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Russia isn't facing a recession - it's facing extinction

Russia faces a grim future, regardless of what happens to oil prices, Western sanctions or President Vladimir Putin and his cronies. Sooner or later, it will be done in by unfavourable demographics, rising ethnic divisions and a permanently busted economy.

That's the harsh assessment of geopolitical strategist Peter Zeihan. The veteran Russia watcher has long been pessimistic about the country's future. Four years ago, he warned that Russia was "in a long, slow twilight. They're going to have a couple of great years while the Europeans are in a mess. And they have relative strength because the Americans are distracted in the Middle East. But they realize that they're on borrowed time."

Today, he makes economist Nouriel Roubini, aka Dr. Doom, seem upbeat. Dr. Roubini worries about the global market risks posed by Mr. Putin's empirebuilding efforts. Mr. Zeihan sees what's happening as the last gasp of a desperate government.

Russia's leadership "is convinced that this is the last government of Russia. They see this as the last regime," Mr. Zeihan says in a phone interview from his office in Austin, Tex.

And what's more, he insists, the people who govern the country are right to be so bearish about the future.

If the Kremlin can manage to restore a semblance of the old Soviet Union by pulling Ukraine, Kazakhstan, Belarus, the Baltics and other former satellites back into the fold and perhaps go a bit further by encroaching into Romania and Poland, "then they'll last probably 50 years. If they can't get out to those borders, they'll probably not last 20. In the end, I think that they're going to fail."

Their desperation explains why the Putinistas are able to shrug off a steep economic decline fuelled by falling oil and natural gas prices, financial sanctions that have made life miserable for the country's oligarchs, banks and mortgage-holders and curbs on technology transfers that are bound to severely crimp the crucial energy sector.

"When you're convinced you're going to die, a recession is no big deal. Remember, they're expecting to be the government that turns the lights out," says Mr. Zeihan a former senior analyst with Stratfor, a strategic intelligence firm, and the author of a new book titled The Accidental Superpower. That would be a retrenching United States, whose citizens "are only now kind of at the very beginning of realizing how little they really need the rest of the world."

He leaves room in the tome to forecast the collapse of Russia and warns that Canada's next secession crisis could be brewing in Alberta.

As for Russia, the deteriorating economic situation will increase the growling from the bear, but it won't alter the math. Its demographics alone look stark. The conscript-dependent Russian army, for instance, faces a significant loss of troop strength in coming years as the population ages and shrinks, a trend that will accelerate now that the bump from the raft of perestroika babies is running its course. The inevitable ebbing of its military strength is one reason the Kremlin is so determined to take on its vastly weaker former satellites such as Ukraine now while it's still capable of calling U.S. and NATO bluffs.

On the plus side, a high mortality rate among people in their 50s and 60s means the Kremlin can continue to redirect hundreds of billions of surplus rubles earmarked for the state pension fund. So actual reserves may be two to three times higher than the $300-billion (U.S.) or so estimated by analysts. It's an unfortunate source of emergency funding Western countries with their growing numbers of longerliving retired people can only dream of.

Associated Graphic

Russia's leadership 'is convinced that this is the last government of Russia,' says political strategist Peter Zeihan.

PAVEL GOLOVKIN/AFP/GETTY IMAGES

© The Globe and Mail

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