Deadly Dominoes: Who Falls Next?
By Shlomo Maital
According to Reuters News Agency, “a prominent opponent has warned Vladimir Putin his days in power are numbered, as Russia awaits the president’s response to the dramatic decline of the rouble. Putin has been silent as the currency collapsed against the dollar.”
It’s that old déjà vu all over again. Remember August 1998? Russia defaulted on its foreign debt, after the price of oil collapsed. Oil prices, in turn, fell, because of Thailand’s crisis in July 1997 (which saw the baht devalued from 25 per dollar to over 50), leading to the so-called “Asian Contagion”, in which other Asian currencies fell and Asia went into recession. As Asian demand for oil fell, so did the price – toppling the Russian domino. Russian, in turn, would go on to topple Brazil, Argentina…and so on….
And it is more or less recurring. The cause of Russia’s crisis, this time, is not Asia, but rather Russia’s leader Vladimir Putin, whose adventure in Crimea and Ukraine has proved costly. The Russian people appear to believe that it is all a Western conspiracy to wound Russia. But in fact, it is in part a Saudian Arabian move, done not infrequently by that country, in order to bash oil prices down and hurt the Return on Investment for alternative energy forms that compete with its oil. By keeping oil prices unstable and variable, Saudi Arabia can mess up the boom in fracking, wind, solar and other energy forms. And at the same time, no one in Saudi weeps if Iran’s economy is badly hurt, along with that of Russia – and America’s enemies in general are also damaged. This episode has happened before – a sharp fall in the price of oil helped disassemble the USSR in 1989-91.
Meanwhile, the dominos continue to fall. Israel’s agricultural exports are badly hurt by the falling ruble. Turkey’s currency hits a record low against the dollar. Bonds of oil companies Petrobras, Pemex and Gazprom plummet and yields soar. Investors bail out of emerging markets, even those that are solid. This is a problem – emerging market companies sold $1.7 trillion in bonds since 2009. Petrobras’ debt is especially high.
Bottom line: No reason to rejoice over Russia’s woes, even if you dislike Putin. In the end it is always the people who suffer. Once again, we learn that adventurous leaders can ruin countries, even large nuclear ones. And it is the citizens who pay the price. Once again, we learn that we live in a global village, where dominos fall continuously and sometimes in ways we cannot predict or even imagine.