The Formergarchs

The Canadian magazine Macleans has a new piece about Russia’s potential to seize upon the economic crisis to expand influence and rebuild the empire. It’s a pretty good story, even if it’s becoming quite familiar

Whether Russia will be able to leverage its massive cash reserves to buy assets and influence from its neighbours rests entirely on the price of oil. “If prices stabilize, there will be a great opportunity for Russia to pursue economic influence in the former Soviet countries,” says Shamil Yenikeyeff, a Russia expert with Oxford University’s Institute for Energy Studies. Kyrgyzstan, which has an external debt of $2 billion—“and never really wanted independence from Russia in the first place”—will be the first country to fall under Russian control, Yenikeyeff predicts. “But,” he cautions, “if oil goes below $40, you can forget about Russian influence in eastern or central Europe, you can forget about Russia using its newly found economic power in its foreign policy, and you can forget about the resurgence of Russia’s influence.”

Already, oil prices have dropped below the budget-critical $70 per barrel, he says. If they go much lower, Russia will start running a deficit. Its rainy day reserves, designed to deal with low oil prices in times of crises, can only sustain the country for up to a year and a half. So far, there’s no sign the bottom has been reached, says Peter Boone, an associate at the Centre for Economic Performance at the London School of Economics: “The world is at the start of what appears to be a potentially deep, global recession, and could expect demand for oil to fall sharply.” During the Asian economic crisis of 1997, non-OECD oil demand fell by four million barrels per day, he says. “It is difficult to predict how large the decline will be this time, but it is very plausible that oil prices will fall back to early 2000 levels”—of $30 per barrel—“or less.”If they do, the Russian government will face a choice: “To either bail out its own companies or to bail out itself,” says Yenikeyeff. Russia’s oligarchs have borrowed a combined $530 billion on external markets, using shares in their companies as collateral, explains Russia expert Nick Gvosdev, professor of international relations at the Naval War College in Newport, R.I.; all told, some $47.5 billion will have to be repaid to jittery creditors by the end of the year. In order to keep assets in key companies, including gas giant Gazprom, from falling into Western hands, Moscow will be forced to bail them out; so far, the state has set aside a $50-billion state loan to assist Deripaska and the cash-strapped oligarchs.