will disrupt oil markets in the near to medium terms, boost natural gas prices in Europe and penalize many U.S. and European companies. But in the end they will merely speed up the process of Russias economic decline that was going to take place in any case.

Alexei Bayer, a native Muscovite, lives in New York. His detective novel Murder at the Dacha was published by Russian Life Books in 2013.





 


ALL ABOUT TOWN

Saturday, Dec. 20


The citys Babushkina Park on Prospekt Obukhovskoy Oborony will be invaded by dozens of rocking-and-rolling Santa Clauses during todays Santa Claus Parade. Not only will they parade through the park but there will also be competitions amongst the festively-clad participants and a musical master class. There will also be a prize for the best-dressed Santa Claus.


Add to your record collection during the Vinyl Christmas Sale at the KL10TCH bar on Konyushennaya Ploshchad today. Spend the afternoon perusing the records for sale while listening the classic, clean sound of records spinning out hits from a variety of musical genres and time periods.



Sunday, Dec. 21


The Zenit St. Petersburg basketball team returns to the northern capital this evening for a matchup with Krasny Oktyabr, a Volgograd-based basketball club. Tickets for the game, which tips off at 6 p.m. this evening, can be purchased on the clubs website or at their arena, Sibur Arena, on Krestovsky island.


Satisfy your sugar cravings during Sweet New Year, an ongoing seasonal festival at the Raduga shopping center. Each weekend of December will welcome hungry visitors to taste hundreds of different kinds of desserts made from a plethora of sweet treats. Workshops are open to visitors and seasonal gifts can also be purchased for those rushing to finish their New Year shopping.



Monday, Dec. 22


Pick out the latest fashions as holiday gifts for loved ones or as early presents for yourself during the Christmas Design Sale at Kraft on Obvodny Kanal, starting on Dec. 20 and continuing through Dec. 27. Designer clothes will be on sale every day of the week or you can buy something more festive to decorate the home while sipping on hot coffee and perusing the various master classes.



Tuesday, Dec. 23


Meet Arctic explorers Fedor Konukhov and Viktor Simonov during SPIBAs and Capital Legal Services event Arctic Expedition this morning in the Mertens House business center at 21 Nevsky Prospekt. The meeting will discuss the explorers ongoing eco-social project and how companies can use the project as a unique marketing opportunity. Email office@spiba.ru by Dec. 22 if you wish to attend.



Wednesday, Dec. 24


The Anglican Church of St. Petersburg we will be holding a Christmas Eve service at 7 p.m. led by Rev Wm. Shepley Curtis of the Episcopal Church. The service will be held at the Swedish Church at 1/3 Malaya Konyushennaya Ulitsa.



To have your event included in All About Town, email tot@sptimes.ru



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