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World Association of International Studies

PAX, LUX ET VERITAS SINCE 1965
Post Russia Sanctions: Perspective from Moscow
Created by John Eipper on 12/05/14 11:16 AM

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Russia Sanctions: Perspective from Moscow (Cameron Sawyer, Russia, 12/05/14 11:16 am)

Sanctions have bitten Russia harder than anyone could have imagined. Not the sanctions themselves, perhaps, but the nearly total freeze of investment, not just foreign, but domestic. The psychological factors are much stronger than the technical ones. But the fall in oil prices--which Putin has characterized as a conspiracy between Saudi Arabia and the US--is the coup de grace, because oil revenues make up a wholly disproportionate share of Russian tax receipts. Thus the fiscal position of Russia has been turned on its head, from one of the strongest in the world to alarming weakness, in the blink of an eye.

Putin has decided to defy world opinion on Ukraine and to "tough it out," with Russia making its own way without access to Western capital markets and without economic cooperation from the West. It does not seem that he fully appreciates the extent to which Russia--ironically, largely because of his own achievements from the early years of his presidency--has become integrated with the world economy. The result is (already!) falling living standards for Russians, who are accustomed to constantly rising living standards. Putin is surviving this so far in an atmosphere of jingoistic nationalism, but how long will this last before Russian people start to resent the loss of the material comfort to which they have become accustomed? Putin is making a huge political gamble, and I can't say that I like his odds, over the medium term, at least.

JE comments:  So glad that Cameron Sawyer has weighed in.  As for Putin's "toughing it out," this is the path followed by the Castro brothers and Iran's Mullahs--can a modern European leader take such stance today?  Cameron thinks not.



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  • Russia Sanctions; What Should Putin Do? (Boris Volodarsky, Austria 12/06/14 4:10 AM)
    I don't often agree with Cameron Sawyer, but his post of 5 December is extremely well thought out. Russia's position in every instance looks bad at the moment, as I observe in the regular meetings between John Kerry and Sergey Lavrov in Vienna's Coburg or the huge decline of Russian tourism in Vienna and London. (I typically spend two weeks here and two weeks there, and for years I used to hear Russian all over Piccadilly, Oxford Street, Kärtner Strasse, Graben and Kohlmarkt. This is not the case today. In London there's even a campaign to cancel a tour of some Russian pop singers.)

    I can confirm from the Western side that what Cameron says is absolutely true. But, to my mind, it is not enough for WAISers to state what's going on, because this is largely the work of journalists. I believe rather that we should analyze and recommend what could be done in a critical situation and in such a case our opinion may acquire some added value--and perhaps, some additional financial contributions!


    So, in this situation, what should Putin do?


    JE comments: Chto delat'?  Few in WAISworld empathize with Putin, but isn't Russia's Premier over a barrel?  He has based his government on an ever-increasing prosperity for the Russian people, and now that this has slipped away, he waves the flag of nationalism.  To recover the former (remove sanctions), he would have to surrender the latter (get out of Ukraine).


    One sinister thought:  Putin could engineer a new Middle East crisis to send the price of oil skyrocketing.  Is he powerful enough for such a thing?  Wicked enough?


    Nah, I cannot empathize.  In Putin's shoes I would resign with grace and dignity, citing the need for "youthful new leadership," and take my billions into exile.


    So what do other WAISers recommend?  And while we're at it, here's a followup:  where should Putin spend his retirement, assuming he retires?  I would pick Mexico, like Trotsky.  (Great to hear from Boris Volodarsky, by the way.)


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  • Russia Sanctions; from Ric Mauricio (John Eipper, USA 12/06/14 8:20 AM)
    Ric Mauricio sends this comment:

    My thanks to Cameron Sawyer (5 December) for a look behind the Russian curtain (I guess the Iron Curtain is rusty). In an earlier post, I believe there was a question of whether there are conspiracies or market manipulations. My response was, of course there is. There are very few things I will agree with Putin on, but the increased supply of oil produced in the US and Saudi Arabia has done what sanctions could not. And to put the conspiracy issue at rest, the Saudis are not only taking aim at Russia, but at the US as well, while satisfying their biggest customer, the People's Republic of China. The Saudis have a lower cost of production (I believe it is $10 a barrel) and can withstand a lower price, but US oil producers have a higher cost of production (estimated at between $40 and $60), so it puts the squeeze on domestic producers, especially the new frackers.


    So what essentially has happened is that the US and the Saudis have a "put in" place against Putin. The put is a bet on lower oil prices. It is a contract on Putin. Unfortunately, there will be collateral damage (does this sound like economic war?), with the Russian people and Venezuelans, the most prominent.


    But market manipulation? Oh, yes, control the supply/demand equation and one controls the market. It's a very simple concept. Works like a charm. And not only oil. All markets--stocks, bonds, real estate, gold, silver, platinum, coffee, and currencies. One must be careful not to be on the wrong side of the bet. Does this sound like gambling? Well, life is a gamble. You drive down a highway and hope that a drunk driver is not speeding towards you or your family at 100 mph. You hope that you are not skiing down a mountain, falling and hitting your head on a rock (like Michael Schumacher) or running into a tree (like Sonny Bono).


    If Cameron doesn't mind me asking, how do you deal with the falling ruble? In fact, how are you dealing with FATCA?


    JE comments: FATCA is the Foreign Account Tax Compliance Act. As for the falling ruble (one-third so far this year), I believe Boris Volodarsky showed one immediate effect: Russian tourists are no longer visiting London and Vienna.


    I pointed out last week that the "pulse in Houston" believes the Saudis are taking aim not so much at Putin, but at the small-fry producers in the United States.  At current prices, the frackers with shallow pockets will not survive long.




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