Monday, 12 March 2012

The Empire Strikes Back

Oily Correlations
In Russia: The Wild East, Martin Sixsmith takes a sweeping overview of Russian History since the setup of the subservient Muscovy Duchy to the Mongol Hordes, from the 12-14th Century, to the turbulent years of Stalinist rule. To describe the ebbs and flows of the Russian Narrative over the 900 years, Mr Sixsmith concludes: "In Russia things change only to remain the same".

Russia's dual Scythian nature, straddling in time and space between European Liberalism and Asiatic Strong-handedness, allows it to shift respectively from enlightened exuberance into Svengalian repression with uncanny ease. In light of Vladimir Vladimirovich Putin's de jure return to power on March the fourth, Russia is conforming to this Faustian Pact; which has been unfortunately a permanent feature of its tumultuous history.

The Russian State has significantly benefited from the buoyancy of the global economy up to the onset of the Financial Crisis. In the above graph, there is an overlapping correlation between the depth of Russian equity markets and the benchmark price of Crude Oil. In a previous post, I said the Oil price is unlikely to return to its pre-2007 levels given the supply constraints and rising global demand.

In the last year or so, Russian Markets have lost the trend of following rising oil prices. This maybe the beginning of an increasing foreign discount attached to investing into Russia. Given its institutional frailties, predominance of unsound frameworks, weak rule of law and a regressive society which stems from cronyism at the very top, one would be an optimist to hope for Russia becoming an advanced economy in the coming decades let alone years.

Like the slow, sad and melodious Largo of Shostakovich's fifth symphony, Russia is ultimately a sorrowful indictment of itself; its size and abundant wealth of natural resources have stymied it from fitting into the 21st century model of economic development and places itself neatly into the Middle Income Curse.