As the West agonizes over President Putin’s seeming ability
to outmaneuver both the US and the EU in foreign policy, it is worth looking
more closely at Russia’s likely long-term trajectory. Despite its recent assertiveness in the
Ukraine, Russia faces four very, very serious challenges:
1
Oil
revenue. Russia currently depends on
oil and gas exports for 51% of its total export revenue, and it is this oil and
gas revenue that has allowed President Putin to maintain such popular support
as he has. But the Russian oil fields
are old, and recent estimates are that production is falling about 6% per year
in its West Siberian fields, which produce about 65% of its oil. Maintaining significant production in these
fields in future years will require substantial investment (mostly foreign) and
Western technical advances, neither of which may be available to Russia under the
current circumstances. Moreover, as
fracking technology continues to spread through Europe, the price that Russian
oil and gas can command will drop. Russia needs oil to remain above about $110/barrel
just to balance its current budget, yet oil currently sits at just under
$100/barrel.
2
Demographics.
Russia’s population peaked at about 148 million in 1991, and has been declining
about 0.5% per year since, though in the past year or two it has leveled out a
bit. Although the UN’s original 2005 estimate that Russia might lose a third of
its population by 2050 may have been too pessimistic, the age distribution of
the population will continue to swell the elderly and deplete the working-age
population, with painful results for the economy.
3
Investment.
Russia is still burdened with old, inefficient Soviet-era industry. President
Putin might have tried to use his oil revenue to modernize and upgrade Russia’s
infrastructure and aging manufacturing base, but he didn’t. But even had he tried, it might not have
worked, since corruption is so endemic in the system that most of the
investment money would probably have been siphoned off to enrich local managers
and his inner circle. In any case, when
the oil revenue eventually runs out, Russia will still have a hugely
inefficient manufacturing segment that will not be able to compete in the world
market.
4
Chinese
expansionism. While President Putin is focused on maintaining and expanding
his Eastern borders in places like the Ukraine, his most serious threat may
come on his Southern boarders with China. Russian Siberia is very lightly
populated, while the areas just across the border in China are heavily populated.
China is well aware that much of that largely-unpopulated land was Chinese
until the 17th century, and may well aspire to retake it in the
future.
So while President Putin may be looking successful in the
short-term, with his moves in the Ukraine, he faces much more serious issues in
the long term. But then, he has reportedly already amassed a fortune in the
billions, so perhaps he really doesn’t care what happens to his nation
long-term.
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