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Putin's Luck Runs Out

Putin's Luck Runs Out

Vladimir Putin

2014 was good. 2015, not so much.

Vladimir Putin has been on quite a roll for about a year now. But December 1, 2014, just might turn out to be the day the tide finally turned against him.

Ever since Russia's annexation of Crimea in March sparked the worst East-West showdown since the Cold War, Moscow has enjoyed a clear asymmetrical advantage: it was prepared to use force to achieve its ends in Ukraine -- and perhaps elsewhere -- while the West was not.

But this week marked something of an inflection point where whatever short-term asymmetrical advantages Moscow enjoyed are now being eclipsed by its long-term structural weaknesses.

And the signs they were aplenty.

First, there was the ruble. The Russian currency -- reeling from the combined effect of sanctions and falling energy prices -- experienced its sharpest one-day drop since the August 1998 financial crisis on December 1, falling below the psychologically important level of 50 to the dollar for the first time.

Related: Scrapping South Stream Underscores Russia’s Weakness

And then there was oil. The price of this backbone of the Russian economy has fallen 25 percent since the summer. On December 1, following OPEC's decision not to cut production, the price of Brent Crude, the world benchmark, dipped below $70 a barrel, a five-year low. And the slide is expected to continue.

"What do the ruble, oil, and Vladimir Putin have in common?" goes a joke making the rounds in Moscow. "They will all hit 63 this year."

The twin phenomena also prompted Twitter-user Robert Dambergs to quip, "I hear the ruble will soon be sold by the barrel!"

And, of course, there was South Stream. After talks with Turkish President Recep Tayyip Erdogan in Ankara on December 1, Putin announced that Russia will drop the South Stream natural-gas pipeline -- a project the Kremlin once hoped would cement Moscow's dominance over Europe's energy market. The move followed Brussels insistence that Gazprom abide by the EU's antimonopoly laws -- which it had been flouting for years.

The New York Times' Andrew Roth called the scrapping of South Stream "a rare diplomatic defeat" for Putin and "a rare victory for the European Union and the Obama administration, which have appeared largely impotent this year as Mr. Putin annexed Crimea and stirred rebellion in eastern Ukraine."

All true. But such a turnaround was also pretty predictable. And we should expect to see more setbacks for the Kremlin in the coming months.

Because a key source of Russia's strength has long been its ability to reap the benefits of being integrated into the global economy and be treated as a respected member of the international community -- while at the same time flouting their rules.

Prior to the Ukraine crisis, Putin's Russia had indeed found something of a sweet spot.

It was a respectable G8 member that was able to spread its influence by corrupting Western elites, stealthily buy up European energy infrastructure through shady shell companies, and flagrantly violate the EU's antimonopoly legislation.

It could even behave like a rogue occasionally, as in the August 2008 invasion of Georgia, and get off with barely a slap on the wrist.

But in Ukraine, Putin basically jumped the shark. By annexing Crimea he initiated the first forceful change of borders in Europe since World War II. And by manufacturing a pro-Moscow insurgency in Donbas, he effectively invaded Ukraine.

Once this happened -- and particularly after pro-Moscow separatists downed Malaysia Airlines Flight 17 -- it was no longer possible for Western leaders to continue to pretend that Russia is a respectable member of the international community. It became untenable to carry on with the charade that Moscow was a partner with which they could work. Instead, Russia became a problem they needed to confront.

Russia became a rogue state. And once it did, a crucial source of its strength began to melt away.

Western sanctions and the steady isolation of Russia from the world economy might not have been enough to contain Moscow in the short term. But, with an assist from falling energy prices, they are more than enough to cripple it in the long run.

And the long run begins now.

The Russian government on December 2 acknowledged what has long been obvious, that the economy would slide into recession in 2015.

Official projections say it will contract by 0.8 percent while other estimates say it could shrink as much a 2 percent. Disposable incomes are expected to drop by 2.8 percent. Inflation this year is at 9 percent, and is projected to continue rising. And capital flight is forecast to reach $128 billion.

Related: Russia Expects Oil Price To Rise, But Not Enough To Balance Moscow’s Budget


And on top of all that, Russian firms owe $700 billion to foreign banks and, due to sanctions, are largely blocked from any additional Western financing.

The looming economic crunch "is a completely new reality" for Putin, economist Sergei Guriyev, who fled Russia last year, told "The New York Times."

"He has always been lucky, and this time, he is not lucky," Guriyev added.

As 2013 drew to a close, Putin appeared to be running circles around his Western counterparts.

He managed to thwart U.S. air strikes against his ally, Syrian President Bashar al-Assad. He strong-armed Armenia -- and temporarily, Ukraine -- into abandoning plans for a free-trade pact with the European Union in favor of the Moscow-led Eurasian Union.

Putin has indeed had a strong year. But 2015 promises to be a lot rougher.

By Brian Whitmore

Source - http://www.rferl.org/  

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  • Tim Bilsky on December 05 2014 said:
    Russia owes $700 billion to foreign banks. Psshh...that's nothing. What do we owe to China? Typical boom/bust cycles and unpredicable volatility with a one-dimensional economy where a dictator by default rules with an iron fist. Reminds me of a country I reside in. Communism/socialism/fascism always lead to the exact opposite of their stated intent.
  • Lee James on December 05 2014 said:
    I agree with this year-end assessment of Putin's Russia. I would characterize the 2013 Russia as expansive and full-of-itself.

    A key question is, why is Russia doing what it is... or trying to do what it is?

    I think we have seen how, under Putin's bare-chested inspiration, Russian energy supply has become an enabler for Putin's dream. Take away the enabler, and what is left in the national political and economic tool box?

    A country needs to feel good about itself, any country. I believe Russians are tired of seeing other countries, like the U.S. jockeying around the world stage and not really being held accountable for significant errors in foreign and economic policy. Russians are essentially calling our hand on it.

    The only problem is, what else does Russia have to offer on the world stage, other than its natural resources and saying that the U.S. "has no clothes?"

    I believe herein lies Russia's conundrum. Short of glorifying Putin and calling "Amerika's" hand, what does Russia have to contribute? The problem is: Not much. This, I believe, is the crux of the problem we are all facing.

    Oil will continue to be weaponized until and unless Russia (and the U.S.) find a new way to be in the world, together.

    I'll be interested to get the reaction of OilPrice readers who are Russian-speakers to my take on "Russia (and the U.S.) in the world."
  • Brian Richard Allen on December 06 2014 said:
    .... Russia owes $700 billion to foreign banks. Psshh...that's nothing. What (does the feral gummint)** owe to (Peking's perilously-pernicious predators) ...?

    Not much more - on the face of it. About $1.2 Trillion.

    But then there are the Several Trillions of pre-1948 Dollars Peking's predatory pack (always very keen on claiming "China's" history as its own and even to inventing great chunks of it to match its delusional Utopian fantasies and various other delusions of grandeur) owe Americans and America.

    Net result? "We" don't owe Peking a net Dime! Not a Brass Razu.

    Brian Richard Allen

    "The trouble with our "liberal" (fascissocialist) friends is not (only) that they're ignorant; it's just that they "know" so much that isn't so." -- Ronald Reagan (apologies to)
  • David Wooten on December 07 2014 said:
    "By annexing Crimea he initiated the first forceful change of borders in Europe since World War II."

    Not true. The war against Serbia in 1999 was specifically for the purpose of changing a 500+ year old border. Moreover, Russia's 'annexation' of Crimea, which most Crimeans wanted, was a response to the Western-financed coup against Ukraine's legitimate president, Viktor Yanukovych (who defeated the previous Western puppet, Vikotor Yuschenko by a landslide in 2010). Yanukovych's ouster was organized by Assistant Secretary of State Victoria Nuland who was upset because Yanukovych accepted a much better offer from Putin than the one he negotiated with Nuland and the EU.
    Yanukovych's ouster, btw, was done while Putin was hosting the Olympics. As Henry Kissinger has pointed out, one does not spend two weeks trying to show the world that he's a good leader and then blow the whole thing by invading another country.

    "...pro-Moscow separatists downed Malaysia Airlines Flight 17..."

    Not likely. Russian engineers have published an excellent analysis of the MH17 incident that shows quite convincingly that MH17 was shot down (deliberately) by Ukraine fighter jet and not a BUK missile. Don't believe Russian engineers? Then how about getting NATO countries to release their own analysis - and to please include the ATC-cockpit flight recordings.

    Russia, under Putin, as a far better record on peace than the USG, whose foreign policy is controlled by neo 'conservative' butchers.
  • cas127 on December 08 2014 said:
    "It was a respectable G8 member that was able to spread its influence by corrupting Western elites"

    Hmmm...Sounds a *lot* like China's ability to engage in export goosing, foreign exchange rate manipulation for over 15 years (while US employment growth utterly vanished) all to the tune of crickets in DC.
  • Kenneth Williams on December 16 2014 said:
    Putin is finished. And he has nobody to blame but himself for his countries economic ruin and his fall from grace.
  • MVP on December 29 2014 said:
    You really need someone from outside the US State Dept to write your articles on Russia. This was about 98% tripe. I'll point out 4 glaring piles of BS:

    1.) "By annexing Crimea he initiated the first forceful change of borders in Europe since World War II" - ever heard of Yugoslavia?

    2.) "And by manufacturing a pro-Moscow insurgency in Donbas, he effectively invaded Ukraine." - And what of the entire Maiden affair, completely precipitated by US meddling? Or was Nuland simply ditching her daughters excess Girl Scout cookies of her own accord. I didn't see Sergei Lavrov over there, but I did see John McCain.

    3.) "pro-Moscow separatists downed Malaysia Airlines Flight 17" - this is FAR from a foregone conclusion - lots of evidence points to Kiev involvement, and it is awfully funny how the Borispol ATC tapes were immediately confiscated, and have not been seen since. Not proof, but awfully suspicious. And I pay taxes for the most expensive and invasive surveillance state in history, but we get Youtube and Twitter as "proof" - and that within minutes of the event taking place.

    4.) "the August 2008 invasion of Georgia, and get off with barely a slap on the wrist." - which is way more than the US gets for invading and bombing whomever they want at will. (Yugoslavia, Sudan, Libya, Iraq, Afghanistan.) Let's cut the crap, OK?

    This was not a news piece as much as a propaganda piece, bereft of objectivity. Just horrible. PUtin ain't no good guy, but he is no worse than our leadership...and has WAY fewer civilian kills to his credit.

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