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January 02, 2009

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There's no connection or a causal link between the Russian oil resources and the authoritarian streak in the current Russian government. But there's certainly a link between the Russian oil resources and the presumed "expansionist" policy.

It's quite simple. Russia has spent its oil money in rearmament. The new wealth and the new military strength have also contributed to a more confrontational foreign policy. A lack of wealth would have meant a lack of military strength, and made confrontational foreign policy undesirable.

It's pretty obvious, no? Unless, of course, you actually believe that "Red Storm Rising" really is an accurate analysis on the likely behaviour of a crisis-ridden Russia.

So, there's every reason to believe that a "lean" Russia would indeed be a good deal less "expansionist". It's sort of difficult for me to imagine how the complete basket-case that Yeltsin was ruling over could have, say, conducted casual overflights across Scandinavian territory, stacked the Kaliningrad enclave with missiles or orchestrated a small-scale intifada in a neighbouring NATO country. Because, you know, you actually need money for that sort of thing.

(One exception: the Prishtina operation. Although it's worth noting that even that was a fiasco, precisely due to the lack of resources.)

When it comes to the part about the form of government, I agree completely. The present-day Russia could just as well be a shiny happy liberal democratic paradise, and their foreign policy (... or their state policy on petroleum resources, for that matter) still wouldn't be any different from what we've seen. If they're rich and have new weapons, they'll brandish their strength openly; if they're short on cash and their guns are old, they'll remain quiescent and focus on their own backyard.

(And it doesn't matter where the money comes from, so yes, it's not really about oil. If the main source of Russian wealth was space tourism, they'd still use their cash in a similar manner.)


Cheers,

J. J.

Gotta agree here.

Oil or not has little to do with a nation's democracy. In this case, it has a lot to do with Putin and his sock puppets marching into other countries: no dinero means no ventures to stomp nations next door. Without the oil, Putin's economy tanks and tanks bad.

I'm confused. You're both arguing, if I understand it, that the Russian Federation will lack the means to project force should the oil price remain low.

Why?

Serious question. The issue isn't as clear-cut as less foreign exchange = less military power.

Nope. I don't know what Will is arguing, but I'm saying that the Russian Federation is likely to lack the desire to project force if there's less money to spend.

The reasons for that are rather elementary. Less money really does mean a potentially decreased military power, and consequently less inclination to adopt any directly confrontational policy on the international scene. Why, even I usually cancel my travel plans if I notice that my income is likely to drop.

True enough, I did say that the Russian rearmament is, _at the moment_, a consequence of the oil and gas money. But I think that I also said rather explicitly that Russia can discover other sources of income, and that in that respect, oil doesn't really matter. Money matters.

So, when making short- or long-term predictions on Russian military power _in the future_, oil prices have jack to do with it. So, I was not saying that "the Russian Federation will lack the means to project force should the oil price remain low".

I was simply commenting on that one sentence of yours: "Is there any reason to believe that a fat Russia would be more democratic and less expansionist than a lean Russia? No." I was also commenting on your further sentence which stated that there's no reason to believe the opposite.

I was agreeing with the first part of it. Yes, wealth and democracy do not go hand in hand. I was also making an addition that a "democratic" regime - however you define that attribute - could be just as expansionist or interventionist; witness France and the United States.

However, I was disagreeing with the part that there is no link between wealth and expansionism, because I think that there is.

The historical record would, I think, indicate that the USSR and Russia have showed less interest in embarking on any foreign adventures when there has been less money to spend. When there's less money, taking care of the domestic concerns comes first. "Domestic concerns" can include increasing the living standards of the people as well as weeding out potential dissidents or suppressing opposition.

There's a caveat that the people who are in charge of affairs in Russia obviously assess the potential strength of their country in relation to the other rivaling great powers. In a hypothetical situation where the EU, the United States and China would also turn into economic basket-cases, Russia would probably see no reason to make any foreign policy re-evaluations. When _no one_ has money, things are more likely to get totally out of hand, and we'd be moving to an unknown territory.

I'd also disagree with Will's comment about "Putin and his sock puppets marching into other countries". Such as? Russia has certainly rattled sabers, but about the only recent case of actually invading a neighbouring country is the South Ossetian war. And you don't really need that much resources for steamrolling over a small uppity neighbour.

(Also, somehow I doubt that any great power would have tolerated such a behaviour from a small country; the fact that the conflict was actually initiated by Georgia seems to be always escaping people's attention.)

Prolonged staring contests with the United States, the EU or any NATO member state, however, those are the situations where a well-stocked war chest would come in handy. But that's not "marching into other countries", that's just normal, confrontational great power policy, not unlike one practiced by corresponding western countries.

Of course, oil and gas have other political uses, because some of the Russian clients would seem to be unable to pay their bills even when the prices are low. There are other regional economies which are likely to tank long before Russia, which brings us back to that thing I mentioned about Russia assessing her potential strength in relation to other countries.

Cheers,

J. J.

If I understand you correctly, then, you're arguing two things.

(1) Russian military spending or effectiveness will not necessarily drop along with the oil price.

That seems true; the country spends only 4 percent of its GDP on the military. It also retains the ability to borrow domestically. Finally, I'm fairly certain that relatively little of the inputs into its military machine are purchased on open international markets.

(2) Russian "aggressiveness" will fall if the country perceives itself to be relatively poorer.

You tell a plausible story. The problem, Jussi, is that one can tell multiple plausible stories, several of which lead to a poorer Russian government becoming /more/ aggressive.

Increased aggression on the part of countries in poor economic straits is far from uncommon. To give two examples, Argentina invaded the Falklands in 1982 and Iraq overran Kuwait in 1990, both times of economic hardship at home.

It is very easy to imagine a scenario in which a weakened Russian government at home (due to economic hardship) finds it much /more/ necessary to be seen as hardnosed and hardline abroad.

In addition, one can easily imagine conflicts over gas prices getting worse as the price falls: Moscow might be more willing to make concessions when it is taking in more money than it know what to do with than when it is cash strapped.

The thing is that even those invasions that you mentioned had at least some rationale behind them. Both Galtieri and Saddam thought - and with some justification - that they could actually get away with their shenanigans. As it turns out, they were wrong, but initially, they really _did_ think that they had their bases covered.

So sure, of course Russia could also pick a safe fight, just to satisfy the important desire to show everyone that they have big brass ones. But then again, considering that they were already served with such a splendid opportunity just recently, I have my doubts that there's any need to conduct another short victorious war with a small uppity neighbour in the near future.

(There's the random possibility of an independent nearby conflict requiring Russian intervention against their own will; Douglas has mentioned the possibility of a renewed Nagorno-Karabakh war several times in the past. But that would be basically just a "They keep pulling me back in"-situation, and a different thing from what's discussed here. Something similar might also happen to the United States.)

As for the idea of Russia picking a fight with someone from their own league, well, frankly, I can't really imagine any plausible Russian government going that nuts.

When it comes to just appearing "hardnosed and hardline" on the diplomatic scene... hm, well. Russian Federation has already pursued a hard-line tit-for-that foreign policy for some years, but as I said, that's just normal great power behaviour. Personally, I'd still make a prediction that the propensity for actual confrontational policy outside their direct sphere of interest is more than likely to drop if the state of Russian economy and finances also drops, relative to their great power rivals.

(Okay, so I actually qualified the argument twice over.)

But, as I said, assuming that we're heading for a complete, global financial meltdown where everyone ends up broke, then all the bets are obviously off.

By the way, just to offer some anecdotal content, my own eastern contacts are mostly academic, but my brother (who is an M. Sc. engineer and metallurgist) actually does business in Russia (at the moment, for pulp and chemical industry). According to his comments, most of his Russian colleagues would seem to be rather surprisingly optimistic, and are expecting only a short, temporary downturn.

If I had to make a guess, this could be due to the fact that these fellows still remember the '90s and the Yeltsin era. They have first-hand knowledge of what a real financial meltdown and economic crisis is like, so consequently, they're not that worried.

Incidentally, neither am I, for the same reasons. As it its, even the worst possible predictions by the Finnish government still don't measure up to what actually happened back in the early 1990s.


Cheers,

J. J.


Sorry about the delay in responding. We have an Xmas-New Year's break every year from work and my family is all off at the same time so we get a little pulled away from the computer around then.

Why does lower oil mean Russia will behave itself more? It actually has zilch to do with its democracy. There are plenty of nations that are relatively well behaved and nondemocractic.

Russia needs the oil revenue badly to modernize their military. The Russian economy that is not tied to or benefited from the secondary effects of the oil dinero influx isn't sufficient to support that program.

They need the modernization to actually be a problem for many other nations, really. The Russian Army's logistics tail for outside Russia pretty much sux. The Russian AF is in very bad shape. Let's not even discuss the Russian navy.

They might be a menace to Ukraine and Belarus, but not a whole lot more. Even then, the delivery and training of the Ukrainians with two or three thousand, modern, up-to-date AT and SA missiles would probably be enough to make the Russians stumble and halt with the current Russian equipment.

Without the oil, Russia has been producing something on the order of 20 tanks per year. This past year they were getting set to replace their tanks...until the oil price fell out from under them. Ditto for their VTOL (helicopter) and starting to develop a replacement for their fighter aircraft as well.

No oil means these get shelved. The Russian economy can't support them, not with the general meltdown of the country's infrastructure otherwise. Especially if they keep trying to defend the rubb^Hle.

I do not understand this "without the oil" statement. Nor do I understand why "the Russian economy that is not tied to or benefited from the secondary effects of the oil dinero influx isn't sufficient to support that program."

Bear with me for a moment.

Companies in Russia export oil in order to get foreign exchange that they can use to buy imports or foreign assets. The Russian government gets some of that foreign exchange in the form of taxes or the profits of the companies that it owns directly. The Russian governmen can then use that foreign exchange to buy imports or foreign assets. Alternatively, it can use it to buy domestic goods and services from people who wish to have foreign exchange. A drop in the price of oil, in the simplest analysis, will only affect the Russian government's ability to purchase imports.

Of course, it isn't that simple. The Russian government will need to devalue to ruble in order to cushion the drop in its income in terms of its ability to purchase domestic goods and services. A devaluation will drive back up the ruble price of oil by the amount of the devaluation. The cushion, of course, will only be partial --- the value of the ruble won't fall by a factor of five --- but if Putin can get over his strange reluctance to devalue, then it could offset a lot of the drop in its income.

Of course, the Russian government has another cushion: the huge reservoirs of foreign assets that it has built up. Those reservoirs can be drawn down should need be.

Finally, the Russian government spends only 4% of GDP on the military, including pensions and related defense spending. That is a very small number. Even in the face of a large drop in oil income, the Russian government could easily borrow domestically (it probably won't want to raise domestic taxes) in order to maintain military spending. In fact, increased military spending might even be a make a decent Keynesian stimulus from the Kremlin.

In other words, Will, unless a sizeable part of that 4% consists of imported inputs, a drop in the price of oil is not going to affect the Russians' ability to maintain or increase military spending by very much. And inasmuch as the Russians need to buy imported inputs for their military machine's modernization, I have trouble believing that the value of said imports comes to even 10% of the military budget (if that) ... a miniscule 0.4% of GDP. A drop in the price of oil won't eliminate the Kremlin's ability to make up for such a small number, especially in an environment where domestic borrowing makes sense.

I hate to be the bearer of bad tidings, but the current drop in the price of oil is going to affect the Russians' ability to modernize their military by much less than you think ... and if the Kremlin really cares about military modernization, or even mildly cares about it, then the drop won't affect those plans at all.

As for Ukraine ... wasn't that the country you're worried about? I, like Jussi, am rather unworried about the prospect of the Russian Federation picking a fight with NATO or China.

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