Wednesday, December 17, 2014

Russia’s Good Luck Holds, But for How Long?

Half-price oil is a mistake that won’t last long. The financial collapse in Russia, though related to world oil prices, is another matter.

Half of Russia’s GDP is related to energy exports, so with half-price oil, the scale of its economy is down by 25 percent. Yet a dozen other countries have a higher energy exposure, but are taking the oil price fluctuations in stride. Russia’s current problems started before the recent oil decline, and they go deeper than oil. Some of the headlines depict Russia this year as the victim of a series of unlikely misfortunes, but nothing could be farther from the truth. As the best example, Russia had near-ideal agricultural weather this year. That made it possible for the country to impose food boycotts on half the world without suffering much of a hunger crisis at home. Russia’s good luck is not just a matter of weather. Its hasty military adventures have gone better than it would have any right to expect. A large-scale banking bailout has not led to a broad collapse, at least not yet. Russia’s good fortune in these areas and others will surely change at some point.

A plurality of U.S. analysts tend to blame Putin for Russia’s missteps, but the government’s moves are hardly controversial among the public in Russia. It is a misadventure that the country is taking together, and that extends to the new moves to put the country on a war footing in response to the economic crisis. My guess, though, is that the policy consensus will fall apart when people realize that this year’s crisis adjustments are not temporary fixes for a temporary problem, but the permanent changes of an empire in decline. There is a very real chance that the Russian banking system could fail in 2015, and if it does, the public pension system and the social compact will fail with it. By the time that bridge is crossed, the public mood will surely have shifted.