Economic Reasons behind Russian invasion of Ukraine

[TexasEd 8,067]

Since the breakup of the USSR Russia has been pillaged by the oligarch class to the extent that it has actually impacted population growth and caused the economy to recess even further and this was magnified by not having satellite states or the breakaway regions as markets. Poland, E Germany, Ukraine, Hungary, Romania, Czech Rep and Slovakia were all markets for Russian goods and they have all pivoted west.  This has caused the Russian GDP to shrink.  At the same time as the breakup the Oligarchs found the opportunity to take even bigger pieces of the pie in the now smaller economy.  

Russia, Like the US, has always been blessed with vast natural resources that could power a great economy but due to the corruption and inefficiency they were never able to develop while neighboring states of Germany and China that have more limited resources are in the top 4.  30% of Russia’s GDP is from Oil and Gas and the only viable sources of hard currency are petroleum and weapons exports.  Having your economy depend on so few things is a great risk to Russia and makes them very sensitive to alternative sources of energy. So they do not want their customers to adopt nuclear, wind, solar or other types of energy.  Nuclear can be used as a psychological weapon against their customers.  They also do not want new competitors to supply the gas to Europe either from the Middle East (possibly through the Syria/Turkey border) or other countries.

Where does Ukraine come in?

As most of you know the pipelines that supply Russian gas to Europe go through Ukraine and since independence Ukraine charges a tax on the pipelines.
In the early 2000s Natural gas deposits were found in Ukraine that, if developed, could supply most of Europe with NG and take market share from Russia.  These deposits are in the Black sea around Crimea and in the East around the Donbass.  Ukraine was in the process of developing these deposits for production when they threw out their Russian backed leader in 2014.  Not having a puppet leading Ukraine and the possibility of them becoming a competitor for Europe’s gas market led to the Russian occupation of two of the three largest natural gas areas.

When looked at from this angle you can see Putin’s actions mirror those of a drug cartel protecting his market and getting rid of rivals. What is at stake for Putin now is that he has to protect Russia’s economic future (The Oligarchs).  Ukraine is a real threat to that future and nothing short of preventing Ukraine natural gas from being sold to Europe will be a win. Putin is the Oligarchy enforcer not a rouge guy.  He is the one removing the barriers to them skimming Russia's wealth from their natural resources.  If he fails they lose the markets and are forced to live off interest.

Also he can’t have Europe switch sources of energy so the specter of Chernobyl 2022 is something that plays to the fears of his customers and keeps them locked in to gas.
 

[TexasEd 8,067]

Russia's failure to quickly capture Ukraine and the reaction of the rest of the world has created a weakness in their position that China is now looking to exploit. Who knows maybe they are behind this as the master of puppets or in an inception kind of way.  

Getting Germany to look to alternative sources of energy could allow China to come to the rescue and build the extraction and transportation lines to China centers and maybe take a percentage of the Oligarch's cuts. 

[Shady Ray 1,633]

Just now, TexasEd said:

Russia's failure to quickly capture Ukraine and the reaction of the rest of the world has created a weakness in their position that China is now looking to exploit. Who knows maybe they are behind this as the master of puppets or in an inception kind of way.  

Getting Germany to look to alternative sources of energy could allow China to come to the rescue and build the extraction and transportation lines to China centers and maybe take a percentage of the Oligarch's cuts. 

Yep. China already making that move. Russia and China already agreed on Power of Siberia 2 before the war kicked off, but they have already said they are going to expedite now. 50 billion cubic meters per year. Exact same amount as NS2 would have been.

 

Gazprom is now looking to further extend its relationship with China by building the Power of Siberia 2 gas pipeline, also called Soyuz Vostok. In a press release, the company said that its Chairman Alexey Miller had recently met the Deputy Prime Minister of Mongolia, Sainbuyan Amarsaikhan to discuss the implementation of the pipeline through Mongolia. 

During the meeting, a design and survey work contract was signed for the construction of the pipeline that involves Mongolian companies to carry out land and archaeological surveys and assess the impact of the project on the environment, the press release said. 

Last month, the feasibility report of the project was approved according to which the pipeline would see a 598-mile stretch run through Mongolian territory. The diameter of the pipes used would be 1.42 meters in diameter, or about 56 inches, with five compressor stations to be installed along the route to enable 50 billion cubic meters or 1.8 trillion cubic feet of gas to be sent to China. 

If the deal with China goes through, Russia will also build an interconnector between its west and east-bound pipelines paving the way to redirect the gas, that is currently being supplied to Europe, towards China, thereby reducing its dependence on European imports.

"Work on the Soyuz Vostok gas pipeline project is actively and successfully progressing. A month ago, the results of the feasibility study were approved, and today a design contract has been signed. This means that the project has moved to the practical stage," said Alexey Miller in the press release. 

https://interestingengineering.com/russia-gas-pipeline-to-china

 

And per today's HK media outlet, South China Morning Post, US saying "China is going to pay" if they help Russia circumvent sanctions:

 

https://www.scmp.com/news/china/article/3169181/beijing-will-pay-if-it-helps-russia-evade-sanctions-us-state-department

[TexasEd 8,067]

The reasons I posted this are that there are a lot of people in the other thread saying that we should give in to Putin's demands or that Ukraine should surrender. The problem with that is based on economic reasons only the conditions that Russia needs in order to stop fighting are 

Economic:

1. Need: No competition from Ukraine in the gas market
2. Need: No restriction on their pipelines to Europe
3. Want: No alternative energy in Europe

Geographic/Political:

1. Need: No more former satellites going west/NATO
2. Want: Back military out of Poland, Latvia, Lithuania, Estonia

This is a zero sum game.  This is not going to end without Ukraine being subjugated or Putin dead.

[Brothahorn 10,087]

I think it's crazy that we(America) have been helping prop up their economy by buying oil. Which probably helped them buy weapons.

How realistic is it for the government to bar US companies from buying Russian oil?

[TexasEd 8,067]

23 minutes ago, Brothahorn said:

I think it's crazy that we(America) have been helping prop up their economy by buying oil. Which probably helped them buy weapons.

How realistic is it for the government to bar US companies from buying Russian oil?
 

I think your real question is how do we stop Russia from making money from oil.  Oil is fungible on the global scale, to a large extent it does not matter where it comes from (yes there are grades of oil but ignore that for a bit).  As a commodity, the only way to impact Russia's income from oil is to either flood the market and lower the price of oil (wars tend to increase the costs which is why we should look into forces that destabilize oil production zones), to embargo their exports with global sanctions (very hard) or physically block off the means of export through ports or pipelines.

Russia would consider the embargo an act of war. The best we can do is to flood the market but then that means other producers have to act against their own best interests and sell for less profit.  Spring is coming in the northern hemisphere and that may help some.

The pipelines are different because that ties producer R with consumer G in a point to point delivery instead of through ship terminals. This is a more efficient delivery system with lower costs but makes it harder to change suppliers.

This is how Russia has Europe over the barrel for natural gas.

Edited March 4, 2022 by TexasEd

[52-80 19,157]

46 minutes ago, Brothahorn said:

I think it's crazy that we(America) have been helping prop up their economy by buying oil. Which probably helped them buy weapons.

How realistic is it for the government to bar US companies from buying Russian oil?
 

Straight up just a matter of policy.  We've already had long standing sanctions for other products against other countries.

28 minutes ago, TexasEd said:

I think your real question is how do we stop Russia from making money from oil.  Oil is fungible on the global scale, to a large extent it does not matter where it comes from (yes there are grades of oil but ignore that for a bit).  As a commodity, the only way to impact Russia's income from oil is to either flood the market and lower the price of oil (wars tend to increase the costs which is why we should look into forces that destabilize oil production zones), to embargo their exports with global sanctions (very hard) or physically block off the means of export through ports or pipelines.

It is mostly fungible.  Physical limitation of transport and similar constraints cause a market localization effect, e.g. nat gas in US vs nat gas in EU has huge price differential now when EU really needs it; likewise Russian (Ural) oil being sold way before brent and wti because they can't find buyer due to banking sanctions and etc.

In the big picture and over long time frame yes it all averages out -- 1 barrel less from the planet is still 1 barrel less. Whatever the gov chooses to do, just hope they are transparent about it.  The framework for assessment should be honest -- analysis first, decision later.  Not decision first, justification later.  Don't let demagogues and extremists lead the narrative.

[AeroHorn 749]

The main thread is moving too fast, so I'll post it here. This talk by a Professor at Univ of Chicago is about 6.5 years old and covers up to Crimea, but his points are quiet prescient. His point seems that we are thinking in 21st century ideas whereas Putin's understanding is based on 20th century rules, and China is a far bigger concern to focus on. He foresees the wrecking of Ukraine.

 

Edited March 4, 2022 by AeroHorn

[Blotto 23,508]

16 minutes ago, AeroHorn said:

The main thread is moving too fast, so I'll post it here. This talk by a Professor at Univ of Chicago is about 6.5 years old and covers up to Crimea, but his points are quiet prescient. His point seems that we are thinking in 21st century ideas whereas Putin's understanding is based on 20th century rules, and China is a far bigger concern to focus on. He foresees the wrecking of Ukraine.

Ha! I was talking to a U of C grad this week and she specifically mentioned Mearsheimer when the subject of this shitshow came up. On a campus stuffed full of academic luminaries, apparently he's one of the biggest. thanks for posting, I'll check it out.

[TexasEd 8,067]

Discusses how economic failures by Putin led to him making deals and promises he could not keep but he kept escalating them to the "We will restore the greatness of Russia" and wrote checks Russia cannot cash. 

Unsaid I think is that the Oligarchs took so much money out of the economy that it was unsustainable.  They need to expand so they can support the level of theft they are used to. 

[maninblack 7,974]

4 hours ago, AeroHorn said:

The main thread is moving too fast, so I'll post it here. This talk by a Professor at Univ of Chicago is about 6.5 years old and covers up to Crimea, but his points are quiet prescient. His point seems that we are thinking in 21st century ideas whereas Putin's understanding is based on 20th century rules, and China is a far bigger concern to focus on. He foresees the wrecking of Ukraine.

 

This is an amazing listen and everyone should watch if you actually give a shit. Below is another primer anyone who actually cares about understanding complicated topics should watch as well.

 

[TheRealChuckWoolery 72]

I think it was Jeffrey Sachs who said, "MF's gonna kill for that top shelf Ukrainian praline" 

Might have been Fukuyama

[TheRealChuckWoolery 72]

heard them shits was sideways though

[956 Worldwide 34,715]

John Mearsheimer LOL, it’s fucking amazing to me how many people have found this guy in the last week.  

This dude is a genius and a giant in IR.  At the same time he’s a big grand strategy type theorist who builds models and makes predictions based on models, but he is working in a field (diplomacy and military power) that is decidedly not scientific no matter how badly the IR theorists want it to be.  Anyway, even if he’s entirely right about his structure that doesn’t mean he’s right on Ukraine and Russia.  And he’s not an expert there.  It may seem like he predicted something, but then again you can’t test the alternate— that NATO never expands or promises to and that makes Russia happy. There’s plenty of reasons to doubt that thesis.

Part of the issue is that he assumes a rational actor and there’s very little reason to believe that Putin is behaving rationally.  Take a look at the tweet below, from one of my favorite grand strategists.  He’s right about everything except his prediction, because he thought rationally. 
 

And so getting round to the point of this thread: it is a mistake to see the invasion of Ukraine as motivated by cold and counting economic calculus. If it were that logic has since been wrecked by corresponding catastrophic economic damage to Russia far outstripping any potential future gains. Putin is not an economist and he is making highly irrational political decisions based on flawed beliefs. 
 

Also, read Luttwak’s “Grand Strategy of the Roman Empire” as well as the later “Grand Strategy of the Byzantine Empire.”

Edited March 5, 2022 by 956 Worldwide

[CHIEF 5,087]

6 hours ago, 956 Worldwide said:

John Mearsheimer LOL, it’s fucking amazing to me how many people have found this guy in the last week.  

This dude is a genius and a giant in IR.  At the same time he’s a big grand strategy type theorist who builds models and makes predictions based on models, but he is working in a field (diplomacy and military power) that is decidedly not scientific no matter how badly the IR theorists want it to be.  Anyway, even if he’s entirely right about his structure that doesn’t mean he’s right on Ukraine and Russia.  And he’s not an expert there.  It may seem like he predicted something, but then again you can’t test the alternate— that NATO never expands or promises to and that makes Russia happy. There’s plenty of reasons to doubt that thesis.

Part of the issue is that he assumes a rational actor and there’s very little reason to believe that Putin is behaving rationally.  Take a look at the tweet below, from one of my favorite grand strategists.  He’s right about everything except his prediction, because he thought rationally. 
 

And so getting round to the point of this thread: it is a mistake to see the invasion of Ukraine as motivated by cold and counting economic calculus. If it were that logic has since been wrecked by corresponding catastrophic economic damage to Russia far outstripping any potential future gains. Putin is not an economist and he is making highly irrational political decisions based on flawed beliefs.

Also, read Luttwak’s “Grand Strategy of the Roman Empire” as well as the later “Grand Strategy of the Byzantine Empire.”

Putin's only flawed belief was how willing the Ukrainian people were to fight to remain under Ukrainian rule, no matter how shitty or corrupt it was. The highly irrational political decisions have all come after that. He is a gambler. He tried to make a run to Kyiv and topple the government, and install his puppet regime, but did not have the logistics to get it done. Now, here we are.

CHIEF

[Hermanator 7,050]

Putin also overestimated his own military's desire to fight and die for his potential economic benefit. Also underestimated the west's desire to wreck Russia's economy and currency if he attacks Ukraine. He claimed at the beginning that harsh sanctions would be a declaration of war yet the west did it anyway and Putin hasn't acted on it by attacking NATO in any way. That's one bluff he was called on and backed down from. 

His overall idea may have had some economic motivation but the judgment was so poor he's either a complete fool or was motivated by factors more emotional and less calculated. 

Edited March 5, 2022 by Hermanator

[TexasEd 8,067]

8 hours ago, 956 Worldwide said:

John Mearsheimer LOL, it’s fucking amazing to me how many people have found this guy in the last week.  

This dude is a genius and a giant in IR.  At the same time he’s a big grand strategy type theorist who builds models and makes predictions based on models, but he is working in a field (diplomacy and military power) that is decidedly not scientific no matter how badly the IR theorists want it to be.  Anyway, even if he’s entirely right about his structure that doesn’t mean he’s right on Ukraine and Russia.  And he’s not an expert there.  It may seem like he predicted something, but then again you can’t test the alternate— that NATO never expands or promises to and that makes Russia happy. There’s plenty of reasons to doubt that thesis.

Part of the issue is that he assumes a rational actor and there’s very little reason to believe that Putin is behaving rationally.  Take a look at the tweet below, from one of my favorite grand strategists.  He’s right about everything except his prediction, because he thought rationally. 
 

And so getting round to the point of this thread: it is a mistake to see the invasion of Ukraine as motivated by cold and counting economic calculus. If it were that logic has since been wrecked by corresponding catastrophic economic damage to Russia far outstripping any potential future gains. Putin is not an economist and he is making highly irrational political decisions based on flawed beliefs. 
 

Also, read Luttwak’s “Grand Strategy of the Roman Empire” as well as the later “Grand Strategy of the Byzantine Empire.”

My view is that Putin went all in with a flush thinking he was calling the West’s bluff when they really had a full house. 
 

so he was playing the odds and underestimated the downside. 

[TexasEd 8,067]

2 hours ago, Hermanator said:

Putin also overestimated his own military's desire to fight and die for his potential economic benefit. Also underestimated the west's desire to wreck Russia's economy and currency if he attacks Ukraine. He claimed at the beginning that harsh sanctions would be a declaration of war yet the west did it anyway and Putin hasn't acted on it by attacking NATO in any way. That's one bluff he was called on and backed down from. 

His overall idea may have had some economic motivation but the judgment was so poor he's either a complete fool or was motivated by factors more emotional and less calculated. 

I don’t think economic is the only reason but a major one. There are also the domestic issues, defense, and his promise to raise the status of Russia internationally. Russia has watched Chinas lap them in in every way so they are grasping for relevance to feed the egos. This is the source of the irrational behavior. 
 

they can’t blame their own actions of robbing the economy blind so they have to externalization to the West and call out the demons of nationalism as the reason Russia is struggling. But the root cause is economic. If they had built up the economy and used their resources to grow they would not be here. 

Edited March 5, 2022 by TexasEd

[Buzzrock 14,920]

John Mearsheimer LOL, it’s fucking amazing to me how many people have found this guy in the last week.  

This dude is a genius and a giant in IR.  At the same time he’s a big grand strategy type theorist who builds models and makes predictions based on models, but he is working in a field (diplomacy and military power) that is decidedly not scientific no matter how badly the IR theorists want it to be.  Anyway, even if he’s entirely right about his structure that doesn’t mean he’s right on Ukraine and Russia.  And he’s not an expert there.  It may seem like he predicted something, but then again you can’t test the alternate— that NATO never expands or promises to and that makes Russia happy. There’s plenty of reasons to doubt that thesis.
Part of the issue is that he assumes a rational actor and there’s very little reason to believe that Putin is behaving rationally.  Take a look at the tweet below, from one of my favorite grand strategists.  He’s right about everything except his prediction, because he thought rationally. 
 
[/url] And so getting round to the point of this thread: it is a mistake to see the invasion of Ukraine as motivated by cold and counting economic calculus. If it were that logic has since been wrecked by corresponding catastrophic economic damage to Russia far outstripping any potential future gains. Putin is not an economist and he is making highly irrational political decisions based on flawed beliefs. 
 
Also, read Luttwak’s “Grand Strategy of the Roman Empire” as well as the later “Grand Strategy of the Byzantine Empire.”

Well, he does say his opinion is very much in the minority. I thought it was an interesting listen nonetheless. He does seem to give Putin a little too much credit for being a rational actor.

[gmr548 16,580]

4 hours ago, TexasEd said:

My view is that Putin went all in with a flush thinking he was calling the West’s bluff when they really had a full house. 
 

so he was playing the odds and underestimated the downside. 

Watching the Russian Army, Putin had a pair of Aces (nuclear arsenal), but got absolutely nothing out of the flop.

[686 3,449]

… He claimed at the beginning that harsh sanctions would be a declaration of war yet the west did it anyway and Putin hasn't acted on it by attacking NATO in any way. That's one bluff he was called on and backed down from… 

The thing is - it’s way beyond just NATO sanctioning him at this point - is he going to declare war on half the world? And all the private companies exiting Russia (for both purely economic and social reasons) - he can’t make them come back at gunpoint and it’s going to take a long time to lure them back without big regime change/reversing course.

As others have said, “he came to fight a 21st century conflict with his 20th century mindset” and he’s going to set his economy back 30 years. It’s going to be a hell of a show.

I hope to hell the Ukrainians can hold on and bleed the Red Army and the Russian economy to the point that he gains effectively nothing and has to “declare victory” in defending Donbas from Nazis, and slink back across the border.

[TexasEd 8,067]

21 hours ago, gmr548 said:

Watching the Russian Army, Putin had a pair of Aces (nuclear arsenal), but got absolutely nothing out of the flop.

 

17 hours ago, 686 said:

 

The thing is - it’s way beyond just NATO sanctioning him at this point - is he going to declare war on half the world? And all the private companies exiting Russia (for both purely economic and social reasons) - he can’t make them come back at gunpoint and it’s going to take a long time to lure them back without big regime change/reversing course.

As others have said, “he came to fight a 21st century conflict with his 20th century mindset” and he’s going to set his economy back 30 years. It’s going to be a hell of a show.

I hope to hell the Ukrainians can hold on and bleed the Red Army and the Russian economy to the point that he gains effectively nothing and has to “declare victory” in defending Donbas from Nazis, and slink back across the border.

 

Yes, and thinking of these two factors combined.  Nuclear Arsenal and setting economy back to the 1990s when the USSR collapsed could lead to some serious consequences.  We've been fortunate that the leaders of Russia have kept control of their arsenal (one of the reasons Ukraine gave theirs up) but the reboot may not be as fortunate and selling nukes may look attractive.

[atomheartbevo 89,665]

On 3/4/2022 at 9:31 AM, TexasEd said:

At the same time as the breakup the Oligarchs found the opportunity to take even bigger pieces of the pie in the now smaller economy.  

Really good and long twitter thread from over a week ago about the problems with Russian leadership and why they act more like mafia (using avocados/Jalisco cartel as an example) than the leadership of a large country and why smoke-and-mirrors is more important than actual home-grown/original productivity.

 

 

 

[TexasEd 8,067]

On 4/6/2022 at 4:38 PM, atomheartbevo said:

Peter Zeihan (former Stratfor guy here in Austin, writes on geopolitical issues, mainly focused on demographics/depopulation, etc.) has been beating this drum for a while, and in fact he said after the Crimea annexation that Russia would formally invade Ukraine within 8 years because of demographic problems, because they would run out of manpower.

Anyways, he's had a couple of long interviews a few weeks ago where he covers a lot of stuff around Ukraine/Russia/China, that I will post below and he seems to be one of the few talking not just about agricultural products such as grains in Ukraine and Russia being impacted (in terms of shipping elsewhere etc.), but he's talking about the problems that all of this is causing with regards to fertilizer production, and how because of the war and because of problems within China (that have nothing to do with the war), we maybe facing a situation where we don't have enough fertilizer going forward to help keep the world's agriculture churning along.

@Brisketexan would like him, because he's talked about how if Putin had rolled through Ukraine, he might have made a play for other parts of Eastern Europe including the threats of nuclear weapons, but he's very bullish on America/North America not facing the problems that Russia and China are facing both in terms of demographics and and in terms of agricultural production.

Yeah, this is very dry, and the interviewer is one of those business bros (who didn't understand Ukraine and was schooled by Peter), but fertilizer disruptions caused by the war in Ukraine could have a massive impact on the world in general going forward.

You can just listen to this - no need to watch it, and it's interesting as while I don't agree with everything he says, he makes an interesting point that this is the last battle/war of the Cold War, and that Russia is fucked within two generations.

 

@atomheartbevo posted this in the 500+ page thread and thought it belonged here.  I used to visit the strafor site regularly and this is a really good interview that should not be lost in the fast pace over there.  

He calls out one of the things I said in my first sentence when I started this thread:

On 3/4/2022 at 9:31 AM, TexasEd said:

Since the breakup of the USSR Russia has been pillaged by the oligarch class to the extent that it has actually impacted population growth and caused the economy to recess even further and this was magnified by not having satellite states or the breakaway regions as markets. Poland, E Germany, Ukraine, Hungary, Romania, Czech Rep and Slovakia were all markets for Russian goods and they have all pivoted west.  This has caused the Russian GDP to shrink.  At the same time as the breakup the Oligarchs found the opportunity to take even bigger pieces of the pie in the now smaller economy.  

[snip]

It is all inter-related the poor economy impacts population, population problems impact military, and now military action has basically shut down their economy.

Watch this, it is a couple weeks old but on target.

 

Edited April 8, 2022 by TexasEd