EDITORIAL: The Perils of Putinomics

EDITORIAL

The Perils of Putinomics

The Organization for Cooperation and Development has concluded that, by a wide margin, the Putin’s Russia has the worst-performing large economy on the planet. Things are getting worse for Vladimir Putin not just by the day, but by the minute as the price of oil continues in freefall.

Streetwise Professor reports:

Russian oil output fell to 9.66 million barrels per day (40.87 million tonnes) in December 2008, down 1.6 percent from 9.82 million bpd in November, while exports via pipeline monopoly Transneft  rose 17.9 percent to 4.36 million bpd (18.4 million tonnes).

SWP points out how this information gives the lie to any notion that Russia can afford to cooperate with OPEC and slash oil exports. Oil is for Russia what heroin is for a drug addict, and it can no more reduce its exports than an addict can switch to herbal tea.  To the contary, as the price of oil plummets, Russia must sell even more oil to make up for the lost profits on each barrel.  To the contrary, SWP says, Russia simply suckered OPEC and is taking advantage of any price increase the group can squeeze out while not bearing the cost in terms of output.  In other words, classic neo-Soviet backstab. No wonder the only nations Russia can call “friends” are rogues like Syria, Nicaragua and Venezuela.

But there’s another even more significant point hidden in this data. If output is down and exports are up, that means  there’s less and less crude available for Russian consumers. Russia’s only protection from this vice is, ironically, that it has feeble economy that doens’t need too much oil, or anything else, to operate because it hardly produces anything and leaves the population wallowing in popularity. But then there’s the ruble. If it’s falling, then the price of all those goods Russia must have to makeup the shortfall is soaring out of sight, with shortages inevitable.

On Tuesday, as the ruble entered a second consecutive day of devaluation, the Kremlin sold a stunning $7 billion in foreign currency reserves as it furiously tried to control the freefall in the value of the ruble.  With only $400 billion left in its FOREX account, if Russia went on spending at this rate the account would be totally empty in less than two months.  At that point, the ruble would truly enter freefall and panic would result, unless the Kremlin wanted to start massively borrowing and running up huge debts and deficits.

The ruble is in such dire straits that, according to the Moscow Times, Russian merchants are abandoning it in favor of a barter system.  The country’s third-largest bank has just had its credit rating downgraded to “junk” status.

Vladimir Putin’s economy is unraveling like a cheap Soviet sweater, and his regime is preparing for a major new crackdown accompanied by the installation of Putin as “president for life.”

It’s the Soviet solution.

3 responses to “EDITORIAL: The Perils of Putinomics

  1. When I click on the first link in the article nothing comes up.

  2. Russians would rather starve then accept help from the West or adopt Western ways. It’s that stubborn Russian pride…

  3. @Crusader
    Pride always goes before a fall.
    (that’s not a western phrase, but one of many adopted by the west)

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