As the Wall Street Journal notes, President Putin's objectives in Ukraine included sending a message to dissident political and ethnic groups in Russia about the consequences of looking West or for independence. As we've written about for some time, strengthening Ukraine's economy with Russian help, or at least with non-interference, would have been the best hand for him to play.
Now, the collapse in energy and materials prices have taken away the biggest levers Mr. Putin planned to use on major oil companies and on Western Europe.
In the background, the long-run demographics in Russia don't favor prolonged dominance by a native Russian majority. Russia's Muslim population is projected to grow from some 18 million in 2010 to approximately 19 million in 2030, according to estimates reported by the Pew Foundation.
Rampant alcoholism among the native Russian population, along with public health problems and higher death rates continues to be an issue, and the WSJ suggests that the Putin government is getting desperate enough dealing with population unrest as to use vodka as a 'pacifier.'
Predictably,oligarchs and successful business owners have long been buying up London and U.S. real estate, and the capital flight continues.
This unstable situation bears watching, but our foreign-policy challenged administration seems to be focused on domestic election-oriented issues at present.
Showing posts with label Russia. Show all posts
Showing posts with label Russia. Show all posts
Wednesday, February 4, 2015
Saturday, September 6, 2014
A NATO Quick Reaction Force: Good Idea in Principle, But Caveats Apply
The news story about the creation of a NATO quick reaction force for Eastern Europe is a much better idea than that of moving underutilized U.S. troops from Germany,
Similar caveats apply, though. It will take time. Objections and 'concerns' have already been raised by Russian mouthpieces. This move, however, almost had to be made given prior statements by President Obama. Once a force is in place, count on the same Russian strategy of provocations and objections to the response and moves to protect those of Russian ethnicity wherever they may reside. The Polish government, in this case, as opposed the the Wall Street Journal scenario, has offered to provide bases and logistical support. This move is hopeful, but there's a long time from the press release to the implementation.
Whatever weaknesses there are in NATO, and they are significant, will be subject to exposure over the coming months.
Similar caveats apply, though. It will take time. Objections and 'concerns' have already been raised by Russian mouthpieces. This move, however, almost had to be made given prior statements by President Obama. Once a force is in place, count on the same Russian strategy of provocations and objections to the response and moves to protect those of Russian ethnicity wherever they may reside. The Polish government, in this case, as opposed the the Wall Street Journal scenario, has offered to provide bases and logistical support. This move is hopeful, but there's a long time from the press release to the implementation.
Whatever weaknesses there are in NATO, and they are significant, will be subject to exposure over the coming months.
Friday, September 5, 2014
US Troops to Poland: An Empty Gesture Now
The Wall Street Journal Opinion column makes an impassioned plea for putting our American troops in Germany into Poland:
This won't happen for several reasons. If something like this were to be implemented without any kind of coherent international foreign policy strategy around it, this would be inviting President Putin to call yet another of our many foreign policy bluffs. The strategy he would use is the same one he used in Ukraine. It works!
The fundamental issue regarding our German-based U.S. troops is a bilateral issue between our President(s) and the German Chancellor(s). Germany is a big, productive economy with a significant impact on world economic progress, but in the matter of foreign policy--national, through the European Union, and through NATO--Germany has been getting a free ride and they just have to pick up their own tab and act like big player on the world stage. Don't count on this. Yet, by not confronting them directly on this issue, a unilateral move would further confuse our allies around the world.
Finally, our military brass in Europe and our troops and their families are enjoying the status quo, thank you very much. They would be the first to lobby against this move, or at least to plead for a fifteen year ' phased draw down' to make it an empty gesture.
In case, the Journal hasn't noticed President Putin doesn't respond to gambits from weaklings, which is how he perceives our President and his foreign policy advisers.
Our brass, their troops and their equipment can certainly be put to a much better economic uses than vacationing in Germany. Asking the Poles to sign off on this meaningless gesture is an insult to their collective intelligence, because the strategy guarantees a loss for them, the only question would be how big.
"NATO would have done better to move the thousands of American troops sitting idly at German bases forward to Poland and the Baltic states. This would have sent a clearer message to Moscow of NATO's seriousness by creating a tripwire against a Russian attack."
This won't happen for several reasons. If something like this were to be implemented without any kind of coherent international foreign policy strategy around it, this would be inviting President Putin to call yet another of our many foreign policy bluffs. The strategy he would use is the same one he used in Ukraine. It works!
The fundamental issue regarding our German-based U.S. troops is a bilateral issue between our President(s) and the German Chancellor(s). Germany is a big, productive economy with a significant impact on world economic progress, but in the matter of foreign policy--national, through the European Union, and through NATO--Germany has been getting a free ride and they just have to pick up their own tab and act like big player on the world stage. Don't count on this. Yet, by not confronting them directly on this issue, a unilateral move would further confuse our allies around the world.
Finally, our military brass in Europe and our troops and their families are enjoying the status quo, thank you very much. They would be the first to lobby against this move, or at least to plead for a fifteen year ' phased draw down' to make it an empty gesture.
In case, the Journal hasn't noticed President Putin doesn't respond to gambits from weaklings, which is how he perceives our President and his foreign policy advisers.
Our brass, their troops and their equipment can certainly be put to a much better economic uses than vacationing in Germany. Asking the Poles to sign off on this meaningless gesture is an insult to their collective intelligence, because the strategy guarantees a loss for them, the only question would be how big.
Monday, July 28, 2014
Don't Count on Putin Blinking On Ukraine
With the EU rumored to be moving to Tier 3 sanctions by Tuesday,the emerging view among Western commentators who form opinions by talking to each other, is that Russian President Putin may have gone too far and may "blink" and reverse his Ukrainian strategy.
While is it encouraging to see how the Ukraine seems to be rallying its military forces and crowd funding drones to better target Russian-led separatists, it is another thing to believe that President Putin will suddenly say "Hold on, let's reconsider here."
In the long run, there is no doubt that the Russian experiment, tied by the ultimate "cult of personality" to one man, is doomed for economic and demographic reasons, as well as by the very oligarchs who were created by plundering national resources at the start. It's another thing to think that it stops here.
A "on again, off again" strategy of maintaining a continuing, low level instability in Ukraine, whose economy was already a basket case, through a winter will probably erode what looks like a unified domestic political front now. Also, President Putin knows that once U.S. election cycles kick into full swing, domestic issues like border security, young refugees, and corporate malfeasance will take center stage over foreign affairs.
Putting in place a meaningful menu of sanctions coordinated among North America and Europe is something that must be completed. That will serve as an effective counterweight to a strategy of simmering tensions in Ukraine until next Spring, when a new crisis can manifest itself.
As Dmitri Trenin suggests, were President Putin to back down now, he would face the prospect of appearing to break faith the right wing Russian nationalists, perhaps one of the few political constituencies he has solidly in his pocket.
While is it encouraging to see how the Ukraine seems to be rallying its military forces and crowd funding drones to better target Russian-led separatists, it is another thing to believe that President Putin will suddenly say "Hold on, let's reconsider here."
In the long run, there is no doubt that the Russian experiment, tied by the ultimate "cult of personality" to one man, is doomed for economic and demographic reasons, as well as by the very oligarchs who were created by plundering national resources at the start. It's another thing to think that it stops here.
A "on again, off again" strategy of maintaining a continuing, low level instability in Ukraine, whose economy was already a basket case, through a winter will probably erode what looks like a unified domestic political front now. Also, President Putin knows that once U.S. election cycles kick into full swing, domestic issues like border security, young refugees, and corporate malfeasance will take center stage over foreign affairs.
Putting in place a meaningful menu of sanctions coordinated among North America and Europe is something that must be completed. That will serve as an effective counterweight to a strategy of simmering tensions in Ukraine until next Spring, when a new crisis can manifest itself.
As Dmitri Trenin suggests, were President Putin to back down now, he would face the prospect of appearing to break faith the right wing Russian nationalists, perhaps one of the few political constituencies he has solidly in his pocket.
Tuesday, April 22, 2014
China Makes The Predictable Play in South China Sea
Back in 2011, we wrote about the web of problems that could be expected from the U.S. failure to sign the Third UN Law of the Sea Treaty, and about our foreign policy with no vision or principles, beyond climate change.
We recently wrote,
The Chinese have also made it clear from 2011 that any challenges to their territorial claims which they say date back to 1947 will be viewed as attacks on Chinese sovereignty.
Coming home in the car today, I heard a report on Vice President Biden's speech visiting Ukraine where he reportedly said that the U.S. won't recognize any Russian annexation of Crimea and that Russia must stop fomenting violence through proxies in masks. This kind of speech is one the President should have made, but it's good to put something clear, fundamental and principled on the table.
German Chancellor Merkel, who had been very visible during the long, drawn on European currency crisis is conspicuously absent on the world stage. She must be ruing her ill-conceived energy policies. Mothballing the German nuclear power industry, creating expensive, inefficient renewable targets, and selling out to Gazprom--a trifecta of policies to play into Russia's hands.
President Putin continues to pull the strings in the Ukraine, but market disciplines through the flight of capital are the only clear signal the Russian President is getting that he may have to tack from his full speed ahead attempts to recreate the Russian empire.
We recently wrote,
"China is probably glad to see that the West doesn't have any teeth in assertions about rolling back territorial grabs like it contemplates in the South China Sea and elsewhere. Japan has to wonder how it could go it alone were territorial disputes with China turn into armed conflicts. Our Saudi friends have already expressed their displeasure at our "leading from the back." "Now, the Chinese has served their notice to Taiwan, Malaysia, Vietnam and the Philippines that it intends to press its uniquely conceived territorial claims in the South China Sea. Our hollow claims of some sort of right to free military passage won't pass muster, but worse they won't change Chinese behavior.
The Chinese have also made it clear from 2011 that any challenges to their territorial claims which they say date back to 1947 will be viewed as attacks on Chinese sovereignty.
Coming home in the car today, I heard a report on Vice President Biden's speech visiting Ukraine where he reportedly said that the U.S. won't recognize any Russian annexation of Crimea and that Russia must stop fomenting violence through proxies in masks. This kind of speech is one the President should have made, but it's good to put something clear, fundamental and principled on the table.
German Chancellor Merkel, who had been very visible during the long, drawn on European currency crisis is conspicuously absent on the world stage. She must be ruing her ill-conceived energy policies. Mothballing the German nuclear power industry, creating expensive, inefficient renewable targets, and selling out to Gazprom--a trifecta of policies to play into Russia's hands.
President Putin continues to pull the strings in the Ukraine, but market disciplines through the flight of capital are the only clear signal the Russian President is getting that he may have to tack from his full speed ahead attempts to recreate the Russian empire.
Thursday, March 6, 2014
U.S. Gas Exports to Europe Won't Worry Putin
We wrote about this supposed panacea in 2012, and the logic still seems to hold sway. Garry Kasparov's piece in the NYT echoes a theme in our recent post.
The oligarchs who run globally recognized sports franchises like Chelsea FC and the Brooklyn Nets down to traditional rackets in Little Odessa have historically been like poodles when summoned by President Putin to pay their baksheesh. The West, and particularly the United States, have a banking and financial system that was big enough to almost bring down the world economy.
It can certainly be used to freeze the pipes of the multi billion empires of the oligarchs, and when they rationally consider their future with an increasingly isolated President Putin who is running out of cards to play, they could use the advantage of the Ukraine crisis to get out from under their peculiar form of bondage.
It's something worth considering, as all the other hackneyed ideas being pushed around are too little, too late.
The oligarchs who run globally recognized sports franchises like Chelsea FC and the Brooklyn Nets down to traditional rackets in Little Odessa have historically been like poodles when summoned by President Putin to pay their baksheesh. The West, and particularly the United States, have a banking and financial system that was big enough to almost bring down the world economy.
It can certainly be used to freeze the pipes of the multi billion empires of the oligarchs, and when they rationally consider their future with an increasingly isolated President Putin who is running out of cards to play, they could use the advantage of the Ukraine crisis to get out from under their peculiar form of bondage.
It's something worth considering, as all the other hackneyed ideas being pushed around are too little, too late.
Monday, March 3, 2014
Tragedy in Ukraine
We've gone from what we thought was a very promising entente between Ukrainian protesters and the government of President Yanukovych covering limitations on Presidential powers and a commitment to early elections, to a very unstable situation which threatens the existence of the nation.
Russian President Putin, the world knows, is a formidable player on the world stage, but his very strengths may be the undoing of his desires for Russia, e.g. recognition on the world stage as a power center equal to the United States, Europe and China. Whatever goodwill might have been cobbled together by the Sochi Winter Olympics has now made them seem as meaningful as the long-forgotten Goodwill Games.
President Putin does not hide his contempt well. Clearly, he has no regard for President Obama, who has been even more disconnected from foreign policy than usual, with his laser focus on mid-term elections and on the next Presidential campaign for the Democratic nominee. Into this vacuum, President Putin pounced with his roughshod entry into Crimea.
The Ukrainian political system has itself to blame for allowing resolutions to be passed in defiance of the brokered agreement, and for leading President Yanukovych to seek safety with the national treasury. Now the release of self-styled opposition leader and former oligarch Yulia Tymoshenko has done nothing but muddy the waters as to who is in charge of Ukraine's central government. All of this could have, and should have, never been allowed to happen.
As many observers have noted, the tactics of fomenting the problem through paid agents, and then answering the call to protect the human rights of Russians in Ukraine with masked gunmen, armed forces, and Russian nationalists in Ukraine, are straight out of the KGB playbook. Of course, President Obama responds late with another "red line" variation. The Europeans may be more politically sophisticated to realize there are few options, but they too are inept and navel-gazing to the threat right on their doorsteps.
So, President Putin has played the hand quickly, forcefully and with no compunction. The problem is going to be: what's next?
If President Putin weren't so one dimensional and short-sighted in his thinking, he would realize that playing this old hand may relegate many of his dreams to the scrap pile of history. The best thing for a real Russian economy (not the kleptocracy of an oligarch-run economy) would be a vibrant Ukraine producing grain and other products and services for export to Russia and to Europe. Logistics and infrastructure projects, in which Russian companies could compete with European suppliers, have long been recognized as providing real economic returns to investors with longer time horizons, like sovereign wealth funds.
The Russian population in Ukraine, if they got the message from President Putin, to end their "sleeper cell" model and instead to become committed citizens of Ukraine, they too would prosper.
If the Crimea were permanently occupied, China and Japan would have to become concerned with Russian naval power now in total control of its base in Sevastopol, as opposed to operating under an agreement with Ukraine as owner of the territory. Relationships with these two powers would not be warm and friendly.
With the U.S. and Europe, prospects for meaningful economic and political relationships would be damaged, perhaps irreparably.
With the Obama administration's foreign policy apparatus being led by nincompoops, and with a President preoccupied with domestic concerns, U.S. policy could go in the deep freeze until the new President is elected. This too would be a very dangerous situation, especially if the American shift were to become more isolationist and confrontational.
What message can be read into President Putin's actions by his own restive citizens? If Russian becomes preoccupied with instability and control over a divided Ukraine and, for example, if chaos were to spill towards Europe via Moldova, then it might be a good moment for separatists inside Russian republics to play stronger, more violent hands.
Even if President Putin once again played his energy hand with Europe, consolidated inside Crimea and Eastern Ukraine and ethnic and religious rebels inside Russia, what would have been won by all this? Russia surely aspires to be more than an OPEC. The Russian economy would be devastated, more well trained Russians would leave and even the oligarchs might get restive with their leader, whose successor isn't apparent and who probably couldn't survive with the same playbook. Oligarchs are subservient now, but the chess player Putin recognizes that relationships change over time.
The interests of the international community are undoubtedly best served by a vibrant economy in Ukraine, which certainly has the human capital and desire to take its place a major agricultural producer. Whether Ukraine "tips" to Russia or Europe is irrelevant: that is playing a game that has left town for good. Let's hope that the situation can be brokered back to political solutions.
Russian President Putin, the world knows, is a formidable player on the world stage, but his very strengths may be the undoing of his desires for Russia, e.g. recognition on the world stage as a power center equal to the United States, Europe and China. Whatever goodwill might have been cobbled together by the Sochi Winter Olympics has now made them seem as meaningful as the long-forgotten Goodwill Games.
President Putin does not hide his contempt well. Clearly, he has no regard for President Obama, who has been even more disconnected from foreign policy than usual, with his laser focus on mid-term elections and on the next Presidential campaign for the Democratic nominee. Into this vacuum, President Putin pounced with his roughshod entry into Crimea.
The Ukrainian political system has itself to blame for allowing resolutions to be passed in defiance of the brokered agreement, and for leading President Yanukovych to seek safety with the national treasury. Now the release of self-styled opposition leader and former oligarch Yulia Tymoshenko has done nothing but muddy the waters as to who is in charge of Ukraine's central government. All of this could have, and should have, never been allowed to happen.
As many observers have noted, the tactics of fomenting the problem through paid agents, and then answering the call to protect the human rights of Russians in Ukraine with masked gunmen, armed forces, and Russian nationalists in Ukraine, are straight out of the KGB playbook. Of course, President Obama responds late with another "red line" variation. The Europeans may be more politically sophisticated to realize there are few options, but they too are inept and navel-gazing to the threat right on their doorsteps.
So, President Putin has played the hand quickly, forcefully and with no compunction. The problem is going to be: what's next?
If President Putin weren't so one dimensional and short-sighted in his thinking, he would realize that playing this old hand may relegate many of his dreams to the scrap pile of history. The best thing for a real Russian economy (not the kleptocracy of an oligarch-run economy) would be a vibrant Ukraine producing grain and other products and services for export to Russia and to Europe. Logistics and infrastructure projects, in which Russian companies could compete with European suppliers, have long been recognized as providing real economic returns to investors with longer time horizons, like sovereign wealth funds.
The Russian population in Ukraine, if they got the message from President Putin, to end their "sleeper cell" model and instead to become committed citizens of Ukraine, they too would prosper.
If the Crimea were permanently occupied, China and Japan would have to become concerned with Russian naval power now in total control of its base in Sevastopol, as opposed to operating under an agreement with Ukraine as owner of the territory. Relationships with these two powers would not be warm and friendly.
With the U.S. and Europe, prospects for meaningful economic and political relationships would be damaged, perhaps irreparably.
With the Obama administration's foreign policy apparatus being led by nincompoops, and with a President preoccupied with domestic concerns, U.S. policy could go in the deep freeze until the new President is elected. This too would be a very dangerous situation, especially if the American shift were to become more isolationist and confrontational.
What message can be read into President Putin's actions by his own restive citizens? If Russian becomes preoccupied with instability and control over a divided Ukraine and, for example, if chaos were to spill towards Europe via Moldova, then it might be a good moment for separatists inside Russian republics to play stronger, more violent hands.
Even if President Putin once again played his energy hand with Europe, consolidated inside Crimea and Eastern Ukraine and ethnic and religious rebels inside Russia, what would have been won by all this? Russia surely aspires to be more than an OPEC. The Russian economy would be devastated, more well trained Russians would leave and even the oligarchs might get restive with their leader, whose successor isn't apparent and who probably couldn't survive with the same playbook. Oligarchs are subservient now, but the chess player Putin recognizes that relationships change over time.
The interests of the international community are undoubtedly best served by a vibrant economy in Ukraine, which certainly has the human capital and desire to take its place a major agricultural producer. Whether Ukraine "tips" to Russia or Europe is irrelevant: that is playing a game that has left town for good. Let's hope that the situation can be brokered back to political solutions.
Tuesday, February 18, 2014
Besides Its Checkbook, Russia May Not Have a Winning Plan forUkraine
A few weeks ago, Ukraine showed signs of a thaw in tensions, as Orthodox priests kept apart protesters and armed riot police. Concessions were made to some arrested protesters. Anger had seemingly been dissipated, but now the trends suddenly seem to have reversed themselves.
As deft as Russian President Putin seems to have been in derailing the European Union project, the current tactics will serve only to harden world opinion and to ultimately cripple the economy in Ukraine. When the 'aid' bill comes due, Russia may find its client unable to pay.
As the Financial Times points out, popular sentiment in Russia sees Ukraine as having deep ties to Russia, and they don't regard it as a former Soviet republic that should be independent. President Putin is reported to have made this remarkable public statement,
At this point, there will be all kinds of manipulation and propaganda put out to western audiences who are viewing developments in Kiev with dismay. These protesters suddenly seem to be a much more violent crowd than had occupied the square for weeks. Might some of the more violent tactics be from paid agitators? The inability of western leaders like German Chancellor Merkel to even get President Yanukovich on the phone seems like he has become a paid puppet. Again, it was only a few weeks ago that he was said to have listened to suggestions about widening the representation in his government. No more.
If the citizens of Russia and Ukraine are, in the words of President Putin, "one people," then subjecting ordinary citizens of Ukraine to violence, public humiliation, with wanton disregard for its sovereignty is not a winning strategy that Europe and the rest of the world should sit idly by and accept.
As deft as Russian President Putin seems to have been in derailing the European Union project, the current tactics will serve only to harden world opinion and to ultimately cripple the economy in Ukraine. When the 'aid' bill comes due, Russia may find its client unable to pay.
As the Financial Times points out, popular sentiment in Russia sees Ukraine as having deep ties to Russia, and they don't regard it as a former Soviet republic that should be independent. President Putin is reported to have made this remarkable public statement,
"Mr Putin invoked the “unity” of the Russian and Ukrainian people and said that, as joint spiritual heirs of the baptism, “in this sense we are, without doubt, one people”."I suspect that for most citizens of Ukraine, the feeling may not be mutual.
At this point, there will be all kinds of manipulation and propaganda put out to western audiences who are viewing developments in Kiev with dismay. These protesters suddenly seem to be a much more violent crowd than had occupied the square for weeks. Might some of the more violent tactics be from paid agitators? The inability of western leaders like German Chancellor Merkel to even get President Yanukovich on the phone seems like he has become a paid puppet. Again, it was only a few weeks ago that he was said to have listened to suggestions about widening the representation in his government. No more.
If the citizens of Russia and Ukraine are, in the words of President Putin, "one people," then subjecting ordinary citizens of Ukraine to violence, public humiliation, with wanton disregard for its sovereignty is not a winning strategy that Europe and the rest of the world should sit idly by and accept.
Friday, December 27, 2013
Compassion or Pragmatism: Khodorkovsky is Freed
The power of personal diplomacy should never be underestimated, as Hans-Dietrich Genscher's heroic work to free Mikhail Khodorkovsky shows. Ascribing motives to a person is most often a fool's game, and the theory that President Putin freed Khodorkovsky to curry favor for the Sochi Games seems ridiculous. Compassion? Putting an end to a story that has run its course?
President Putin wasn't under any compulsion to enter into the discussions that eventually led to the release of interesting, complex, business savvy, and ruthless oligarch who is Mikhail Khodorkovsky. He is certainly not a saint by any means. It does seem that Herr Genscher's personal communications style engaged Russian President Putin in a long running conversation that resulted in Khodorkovsky's being freed.
Elements of pragmatism and compassion were probably both part of the mix. Germany and Russia have substantial long-term economic interests in what might be called the broader Europeanization of their relationship. This is most probably why Chancellor Merkel lent her blessing to the Khodorkovsky conversation. She is most certainly a pragmatist.
One of the best and most incisive summaries of the whole Russian oligarchic system and economic reform is contained in a London Review of Books article by Keith Gessen. Let's hope that a real economic discussion of cooperation between Russia and Europe is a staple in the business news for 2014.
President Putin wasn't under any compulsion to enter into the discussions that eventually led to the release of interesting, complex, business savvy, and ruthless oligarch who is Mikhail Khodorkovsky. He is certainly not a saint by any means. It does seem that Herr Genscher's personal communications style engaged Russian President Putin in a long running conversation that resulted in Khodorkovsky's being freed.
Elements of pragmatism and compassion were probably both part of the mix. Germany and Russia have substantial long-term economic interests in what might be called the broader Europeanization of their relationship. This is most probably why Chancellor Merkel lent her blessing to the Khodorkovsky conversation. She is most certainly a pragmatist.
One of the best and most incisive summaries of the whole Russian oligarchic system and economic reform is contained in a London Review of Books article by Keith Gessen. Let's hope that a real economic discussion of cooperation between Russia and Europe is a staple in the business news for 2014.
Monday, December 16, 2013
Ukraine Gets A Gazprom Discount: At What Cost?
Ukraine may be offered a 'discount' of 25% off list prices from its sole supplier Russia's Gazprom and some additional loans up to $15 billion to extricate itself from the effects of a crippling drought and mismanagement that saw a dramatic reduction in Ukraine's grain harvests and exports. It's not clear how this 'discount' will be treated and repaid, in cash or in kind from future exports. Bloomberg suggests an announcement as early as tomorrow.
While the EU has properly said that it wouldn't negotiate on 'markdowns' to conditions for joining the European Union, it is also short-sighted not to realize what's at stake with Ukraine. It was the "Russian breadbasket" in the halcyon days of Communism. It could be a major exporter to the EU if development projects could be brought on stream, and Ukraine needs an energy import portfolio that contains more than one partner, which is today Russia.
It is unlikely that President Yanukovych can again turn his eyes to the formal EU entry process, as President Putin would be greatly distressed by any such move which would cause him to lose face. The protesters, so far, have shown much more substance and courage than our own cartoonish "Occupy Wall Street" protesters. But, economics more than politics will carry the day from here.
If the EU bureaucrats can muster up some creative alternatives to the full fledged, heavily administrative procedures for EU membership, there can be a real choice for the people of Ukraine to stand behind. The people in the street need some support from Brussels, Paris, Bonn, and Washington.
While the EU has properly said that it wouldn't negotiate on 'markdowns' to conditions for joining the European Union, it is also short-sighted not to realize what's at stake with Ukraine. It was the "Russian breadbasket" in the halcyon days of Communism. It could be a major exporter to the EU if development projects could be brought on stream, and Ukraine needs an energy import portfolio that contains more than one partner, which is today Russia.
It is unlikely that President Yanukovych can again turn his eyes to the formal EU entry process, as President Putin would be greatly distressed by any such move which would cause him to lose face. The protesters, so far, have shown much more substance and courage than our own cartoonish "Occupy Wall Street" protesters. But, economics more than politics will carry the day from here.
If the EU bureaucrats can muster up some creative alternatives to the full fledged, heavily administrative procedures for EU membership, there can be a real choice for the people of Ukraine to stand behind. The people in the street need some support from Brussels, Paris, Bonn, and Washington.
Thursday, August 30, 2012
The Air Goes Out of Arctic Gas Project
Economics has a funny way of intruding into the most complex geopolitical strategies. It was about a year ago that Gazprom began talks in earnest with international partners Total and Statoil to develop the massive Shtokman Arctic gas field in the Russian offshore Barents Sea. The Wall Street Journal reported that developments plans for Shtokman have been shelved because of disagreements over the investment terms among the partners. Gazprom owns the majority stake of 51 percent.
Things have reached the stage where Norway's Statoil has returned its 24 percent stake in the joint venture and written off $340 million of its investment to-date. The economics of natural gas markets would have certainly turned prospective Shtokman project returns upside down. Gas from this project had been planned for shipment into Europe through the Nord Stream pipeline.
It has been well documented that, on an energy equivalent basis to oil, natural gas prices in 2012 are at all-time historical lows.
Put this together with declining demand in developed markets due to economics slowdowns in China, Europe and the U.S., and it is not the scenario for taking on high-risk projects, particularly where the prospects for the partners' getting paid their contractual share on time are subject to political whims.
It also makes little sense for the Russian company to take the risk also, because of their own internal market issues, including competition from newer entities, like Novatek.
Statoil's recent 2012 investor presentations paint a very healthy picture of their operations in North America, where some 30 percent of the corporate resource base is located. The shale gas boom onshore, and offshore resources offer better opportunities to deploy capital in North America. There is no geopolitical risk to these ventures.
Energy, in the form of natural gas exports, was to be a near-term, foreign policy lever for Russia. Global resource markets have put this lever out of service, for the time being.
It's also interesting to note that other commodity markets are being affected by the global slowdown, particularly from China. The Guardian has noted what seems like a collapse of an "iron ore" bubble. The slowdown of Chinese demand for Australian iron ore exports, which represent 60 percent of Australian merchandise exports to China, puts the Australian currency's exchange rate at risk.
Our long period of global easy money, which fueled a consumer-driven, housing led boom in U.S. consumption that led to surging imports from China, has created a global economic landscape that is showing some pock marks. Our demand has slowed, and Europe's slowdown may be accelerating. Therefore, demand from the Chinese export machine has fallen off to the point that Chinese firms continue to produce, even when merchandise is just being stockpiled, without orders.
Even if indirectly, the low rates also fueled speculative commodity booms, as the Chinese and EM demand would absorb marginal global supplies. Some twelve to eighteen months later, these former consensus forecasts now seem like pipe dreams.
Things have reached the stage where Norway's Statoil has returned its 24 percent stake in the joint venture and written off $340 million of its investment to-date. The economics of natural gas markets would have certainly turned prospective Shtokman project returns upside down. Gas from this project had been planned for shipment into Europe through the Nord Stream pipeline.
It has been well documented that, on an energy equivalent basis to oil, natural gas prices in 2012 are at all-time historical lows.
Put this together with declining demand in developed markets due to economics slowdowns in China, Europe and the U.S., and it is not the scenario for taking on high-risk projects, particularly where the prospects for the partners' getting paid their contractual share on time are subject to political whims.
It also makes little sense for the Russian company to take the risk also, because of their own internal market issues, including competition from newer entities, like Novatek.
Statoil's recent 2012 investor presentations paint a very healthy picture of their operations in North America, where some 30 percent of the corporate resource base is located. The shale gas boom onshore, and offshore resources offer better opportunities to deploy capital in North America. There is no geopolitical risk to these ventures.
Energy, in the form of natural gas exports, was to be a near-term, foreign policy lever for Russia. Global resource markets have put this lever out of service, for the time being.
It's also interesting to note that other commodity markets are being affected by the global slowdown, particularly from China. The Guardian has noted what seems like a collapse of an "iron ore" bubble. The slowdown of Chinese demand for Australian iron ore exports, which represent 60 percent of Australian merchandise exports to China, puts the Australian currency's exchange rate at risk.
Our long period of global easy money, which fueled a consumer-driven, housing led boom in U.S. consumption that led to surging imports from China, has created a global economic landscape that is showing some pock marks. Our demand has slowed, and Europe's slowdown may be accelerating. Therefore, demand from the Chinese export machine has fallen off to the point that Chinese firms continue to produce, even when merchandise is just being stockpiled, without orders.
Even if indirectly, the low rates also fueled speculative commodity booms, as the Chinese and EM demand would absorb marginal global supplies. Some twelve to eighteen months later, these former consensus forecasts now seem like pipe dreams.
Tuesday, February 7, 2012
Andrei Shleifer on Transitions From Communism
Professor Greg Mankiw's blog referred to an article by his Harvard economics colleague, Professor Andrei Shleifer, a Russian born, American trained economist. Shleifer writes about things he learned about economies transitioning from Communism, with the benefit of twenty years of history, which is still a relatively short time period.
A few of his point struck me as interesting and different from the mainstream American press narrative. He writes,
"...economists have greatly exaggerated the benefits of incentives by themselves, without changes in people. Economic theory of socialism has put way too much weight on incentives, and way too little on human capital. Winners in the communist system turned out not to be so good in a market economy. Transition to markets is accomplished by new people, not by old people with better incentives. I realised this and wrote about it in the mid-1990s, but the lesson both in firms and in politics in profound: you cannot teach an old dog new tricks, even with incentives."
He concludes optimistically, "...middle-income countries (like Russia and Ukraine) eventually slouch towards democracy, but not nearly in as direct or consistent a way as they move toward capitalism."
A few of his point struck me as interesting and different from the mainstream American press narrative. He writes,
"...economists have greatly exaggerated the benefits of incentives by themselves, without changes in people. Economic theory of socialism has put way too much weight on incentives, and way too little on human capital. Winners in the communist system turned out not to be so good in a market economy. Transition to markets is accomplished by new people, not by old people with better incentives. I realised this and wrote about it in the mid-1990s, but the lesson both in firms and in politics in profound: you cannot teach an old dog new tricks, even with incentives."
He concludes optimistically, "...middle-income countries (like Russia and Ukraine) eventually slouch towards democracy, but not nearly in as direct or consistent a way as they move toward capitalism."
Saturday, November 26, 2011
Russia In A Multipolar World
Fyodor Lukyanov has an interesting article in the Spring/Summer 2010 issue of the Journal of International Affairs, published by Columbia's School of International and Public Affairs. We had a recent post about the Nord Stream gas pipeline and its importance for the growing Russo-European relationships.
The author notes that Russia "has not acquired a new identity on the world stage since the break up of the Soviet Union." I think this is the key to understanding why the Russo-American bilateral relationship has been foundering for the last three U.S. Presidencies.
The old Soviet Union controlled the vast swath of the Eurasian land mass. When the Soviet Union collapsed, 25 million ethnic Russians did not have a home in the new Russia, something that was inconceivable a decade before. The consequences of the collapse, the author points out, are not yet known or understood.
The press images portraying President Putin as the black belt judoka capable of standing up to the weak and scurrilous leaders of the U.S., Western Europe and China never made much of an impression outside Russian boundaries. Instead, there remains widespread dismay about how "modern" the new Russian republic really is.
The widespread crackdown and violent killing of Russian journalists is something that is anathema in many countries beyond the U.S. and Europe. While U.S. universities fall all over themselves establishing relationships with their Chinese counterparts, a similarly strong relationship with Russia would seem just as natural for the U.S., but it doesn't exist. The images of Russian oligarchs duelling in a British court room about the division of billions in value to which they were not entitled seems other worldly. None of these policies and images are worthy of a true leader in a multi-polar world.
For all the talk about a multi polar world, it remains just that: empty talk. Lukyanov dismisses the notion of a world of networked international relationships, without discrete polar focal points. He rightly points out that our world has yet to find a suitable organizational replacement for the nation state model.
The European Union was supposed to be the paradigm for the Brave New World in which national sovereignty was sacrificed on the altar of common currency and shared economic benefits. We now know where that train is headed. Alternatively, the author notes we've had a number of multinational, humanitarian interventions, where a small number (as small as one) of states have acted to counteract evils such as ethnic cleansing. A particular nation's sovereignty was sacrificed because they were being bad actors on the humanitarian stage. This kind of instrument, as we know, is subject to abuse, and this model has limited application.
To be fair, U.S. conduct of foreign policy has been abysmal through the past three administrations. The author points out the lasting suspicion and distrust sown by the U.S. unilateral withdrawal from the ABM Treaty in 2001, without consultation or discussion with the Russians. I don't know if we are capable of having a sustained, rational foreign policy position, but there's always hope.
In Asia, there are many actors vying for leadership positions, such as China, Russia, Japan, and India to name a few. Russia desperately needs a more economically modern, humane and enlightened identity in order to exert meaningful leadership in an emerging multi-polar world.
The author notes that Russia "has not acquired a new identity on the world stage since the break up of the Soviet Union." I think this is the key to understanding why the Russo-American bilateral relationship has been foundering for the last three U.S. Presidencies.
The old Soviet Union controlled the vast swath of the Eurasian land mass. When the Soviet Union collapsed, 25 million ethnic Russians did not have a home in the new Russia, something that was inconceivable a decade before. The consequences of the collapse, the author points out, are not yet known or understood.
The press images portraying President Putin as the black belt judoka capable of standing up to the weak and scurrilous leaders of the U.S., Western Europe and China never made much of an impression outside Russian boundaries. Instead, there remains widespread dismay about how "modern" the new Russian republic really is.
The widespread crackdown and violent killing of Russian journalists is something that is anathema in many countries beyond the U.S. and Europe. While U.S. universities fall all over themselves establishing relationships with their Chinese counterparts, a similarly strong relationship with Russia would seem just as natural for the U.S., but it doesn't exist. The images of Russian oligarchs duelling in a British court room about the division of billions in value to which they were not entitled seems other worldly. None of these policies and images are worthy of a true leader in a multi-polar world.
For all the talk about a multi polar world, it remains just that: empty talk. Lukyanov dismisses the notion of a world of networked international relationships, without discrete polar focal points. He rightly points out that our world has yet to find a suitable organizational replacement for the nation state model.
The European Union was supposed to be the paradigm for the Brave New World in which national sovereignty was sacrificed on the altar of common currency and shared economic benefits. We now know where that train is headed. Alternatively, the author notes we've had a number of multinational, humanitarian interventions, where a small number (as small as one) of states have acted to counteract evils such as ethnic cleansing. A particular nation's sovereignty was sacrificed because they were being bad actors on the humanitarian stage. This kind of instrument, as we know, is subject to abuse, and this model has limited application.
To be fair, U.S. conduct of foreign policy has been abysmal through the past three administrations. The author points out the lasting suspicion and distrust sown by the U.S. unilateral withdrawal from the ABM Treaty in 2001, without consultation or discussion with the Russians. I don't know if we are capable of having a sustained, rational foreign policy position, but there's always hope.
In Asia, there are many actors vying for leadership positions, such as China, Russia, Japan, and India to name a few. Russia desperately needs a more economically modern, humane and enlightened identity in order to exert meaningful leadership in an emerging multi-polar world.
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