Wednesday, December 3, 2014

Russia's Blunder in the Ukraine

From a strategic level, however, this war has got to be viewed as a complete disaster for Russia. Whatever the short term gains of pushing around Ukraine may be, in the long term they have created a hardened enemy that will never forget these humiliations and are now implacably an enemy right on Russia’s border. Instead of Ukraine being a “buffer” state for Russia against NATO, the Ukraine is a “buffer” state for NATO against Russia. Ukraine could potentially have been an ally; they had a large Russian speaking contingent and if handled deftly and prodded with economic / natural gas aid, things could have turned out differently. 
The analogy is like the USA fighting Canada or the USA fighting Mexico from a Russian perspective. Russian military equipment, ordinance, money and lives are being expended and they are turning what could have been an ally into ruins. ... 
On to oil; tied with these events are sanctions against Russia and the precipitous fall in the price of oil. Russia’s economy is built on oil and selling natural gas to Western Europe (and now China) – a falling oil price sends their entire economy into turmoil. The ruble is also tied to the price of oil; due to sanctions and the distress of the Russian economy the ruble has also fallen significantly and is one of the worst performing currencies. Paradoxically this partially buttresses the economy because oil is denominated in the hated US dollar, so although the price of oil has fallen a lot it “buys more” when translated into rubles. With this level of oil price and sanctions, the Russian economy will face severe problems and many indebted Russian companies are going to have trouble refinancing their debt and purchasing foreign goods and expertise which is needed to keep the economy running in many areas with the weak ruble and lack of confidence overall. 
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Much of this plays into the hands of the Chinese, who now can scoop up Russian energy cheaply. They can also invest in Russia and work to utilize their fallow lands and extract their commodities when the Western majors leave. However, the Russians know that their actual long term enemy is to the south, as the Chinese covet all the land, water and resources to feed their billions and their highly effective industry could put all of these resources to good use. The Russians have to know that they can’t win long term against the Chinese if they are stuck in a long term land war with NATO and the Ukraine; their forces are spread much too thin. Every day the Chinese grow stronger and every day the Russians grow weaker; while the Russians focus on punishing their erstwhile allies in the Ukraine (similar language, etc…) a country with which they have no affinity except for a now quaint “pretending” that they are both communist founded countries is growling at their border and coveting the resources that provide their long term ability to survive as an independent dictatorship.

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