Winnipeg Free Press - PRINT EDITION

Russia's financial fabric unravelling

  • Print

EDMONTON -- Russian President Vladimir Putin is openly contemptuous of the sanctions imposed by the U.S. and the European Union on his country in response to his armed annexation of Crimea.

In fact, he was smiling and cracking jokes on Thursday, planning to open a personal bank account at Bank Rossiya, the Russian financial institution named in the U.S. sanctions.

As we're all beginning to realize, Putin is a violent strongman who sees the world through the lens of power. And it's clear he views western sanctions as yet another weakness to be exploited.

He's now toying with the western media. In a remarkable act of Orwellian doublespeak, Putin's chief spokesman, Dmitry Peskov, declared, "We aren't looking for a confrontation, and are not the source of the sanctions."

No, Russia is not responsible for these pitiful sanctions. However, what is becoming more obvious every day is the official sanctions are the smallest part of a massive tectonic shift that's silently taking place in the global political economy.

What the Russians have miscalculated is how 'radioactive' they've become and how that will lead to further isolation with very damaging consequences for Russia and world peace.

The troubles for Russia have started in the world of finance. The Russian stock market is in free fall and the ruble has weakened significantly. No problem, say officials in Moscow. But the threads of the financial fabric are beginning to unravel.

Thousands of little things are taking place behind the scenes. Russian banks, for example, have been cut off by Visa and MasterCard processing services, while western bankers are suddenly becoming (not before time) suspicious of Russian capital transactions. It's all part of a decoupling of Russia from the global financial system.

Business dealings between western and Russian companies now carry new and unwelcome political risks. Boeing and General Electric are questioning the security risks behind their supply of aircraft and sophisticated technology to Russia; both have calculated (rightly) that if the international situation turns for the worse it could seriously damage their businesses. They haven't cancelled any contracts yet, but they're reviewing their position and certainly not entering into new agreements.

Europeans have long wondered if Russia would use its privileged access to their energy markets as a political weapon -- now they have their answer. Although no one is rushing to close the pipelines, finding alternatives to reduce dependency on Russian suppliers is now top priority.

Russian businesses are also starting to feel the heat.

Gunvor, a (Russian-owned) Switzerland-based energy trader, transacts billions of dollars a year and its networks extend deeply into the global energy system. Today, it's in damage-control mode.

As it is just human nature to take steps to reduce your commercial risk, Gunvor's traders are being frozen out of deals. No London or New York energy trader wants to do business with a counterparty whose owner is on the U.S. sanctions list and whose creditworthiness could vanish in a heartbeat.

So the deals the company can make are shorter-term and less profitable. Not the end of the world for Gunvor, but clearly the top of a very long and very slippery slope.

The political fallout is also serious. While nobody is blowing up the G8, yet, it's now clear that it's really the G7 +1 antagonistic neighbour, which will not last for long in the absence of Russian concessions on the use of force.

As Russian "radioactivity" sweeps across the world, it will inflict much greater pain than the official sanctions. Whether it will make a significant difference to the eventual outcome depends upon how skilfully the Russians play western nations against one another.

None of this was particularly difficult to predict. The big question is why would Putin use naked force to secure a prize he could have won legitimately? My guess is, Putin plans to ride a wave of Russian nationalism and become president for life.

But like many other devious plans, this one could backfire. What's changed today is our clarity of vision; there is now no doubt in anyone's mind about with whom we are dealing.

Perhaps, like the shocking Arab Spring, what we're seeing is the long-anticipated privatization of foreign policy, as the public unofficially takes its revenge for the rape of Ukraine.

 

Robert McGarvey is an economic historian and co-founder of the Genuine Wealth Institute, an Alberta-based think-tank dedicated to helping businesses, communities and nations built communities of well-being. He is the author of The Creative Revolution, a historical guide to the future of capitalism.

 

Republished from the Winnipeg Free Press print edition March 25, 2014 0

Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories?
Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes

    No

  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.

letters

Make text: Larger | Smaller

LATEST VIDEO

Weather for final Fringing weekend

View more like this

Photo Store Gallery

  • Two baby tigers were unveiled at the Assiniboine Park Zoo this morning, October 3rd, 2011. (TREVOR HAGAN/WINNIPEG FREE PRESS)
  • JOE.BRYKSA@FREEPRESS.MB.CA Local-(  Standup photo)-    A butterfly looks for nector on a lily Tuesday afternoon in Wolseley-JOE BRYKSA/WINNIPEG FREE PRESS- June 22, 2010

View More Gallery Photos

Poll

Should the city grant mosquito buffer zones for medical reasons only?

View Results

View Related Story

Ads by Google