Russia was on the mind of the moderator during the panel discussion that closed the recent International Conference of Prices and Markets in Toronto. He’d made a few bucks playing the RSX and likes investments everyone hates. He mentioned that the likes of Jim Grant and Jim Rogers are bulls on the shares of ultra-cheap and despised Russian oil companies. Rogers goes as far as saying, “To my astonishment, the Russians are being more capitalist than the Western capitalists.”
But the audience of academics and students wasn’t too excited about a discussion about the investment and economic prospects of America’s Cold War adversary. As a panelist, I got the feeling that the crowd believed Russia to be as irrelevant as President Obama did during the 2012 election. “And the 1980s are now calling to ask for their foreign policy back because, you know, the Cold War’s been over for 20 years,” the president told Mitt Romney during a debate.
Having written on the subject in these pages, I had a few things to say. But I really wish I had read Marin Katusa’s The Colder War before the conference. While the Western world remains blissfully ignorant, Vladimir Putin is positioning Russia to control the world’s energy supply. Katusa’s book brims with facts and figures but flows beautifully, making it hard to put down. For those who thought the Cold War was long since over, his evidence and conclusions may keep you up at night.
Putin is a robust 62 and isn’t going anywhere. In an interview earlier this week, he said he might run again in 2018. As Katusa reminds us, Putin has been on the scene for 15 years already. The ex-KGB man takes the long view—unlike US politicians—and as for what Katusa calls the Colder War, “He’s in it to win it.”
The US-European economic sanctions imposed on Russian businessmen and officials are “a gross violation of human rights,” according to Putin, who maintains that no one will put his country behind an iron curtain. Putin is proving it by making deals around the world.
There’s been some bragging about Obama getting China to sign on to new limits on carbon emissions starting in 2025. “As China’s President Xi Jinping agreed to a date for peak CO2 emissions for the first time and also promised to raise the share of zero-carbon energy to 20 percent of the country’s total,” Reuters reports, “President Barack Obama said the United States would cut its own emissions by more than a quarter by 2025.”
While our president twists arms for countries to go green, Putin is making deals to earn Russia some green (or gold). It took him 11 years, Katusa explains, but the Russian president made a deal this year to sell natural gas to China for three decades. Gazprom, Russia’s kinda-sorta private gas producer, will supply China National Petroleum Corporation 1.3 trillion cubic feet of gas annually. The contract is worth $400 billion. President Obama’s deal offers his country nothing.
Russia has lots of gas—1.600 trillion cubic feet—but it’s looking for more. Putin has increased natural gas exploration and production in Nigeria, Egypt, Mozambique, and longtime ally Algeria. “Africa is the third-largest supplier of natural gas to the European Union, and by 2015 Moscow will control nearly half of Africa’s production,” Katusa writes.
Natural gas goes a long way toward cutting carbon emissions, but nuclear power goes even further. However, after the Fukushima disaster, the price of uranium yellowcake plunged. Germany said it would shutter its reactors. But nuclear isn’t going away—rather, a shortage is coming—and guess who will control most of the world’s uranium and enrichment capacity?
Russia is on track to have nearly 60% of the world’s uranium production and will soon own half of all enrichment capacity. It already controls a third of yellowcake-to-uranium-hexafluoride conversion. Katusa calls this a “stranglehold,” while making a cogent case that the days of operating on surplus uranium (the blending down of cold war warheads to reactor-ready material) are coming to a close.
Of course the oil market has been “Putinized” as well. Rosneft, described as “Putin’s pet,” is a massive oil producer that partners with western oil giants like ExxonMobil and BP.
But energy isn’t the only resource Russia has in abundance.
A week or so ago, Russia’s central bank Governor Elvira Nabiullina told the Russian lower house of parliament that the central bank had purchased 150 metric tons of gold this year, nearly double the 77 tons purchased in 2013.
Now maybe, as Reuters reports, the purchase is simply that “Russia’s central bank has been forced to step up its gold buying this year to absorb domestic production that Western sanctions are making it hard for miners to sell abroad, and to boost liquidity in its foreign reserves.” We can only wish that Janet Yellen or any of her recent predecessors had purchased US gold production instead of continually growing its balance sheet digitally.
So Putin—with his gold and energy—is now talking back to Uncle Sam. In a speech before the Valdai International Discussion Group last month, he talked about agreements made after WWII and the need for international relations:
But the United States, having declared itself the winner of the Cold War, saw no need for this. Instead of establishing a new balance of power, essential for maintaining order and stability, they took steps that threw the system into sharp and deep imbalance. ….
Pardon the analogy, but this is the way nouveaux riches behave when they suddenly end up with a great fortune, in this case, in the shape of world leadership and domination. Instead of managing their wealth wisely, for their own benefit too of course, I think they have committed many follies.
Putin asserts that America is squandering its riches, imposing itself on the rest of the world and making up rules as it goes along, while casting itself as all that’s good with the help of a global media empire.
“International law has been forced to retreat over and over by the onslaught of legal nihilism,” the Russian president told the crowd. “Objectivity and justice have been sacrificed on the altar of political expediency. Arbitrary interpretations and biased assessments have replaced legal norms. At the same time, total control of the global mass media has made it possible when desired to portray white as black and black as white.”
Putin doesn’t let up or pull any punches.
The Cold War ended, but it didn’t end with the signing of a peace treaty with clear and transparent agreements on respecting existing rules or creating new rules and standards. This created the impression that the so-called victors in the Cold War had decided to pressure events and reshape the world to suit their own needs and interests. If the existing system of international relations, international law, and checks and balances in place got in the way of these aims, this system was declared worthless, outdated, and in need of immediate demolition.
While the Russian president calls Washington DC out, the love affair with the dollar continues unabated, while the Russian ruble is friendless. But America is a debt-addled energy addict unable to sustain its habits in the long run. Putin knows that winters get mighty cold, and he’s ready to make them very expensive. The Colder War is about to get really hot.