In Feb 2011, I wrote a tongue and cheek blog posting called Forty One (41) early warning signals of the collapse and decay of the Russian Federation (Putinism) and Ukraine (Yanukowych Regime)
http://bit.ly/fsflvg. It caused quite a stir and coincidently it was translated by the Russian opposition (B. Nemtsov) into Russian and reposted to dozens of Russian blog sites. The KGB was even on my back by writing nasty Soviet style yellow journalism smear postings against me , so I guess the article hit a nerve in the Kremlin. The KGB was logging into my blog site daily for about 6 months after that.
Well, the Yanukowych regime did collapse, the PUTIN is still (barely) hanging on.
So I think it's time to update my Early Warning Signals blog post with new data points.—Walter Derzko
Here is my fourth cut. Thank you to everyone who has suggested new data points that I missed.
There are likely many more early warning signals, but who knows which ones will trigger the collapse of Putin or the RF? Maybe an oligarch/elite/ inner circle revolt or palace coup? Or a sovereign debt default? Watch for an August 2015 Surprise !!!!
124 Early Warning Signals that point to the Isolation, Decay and Collapse of the Russian Federation just like we saw before the collapse of the USSR by Walter Derzko
-Life Expectancy: The overall life expectancy at birth in Russia was slightly lower in 2009 (the latest year for which figures are available) than in 1961, almost half a century earlier. [1]
-Life Expectancy: The life expectancy at age 15 for all Russian adults was more than two years below its level in 1959; [1]
-Life Expectancy: According to the U.N.’s World Health Organization, the life expectancy for a 15-year-old boy in Haiti is three years higher than for a Russian boy the same age. [2]
-Life Expectancy: The life expectancy for young men sank by almost four years over those two generations. [1]
-Life Expectancy: The country’s death rate far exceeded its birth rate: in 2000, life expectancy for men was only 58, and for women 71. [2]
-Life Expectancy: Despite a recent slight uptick in births versus deaths, life expectancy now stands at 64 for males and 76 for women (137th and 100th in the world, respectively, hardly fitting for a supper power)[2]
-Mortality: The country has high mortality rates due to elevated rates of smoking, alcohol consumption, drug use, chronic human disease, violence, poor diets and obesity. Investment on healthcare is low. [6]
-Mortality: According to Russian health experts, 40 percent or more of the infant deaths in Russia are caused by social factors like alcoholism and drug use by parents or their failure to take their children to doctors or hospitals or to get required vaccinations. [26]
-Mortality: Death rates from cardiovascular disease are more than three times as high in Russia as in western Europe [1]
-Mortality: Russian death rates from injury and violence have soared, on par with those in African post-conflict societies, such as Liberia and Sierra Leone. [1]
-Mortality: Put another way, post-Soviet Russia has suffered a cumulative "excess mortality" of more than seven million deaths, meaning that if the country could have simply held on to its Gorbachev-era survival rates over the last two decades, seven million deaths could have been averted. This figure is more than three times the death toll World War I inflicted on imperial Russia. [1]
-Mortality: The mortality among working-age Russians is rising. In 2014, for example, mortality rates among Russians aged 30 to 45 went up by 1.2 percent. [26]
-Mortality: Two out of three Russian men who died, died drunk [2]
-Mortality: Twenty-five percent of Russian men still die before the age of 55, many from alcoholism and the violent deaths, plus other diseases it fosters. [2]
-Population Decline: Since 1992, according to official Russian figures, Russia's population has fallen nearly every year (1993 and 2010 are the exceptions, with the latter experiencing an increase of just 10,000 people). According to these figures, between 1993 and 2010, Russia's population shrank from 148.6 million to 141.9 million people, a drop of nearly five percent. [1]
-Depopulation: Predictions are that Russia, with a population of 146 million, could become a nation of fewer than 100 million people by 2025, and hardly a superpower [2]
-Depopulation: Russia is aging and the birth rate is plummeting. Putin himself in his first State of the Nation address in July 2000 warned the Russian people, “We are in danger of becoming a senile nation.” [2]
-Fertility: Fertility rates plummeted to 1.2 births per women in the late 1990s and now stand at 1.7 births per women. That rate is still about 20 percent below 2.1 births per woman, the level necessary to ensure population replacement. [6]
-Fertility: A drop in fertility by 50 percent between 1987 and 1999 has resulted in a reduced number of women now at childbearing age, which is beginning to affect the country in a major way: Two thirds of all births in Russia take place among women between the ages of 20 and 29, and this population will decline from 13 million currently to 7 or 8 million in the coming years. Consequently, even if each women were to have more children, the total number of births would fall. [6] and [26]
-Fertility: Another factor mitigating against higher fertility is Russia’s high divorce rate. In 2012, for every two marriages, there was one divorce.[6]
-Fertility: Russia’s abortion rate, estimated at two abortions for every birth, has traditionally been the highest in the world. [6]
-Fertility: The protection of children and traditional family values was also the stated purpose for the enactment of a lesbian, gay, bisexual and transgender propaganda law to prevent distribution of "non-traditional sexual relationships" ideas among minors. [6]
-Fertility: The government is also considering reinstatement of a tax on childlessness, estimated at 10 percent of women in their late 40s. [6]
-Working Age Population/ Labour Force: Russia’s working-age population is declining by a million people a year, a faster rate than the decline of the overall population, which in 2013 stood at around 143 million, 3 million less than when Putin took office [2]
-Working Age Population/Labour Force: Over the next decade, Russia's labor force is expected to shrink by about 15 percent.
-Working Age Population/ Labour Force: Russia is facing difficulties filling critical jobs with largely unskilled non-Russian migrants, many working illegally in the country. [6]
-Working Age Population/Labour Force: Other countries with low fertility rates turn to immigration to pick up the slack. While immigrants make up about 8 percent of Russia’s population, the nation has a reputation for nationalism and xenophobia, and fertility rates are even lower in neighboring Belarus, Ukraine and Lithuania, all possible sources of immigration. [6]
-Working Age Population/ Labour Force: the average age of a worker in the defence industry in close to retirement age and the army is forced to provide untrained conscripts to work in defence factories, resulting in quality problems and defects, exploding rockets and planes /jets falling from the sky. [7]
-Unproductive workforce: Russians aren’t nearly as productive as they could be. For each hour worked, the average Russian worker contributes $25.90 to Russia’s GDP. The average Greek worker adds $36.20 per hour of work. And Greece is not a country you want to trail in productivity. The average for U.S. workers? $67.40.
-Migration: It’s no surprise then that well-educated Russians are leaving their country in droves. Between 2012 and 2013, more than 300,000 people left Russia in search of greener economic pastures, and experts believe that number has only risen since Moscow’s annexation of Crimea last year.(Bloomberg, OECD, PBS, Telegraph, Wall Street Journal, Freedom House, Washington Post) [21]
-Aging Population: Russia’s aging population has placed strains on the economy that will impact numerous sectors including agriculture, manufacturing, the armed forces and retirement schemes. In the next decade, Russia's labor force is expected to shrink by more than 12 million, or around 15 percent. [6]
-Aging Population: The contraction of Russia’s labor force is exacerbated by low retirement ages: 60 for men and 55 for women. In certain situations, for example, hazardous occupations or unemployment, retirement ages are lower. Nevertheless, Russia’s older population does not fare well. According to a 2014 global survey of the social and economic well-being of older people, Russia ranked 65 among 96 countries.]6]
-Health: Only 30 percent of Russian babies born are born healthy [2]
-Health: Many unhealthy Russian babies are “discarded” or sent to government institutions where they often develop cognitive difficulties. Unhealthy children grow up to be unhealthy adults: half of the conscripted Russian army has to be put in limited service because of poor health. [2]
-Health: The syphilis rate among girls 10 to 14—a statistical category that boggles the mind—had gone up 40 times the previous decade. [2]
-Health: One study showed that , 64% of the pregnant women infected with syphilis delivered an infant with presumptive or confirmed congenital syphilis [3]
-Health: Only 30 percent of boys between the ages of 15 and 17 were considered healthy [2]
-Health: Chronic teen alcoholism; 77 percent of teens between the ages of 15 and 17 drink vodka regularly; in rural areas, the percentage can be as high as 90. [2]
-Health: Chronic heroin epidemic; Cheap heroin from Afghanistan is rolling in. Russia has more heroin addicts than any other country [2]
-Health: An H.I.V. epidemic spread by dirty needles was taking hold. Between 2000 and 2012 the number of new cases of H.I.V. increased six fold. About 700,000 Russians were estimated to be living with HIV/AIDS in 2013, a 5 percent increase over the previous year. [2] and [6]
-Health: Chronic TB epidemic. Many of those infected with H.I.V. also suffer from tuberculosis. Russia is second only to India (with 1.3 billion people) in the number of cases of M.D.R. (multidrug-resistant) tuberculosis [2]
-Health: When it comes to the environment, 50 percent of Russia’s water is not potable.
-Health: Air pollution continues to be an extremely serious issue, suggesting that a solution proposed during the late-Soviet period continues to hold sway. Back then, a Russian health minister advised the country to “breathe less” in order to live longer.
-Health: Russia won the most medals—33—in the recent Sochi Winter Olympics, but many of these athletes are now being accused of doping over the last decade.
-Corruption: Ubiquitous unabated Institutionalized corruption and widespread bribe taking, kickbacks, covered up by double entry book keeping systems. A corruption perception index by Transparency International ranked Russia 136th last year, just behind Nigeria. [11]
-Corruption: Average Bribe in Russia Doubles in Rubles, Remains Steady in Dollars. The amount of the average bribe in Russia has nearly doubled this year, reaching 208,000 rubles ($3,485 at today's rate), as the country's currency has shed value amid Western sanctions and an economic downturn, according to Interior Ministry estimates cited by pro-government Izvestia daily on Friday. This compares to about 109,000 rubles Russians are believed to have been paying or receiving as an average bribe in 2014, though police concede that their estimates may not be completely accurate, the report said.The increase in bribe amounts is substantially less significant in their dollar equivalent, because the Russian ruble traded at around 35 to the dollar at the start of 2014, but has slumped to around 60 to the dollar as of this week. [28]
-Corruption: Theft of state property and funds via selective privatization (to your inner circle of friends) and crony capitalism. [11]
-Corruption: Unrestrained money laundering: Russian Bank official charged over laundering of 17m dollars a day; Interfax news agency, Moscow, in Russian 14 Mar 2011
-Corruption: Off shoring of assets and oligarch profits; Cyprus, Switzerland, Belize, Virgin Islands, UK and possibly the Vatican Bank ? [7]
-Corruption: Growing nepotism: German Daily Reports on Nepotism at Russia's Gazprom Frankfurt/Main Frankfurter Rundschau (Russia)
-Corruption: Reverse Money Laundering: In Russia, corruption has gotten so bad that the logic of money laundering has turned upside down. Many companies face the opposite problem: In order to get things done, they need to take clean money and make it dirty. Russia has a service known as "obnal," or dark money: the process by which legitimate companies take legitimate profits and launder them into off-the-books slush funds to be used for bribes and tax evasion. Obnal has become a billion-dollar business in Russia [4]
-Culture of Kleptocracy: Russia’s appalling business reputation acts both as a brake on foreign investment and a stimulus to capital flight. [7]
-Lawlessness: police focus on extremists and political opposition instead of bandits who run free.[7]
-Illegal Use of Administrative resources: Cyber attack, info wars, online provocateurs to protect the status quo, false flag terrorist operations for excuse to declare martial law.
-Illegal Use of Administrative resource: RF false flag operations - “LNR” factory sews fake Ukrainian military uniforms [17]
-Overregulation: Russia’s centralized economy requires that citizens get a “document” or a spravka from government workers , who demand bribes for timely executions
-Weakened military/ security control at the periphery of the empire. Already facing food shortages and other issues with the countersanctions, Stratfor believes Moscow is “stepping up its security apparatuses within the regions, stepping up its control within the governors and within the mayors.” Stratfor believes Putin is trying to prove that he can “isolate Russia from the West, from Western foods, and keep Russia Russian.” But using the people to demonstrate his power and sustainability, is risking the social contract Putin made with the Russian: “You will always receive your paychecks; I will keep the economy growing; I will quadruple–pretty much-standard of living; you will have Western-style foods and goods inside of Russia.” Putin’s popularity was sky-high for the last 15 years, because he delivered on his promise to the Russian people of strong leadership. But now Putin must chose to battle the West or give in to the needs of the people. [15]
-Conflicts on the periphery: Extremist calls increasingly common in blogs, social networks - Russian police; RIA Novosti > Feb 1, 2011
-Conflicts on the periphery: Russian paper fears conscripting postgraduate students could trigger Russian brain drain Vedomosti website, Moscow, in Russian 12 May 2011
-Conflicts on the periphery: Russia is in civilizational decline, new nations emerge-Siberians see themselves as separate nation from Russia http://bit.ly/lSzxZm
-Conflicts on the periphery: 16 Russian Hot spots/ tension zones or fronts against PUTIN. Putin may someday have to fragment his army (which is understaffed, undertrained and is facing increasing desertions) to all regions of the Russian Federation and beyond to quell growing tensions and hot spots that, if erupted simultaneously or with some help, could splinter his defenses and threaten the territorial integrity of the Russian Federation and lead to regime collapse. 16 fronts /hot spots against PUTIN: 1) Crimean Tartars and all Crimeans in general, 2) Eastern Ukraine, 3) Chechnya, 4) Chinese in Siberia, 5) Japanese territorial island disputes 6) Canada & US & Russia assert control in the Arctic 7) Cossacks Seek Greater Role in Southern Russia’s Economic and Political Life 8) Georgia 9) European front-The Dutch and MH17, Baltics and Poland 10) Karelia will seek to rejoin Finland 11) Moldova/Transdneistria 12) Ethnic tensions brewing with Circassian activists in Karachaevo-Cherkessia, North Caucasus 13) Russians in poverty --revolt/protest in Moscow 14) Russians in poverty-- revolt/protest in St Petersburg 15) Russians in poverty-- revolt/protest in the rural oblasts of the Russian Federation and 16) NATO and the US fleet re-enter the Black Sea --It's not a matter of if but only a matter of when and if it happens in a coordinated fashion. [7]
-Conflicts on the periphery: The Siberia/China flashpoint. In 2000, 28 million Russians lived in Siberia and the Far East. In 2010, only 25.4 million live there. On the other side of the border, Chinese growth and interest in Russian resources could make the Far East a flashpoint. A 2001 Treaty on Friendship and Good Neighborliness, codifying territorial compromises and designed to diminish American influence, formally "sunsets" in 2021—at which time, China may decide to claim some of Russia's resource-rich territories that may well be largely deserted. [18]
-Conflicts on the periphery: The Russian economy shrank by 4.6 percent in the quarter ending June 2015. Although the media has focused on the stability in Moscow and maybe St. Petersburg, the economic decline in Russian provinces has been much more serious. Debt in Russia’s 83 regions has risen by 100 to 150 percent since 2010. Russia’s economic minister suggested that possibly 60 of those 83 regions are in crisis mode, and 20 may have already been defaulting on their debt. President Vladimir Putin and the Kremlin have $541 billion in reserves, but intervention to bailout the regions would drain much of Russia’s wealth, which is spread throughout its currency reserves, the National Wealth Fund and the National Reserve Fund. Stratfor predicts that the Kremlin will allow the economies of many of the country’s Soviet-era mono-cities, which rely on a single industry, to continue to deteriorate. As a relic of the Soviet period, the mono-cities employ the bulk of their populations in a single industry such as manufacturing, metallurgy, timber or energy. These mono-cities generate about 30 percent of the country’s industrial production. With only a single skill, workers in mono-cities generally cannot migrate to find better jobs or salaries. [15]
-Conflicts on the periphery**: Revolts and protests. Stratfor expects that protests against the Kremlin will increase as more Russians fall under the poverty line, and regional and municipal debt grows. They expect the Kremlin to retaliate by cracking down on protest movements and opposition parties to block the formation of any broad and serious any serious challenge to their hold on power. They believe that Russia can hang on with its current strategy for the next couple of years, but Putin’s popularity will soon fade. Eventually, regions could revolt in a similar process that led to the dissolution of the Soviet Union in 1991, when 15 nations comprising a third of the population and a quarter of the Soviet Union declared independence. [15]
-China Pivot off: The launch of China’s "New Silk Road" last month, bypassing Russian territory, was a serious blow to the Russian economic interests. The first Nomadexpress container train has already traveled on route Shihezi (China) - Dostyk (Kazakhstan) - Aktau - Alat (Azerbaijan). From Azerbaijan, the express goes to Georgia, Turkey and the EU. Thus, a joint project of the Trans-Caspian international transport route and the New Silk Road became a reality. The main feature of the project is bypassing Russian territory. Another important caveat is the time. The route takes six days to cover, instead of 25-40 as before. Of course, China is challenging Russia as Eurasia’s largest Eurasian transit state. The New Silk Road has the potential to become more attractive than the obsolete Trans-Siberian Railway. Moreover, Kazakhstan's participation in the project almost completely eliminates the issue of its further foreign policy orientation – it has shifted from Moscow to Beijing. By the way, in this context, Ukraine also has a unique opportunity to expand its own transit opportunities thanks to Chinese shipments. [23]
-China Pivot Off: Gas cooperation between Russia and China is frozen. The gas contract between Russia’s Gazprom and China's CNPC on construction of a Power of Siberia pipeline, pompously presented earlier (signed in May 2014, its estimated total value was $400 billion), is frozen for an indefinite period. As it turned out, the idea of reorientation of Russian gas exports from Europe to Asia, with China being a priority, has failed. The main reason is the reduction of gas consumption in China caused by the slowdown in the country’s economic growth, the development of gas production within its own territory (By 2020, China will have produced nearly 30 bcm of shale gas alone), focus on gas imports from Turkmenistan (China currently imports 30 bcm of gas from Turkmenistan, with the possibility of expanding imports to 60-70 bcm by 2020), as well as a gradual decrease in share of oil and gas energy in the country’s total energy balance within the framework of the latest global trends. Besides, the Chinese side did not agree to the price offered by Gazprom, which attempted to propose an equivalent to the European price. China has almost always pushed for the suitable price, which is significantly lower than that for other purchasers of the Russian gas. It is equally important that Bejing has provided no options of the financial assistance whatsoever for the construction of new gas pipelines on Russian territory, to the Chinese borders. Such stalemate allows forgetting the prospects of gas cooperation between the two countries. Besides, it is better for China to wait a full collapse of Putin's regime, so that, as member of anti-Russian coalition club, it could bite a piece of the “Siberian pie”, on far more favorable conditions of access to the those very oil and gas fields. It seems like China has flagrantly given Putin a “black mark” on a gas issue.[23]
-China Pivot Off; Bank transactions sour. With regard to financial cooperation between the two countries, there is growing evidence of Chinese banks' reluctance to carry out interbank transactions with their Russian partners. Chinese banks have also considerably reduced participation in foreign trade transactions with Russia. Cases of recent expansion of payments in rubles and yuan in certain Chinese border provinces can be explained by China’s will to extend the operating field for yuan, as Bejing has witnessed sharp reduction in the inflow of foreign currency to Russia, especially of the US dollar and euro. So, Putin should not expect any financial aid from China. There are currently no other donors due to severe Western sanctions, and they are not expected to emerge any time soon. [23]
-Chinese Land and Resource Grab: Land is yet another demonstrative issue in Russian-Chinese relations. More precisely, it is about Bejing’s rapidly growing appetite for the development of Russian territories. For example, a huge stir in Russia was caused by the plans of Trans-Baikal regional authorities to lease nearly 300,000 hectares of land to the Chinese company Huae Xinban for a 49-year term for less than $5 per hectare. Although this issue has not yet been fully resolved, the locals have already organized a protest movement. Most probably, the opinion of local activists will not be taken into account, and China will get the desired land by either paying more for the rent, or simply by financially stimulating Russian officials. No wonder the Russian Prime Minister Dmitry Medvedev offers Russian youth to study Chinese, not just English.
-Chinese Land and Resource Grab: Another fact confirming the intention of China to get hold of as much Russian resources and territories as it possibly can until the final collapse of the present Russian Federation is the country’s broad interests in Russia’s Magadan region, the top region in silver mining and the fourth in gold extraction. Chinese Southwest mining company has decided to invest RUR 400 million this year in the development of deposits of antimony and silver. The company's plans cover the construction of roads in the region, mineral exploration, and mining of silver and other precious metals in the already known deposits. Earlier, the Kremlin did not allow China getting close to Russia’s main fields of natural resources across Siberia and the Far East. [23]
-Capital Outflow: The net outflow of capital from Russia reached $32.6 billion during the first quarter of 2015, according to the Central Bank. The bank is now forecasting that capital flight may reach $131 billion by the end of 2015. In reporting first quarter numbers, the Central Bank also upwardly revised the 2014 figure for net capital outflow to $154.1 billion from the previously reported $151.5 billion. That figure marks the highest annual total of capital flight since the Central Bank started tracking the trend back in 1994. [5]
-Evaporating Foreign Direct Investments (FDI) Foreign investment is now below zero Foreign direct investment stopped coming to Russia at the beginning of 2014 according to Central Bank data . "Currently, there are direct and indirect bans on investing in Russia and our western partners now have doubts about some of Russia's large-scale projects," [7] and [22]
-Growing prolonged recession: Russian won’t likely come out of the recession until 2017 if that. [7]
-Budget Deficit: Russia’s central government has cut its budget by 10 percent across the board in 2015, except for defense. As a result, social programs have been slashed, and even funding to host the World Cup 2018 has been severely restrained. [15]
-Plummeting Rouble: The Rouble has lost over 50% of its value against the $USD in 2015 [7]
-Plummeting Rouble: As Rouble Collapses, Russia’s Cossacks Issue Their Own Currency – with Putin’s Picture on It [12]
-War in Ukraine: Moscow has spent an estimated 53 billion rubles ($835 million) as of May 2015 to support and finance the separatist forces fighting in eastern Ukraine (UNIAN, May 12).
-War in Ukraine: Putin calculated that everyone would close their eyes to the annexation of Crimea. After an initial burst of euphoria, Crimea has turned out to be a burden rather than a victory; Ukrainians in the east have not supported Putin’s aggression, and “besides, the West is acting in a very monolithic and consolidated way by introducing serious sanctions which are constantly being intensified. At the same time, no one supports Russia,” not even its “closest and most dependent” neighbors. [25]
-War in Ukraine: Eastern Ukraine resembles Transdniestria but not really Abkhazia or South Osetia, Zubov suggests. Both places are ones in which “the soviet mentality dominates.” For Ukraine’s future, “it is very important that this mentality be overcome,” and that will require tact and care in dealing with the population of the east once Russian forces leave. Once Moscow pulls its forces out, Zubov argues, pro-Moscow groups “will not hold out two weeks. They understand that perfectly well, and therefore as soon as Russia leaves the Donbas, they will go with it, surrender or flee. The so-called LNR and DNR will cease their existence very quickly.” [25]
-War in Ukraine: And Russia will leave {Ukraine} because it does not want to suffer further sanctions and become a large North Korea. According to Zubov, “unofficial talks are going on about this now.” Their task is simple: how can Russia leave without losing face. “But apparently, it won’t be able to do so without losing face.” Thus, Ukraine will have to show great tact in dealing with the situation. Putin wasn’t prepared for all this because he had not prepared for war. Indeed, Zubov says, “no one seriously thought about war even in Soviet times, and when Khrushchev attempted to do something in Cuba in 1962, he was immediately removed. Everyone understands that nuclear war is impossible. Therefore Russia only uses this as a threat.” [25]
-War in Ukraine: How will Putin pull out? Zubov says that in his view, Putin launched his aggression in Ukraine for three reasons: to boost his popularity, to keep Ukraine from leaving the Russian sphere of influence, and to ensure that Russia’s military-industrial complex would not suffer given the importance of Ukrainian plants for its operation. But because he miscalculated, the Kremlin leader “has lost everything.” [25]
-War in Ukraine: Dead Russian soldiers a state secret. Last May President Putin officially declared military deaths in peacetime a state secret. His decision was seen as an attempt to cover up the Kremlin’s role in the Ukraine war. Russian human-rights groups protested Putin’s decree. Last week, the Supreme Court upheld Putin’s decree, ruling against the complaint by a Russian civil society group claiming that the decree was illegal, that it was hiding the true information about Russia’s military involvement in eastern Ukraine.[33]
-Western sanctions hurting economy: Sanctions could cost Russian industry $20 bln: Official [9]
-Uncontrolled inflation: Russia’s inflation rate hit 16.9 percent in the first half of 2015, cutting wage values by 14 percent over the last 12 months. [15]
-Low energy/ oil prices; The Russian budget needed $85-$100 oil to break even, depending on which source you listen to. Now in Aug 2015 it’s in the mid $40s
-Low energy/oil prices: Russia is at the Mercy of Oil Markets. The price of oil has now fallen below $45 a barrel—welcome to the new normal. OPEC continues to pump oil at historic rates as it tries to price out competitors (US fracking and LNG), and Iran expects to bring over a million new barrels a day to world markets after the lifting of international sanctions. These are deeply troubling developments for Moscow, which relies on oil and gas sales for nearly 50 percent of its government revenues. In 1999, oil and gas accounted for less than half of Russia’s export proceeds; today they account for 68 percent. Moscow has grown so reliant on energy sales that for each dollar the price of oil drops, Russia loses about $2 billion in potential sales. For Russia to balance its budget, oil will need to surge back to $100 a barrel. That’s going to take a while.
(CNBC, CNN, Wall Street Journal , World Affairs, EIA, BBC, Financial Times) [21]
-Low energy/oil prices: Quality of Russia's crude reserves deteriorating admits Russian ministry [13]
-Low energy/oil prices: Eleven of Russia’s 14 oil processing firms are now operating at a deficit; and consequently, “what we see today is just the quiet before a very strong storm.” [20]
-Low energy/oil prices: Even if oil prices were to rise to 70 dollars a barrel, that would not be enough to prevent a further decline in the Russian economy. And given that the actual price will be much lower, that decline will be very steep indeed. As prices fall to 40 dollars a barrel, Zhukovsky says, Russia will discover “a third bottom” and then “a fourth” and so on. [20]
-Surplus of energy on the world markets; the real essence of Putin's energy woes are structural, not cyclical. The global energy game is changing — and it is not changing in Moscow's favor.
Shale, liquefied natural gas (LNG), and renewables — three areas where Russia is extremely weak — are ascendant and are dramatically altering the market. [8]
-Energy-dependent, undiversified economy: If one looks at Gazprom as a barometer of Russia's fortunes, one statistic says it all: in 2008, the company had a market value of $360 billion; today it is worth just $55 billion. [8]
-Lack of Diversification: It’s not simply the size of your economy, but its diversity and resilience that counts. For years, the Kremlin has supported and protected large state-owned companies at the expense of small and medium-sized enterprises (SMEs). But those smaller firms are the foundation of any strong and well-diversified economy. SMEs spur innovation and respond effectively to changing times, technologies, and consumer tastes. In the EU, SMEs contribute an average of 40 percent to their respective countries’ GDP; in Russia, SMEs contribute just 15 percent. Those are daunting figures for anyone looking to start a business in Russia. Things aren’t getting better—between 2008 and 2012, Russia’s private sector lost 300,000 jobs while the state added 1.1 million workers to its payroll. Rather than diversifying, Moscow is doubling down on its state-centered approach to economic development. (JYSkebank, The Economist) [21]
-Technology substitution: Russians need to recognize that the low oil prices are not the product of “a conspiracy of the US and the Arabs against Russia.” Instead, they are the result of an Arab effort to drive down the price so that the latest technological innovations in extraction technology the Americans have will not be profitable. Russia isn’t part of the equation for either, Zhukovsky says, but this also means, the basic trend won’t change anytime soon. Moreover, if Russia sits and does not make fundamental change, the new oil extraction technologies will in fact be “a death sentence” for the Russian economy. Russia’s only chance to “move forward” is to focus on scientific and technical progress, to behave as the Chinese have done gradually shifting into ever higher tech areas rather than relying on the sale of natural resources or minimally processed goods. But that is not what the Russian government is doing. [20]
-Economic speculation: Vladislav Zhukovsky, an economist known for predicting disasters in the Russian economy and for then turning out to be right, says that the situation is more dire than almost anyone imagines because oil is heading to 25 US dollars a barrel, the ruble to 125 to the US dollar, and inflation to 30 percent. If he is even partially correct, Russia faces not a “black Monday” or a “black September” but a “black” and bleak future. […] Many at the top of the Russian economic pyramid are behaving as they did in 1998, betting on an ever weaker ruble by buying hard currency and then planning to get back into the Russian market later at firesale prices and thus improving their position but not the country’s. These people, Zhukovsky says, “have their families, portfolios and property abroad. They are interested in having the situation in Russia be as bad as possible and the ruble to fall as far as possible so that they will be able to sell their apartments there and buy them here on the cheap.” In 1998, at the time of defaults, the Russian stock market fell 80 percent, the ruble fell 84 percent, “and all our bureaucrats … took the money they had and converted it into hard currency. “When the market collapsed, they bought shares at three cents on the dollar. The very same thing is happening now. Moreover, Zhukovsky adds, after the coming collapse “the American, European or Chinese investors will come.” They too will take advantage of the low prices just as they did in 1992 and 1998 [20]
-Independent Press shut down [7]
-Opposition hounded, jailed or murdered [7]
-Western food embargo; Putin orders that tons of western food be destroyed
-Western food embargo: Putins hopes local producers will fill the export food gap, but Moscow Strawberries Rot in Fields After Trade Near Metro Banned
-Western food embargo: Putin to ban four EU food exporters - Albania, Iceland, Liechtenstein, and Montenegro and Ukrainian food exports to Russia from Jan 1, 2016 if Ukraine implements the trade provisions of its EU association treaty; The potential Ukraine ban is more significant, with food exports to Russia last year still worth $415 million, out of total exports of $11 billion, despite the conflict over Crimea and in east Ukraine. The Iceland ban is the biggest. According to Russia’s Federal Customs Service, the Nordic state exported $232 million of mostly seafood to Russia in 2014. Albania exported $10 million of fruit and dairy. Montenegro exported $40,000 of fruit and vegetables. Liechtenstein didn’t export any food. [19]
-Jokes, satire and anecdotes about Putin and the regime: "If you see smoke and smell burning rubber, don't rush to call the fire department. It's probably the smell of your neighbors using Russian contraceptives" ))) [16]
-Growing poverty levels: Caught up in the worst economic decline since the 1998 ruble crisis, Russia’s national poverty rate increased by 14 percent in the first half of this year. So far, Russia has been unwilling to increase the minimum wage or social benefits to fight poverty. [15]
-Growing poverty levels: As of Aug 2015, 23 million Russians live below the poverty level and another 14 million that live in 319 single industry cities and towns can be soon be added to the poverty rolls since the Russian government can’t afford to pay subsidies [7] and [27]
-Growing poverty levels: Moscow stores report growing theft of food and even toilet paper [29]
-Growing poverty levels: Government Proposal to Limit Russians' Ownership of Livestock Elicits Outrage [10]
-Growing Poverty levels: Falling or No government subsidies for 319 single industry towns who have lost their single industrial base [7] and [27]
-Subsidy Drag: There are 319 single industry towns who have lost their single industrial base [7] and [27]
-Subsidy Drag: Only three former USSR territories have economies that could make a contribution to the Russian Federation or the Eurasian Union: Kazakhstan, Azerbaijan and Turkmenistan. The rest are an economic drag-the economically badly off countries of the CIS – Uzbekistan, Kyrgyzstan, Tajikistan, Armenia, Moldova and others,
-Military Industrial complex decay**: “A couple of months ago, Vladimir Ryzhkov visited Mikhail Sokolov on air of Radio Svoboda and lamented the fact that Putin’s geopolitical adventures were destroying the Russian military-industrial complex, because a huge part of the supply of components, systems, engines, etc. in the Russian arsenal belonged to the Ukrainian companies. Now they do not cooperate with the Russian military-industrial complex, and the Russian military-industrial complex will be destroyed. In September 2014, in the first round of the Ukrainian sanctions against Russia, apart from other measures, it was banned to export a number of military goods. Now the government of Ukraine has approved an expanded package of sanctions. It is supposed that the sanctions list will include 156 legal entities and more than a thousand individuals, among whom will surely be many organizations and people from the Russian military-industrial complex. [7] and [24]
- Unsustainable Militarization & renewal stalling: Russia will not need its military-industrial complex for the next 20-30 years. Russia needs receivership and the Marshall Plan. This statement would be wrong, if the Constitution of the Russian Federation acted in Russia, and there was society in the sense of ‘nation’. But we have nothing, and will not have, as long as it appears with the help of receivership as it was in West Germany after 1945 and de-Nazification. The Russian military-industrial complex is doomed.The Russian military-industrial complex has international sanctions imposed against it, which have long hammered the final nail in its coffin by a simple forward contract. The latest weapons of the XXI century and the sanctions against the Russian military-industrial complex are incompatible with each other. The program of upgrading the Russian army for the period up to 2020 is just the greatest scheme of stealing 20 trillion rubles in the history of Russia, and nothing more. By 2020, some will become very rich, a lot of people will become very poor, but there will be no Russian military-industrial complex, as there will be no XXI century weapons. When the ‘guns before butter’ choice is made, in the conditions of attacks on other countries and international sanctions, there will be no guns, no butter, no country,” Rabinovich wrote on his page on Facebook[7] and [24]
-Collapse of defence parts industry** Russia has no substitution for many critical Ukrainian military parts [7]
-Aging defence industry workforce [7]
-Inexperienced defence industry workforce: Russia is facing difficulties filling critical jobs with largely unskilled non-Russian migrants, many working illegally in the country. [6] and [7]
-Educational Decay: According to the Organization for Economic Cooperation and Development, OECD, the proportion of Russia's adult population with postsecondary training or degrees is higher than in almost any OECD country. And in the Soviet era, Russian scientists and inventors were renowned for their acumen (albeit mainly in fields with military applications). But today, Russia's educational system appears to be broken, or at least the country seems unable to derive the expected benefits from it [1]
-Educational Decay: Standardized international test results reveal that Russian primary and secondary schooling today is at best mediocre. In a 2009 OECD test to measure scholastic performance, Russian students' reading scores were lower than Turkish students', and Turkey itself is near the bottom of the OECD rankings. Russia's university and higher education system looks even worse. [1]
-Innovation: Although Russia today accounts for about six percent of the world's population with a postsecondary education, barely 0.1 percent of the worldwide patents granted by the U.S. Patent and Trademark Office over the last decade and a half were awarded to Russians. This is not some U.S. conspiracy against Russian inventors: the records of the UN's World Intellectual Property Organization show that Russia's share of out-of-country patent applications over that same period was less than 0.2 percent of the global total. [1]
-Innovation: The picture is hardly better when it comes to the output of scientific papers: the number of articles by Russians in peer-reviewed journals was no higher in 2008 than it had been in 1990, whereas output almost everywhere else in the world rose over those same years. By 2008, Russian authors were publishing far fewer scientific papers than the authors of Russia's BRIC peers: Brazil, China, and India. In effect, Russia stands as a new and disturbing wonder in today's globalized world: a society characterized by high levels of schooling but low levels of health, knowledge, and education. [1]
- Alienation of Europe & the West; Russian Veto in the UN Security council over the MH17 tribunal
-Alienation of Europe & the West: Russia has outraged and alienated Europe and much of the Arab world. It is fitting that Russian analysts are calling for Moscow to defend its final stronghold in the Middle East. Thanks to the work of our agents of influence, Syria is set to become Russia’s Last Stand in the region. Even the short-term survival of the Assad regime only works to deepen the bitterness the Sunni majority feels toward Russia. Indeed, Russia’s identification with Shi’a forces—Iran, Assad, and Hizballah—ensures the wider alienation of Russia from the 90 percent of the world’s Muslims who are Sunni. As we’ve already seen in Libya, the inevitable collapse of Assad and other retrograde client states elsewhere will ultimately deprive Russia of the billions of dollars it invested there, and leave Moscow increasingly isolated and disliked internationally. [7]
- No Incentive to Change** : Russia’s biggest problem may be denial. Typically, a stumbling economy brings about change in political leadership. Some countries, like Greece, take this to an extreme—Athens has seen five different governments in five years. But Russians have gone the other way—as their economy has slowed, Putin has grown more popular; he now holds an approval rating of 86 percent. More surprising is that while 73 percent of Russians are unhappy with their economy, 7 in 10 approve of the way Putin is handling it. How is that possible? About 90 percent of all Russians get their news from Russian television channels directly controlled by the Kremlin. By framing sanctions and the invasion of Ukraine as “Russia vs. the West”, Putin has succeeded in stoking the country’s nationalism. Today, 63 percent of Russians have a very favorable view of their country, up from 29 percent in 2013 and 51 percent in 2014. It’s easier under those circumstances to blame bad economic circumstances on outsiders. Credit where credit’s due—Putin knows what his people want to hear. It’s just not clear if he knows how to fix his flailing economy. (TIME, Pew Research Center, Washington Post, Pew Research Center) [21]
-Kremlin Revolt**: Kremlin Elite Engaged in Search for Putin's Replacement, Piontkovsky Says Aug 13, 2015 by Paul Goble [14]
-Kremlin Revolt**: Putin Alienating Kremlin Elites with His Nuclear Blackmail Threats Such a demonstration of “schizophrenia in the Kremlin,” one that is approaching “the clinical,” Borovoy argues, frightens those with the elite who still have a modicum of good sense because it signals that there is very little Moscow might do and that the actions of the foreign ministry are simply another part of the Kremlin’s “propaganda machine.” Those within the elite may be more likely to desert him over this than even over economic sanctions, Borovoy suggests, because everyone can now see that the Putin regime is behaving according to the following “inadequate” logic: “Because we do not like your reaction to the downing of the Boeing, we will no longer feel bound by the non-proliferation treaty and provide nuclear arms to those who want them.”
Such a declaration, the Russian opposition figure says, is “in violation of all international agreements.” Moreover, he argues, “the despair in which Putin finds himself suggests that such inadequate actions will be carried out.” That in turn will force the international community to conclude that one of its members “has gone mad.” [30]
-Kremlin Revolt**: Is A Slow Putsch Against Putin Under Way? [35]
-Sovereign Debt Default**: “International rating agencies like Standard & Poor’s warn that Russia might default in a massive way sometime in the next two or three years. They suggest that Russia’s regions won’t be able to pay their debts, and Moscow will have trouble covering them. Moreover, these experts note, the Russian economy is now in recession, an economic downturn deepened by international sanctions, a decline in the price of oil and the devaluation of the ruble which makes repaying any foreign debt all the more expensive. “From this,” Dokuchayev writes, “extends a direct path to sovereign default.” By the end of this year, Russian companies and banks must repay 134 billion US dollars in foreign obligations. That is no small sum, but it would seem bearable given that the country’s reserves are about 400 billion US dollars. But if Moscow has to cover other losses, seeks to support the ruble, and faces a new drop in oil prices, that may not be enough. Many of those suggesting that Russia is at risk of another default focus on the last factor and suggest that as Iran comes back on stream and the war in Libya ebbs, the supply of oil relative to demand will grow and prices will fall to 20 US dollars a barrel or even lower in the coming months. If that happens, the “Novyye izvestiya” writer says, a dollar will be equal to 120-130 rubles and a euro to “about 150.” That could lead Russia to default by itself.” [31]
-Sovereign Wealth Fund: **Russia has already been forced to dip into its huge Sovereign Wealth Fund, saved during the years of high oil prices. Anton Siluanov, the Finance Minister, has warned that if the budget deficit does not reduce, the entire fund could soon be used up. [32]
-Existential Threat to the USA: Pentagon chief: Russia is a 'very significant threat; 'Defense Secretary Ash Carter is calling Russia a "very, very significant threat," agreeing with an assessment made by top military officials. A chorus of top military and political officials (General Dunsford, Secretary of State John Kerry, his top Europe official, Victoria Nuland, Defense Secretary Ashton Carter, and General Philip Breedlove, the supreme allied commander for NATO) have said recently that Russia is the top threat to the U.S.'s national security in comparison to the Islamic State in Iraq and Syria. [34]
** Key driving factors
References
[1] The Dying Bear; Russia's Demographic Disaster; By Nicholas Eberstadt
[2] The numbers Putin doesn’t want you to see Vanity Fair March 31, 2014
[3] High Rates of Congenital Syphilis in Russia Linked To Inadequate Prenatal Care https://www.guttmacher.org/pubs/journals/3519003.html
[4] http://www.vox.com/2015/7/30/9073285/putin-russia-corruption
[5] Russia: Massive Capital Flight Continues May. 01 2015 http://www.themoscowtimes.com/business/article/russia-massive-capital-flight-continues/520112.html
[6] Russian Demographics: The Perfect Storm
[7] private conversations with industry experts
[8] Putin is actually in serious trouble http://www.businessinsider.com/putin-is-actually-in-serious-trouble-2015-8
[9] http://www.unian.info/economics/1110555-russias-costs-from-sanctions-estimated-at-20-bln.html
[11] Forty One (41) early warning signals of the collapse and decay of the Russian Federation (Putinism) and Ukraine (Yanukowych Regime) http://bit.ly/fsflvg
[12] http://windowoneurasia2.blogspot.ca/2015/08/as-ruble-collapses-russias-cossacks.html
[13] http://bit.ly/f8w1F1
[14] http://windowoneurasia2.blogspot.ca/2015/08/kremlin-elite-engaged-in-search-for.html
[15] STRATFOR: RUSSIA ECONOMY HITS PERFECT STORM http://www.breitbart.com/national-security/2015/08/12/stratfor-russia-economy-hitsperfect-storm/?
[16] http://www.bbc.com/news/blogs-trending-33851990
]17] “LNR” factory sews fake Ukrainian military uniforms http://euromaidanpress.com/2015/08/11/lnr-factory-sews-fake-ukrainian-military-uniforms/
[18] Implosion The End of Russia and What it Means for America by Ilan Berman 2013
[19] Russia hits EU allies with symbolic food ban https://euobserver.com/foreign/129885
[20] Russian Economy Approaching ‘Perfect Storm’ -- Oil at 25 Dollars a Barrel, Ruble at 125 to the Dollar, and Inflation at 30 Percent http://windowoneurasia2.blogspot.ca/2015/08/russian-economy-approaching-perfect.html
[21] These 5 Facts Explain Russia’s Economic Decline http://time.com/3998248/these-5-facts-explain-russias-economic-decline/
[23] http://www.unian.info/politics/1111271-china-finishes-putin.html
[24] 'There will be no Russia soon': Russian financier names cause of imminent collapse of Russia http://joinfo.com/world/1007537_there-will-be-no-russia-soon-russian-financier-names-cause-of-imminent-collapse-of-russia.html
[25] http://windowoneurasia2.blogspot.ca/2015/08/putins-russia-is-deeply-ill-country.html
[26] http://windowoneurasia2.blogspot.ca/2015/08/another-echo-of-1990s-russias.html
[27] http://www.themoscowtimes.com/business/article/russian-single-industry-towns-face-crisis/526024.html
[29] http://windowoneurasia2.blogspot.ca/2015/08/how-bad-are-things-for-russias-poor.html
[30] Putin Alienating Kremlin Elites with His Nuclear Blackmail Threats http://windowoneurasia2.blogspot.ca/2015/08/putin-alienating-kremlin-elites-with.html
[31] Seventeen Years On, ‘Shadow of Default’ Still Hangs over Russia http://windowoneurasia2.blogspot.ca/2015/08/seventeen-years-on-shadow-of-default.html
[32] http://thenationonlineng.net/suffering-from-a-glut-of-black-gold/
[34] http://thehill.com/policy/defense/251622-pentagon-chief-russia-is-a-very-very-significant-threat
[35] Is A Slow Putsch Against Putin Under Way? http://www.forbes.com/sites/paulroderickgregory/2015/08/20/is-a-slow-putsch-against-putin-under-way/
IMAGE:
Department of Energy, National Institutes of Health, National Science Foundation
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