Russia and the West
How to lose friends
“ISOLATION”, “consolidation” and “self-reliance” are different terms used among Moscow’s political and business elite to mean the same thing. In the face of international sanctions occasioned by its support of the rebels in eastern Ukraine and its earlier annexation of Crimea, Russia is preparing to pull inward. It is hunkering down for a long period of diplomatic antagonism and economic hardship.See also:
That process appears to be accelerating. On August 6th the Kremlin responded to Western pressure by announcing that it will ban or reduce agricultural imports from countries imposing sanctions on Russia. The tensions in eastern Ukraine are rising. Ukrainian forces have, in effect, closed off the rebel stronghold of Donetsk through a campaign of often-indiscriminate shelling. If it falls to Kiev, then the pro-Moscow insurgency will lose its potency.
Mr Putin may be tempted to salvage his credibility by sending in Russian troops on the pretence of a “humanitarian” operation. According to NATO, 20,000 Russian soldiers have amassed at the border. They are engaged in live-fire drills involving fighter aircraft and bombers—the sort of manoeuvres that have presaged invasion before. Even if troops do not cross the border, the confrontation between Russia and the West looks set to continue through the rule of President Vladimir Putin and, perhaps, beyond.
By increasing his support of the rebels after the crash of flight MH17 last month, Mr Putin has shown that he values his own understanding of Russia’s historic destiny more than the economic well-being of his country and its global reputation. He is making a risky bet that challenging the architecture of the post-cold-war order will reap its own rewards and make up for a drop in living standards.
It is a mistake to think of Mr Putin as “mercantile”, says a Duma deputy from the pro-Kremlin United Russia party. Rather, he is an “historical figure” set on establishing Russia as a self-sufficient centre of power. Mr Putin told his security council last month that “Russia is fortunately not a member of any alliance”, which he presented as a “guarantee of our sovereignty”.
The new antagonism between Russia and the West will not be a battle between superpowers; for one thing, today’s Russia lacks an ideology with appeal beyond its borders. In an interview with The Economist last month, America’s president, Barack Obama, said that the challenges Russia presents are “effectively regional”.
The Kremlin proudly claims it will aim to replace Western goods and services with domestic ones, for instance in high-tech parts for the arms industry. Import substitution could work if manufacturers weren’t running at near-full capacity and in dire need of new investment, which will be in shorter supply as foreign financing shrinks....MORE
FT Alphaville
Go long Harrods
...Bad day to be a retailer then, particularly Russia’s largest — Magnit was down 3.5 per cent in Moscow at pixel time — or to be an ordinary Russian for that matter....Reuters:
Russia may negotiate price limits with domestic food producers
Streetwise Professor:
The Great Patriotic Diet
In retaliation for US and EU sanctions, Russia is banning the importation of large categories of food products from each: food imports from the US are pretty much banned altogether.
These sanctions are aimed at an industry that is politically powerful far beyond its numbers. Chicken farmers in the US will squawk at the loss of about 1 percent of their revenues, and European dairy producers will bellow in anger. But the economic impact on the affected countries will be trivial. The US exports about $300 million in chicken to Russia (down substantially from a few years ago), which is essentially rounding error in US GDP. European net food exports to Russia are about 12 billion euros, or less than .1 percent of the EU’s 13 trillion Euro economy.
The impact on Russia’s people will be substantially greater. Russia imports about 35 percent of its food, about half of that from Europe and the US. Higher value, non-staples are disproportionately affected. This will lead to an appreciable increase in the cost of food, which represents a very large fraction of Russian household budgets. Whereas US consumers spend about 6.5 percent of their total expenditures on food, in Russia the figure is about 32 percent. A rise in food prices hits hard. A 10 percent increase, which is not unrealistic, cuts Russian living standards about 3 percent.
Putin ordered the government to find ways to increase food production, because, you know, that ukases always work as the Tsar intends. Russian food output will no doubt rise in response to higher prices, but in the short run the elasticity of supply is likely to be very low, especially for vegetables and dairy. Anyways, this increased output will only mitigate the price increases. If Russian firms/farms could produce more at current prices, they’d be doing so.
I predict that since increased Russian domestic production will have little effect on prices, Putin will soon resort to the tried-and-false nostrum of price controls, just like Russia did when food price inflation spiked in 2007....MORE
