The next stage in Russia’s secular decline comes in 2023

People watch Russian President Vladimir Putin deliver his speech after the signing ceremony for the treaties for the four regions of Ukraine to join Russia in the Moscow Kremlin, during a meeting in Sevastopol, Crimea, Friday, September 30, 2022. The treaties that make the four regions part of Russia follow the completion of referendums

Russian President Vladimir Putin gave a speech in September announcing the annexation of four regions of Ukraine. (News agency)

After a year of big surprises, led by the Russian invasion of Ukraine, a global spike in inflation, and the collapse of cryptocurrency projects, what kind of year will 2023 turn out to be? These kind of short-term questions are difficult to answer because the repercussions of world events can spread so quickly and unpredictably. But the past 12 months have highlighted a major trend that will shape what happens next, in 2023 and beyond: Russia’s decline.

Russian aggression is nothing new. Moscow has been invading other countries since the mid-1990s and has occupied parts of Ukrainian territory since 2014. But the brutality of Russia’s attacks in Ukraine since last February and the latest phase, which destroyed civilian energy infrastructure, is widely seen as amounted to a war crime. It is unlikely to change the course of the war, which Russia is losing.

In the bigger picture, Russia has once again entered a period of secular decline, during which it will enter Limited access to Western investment, technology or consumer goods. Russia’s empires collapsed before, in 1917-1918 and again when the Soviet Union collapsed in 1989-1991. Either way, the breakdown took a while, and then proved to be completely complete. Of course, historically, Russia has also been able to reassert its control over time, and during the 1990s, by getting a lot of help from Western companies.

This time, too, we should expect a protracted power struggle within Russia, with serious existential risks to the world, including who will end up controlling Russia’s nuclear weapons. However, the direct economic impact will be reflected on the global energy market.

The demand for Russian fossil fuels is declining. Before its invasion of Ukraine in 2022, Russia produced about 10.8 million barrels of oil per day, of which about 8 million were exported Either as raw or refined products. A sharp decline in Russian economic activity means more oil is available for export, but the European Union, the United States and their allies are now buying crude from other suppliers – and the same is true for refined products from February 2023.

the The International Energy Agency expects That Russian oil exports will drop to about 6 million barrels per day during 2023-24. In the medium term, India might buy 1-2 million barrels, and China could consume the rest—assuming that both countries want to become more dependent on a roguish and unreliable partner.

Still, purchases by India, China, and a few other countries could generate a lot of free cash flow and tax revenue for Russia. Whoever leads Russia will put much of that revenue into building and buying weapons — including missiles with which it can strike a wide range of countries from long range. One would hope that NATO member states would be somewhat shielded from the threat of retaliation, but Russia would be expected to engage in sabotage and other deniable attacks on Western energy infrastructure and similar vulnerable strategic targets.

During the Cold War, the Soviet Union was careful not to attack Western Europe and the United States directly (and vice versa). Instead, both sides used proxy wars and other forms of pressure. But this time, we should expect more direct confrontation. Russia’s elite has put itself on the hook, with a bizarre set of beliefs — right-wing nationalism on steroids — and long-range weapons. Giving land to these extremists will only lead Encourage them to take more.

The need to determine how much money Russia can spend on aggression over time is to blame Ceiling price For Russia’s oil exports is very important. The evidence so far is that this works as intended.

But more action is needed, including accelerating investments in renewable energy to reduce global demand for oil. If we continue to rely on Russia and its allies in the OPEC + Cartel, the potential to disrupt our economies will continue to be enormous. There is now an urgent national security dimension to the energy transition.

The high inflation of the 1970s had multiple causes, starting with the tight economies of the 1960s and the Vietnam War. But the problems were exacerbated by two oil price shocks, in 1973 and 1979. OPEC+ Members realize they have the power to do so again, at a time of their choosing — or the next time Russia requests a favour.

Oil demand and supply are not completely responsive to oil prices in the short term, but historically they are quite responsive over five to ten years. In 2023 and beyond, the West needs to focus more on reducing demand for fossil fuels, especially oil, and increasing the supply of alternative energy sources outside the control of Russia and OPEC.

Simon Johnson, former chief economist at the International Monetary Fund, is a professor at the MIT Sloan Institute of Management.

This story originally appeared Los Angeles Times.

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