Paranoia leads Vladimir Putin to the point of no return
Comment of the Day

March 14 2014

Commentary by David Fuller

Paranoia leads Vladimir Putin to the point of no return

Here is the opening from this insightful but also controversial article by Angus Roxburgh for the Daily Telegraph:

As Sunday’s referendum, in which the people of Crimea will decide whether to join Russia, approaches, the images on Russian television are astonishing. They are more propagandistic and venomous than anything I can remember even from Soviet times. Breathless presenters whip up hysteria with bloodcurdling stories of atrocities being committed by the “neo-Nazi junta” now governing Ukraine. Overheated “victims” beg Putin to help, kindly Russians offer to give refuge to the terrified people fleeing Ukraine, and menacing music accompanies montages of swastikas, fascist thugs armed with clubs, and black-and-white images of Hitler’s troops and burning villages.

It is all apparently aimed at preparing the public to accept that there may be war, and that Russia will be fighting in a just cause. Yet I have a horrible feeling that President Putin believes all this stuff. He receives his information mainly from his trusted secret services – men like himself, schooled in the dark arts of KGB disinformation. I worked as a media consultant to the Kremlin from 2006 to 2009, close enough to gain a sense of Putin’s growing paranoia.

I believe this has three causes, the most important of which, perhaps, is his own terror of being dislodged by popular revolution. Putin believes the Ukrainian uprising was fomented entirely by the West. He puts two and two together and gets five. He saw Senator John McCain saluting the Maidan crowds, and heard Victoria Nuland, the US Assistant Secretary of State, discussing on the phone which opposition leaders she would like to see in the new government (and he made sure his spies made the tape of the conversation public). Putin has been convinced ever since the Orange Revolution in 2004, followed by the Moscow protests of late 2011, that there is, in one of his advisers’ words, a “Destroy Russia” project. And he is next on the list.

David Fuller's view

Gorbachev eventually became a friend of the West partly because he knew how his father and millions of other Russians had suffered under Stalin’s rule.  Putin is no Gorbachev and we should judge him by his words and actions.  Nine years ago Putin said: “The break-up of the Soviet Union was the greatest geopolitical tragedy of the 20th century.”  He was equally candid in saying a few years later: “There is no such thing as ex-KGB.”

Putin does regard Western powers as friends.  However, he has many western interests, not least with Germany.  Fair enough and the same could be said for Western countries’ views of Russia.  However, Western countries would like to see a more democratic Russia.  It does not have that under Putin’s rule, although it does have business links and many cultural interests with Russia.

Putin’s moves in Crimea and along Ukraine’s eastern border have reawakened uncomfortable Cold War memories.  Putin and Russia clearly have historic connections with Crimea in addition to contemporary security interests.  However, by annexing Crimea because, he could do so without being militarily opposed by the West, he risks leaving himself more politically vulnerable within Russia. 

This vulnerability is not yet shown in Russian public opinion polls but the country is haemorrhaging money through its stock market (weekly & daily).  More seriously, Russian companies have $653bn of foreign dollar debt, according to this informative article: Russia counts as West tightens sanctions noose, by Ambrose Evans-Pritchard. Here is a brief section:

Russian companies have $653bn (£392bn) of foreign dollar debt, and must roll over roughly $150bn this year. Yields on five-year bonds have already spiked 200 basis points, even for blue-chip firms. The rouble has fallen 11pc this year after dropping 8pc last year, making dollar debts harder to repay. “It is going to be very difficult to roll over these bonds, and it will be at much higher cost,” said Mr Ash.
Capital flight reached $63bn last year. Former finance minister Alexei Kudrin said this could reach $50bn a quarter as the crisis deepens. The central bank has already raised interest rates sharply to stem outflows, pushing the economy into recession.
Russia has $480bn of foreign reserves but these cannot easily be used in a downturn since it entails monetary tightening. The Kremlin caused a drastic fall in the money supply and a banking crisis when it ran down reserves by $200bn after the Lehman crisis.
Standard Bank said Washington is determined to make Russia pay for tearing up the post-Cold War settlement and undermining the architecture of nuclear non-proliferation. It is drawing up stealth sanctions to freeze Russia out of global finance.
These will be spearheaded by the US Securities and Exchange Commission, which will enforce compliance of the Foreign Corrupt Practices Act. The next step is to place Russia on the “grey list” for money laundering. “This would prevent global banks from dealing with Russian counterparts. Washington is tightening the noose. No bank is going to mess with the SEC,” said Mr Ash.
Chris Weafer, from the Moscow-based group Macro Advisory, said the Russian elites are becoming “extremely nervous” but it is a two-way risk. “There could be contagion back into the West. There are a lot of things Russia can do short of the nuclear option of cutting off gas. It could ban exports of titanium, inflicting severe disruption on Airbus and Boeing,” he said. Both jet makers rely on titanium supplies from the Russia firm VSMPO-Avisma.

This article above goes on to list all the non-military steps that the West can take in its efforts to curb Putin’s aggression.  He could respond by cutting off gas and oil supplies to Europe, but that would be a Pyrrhic victory reducing a significant portion of Russia’s revenue.

In conclusion, the Russia/Crimea/Ukraine situation has become a potentially important geopolitical risk which markets have begun to reflect.  Sanctions promised by the USA, Germany and the UK would have economic consequences for both sides.  Putin started this and he can also end the tensions.  Either way, his career as Russia’s strong man is probably on the line as well.   

This article by Mark Hulbert is only partly related but may also be of interest: In-the-know insiders are dumping stocks.


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