Russia, Land of Morons
There is an old saying that “in the land of the blind, the one-eyed man is king.” This expression never had any greater applicabilty to any land than it does to Russia, which explains the only reason why foreigners ever go to Russia — washed up though they may be abroad, in Russia even the most idiotic foreigner seems somewhat sensible.
Russia watchers may remember that back in June 2008, Gazprom CEO Alexei Miller boldly stated:
Russia’s Gazprom, the supplier of a quarter of Europe’s natural gas, expects the price of crude oil to almost double within 18 months and to take gas prices higher with it. “We think it will reach $250 a barrel in the foreseeable future,” Chief Executive Alexei Miller told reporters at a presentation in France, adding high demand rather than speculation was the primary factor for high hydrocarbon prices. A spokesman said the company, which is also one of Russia’s largest crude producers, expected the price to hit the $250/barrel level sometime in 2009.
Even someone who knew nothing about Russia or the oil industry but merely possessed rudimentary critical reading skills would see the anomaly: Gazprom sells gas, and its CEO is making public predictions about the price of oil. Maybe not such a wise move.
In the event, of course, oil prices went rapidly in the other direction, over the course of the next six months dropping by over 70%, and the Russian stock market went right down with them, plunging by an even larger amount. Gas prices are just about to follow. Russia will be lucky to see a per-barrel oil price of $50 as the 2009 average, one-quarter in other words of what the Gazprom CEO predicted.
And Gazprom’s CEO? Think he has made a public apology or been taken to the woodshed by the Kremlin? Think again.
Do you dare to imagine, dear reader, what other “decisions” Gazprom’s CEO is making that we don’t even know about? Given that Gazprom is run by such a person, is the catastrophic collapse of the company’s stock price, despite its being one of the world’s largest natural resources concerns, even a little bit surprising?
Streetwise Professor refers to Russia as being a “natural state.” He analogizes
the Russian state to a cartel of violence specialists. Both approaches emphasize the vital role of rents in maintaining the stability of the system. Competing cliques (or clans) of violence specialists maintain an uneasy peace only because this allows them to divide rents, rents that in Russia derive primarily from natural resources, especially oil and gas. I noted that both theories predict that the stability of this type of system is quite precarious. More specifically, declines in rents eliminate the “glue” that holds the system together. Thus, even when oil was going from $80 to $100 to $140, I made the conditional predictions that when prices fall, the system would be subject to stress; that the stress would be greater, the greater the fall in resource rents; and that there was inherently a large probability that the system would collapse in a flurry of infighting in the event of a large decline of rents.
In other words, Russia under Putin is doomed because it is being run by a clan of barbarically stupid, unqualified quasi-criminals no more capable of managing a complex economy for the benefit of the citizens than of defying gravity.