What are grown-up investors to make of relations between Russia and the West? The rhetoric emanating from politicians and media commentators, in the US and UK at least, seems to be drawn from another era. Mainstream British and American newspapers are full of coverage about the Kremlin’s connections to US President Donald Trump, Secretary of State Rex Tillerson and Trump’s former National Security Advisor Michael Flynn. Some headlines go into full Cold War retro mode, talking of spy swaps and “Soviet agents”.
Russia’s official media has, typically, responded in spades. Against the background of the Ukraine crisis and related sanctions, accusations of “Kremlin meddling” in the US election have been met with more, even harsher, anti-Western rhetoric from Moscow. Such spiralling paranoia makes it seem like we’re through a bizarre re-run of the halcyon days of McCarthyism and Mutually Assured Destruction.
“This station was reopened not by the government, but by the struggles of its employees,” said Greek prime minister Alexis Tsipras on Thursday. “It’s a celebration of democracy”.
Writing from Athens, it’s hard to miss the sense of defiance felt by many Greek people, coupled with grim satisfaction. Having been closed as part of the International Monetary Fund’s (IMF’s) austerity drive two years ago, the Greek state broadcaster, ERT, has just gone back on air. “Today we must all be happy and look forward with optimism,” said Tspiras, as he visited the station, taking to its airwaves to note that “fair struggles are eventually vindicated”.
“Be careful what you wish for, because you just might get it”. Some say this aphorism has Spanish origins. Others attribute it to Oscar Wilde. Wherever it comes from, as sayings go, this one contains much truth. Getting what you want can indeed have unseen and unpleasant consequences. That’s worth remembering, as we celebrate cheaper oil, while watching the Russian rouble plunge.
Since mid-summer, the rouble has largely tracked the decline in global oil prices. Last week everything changed. Crude remained stable but the Russian currency collapsed, losing a third of its dollar value in a day. Responding to “Black Monday”, Russia’s central bank hiked interest rates from 10.5pc to 17pc.
After months of escalating tensions over Ukraine and talk of a new cold war, Russia and the West could soon reach a sanctions rapprochement. The eurozone economy is suffering badly and sanctions are partly to blame. Winter is also upon us, and that reminds everyone Vladimir Putin still holds the cards when it comes to supplying gas.
The clincher, though, is that Kiev is in a deep financial hole and fast heading towards financial meltdown. Unless an extremely large bail-out is delivered soon, there will be a default, sending shockwaves through the global economy. That’s a risk nobody wants to take – not least in Washington, London or Berlin.
The partial ceasefire in Donbas and Lugansk has done little to ease the East-West information and diplomatic argy-bargy relating to Russia and Ukraine. If anything, the rhetorical exchanges have become more testy during September, after the EU and US expanded their sanctions program. This happened after the ceasefire – patchy, but thankfully still holding – was agreed between Kiev and rebel-fighters in East Ukraine.
The new measures are designed to target top state-owned energy, defence and financial services companies – including Gazprom, Lukoil, Rostec and Sberbank. The list of Russian officials subject to asset freezes and travel bans has also been extended. “Given Russia’s direct military intervention and blatant efforts to destabilize Ukraine, we’ve deepened our sanctions, in concert with our European allies,” said US Treasury Secretary Jacob Lew.
After three rounds of US-inspired sanctions against Russia, Moscow has finally retaliated. We’re now on the brink of a fully-blown East-West trade war. Since March, the West has imposed successive travel bans and asset freezes on various lawmakers and other prominent individuals – the most wide-ranging restrictions on Russian commerce since the Soviet era. In late July, the screw was turned even tighter, as America and then the EU limited Russian state-owned banks’ access to international capital markets.
President Putin then snapped. A 12-month ban on food imports from America, the EU, Australia, Canada and Norway was imposed and there’s talk of stronger measures to come. Diplomacy having failed – having barely been attempted – the economic gloves are now off. Will tit-for-tat sanctions between Russia and the West escalate, worsening the commercial and political damage? Or will they be contained?
The St Petersburg International Economic Forum, now in its eighteenth year, was less well attended than usual. The absence of various American and West European CEOs, responding to pressure from their governments following sanctions on Russia, was heavily commented upon in the West.
Less widely noticed was one of the most important pieces of news to emerge from Russia since the Soviet collapse of the early-1990s – namely the $400bn deal struck between Moscow and Beijing, under which Russia supplies 38bn cubic metres (bcm) of gas to China over 30 years from 2018.
“The unipolar model of the world is over,” declared Vladimir Putin last week. “The global picture has completely changed”.
The St Petersburg International Economic Forum was less well-attended than usual. During previous visits to this annual “Russian Davos”, now in its eighteenth year, I’ve regularly been mown-down by American and West European CEOs, as they’ve purposefully stomped down carpet-tiled corridors, their retinue of aides and cameras in tow.
This year, while plenty of Western executives did make the annual trek to Russia’s beautiful second city, keen to sell more cars, soap powder and financial services in Europe’s most valuable consumer market, the corridors were safer. Many of the top business names stayed away. The sanctions imposed on Russia in response to events in Ukraine put Western business leaders under pressure. Fearing unsavory headlines, and often responding to specific government requests, some of our best-known corporate pole-climbers gave “Putin’s vanity summit” a miss.
“There will be significant costs and consequences” following Russia’s intervention in Crimea. So said Foreign Secretary William Hague yesterday. But what can the West actually do to challenge Vladimir Putin’s Russia? How far are we prepared to go to determine the future of a small, sun-kissed territory that juts out from Southern Ukraine?
Crimea lies at the heart of a region that is, and always has always, hugely strategic. This picturesque peninsula has seen centuries of conquest, be it at the hands of Greeks or Scythians, the Byzantians or the British. It was the importance of the Black Sea ports to the grain trade, after all, which provoked the Anglo-Russian Crimean War under Queen Victoria, with its glorious, yet ultimately doomed Charge of the Light Brigade.