First, a quick Admin note. I have slightly reworked DR's very first article. I am working on the third Demographics post. After that, I will make downloadable .pdf versions of the article available in both English and Russian. Then it will be time for a new post, 10 Russophile Predictions (with a challenge to Russophobes to provide an equivalent) and the uploading/plugging of my own site (not exclusively Russia-related). With that said, let's move on to the News.
For all the noise being made this month about Georgia, about NATO, about Tibet, etc, possibly the most portentous is that it seems Russia hit its oil peak (strictly speaking, its second - the first happened in 1987), well in line with peakist predictions. Production increases via application of new technology, as seen in the late 90's and early 2000's have been mostly exhausted; there are no megaprojects to bridge the gap beyond 2010. (There has been some noise about new oil field discoveries off Brazil's coast which could contain as many as 33bn barrels, which has our dear Economist rejoicing: "the discoveries do suggest that the gloomiest pundits are wrong to predict that the world will soon run out of oil". Just two problems. The issue is not about the world running our of oil - it's about economically damaging declines in production which will, and are, hitting crucial sectors like transport and agriculture. Secondly, and more to the point, even the high estimate of 33bn barrels is enough for less than half a year of today's demand of 85bn barrels.) Massive expansion in Russia has been the main reason while oil is peaking now, rather than five years ago. This, coupled with stagnant Saudi Arabia 'refusing' to increase oil production so as to leave more for future generations and oil prices rising to 120$, looks set to vindicate the Oil Drum predictions below.
The phenomenom of peak oil is starting to become a new conventional wisdom. Krugman penned an excellent article on this, an interesting example of mainstream economists and "doomers" getting wedded:
No wonder survivalism is becoming respectable again.Nine years ago The Economist ran a big story on oil, which was then selling for $10 a barrel. The magazine warned that this might not last. Instead, it suggested, oil might well fall to $5 a barrel.
In any case, The Economist asserted, the world faced “the prospect of cheap, plentiful oil for the foreseeable future.”
Last week, oil hit $117.
It’s not just oil that has defied the complacency of a few years back. Food prices have also soared, as have the prices of basic metals. And the global surge in commodity prices is reviving a question we haven’t heard much since the 1970s: Will limited supplies of natural resources pose an obstacle to future world economic growth?
How you answer this question depends largely on what you believe is driving the rise in resource prices. Broadly speaking, there are three competing views.
The first is that it’s mainly speculation — that investors, looking for high returns at a time of low interest rates, have piled into commodity futures, driving up prices. On this view, someday soon the bubble will burst and high resource prices will go the way of Pets.com.
The second view is that soaring resource prices do, in fact, have a basis in fundamentals — especially rapidly growing demand from newly meat-eating, car-driving Chinese — but that given time we’ll drill more wells, plant more acres, and increased supply will push prices right back down again.
The third view is that the era of cheap resources is over for good — that we’re running out of oil, running out of land to expand food production and generally running out of planet to exploit. I find myself somewhere between the second and third views.
There are some very smart people — not least, George Soros — who believe that we’re in a commodities bubble (although Mr. Soros says that the bubble is still in its “growth phase”). My problem with this view, however, is this: Where are the inventories?
Normally, speculation drives up commodity prices by promoting hoarding. Yet there’s no sign of resource hoarding in the data: inventories of food and metals are at or near historic lows, while oil inventories are only normal.
The best argument for the second view, that the resource crunch is real but temporary, is the strong resemblance between what we’re seeing now and the resource crisis of the 1970s.
What Americans mostly remember about the 1970s are soaring oil prices and lines at gas stations. But there was also a severe global food crisis, which caused a lot of pain at the supermarket checkout line — I remember 1974 as the year of Hamburger Helper — and, much more important, helped cause devastating famines in poorer countries.
In retrospect, the commodity boom of 1972-75 was probably the result of rapid world economic growth that outpaced supplies, combined with the effects of bad weather and Middle Eastern conflict. Eventually, the bad luck came to an end, new land was placed under cultivation, new sources of oil were found in the Gulf of Mexico and the North Sea, and resources got cheap again.
But this time may be different: concerns about what happens when an ever-growing world economy pushes up against the limits of a finite planet ring truer now than they did in the 1970s.For one thing, I don’t expect growth in China to slow sharply anytime soon. That’s a big contrast with what happened in the 1970s, when growth in Japan and Europe, the emerging economies of the time, downshifted — and thereby took a lot of pressure off the world’s resources.
Meanwhile, resources are getting harder to find. Big oil discoveries, in particular, have become few and far between, and in the last few years oil production from new sources has been barely enough to offset declining production from established sources.
And the bad weather hitting agricultural production this time is starting to look more fundamental and permanent than El Niño and La Niña, which disrupted crops 35 years ago. Australia, in particular, is now in the 10th year of a drought that looks more and more like a long-term manifestation of climate change.
Suppose that we really are running up against global limits. What does
it mean?
Even if it turns out that we’re really at or near peak world oil production, that doesn’t mean that one day we’ll say, “Oh my God! We just ran out of oil!” and watch civilization collapse into “Mad Max” anarchy.
But rich countries will face steady pressure on their economies from rising resource prices, making it harder to raise their standard of living. And some poor countries will find themselves living dangerously close to the edge — or over it.
Don’t look now, but the good times may have just stopped rolling.
(Not that I think the world is going to become a Mad Max abode; there's still plenty of discretionary energy consumption that can be cut, and in the longer term future both wind and solar energy have very good prospects. Nonetheless, according to this study, "Exergy services can be equated to exergy inputs multiplied by an overall conversion efficiency. which, of course, corresponds to cumulative technological improvements over time. Based on this hypothesis economic growth from 1900 to 1975 or so is explained almost perfectly, exceptfor wartime perturbations." Hence I suspect there will be a period of serious economic disruption in the period between 2010-20, when oil and natural gas spiral down and both coal and uranium will be hard pressed to fill the gap (economically viable reserves may well be close to peak, as described here (coal) and here (uranium), and 2030-50, when renewable energy starts to come on-line in a really big way.)
Not surprisingly, two key trends - rising energy prices and climate change - are colluding to produce a scramble for the Arctic and its lucrative hydrocarbons deposits. Russia has foresightedly been marking territory by staking claims in the UN, planting its flag at the North Pole sea floor and carrying out strategic bomber flights over the Arctic. Canada, Denmark and Norway have also been getting on in the action, while the US has been lethargic. Climate models indicate an ice-free summer by 2015, meaning northern Russia will become a major new transportation hub between Europe and East Asia (thus making the old dream of a North-East passage a reality).
While wildlife wilts, agriculture booms - "Greenland is experiencing a farming boom, as once-barren soil now yields broccoli, hay, and potatoes", and Russia keeps getting warmer. (What with rising world grain prices and the big lands left fallow following the Soviet collapse, it is easy for Russia to cement its status as a leading grain producer (from 81mn tonnes in 2007 to 110-120mn tonnes within a decade) by expanding the agricultural sector, a trend explained in The Medvedev Economy and confirmed by state investment into agriculture.) Not only will Russia remain a major hydrocarbons exporter, but will add cereals to its portfolio (which will, besides, increase in price), thus avoiding the fatal Soviet situation where profits from oil exports were eaten up by having to buy Western grains.
But returning to the FP Arctic Meltdown article and hydrocarbons,
The largest deposits are found in the Arctic off the coast of Russia. The Russian state-controlled oil company Gazprom has approximately 113 trillion cubic feet of gas already under development in the fields it owns in the Barents Sea. The Russian Ministry of Natural Resources calculates that the territory claimed by Moscow could contain as much as 586 billion barrels of oil -- although these deposits are unproven. By comparison, all of Saudi Arabia's current proven oil reserves -- which admittedly exclude unexplored and speculative resources -- amount to only 260 billion barrels.Currently, Russia has passed its second oil peak. Could the above make for a third peak? Discovery precedes recovery by around 30 years. 586bn barrels is about twice bigger than oil reserves in Russia proper before extraction ever began. Without ice, the extractive environment in the Arctic will be comparable to that of the North Sea. As such, it is plausible that Russia may even, around 2020-30, experience a third oil peak, at a time when global supply is severely constrained and prices are at 300-400 $ per barrel. What with its current (relatively low) consumption, this means that Russia may be spared from the energy crunch that will hit other energy-dependent economies in this time period.
Perhaps most significant will be the geopolitical impacts (which, btw, we have covered in Towards a New Russian Century?). Russia is going to have to fundamentally rethink its traditional conceptions of itself as a land power, strategically weak and surrounded by predatory peoples who periodically exhaust the carrying capacity of their lands and launch invasions. It is going to become surrounded by ice-free water on two sides, along whose coasts will accumulate a rapidly expanding population (especially if environmental collapse causes mass immigration from South Asia, the Middle East and the Far East). This, along with a much greater stake in coastal transportation and off-shore hydrocarbons deposits, will require a much more powerful navy. No wonder Russia has tentative plans to create the world's second largest surface navy within the next two decades, to which purpose a 410x100x14m drydock is currently under construction at Severodvinsk.
The IMF has released its prognosis for the world economy. A slowdown is inevitable, driven by a US correction due to a housing crisis and its contagion of the world financial system.
Global growth will decelerate in 2008, led by a sharp slowdown in the United States, amid a housing correction and a financial crisis that has quickly spread from the U.S. subprime sector to core parts of the financial system, the IMF says in its latest World Economic Outlook.The main emerging market economies will diverge rather than decouple, with growth in China, India, Russia and CEE slowing but not catastrophically so, remaining close to their long-term trend rates.
Citing the unfolding financial market turmoil as the biggest downside risk to the global economy, the April 2008 report said the IMF expects world growth to slow to 3.7 percent in 2008—0.5 percentage point lower than what was forecast in the January 2008 World Economic Outlook Update.
Further, world growth would achieve little pickup in 2009, and there is a 25 percent chance that the global economy will record 3 percent or less growth in 2008 and 2009, equivalent to a global recession.
However, the government is even more optimistic, projecting 7.6% growth for 2008. Considering that Q1 GDP growth was 8.0%, driven as in the year before by consumption and investment, they have grounds for their optimism. On the other hand, CPI (inflation) is rising worrying fast, reaching an annualized rate of 13.3% this March, although it should be noted this is a worldwide phenomenom experienced by China (8.3%), India (8.6%), Czech Republic (7.1%) and Latvia (16.8%).
The Ukraine (26%+) has been hit not only by high food and energy prices, but populist government largesse. (To take their minds off these matters, perhaps that's why Hitler action dolls have gone on sale there, more proof if any is needed of the proclivities to fascism of certain sections of Ukrainian society. Gazprom will probably end 2008 as the company with the world's second highest revenue (around 41.5bn $), similar to the budget of an economic basket case, say, Ukraine (43bn $). (Can't help making these cheap shots, just ignore them if they irritate you).
The IMF has also released new estimates for GDP growth through to 2013. By the end of that period, Russia's PPP GDP should overtake Latvia's and be level-pegging with Poland's. The rise in nominal GDP is projected to be more dramatic (graph lifted off this thread):
The Economist has an interesting graph breaking down GDP increase for major regions in the world by capital, labor and total factor productivity (GDP itself can be expressed as a Cobb-Douglas function of the above 3 components) from a WB report, Unleashing Prosperity.
It is a splendid vindication of the ideas I expressed in Education as the Elixir of Growth. There, I made the argument that the education/'Human Capital Index' (HCI) of each country is matched to a 'potential GDP level'; where there is a large gap between potential and actual GDP, economic growth is highest. This above all explains the impressive economic growth we're seeing in well-educated but relatively poor countries like Russia (once it abandoned its socialist shackles), and explains well the unimpressive growth of countries like Brazil, an badly-educated country with a correspondingly unimpressive economy.
However, the linkages between HCI and productivity are even higher than between HCI and GDP (as GDP also depends on labor and capital inputs, which themselves depend on other demographic and social factors). From the chart, we can see that middle-income CIS countries (of whom Russia is, by far, the largest and most significant) had the largest increases in TFP, thus reflecting the huge gaps in its potential and actual productivity. While China's absolute growth was much larger, almost half of it was down due to increases in labor and capital. However, considering China's recent labor shortages and its unsustainably high investment rates, it is very unlikely that double-digit growth will continue in the near-to-medium future, particularly further taking into account that a) exports will be hit by US recession and b) from 2009 onwards the oil peak will start biting ever harder (as covered above). Latin American countries were the worst performers, seeing no improvement in TFP - in other words, they are about as productive as their levels of human capital allow them to be (without a resource windfall or two).
In a snapshot of other economic and related news, the housing bust has spread to the UK. Haiti's government collapses after food riots - an ominous foreboding of things to come elsewhere? Between 2000 and 2007, median family incomes stagnated in the US, in stark contrast to the period between every other recession (the fact that the 2000's saw a broad consumer boom becomes all the more worrying). The falling dollar has made US assets attractive, and Russia has accumulated around 10% of US steelmaking capacity - although it has not limited itself to the US, but also went on a shopping spree around Germany. Russia may allow the ruble to appreciate to rein in inflation. Moscow's budget is now as big as New York's. Confidence in the economy is increasing. According to the FT, Moscow could become Europe's second financial center (after London) in ten to fifteen years. The Russian 'brain drain' has to a large extent ceased as funding and salaries increase in academia.
On 21st April, Georgia accused Russia of an “unprovoked act of aggression” after a Russian jet allegedly shot down an unmanned Georgian reconnaissance plane over Abkhazia. This came in the wake of Russia stepping up its political representation in the region, while Georgia implicitly compared Western policy towards Russia with Nazi appeasement. Meanwhile Putin urged the West not to 'demonise' Russia. (The IHT has a piece that critisizes US aloof arrogance in its relations with Russia in The Missing Debate.)
Watch the cool video below, it's now every day that you get to see a MiG-29 fire an R-60 missile at CBDR, within visual range and head on.
Presumably Russia wishes to make a statement that it is ready and willing to defend Russian citizens (i.e. the vast majority of Abkhazians, and South Ossetians). It is also Russia's traditional foreign policy level over Georgia - it's separatist enclaves - being exploited. When Georgia pursued a relatively neutralist line towards Russia (under Shevardnadze), Russia kept at arms length from the separatists, but established a military presence in the region. Now that Georgia has received a promise of eventual membership from NATO, however, the levers have been pulled. If Georgia received MAP at the next summit, expect formal recognition of Abkhazia and South Ossetia.
A German man is on trial in Germany for allegedly selling military technology to Russian intelligence. Good to see our spooks hard at work, as always. Speaking of which, the traitor Gordievsky complains of being poisoned. The Russian Army apparently has some serious problems with obesity. Greece agrees to host a section of Gazprom's planned South Stream pipeline. Berlusconi held his first foreign meeting with Putin on 17th April, and Robert Amsterdam penned an acerbic yet interesting portrait of the similarities between the two countries.
The most recent data on Russian and American strategic nuclear armaments, as declared for the START Treaty, is available here. In contrast to the late Soviet period, it is now the US that has a preponderance of platforms. The breakdowns in deployed systems, Russian and US respectively, go as follows: ICBM's (481 to 550); SLBM's (288 to 432); heavy bombers (79 to 243); total (848 to 1225). The breakdown by numbers of deployed warheads is: ICBM's (2027 to 1600), SLBM's (1488 to 3216); heavy bombers (632 to 1098); total (4147 to 5914). The breakdown by throw-weight for ICBM's and SLBM's is 2370MT to 1830MT. In other words, while Russia has a slightly larger overall megatonnage, it has fewer strategic platforms and its missiles are less accurate. This is not yet a critical situation, what with the current international relations paradigm; nonetheless, further investments are necessary, particularly into the submarine and bomber part of the triad as well as ABM, in anticipation of the end of MAD due to the development of effective and comprehensive missile shields - which are closer to fruition, at least in the US, than most people realize. Perhaps I'll write more on this in the future.
An interesting article from the Times on WMD developments in Syria and North Korea.
Foreign Affairs has The Age of Nonpolarity as its kindpin article for May/June.
Summary: The United States' unipolar moment is over. International relations in the twenty-first century will be defined by nonpolarity. Power will be diffuse rather than concentrated, and the influence of nation-states will decline as that of nonstate actors increases. But this is not all bad news for the United States; Washington can still manage the transition and make the world a safer place....Indeed, one of the cardinal features of the contemporary international system is that nation-states have lost their monopoly on power and in some domains their preeminence as well. States are being challenged from above, by regional and global organizations; from below, by militias; and from the side, by a variety of nongovernmental organizations (NGOs) and corporations. Power is now found in many hands and in many places...Today's world is increasingly one of distributed, rather than concentrated, power....Getting everyone to agree on everything will be increasingly difficult; instead, the United States should consider signing accords with fewer parties and narrower goals. Trade is something of a model here, in that bilateral and regional accords are filling the vacuum created by a failure to conclude a global trade round. The same approach could work for climate change, where agreement on aspects of the problem (say, deforestation) or arrangements involving only some countries (the major carbon emitters, for example) may prove feasible, whereas an accord that involves every country and tries to resolve every issue may not. Multilateralism à la carte is likely to be the order of the day.
I agree that the US is in relative decline and about the rise of multilateral pragmatism in diplomacy. Nonetheless, I question the thesis that state power is eroding. The state remains as strong as ever, and far stronger than their equivalents a hundred years ago. Several European nations take in more than 50% of their GDP in taxes. This rate in the distant past was only reached during times of total war, e.g. WW2. States are most certainly not "challenged" by either global organizations (which are simply assemblies of states where they can seek concensus), militias (which have always existed) or NGO's (which operate under statal jurisdictions).
Putin has become leader of United Russia, in addition to being the Prime Minister. Sean's Russia Blog already has an excellent analysis in Gensek Putin (which also features a nice little demographics discussion in which my posts on the matter were mentioned).
That of course raises the issue of whether a nothing party like United Russia will actually give Putin something. As Konstantin Sonin noted in the Moscow Times, leading United Russia wouldn’t necessarily give Putin any guarantee over controlling the government. “The party has nothing to offer Putin in his struggle for power,” says Sonin......The chairman position gives Putin virtually unlimited power within UR. Putin will have the power to appoint party leaders and suspend their powers, and override any party decision expect for those adopted at congresses. His removal is only possible with a 2/3 congressional vote.
If Putin can be taken at his word, he has plans for United Russia. In his address to the Congress he stated that the party of Power needed to “reform itself become more open for discussion and for taking into account the opinion of the electorate, it must be de-bureaucratized completely, cleared of casual people pursuing exclusively their own material gains.” Look out, there’s a new sheriff in town.Plans have already been set in motion for the recognition of internal factions. Three “clubs” have been created within United Russia to represent its right, center, and left. There is the Center of Social Conservative Policy, headed by Andrei Isaev, the liberal-conservative “November 4th” club led by Vladimir Pligin, and the State-patriotic club led by Irina Yarovaya. Whether these clubs will actually mean anything in terms of inter-party dialog remains to be seen.
Putin’s chief task, if he chooses to take it, will be to rid the party of what he calls “corrupt people.” A task easier said than done. Historically, attempts to clean up party corruption have horribly failed. Often the anti-bureaucratic campaigns, purges, and even arrests within the Communist Party created more corruption. And like the Communist Party of the past, United Russia seems allergic to any real cracking down on its corrupt members. Last week, the United Russia dominated Duma rejected a bill which would require deputies to declare the incomes and property of their relatives up to three years after leaving office. Hiding wealth and property in the names of family members is a common, albeit crude way, of hiding corruption.
Basically, if Putin actually decides to lead United Russia, he’s going to have his hands full. Just because he is the almighty Putin doesn’t mean he will be successful.
Michael Averko has an excellent article in American Chronicle, Ukraine and "Russophobia" Uncensored, which covers more on the Annals of Western Hypocrisy (which goes on and on, World and Time without End). I've quoted the first three paragraphs:
Since the Soviet breakup, Ukraine has been geo-politically spun in two ways. When Ukraine's less Russia friendly side appears to have enhanced its stature, there is an increased yearning to drive Ukraine away from Russia as much as possible. When Ukraine's more Russia friendly grouping seems strengthened, there is greater talk of mutual respect for the two Ukrainian ways of viewing Russia. Another Ukrainian perspective falls somewhere in between the two.On NATO expansion, "the will of the people", takes a back seat for the Russia unfriendly crowd. The Orange Ukrainian government's desire to have Ukraine in NATO has consistently run contrary to the majority of its citizenry. The explanations for this unpopularity include a not so well informed Ukrainian public, caught in a Cold War time warp.In comparison, there is little second guessing of polls showing that most Ukrainian citizens have a positive attitude on their country joining the European Union (EU). For some, Ukrainians are ignorant when stating apprehension about NATO and knowledgeable upon agreeing with the anti-Russian consensus; albeit for not always the same reason.
Sean's Russia Blog has comprehensive coverage of the Putin / Kabaeva rumors. Also a story about the hobbies of Russia's nanotechnologists, e.g. building marchhead-sized chess sets.
Demographic stats from Rosstat have come out for Jan/Feb 2008. While the birth rate increased by 11.3%, so did the death rate by 2.6%, reaching 15.8 / 1000 from 15.4 / 1000 in 2007. Seems that January was not an anomaly - the rapid improvements seen since 2005 have petered out, at least temporarily. But this is not totally unexpected, however. As I noted in my demographics posts, there is a very close correlation between mortality and the alcohol/food price ratio. Overall inflation in Jan-Feb was 3.5%, food price inflation was 3.6%; but the price of alcohol increased by 1.9%. The alcohol/food price ratio has fallen further, perhaps to its lowest ever historical level. In other demographic news, in 2006 there were 1.6mn abortions in Russia, hugely down from the 1990's but still 2 to 3 times higher per capita than in the West.
Finally a few public opinion polls. In February 2008, PEW released figures that showed 63% of Russians preferred a strong leader over democracy, down from 70% and 21% respectively in 2002, but a lot higher than in 1991, when a majority (51%) favored a democracy over a strong leader (39%). 74% would rather have a strong economy, while only 15% would like a good democracy. Ukraine, Bulgaria and even Poland show similar figures. In another rather interesting result, half of Russians agreed with the statement that 'most people in society are trustworthy', which is higher than the average for Eastern Europe and about average for Western Europe.
59% of Russians (almost certainly correctly) say there is no life on Mars, while 26% disagree. 49% of them believe that there'll be a human on Mars and 59% think there'll be a lunar base within the next 50 years. (Russia, like the US and China, has tentative plans for both enterprises). A new 'Space Competitiveness Index' (whatever that means) has been compiled, in which Russia takes third place behind the US and Europe. China is fourth.
