The Unsettling Dust: Russia Should Get Prepared To Face Consequences Of The “Arab Uprising”

 (This piece originally appeared on Russia Beyond the Headlines)

Conventional wisdom suggests waiting until the dust settles before drawing conclusions from the events of the past, but the “dust” generated by the public unrest in North Africa and the Middle East is so thick — and shows no signs of ablation – that in this case, Russia can’t wait.  It needs to watch the uprising in the Arab world carefully, and be prepared to face the consequences of the rapid geopolitical changes in the region.    

The first, most obvious and, at first glance, not-so-unpleasant of these consequences is the rising price of oil.  After steadily climbing overthe past two years, oil prices shot through the roof at the end of February, when the “Arab revolution” spread into oil-rich Libya and threatened to engulf the world’s second-largest oil producer, Saudi Arabia. 

In the short run, Russia will only benefit from this trend.  Since the beginning of the year, Russia’s flagship Urals export blend has averaged $98 a barrel, 30% higher than planned in the budget.  According to some projections, such a price will help the Russian government balance the federal budget by 2014 (earlier than expected) and, by the end of the year, double Russia’s Reserve Fund from its current $25 billion to $50 billion.  Additionally, the potential interruption of gas supplies from Algeria – which would further increase the EU's dependence on Gazprom gas — will strengthen Russia’s position in its negotiation over the EU’s “third energy package”, a set of proposed legislations that Russia considers damaging to its economic interests. 

However, the additional oil revenue is likely to come with its own price: inflation.  The influx of extra cash in the economy will make it extremely difficult to keep inflation below its 2011 target of 7 percent.  In more strategic sense, continued spending of extra oil cash will only exacerbate the country’s dependence on export of energy resources and thus undermine President Medvedev’s drive to modernize the Russian economy.  Moreover, skyrocketing oil prices will sooner or later result in the second wave of the global economic crisis.  A precipitous fall in energy prices will inevitably follow and, should this happen, Russia will find itself in the same dire economic situation as in 2008-2009. 

More negative developments may emerge even sooner.  Russia stands to lose big if the Qaddafi regime in Libya collapses and is replaced by a pro-Western proxy.  The arms embargo on Libya imposed by the U.N. Security Council is likely to interrupt already ongoing arms sales negotiations, which may cost Russia up to $4 billion.  The future Russian arms sales to the region also stand to be affected too if, as some Russian analysts predict, social spending becomes the first priority for certain Arab rulers.  And, if the situation in Iraq after the fall of Saddam Hussein is any example, Russia’s economic interests in Libya – estimated at $70 billion – will be in jeopardy, too. 

The long-term consequences of the happenings in the Arab world might be equally unsettling.  Granted, any large-scale repetition of the public unrest, Arab-style, played out on the streets on Russian cities looks highly unlikely.  Yet, turbulence in the North Caucasus region where the conditions on the ground – a large ratio of young people, high unemployment, rampant corruption – bare troubling similarities to those in Tunisia and Egypt, can’t be completely excluded.  Moreover, such a public revolt is possible, perhaps even likely, on Russia’s borders in Central Asia, where political and social instabilities already produced a string of violent anti-government mutinies in the years following the collapse of the Soviet Union. 

Yet, the things are not only doom and gloom for Russia.  The changes in the Arab world may provide Russia with an opportunity to increase its influence in the region.  The enthusiasm with which the United States and its European allies supported public unrest in Arab countries – and their readiness to dump unpopular leaders that have before enjoyed full Western support – have frightened Arab ruling elites and made them feel betrayed.  Now, they might be more disposed to viewing Russia – with its refusal to meddle into internal affairs of other countries – as more trustful and reliable partner for the future.  Russia will be wise to take advantage of this change of heart. 

Attempts to predict what happens next – in particular, which Arab country may or may not succumb to the “Arab revolution” virus – are ultimately fruitless.  Even in Egypt and Bahrain – where a tentative calm seems to be holding for now – violence may return at any moment.  One thing is clear though: the Arab world has entered the era of a deep, tectonic change whose outcome will be unknown for very long time.  

In other words, the “dust” that fills the air in Arab countries is not going to settle any time soon and Russia will need tools to see through it with clear eyes for years to come.   

About Eugene Ivanov

Eugene Ivanov is a PMI-certified Innovation Management Consultant who helps organizations increase the efficiency of their internal and external innovation programs.
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7 Responses to The Unsettling Dust: Russia Should Get Prepared To Face Consequences Of The “Arab Uprising”

  1. Quetzalcoatl says:

    Hi,
    It seems like Russia is probably pumping way too much oil compared to its proven reserves. I know there is probably a lot more in that mass of land, but I think the government should not have to keep the world’s price down (and it probably would not if it did not have to use it to finance government spending.)
    If there were a discovery like the Orinoco Belt in Russia, then it would be seen as an indispensable part of the oil equation, and too big to fail like Saudi Arabia.

  2. Eugene says:

    Dear Quetzalcoatl,
    Thank you for your comment. As a non-expert, I can’t judge whether Russia pumps too much. What I do know is that the cost of oil production rises faster than the revenues. And no major investments in new oil technologies to speak of.
    Khodorkovsky might be in jail, but created by him oil lobby is live and very-very-very well. So it’s difficult to expect any major changes any time soon.
    Do come back.
    Best Regards,
    Eugene

  3. Quetzalcoatl says:

    Khodorkovsky seems to have an astonishing amount of money stashed abroad.
    I think Russia’s fortunes may have changed with the Japanese earthquake. I don’t mean that in a flippant way, though Russia has had terrible earthquakes in recent years that did not gain much media attention. Russia may become an important energy supplier for Japan, and this in turn could lead to more exploration in the Far East. The dispute over the Kuril Islands looked like it was about to sink all cooperation.

  4. Eugene Ivanov says:

    Well, recent history shows that disasters can actually bring Russia close to some of its neighbors (like the air crash at Smolensks improved relations between Russia and Poland). I definitely hope that somewhat overheated (and, honestly, quite ridiculous) discussion over the Kuril Islands will be forgotten, and Russia and Japan will come back to better relations.

  5. Hi Eugene,
    The matter of the Kurils becomes seriously ridiculous when the US government decides to jump into the fray by issuing remarks leaning in support of Japan’s position. There was no need for such commentary.
    Matters like the Kurils and Falklands touch on a historical based nationalism which can get out of hand. The other extreme are people who become detached from their country’s past, in a way that
    – more readily accepts unfair characterizations made about their nation
    – as well as lacking the knowledge to effectively reply to such negativity.
    Romancing about Crimea and some other Russocentric former Russian areas, short of disrespecting their contemporary international placement, is an expression of moderate patriotism – in contrast to the imagery of some, who (comparatively speaking) appear to sugar-coat the unreasonably nationalist outbursts of others.
    Best,
    Mike

  6. Eugene Ivanov says:

    Hi Mike,
    I know it sounds crazy, but could it be that HRC was simply unaware of the San Francisco treaty? Or, as a compromise: she was aware but thought that everyone else was not. How about that?:)
    Best,
    Eugene

  7. Hi again Eugene,
    When it comes to giving opinions of such matters, I suspect that a good number of folks are spoiled lazy from appearing in situations where they aren’t challenged.
    Quite the opposite from skating a solid performance, which includes all of the tough moves, with the beforehand knowledge of likely not getting fairly judged.
    There’s also the blowhard commentary suggesting that they’ve it right unlike some others:
    http://www.rferl.org/content/balkans_commentary_serbia_kosovo_bosnia/2339783.html
    Salut!

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