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Possibilities and Predicaments for Putin

November 11, 2014 in Economics

By Richard W. Rahn

Richard W. Rahn

Russian President Vladimir Putin’s clear goal is to re-establish as much of the Russian Empire (1721-1917) as he can. At its greatest extent, the Russian Empire included the territories of the old Soviet Union, most of Eastern Europe, Finland and Alaska (up to 1866). Mr. Putin knows the next U.S. president is unlikely to be as indecisive and reluctant to act as President Obama. He also faces falling demand for Russian oil and gas and unexpected price declines, which may cause him to run through Russia’s considerable financial reserves. Accordingly, the pressure is on him to act quickly.

The Russian economy is now little more than a petro-state, relying on oil and gas, which account for 68 percent of its total exports, and more than half of its government revenue. Much of Russia’s manufacturing base evaporated after the end of the Soviet Union. The ruble has fallen more than 30 percent against the dollar since the beginning of this year. As a result, inflation is accelerating (more than 8 percent at the moment) as imports become more and more expensive. The Russian budget has been running small surpluses, but with the big drop in oil prices, government revenues will fall, and the budget will most likely go into deficit.

In order to keep their economy from falling into total disarray, the Russians are actively doing everything they can to keep global oil prices high and keep the Europeans (which by far and away are their biggest customers) in continued dependence on their gas and oil. According to Eurostat, Russia supplies the European Union “with 30 percent of its gas, 35 percent of its crude oil, and 26 percent of its solid fuels.” Bulgaria, Estonia, Finland, Slovakia, Latvia and Lithuania are nearly 100 percent dependent on Russian gas. Europe could quickly become self-sufficient in gas, but European politicians have banned most fracking and other actions necessary to make Europe less dependent on the Russians.

The Russians are known to have bribed and made other forms of payments to European politicians and opinion leaders, often through the subsidization of environmental groups that lobby against European oil and gas development. Former German Chancellor Gerhard Schroeder is now vice chairman of Russia’s Gazprom, and the spokeswoman for the EU’s foreign-policy chief is married to a Gazprom lobbyist. There are many public relations, law, lobbying and other groups in the EU and even in the United States that receive funds from Russian sources. One of the great hypocrisies is …read more

Source: OP-EDS

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