Russian petro-confidence seen in war

Marketplace Staff Aug 11, 2008

Russian petro-confidence seen in war

Marketplace Staff Aug 11, 2008


Kai Ryssdal: The president of Georgia said today his country’s been cut nearly in half by Russian troops. They’ve been on the offensive, the Russian troops have, since Thursday. So far, Russian Prime Minister Vladimir Putin has ignored calls by the G-7 and, this afternoon, by President Bush, to stop the attacks. It’s a chain of events made possible largely by Russia’s massive energy economy. Cliff Kupchan is the director of European and Eurasian Policy for the Eurasia Group. Mr. Kupchan, welcome to the program.

Cliff Kupchan: Thank you.

Ryssdal: How nervous is this making you?

Kupchan: It’s making me quite nervous. It is a unusual display of disproportionate force by a usually quite rational Russian leadership.

Ryssdal: Why isn’t it, though, having more of an impact on some of the economic indicators we would look at here. The price of oil is a great one. If this had happened with oil at $150 a barrel, there would be a lot more screaming going on, don’t you think?

Kupchan: There would be a lot more screaming going on. Some of the oil markets are in a bearish mode right now. There’s a lot of downward pressure for a lot of reasons. And the Baku-Ceyhan pipeline that crosses Georgia has a million barrels of oil a day. It is not that substantial when you look at global supply.

Ryssdal: If you’re Western Europe, though, and you’re looking at Russia exert military force based on its economic power, what are you thinking?

Kupchan: In this case, Russia is exerting military force based on its military force. I don’t think this has much to do with economic power. Georgia is right in the cross hairs of Russian geopolitical concerns. They still think it’s their backyard. They own their backyard. And they want to keep their backyard.

Ryssdal: Well, I guess my question, you know, is 15 years ago…

Kupchan: Right.

Ryssdal: …you wouldn’t have seen this happen, because Russia couldn’t militarily do it, because it didn’t have the economic power.

Kupchan: I think that what’s basically motivating this a combination of dislike for President Saakashvili, anger over Georgia’s desire to become a member of NATO and sending a message to the West that Russia is again a major player. I think that Europeans are up to their eyeballs already. Russia supplies over 25 percent of European Union gas. They don’t have a lot of good alternatives. Yes, they might be nervous this is the Russians a bit out of control, but they don’t really have anyplace else to go.

Ryssdal: Do you think foreign companies, Western companies that might be eyeing Russian investments are given pause at this at all?

Kupchan: I don’t think that the Georgian war alone is what’s involved here. Let’s not forget that Mr. Putin, several weeks ago, took the Russian stock market down by 15 percent with his comments about Mittal, a steel producer. Before that, there was the conflict over DNKBP, the large oil company half owned by a Western multi-national. So I think the real perspective here is this is a trilogy. This is the Georgian war; this is Mittal steel company; this is the DNKBP. I think those three together are going to give Western corporates pause.

Ryssdal: So what’s the fourth chapter, then, in this trilogy?

Kupchan: I think that both portfolio investors and corporate investors are going to ask, “Is this Russian leadership committed to integrating with Western business? Is this a safe place for capital? Is Russia really an island of tranquility as it has been perceived through this credit crunch crisis.” And the answer to that may well become “No.”

Ryssdal: Who does that punish, though, economically? Do the Russians suffer, or do Western companies that miss out on the opportunities suffer?

Kupchan: They both suffer. The Russians are so petro-confident right now, that I don’t think they know that they might suffer, nor do I think the Russians really care if they suffer, in their own thinking. So, it’s a lose-lose but it’s one where the Russian side doesn’t really know or care if it loses.

Ryssdal: Cliff Kupchan at the Eurasia Group. Mr. Kupchan, thank you so much for your time.

Kupchan: My pleasure.

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