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Wednesday, June 13, 2007

Russia: Slave of Oil & the KGB

Writing in the Daily Mail, Lord William Rees-Mogg, a former editor of the Khaleej Times, declares that "Russia is still the slave of oil and the KGB."

Oil is the core of the world economy; it is certainly the core of Russia’s economy. Last Friday, Egor Gaidar, the economist who was acting prime minister of Russia in 1992, was arguing in an interview on the Russia Today channel that the unexpected collapse of the oil price in 1985 was the mechanism that led to the break-up of the Soviet Union and the Warsaw Pact. Oil dictates Russian politics.

The last Russian leader who was prepared to take big risks to try to save the Soviet Union was Yuri Andropov, the cultured and utterly horrible man who was head of the KGB for 16 years and became general secretary of the Communist Party of the Soviet Union and leader of the USSR for a brief period after the death of Leonid Brezhnev.

Andropov was totally ruthless. In 1956, he played his part in repressing the Hungarian revolt. He was probably responsible for authorising the attempted assassination of Pope John Paul II. His purpose was to remove the pope’s support for Polish independence.

Andropov had blood on his hands in the service of Soviet communism. Mr Gaidar told his interviewer that he had seen a letter from Andropov to Brezhnev, in which Andropov wrote that it was necessary ‘to co-ordinate efforts with world terrorists to keep oil prices high’. He seemed to think Andropov’s analysis had been correct, in that the Soviet Union of the late Seventies would not have been able to survive a big fall in the oil price.

Indeed, Mr Gaidar thinks such a fall would be difficult for Russia today. He ranks the instability of the oil market as the biggest threat to the Russian economy, and the medium-term instability of the Russian pension system as the second most important threat.

Historically, the world oil price has always been volatile, though there have been some periods of relative stability. The demographics of Russia suggest the current rates of pensions might, on present policies, have to be cut by as much as a half over ten to 15 years. A combination of the two factors would threaten social order. The oil price and, therefore, the Russian economy are doing well: Europe is heavily dependent on Russian supplies of gas; the world depends on Russian oil.

Yet even if oil prices remain high, the demographic problem will remain. There is a contradiction between the apparent strength of Russia’s economy and these underlying weaknesses. Russia has only recently emerged from the immediate trauma of the break-up of the Russian empire 15 years ago. If one looks at the state of Britain 15 years after Indian independence, one can see a profound collapse in national confidence. That was the period of the Profumo scandal, when it seemed that no public figure could keep his trousers buttoned.

It was also the time when Britain first applied to join the European Union (then the European Economic Community), on the principle that we could not manage our own business and should let Europe do it for us. In the British case, our post-imperial morale recovered only in the Eighties, nearly 40 years after the original shock. Like Britain, Russia must be expected to have a long period of recovery. It is normal that the Russians should now be reasserting their status. The position is an unusual one. Russia is probably the second most important defence power on Earth, though China has greater conventional resources, with some seven times the Russian population.

Yet Russian and China combined could not match the technological lead of American defence. Russia is important in geography, and in resources of raw materials and oil.

Russia is in the first rank as a producer of industrial commodities and energy, with vast resources still to exploit. Yet at the same time Russia, though with some first-class scientists, is inadequate in terms of industrial productivity. As well as the West, Russia is threatened by terrorism.

The politicians of any nation can only play the role that their national economy allows. Russia’s economy is unbalanced, and Russia’s leaders tend to alternate between overbidding and under-bidding their hands. President Vladimir Putin is concerned to regain international respect; he prepared for the G-8 conference in Germany in an aggressive way, but his demand for status is a sign of national insecurity. We need not fear that.

Last February President Putin made a speech in Munich in which he said America was ‘overstepping its boundaries in every way’. Last week, he told journalists Russia ‘wanted to be heard’. The Russians do fear the American proposals to site missile defences in Poland and Romania, just as the Americans would be anxious if Russia mounted similar defences in Mexico or Cuba. Missiles and counter-missile defences are sensitive subjects.

There are also domestic political considerations in Russia and America. It was an oddity of this G-8 conference that there was one new boy among the heads of government, Nicolas Sarkozy, but three lame ducks.

Under the American constitution, George W Bush has to retire in January 2009; under the Russian constitution Vladimir Putin has to retire next year, with an election in March. Tony Blair will be gone by the end of this month.

It takes a party machine to win a modern General Election. In Britain, the machines belong to the parties. In America, they seem increasingly to belong to the dynasties; it is entirely possible that there will be another Clinton, Hillary, to follow the last five terms when the presidency has run Bush, Clinton, Clinton, Bush, Bush. One cannot even exclude two terms for Hillary, or, more remotely, Jeb Bush running when Hillary retires. After Jeb, it would presumably be time for Chelsea.

In Russia, the Putin machine is likely to win the 2008 presidential election. That will be based on oil revenues, Russian nationalism and the network of the KGB, to which Vladimir Putin belonged. The most likely candidate of that machine is said to be Sergei Ivanov, a retired KGB general and the current First deputy prime minister. Obviously, the British regard the KGB with suspicion, and the Putin presidency as authoritarian.

The tradition of the KGB, however sinister, has also been one of the realistic pursuit of Russian national interest. Even Andropov, who was a wicked man, was far from stupid. The former KGB men know the Soviet Union cannot be brought back to life; they may, however, do fatal damage to the development of Russian democracy. They are not the friends of freedom.

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