Putin, Vladimir wikip

Vladimir Putin (Source: Wikipedia)

The conflict between Russia and the Ukraine has the potential to be a much bigger problem for world peace than even the horrific behaviour of Islamist terrorists in the Middle East and northern Nigeria. The terrorists actions aren’t sustainable long-term, not least because they’re death cults. Russia is a very different matter, and is therefore far more dangerous.

I wrote about Russia’s motives in the Ukraine back in August 2014 after Russia’s initial invasion in support of the rebels on the 21st of that month. In the intervening months, nothing has changed. Putin is still desperate to get a land bridge to Crimea, and the need for that land bridge has dramatically increased. The Russian economy is finding it increasingly difficult to subsidize the Crimean economy, and if it can’t keep its promises to the people of Crimea, it will find it increasingly difficult to retain their loyalty. Further, there is oil in the Black Sea that Russia would really like to get their hands on. International sanctions mean they can’t get the equipment they need to do that, and the situation created by the lack of a land bridge makes all the logistics extremely complicated even if they had that equipment.

USD to Ruble Forex

Source: Forex

Thanks to the international economic sanctions and the current low price of oil, Russia’s economy is in major trouble. The Russian ruble has lost half its value against the American dollar in the last six months, despite spending US$90 billion in an attempt to protect it. The cost of all imports have therefore effectively doubled. Inflation is running at around 9% and a recession is predicted.

Capital flight has also been a major issue. Back in November the Russian Central Bank upped its estimate of the amount that would be taken out of the economy by investors for 2014 to US$128 billion. There had also been large losses via capital flight in 2012 and 2013. Russia’s wealth is over-concentrated in the hands of a few, making it more susceptible to capital flight than most developed countries. It has by far the highest proportion of billionaires in the world thanks to the way Putin has run the economy.

Putin became Prime Minister of Russia in August 1999, and by 31 December he was acting-President. According to Forbes, Russia had only eight billionaires in 2000. As stated by Wikipedia:

Between 2000 and 2004, Putin set about reconstruction of the impoverished condition of the country, apparently winning a power-struggle with the Russian oligarchs, reaching a ‘grand-bargain’ with them. This bargain allowed the oligarchs to maintain most of their powers, in exchange for their explicit support – and alignment with – his government. A new group of business magnates, such as Gennady Timchenko, Vladimir Yakunin, Yury Kovalchuk, Sergey Chemezov, with close personal ties to Putin, also emerged.

Unlike Norway or the Shetland islands (northern Scotland), which have used their natural resources revenue to benefit the entire population, the majority of the financial benefit of Russia’s natural resources wealth has remained with the oligarchs. Putin’s second term saw the government focus on improvement in healthcare, education, housing and agriculture, and these occurred. However, not to the extent they did in nearby Norway where the profits weren’t being concentrated in the hands of a few, and not in a sustainable way. Further, the improvements were accompanied by continuing reductions in civil liberties with restrictions on the press and legal proceedings taken for bogus reasons to silence opponents. In all international freedom indices (press, human rights, corruption, economics), Russia ranks poorly and the situation is deteriorating.

By 2013, the number of billionaires in Russia had grown to 110 and a global wealth study published by Credit Suisse found that they held a massive 35% of Russia’s household wealth. In most countries, billionaires control about 1-2% of household wealth.

One of the reports authors, Tony Shorrocks of London’s Global Economic Perspectives spoke to Ron Synovitz of Radio Free Europe/Radio Liberty:

Russia is really an outlier,” Shorrocks said. “Even compared with the U.S., which has more wealth inequality than most countries, [Russia] is still totally separate from the rest of the world.” …

Shorrocks says what is most striking about Russia’s richest citizens is that most have made their money by controlling companies in the natural-resources sector – like gas giant Gazprom, oil companies, or metals firms – and use their political connections with the Kremlin to maintain their fortunes…

It’s quite clear that these natural-resource companies do require political support in various ways. So there does seem to be more political connections between the billionaires in Russia than there are in other countries.” …

There were efforts made early on to ensure that the privatized wealth was distributed [following the break-up of the Soviet Union],” Shorrocks told RFE/RL. “A very large proportion of the Russian housing stock was actually given to their residents. That was a massive privatization and it was, on the whole, relatively equal – certainly compared with the wealth distribution now. Shares in Gazprom were also allocated to Russian citizens. Obviously, what happened was that there wasn’t [sic] really enough safeguards put in place and some people managed to acquire more than their fair share of the privatized assets.

Red Notice Bill BrowderNot on that list of 110, although he should be, is Putin himself. Political Analyst for the Guardian Stanislav Belkovsky, who is has been banned from Russia since reporting on Putin’s wealth, estimated in 2012 that Putin was worth US$70 billion, making him the richest man in Europe. Much of that fortune is suspected to be in oil and gas shares. Bill Browder, whose book Red Notice was released earlier this month, said on CNN’s Fareed Zakaria GPS that he estimated Putin’s worth at US$200 billion – he says Putin is easily the richest man in the world, and that money has largely been obtained by corrupt means. (I’ve bought the audio book, but have only just started listening to it.) Browder’s credentials and sources appear solid. The Bureau of Investigative Journalism reports that within Russia, investigations into Putin’s wealth are routinely shut down. Whatever the true figure is, it is clearly a lot more than either Putin or his wife has acknowledged to the Russian Central Election Commission, which declares their worth to be relatively modest.

In 2012, this extremely interesting short documentary entitled In Search of Putin’s Money was released by Al Jazeera English:

Taking all these factors into account, it is clear Russia’s economy is struggling. They still have a huge US$450 billion in currency reserves, but this will not last forever. In 2012, oil and gas made up 70% of Russia’s export income and 50% of federal budget income. Further, 84% of their oil exports and 70% of their gas exports go to the EU, so they are financially reliant on those they are trying to assert their power over. The EU (Russian gas contributes a third of their supply) is working hard to develop alternative energy sources, and Russia is looking elsewhere for customers. It has signed two multi-billion dollar long-term pipeline contracts with China. However, China, recognizing Russia’s vulnerability, have been able to secure extremely favourable terms on these deals.

The oil and gas flows from Russia to the EU in a series of pipelines. About half of the gas the EU buys from Russia flows through Ukraine. Slovakia’s and Italy’s Russian gas depends on the Ukraine pipeline staying open. Germany’s and France’s Russian gas depends on a pipeline that goes through Poland, which is currently dealing with a build-up of Russian troops on its border. This situation in itself is worrying given current circumstances. On 20 February 2015 the Russian security council met to discuss the Minsk agreements (i.e. the situation of the Ukraine pipeline). The Kremlin reports they are determined to shut it down if there is even the slightest variation from the contract, and are already putting some preparatory blame on Ukraine while saying they expect to have to shut down the pipeline soon. This, of course, will put millions of lives at risk while snow is still thick in the ground.

Nick Paton-Walsh Debaltseve

Nick Paton Walsh in the eastern Ukrainian town of Debaltseve (Source: CNN)

Putin really wants that oil off the Crimean coast, and even more, he doesn’t want Ukraine to have it. Ukraine also has significant natural resources, many of them in the east of the country. If they have stable, non-corrupt government and are able to develop them, those of their people who still hanker after a return to the Soviet era are likely to change their mind. It is in Putin’s interests, if he is to achieve his desire of restoring Russian control over eastern Europe, to keep Ukraine unstable. He will thus continue to support the rebels with money, food, arms (including heavy weaponry), training, and personnel, all the while denying he is doing so. CNN’s Nick Paton Walsh has been doing some outstanding reporting from the region. One of the things he has consistently noted is how much better the weapons and other equipment of the rebels are than those of the Ukrainian army. Where, if not Russia, are the rebels getting those weapons?

If Putin really cared about Russia, he would want Ukraine politically stable and economically successful. That is what would be best for Russia. His focus is on his own power, and he has proven over and over again that he is completely untrustworthy. Many, including me, have compared Putin’s actions in Ukraine with Hitler’s in Sudetenland in 1938. Some have dismissed this comparison, but I continue to consider it completely apt. The fact that Putin has flatly refused any and all suggestions of a UN peacekeeping force tells me he doesn’t want this situation resolved. This is extremely dangerous. In fact, I would do so far as to say that Putin is far more dangerous to world peace than than al-Baghdadi (the leader of DAESH).

NATO knows it too. Since Putin began flexing his muscle, they have begun increasing the size of their ready reaction force from 5,000 to 30,000 (currently they have reached 13,000) in six Rapid Deployment Force units. This is no game. Reuters reports:

“These six Rapid Deployment Force units to be stationed in Bulgaria, Estonia, Latvia, Lithuania, Poland and Romania are expected to be capable of rapidly reinforcing the region” in response to any threat from Russia.

Putin has always seen NATO as a threat and believes they’re ready to pounce on Russia and gobble it up as soon as they shoe any sign of weakness. However, until Putin began his increasing probes to see how far he could push them, every NATO country had been reducing its military spending. Further, almost all of them were failing to maintain the level of military spending their membership required. It was only when Putin began supporting the Ukrainian rebels that they changed their behaviour.

Putin, Vladimir

Vladimir Putin 20 Feb 2015 at a ceremony at the Kremlin awarding medals to Great Patriotic War (WWII) veterans. (Source: Presidential Press and Information Office)

In a speech Putin made on the eve of Fatherland Day (23 February) he referred to the military tradition of Soviet Russia, referencing Peter the Great and the importance of the defeat of Nazism and in praising his country’s military said:

“At various moments in history, they have not allowed the enemy to conquer Russia, have protected it from invasion and spared no sacrifice to defend every inch of their native soil.”

Later, in a passage clearly directed at an international audience, his speech included the following (and note his reference to nuclear weapons):

“No one should harbour any illusions about it being possible to achieve military supremacy over Russia or to use pressure against us in any way or form. Russia will always have an adequate response to any such reckless actions.

“Our soldiers and officers have shown that they are ready to act decisively, with coordinated precision, professionalism and courage to carry out even the most difficult and novel missions, as befits a well-trained and experienced modern army that preserves its traditions and military spirit and is constantly improving and setting the highest modern standards as its benchmark.

“We have done much over these last years to make our military command system more efficient and build up groups of troops in the areas of greatest strategic importance. We are successfully carrying out an ambitious programme to modernise the army and navy, including active modernisation of our air and space defences and nuclear forces. This is the guarantee of global parity.”

Hammond, Philip and Kerry, John CNN

Philip Hammond and John Kerry (Source: CNN)

At the same time US Secretary of State John Kerry, flanked by UK Foreign Secretary Philip Hammond, announced:

“We are confident that over the next few days we are going to make it clear that we are not going to play this game, not going to sit here and be part of this extraordinarily craven behavior at the expense of the sovereignty and integrity of a nation.

He went on to say:

“This is behavior that is completely counter to everything that the global community has worked to achieve and put in place ever since World War II, and I’m confident that the United Kingdom, the United States and others are prepared to stand up to it.”

They are meeting to discuss placing further sanctions on Russia’a economy and, I suspect, what further support they can give Ukraine’s military – to date no lethal weaponry has been given them.

The Russian military currently includes 1.2 million ground troops. They are losing some in the Ukraine, but they can keep replacing them for much longer then Ukraine can. Without doing anything more than he’s doing, Putin can eventually win in Ukraine. The alternative is for NATO to ally with Ukraine, which has the potential of starting another land war in Europe which could become a world war. Putin knows no-one wants that. Unless Russia’s economy can be collapsed, Putin holds most of the cards.

Dismiss Putin at your peril.

P.S. This is another reason no-one wants to offend Saudi Arabia – they could put the price of oil back up any time, which would help Putin enormously.