We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Putin plays a weak hand badly

Putin is sending shivers through the world with his attempts to strong-arm the Ukraine back into the Kremlin’s zone of influence and no doubt more and more column inches are going to be directed at this emerging crisis.

Yet it seems to me pretty obvious that that Russia, circa 2006, is almost hilariously weak to be throwing its weight around. The Russian economy is pathetic for a would-be imperial seat of power, running about half the size of India based on purchasing power. Its GDP per capita is about the same as such mighty global players as South Africa, Mexico and Trinidad. The antics of its kleptocratic and economically illiterate former KGB leadership makes the place less attractive to investors by the day. Frankly you would have to be crazy to put your money in Moscow. Even its military has repeatedly demonstrated that it is inept and corrupt in equal measure. All this talk of Russia’s importance is vastly over-stated. In short, Russia needs to be treated with respect, but only the sort of respect you give a drunk with a knife as he staggers down the street.

The price of gas sold to the Ukraine is currently below market levels but the cackhanded way Russia has handled this makes it pretty obvious that markets are the last thing on Putin’s mind. But perhaps he is to be applauded for massively strengthening the hand of pro-nuclear power advocates with his preposterous posturing. Even the turgid political class of western and eastern Europe can now have few illusions that it makes sense to rely on an unstable place with delusions of grandeur for their energy supplies. Methinks it might be time for those with some spare dosh to invest some of it in nuclear energy stocks.

21 comments to Putin plays a weak hand badly

  • Lascaille

    Even the turgid political class of western and eastern Europe can now have few illusions that it makes sense to rely on an unstable place with delusions of grandeur for their energy supplies.

    Yeah, because we learnt that lesson really well and applied it diligently after the 70′s OPEC posturing, right, that’s why we don’t buy any oil from the middle east (the very definition of ‘an unstable place with delusions of grandeur’ as far as I am concerned.)

  • Creating significant nuclear energy stocks would take twice as long as Putin has even been in power. That’s what many folks say, at least.

    Isn’t Russia important _because_ it is unstable, with many resentful military officers and plenty of nukes?

    Doesn’t lack of investment further the downward spiral of stagnation and corruption?

  • Julian Morrison

    Lascaille: the way you handle unstable, half-crazed suppliers is to diversify, not to refuse them custom. Commerce can absorb any reasonable risk, if it’s properly managed.

  • Isn’t Russia important _because_ it is unstable, with many resentful military officers and plenty of nukes?

    Not really. Nuclear weapons give them leverage how exactly? If they do not like the terms of trade, can they respond with a nuclear attack? Not really. The irony of nukes is that all they do is negate other people’s nukes and give surprisingly little power other than that. An aircraft carrier is a far more impressive tool for exerting power because it is actually usable.

    Doesn’t lack of investment further the downward spiral of stagnation and corruption?

    As places like Nigeria have proved long ago, pumping money into corrupt places just fuels more corruption. Getting proper political, legal and social institutions in place needs to happen before any rational person should even consider investment in a place like Russia unless they are very keen on high risk strategies.

  • “if they do not like the terms of trade, can they respond with a nuclear attack?”

    I’m not really concerned with a government backed military response. It is more important that accountability be maintained so opportunists don’t sell weapons on the black market.

    Daniel Drezner recently proposed that Russia be removed from the G8. That seems like a moderate and realistic censure.

  • Johnathan Pearce

    One measure of how things are going is that increasing numbers of Russian firms are listing on the London Stock Exchange and the AIM rather than in Moscow. Partly this is due to ability to tap a big pool of capital but also, one suspects, because the folk running these firms want to insure against the risk of being looted by Putin and his ilk.

  • Jacob

    “Putin is sending shivers through the world with his attempts to strong-arm the Ukraine back into the Kremlin’s zone of influence …”

    As far as I can see he is trying to charge Ukraine market prices for gas. What’s wrong with this ? True, he is supplying Belarus and Moldova gas at 1/3 the going price. Maybe because he loves them. Fine, but is he obliged to love Ukraine too ?
    Putin is trying to get what is his due here, nothing wrong with it.

    Other people (EU, Ukraine) should learn the old lesson: Putin has gas – you want gas ? Be nice to him !

    As to nuclear power shares – be very careful with such investments. Nuclear power’s enemies, the greens, are a far more powerful threat than Putin !

  • guy herbert

    Perry,

    I don’t see why this counts as playing his hand badly. You appear to assume that Putin should want to make Russia richer in the long term, and that because this isn’t the line he’s taken it is a strategic error.

    Not so. A more developed, less oil-dependent, country would have less place for an autocrat. Putin’s strategy is to preserve and strengthen his power, which is served by strengthening Russia’s only in ways that are under his control. He is doing so by the tried and tested route of creating an energy concession clientelege (as Chavez appears to be in Venezuela, too). The method has made the rulers of Nigeria, numerous Middle Eastern and Central Asian states, and a variety of others, hugely rich and powerful, while they strive to undevelop their countries to suppress the creation of any alternative levers of power.

  • Jacob, that is far too simplistic. Just listen to the language. He is strong arming them, not to mention abrogating some (admittedly dubious) agreements. And as for ‘being nice’ to the Russians because they have gas that the Ukrainians want, might I suggest the Ukrainians just turn off the pipeline over their territory and remind Putin that if he wants to sell his damn gas to anyone else, maybe HE is the one who should be playing nice with them.

    If this was all just a case of private business serving a market (i.e. as it should be) , this would all be very different, but it is a state (Russia) deciding it gets to control the gas supply to suit its political desires, not the market. Belarus would also be getting the same treatment, and they ain’t.

    The simplest solution would of course be the complete privatisation of the whole gas supply system and just let the market set its own levels for local gas supply, but that is sadly not what prevails in that neck of the woods.

  • Guy: yes, I think there is considerable truth to what you say. this is also why Russia is sadly doomed to long term strategic decline and increasing irrelevence as their best and brightest get the hell out and head west with their talents.

  • RAB

    Yup agree with Guy & Perry there.
    This brinkmanship foolishness will diminish us all, but it will be a long time before Russia wakes up and smells the coffee, rather than the roasted acorns.

  • Jacob

    “might I suggest the Ukrainians just turn off the pipeline over their territory…”

    Seems they just did it, and gas supply was resumed.
    They must have been reading this blog.

    Everybody uses whatever means he has, military or economic, to try to improve his lot. Nothing extraordinary about Putin’s moves.

  • Nothing extraordinary about Putin’s moves.

    I agree and it may be good for Putin (or not). It is just not very good for Russia, that is for sure.

  • John K

    Agreed. Putin is a fascist, and is behaving accordingly. If you stand up to him, he’ll back down. In a few years, with Gerhard Schroeder’s help, he’ll have a new gas pipeline under the ocean bypassing Ukraine. He overplayed his hand here, but he clearly hates the fact that Ukraine is independent of Russia, and wishes to squeeze the life out of the nascent democracy there, much as he is doing in Russia.

  • Brian

    I don’t myself see what the fuss is about. The Ukraine declared independence, and, like many nations who have done so, found that the first thing that happens is the subsidies stop rolling in.

    They like to think they are free of Russia, but still expect to be subsidised by them. The Russians, thanks to Gerhard Schroder’s monumental corruption, can get a better price for their gas elsewhere. So why shouldn’t they?

  • It’s considerably more complex than that, Brian… those subsidies are payment for the use of Ukraine’s pipes to export to the rest of Europe… so what’s Ukraine’s incentive to pay “market” prices, when what has actually occurred is an engineered monopoly with Moscow refusing to allow delivery of Turkmen gas already purchased by Ukraine?

    Well, said answer is that Moscow knows that Ukraine will try not to put the rest of Europe in the deep-freeze… but it’s blown up in his face, thank goodness.

  • Mario

    After millions of CIA and Russian? oligarchic money created a Diana-like revolution ie all of 52% , Ukranians found out that what they got was one set of crooks replacing another with GDP growth shrivelling to less than 3% from 14%. Moreover Russian involvement and purchase of Ukranian tanks, planes etc stopped and now the energy intensive steel and other industries will grind to a halt.
    One remembers what one ex-American Ambassador to the USSR said in the mid-nineties. He said that whilst he could not forecast Ukraine’s future, he was only sure that its borders were not permanent

  • Mario

    After millions of CIA and Russian? oligarchic money created a Diana-like revolution ie all of 52% , Ukranians found out that what they got was one set of crooks replacing another with GDP growth shrivelling to less than 3% from 14%. Moreover Russian involvement and purchase of Ukranian tanks, planes etc stopped and now the energy intensive steel and other industries will grind to a halt.
    One remembers what one ex-American Ambassador to the USSR said in the mid-nineties. He said that whilst he could not forecast Ukraine’s future, he was only sure that its borders were not permanent

  • michael farris

    Borders in Central/Eastern Europe are never permanent.

  • RedComrade

    Perry’s ilk apparently think it is OK for Ukrainians to steal from the pipe and lie about contractually nonexistent obligations, while paying the MARKET price apparently isn’t a democratic procedure!?!?

    Wow, interesting position there, Perry.
    Just whom are you kidding?

    “It is just not very good for Russia, that is for sure.”

    Why, ask your employer to give you a fifth of what’s your monthly due, and then tell yourself it’s good for you.

  • RedComrade

    “He is doing so by the tried and tested route of creating an energy concession clientelege (as Chavez appears to be in Venezuela, too). The method has made the rulers of Nigeria, numerous Middle Eastern and Central Asian states, and a variety of others, hugely rich and powerful, while they strive to undevelop their countries to suppress the creation of any alternative levers of power.”

    And what levers might that be? Their highly developed car manufacture? Their fantastically competitive science? Yet more concessions to the big Western oil/metals extractors? Maybe cheaper hookers for Western businessmen?