15 October 2014

Tanking Oil Price a Catastrophe
for the Putin Regime...

With oil barely holding on to the $80s, the Kremlin's current leadership faces the same problem they did in the (19)80s: budget revenue half-derived from oil exports, and their backwards, inefficient economy still doesn't produce anything that anybody outside of Mother Russia is willing to spend money on- except perhaps mediocre vodka...

And when the self-deluded Russians start babbling about 'greatness' while bullying poor, semi-defenseless countries on the borders of their shabby empire, they tend to get a little caught-up in things... and put the pedal-to-the-medal until they are defeated -i.e. Afghanistan- or simply go-broke, i.e. 1991.

Yes, compared to America and her massive debt, the Kremlin's coffers appear absolutely flush- foreign reserves of $450 billion (and that's actually a
4-year low) make us look like the spendthrift fools we are.

BUT that can all disappear in a big hurry, especially if you're trying to prop-up a sliding currency, or to keep the masses opiated with a domestic-spending budget that's substantially funded by oil revenues. Consider that the Kremlin is already running a 10.3% budget deficit, and that $105/bbl is what it would take to balance the budget this year- alas, back in reality, a barrel of light, sweet crude barely brings $81 today.

When oil prices dropped precipitously in 2009, Russia's GDP lost 8% at the drop of a hat. (every dollar shaved off the price of a barrel of crude oil costs them more than $2B annually). This likely would have already been disastrous for the Putin regime five years ago, but oil prices rose again the following year 2010, propping-up the government with annual growth rates of 3-4%...
enough to keep most Russians away from the protest movement, anyway.

Note that a populace deprived of consumer goods in the 1980s
-to fund Cold War military spending in an attempt to keep up with Reagan- was the final morale-breaker among the Soviet populace, leading to a reformer and subsequent collapse of the system.

But rather than crappy, plastic consumer goods produced in the USSR, today's Russian elite -the ones who keep Putin in power- depend on imported cars, food, fashion, and booze to keep-up-with-the-Jonesoviches. Alas, a weak Russian currency, brought on by foolhardy military adventure, US/EU sanctions, and now a collapsing oil price make all those things cost much, much more in now-also-collapsing Rubles.

Sanctions over Crimea/Ukraine have also bit hard, and Russia may also soon be forced to further tap its hard currency reserves to bail out companies prevented from borrowing money on international markets
Western sanctions).

Another parallel with '91 might be the intellectual bankruptcy of the current regime- Reagan had made it painfully clear that the creaking Soviet system could never truly compete with the United States economically, militarily, or particularly in technology/innovation... and that Bolshevism offered nothing for the future. So what the hell does Putin stand for, besides pompous arrogance, aggression, and greed?

At very least, the expensive military modernization/expansion -backbone of Kremlin pride and power under Putin- is likely already finished. But outside of re-establishing a rump USSR in some form of alliance/customs union...
who needs Vladimir Putin around?

Anyone taking any bets where the Russian president's towering 86% approval rating will stand a year from now (if still alive and in power)?