The Strange Case of Dr. Vladimir and Mr. Putin
Economic warfare in the Baltic Sea and in the states is as old as the Vikings – and its long history continues as Finland and Sweden’s impending NATO membership is reshaping the region. While many focus on the sizable military challenges that a bigger and stronger NATO will pose for the Kremlin, the immediate and lasting peril for Moscow will be economic. Russian President Vladimir Putin’s ill-advised invasion of Ukraine not only places Moscow’s vital Baltic maritime trade under increased threat from a NATO blockade, it also seriously, if not permanently, destroys the development of the centerpiece of his ambitious vision of restoring Russia. like a great power: the 3,500 miles Northern Sea Route (NSR).
Since Putin came to power in August 1999, he has been very “Dr. Jekyll and Mr. Hyde” in his dictatorship and governance of Russia, going from a grandiose economic visionary to a petty dictator determined to conquer territory and/or or domination, as evidenced by its forays into Ukraine, Syria, Crimea, Chechnya and Georgia. Apparently he is unable to reconcile the two, and while the Russian economy, corrupt as it is, is necessary to achieve the former, the latter is destroying the Russian economy. Nowhere is this self-destructive conflict more evident than in Putin’s brutal and reckless decision-making in Ukraine – and the corresponding outsized economic disaster it creates for Russia in the Baltic Sea and the NSR.
Like almost all oil states, Russia relies heavily on energy exports as a percentage of its gross national product (GDP). Depending on fluctuations in commodity prices, energy exports represent 10 percent to 25 percent of Russia’s overall annual GDP. Prior to Putin’s “special military operation” in Ukraine and subsequent Western sanctions, oil and gas exports accounted for 50-60% of all Russian exports – and 70-85% of those fossil fuels transited either by the Baltic Sea, the Black Sea or the Arctic Ocean.
Not all GDPs are equal – currency producing GDP is inherently exponentially more valuable. Russia’s seaborne oil and gas trade and the strong foreign currencies it has generated have been a critical factor in proactively protecting, if only temporarily, Russia’s trade markets from the United States and the US. EU punishments. It will again be needed to rebuild Russia’s shattered war economy. Moscow, in its pre-war heyday, would have raised $633 billion from oil and gas exports in foreign exchange reserves – fourth in the world at the time.
It will be difficult to replace lost oil and gas revenues. As it stands, Moscow is facing severe disruption to shipping in the Black Sea and elsewhere due to its invasion of Ukraine – as much as a 55% decrease in inbound freight traffic. Putin cannot afford to be dragged into a deeper conflict with NATO in the Baltic Sea over Finland and Sweden.
Despite Putin’s caustic affirmation that Russia was no longer a “gas station” in December 2020, Putin (uninterrupted since 2007) made the capitalization of oil and gas reserves the cornerstone of his master plan to restore Moscow to its status as great power – including using a Russian Mir mini-sub in August 2007 to ostensibly plant a “rustproof titanium flagon the seabed of the North Pole in support of its UN-contested claim to all oil and gas rights to the pole. Indeed, the entire foundation of Putin’s great power resurrection rests on the revival of former Soviet dictator Joseph Stalin.arctic reddreams of dominating the Arctic polar region and exploiting the NSR.
In May 2018, Putin began to give weight and shape to his vision of oil and gas exploitation and year-round shipping for the NSR – ordered “By 2024, freight flows along the NSR are expected to increase to 80 million tonnes.” In December 2019, then Russian Prime Minister Dmitry Medvedev launched Putin’s master plan in pass legislation to the Duma for a [15-year] Modernization and expansion plan of the main infrastructure developing the NSR. Even in Ukraine, Russia has continued to push for foreign investment in NSR bricks and mortar projects, including offering $41 billion. tax relief for the Rosneft Vostok oil field and 300 billion dollars incentive package “to provide new incentives for new ports, factories and oil and gas developments on the coasts and in the waters of the Arctic Ocean.”
Despite the extreme fluctuation oil and gas prices during the COVID-19 pandemic and a pronounced global transition to renewable energy that followed, Russia also continued to invest steadily in its Baltic fossil fuel port systems, including in July 2021 assignment $2.1 billion to dramatically expand Primorsky, Russia’s largest Baltic seaport, increasing the capacity of its oil and gas offloading terminal by 20%.
Then came Ukraine – and everything in the Baltic and in the NSR fell apart for Putin. Finland and Sweden are shaken by the invasion and have applied for NATO membership. Russian oil and gas exports fell precipitously in the Baltic and elsewhere – and NSR oil and energy investors fled in a mass exodus, including PBwhich is taking a $25.5 billion pre-tax charge from its profits in connection with the sale of its 19.75% stake in Rosneft, a Russian state-owned company.
In Terms of Robert Louis Stevenson, the statesmanship of Dr. Vladimir in the Baltic Sea and the NSR was undermined and lost by Mr. Putin in Ukraine. Supply chain issues, sanctions, foreign divestments and lack of capital could soon turn NSR infrastructure projects into “ghost towns.” Yes, Mr Putin has options. He could arm the Iskander M missiles with nuclear warheads in Kaliningrad and/or build up a significant number of ground forces there to threaten the Suwałki Gap in order to potentially prevent the Baltic states from reinforcing NATO forces – however, Dr. Vladimir can no longer afford the cost.
If this were a novel, Dr. Vladimir would come to his senses and realize that Mr. Putin’s temerity is strengthening and developing NATO, and will soon lead to the stationing of NATO troops along the Finnish border. of 830 miles with Russia – just 443 miles from Murmansk in the NSR – dashing his dreams of restoring Russia as a great power by making the NSR a profitable commercial reality. But this is not fiction. Putin is at war with himself and cannot see it. Meanwhile, Russia’s GDP is expected crazy contract between 8.8% and 12.4% in 2022.
Mark Toth is an economist, historian and entrepreneur who has worked in banking, insurance, publishing and global commerce. He is a former board member of the World Trade Center, St. Louis, and has lived in US diplomatic and military communities around the world, including London, Tel Aviv, Augsburg, and Nagoya. Follow him on Twitter @MCTothSTL.