Probe International in the News

Russia’s rise

Far from being marginalized, Russia is winning friends and trading partners around the world.

This article, by Lawrence Solomon, first appeared in the National Post

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To hear Western commentators say it, Putin and Russia are on the ropes, reeling from a one-two punch of sanctions over Ukraine and low oil prices that leaves them, in words broadcast on countless media outlets, “isolated from the international community.”

Some isolation. Putin’s Russia, despite the country’s economic woes, is today more influential, and held in higher regard on the world stage, than it has been in a generation.

This week Putin arrived in Cairo to a pomp-filled ceremony marked by a 21-gun salute and 200 school children calling out his name. The occasion marked a host of trade initiatives that includes Russia’s sale to Egypt of four nuclear reactors, liquefied natural gas and arms; the creation of a Russian industrial zone near Suez; and Egypt’s entry into the Russian-led free-trade zone known as the Eurasian Economic Union.

More than a trade and investment bonanza, this is a diplomatic coup. Putin has brought Russia back to the Middle East big time. Not only are relations once again excellent with Sunni Egypt, the Soviet Union’s closest Arab ally until the 1970s and the largest Arab nation in the world, but Russia also has strong ties with Iran, the world’s largest Shiite nation. And to round out the welcome from the region, Russia has excellent relations with Israel, which it no longer needs to shun to gain favour with Arab states. Putin has established a hotline to Israeli Prime Minister Netanyahu’s residence, has twice visited Israel, and has seen trade between the countries blossom: Israel supplies Russia with drones, is key to Russian hopes for Skolkovo, Russia’s Silicon Valley, and is expected to soon join the Eurasian Economic Union.

Russia’s biggest trade plays, though, lie further east, in fast-growing Asian economies where Putin is both feted and formidable. Trade with China, Russia’s largest trading partner, rose 6.8% last year to almost $100 billion, a trend likely to continue given the high-profile signing by Putin and Chinese President Xi of a $400 billion deal to export Russian gas to China over a 30-year period.

Trade and diplomatic relations have likewise been growing with India, which inked 20 agreements with Russia last year, including December deals worth $100 billion for the sale of 12 nuclear reactors and increased shipments of oil and natural gas. “The steadfast support of the people of Russia for India has been there even at difficult moments in our history, it has been a pillar of strength,” Indian Prime Minister Narendra Modi said in sealing the deal. “India, too, has always stood with Russia through its own challenges.” To underline India’s support for Russia in the conflict over Ukraine, India unveiled the formation of an Indo-Crimean Partnership to foster trade between India and Crimea, now a Republic in the Russian Federation. Like Israel and Egypt, India intends to join the Russian-led free trade zone.

The collapse of oil prices, and to a lesser extent Western trade sanctions over Ukraine, has badly bloodied Russia’s economy — its GDP is expected to contract by 3 to 5% in 2015. But trade sanctions have been a two-way street — Russian counter-sanctions cost the German economy an estimated 8 billion euros in 2014, explaining why Germany and negotiating partner France capitulated to most Russian demands over Ukraine in the peace deal announced yesterday. The West may not like Putin but it needs him. And unlike in the pre-Putin era, it can no longer treat Russia with condescension.

If the Ukraine peace agreement holds and sanctions lift on Russia, its economy will continue to be hard hit because of low oil prices — this has been the fate of all economies, national or provincial, that have been overly dependent on one commodity. But Russia will not be down for the count, far from it, despite the $80 billion that it spent in 2014 in attempts to defend the ruble against collapse. With remaining reserves of $400 billion, Russia can adapt and easily hold out until oil prices recover — as will happen when growth returns to the Western world’s economies. Russia will then be back, more consequential than ever on the strength of its many friends and trading relationships around the world.

Lawrence Solomon is a policy analyst with Probe International. Email: Follow on Twitter: @LSolomonTweets

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