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The Missiles of November

As the price of crude oil has plummeted, the Russian stock market has entered a truly terrifying state of freefall. Since reaching a historic high six months ago, it has lost 75% of its value, the same type of loss … Read More

By / November 12, 2008

As the price of crude oil has plummeted, the Russian stock market has entered a truly terrifying state of freefall. Since reaching a historic high six months ago, it has lost 75% of its value, the same type of loss that characterized the Dow Jones slide that presaged the Great Depression. It has lost 20% of its value in the last few days alone. The Kremlin has repeatedly shut down the market in an attempt to stave off even greater slides, and used the national currency reserves to create artificial demand for shares, all to no avail.

The impact on the wider economy has been devastating. Inflation was expected to reach a whopping 13% this year even before the Kremlin decided it could no longer afford to prop up the value of the Russian ruble, and the stock market, by spending its rapidly depleting oil windfall reserves. As the ruble depreciates, the cost of the imported goods on which Russia’s anemic manufacturing economy depends will soar even higher. As the Kremlin’s massive tariffs on oil, its main source of revenue, squeeze oil company profits due to the falling market price, exports are falling and investment in development is dropping away, seriously imperiling Russia’s economic future.

But none of these setbacks have cowed in the least the aggressive efforts of Russia’s ruler Vladimir Putin, a proud KGB spy who has imposed draconian restrictions on civil society (including a disturbing chain of murders) that leave him in virtually unchallenged authoritarian control, to revive the cold war. Most recently, Putin announced that Russia would install offensive short-range nuclear missiles in the Russian enclave of Kaliningrad, which borders Poland (but not Russia) and was seized by the Red Army during World War II.

The threat came in response to Poland’s acceptance of a U.S. missile defense system on its territory. Poland had originally been reluctant to do so, but when Russia invaded Georgia with army tanks in the north and naval destroyers on the southern sea coast, Poland suddenly saw the light. On top of that, Russia has been relentlessly buzzing U.S. and British targets with nuclear bomber flybys, sending vast quantities of armaments to Venezuela, nuclear technology to Iran, and all kinds of support to anti-U.S. regimes in Syria and Palestine.

Then on Wednesday, Russia formally rejected a set of U.S proposals for inspection and video monitoring that had been designed to alleviate Russia’s concerns about the missile defense plan, openly claiming that it thought it might get a better deal from the incoming Obama administration than George Bush was offering, and refusing to even make a counter-proposal. And indeed, Barack Obama has said he intends to review the technical performance of the proposed defensive systems before ratifying Bush’s decision to install them; Obama has also chosen to remain silent about the Kaliningrad threat, from which Russia has appeared to retreat somewhat in recent days as some Russian experts have declared the practical obstacles to such a move very daunting. He did, however, snub the Kremlin by excluding it from a round of telephone calls to world leaders following his election, and he has surrounded himself with a group of tough critics of the Putin regime as advisors on Russia.

 

A cynic might suggest that Putin is acting not despite his economic problems, but because of them. A cold war furor over missiles, harkening back to the days of Cuba and Kennedy, is a convenient distraction from the financial nightmare Russia is confronting (as well as from outbreaks of violence in the Caucasus region as various Russian republics, inspired by the Kremlin’s support of separatists in Georgia, agitate for independence). Putin has worked feverishly to suppress reporting about the stock market collapse in the Russian media, but the effects are increasingly being felt at street level in the form of higher prices and widespread layoffs.

Putin appears to have a fallback position if the current approach doesn’t do the trick. Forced to stand down from the presidency earlier this year under a term-limit provision, Putin is now ruling the country de facto from his cloistered position in the prime ministry. But the current president, Dmitry Medvedev, recently announced he will ask the Duma to increase the presidential term to six years, and Russian law does not prohibit Putin from returning to office for additional terms after stepping down at the end of two. Experts believe this is laying the groundwork for Medvedev to resign, allowing Putin to serve out the remainder of Medvedev’s term and then be reelected to another pair of, now, six-year terms. This would mean Putin formally ruling the country for roughly 23 of the 24 years between 2000 and 2024.

Medvedev recently announced his government would deal forcefully with any civil unrest growing out of the economic downturn. He didn’t give specifics, but he may well mean the return of Putin as something like a unfettered "president for life," followed by a whole new round of domestic crackdowns covered by the distraction of alleged foreign threats. That will present President Oama with the most serious foreign policy challenge since the collapse of the USSR.

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