Bill Emmott - International Author & Adviser

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Russia has become Saudi Arabia with nukes
The Times - December 6th 2010

They may not know it, but FIFA’s executive committee have just made a forecast about the oil price over the next seven years and, perhaps related to that, about the continued strength of Russia’s billionaire “oligarchs”. In doing so, they may well have judged Russia more shrewdly and pertinently than the source in a Wikileaked American diplomatic report that described the country as “Putin’s mafia state”.

 

The mafia line—attributed by American diplomats to a Spanish prosecutor—may  or may not be true, but it anyway tells us less about the future of Europe’s giant, often troublesome eastern neighbour as does the price of oil. The other Wikileaks rumour, that a Switzerland-based oil trading company, Gunvor, has close links to Vladimir Putin and is one source of his personal wealth, is nearer the mark—which may be why it prompted Mr Putin to give an interview to CNN’s Larry King last week to clear the air.

 

In the 1980s and 1990s, a common put-down about the Soviet Union and then Russia, which originated with the German chancellor, Helmut Schmidt, was that it was merely “Upper Volta with missiles”, or in other words a fragile state that happened to have nuclear weapons. Those decades brought the end of the Cold War but also, not coincidentally, declining prices for oil, gas and other natural resources, which were and still are the foundations of Russia’s economy.

 

That decline culminated in an event that seems to have been forgotten amid the current feverish urge to bury the euro and predict sovereign-debt defaults by southern European governments and Ireland, namely the fact that the only recent debt default by a country on the European continent was that by Russia in 1998. A $10-per-barrel oil price, combined with the desertion of emerging-market assets by investors spooked by the financial crisis in East Asia, led to the Russian collapse. Boris Yeltsin presided over this humiliation, which paved the way for an ex-KGB officer called Vladimir Putin to come to the Kremlin as president, seemingly from nowhere.

 

FIFA’s bet is, essentially, that on and especially before the 20th anniversary of Russia’s debt default, the price of crude oil will be closer to $100 than $10—or, ideally, considerably higher than $100. Given that the price now is nearly $90, just after the worst western recession since 1945, it is not an unreasonable bet. But a bet it is.

 

It also, strangely enough, given the amount of carbon emissions that will be produced by the construction of all those new soccer stadiums in Russia and, in 2018, by the flying around of fans and teams, makes FIFA arguably more optimistic about both the global climate and the world economy than many of the sad-sounding delegates at the UN’s climate summit now underway in Cancun. For a high oil price is currently the only thing that looks likely to force industry and consumers to wean themselves off fossil fuels. And for the price to stay high or to keep on climbing requires China to keep on booming and the western world to avoid a further severe recession.

 

So all those English moaners about FIFA’s decision should cheer up. The vote last Wednesday was really a vote of confidence in the recovering world economy, and a public-spirited attempt to be optimistic about solving climate change. Why, they even backed oil and gas to rise further, by choosing Qatar to host in 2022. This is a joke, of course, whether or not you find it funny. But it is the truth behind FIFA’s choice, a choice which this non-fan would say is precisely in line with English soccer traditions, at least the traditions of the past couple of decades.

 

Those traditions are, as Watergate’s Deep Throat said in pre-Wikileaks days, to “follow the money”. An English league that has welcomed Roman Abramovich to finance Chelsea and Sheikh Mansour bin Zayed of Abu Dhabi to do the same at Manchester City can hardly dissent from FIFA’s instincts. Prince Andrew has, presumably, already phoned his nephew to remind him that this is the way the business world works, whatever those meddling journalists might say. Russia may not have the stadiums or airports yet, but with Mr Abramovich already bankrolling the country’s national team, with oil at $90 and with the country’s business and politics dominated by the collection of other billionaires known as “the oligarchs”, building them is surely a mere detail.

 

No, it is the Russian people who should be moaning, not the English fans and the Football Association. Supposedly, FIFA is bringing the World Cup to them precisely because soccer is not very popular there. The word needs to be spread, rather as if FIFA were the Vatican (and their business methods do resemble one another). What this means, though, is that ordinary Russians, indifferent to football, are being made to carry the risk of this venture. If the oil price falls and the oligarchs become unwilling to stump up, it will be the poor Russian taxpayer who will have to do so.

 

Mr Putin said last week that the World Cup will enable the rest of the world to see Russia as it really is. He is correct. Russia is no longer “Upper Volta with missiles”. It is Saudi Arabia with nukes, an oil-dependent country in which power and wealth are concentrated in a small ruling elite, except that in Russia’s case it is at least not hereditary. Given the size of its population, a better comparison would admittedly be Egypt, a dictatorship with rigged elections and a muzzled media, if only Egypt had large oil reserves.

 

The crucial failure of Russia in the 1990s was not the debt default, as such. It was that the economy did not succeed in diversifying in those cheap-oil years, away from the dependence on natural resources, and nor did it develop either a democracy or a broad-based capitalism. President Yeltsin chose to aid and abet the oligarchs in their efforts to dominate the resources industries, so that the Kremlin would only have to negotiate with, or control, a small capitalist elite.

 

A dozen years later, the Russian state budget requires the oil price to stay in the range of $70-100 if it is to stay solvent. During 2008-09, when oil slumped to $35, the country’s banking system tottered, the state fell deeply back into debt, and Russia was briefly a prime candidate for social and political instability. Two years later, things do look quite different, with Mr Putin again strutting the world stage with oil-fueled confidence. For FIFA’s sake, that had better still be true as 2018 nears.

 


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