American leaders stumble while Putin strides ahead.
American leaders stumble while Putin strides ahead.
R ussia has a second-tier economy at best. It is ranked eleventh in the world by GDP, just ahead of Brazil but trailing South Korea, Canada, and Italy, to say nothing of the U.S., China, and the other top dogs.
As I’ve detailed before (and I’m far from alone in this regard), today’s Russia is a pale imitation of the Soviet Union — still a formidable military power but riven by internal dysfunction, corruption, and strife. And, indeed, after an exuberant start following the U.S.S.R.’s 1991 collapse, the Russian Federation in 1991 passed through its “gangster capitalism” phase and became a basket case, defaulting in 1998. After a restructuring and a decent recovery built on its rich energy resources, Russia slipped into crisis again when the bottom fell out of oil prices in 2008. It has stagnated ever since.
So can Moscow really afford what is now an apparently inevitable invasion of Ukraine? Yes . . . because its cunningly ruthless strongman, Vladimir Putin, has been preparing for a long time.
Putin has amassed a good-size war chest. Moreover, as our Andrew Stuttaford recently detailed at Capital Matters, he has been reshaping Russia’s financial system in order to deflect American and Western retaliatory measures, which he coldly calculated were going to be economic, not military.
Forbes reports that Russia’s central-bank reserves have risen to a record high $640 billion, the equivalent of 17 months of export revenues. If the Biden administration actually wanted to do something about this, it would stop stifling U.S. energy production. But, as you may notice when it’s time to fill up your gas tank, Biden is in the thrall of climate alarmists. Putin is among the global actors cashing in most on surging prices.
Russia is responsible for 10 percent of global oil trade, each day exporting 5 million barrels of crude oil and another 2.5 million barrels of refined petroleum products. As of the end of last week, Brent crude continued its sharp rise, to $92.27. This means Russia’s daily petro-revenues are even higher than they were a few days earlier, when the Forbes noted that it was raking in more than $600 million per day with Brent then at an eight-year high of $88.88.
Beyond that, Russia is the world’s leading exporter of natural gas (close to 10 percent of which transits through Ukraine). Each day, through that trade of approximately 23 billion cubic feet, Moscow pockets $400 million. Moreover, as Andrew explained, Russia’s gas-export monopoly, Gazprom, has helped keep prices artificially high, particularly in Europe. Again, that is happening while the Biden administration makes U.S. energy production increasingly difficult, putting more upward pressure on prices in its mulish determination to appease the far Left.
How is Moscow planning to protect this $1 billion-per-day haul when the West tries to retaliate against its aggression in Ukraine?
Well, to state the obvious, it is banking on European dependence leading to European fecklessness. Europe imports over 40 percent of its gas and 25 percent of its crude oil from Russia. Without viable alternative markets, the Europeans will be hard pressed to do more than tongue-lash over Russia’s coming Ukrainian incursion — Putin having taken the EU’s measure through Gazprom’s aforementioned machinations.
As for likely U.S. retaliatory steps, Russia has been thinking ahead. As Forbes explains, “It is no longer apt to refer to Russia’s fossil fuel income as ‘petro-dollars,’ as Putin has been working hard to ‘de-dollarize’ the Russian economy.” In less than a decade, Russia has reduced the percentage of its dollar-denominated receipts from 95 percent to just 10 percent.
The Biden administration’s threat of fierce economic sanctions is based on the American capacity to cut Russia off from the international payment processing system known as SWIFT (the Society for Worldwide Interbank Financial Telecommunications). But Putin began softening that eventual blow seven years ago. That’s when the Obama/Biden administration imposed sanctions over Russia’s 2014 annexation of Crimea and border war in eastern Ukraine (where Russia has now marshalled tens of thousands of troops). Russia countered by launching its “Mir” payment platform (which Forbes acidly observes is “now even connected to Apple Pay”). Being precluded from SWIFT will still hurt some, but not as much as it would have in years gone by.
The Forbes report further elaborates that “Putin has increasingly replaced trade dollars with gold” and “has piled up a mountain of it.” That mountain is now worth about $130 billion, up from just $2 billion in 1995. That’s 20 percent of global reserves, trailing only the U.S., Germany, and Italy.
Though the last five years has produced global economic turbulence, the Forbes report explains that Russia has done a good job managing its currency — the ruble has mainly held steady against the dollar (though its value dropped a bit during the recent military build-up on Ukraine’s border). In addition, though growth has been stagnant, Putin has prioritized stability. Russia is one of the least-indebted major countries in the world. Its GDP is low (about $1.5 trillion in 2020, which may have risen to $1.7 trillion last year — still way down from its 2013 peak of $2.3 trillion). Yet, Russia’s public-debt-to-GDP ratio is just 18 percent, and the debt it owes to foreign sources is less than 30 percent of GDP — again, minimizing its exposure to retaliatory measures.
And then there is China. As its tensions with the U.S. and the West have intensified, Moscow has drawn closer to Beijing, to the point — the Wall Street Journal reports — that China is now Russia’s largest trading partner, with commerce between them hitting a record $147 billion in 2021.
Putin and Xi Jinping have made a show of deepening ties during the ongoing Olympics. It was sadly hilarious Friday to hear Daniel Kritenbrink, the Biden State Department’s top Asia-Pacific official, sputtering about how China will be “embarrassed” if it is seen as “willing to tolerate or tacitly support Russia’s efforts to coerce Ukraine.” To the contrary, Xi quite consciously chose the very moment of Russia’s troop escalation to issue jointly with Putin last week the most pointedly anti-American joint statement the two countries have made in 70 years. Drawing out Biden on Russia’s menacing of Ukraine is useful to China as it weighs making its own move on Taiwan.
In their joint statement, critically, China expressed support for Russia’s opposition to NATO expansion, while Russia backed China’s antagonism toward AUKUS — the defense pact Biden has struck with Australia and the United Kingdom. In conjunction with the joint statement, the Journal report relates, the two countries announced significant new oil and gas deals valued at an estimated $117.5 billion. China and Russia have recently held joint military exercises. They now pledge to add cooperation in Arctic-sea passages for shipping and international technology standards to already existing joint ventures in aviation and nuclear energy.
President Biden’s stammering performance at his January 19 press conference illustrated that the U.S. and its allies continue to grope for a meaningful, unified response that would punish Russia for a coming incursion that could swallow Ukraine whole. Putin, by contrast, has spent years planning for this moment.