Russia’s radioactive fallout

The threads of Russia’s financial fabric are beginning to unravel

EDMONTON, AB, Mar 24, 2014/ Troy Media/ – Russian President Vladimir Putin is openly contemptuous of the sanctions imposed by the U.S. and the European Union on his country in response to his armed annexation of Crimea.

In fact, he was smiling and cracking jokes on Thursday, planning to open a personal bank account at Bank Rossiya, the Russian financial institution named in the U.S. sanctions.

As we’re all beginning to realize, Putin is a violent Strong Man who sees the world through the lens of power. And it’s clear he views Western sanctions as yet another weakness to be exploited.

He’s now toying with the Western media. In a remarkable act of Orwellian double-speak, Putin’s chief spokesman, Dmitry Peskov, declared, “We aren’t looking for a confrontation, and are not the source of the sanctions.”

No, Russia is not responsible for these pitiful sanctions. However, what is becoming more obvious every day is the official sanctions are the smallest part of a massive tectonic shift that’s silently taking place in the global political economy.

What the Russians have miscalculated is how ‘radioactive’ they’ve become and how that will lead to further isolation with very damaging consequences for Russia and world peace.

The troubles for Russia have started in the world of finance. The Russian stock market is in free fall and the Ruble has weakened significantly: no problem according to officials in Moscow. But the threads of the financial fabric are beginning to unravel.

Thousands of little things are taking place behind the scenes. Russian banks, for example, have been cut off by Visa and MasterCard processes services, while Western bankers are suddenly becoming (not before time) suspicious of Russian capital transactions. It’s all part of a de-coupling of Russia from the global financial system.

Business dealings between Western and Russian companies now carry new and unwelcome political risks. Boeing and General Electric are questioning the security risks behind their supply of aircraft and sophisticated technology to Russia; both have calculated (rightly) that if the international situation turns for the worse it could seriously damage their businesses. They haven’t cancelled any contracts yet, but they’re reviewing their position and certainly not entering into new agreements.

Europeans have long wondered if Russia would use its privileged access to their energy markets as a political weapon – now they have their answer. Although no one is rushing to close the pipelines, finding alternatives to reduce dependency on Russian suppliers are now top priority.

Russian businesses are also starting to feel the heat.

Gunvor, a (Russian-owned) Switzerland-based energy trader, transacts billions of dollars a year and its networks extend deeply into the global energy system. Today, it’s in damage control mode.

As it is just human nature to take steps to reduce your commercial risk, Gunvor’s traders are being frozen out of deals. No London or New York energy trader wants to do business with a counterparty whose owner is on the U.S. sanctions list and whose creditworthiness could vanish in a heartbeat.

So, the deals the company can make are shorter term and less profitable. Not the end of the world for Gunvor, but clearly the top of a very long and very slippery slope.

The political fallout is also serious. While nobody is blowing up the G8, yet, it’s now clear that it’s really the G7 +1 antagonistic neighbor, which will not last for long in the absence of Russian concessions on the use of force.

As Russian ‘radioactivity’ sweeps across the world, it will inflict much greater pain than the official sanctions. Whether it will make a significant difference to the eventual outcome depends upon how skillfully the Russians play western nations against one another.

None of this was particularly difficult to predict. The big question is why would Putin use naked force to secure a prize he could have won legitimately? My guess is, Putin plans to ride a wave of Russian nationalism and become President for Life.

But like many other devious plans, this one could backfire. What’s changed today is our clarity of vision; there is now no doubt in anyone’s mind about whom we are dealing with.

Perhaps, like the shocking Arab Spring, what we’re seeing is the long anticipated privatization of foreign policy, as the public unofficially takes its revenge for the Rape of the Ukraine.

Robert McGarvey is an economic historian and co-founder of the Genuine Wealth Institute, an Alberta-based think tank dedicated to helping businesses, communities and nations built communities of wellbeing. Robert is the author of The Creative Revolution, an historical guide to the future of capitalism.

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