Putin’s reaction to the Euromaidan demonstrations in Ukraine followed a similar pattern. In both cases, a seemingly low-cost opportunity was viewed as yielding a large strategic gain – at least in the short run. Indeed, while the devastating consequences of the Soviet Union’s Afghan adventure are now well known, at the time the invasion was viewed as a major defeat for the West.
The Soviet army’s retreat in 1988 is usually ascribed to the Afghan insurgency, led by Pakistan-trained mujahedeen with support from the United States. But the decline in oil prices during the 1980s, which cut the value of Soviet output to one-third of its peak level, undoubtedly played a role. Indeed, it led to a period of extreme economic weakness – a key factor in the Soviet Union’s dissolution just three years after its withdrawal from Afghanistan.
Will you offer us a hand? Every gift, regardless of size, fuels our future.
Your critical contribution enables us to maintain our independence from shareholders or wealthy owners, allowing us to keep up reporting without bias. It means we can continue to make Jewish Business News available to everyone.
You can support us for as little as $1 via PayPal at email@example.com.
During the 1990s, Russia was too preoccupied with its own post-Soviet political turmoil to object to EU or NATO enlargement to the east. Nor did it have the wherewithal, as its own production and oil prices continued to decline, hitting a trough of $10 per barrel in 1999-2000.
Russia’s stance changed gradually during the early 2000s, as world oil prices – and Russian output – recovered, reinvigorating the country’s economic base at a time when its leadership was becoming increasingly autocratic. Only then did Russia start to claim that the US and its European allies had offered some implicit pledge not to expand NATO eastward.
With oil prices steadily rising, the value of Russian oil production reached a new peak, roughly ten times the 1999 level, in 2008; Russia invaded Georgia the same year. Though prices collapsed during the Great Recession of 2009, they quickly recovered, with the value of Russian output reaching another peak in 2012-2013 – precisely when Russia’s position on the EU-Ukraine association agreement hardened. Given that the EU and Ukraine had already been negotiating the deal for more than two years, without much reaction from Russia, the EU was blindsided by the Kremlin’s sudden sharp objections.
Clearly, Russia’s attitude toward its near abroad is not quite as erratic as it may seem. When oil prices rise, Russia expresses its latent resentments more aggressively, often employing its military. Moreover, at higher prices, the oil industry crowds out other export sectors that support open markets and a less aggressive foreign policy.
The Soviet war in Afghanistan was followed by a long-term decline in oil prices. The recent price slide – to $50-60 per barrel, halving the value of Russia’s oil production – suggests that history is about to repeat itself.
And oil prices are not Russia’s only problem. Western sanctions, which seemed to constitute only a pinprick a few months ago, appear to have inflicted serious damage, with the ruble having lost nearly half its value against the US dollar last year. Though financial markets will calm down when the ruble’s exchange rate settles into its new equilibrium, Russia’s economy will remain weak, forcing the country’s leaders to make tough choices.
Against this background, a stalemate in the Donbas seems more likely than an outright offensive aimed at occupying the remainder of the region and establishing a land corridor to Crimea – the outcome that many in the West initially feared. President Vladimir Putin’s new Novorossya project simply cannot progress with oil prices at their current level.
To be sure, Russia will continue to challenge Europe. But no amount of posturing can offset the disintegration of the economy’s material base caused by the new equilibrium in the oil market. In this sense, the US has come to Europe’s rescue in a different way: Its production of shale oil and gas might is likely to play a greater role in keeping Russia at bay than NATO troops on Europe’s eastern borders.
Daniel Gros is Director of the Center for European Policy Studies.
Copyright: Project Syndicate, 2015.