Russia is losing an economic war

The Russian Federation is in economic crisis.

The economy is shrinking.  Although unemployment is low, poverty is increasing,  Inflation is at double-digit rates.   The exchange rate for the ruble is falling.  Russia’s trade deficit is widening.  The Russian government is cutting spending on public services.

While Russia has serious internal economic problems, the immediate cause of the crisis is the economic war being waged by its foes.

  • The United States and European Union boycott many Russian individuals and institutions, including cutting off credit to Russian banks and cutting off sales of equipment to Russian oil companies.
  • Saudi Arabia has stepped up production of oil, driving down oil prices worldwide and hurting Russia’s oil exports.
  • The United States has begun a new arms race with Russia, forcing the Russian government to either divert resources from the civilian economy or admit inferiority.

03-bust-boom-bustIn waging economic war against Russia, the United States and its allies hurt themselves as a price of hurting Russia more.

  • Europe and Russia are natural trading partners, with Europeans buying Russian gas and oil and Russia buying Europe’s, especially Germany’s industrial products.   Cutting off this trade hurts both.
  • Saudi Arabia is using up a large but limited resource at a fast rate without getting the best price for it.
  • The United States, too, is diverting resources from our civilian economy and domestic needs.

In many ways, this is a replay of the economic war waged against the Soviet Union in the 1980s.

  • Sanctions were imposed on the USSR for interfering in Poland, just as they are now on Russia for interfering in Ukraine.  The USSR back then needed foreign financing, just as Russia does now.
  • Oil prices were falling, partly because of Reagan’s economic policies.
  • The Reagan administration stepped up the arms race, including plans for the so-called “Star Wars” missile defense shield.

In the 1980s, the economic war ended happily for the United States.   Mikhail Gorbachev came to power and sued for peace.  Reagan and Gorbachev negotiated a reduction in nuclear arms, and Soviet troops left eastern Europe.  Later the Soviet Union itself broke up.

But I don’t think there will be such a happy ending to the current economic war.   I don’t see any statement in either the United States nor the Russian Federation who are capable of making peace as Reagan and Gorbachev did.

In the 1980s, many Russians were disillusioned with the failed Communist command economy, and thought the United States could show them a better way.  Now they are disillusioned with crony capitalism, in which wealthy Russians even refer to themselves as “oligarchs.”

And they remember how Bill Clinton and his successors broke the gentleman’s agreement made by George H.W. Bush and James Baker not to enlarge NATO.

I don’t expect Russia to collapse.  The Russians have been through worse than this.  I don’t expect Vladimir Putin to be removed from power, either.  But if he is, it won’t be by a new Gorbachev.  It will likely be by a more extreme Russian nationalist lacking Putin’s cold-blooded pragmatism.


Russian economy crumbles, according to new data, by Dan Alexe for New Europe.

Russia is seriously running out of cash by Ivana Kottasova for CNN Money.

‘There’s No More Money’: Medvedev Faces Russia’s Economic Woes With Austerity Plan by Alexandra Kropopenko and Margarita Papchenova for The Moscow Times.

Is Russia’s Economy Doomed to Collapse? by Sergey Alekshenko for The National Interest.

Russia’s Economy in 2016: Falling oil prices and sanctions drive home the need for structural economic reform in Russia by Himani Pant for The Diplomat.

Russia Inc. by Ilya Matveev for Open Democracy.

Will Russia Reject Neoliberalism? by Paul Craig Roberts and Michael Hudson for Counterpunch.

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