New centers of power have emerged, the unipolar world order is not coming back, and the “colonial” way of thinking has failed, Russian President Vladimir Putin told the St. Petersburg International Economic Forum (SPIEF) on Friday.
When the U.S. declared victory in the Cold War, Americans designated themselves the “messengers of God on earth,” with interests that should be considered sacred and no obligations, Putin told the audience at SPIEF. New centers of power have since emerged, and have the right to protect their own systems, economic models and sovereignty.
These “truly revolutionary, tectonic changes in geopolitics, the global economy, in the technological sphere, in the entire system of international relations,” are “fundamental, pivotal and inexorable,” Putin said. “And It is a mistake to suggest that one can wait out the times of turbulent change and that things will return to normal; that everything will be as it was. It will not.”
When the U.S. and its allies launched the campaign to “cancel” Russia over the conflict in Ukraine, they hoped to crash and undermine the Russian economy and society. The sanctions have instead boomeranged on their creators, aggravating social and economic problems, driving up the cost of food, electricity and fuel, and hurting the quality of life across the West, but especially in Europe.
“The European Union has completely lost its political sovereignty, and its bureaucratic elites are dancing to someone else’s tune, accepting whatever they are told from above, causing harm to their own population and their own economy,” Putin said.
EU citizens will pay the price for “decisions divorced from reality and taken contrary to common sense,” he added, as direct losses from the sanctions alone could exceed $400 billion in a year.
Blaming the high energy prices and inflation in the West on Russia – “Putin’s price hike,” as the White House put it – is a “stupidity” and “designed for people who cannot read or write,” the Russian president said.
“Don’t blame us, blame yourselves,” Putin said.
According to the Russian leader, both the U.S. and the EU addressed the Covid-19 pandemic by printing trillions of dollars and euros.
Policies undertaken by EU and U.S. leaders are exacerbating inequalities and divisions in their societies, not just in terms of welfare but in terms of values and orientations of various groups, Putin said.
“Such a detachment from reality, from the demands of society, will inevitably lead to a surge of populism and the growth of radical movements, to serious social and economic changes, to degradation and, in the near future, to a change of elites,” the Russian leader said.
U.S. and EU sanctions against Russia – in particular fertilizer and grain exports – are one of the reasons for growing global food insecurity, Putin pointed out. If there is famine in the world’s poorest countries, “this will be entirely on the conscience of the US administration and the European bureaucracy.”
Troubles with food supply have arisen over the past several years – not months – due to the “short-sighted actions of those who are accustomed to solving their problems at someone else’s expense,” distorting the trade flows by printing money in a sort of “predatory colonial policy,” Putin said.
Russia is ready to send food to Africa and the Middle East, where the threat of famine is most acute, but faces “logistical, financial, transport” obstacles imposed by the West, he said.
Russia sent troops into Ukraine in February because the West refused to abide by its obligations, and it was “simply impossible to reach any new agreements with them,” Putin said. The decision was “forced, but necessary,” as Russia had every right as a sovereign country to defend its security and protect its citizens and residents of Donbass from “genocide by the Kiev regime and neo-Nazis who received the full protection of the West.”
The West spent years turning Ukraine into an “anti-Russia” state and pumping it with weapons and military advisers, Putin said, pointing out they “did not give a damn” about Ukraine’s economy or the lives of its people, but “spared no expense to create a NATO foothold in the east, directed against Russia, to cultivate aggression, hatred and Russophobia.”
“All the objectives of the special military operation will be unconditionally achieved,” Putin said.
In the 21st century, sovereignty cannot be partial, Putin argued. All of its elements are equally important and complement each other, and the economy is one of them. There are five key principles Russia will follow in economic development: Openness, freedom, social justice, infrastructure, and technological sovereignty.
Russia will “never follow the path of self-isolation and autarky,” but will expand interactions with anyone who wishes to trade, Putin said, adding there are “many such countries.” Moscow will also support private enterprise, build and repair its transportation infrastructure, seek to reduce social inequality, and ensure its key technologies are not dependent on foreign imports.
“Truly sovereign states are always committed to equal partnerships,” while “those who are weak and dependent, as a rule, are busy looking for enemies, planting xenophobia, or finally losing their originality, independence, blindly following the overlord,” he said.
We Must Be Ready To Fight In Europe Once Again, Says New British Army Chief
The new head of the British Army warned soldiers that they must prepare “to fight in Europe once again,” comments that take new meaning as Russia’s war against Ukraine continues to rage on.
General Sir Patrick Sanders, who started in the top position on Monday, addressed troops and civil servants for the first time in an internal message on Thursday.
In the rallying cry, published by BBC News, the commander said: “Russia’s invasion of Ukraine underlines our core purpose to protect the UK by being ready to fight and win wars on land. There is now a burning imperative to forge an army capable of fighting alongside our allies and defeating Russia in battle.”
He added, “We are the generation that must prepare the Army to fight in Europe once again.”
Sanders noted in his message that he is the first chief of the general staff since 1941 to “take command of the Army in the shadow of a land war in Europe involving a major continental power.”
He set goals, including mobilizing and modernizing the army in a bid to boost NATO’s defense and to “deny Russia the chance to occupy any more of Europe.”
Sanders is leading the smallest army Britain has had for over 300 years, a period of time that stretches through the Cold War and into its reign as a global colonial power. In March, data from the Ministry of Defense showed that between October 2021 and January 2022, the number of soldiers in the U.K. Armed Forces dropped by 1,800 — to just over 197,000.
Later that month, Defense Secretary Ben Wallace announced a future vision for the British army, which included £3 billion (about $3.7B) to be spent on new long-range rocket systems and air defenses, as well as £120 million (about $147M) for creating new Ranger Regiments.
German Industry Calls for Ensuring Its Gas Supply
Germany’s chemical and pharmaceutical industry called for “using all opportunities” to replace natural gas with other fuels after Russia limited supplies. VCI, the industry national association, singled out switching gas-fired power generation to coal.
While the industry is Germany’s single biggest natural-gas consumer with a 15% share nationally, it isn’t facing acute supply problems yet, VCI said in a statement.
U.S. Oil Reserves Running Low
The U.S. oil stockpile is forecast to dwindle to a 40-year low by October.
Washington has been actively selling from its Strategic Petroleum Reserve (SPR) over the past year to keep energy prices from rising even higher, Bloomberg reported on Friday, noting that the government can’t keep tapping the reserves forever.
According to the report, over the past year almost 115 million barrels were released into the market. Those sales have soared to a record high of nearly one million barrels per day since mid-May. At the current rate, the United States is selling more barrels from its reserve than the production of most medium-sized OPEC countries, such as Algeria or Angola.
The SPR contains two kinds of crude: medium-sour, which is the quality of crude pumped by Russia, most Middle Eastern countries and Venezuela, as well as light-sweet crude.
Bloomberg’s analysis of official data showed that 85% of the oil sold from the SPR over the past year has been medium-sour. Those sales have reduced the amount of crude inside the reserve “dramatically.”
If Washington sticks to its current pace, the reserves will shrink to a 40-year low of 358 million barrels by the end of October, when the releases are due to stop. A year ago, the SPR, located in four caverns in Texas and Louisiana, reportedly contained 621 million barrels.
“As the oil market looks today, it’s difficult to see how Washington can halt sales in October. Removing that additional supply would mean commercial inventories quickly deplete, putting upward pressure on oil prices,” says the report.
According to OilX estimates, cited by Bloomberg, by the end of October the SPR will hold only 179 million barrels of medium-sour crude. This means that during the period from June 2021 to October 2022, the U.S. is likely to sell about 180-190 million barrels of medium-sour crude from its reserves.
Putin’s Preparation For Decades
A Business Insider report — It’s no surprise Russia is weathering the West’s sanctions: Putin has been preparing for them for nearly a decade — said:
Economists have been predicting an implosion of President Vladimir Putin’s economic regime since the West hit Russia with sweeping sanctions over its invasion of Ukraine. But three-and-a-half months into the war, Russia has been holding up — with Putin announcing on June 7 that inflation has slowed and unemployment has held steady.
It helps that Russia is an energy powerhouse that’s still posting bumper sale revenues thanks to soaring oil prices. Even without an energy windfall, Russia could in the near-term be buffered from sanctions. That’s because the country has been sanction-proofing itself since 2014 when it was also hit with a raft of trade restrictions after it illegally annexed Crimea from Ukraine.
Putin has “refashioned the Russian economy into a fortress” to weather external shocks, wrote Veronica Carrion, an economic researcher at the American Bankers Association (ABA) in an ABA Banking Journal post on June 13.
The report said:
Some experts have cast doubt on the reliability of Russian statistics since the start of the war. “The Russian government obviously has an incentive to try to hide the economic impact of Western sanctions,” said Andrew Lohsen, a fellow in the Europe, Russia, and Eurasia Program at the Center for Strategic and International Studies.
Even if the economy’s holding up as well as it appears, Russia could still eventually run out of time when the commodities rally stall and as the West’s intensifying sanctions gnaw their way through the system. But for now, the country is showing unexpected resilience from a range measures, such as padding up its reserves and weaning off foreign capital.
The report added:
Here’s what Russia has been doing in attempts to sanction-proof its economy.
Moscow has been padding up reserves and stashing up gold
Before the invasion, Russia held the world’s fifth-largest foreign currency and gold reserves pile worth about $630 billion, according to the Bank of Finland Institute for Emerging Economics. “This stockpile can cover the government’s balance sheet and support the ruble,” wrote Carrion.
Russia has lost access to about half of that amount due to sanctions, the country’s finance minister said in March. But there is still lots of physical gold stashed up in the country — which is also the world’s second-largest producer of the precious metal.
Russia’s gold holdings have tripled since 2014, and they are all stored in vaults at home, according to the central bank. The US has sanctioned Russian transactions using gold, but that wouldn’t stop “opportunistic countries” from doing business with Moscow, wrote Carrion.
Russia’s also continuing to pad up some reserves in the form of its emergency funds — thanks to a windfall from its oil and gas sales. In April and June, it added $12.7 billion to its emergency reserves. These funds will be used to ensure stable economic development amid sanctions, Reuters reported on June 9, citing a Russian government statement.
Russia has been weaning itself off foreign capital and paying down debt
Beyond saving up, Russia has been weaning itself off foreign capital by aggressively paying down debt over the last eight years, wrote Gian Maria Milesi-Ferretti, a senior economics studies fellow at the Hutchins Center on Fiscal and Monetary Policy on March 3. The country is now a net creditor on the international markets, he added.
“Vladimir Putin is allergic to borrowing money,” Andrew Weiss, a Russia expert at the Carnegie Endowment for International Peace, told NPR’s “Money Planet” in February. “He’s not looking to use the banking system in Russia or access to Western capital to make Russia great.”
Russia’s foreign debts are pretty low. The government owed about $39 billion in foreign currency bonds at the end of 2021, JPMorgan estimated. In comparison, Greece defaulted on 205.6 billion euros ($277.5 billion) in sovereign debt in 2012.
As for Russia’s overall national debt, it’s just at 17% of GDP — well below triple-digit figures for many developed countries and mostly denominated in rubles. So, the country “doesn’t really need to borrow,” wrote Anton Tabakh, chief economist at Russian ratings agency Expert RA on the Carnegie Endowment for International Peace website on June 15. US national debt is at about 130% of GDP, per Statista.
The biggest problem Russia has now is paying its foreign debts because of restrictions caused by sanctions, added Tabakh. Once that’s solved, Russia and its companies will be able to pay down its debt, and the country’s own resources “should be sufficient to cover the needs of the budget, banks and corporations,” he added.
Russia is turning inwards to economic self-sufficiency
Russia’s turning inward as it has become an international pariah — but, as a huge producer of commodities, its economy won’t crumble entirely — even though growth will be slow and low, said Hassan Malik, a senior sovereign analyst at Boston-based investment management consultancy Loomis Sayles.
“Russia is one of the few countries in the world that can engage in autarky,” Hassan told Insider. He was referring to the notion of economic self-sufficiency. The country is a major producer of crude oil, natural gas, wheat, and metals like nickel and palladium.
To counter an exodus of international companies that have taken their goods and services with them, Russian entities have taken over the firms and are substituting their products with homegrown offerings.
For instance, the city of Moscow and a Russian state-backed group took over French carmaker Renault’s operations in the country for the nominal sum of 2 rubles (3.5 cents.) They plan to revive a Soviet-era car brand with the manufacturing facilities, the city’s mayor, Sergei Sobyanin, said in a blog post.
But Russia’s economic situation will still be very tough. Putin himself said on June 9 that substituting imports with locally produced goods “is not a panacea,” the AFP reported. He said Russia will look for new trading partners and continue developing its own industries for “critically important technologies.”
The breadth and scope of current sanctions go far beyond those imposed in 2014, so they “will impose very severe costs on the Russian economy,” wrote Milesi-Ferretti in his March 3 post.
Russia’s economy is expected to shrink 8.5% in 2022, with a further decline of 2.3% in 2023, the International Monetary Fund projected in an April report. That would be the economy’s largest decline since the years following the fall of the Soviet Union in 1991.
