Carlo's Think Pieces

Reflections of a Filipino in the Netherlands

Posts Tagged ‘Russia’

Russia’s Syrian Gamble

Posted by butalidnl on 6 November 2015

On 30 September 2015, Russia started air strikes in Syria to fight ISIS and ‘other terrorist groups’. After weeks  of bombing, it turns out that the Russians are mainly targetting, not ISIS, but other rebels fighting the Assad government. (Note that the Assad government calls all those fighting it as ‘terrorists’)

The Russians’ aim is to ensure its continued use of a naval base at Tartus, on Syria’s Mediterranean coast. They see Assad as the only one who would allow them to stay there and have decided to directly support him initially with air power. This is clearly a gamble. They could have chosen instead to further develop their  lines of communication with the armed opposition (which had gone to Moscow for consultations in the past) in order to ensure that if the rebels win, they will retain their base. Now, by directly fighting for Assad, the chance for a future accomodation with Syrian rebels has been significantly reduced.
In response, a broad alliance of rebel groups (including the Western-backed Free Syrian Army) have denounced what it called the ‘Russian-Iranian Occupation of Syria’, and promised to attack the Russians.

Afghanistan Revisited
The Russian intervention in Syria calls up memories of the Soviet debacle in Afghanistan. The Soviet Union  started by providing military advisers to its Afghan allies who were struggling to retain control of the country. This gradually led to the full-scale invasion of Afghanistan. Soviet forces eventually withdrew in 1991 after suffering 15,000 casualties.

Syria is not Afghanistan. For one thing, it is not geographically close to Russia. Russian troops could not drive into Syria as they did in Afghanistan; they have to  either go by ship, or be flown in.There are also no ethnic connections in Afghanistan, the Soviets had Turkmen, Uzbek and Tadhzik soldiers who spoke the same language as some Afghans; they don’t have something equivalent for Syria.

But there are similarities enough. The Russian military have been called in to prevent the collapse of an ally. The Syrian government army, like the Afghan communists, could not hold on to large parts of the country. Assad’s loyalist troops are tired, demoralized and increasingly being cut off. It is only a matter of time  before Russia escalates; first bringing in military advisers, then special forces troops and later regular units.
The rebels are also divided into many factions. This makes it difficult to hit one in order to win the war; other groups will simply take their place. And, like in Afghanistan, the Russian intervention will force the various rebel groups to unite.
Another similarity is that the Sovet Union then, and Russia now, suffer under Western economic sanctions.

Ukraine
The ‘green men’ (Russian special forces troops pretending to be Russian volunteers) that Russia will be deploying to Syria used to operate in Crimea and Eastern Ukraine. Their deployment to Syria would have some effect on the balance of power in the Eastern Ukraine. Russia would effectively be fighting two wars. This is why Putin has worked hard to make the war in Eastern Ukraine into a ‘frozen conflict’. But this will not be that easy – the Ukrainian rebel areas could not remain stable if there was no war. The economy there is in shambles, and there will be no jobs for thousands of demobilized troops. Also, there are many different militia groups there who would cause trouble if they would no longer be fighting the Ukrainian army. The Russian military was quite stretched at the peak of the war in Eastern Ukraine in 2014.
When the Russians will get more involved in the Syrian war, its forces will gradually become overstretched.

Turkey
Russian fighter planes violating Turkish airspace have been met by howls of protest from the Turks and NATO. Russia will probably do its best to avoid angering the Turks, because the Turks can severely damage their Syrian operations. First, Turkey could prevent Russian ships from crossing the Bosporus strait (which allows ships from Russian ports in the Black Sea to go out to the Mediterranean Sea); effectively locking in the Russians in the Black Sea. Second, the new Russian military airbase in Latakia is within artillery range of Turkish batteries. If Russian bombs land in Turkey, the Turks could respond by firing on the base. They did something similar when Syrian planes dropped bombs inside Turkey.
And third, Turkey could tacitly allow Syrian rebels to transit through its territory on their way to attacking the Russians

Peace Talks
The Russians are trying to promote international talks on Syria in an attempt to achieve its aims without getting mired in a quagmire. There will be talks, but unless Russia agrees to dump Assad as part of the deal, nothing will happen to them. Worse, the Syrian government will not be inclined to make any compromise to attain peace, because it thinks that Russian support will ensure its eventual victory. The rebels, on their part, will reckon that they would gain more by continuing the fight; since, after all, the Syrian army is quite weak. They will no longer trust the Russians in pushing for a peace agreement, since Russia is already a party to the conflict.

The Russians are painting themselves in a corner. When the new Syrian ground offensive falters, Russia will be forced to deploy its own elite troops in order to counter rebel advances..
The problem that Russia will have, in a few months is that the rebels will continue to gain ground in Latakia province, where their naval base is. When Russia finally decides to dump Assad, the rebels may not be willing to make a deal with the Russians.

Assad will not be safe from the Russians either. The Soviets replaced their Afghan clients repeatedly during its intervention in Afghanistan. More recently, the Russians have been constantly changing the leadership of the Donetsk Peoples Republic (the main rebel entity in Eastern Ukraine). So, when Assad’s troops start to lose again (even with the help of Russia, Iran and Hezbollah) he will  be replaced by the Russians.

Russia’s Syrian gamble will fail. More jihadists will target Russians in Syria, within Russia, or in the rest of the world. Russia will increasingly be isolated internationally, and it will be hated in large parts of the Arab and Muslim world. And, since a post-Assad government will most likely kick out the Russians, Russia will be forced to stick it out even when the toll grows worse.
Mounting Russian military and civilian casualties will increase the Russian public’s opposition to the war, as well as intensify the military operation in Syria.The trend toward miitary escalation is quite irreversible; the only unknown is how fast it will escalate. For example, if it is proven that ISIS caused the recent crash of the Metrojet plane over the Sinai (killing 224 people, most of whom were Russians); it will only result in increased military involvement in Syria, not less.

When the Russians will eventually leave, it will not only have to pull out its newly deployed troops, but all its military bases in Syria, when the Syrian government falls.

 

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Oil Price will settle at around $35/barrel

Posted by butalidnl on 13 January 2015

The price of Brent Crude has crossed $50/barrel, and it still has some way to fall. This is not a temporary short term drop in the price; it is the middle of a long-term price movement.There are huge reasons to think that the low price of oil is here to stay – at least for the next few years.

Analysts say that the Saudis are out to get the shale oil producers by keeping the oil price lower than their production costs. Sounds logical. But let’s take a look at the actual production prices.The production cost of oil shale is between $35 and $50/barrel – and this is the average production cost. But the bulk of the production cost is up front – when the well is being set up. The marginal production cost (i.e. the additional cost for prducing every additional barrel of oil) is lower – perhaps as low as $10/barrel. This means that shale oil wells that are already producing will continue producing as long as the oil price does not dip below $10/barrel. However, new wells will not be opened if the price of oil is less than $35/barrel (because investment decisions are made based on marginal production cost).

Offshore oil wells produce oil at $50/barrel. There are a lot of these wells in operation, e.g. in the Gulf south of the US. Their marginal cost of production is a mere $10/barrel, and will thus continue to produce inspite of the low price. However, it costs a lot to sink them ($40/barrel of the cost is from the exploration and development of wells). A price below $50/barrel will mean that new offshore wells will not be developed.

Oil from oil sands costs from $50 to $80/barrel to produce, and most of this is in everyday production cost. This means that this kind of oil will probably be frozen (figuratively and literally), if the price remains below $50/barrel. And there are other marginal producers, e.g. US small-scale drillers (e.g. producing less than 10 barrels/day) which may close down because production has stopped being profitable.

A price below $50/barrel means that offshore and shale oil will thus continue production in existing wells and even sink new wells. Specific economics will determine which wells will be sunk, and which will be deferred. As the price goes further below $50/barrel, fewer new wells will be started, and then not enough will go online to replace older wells that get depleted.

At the same time, oil continues to come from ‘traditional’ sources. Neither OPEC nor the other oil-producing countries are willing to reduce their production. Some are actually increasing production, e.g. Russia and Iraq; while some OPEC countries may also increase theirs e.g. Venezuela and Nigeria.

In the short term, the oil price will continue to drop because there is a lot more oil produced than is needed. The price will go even lower than $30/barrel. It will settle somewhere around $35/barrel.Below this point, it would not be profitable to open new shale oil wells.
In the next 3 to 5 years, the price will range between $30 and $40. After this, economic growth will push up the demand for oil to the point that the price will gradually rise again.

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Russia Sanctions Itself with Food Import Ban

Posted by butalidnl on 21 August 2014

The Russian government’s decision to ban food imports of the EU and US (plus those of Canada, Australia and Norway) is supposed to be a counter-sanction against the West for imposing sanctions on Russia’s weapons, high-tech and banking sectors; but it is really a sanction that Russia has imposed on itself.

Russia’s sanctions are measures that the EU was reluctant to impose, because they would directly hit Russian citizens. But Russia obliged by imposing them itself. The import ban will certainly hurt the Russian consumer, through higher prices and shortages. Higher-end consumer products (e.g. chocolates, French cheese etc) are among the products that are banned; but the big bulk of banned products are cheaper products that ordinary people eat (e.g. milk, fruits, vegetables, chicken, beef).

Food prices are sure to rise. There will be a shortage of products, at least in the short term. Arranging for alternative food sources will take time – it will take at least half a year before beef from Brazil would arrive in Moscow stores. Increasing local production would take years for some products. Fruit and vegetable production require a lot of labor, and there are not enough workers in the Russian countryside; to increase production, workers would need to be enticed to transfer to rural areas. Increasing production of fruits that come from trees e.g. apples, pears, etc will take years. Many Russian businesses will not invest in expanding the production of vegetables and fruits because the ban is formally only valid for one year.
Western products that manage to enter Russia thru Belarus, Turkey or China will cost more because of the longer supply chain.

The shortage of products will cause an increase in prices. In order to stem this rise in prices, the Russian govenment would need to subsidize food production and sales – either by giving direct subsidies to producers, or by buying up the food and selling to the people at a loss. In order to distribute limited stocks properly, the Russian government would need to institute a ration system of some sort.

The food shortages will also be a morale blow on the Russian public. In the beginning, the Russian consumer will accept the explanation that shortages are temporary, and that alternative sources will be found. But in a few months, it will be obvious that certain categories of food will remain in short supply for an extended period. And that price increases, food shortages and rationing will be permanent features of life.
At the same time, the Russians would know that people in other countries can buy these foods at much lower prices. The food ration system will remind them of the bad old days of the Soviet Union.  This will not be good for Putin’s popularity.

An irony of the import ban on Western foods is that Russia may need to increase its food imports from Ukraine. Ukraine was the food basket of the old Soviet Union, and it still supplies large amounts of food to Russia.

While Russia imports some 35% of its food needs, the EU exports only 1% of its total food production to Russia. The effect of the import ban on Russia will be a lot more than the effect on EU farmers. As Russians line up for their food rations,  Western consumers may notice a temporary reduction of the prices of certain food items.

 

 

 

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Let Russia Host FIFA World Cup 2018

Posted by butalidnl on 10 August 2014

FIFA has reiterated its decision to hold the 2018 World Cup in Russia, in the face of mounting calls to transfer it in the wake of Russia’s annexation of Crimea. This issue is complicated – Russia has indeed violated international law; but at the same time, sports events also have a tradition of not being swayed by political events.

The last time an international sports event suffered because of politics was in 1980, when many countries refused to go to Olympics scheduled to be held in Moscow because of the Soviet invasion of Afghanistan. The Soviets responded with a boycott of the 1984 Olympics held in Los Angeles, and held Friendship Games instead.

I believe that the FIFA is right – nations should stop wars for sports, rather than stop sports because of war. But there are also more practical considerations. First, Russia’s conflict in Ukraine (including its occupation of Crimea) may very well be over by 2018. The sanctions by the EU and other countries are bringing Russia into recession; and they will get even tougher if Russia does not change its behaviour. Russia may very well withdraw from occupied Ukraine before 2018.

Second, if Russia still holds Crimea by 2018, its economy would then be in tatters. The billions of dollars needed to build and renovate 12 stadiums and upgrade other supporting infrastructure will be a heavy burden for them to bear. These will have to be built with little foreign financial support. Hosting the World Cup will effectively be a punishment for them.

Hosting a World Cup will open Russia to large numbers of visitors from all over the world. These people will interact with Russians; giving them an insight into the outside world which cannot be controlled by the Russian media and state. Ideas that Russians get from such encounters could be truly subversive to Kremlin control.

The preparations for the World Cup are already quite advanced in Russia, and transferring the games will mean that FIFA will be slapped with a huge liability. But on the other hand, Russia is also committed to the plans for World Cup 2018 – it cannot deviate significantly from the plans. The list of 11 World Cup cities (12 stadiums; Moscow will have two) had been approved back in 2012. Russia has to make sure the stadiums are ready, even if it will have difficulty getting financing for them. It also cannot include other cities e.g. Sebastopol (in Crimea) into the list anymore.

So, let Russia host World Cup 2018. If it insists on remaining in Crimea by then, the World Cup will be a heavy burden amidst an economic crisis. If it withdraws from Crimea, it will get a lot of international support for its preparations, and its economy will boom. It is the choice that Russia needs to make.

 

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Of Potatoes and Toothpaste

Posted by butalidnl on 27 July 2014

The conflict in Ukraine today seems complicated, with Russia occupying Crimea and instigating rebellion in parts of Ukraine’s east. Actually, it is quite simple: Russia is wasting its efforts and resources in a futile war.  It is sure to lose in both Crimea and Ukraine’s east. Why am I saying so? Because while arms may be the  spectacular components of this struggle; the decisive, long-term, factor would be the availability of less obvious items like potatoes and toothpaste. Russia will fail because of its failure to provide adequate food and consumer goods; and not because of anything in their political and military strategy.

The Russian rebels concentrate mostly on the military and political aspects of their operation. But they fail miserably in terms of public administration and the economy. While they occupy areas of Donetsk and Luhansk provinces in Ukraine, economic activity there is crawling to a halt. The rebels operations are financed by Russian ‘help’ and by looting stores and banks. Agricultural production is slowing down; meaning that food shortages would start to be felt soon. The people will literally be running short of potatoes and toothpaste.

Even Crimea, which Russia has occupied, will have a similar problem at a later date. Crimea is a peninsula conencted by land to Ukraine, and separated by a narrow sea strait from Russia. The EU has prohibited the importation of goods from Crimea; and Ukraine has cut its trade with it. While Crimea produces enough wheat, it has to import its potatoes – this time from Turkey. And its supermarkets are running short of toiletries, including toothpaste and deodorant. Crimea’s link to Russia is not really suited to large-scale importations: shipments are mainly by ferry boat or air. And to add to Crimea’s problems: it is completely dependent on Ukraine for its gas, water and electricity.
Russia’s failure to annex southeast Ukraine has meant that Crimea will remain isolated, and that supplies of many consumer products will continue to be scarce and expensive.

ISIS faces a similar problem – it controls a wide area in Syria and Iraq that is landlocked. Its neighbours are not trading with it. Money is not really that useful if others do not want to sell you anything. This ‘Islamic State’ is destined to dry up and fade away with time. (But ISIS could survive as a terrorist guerilla organization for some time, though.)

Unfortunately for Gaza, Israel is adequately supplied with enough potatoes and toothpaste. Gaza, on the other hand, is completely blockaded and depends on Israel for many basic commodities. Thus, Israel can do very much what it wants to do to Gaza. The future of Gaza is bleak.

Afghanistan (which is also landlocked) under the Taliban lasted for decades, one would say. True, but the Afghan economy was never really cut off. Trade went on with its neighbours: Pakistan, Iran, Uzbekistan and Tadzhikistan during the whole time that the Taliban was in charge of Aghanistan. When Pakistan joined the US fight against the Taliban, it meant that the end was near, since Pakistan was its main trading partner. The arrival of the US military simply hastened the fall of the Taliban.

Politics is not as complicated or unpredictable as it seems. A simple analysis of the economy would predict the outcome most of the time.

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