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Russian Poker

Well, eventually the UK has lost its patience with Russia over the Litvinenko affair and expelled four FSB officers in London under diplomatic cover .

Many observers consider that a tit-for-tat response is to be expected, in fact Russia will need to consider its options very carefully. As major problems emerge in the logistics of Russian gas supply, the position of the Russian economy looks increasingly fragile. The preponderance of the energy and basic products sectors has supported the Rouble at prices that makes much of the rest of the Russian economy fundamentally uncompetitive. The squeeze on Russian industry that was seen before the August crisis of 1998 is back with a vengeance. However, whereas then, there was increasing efficiency in the oil and gas sectors, the Kremlin-led forced consolidation of energy assets into national champions, such as Rosneft and Gazprom, has drastically reduced the efficiency of Exploration and Production and long term investment has been all but abandoned. This, together with the encouragement of domestic demand, is placing the sector at risk of being unable to deliver supplies that have already been contracted. Furthermore, stripped of the energy and basic products sector, the Russian economy is tiny.

Meanwhile the formal repudiation of the CFE treaty, concerning Russian deployments of conventional forces was another step in the erosion of international confidence in the Putin regime (in any event the presence of Russian forces near Pskov had been breaching the treaty for some time). Russia has a rapidly dwindling pool of political capital and international goodwill to draw on.

Therefore though Russia may feel the affront, they will need to consider their response to Britain's justified anger over the agonising public execution of Litvinenko extremely carefully. Any response that the UK regards as an escalation will be greeted with further measures from the British side- and some of these could involve an expensive price for the delicate Russian economy. Meanwhile. if the Russians go after the BP joint venture, the UK has a planned response that would be commensurate- and could shut out direct Russian economic relations with the major global organisations for months if not years. A disproportionate Russian response on the diplomatic side will result in further expulsions by the UK and more restrictive visa issuance, rather than the easing that was currently planned- again more damaging and inconvenient for Russia than for the UK.

This is not over yet- but in this poker game, the UK has a psychological advantage- let us see if Mr Putin ups the ante or folds.


mmm said…

For once I do not agree. Unfortunately, Russia has way too many cards to play at this moment. For the forseeable future, all of us will be gripped by the balls by the Kremlin.

Sure, there has been consolidation in its oil and gas sector, but infrastructural problems will not be an immediate concern. They can still pump out oil at the current rate for awhile before they need more investment.

Once they get the various pipelines set up to pump directly to China and to get Primorsk working fully, they'll just keep exporting. I believe they have much, much more supply than Saudi -- which Aramco and friends are hiding the drying-up figures.

Plus, like Canada, Russia is "hoping" for global warming to allow for further exploration. They are already attempting to "claim" part of the arctic.

Also, Russia has most of the world by the balls with various minerals. Those they don't control the supply of, they are attempting to buy out the companies outright. There are rumours of heavy Russian money in the big private equity groups too via intermediaries (as opposed to the noise the Chinese 10% in Blackstone caused).

In essence, I think Russia is in a strong position to posture for the next few years at least, with oil, gas and commodities prices all at a high. As long as the issue of "terror" continues to preoccupy the US and EU, this will give Russia a great chance to advance.

They are competing for influence with China in Africa -- even in "pariah" states. That's the minerals play. They are doing well with the league of nutters in Latin America. And in one area that Russia is the top of the league table is arms exports. And this will continue to be extremely lucrative for them financially and relations-wise with semi-rogues like Venezuela and Sudan.

So don't bet on Russia crumbling yet, my friend...sadly...
Cicero said…
Well, mmm I think that your points do reflect a consensus, but the pipelines to China will take years to construct- the big issue is whether Russia will renege on international contracts and risk confirming that they are unreliable, or reneges on the domestic contracts in which case there could be real political pressure.

Primorsk does not increas capacity- as it is Ventspils and Butinge are under utilised, although the construction of the Bourgas-Andrandroupolos pipe would take the pressure off the Bosphorus and allow Novorossikisk to get up to full capacity- but again this is years away.

The claim agianst the North Pole is risky- and will not be recginsed by the other Polar powers, so without compromise, they will face more opprobrium.

It is not really my contention that Russia is crumbling, but rather that they have far less room for manoeuvre than people think.
Anonymous said…

And what response would this be? Blocking Gazprom from Cenric perhaps considering we'd be bonkers to allow this anyway can't see how that hurts them. Plus we still need to talk turkey over various thornyissues, that they can be of serious help or hindrance on in no particular order: Trandniestra, South Ossetia, Abhkazia, Kosovo, Iran, Afghanistan, China, North Korea............

I think you seriously overstimate the cards we hold. We have too many important things we need to talk to them about for us have an irrevocable breach with them on this

mmm said…

For Russia to renege on foreign deals is pretty common; we've seen this since the 1910s. Invest in Russia at your peril.

Unfortunately, the need for Russia grows. Sure, the pipeline(s) are not done, but they will just give Russia more leverage once they are in the coming decade.

Plus, there are issues of minerals and other commodities. If it wasn't for Silmet in Estonia, Russia would have buggered Estonia already. But thanks to China's own need for Silmet's facilities, they can't -- without irking Beijing, their main client state.

So Russia can flex but not to piss China off too much. Just like every one of us, we're so sucked in by the potential of the Chinese market that we're hopeless without it. If China implodes, there will be a world-wide depression. That's the sad truth.

Now you know why I'm acquiring platinum and gold with Swiss and neutral markings?

Anonymous said…
Hi nice blog. In Russia also boasts a broad multi-cultural community including Aboriginal and Torres Strait Islander descendants with cultures spanning 40,000 years. So next I will be one visitor of Queensland .any one let me know about russian visa.
Anonymous said…
thank you nice sharing

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