We Need Putin & Medvedev. (Say what?!)

Much is being made of the financial crisis hitting Russia. To be sure, Russia is unquestionably adrift in their own fiscal and monetary predicament. In fact, if reports are correct, the Russian fiscal crisis appears to be bigger than the U.S. However, from a foreign policy perspective it is important for the U.S. to not assume these issues are some form of opportunity to gain leverage over a country that has been increasingly bellicose during the Putin era. In fact, Geopolitical Thoughts believes not only that it would be a mistake to extrapolate the pressure the crisis is putting on leadership as validation of a weakened Russia; but also, the U.S. might need to do whatever necessary ensure the Putin-Medvedev leadership structure remains in power.

Geopolitical Thoughts readily admits that Russia and its leadership are not the best bedmates for the U.S. to seek. In fact, as more and more details slip through Russia’s own form of censorship, it is clear that Vladimir Putin is not an ordinary head of state. As has recently been seen with the terrifying stories related to the slain former body guard for the Chechnyan President, Akhmad Kadyrov (amongst countless other citations: 1, 2, 3), Putin appears fairly involved with violent retaliation against anyone that crosses him or his proxies. Considering these accusations, it begs the question to ask why support the leadership of an individual who appears more and more authoritarian than democratic? The answer is two-fold. The first comes in the form of a classic idiom, “Better the devil you know than the devil you don’t”. The second comes from a famous quote by Sun Tzu, “Keep you friends close and your enemies closer.”

Supporting the removal of Putin and his gang by stating “The devil you know…” might seem clichéd. However, like Saddam Hussein and the form of secular dictatorship he demonstrated, the U.S. must consider the devil that is known versus the devil that is unknown. This was a classic mistake made by the Cheney-Wolfowitz NeoCon-led efforts in 2003. While it is hard to predict if a collapse of leadership in Russia would create a genocidal, civil war like that which was witnessed in Iraq, it is still imprudent to believe the resulting power void would spawn an improved form of governance. In fact, it is curious to see the lost irony of recent articles highlighting demonstrations in Russia against the current leadership. Instead of groups promoting democratic reform, many of the protests are actually to push Russia back to Soviet Union-era communism. It is with that backdrop that Geopolitical Thoughts considers it hasty to assume a failed-state Russia or a political-coup of current leadership would result in an improved situation for U.S. interests or regional stability.

As for Sun Tzu’s theories from his timeless “The Art of War”, there are two reasons to apply his famous rule regarding friends, enemies, and proximities. The first reason is because Geopolitical Thoughts does not equate the Russian fiscal crisis as being the same as the long-term implications of crisis’s for most EU nations. Secondly, it is in these times of perceived need that long-term relationships are best forged, and not when two countries jockey from positions of strength.

It is true, the Russian economy might very well be in a downward spiral. Over the past week, more particulars surfaced about Russian banks seeking restructuring of over $400 billion of foreign debt. These reports have led some to believe that not only is the Russian financial industry becoming completely insolvent; but also, that Russia’s entire future might hang in the balance as its ruble caves in. However, there are quite a few reasons why Geopolitical Thoughts does not believe Russia’s long-term prospects are nearly as bleak as some are predicting. First and foremost, more so than any other G-8 nation, Russia’s strength is based upon crude oil. And Russia is not taking a backseat to the issue. As T. Boone Pickens pointed out in the fall, while Russia usually sends a singular individual as its envoy to OPEC meetings, they sent 22 to a fall meeting. To further Mr. Pickens’ point, it is safe to assume Russia will be lock-step with Saudi Arabia going forward to influence OPEC outcomes. Putin might be viewed as ruthless, but he is not stupid. While no one in the public markets predicted a crude oil price collapse from high $140 per barrel in June 2008 to it’s current sub-$40 prices. Yet the supply-demand dynamics favor a long-term over-$60 per barrel pricing (even with the worst economic backdrop in modern times, 12-month forward crude is pricing above $50 per barrel and January ’11 crude is above $60 per barrel.) In fact, many – Boone Pickens included – foresee a very real scenario unfolding that pushes crude back above $100 per barrel in the not-so-distant future. With any snap-back in commodity pricing, a vast majority of Russia’s ills disappears. Furthermore, Russia’s fiscal position is not nearly as debilitating as other nations have seen. It is a country with cash reserves of over $400 billion and government debt of under $200 billion. Even with a weak currency, Russia remains relatively strong, both regionally and globally.

For the time being Russia is facing real and serious economic risks. And while Geopolitical Thoughts feels they are more than likely to return to economic strength faster than most other nations, this near-term weakness is precisely the time the United States should move forward with an open hand. Fortunately, over this weekend the first diplomatic overtures were thrust forward as Russia and the U.S. are negotiating bi-lateral efforts against the Taliban. However, the goal of U.S. foreign policy goals towards Russia should not be a quid-pro-quo effort. Instead, the U.S. should become a champion for Russia. While it is unlikely Russia will ever be an ally to the U.S., they might present a counter-balance in the region, should the U.S. need one down the road.

In summary, while Geopolitical Thoughts does not support the idea of a return to a bi-polar world reminiscent of the Soviet era, a regionally-strong Russia with better U.S. relations is a foreign policy goal that is worth the effort. It is Geopolitical Thoughts belief that Russia’s current economic woes are likely to correct themselves with any rebound in the commodity price of crude oil. In the meantime, the U.S. should take advantage of a relatively-weakened nation with support for relieving private Russian bank obligations internationally to build longer-term relations with this past rival. By making overt diplomatic attempts to show respect to this sleeping bear through this and other means, the U.S. is creating a possible chip for future poker games. In other words, to mollify the Cliché Gods one final time, when it comes to Russia, “Can’t live with ‘em; can’t live without ‘em.”

The Economic Crisis and National Strategy

Summary
The current global economic crisis has multiple ramifications on U.S. foreign policy. Not only does this crisis reveal fissures in U.S. diplomatic strength; but also, it highlights the strengths of Neo-Communism. Geopolitical Thoughts believes U.S. foreign policy principals need to be paying attention to the subtle monetary and economic moves from these Neo-Communistic nations throughout the duration of this unprecedented global economic crisis. Such moves can reveal as much about these new governmental abilities and intentions as do overt military moves. Moreover, U.S. leaders should treat this crisis as an opportunity to identify its own weaknesses.

Analysis
During his presidency, Dwight Eisenhower was quoted as saying the strength of the United States wasn’t its military, but its economy. Eisenhower’s remark still rings true in relation to the economy being more important for the U.S. than any other nation. However, what was once the U.S.’s strength is now an Achilles’ heel as it pertains to diplomatic leverage.

Much has changed since Ike’s presidency. Most notable for purposes of this discussion is the rapid economic development throughout the world. No longer does the health of the U.S. economy dictate the direction of all other’s. Furthermore, no longer is democracy’s chief protagonist a Marxist structure that is fundamentally flawed. The point is in the new world order total dependence on a globalized economy can work against capitalistic democracies. The U.S. as compared to China and Russia is a perfect example of this argument.

The ability for the United States to influence international issues is dependant upon the strength of the U.S. economy. As the U.S. economy goes, so goes its international influence. While part of this is the basic reality of being a capitalistic country, this paradigm should not be as correlative as it currently is. Part of the reason is the U.S. shift to a NeoCon-driven foreign policy dampening the U.S.’s ability to leverage its ideals and goodwill. Regrettably, an unpredictable side-effect is how this devalued goodwill has allowed the potential for longer-term security threats to develop.

Geopolitical Thoughts has argued for some time that the Neo-Communistic political structures that continue to evolve in Eurasia has a real potential to threaten U.S. interests long-term. In a Neo-Communistic structure, the consolidated political power allows for opportunistic moves internationally and flexibility to mandate domestic issues economically swiftly. This structure gives these national structures the necessary domestic support because of the government’s willingness to allow a quasi-capitalistic economy that ensures the support of its oligarchs. The strength of this quid-pro-quo structure is harder to see when the global economy is thriving. During good economic times, nations from the outside can point to the economic wealth that is created with the false belief that capitalism is dictating government decisions. However, this current economic environment reveals just how much control these nation’s leaders have.

Russia
Most news sources point to the suffering Russian market and ruble to argue that Russia is at risk of slipping back to the economic and social unrest of the early 1990’s. That would be an over-simplification of the global situation. Worse, this ignores Russia’s ability to capitalize on the situation for long-term benefits. This global economic crisis has created opportunities for Russia to take advantage of the situation by providing diplomatic, economic, and military assistance. Russian President Dmitri Medevev and Prime Minister Putin have been quick to react to fluidity of the situation.

Russia is leveraging the situation diplomatically to get back into good graces with the EU. They have given the German military approval to transport weapons and military equipment through Russia to German units in Afghanistan. Additionally, President Medvedev signed a decree giving Spain permission to send troops and supplies through Russian territory to support the Spanish presence in Afghanistan. These acts of generosity are providing the leverage to prevent Ukraine, and other former-Soviet satellites, inclusion into NATO.

Russia is making overt military moves with the knowledge that it is hard for the U.S. to focus on issues outside of the U.S. economy. They are seeking a strategic airbase in Tajikistan. Putin is aggressively attacking the issue of U.S. missile defense systems in Poland. Somalia is reaching out to Russia for assistance in addressing piracy with military force despite the fact that the U.S. Navy already patrols the region.

Russia’s relative strength is revealed in other ways. Russia is using economic leverage where possible. Unlike the U.S. and virtually all EU nations, Russia is not facing the economic crisis with an over-levered balance sheet. Russia remains very well capitalized. Its reserves are still over $450 billion even after a 25%+ slide since August. Russia was Iceland’s first call for financial assistance when that nation started to collapse. Russia stated its willingness to curtail crude production if need be, a signal that it is not as dependant upon the commodity as many think. Russian companies, many flush with cash, are capitalizing on other country’s weakness. Russia’s largest gold mining company is taking a controlling interest in Kazakhstan’s largest gold company. Without a Neo-Communistic governmental structure, Russia would not be able to capitalize so rapidly on the U.S.’s weakness due to the economic crisis.

China
The situation between the U.S. and China is much less nuanced. China is in a much greater position of strength than Russia and knows it can flex its muscle at will. Domestic U.S. auto manufacturers are pleading for government funds arguing that the U.S. economy depends upon their health to prevent a depression. However, the U.S. auto industry impact pales in comparison to China’s influence on global and U.S. economic growth. For example, the $150 billion infrastructure plan being proposed by President-elect Obama might be an incremental positive to the U.S. economy, eventually. Unfortunately, this stimulus is a moot point compared to China’s infrastructure ambitions that are four times the size of the U.S.’s. ($585 billion, to be exact.) The rapidity with which China can kick-start needed U.S. metallurgic coal, steel, or heavy equipment exports dwarfs anything that the U.S. government can do to stimulate the economy.

Because China, like Russia, has evolved into a new form of government structure, it too has an ability to allow for economic growth without relinquishing governmental control. This Neo-Communistic structure gives such a nation multiple levers to pull when need be. Domestically, China is managing economic growth efficiently and effectively. They are curtailing steel production by shutting down inefficient, overly-polluting mini-mills through manipulation of Nationally-controlled bank financing as well as access to electricity. Democratic free-market nations like the U.S. cannot do this. This structure also allows more control over the pace of growth and all of the international ramifications that come with it. Case in point, by merely resuming its domestic steel production, China would instantly resurrect the 90% decline in Baltic Drybulk Rates to normalized levels, effectively saving entire economic sectors from pending financial collapse. The Chinese government knows this. The U.S. leadership knows this too. The problem is many in the U.S. want to believe it is free-market capitalism at work and not market manipulation. By doing so is to ignore what the situation really is: a growing dependency on a country that is not democratic and is not afraid to challenge the U.S.

Summary
Until the credit crisis is over and signs of an economic recovery are seen, the United States’ position of strength on the international stage will slowly erode, even if it seems imperceptible to the naked eye. In the meantime, it is important to realize this new form of government, Neo-Communism, is starting to flex its muscles. This new coupling of totalitarianism governmental leadership with quasi-capitalism poses long-term threats to U.S. interests. This should be a warning signal for the importance of reclaiming the intrinsic value of promoting freedom through nuanced foreign policy and not forced-democracy. Hopefully, such a realization of this fact will be one of the silver linings that comes out of this recession’s aftermath.

Clowns to the Left of me, Jokers to the Right...

...and with apologies to Stealers Wheel... here we are, stuck in the middle. There have been some startling events this past summer that continue to point towards a rapidly-developing second Cold War.

We have all watched Hugo Chavez these past few years with a mixture of confusion and amusement. (Anyone who's attended the annual Offshore Technology Conference to see PDVSA's booth can agree with the latter.) But if history has taught us anything, one of the emotions we shouldn't ignore is concern. In late August, Iran and Venezuela formed a formal partnership. This is much more than just two of the world's wackiest leaders sharing tea. There are the obvious implications to the world energy complex. There are the more subtle possibilities should Russia, Iran, and Venezuela continue to make overt displays of power together. And then there is the downright scary implications of terrorism increasing in the U.S.'s backyard.

The LA Times confirmed that American officials believe Hezbollah is already making preparations to establish operations in Venezuela. As William Falk points out, "The group intends to create a special terrorist cell to kidnap Jewish businessmen in Latin America and take them back to Lebanon, the intelligence officials said. Another danger, they say, is that Hezbollah could use Venezuela as a base from which to insert terrorists into the United States." This news should have been more widely reported, but it happened during a time span dominated by news of the DNC, hurricane evacuations, and the RNC.

Venezuela's actions won't be ignored by DOD, the NSA, or the CIA. However, there are only so many things the U.S. can do unilaterally. The current U.S. foreign policy, in part, has been held together by the U.S.'s ability to have troops in direct contact with Al-Sadr-led Hezbollah efforts in Iraq. What happens to the foundation of this policy if Hezbollah successfully transfers their operations to a nation the U.S. has absolutely no ability to influence through military threat?