By L. Todd Wood
The price of crude oil is plummeting again with West
Texas Intermediate closing Wednesday below $50 a barrel, possibly on its way to
retest its recent lows of $42. For the commodity-exporting BRICS (Brazil, Russia, India, China and South Africa), this is not good,
especially for Russia.
Russian Deputy Prime Minister Olga Golodets recently
called the situation critical on Rossia-24, a Russian television network,
according to the Russian news agency Interfax. “Unfortunately, predictions are
coming true: According to official statistics, the number of poor people has
reached 22 million. This is critical.”
An associated report by Rosstat, the Russian state
statistics service, showed Russians living below the poverty level of
approximately $170 a month rose to slightly below 23 million, or 16 percent of
the population. The near-term low for this level was 11 percent, prior to the
start of the conflict in Ukraine and sanctions leveled on Russia by the West. The Russian population experienced a
decade of growth in their standard of living and this has contributed greatly
to Russian President Vladimir Putin’s popularity.
In addition to reduced incomes, inflation is raging
double digits in Russia, putting further fiscal pressure on the average
citizen who is not lucky enough to be associated with oligarchy in Moscow. Social services, including health care and
education, have been significantly cut already as well.
All of this comes at a time when tensions in East
Ukraine are higher than ever. Civilians and military servicemen on both sides
have been killed by a recent outbreak of shelling in the Donetsk region. The
Minsk accords have only served to dampen the level of the overt fighting but
have not ended it.
The reduced income to the Kremlin brought on by the
renewed collapse in crude prices, most likely caused by the prospect of
additional Iranian supply coming on the market in coming months to years as the
Iranian nuclear agreement is implemented, is for sure causing stress in Moscowamong government officials. The Kremlin has stated
categorically that the military buildup and modernization will continue in
spite of financial pressure brought on by the sanctions and the oil market.
This means social services will have to be cut further than anticipated.
Only a few weeks ago, Russia was confident it had survived the worst the crude
market could dish out. This may have been overoptimistic. A sustained crisis in
the price of oil could seriously inflame public unrest inRussia. All of the flag-waving patriotism in the world can’t
put food on the table. The Kremlin may feel pressure to once again change the
subject and take the public’s mind off their economic problems. This effort
could take the form of a renewed push for territory in East Ukraine where NATO
has stated that Russia has a large number of troops and equipment on the
border and in Ukraine proper as well.
There are other flash points that could also get ugly
if Moscow decides to pursue this path. Only a few days ago,
Russian troops caused an outcry from Georgian officials as they pushed out the
border to South Ossetia, the breakaway region that has been occupied by Russia since the Russian Georgian War in 2008.
The Transdniester region in Moldova is also a possible
flash point. Russia has occupied this slice of territory
on the Ukrainian-Moldovan border for some time and can only resupply the region
by air after Ukraine shut off any land route for supplies.
The West would do well to remember that pushing a bear
into a corner with no way out is never a good idea. It’s time for American
leadership to find a way out of the crisis between the West and Russia. The American, as well as Russian, people
deserve this.
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