The Customs Union’s Strength is Its Weak Link: Oil Prices Threaten Putin’s Project

Kazakhstan’s bank is about to break, and it’s all because oil and natural gas went cheap fast.

Last week, falling in with Moscow, Astana announced that it will be tapping its oil wealth fund to steady its petroleum-dependent economy as the price of crude falls against a worldwide economic slump and what appears to be a budding US/Canada-OPEC oil war. Kazakhstan’s economy, which might be best described as “oil with a side of Russian subsidies” is beginning to buckle.

In the scheme of things, this is interesting; yet the bigger story is for Vladimir Putin’s Eurasian Customs Union and its future.

Russia has a broadly diverse economy, which is not the same thing as a diversified economy. Russian economic and military power — as with Soviet economic and military power — is heavily dependent on high oil and natural gas prices. Cut the floor beneath those prices and a Communist superpower crumbles, and a revanchist Empire buckles.

This is because Russia and Kazakhstan are the two economic movers of the nascent attempt to one-up the European Union, and their economies are entirely petro-reliant. Belarus and Armenia do not have economies so much as dysfunctional satrapies with money-vacuums aimed toward Moscow. And with oil prices and natural gas prices crashing; with economic turmoil from the Russian invasion of Ukraine; and no sign of an economic recovery anywhere in the world other than the United States, hard times are ahead.

This will not save Ukraine. The wealth, the influence, and the materiel for that invasion are already reserved and allocated. But it is much more likely to keep Putin on a leash economically and politically, to limit his adventurism in his near abroad, and to keep his intimidation of former Soviet republics like Moldova to a minimum. It also limits his domestic strength, which is reliant in part on neo-nationalism and in part on economic prosperity.

It may also have the effect of breaking the ties between Russia and Kazakhstan on which Putin depends for his little empirelet. Look for growing signs of tension between the two over the coming months, especially if the global slowdown continues. If that happens, the traditional end of a Slavic empire — in fire, chaos, shame, and ruin — could be nearer than we think.

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