History’s Surprises Are Like an Alligator’s Tail — Watch Out

by
William Krehm

Let The Wall Street Journal tell the story (11/3/03, “Fast Wallet, Free Agent: Russia Goes its Own Way” by Alan Cullison). As ever, we treasure sources above suspicion of left-wing prejudice. “Moscow – Russia’s resistance to a US-led invasion of Iraq is a sign that the diplomacy of dependency may have run its course. After recovering from the post-Soviet economic deterioration of the 1990s, Moscow is awash in cash and not so easily plied by the West’s handouts.”

Private sources report that Muscovite tune-smiths are working on a blend of the International and the Czarist anthem to lyrics thanking the American insatiable appetite for SUVs for making possible their regaining economic independence. What is at stake is more than just the physical oil that the US can’t consume enough of, but the denomination of the oil trade in US currency. That has permitted the US to pay for its oil imports in currency of its own making. The drop of the dollar vis-à-vis the Euro shortchanges the oil exporters. That has not been lost on the oil exporters.

The reserve status of its currency enabled the US to print bills or computer entries at practically zero cost to import goods and securities from the entire world, even while its balance of payments worsened. That has led to a climb of the Euro in dollar terms since 1999 from about 83 US cents to a current $1.10 plus. That is an increase of about 45%. That earned Saddam Hussein a fat currency gain when he instructed the UN to shift the approximately $10 billion in his blocked currency account from dollars to Euros. This hasn’t been lost on Iran, another of Bush’s evil axis, a ferocious rival of Iraq, and a far greater oil exporter.

The Saudis, who have their own internal problems about Washington’s Iraqi war, ditto. How long will it be before US hedge funds will put a wet finger to the wind, and place their patriotism in their safety-boxes long enough to make a killing shorting the dollar? Meanwhile Russia is dong fine since oil prices have risen from $11 crude to just under $40. At the same time, China is proving a hard-knuckled negotiator not only for branch plants and the jobs it sorely needs, but access to technology as the price of American entry to the Chinese market. They threaten to compete the pants off the Detroit Big Three and General Electric. They are taking over huge market share in Europe and America and Asia in everything from micro-wave ovens, to refrigerators, knock-offs of stringed musical instruments of at least orchestral caliber. Stradivarius is reported twisting in his grave, since the Chinese went to his native Cremona to learn the violin-making craft at the local violin-making school. They even send their violins to Cremona at times for the coats of varnish that authenticates them a bit more.

But back to the WSJ. “With an imminent UN vote that could lead to war, the opposing camps led by the US and France have focused their lobbying on a handful of Security Council members – Angola, Guinea and Chile. US National Security Adviser Condolezza Rice has openly suggested that the Bush administration offer aid to nations in exchange for support, saying: ‘We’re talk to people about their interests.’” It used to be known as “bribery” and involves thousands of innocent lives.

“Western purse strings were a factor Russia had to consider when formulating its foreign and even domestic agendas through the 1990s. With its economy in a shambles, Moscow feared punitive rulings from the Paris Club and London Club groups of creditors, which held billions of dollars in Soviet-era debt. It also relied on the World Bank and IMF to plug budget gaps.

“When NATO bombed Yugoslavia in 1999 in response to ‘ethnic cleansing’ of Muslims and others, IMF aid was seen as an important incentive that kept Russia’s often-symbolic support of the Yugoslav government from turning into active defence.

“The alchemy of Russia’s financial relations has since changed. Vladimir Putin, chagrined by the contemptuous 1990s characterization of Russia as ‘Upper Volta with rockets,’ focused on the nation’s sickly economy after he became president in early 2000. He put a stop to IMF borrowing when a recovery in world oil prices gave Moscow some financial relief. Unrest in the Middle East and Venezuela has helped prompt a sharp rise in oil prices since then. Russia is now cash rich, and the government has been using its huge surpluses to pay down the national debt.

“Last week, the day after Russia joined France and Germany in declaring its firm opposition to a new UN resolution clearing the way for force against Iraq, the Russian government announced that it intended to repay IMF loans next year ahead of schedule. Nobody could miss the connection. In December, it announced it was ending the work of the Peace Corps in Russia. The mission of groups like the Peace Corps is to assist developing nations.

“‘They haven’t been on their knees for some time,’ said a senior US diplomat based in Moscow. The US has steered clear of any outright offers of economic incentives in exchange for Russian support of an invasion of Iraq, adding that the Russian government has made it plain it isn’t interested in such offers.

“To the extent that economic enticements enter into Mr. Putin’s thinking on Iraq, it isn’t clear that Washington can offer more than France or Germany. Germany is one of Russia’s greatest trading partners, and most of its gas exports go to Europe.

“President Saddam Hussein has promised Russian companies the chance to develop more than 25 billion barrels of oil in Iraqi fields. The Russian government, meanwhile, would like to be repaid Soviet-era debts that totaled $8 billion when Iraq stopped paying in the early 1990s.

“Russia [however], has indicated it is more worried about world oil prices than any oil contracts or the Soviet-era debt, the US diplomat said.” But those prices depend upon whether oil internationally continues to be quoted and paid for in terms of a sinking US dollar or in Euros.

“The Kremlin already has amassed a lofty financial cushion against any decline in oil prices in the aftermath of the war. Its 2003 budget is based on any average oil price of $21.50 a barrel.

“‘In the past, Russia tried to convince the world of its greatness by building rockets,’ said Roland Nash, head of research at Renaissance Capital investment bank in Moscow. ‘Putin has concentrated on the economy with essentially the same end in mind.’”

If the American administration would consider the costs in wealth, lives, morality, and sympathy among nations of its present autistic policies as a sole economic superpower, it would accept the erosion of its highly vulnerable position with grace. As did Britain and France in their day. That would not only provide an answer to the question that is bothering more and more Americans, “Why does the world hate us?”, but a solution to the problem.