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Why the Russian Bear is Less Ominous Than Some Claim

October 21, 2014

To say people are concerned about Russia would be an understatement at this point. Putin’s moves in the Ukraine make it apparent that he is attempting (with some success) to redraw the map of Eastern Europe. Fears that he will move on to other nations have been a common theme in many opinion articles.

But hold on. There are some facts that need to be noted.

The first is a simple number:

$2,096,777

This number is the World Bank’s estimated Russian 2013 GDP in millions of dollars.

To put that in perspective, the United States GDP is $16,800,000, China’s is $9,240,270, and the United Kingdom’s is $2,521,387.

But Russia’s economic situation is actually more depressing than the mere numbers reveal. Russia’s economy is hugely dependent on the continued export of oil and gas, as well as the opening of new sources of fossil fuels. According to Leon Aron in an article for the American Enterprise Institute, in 2013:

From less than 50 percent in the mid-1990s,[14] the share of commodities in Russian exports has grown to 70 percent today, with oil accounting for more than half of the export income.[15] Representing up to 30 percent of the country’s GDP and half of its GDP growth since 2000,[16] hydrocarbons provided at least half of the state’s budget revenues last year.[17] Five years ago, Russia needed oil prices of $50 to $55 a barrel to balance its budget, but Alexei Kudrin, former first deputy prime minister and finance minister, estimated the breakeven price at $117 per barrel last year.[18]

With falling oil prices and the loss of western partners, Russia’s chances of meeting those goals are less likely than ever.

But without that funding, Russia cannot even maintain its economy on an even keel, let alone pay for the impressive military modernization program desired by President Putin. Finance Minister Anton Siluanov has stated that Russia cannot afford to maintain its current military spending levels.

And this is what makes this situation ultimately less serious to the rest of Europe than it currently appears. Claims that Russia will move on to the other Eastern Europe nations miss the severe and escalating economic price Russia is already paying. Even a modest increase in European defense budgets would exceed any possible Russian counter, not even counting the American military. More importantly, as economic pain in Russia continues to deepen, the bargain struck with the Russian people through the early 2000s when commodity prices helped to boost Russian’s standard of living may start to come unraveled.

Ultimately, this crisis is likely to leave Russia with Crimea and part of Eastern Ukraine— but also saddled with a declining economic future. Indeed, Putin’s successors are likely to find their careers filled with the  work it will take to recover from Putin’s “success”.

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