Russia is in a desperate situation. It's oil export revenue is getting hammered by falling prices and this in turn is crushing the government's budget. Another key component is the economic sanctions preventing western technological know-how to add efficiency to the Russian oil industry. It also, incidentally, comes at a time when Russia's total oil production is in decline, an event which preceded the collapse of the Soviet Union. So Russia is at it's second peak in oil production in two decades and makes high oil prices even more vital. Pritchard highlights some major ways Russia under Putin has reached it's apex, and he very well could be right.
Before we, as Americans, collect our Super Bowl rings we should pause to consider the trade-offs. First of all, Saudi Arabia could be aiming it's pricing power at U.S. shale oil as well as at Russia in the hope of forcing bankruptcies on several American companies. Even if this is not the case, it's still likely that many American companies will crumple as victims of collateral damage. Here's a chart on the break even price of oil for American shale oil fields.
Roughly a third of these forty-five or so fields is running at a loss at current prices. Companies need profits, so about half lose money or break even when the price is at $80. Pritchard mentions that Russia is stress testing it's budget at $60 a barrel. Maybe it'll get there, maybe it won't, but that price wipes out at least half the fields on the chart above.
The second trade-off of falling oil prices to consider is the prospect of new failed states. Pritchard lists a few break even prices for governments, and some of these are solid candidates for failed state status. Nigeria, Oman, and Venezuela are in various states of chaos as it is. They also have very high price thresholds. Would these nations be more collateral damage? Whether friend or foe, how many failed states does it take to ignite global chaos? It looks to be another stress test of global stability as a consequence of the more narrow experiment of trying to take down the Putinator.
The third trade-off I see is between the benefit of a successful foreign policy of vanquishing enemies versus the costs. A lot of our contentions with Russia involve Ukraine. Ukraine is very poor and very corrupt. The U.S. seems to think it's important to keep it together as a unified country despite it's having a very large and restive Russian minority who wants to be a part of Russia. But American contentions with Russia go deeper than just Ukraine. The U.S., and more so, Saudi Arabia, also wants to help Syria in the effort to liberate itself from it's leader Bashar al-Assad. Assad, like his father, have made Syria a reliable ally of both Russia and the Soviet Union dating back to the 1960's. Syria is also allied with Iran, one of the Axis of Evil powers. Iran is a Russian ally as well, though I think it is a rather loose alliance. What I take from all of this is that the policy effort is to pluck allies from Russia and bring them into the American fold. All well and good, I suppose. It fits conventional statecraft all right.
But what does the U.S. really get out of the deal? It must be a lot. There must be a grand prize here that is worth having. Rather than speculate on what that could be (though I can come up with plenty of probable answers), it's enough to wonder whether there is actually a prize to be won. What are the chances that any of these states would be inclined to align it's interests with the U.S. and in effect become a client state? What are the chances that Syria just continues to be an extension of the chaos in Iraq after Assad is gone? What is the value of having a Ukraine which consists of two ethnic groups who hate each other? On the other hand, what is the real cost of letting Russia annex the Russian parts of Ukraine?
That's a lot of questions and none of them can really be answered. What the U.S. is facing is a mountain of trade-offs that don't exactly pay off. The more we try to maintain the global system, the more expensive it gets. A glance at the situation I think proves the point. The Arab Spring was really nothing of the sort. Nobody is more liberated now than they were before in those nations, like Egypt, that found some stability. But most of these nations are in upheaval now and the U.S. can't find any new regimes to fit the old model. Russia is set against us and, though the U.S. may win the battle, it could very easily resemble losing.
At the end of his commentary, Pritchard talks about the "chance" that Russia has had to join the community of free nations. The West "eagerly" tried to help, after all. I think this is a pile of hoo-ha. Pritchard could have straightened out his thinking if he'd only reread one of his earlier paragraphs, the one in which he mentions the "imperial" might of the American financial system. Without realizing it, I suspect, he hit on the head the nail of why Putin was able to rise to power and was unwilling to follow the American Dream. The real story goes more like this: After the fall of the Soviet Union, instead of eager helpers, as Pritchard claims, the Americans sent in the vultures. The shock therapy treatment prescribed to jolt Russia's economy into a, what, stupor? Because that's what someone falls into after shock therapy. And that's what happened to Russia, particularly President Boris Yeltsin, who was a weak, confused leader who, with the "help" of our economic prescriptions, based on the Washington Consensus theory of helping nations, enabled the rise and domination of the Russian oligarchs. It's not what we thought would happen, but that is what happened. Pritchard likes his story because he is a financial journalist.
Putin came along and was sufficiently strong to tame the oligarchs. He's polished, he's disciplined, and he knows how to wield power. Plus, he's a nationalist, and could take advantage and gain popular support by making Russia stand up again as a strong nation after the humiliation it had experienced at the hands of the West. That's what nationalists seek to do and the U.S. doesn't seem to understand this. This form of "help" was seen as a national humiliation by Russians.
This is not an uncommon theme. Latin America has a similar perception as evidenced by a lively Marxism throughout the region. Any country which has suffered from unregulated capital flows such as SE Asia, Argentina, and the like, wishing to increase it's own share of the pie, experiences a lack of control and disadvantaged positions under free trade and open markets. The reason is that the Washington Consensus of free trade and open markets is an imperial system. Americans don't like to think of it this way, but if you consider the results; more outflow of wealth to the U.S. than inflow to these various economies and an unpayable debt load imposed on them by western banks, then the system starts to look kind of imperial. Free Market ideology is in essence a glossy rationalization for a wealth transfer system. By contrast, those nations who didn't participate in the Washington Consensus model, like Japan, China, South Korea, are the richest and most successful. Russia resisted what was an attempt by the U.S. to straddle it with debt and an unfavorable trade relationship. Putin's not stupid. He saw Russia caught in the free trade and open market trap and chose to protect his markets.
Russia, though, didn't play it's hand very well, economically speaking. It's become under Putin a petrol-dictatorship, or, more accurately, a resource dictatorship with expansionary ambitions. It worked for a while but now it's struggling in a deflationary global economy and possibly faces another collapse. But a collapse doesn't mean Putin won't still be the leader. Russia has fall back positions that are built in to the culture that are durable but Russia as a whole will be weaker.
So what is the prize? The way I see it, the prize is growth of the America centered global economic system. It is a system which must grow so opportunities for growth must always be seized. I suspect that lurking in the heart of the American security and corporate elite is a desire for revenge. Russia is the one that got away, and Vladimir Putin took it from us. Rather than a mineral and energy rich client state with a large population the U.S. got a powerful and antagonistic semi-rogue state. Such are the complications of geopolitics.
I read all of this as another aspect of diminishing returns. Our choices now come with higher price tags. The cost of expanding territory and markets to fill the needs of the system is greater than the benefit. What I've outlined here is a situation where the U.S. has only paltry gains at high cost. Maybe someday average Ukrainian households will fill their two car garages with Teslas and John Deer lawnmowers and thereby achieve consumer paradise. Or something else entirely will happen. I'm banking on the something else.
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