In a documentary that aired recently on the Canadian Broadcasting Corporation's
popular The Fifth Estate program, an allegory of Vladimir Putin was presented.
The wily Russian president was described growing up in a shabby St. Petersburg
apartment, where he would often corner rats.
Now, punished by low oil prices and Western sanctions against Russian incursions
in Ukraine/ Crimea, Putin is himself the cornered rat. Many wonder, and fear,
what he will do if conditions in Russia become increasingly desperate.
In the last six months oil prices have plunged over 50 percent and the Russian
economy is hurting. The country now faces slowing economic growth, a depressed
ruble, and runaway
inflation estimated to be up to 150 percent on basic foodstuffs.
The Kremlin is counting on austerity cuts to help balance its budget, which
has revenues coming in at $45 billion lower than earlier projections. The exception,
significantly, is defense. With the military exempted from the austerity plan,
it begs the question of whether Putin will "play the nationalist card," such
as he did in Crimea, in an effort to strengthen greater Russia during a period
of economic weakness.
Georgia On His Mind
We are already seeing this to be the case. As Oilprice.com reported on
Tuesday, Putin is set to absorb South Ossetia - Georgia's breakaway republic
that declared itself independent in 1990. Under an agreement "intended to legalize
South Ossetia's integration with Russia," Russia would invest 2.8 million rubles
(US$50 million) to "fund the socio-economic development of South Ossetia," according to
Agenda.GE, a Tbilisi-based news site.
The situation is analogous to Crimea because, like Crimea, South Ossetia contains
a significant Russian-speaking population with ties to the Motherland.
If Putin succeeds in annexing the tiny province, it will be a real poke in
the eye to the United States, which provoked Russia in the early 1990s by promoting
construction of a pipeline between the former Soviet republics of Azerbaijan
and Georgia. The BTC pipeline moves oil from Baku in Azerbaijan to Tbilisi
in Georgia and then onward to Ceyhan on Turkey's Mediterranean coast.
BTC started operating in 2006. Then, two years later, Putin built his own
pipeline to cut out Georgia. The South Ossetia pipeline run by Gazprom stretches
75 kilometers from South Ossetia to Russia.
The current move on South Ossetia is a way for Russia to assert its energy
independence in the face of Western sanctions and low oil prices.
It comes as Russia announced plans to divert all of its natural gas crossing
Ukraine to a route via Turkey. As Bloomberg reported last
week, Gazprom will send 63 billion cubic meters through a proposed link under
the Black Sea to Turkey - after the earlier South Stream pipeline, a $45-billion
project that would have crossed Bulgaria, was scrapped by Russia amid opposition
from the European Union. By sending the gas to Turkey and on to Europe via
Greece, Gazprom is in effect sending Europe an ultimatum: build pipelines to
European markets, or we will sell the gas to other customers.
According to one observer, the proposed land grab in South Ossetia combined
with the snub to Europe by shifting its gas to Turkey and bypassing Ukraine,
is a classic Putin power play:
"Russia is preparing to absorb a province of neighboring Georgia, and delivering
an ultimatum to Europe that it could lose much of the Russian gas on which
it relies," Steve LeVine writes in
Quartz. "Putin has argued that the west is simply intent on ousting him and
weakening Russia... Faced with these perceived attempts to undercut him and
his country, Putin suggests that he has no choice but to pull around the wagons
and stick it out. This could go on a long time."
Iran: Falling Oil Prices Spur Peace Dividend
Some have speculated that the oil price crash was orchestrated by the Saudis,
possibly in collusion with the United States and other Gulf states, to punish
Iran, its main political and religious rival in the Middle East.
Whether or not that is true, there is no denying the effects of a low oil
price on Iran's economy. "Iran is already missing tens of billions of dollars
in oil revenue due to Western sanctions and years of economic mismanagement
under former President Mahmoud Ahmadinejad," Bloomberg
reported on Jan. 7. Like Russia, Iran is looking at spending cuts in next
year's budget, which is based on an overly-optimistic $72 a barrel crude oil
price.
However, unlike Russia, which is "circling the wagons" and pulling further
away from the West currently, the oil price drop could actually lead to more
of a détente between Iran and Western countries. In a speech on Jan.
4, President Hassan Rouhani said Iran's economy "cannot develop in isolation
from the rest of the world," while at the same time, Iran's foreign minister
was negotiating a nuclear deal that could see the lifting of UN sanctions,
the Washington Post observed.
Then there is the cooperation between the West and Iran over the terrorist
group ISIS. The National Post's J.L. Granatsein wrote in a column on Tuesday
that Iran has deployed substantial numbers of its Revolutionary Guard elite
Al Qods brigade into Iraq and Syria to fight ISIS, along with Western allies
including the US, Britain, France and Canada. This is despite Iran's support
for Hezbollah in Lebanon and Syria's president Assad.
"Politics makes strange bedfellows indeed, but not much can be stranger than
this. Led by the Americans, hitherto the Great Satan to the Iranian leaders,
the ties between the West and Iran are becoming tighter, each side reacting
to the horrors of Islamist fundamentalism throughout the region," Granatsein writes. "The
Iranians have been hurt by sanctions, and they are being wracked even more
by the falling price of oil. Easing curbs on trade and Iranian banks may mitigate
the effects of the oil price collapse."
Venezuela Bracing For The Worst
The other major loser in the oil price collapse, Venezuela, may not see such
a positive outcome. Wracked by decades of economic mismanagement by Hugo Chávez,
the South American oil producer was already struggling to pay its debts when
new president Nicolás Maduro came to power.
Now, with inflation running at 60 percent and lines forming outside state
grocery stores for food and other basic supplies, Maduro faces the specter
of serious social unrest if conditions do not improve. The country has some
of the world's cheapest gasoline prices, but Maduro has refused to end fuel
subsidies, fearing, no doubt, a repeat of widespread riots in 1989 that left
hundreds dead after gasoline prices were allowed to rise.
Venezuela is even more dependent than Russia on the price of oil, earning
some 96 percent of its foreign currency from oil sales, putting Maduro in the
untenable position of either borrowing more, despite crushing debts, or slashing
spending:
"With only $20 billion left in its reserves, and $50 billion in debt
to China alone, Venezuela appears headed toward a choice between abandoning
its oil giveaways and defaulting on its debts, or starving its own population
to the point of revolt," according to
the Washington Post.