June 23rd, 2011

Russia’s influence wanes with declining oil prices

A Wall Street Journal op-ed urges investors and policy makers to exploit Russia’s position as a declining energy power. Others such as Malcolm Rifkind, chairman of the United Kingdom’s Intelligence and Security Committee and Ian Bremmer, president of the Eurasia Group agree.

With new discoveries of shale gas all over the world from the US to China to Germany, dependence on Russian oil has lessened and should be used to embolden foreign governments to acknowledge Russia for what it is, an authoritarian government solely concerned with its survival.This is Holman Jenkins’ view in the WSJ op-ed. He also asserted the charade behind Russia’s supposed competitive presidential election in 2012.

Bottom line: The world, and Russia, may be living with Mr. Putin for a long time…Don’t bet on Mr. Medvedev. Bet on the crude logic of Russia’s declining energy power, which Western policy should do everything possible to exploit, to deliver better behavior in Moscow.”

Bremmer agrees with the basis of the WSJ op-ed and goes farther to asset that it doesn’t matter whether Putin or Medvedev is elected in 2012.

Despite a handful of people and media publications who see right through Russia’s vexing charade, there is a deep rooted reason why they continue to put on such a show — Russia’s  insecurity complex.”

Increasingly, geopolitical power is closely tied with economic power. And as Russia’s ascendant neighbor China continues to grow its economy and flex its geopolitical muscles, Russia is left on the sidelines cheerleading its energy based economy. Russia’s economy is burdened with not only political stagnation but a weak legal framework that dissuades foreign investment.

Rifkind squarely addresses Russia’s weak rule of law as one of the main reasons investors have stayed away.

The consequences of Russia’s denials are far-reaching. Investors have looked at the Yukos case and subsequent machinations and concluded that Russia is far too risky an investment prospect. The failed sale of a Moscow airport just last month was an ominous sign that the ‘Khodorkovsky discount’ is alive and well.

The main victim of this outflow of capital is the Russian economy, which now rests precariously upon high oil prices. Any drop in the price of crude could lead to major crisis.”

With declining oil prices and increased shale oil discoveries, Russia will have a hard time maintaining their bullying foreign policy and hopefully their corrupt power structure as well.

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