RUSSIA DISINTEGRATES

ECONOMIC CONFUSION DRIVES REGIONAL CONFLICTS

European economies have continued to remain unstable throughout 2009, even as the US and other global markets stage a careful recovery. Many analysts blame excessive centralization of economic policies for the EU’s failures.

After crude oil fell to under US$ 30 per barrel, the Russian Federation burned through their US$ 500 billion reserves in only eight months in a belated attempt to protect their economy.

Sensing an opportunity, Ossetia, Dagestan, Chechnya and Ingushetia declared their independence. Russian troops poured into the region but have been chased out – their poorly equipped troops humiliated.

The Russian President has demanded that the UN intervene to prevent further collapse: “We demand that world leaders assist in maintaining Russian territorial integrity.

“Without such support, we don’t see how we can continue to supply oil and gas to our European customers.”

Business leaders raised concern as industries began retrenchments, as well as outsourcing more work to Latin America, Africa and Asia, where energy supplies are considered more stable.

Despite the threat, and with a worsening financial crisis to deal with, members of the UN Security Council couldn’t schedule a meeting in time.

By the end of November, Gorno-Altay, Tuva and Buryatia also declared independence, with Karelia demanding to secede to Finland.

With continuing riots in Moscow and state coffers empty, the Russian Federation – like the Soviet Union before it – has, de facto, ceased to exist as a distinct political entity.


ANALYSIS >> SYNTHESIS: How this scenario came to be

Background
The Russian Federation rose out of the ashes of the collapse of the Soviet Union. In 1991, Latvia and Estonia unilaterally declared independence from the USSR, following Lithuania’s 1990 example. There was no response from the Soviet leadership, and no attempt to send in the troops. In December of 1991, the Belavezha Accords were signed by the majority of the Soviet Union’s republics and declared the Union dissolved.

From 1991, until 2005, the Russian Federation formed an unhappy rump of the core of the old Soviet Union. Often described as an Oligarchic State, it is corrupt and the rule of law is delivered much as in the old Russian Empire. When oil prices sky-rocketed in the mid 2000’s, then-president Vladimir Putin, traded the cash and energy monopoly in for influence in Russia’s “near abroad”.

In 2008, the height of this new era, Russia invaded Georgia (an historic member of the USSR) on the pretext of defending Russian interests. When Europe did little to defend a potential EU member, Putin felt satisfied that Russia was resurgent.

That was when oil was at almost US$ 130 a barrel. Then the credit crisis ended the reign of the oil barons.

January – March 2009: The End of Big Oil
In January 2009, Saudi Arabia unilaterally cuts oil production by 15% in the hopes of stemming the collapse of oil prices. However, overall energy use is declining as production falls, and the March price of a barrel of crude falls to US$ 32.

Barack Obama, the US president newly in office, announces a raft of public capital projects in an effort to kick-start the economy. The most important is a US$ 250 billion new energy infrastructure project which will deliver renewable energy across the country. It will link up new forms of energy production in a sophisticated grid.

Oil futures collapse to US$ 27 per barrel. The fledgling alternative industry reels as the oil price renders most of their overly-optimistic business plans unattainable.

European leaders are in no mood to be left behind by the Americans on climate change policy, and they introduce a Carbon Tax which they will use to finance a similar new energy infrastructure program.

Russia declares that they intend to hold early elections in June.

April – June 2009: The Zero Economy
The EU carbon tax has an immediate impact on prices as businesses pass on the increased costs to customers. Consumers, already reeling from the credit crisis are unprepared for the price rises that result from the new energy tax. The US Senate, watching from across the Atlantic, decides against introducing a similar tax.

With the economy set to shrink by 5% by year-end, the Bank of England cuts interest rates to 0%. The UK becomes the first country to go to zero since Japan raised their interest rates from 0% to 0.25% in 2006.

As bad as it is in the UK, Russia is sinking fast. Absolute energy use in the Euro-zone has declined as factories dramatically cut output. As an early spring arrives, the Russian Energy Stabilization Fund runs out of money. Crude oil continues its downward spiral. Middle Eastern economies are similarly experiencing depression.

Russian troops are increasingly ill-equipped to deal with rising levels of violence in their break-away provinces.

In a bizarre and orchestrated election, Putin – who doesn’t even campaign – is elected president in June with 97% of the popular vote. It is a fiasco. Videos filmed on mobile phones are circulated on YouTube clearly showing ballots being stuffed. In some regions, more people ‘voted’ than even live there.

With infrastructure collapsing and winter on its way, the Russian Federation is looking increasingly unstable.

July – September 2009: Disintegrating Federation
On 6 July, the Bank of England announces it will sell 300 tons of its gold reserves, reducing the government reserve to a mere 20 tons. The European Central Bank expresses their concern with the sinking gold price and demand fiscal restraint from the UK. An economic summit of EU leaders betrays their exhaustion and leads to further weakening on bourses.

Then, on 27 July, Ossetia, Dagestan, Chechnya and Ingushetia declare their independence. Russian troops pour into the region but are chased out and their poorly equipped troops humiliated. European markets decline on the fears of further instability, and politicians can offer little other than generic speeches. The British Pound plunges to 1.00 to the Euro.

On 5 August, Brown begins his speech in the Commons with the words, “It cannot have escaped members’ notice that it will serve the interests of stabilizing our economy if we adopt the Euro as our currency.” There is pandemonium. He speaks through it, and then announces his resignation.

In Russia, Vladimir Putin has no such honorable exit. He has tied the Russian Federation to himself completely. If he cannot restore order then he will be discredited and – like Mikhail Gorbachev before him – the Federation will collapse with him.

October – December 2009: Russia Alone
On 15 November, Gorno-Altay, Tuva and Buryatia declare their independence, with Karelia demanding to secede to Finland.

Various regions are realizing that, the more of them that leave now, the less likelihood that Russian troops can respond. After the power fails in Moscow during the coldest winter in a decade, rioters descend on the Kremlin. Putin attempts to use troops to quell the dissenters, but the soldiers refuse to leave their barracks.

In frustration, Putin threatens to cut oil supplies to major European nations unless the Security Council provides material support to maintain Russian integrity. World leaders have been to countless summits during the year to attempt to staunch the economic collapse, they are unprepared for yet another one. It is also clear that, if they play for time, then the collapse would leave them to negotiate with numerous small states all eager for oil revenues.

Despite European businesses concern, and energy-intensive industries laying off European workers as they shift production to energy stable countries like Brazil and China, political leaders show little interest.

As the year closes, Putin is finding that years of being the region’s bully has left him with no friends and little institutional capacity for creative policy which may end the debacle.

On 31 December, the largest of the federal members of Russia – Yakutia, Khabarovsk and the newly formed Aginskiy-Orda – agree to leave the federation. On 1 January, the Russian Federation is no more.

Warning: Hazardous thinking at work

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