Putin's Russia: The Rhyme of the Soviet Era
Low oil prices and war led to the Soviet Union's collpapse, and Russia under Putin's leadership since 2014 has faced similar challenges.
The collapse of the Soviet Union can be attributed to a combination of factors, including a significant drop in oil prices and excessive defense spending. The seeds of this crisis were sown in 1982 when Mexico and Venezuela emerged as major players in the global oil market, disrupting the status quo. Sensing an opportunity, Saddam Hussein in 1991 invaded Kuwait in a bid to artificially inflate oil prices and exert greater control over production.
The consequences were profound. In 1990, oil prices skyrocketed, momentarily bolstering the oil exporting economies economy. However, this surge proved short-lived, as prices quickly plummeted again in 1992. The fall of the Soviet Union became an inevitable outcome, waiting to unfold. Remarkably, today we find ourselves facing a strikingly similar situation.
US Oil production. EIA.
Since 2014, Russia, under Putin's leadership, has been grappling with a comparable set of circumstances. Low oil prices + war.
The advent of the shale oil revolution shattered the long-standing dominance of the OPEC+Russia cartel, disrupting the balance of power and affecting Russia's position in the global oil market. As a result, the United States has emerged as the world's largest oil producer, relegating Russia and the OPEC to a less influential role.
WTI Crude Oil YoY. St Louis Federal Reserve.
However, the challenges facing Russia extend beyond the realm of oil. Behind the veneer of power and influence wielded by Putin and the FSB, there lies a stark reality characterized by a lack of economic development, collapsing demographics and an inadequate transportation infrastructure. These underlying issues hinder Russia's progress and place additional strain on its already precarious position.
In the intricate dance of geopolitics and economic forces, history often repeats itself. The echoes of the past remind us that no nation is impervious to the tides of change. As we navigate the present circumstances, it remains to be seen whether Russia can learn from the lessons of its predecessors or will succumb to a fate similar to that of the Soviet Union.
Thanks for reading,
Guillermo Valencia A
Florianópolis, Brazil
June 30th , 2023