Russia's imploding.

[Anomalocaris]

http://www.washingtonpost.com/blogs/wonk...ol_strip_2

President Obama might have a future as a credit rating analyst. During his State of the Union, you might remember, he took a victory lap of sorts when he declared that, as the price of its aggression, Russia's economy was "in tatters." Well, S&P agrees: the rating agency just downgraded Russia to junk.

Now, normally I wouldn't pay any attention to what a credit rating agency says about a government. That's just, like, their opinion, man, and often a poor one at that. But this time is, well, different, because if Russia is rated junk, then its companies will be too—which will increase the borrowing costs on their existing debt. It could also trigger earlier bond repayments, which, together with the higher interest rates, could, according to one official, cost them as much as $20 to $30 billion.

And that's $20 to $30 billion it really can't afford. Russia, as I've said before, doesn't have an economy so much as an oil-exporting business that subsidizes everything else. But it can't subsidize much when prices are only $50-a-barrel. That leaves Russia in a world of bad, worse, and Dostoevskian choices. Cheaper oil, you see, means that Russian companies have fewer dollars to turn into rubles, which is just another way of saying that there's less demand for rubles—so its price is falling. But it can't fall too much or Russian companies, who have a lot of dollar debts they can't roll over due to Western sanctions, won't be able to pay back what they owe. Even worse, Russia banks could face a run on their foreign currency holdings, as people try to turn rubles they think will lose value into dollars that won't.

Russia can't wake up from this economic nightmare, though, because they're not asleep. This is their reality. After falling in almost perfect tandem with oil for most of the year, the ruble started free falling in December. In under a week, it went from 55 to 75 rubles per dollar—a 36 percent decline—and the panic got so bad that the bank run turned into an Apple and Ikea run. People decided that if they couldn't ditch their rubles for dollars, then they'd settle for the latest smartphones and assemble-it-yourself furniture instead.

See, Putin...you were in the KGB. So I understand that the Russia you worked for was the Soviet Union-era Russia. But let me, a humble US citizen, let you in on a little secret...

Russia is not the Soviet Union anymore.

It is not a superpower.

It's barely a global power.

You do not have the production or financial capabilities to continue trying to cling to your former territories that want nothing to do with you any longer.

Your less-than-subtle attempts to try to force annexation from nations you no longer have any influence over otherwise? Did you seriously believe you would not face international sanctions? You were a former spymaster of the KGB. Was the KGB really so inept that it had people like you running its intelligence operations?? People who have this utter lack of foresight and understanding of international affairs?? No wonder the Soviet Union fell apart...

But anyway, Putin. You're not the US. You can't get away with interfering in politics outside of your own country by force anymore. You're a shadow, a husk of your former glory. Get over it.

Or, you should have gotten over it. Now, you're fucked.



Russia is screwed. Their economy is going to fall the fuck apart all over again. Was Ukraine REALLY worth this risk?? What, exactly, did Putin think he stood to gain that made this risk worth it? Was he so swole over his victory over that tiny little country called Georgia that he thought he could pull a puppet-war against the Ukrainians, who absolutely hate Russia these days??

I'm sad for the Russian people, though. They will be the ones to suffer the most, and let's face it, we all know they didn't elect this shithead. Putin's so corrupt that he basically rigged the elections. He's just a thug. And now they all have to pay for it. Again. As usual.

I feel bad for the Russian people. They deserve much better. Instead, they get this. :/

I think that reflects what Americans wish were true, But i don't think it is anything close to what actually is true.

Russian economy is in recession, but a forecast, inspite of sanctions, of one year of -4% GDP growth followed by another of -1% GDP growth, before returning to positive growth, does not come anywhere close to"fucked". Ukraine's economy is in recession four times deeper, inspite of modest western support, and I think ukraine will be very truly fucked and will cry uncle. Russia will bounce back.

As to russia not being superpower or global power, Russia will always be a global power because it is so large, able to swing play states in Europe off against states all the way on the east end of Asia. It is a geostrategic swing player and that makes it a global player. It is a global power simply by being, unlike other powers that has to spend treasure to put bases everywhere in order to be a global power. Russia is only a fraction as strong or as rich as china, yet china is not at all a global military power, Russia is. Russia is the pivotal power of Euroasia, and that gives it a large bag of tricks in reserve, not available to counties limited to any one region, that it can pull if it really see itself in trouble. Think about it.

To russian way of thinking, ukraine is as integral to russian sense of long term nationhood as perhaps the antebellum south was to the United States. Antebellum United states was certain no global power, much less superpower. But it was willing to pay an exorbitant price, including largest number, and by far the largest percentage, of casualties it ever suffered in its history, to hold on to parts that was not willing to be part of it, but was deemed vital to its own view of future. This dissuaded superpowers of the day from effectively exploiting the situation where parts of United States didn't want to be part of United States anymore.
Russia is paying nothing near the same price to subjugate ukraine as the U.S. paid to subjugate the rebel south. I bet if push comes to shove, Putin, and large part of russian population, is actually willing to pay a price comparable to what the U.S. paid in blood and treasure during the civil war in order to hold on to Ukraine.

So why this triumphalist "Russia is fucked" song and dance?

[Creed of Heresy]

Just one little problem with everything you just said, Chuck.

Where's that positive growth that you're expecting going to come from?

[Anomalocaris]

From the rebound in oil prices.

The low oil price is the primary driver of russian recession. Low oil price is unsustainable because there is no fundamental reduction in oil demand, or increase in oil supply. It is only being maintained in the short term by Saudi arabia maintaining high rate of production. Saudi Arabia can't keep this up, because just like with russian governement, the fiscal integrity of Saudi governement depends on tax revenue supported by high oil prices. Saudi Arabia is willing to bleed for A while to achieve some political goals. But it's can't keep it up forever.

So the growth comes from the fact that the current low oil price which is strangling russian governement income has to rebound within 2 years at most, most analysts suggests well within 1 year.

[Thumpalumpacus]

From the rebound in oil prices.

The low oil price is the primary driver of russian recession. Low oil price is unsustainable because there is no fundamental reduction in oil demand, or increase in oil supply. It is only being maintained in the short term by Saudi parabia maintaining high rate of production. Saudi Arabia can't keep this up, because just like with russian governement, the fiscal integrity of Saudi governement depends on tax revenue supported by high oil prices. Saudi Arabia is willing to bleed for A while to achieve some political goals. But it's can't keep it up forever.

So the growth comes from the fact that the current low oil price which is strangling russian governement income has to rebound within 2 years at most, most analysts suggests well within 1 year.

The Saudis have about $800 billion in USD set aside -- they can play this hand for a while.

[Anomalocaris]

From the rebound in oil prices.

The low oil price is the primary driver of russian recession. Low oil price is unsustainable because there is no fundamental reduction in oil demand, or increase in oil supply. It is only being maintained in the short term by Saudi parabia maintaining high rate of production. Saudi Arabia can't keep this up, because just like with russian governement, the fiscal integrity of Saudi governement depends on tax revenue supported by high oil prices. Saudi Arabia is willing to bleed for A while to achieve some political goals. But it's can't keep it up forever.

So the growth comes from the fact that the current low oil price which is strangling russian governement income has to rebound within 2 years at most, most analysts suggests well within 1 year.

The Saudis have about $800 billion in USD set aside -- they can play this hand for a while.

Saudi foreign reserve is the means by which the kingdom can menipulate regional politics in order to give the siberitic monarchy the influence to survive. If they don't have their foreign reserve and the influence and menipulative power it buys anti-Saudi forces within the kingdom and in the surrounding region will rise up and lynch the saud family in 6 month. So we can be sure Saudi regime's apetite for drawing down its foreign reserves for any purpose other than preserving the Saudi family rule is limited. Punishing russia for not giving ukraine freely to NATO is unlikely to be vital to survival of Saudi family rule.

Furthermore, the advant of fracking and other newly tappable reserves suggests long term oil prices will be much lower in the future than might have been expected 5 years. This means in the future, the margin in the oil Saudi arabia can sell will be much lower than in the past, which in turn means oil prices will on the whole not rise as much, thus Saudi arabia's ability to replenish depleted foreign reserve will be much less than it might have been before. This would further diminish Saudi arabia's appetite to draw down its existing reserves.

I believe maintaining low oil prices over around 6 month has already cost Saudi arabia around $100 billion. How much of its reserves is it willing to draw down? Half? I seriously doubt it. But let's say half. How long will $400 billion last at the rate of $100 billion every 6 month?

So russia returns to fiscal integrity within 2 years, tops.

[Thumpalumpacus]

Saudi foreign reserve is the means by which the kingdom can menipulate regional politics in order to give the siberitic monarchy the influence to survive. If they don't have their foreign reserve and the influence and menipulative power it buys anti-Saudi forces within the kingdom and in the surrounding region will rise up and lynch the saud family in 6 month.

I disagree. Firstly, the Saudi budget runs annually about $230 billion meaning that they could finance their nation for three years without earning another nickel -- except that that won't be the case, as they will still be calling OPEC's tune as they watch the world dance. That is a catbird seat, right there. Secondly, they can also manipulate regional politics via the lever of OPEC, by either going along with a cartel decision, or undermining it with sovereign decisions on production. Thirdly, I don't think the Saudi populace is nearly so rebellious as you seem to think. I know that there are factions internally which operate against the government, but could they garner support in a state where the media is controlled by the government? I doubt they could do so, especially in the timeframe you envisage here.

So we can be sure Saudi regime's apetite for drawing down its foreign reserves for any purpose other than preserving the Saudi family rule is limited. Punishing russia for not giving ukraine freely to NATO is unlikely to be vital to survival of Saudi family rule.

Agreed. But the motive for cutting Russia's throat need not be the invasion of Ukraine. If I were a Saudi oilman, I'd want to kill that competition on general principles, and I'd use the Ukrainian intervention to dress up my cutthroat play in nobility.

Furthermore, the advant of fracking and other newly tappable reserves suggests long term oil prices will be much lower in the future than might have been expected 5 years. This means in the future, the margin in the oil Saudi arabia can sell will be much lower than in the past, which in turn means oil prices will on the whole not rise as much, thus Saudi arabia's ability to replenish depleted foreign reserve will be much less than it might have been before. This would further diminish Saudi arabia's appetite to draw down its existing reserves.

You're not giving enough airtime to the fact that fracking is a relatively expensive mode of extraction, while wet wells are still going strong in the Arabian peninsula. That means that whenever frackers start to impinge on Saudi sales, the SAudis can simply increase production, forcing the price of a barrel down as they're doing now. The companies pursuing fracking will not all survive those imposed lean times (we're seeing consolidation down here in Texas already), and the Saudis snuff out the expenditure of energy investment resources. Because they still have large wet-well reserves, that means they can keep sucking US energy investment into that trap, and then raise the price when the competition has thinned out. Lather, rinse, repeat.

I believe maintaining low oil prices over around 6 month has already cost Saudi arabia around $100 billion. How much of its reserves is it willing to draw down? Half? I seriously doubt it. But let's say half. How long will $400 billion last at the rate of $100 billion every 6 month?

So russia returns to fiscal integrity within 2 years, tops.

Do you have a source for that cost of $100b for six months?

The Saudis are projecting their 2015 budget based on an oil price of $60/bbl. That is still 40% below the 2008 levels which allowed Russia to emerge from its doldrums and start rattling cages again. Their military infrastructure is in harsh need of updating, and an emergent China will present one more set of military contingencies to plan for even as budgets will likely remain flat.

What that tells me is that Russia will be able to project ample power regionally, but only usefully on one front at a time and with limited offensive capabilities.

[Regina]

Well considering less than a year ago Putin was pressing all the buttons to kick off WW3, I'm inclined to say "good riddance". Shame for the common Russian people though I agree.

[Creed of Heresy]

From the rebound in oil prices.

The low oil price is the primary driver of russian recession. Low oil price is unsustainable because there is no fundamental reduction in oil demand, or increase in oil supply. It is only being maintained in the short term by Saudi arabia maintaining high rate of production. Saudi Arabia can't keep this up, because just like with russian governement, the fiscal integrity of Saudi governement depends on tax revenue supported by high oil prices. Saudi Arabia is willing to bleed for A while to achieve some political goals. But it's can't keep it up forever.

So the growth comes from the fact that the current low oil price which is strangling russian governement income has to rebound within 2 years at most, most analysts suggests well within 1 year.

Aaactually, the Russian recession did not begin with the oil prices dropping. They started shortly after the sanctions began when Russian companies lost their borrowing power and were forced to repay their debts to outside investors, which, along with global politics adding to market uncertainty in regards to the Russian economy, began to cripple the ruble's value. In turn, Russia did everything it could to prop it up. It managed to for a short time, or at least it managed to slow down the rate of devaluation, at any rate. The drop in oil prices, however, cut the tether that Russia was using to prop up its currency. It's in free-fall. Plus, given the sheer amount Saudi Arabia makes in its oil sales, even now it's still pulling quite a lot of profit, to the tune of hundreds of billions.

Arabia can keep up the low prices. Russia cannot.

Also, to bring up the post before this one, you pointed out Russia is a global power simply by command of geography. Problem with that is the defensibility of that vast amount of geography, and sustainability of economy to fund the military to defend it. It IS a global power only by virtue of its size; which is why I said it's "barely" a global power. It's not a global power by virtue of economy or industrial capacity, and what presence it does have is with a military that, without a strong industrial basis, can be easily overwhelmed. Supply lines; no army marches on an empty stomach.

Which, of course, is why Putin is cutting every kind of domestic budget except specifically the military budget, or "defense budget."

I'm not really doing the "American triumphilism" thing; I'm merely remarking on the fact that despite your optimism, Russia's currency devaluation is fucking it hard, and recovering from the steep drops in its value is going to be rough, to say the least.

[Tonus]

Oil prices are having an effect on the fallout from the Sochi Olympics mess. And with the Russia-hosted World Cup in just three years, already the 'adjustments' to the budget for those games are starting.

[Mister Agenda]

It's an ill wind that blows no one any good. It's likely that global warming will open up a great deal of Russian territory for farming in the next few decades, so that's something to which they can look forward.