Is Russia Gearing Up for Confrontation With The West?
Justice Litle - Tue 20 Mar, 2007
Is there any chance Mr. Putin will soon reform and make nice? Not really. It is far more likely that the opposite is true. Russia may well be gearing up for an ugly and possibly brutal confrontation with the West....
— Jim Rogers, Adventure Capitalist
The Dec. 16 edition of The Economist has a mocking send up of Vladimir Putin on the cover. The Russian president’s head is pasted on the body of a Prohibition-era gangster, complete with white fedora hat and zoot suit. In shades of Al Capone, Putin aims a gas pump nozzle as if it were a Tommy gun. The text reads, "Don’t Mess With Russia." Inside, the lead article closes with a bland flourish of hope: "Russia is one of the few countries that could produce more oil — if only Mr. Putin changed his thuggish ways."
This cloying sentiment brings to mind a crusty old nugget of bartender wisdom: "If ifs were a fifth, we’d all be drunk." Is there any chance Mr. Putin will soon reform and make nice? Not really. It is far more likely that the opposite is true. Russia may well be gearing up for an ugly — and possibly brutal — confrontation with the West.
The American Heritage Dictionary defines empathy as "identification with and understanding of another’s situation, feelings and motives." In terms of understanding markets — and cagey petrocrats — empathy can be a powerful investigative tool. Western journalists have little perspective to add to the debate because, for the most part, they are not seeing the world through Mr. Putin’s eyes. What’s worse, they are not even trying to.
We have no inside access to the Kremlin. (If it did, your humble editor would probably be eating caviar in Sardinia right now, rather than pushing hard to meet a deadline.) But we can still make productive use of empathy by imagining the world as others see it. As a literary device, the rest of the piece will be written as if Putin’s thoughts are known, in an attempt to answer the question, "What might Russia’s president be thinking?" To begin, when Mr. Putin hears righteous pleas from the likes of The Economist to "give up his thuggish ways," he is no more moved than you or I would be upon urging from animal rights activists to give up beef. The Western protests, and the airy-fairy motivations behind them, are simply not taken seriously by a man with serious business to do. What’s worse, Putin sees the West as densely populated by hypocrites. He perceives our love affair with democratic ideals to be merely a thin veneer... a fiction we are gullible enough to believe (except at the higher levels) and wealthy enough to maintain. (And in fact, a case can be made for this view.) On top of all this, Mr. Putin has no time for glib Westerners in the first place. He is a man with a desperate mission — and that mission is saving Mother Russia from oblivion.
Flush with oil and gas revenues as it may be, Russia is a country on the brink. For all his faults, Putin is a man who dearly loves his country. He does not want collapse to happen, and seeks to prevent it at all costs. Thanks to Russia’s unique set of problems, this means taking some "unconventional" measures, to say the least. Thanks to all the petrodollars flowing in, Russia can scratch finances off the emergency list. (The ruble has strengthened so much, in fact, that it has replaced the greenback as currency of choice in a number of regional transactions.) But three additional problems continue to weigh on Mr. Putin like riders of doom. These problems are criminal, demographic and geographic in nature. First, the criminal problem. As we have noted previously, the real power in Russia is largely invisible. The Kremlin must frequently succumb to the hidden hand of the siloviki, or "strong men," and also somewhat to the oligarchs, fleet-footed players who siphoned off illicit billions in the Yeltsin years. Some Russians cast the siloviki as patriots — brutal men with hearts in the right place — and the oligarchs as self-serving scum out for only themselves. But the divide is not quite that simple. (In Russia, few things are.)
The upshot is that Russia’s criminal element wields great power over great distances — far too much for one leader to control. In his interaction with this powerful netherworld, Mr. Putin is a bit like a mafia don trying to keep his capos and consiglieres in check.
It’s a tired cliché, but the Kremlin must keep its friends close and its enemies closer. To stay on top, Putin must make productive alliances with the strong, while punishing insubordination from the weak. He must keep tabs on who is rising and who is falling in the ranks — lest he insult the wrong player or back the wrong horse. And he must switch private allegiances with the subtlety and finesse of a chess player all the while.
We in the West see none of this — and we are far too naïve, from Mr. Putin’s point of view, to see that he has no choice but to play the game. If Putin were to have a gallant Hollywood moment, so to speak, and declare it time for a new broom to sweep clean, he would likely be dead within days. Perhaps hours.
Putin’s real objective in managing the criminal element (we speculate) is putting Mother Russia first — with a long-lived retirement the second goal. Putin must strike a balance between allowing free reign of that which cannot be controlled, while reining in rogue interests deemed a legitimate danger to the state. A great and abiding fear is that Putin’s successor will get the balancing act wrong. If the balance is lost, Mother Russia itself could be lost... sacked by looters as the barbarians sacked Rome.
If Putin’s criminal problem is akin to Tyrannosaurus rex, his demographic problem is on par with Godzilla. (A T-rex is at least theoretically manageable.) In 1994, The New York Times published an article titled, "Climb in Russia’s Death Rate Sets off Population Implosion." In 2006, the Los Angeles Times published a similar piece titled, "A Dying Population." What is remarkable is that the two articles are 12 years apart, yet the news is almost exactly the same: widespread alcohol poisoning, rampant drunkenness, blatant self-abuse, wretched medical conditions; everywhere there is despair. Only the fallen faces in the anecdotes have changed. If the birthrate in Russia does not pick up smartly, the country will eventually disappear — or be overrun by outsiders. The demographic issue is so huge and intractable — money is no help in the face of such a wretchedly broken system — that it is not clear what Mr. Putin can do. He may not be able to do much at all, other than tinker at the margins... and channel his frustration into other dealings.
Putin’s demographic problem feeds directly into his geographic problem. Russia is an awesomely huge and sprawling country, spanning 11 time zones. Its lands are chockablock with coveted natural resources. In addition to oil and gas, there is timber, metal, fertile soil and other treasures galore. Huge swathes of these resources are yet untapped, waiting for active hands to exploit them. Logistically speaking, China would get far more mileage from invading resource-rich Russia than trying to take over, say, the tiny but well-defended and well- connected Taiwan. Putin knows this. He also knows that, as the Russian population recedes, it only makes sense to let others in. If there are too few Russians, then other warm bodies should get a chance at the job. China is all too happy to provide those warm bodies. North of the Russia-Mongolia border, for example, industrious migrants are anxious to till Russian lands that would otherwise lie barren. The private owners of these lands are happy to see the Chinese come, as locals have proven unable or unwilling to do the work. Unfortunately, The Wall Street Journal reports, Russian locals see the newcomers as a "landing force." This is a widespread sentiment that runs to the top of the ladder. For patriotic Russians, the horns of the dilemma are these: Stubbornly cling to poverty... or embrace a Trojan horse. This schizophrenic calculus colors all dealings between the Bear and the Dragon. These are the Mission Impossible-type challenges that keep Mr. Putin up at night. As you can imagine, snarky criticisms from Western journalists barely register. While he may look and act like a ruthless bully, Putin is, in reality, something of a cornered fighter with few options at his disposal. This makes him all the more dangerous. A determined opponent will wield his last weapon with all the strength he has. That last and most formidable weapon, of course, is energy. From the Kremlin’s perspective — remember, this is conjecture — China is strong, while Europe and America are weak. This is a psychological and strategic judgment, not an economic or military one. Because Europe and America are weak, they can safely be ignored... and insulted... and manipulated. All this nastiness is a byproduct of Putin’s driving goal:
consolidating as much power as possible — energy power, that is — in the hands of the state.
From a Western perspective, this is a horrible, awful, not-nice goal. From the Kremlin’s perspective, it is necessary for ensuring Russia’s long-term survival. When confrontation hits, from the south or west or wherever it comes, Putin must have all the levers of power at hand. No one else can be trusted with them. No one else — except maybe his handpicked successor — will
have what it takes to shepherd Russia through these dangerous waters. Better to be as strong as possible when the gloves come off. How and where, then, might the next shoe drop? As weak as Europe is, it is slowly awakening to the menace that is Gazprom. It is probably just a matter of time before the E.U. draws a line in the sand, demanding that Gazprom succumb to fair market practices in its delivery of European gas. Meanwhile, Gazprom (i.e., the Kremlin) is in a race to consolidate as much pipeline leverage as possible before that fateful day. In a nutshell, there will come a day when Europe says in squeaky unison: "Mr. Putin! This infernal ‘thuggishness’ has to stop!" To which Putin might coolly reply: "Da, what was that? You want all deliveries to stop, citizens to revolt, markets to implode? I did not think so. Perhaps now you will take Russia’s interests more seriously..." Regards Justice Litle for The Daily Reckoning
"In much the same condition as the Aral Sea, the former Soviet Union is a disaster that is about to spiral into a catastrophe."
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