G7 is done deal, NATO-Russia was already canceled. It’s not so much what we can do to “punish” them, it’s what they already have done to themselves in the last couple of years, and now put the nail in it with outright aggression play and incredibly stupid “ultimatums” and threats, military and economic. Nobody wants to be blackmailed, especially otherwise rich and economically powerful countries. And weaker (former USSR republics or satellites) countries would look to someone else for protection, also both military and economic.
And results are already seen. Putin didn’t diversify the economy, on the contrary he moved to concentrate it in commodities. It’s an all-in bet (poker lingo) and it’s not playing out the way he hoped. Despite huge run up in oil, gas and other commodities prices, and with 70% of RTS comprised of these type of companies, RTS index keeps going down (reached 2 year low just before Georgia invasion) and foreign investment is drying up (Yukos was the beginning, Shell, BP most recently etc.), and partnerships are being reevaluated. Self-isolation seldom works to country’s benefit. The question is not whether Russia will pay a heavy price for this long-planned miscalculation by Putin, the question is how fast and how heavy. I guess, the conclusion is, Putin can’t stand prosperity.
http://finance.yahoo.com/q/bc?t=2y&l=on&z=l&q=c&c=&s=RTS.RS - RTS 2 year chart
http://www.rts.ru/?tid=541 - look at the small bump up from the bottom after 08/08/08 which is already fading.
In my opinion the single greatest focus of our country should be long term energy independence. Substantially lowering our need for oil would cause oil prices to collapse. Cheap oil would destroy nearly all of our major enemies - Russia, Iran, Saudi Arabia, Venezuela. Their economies would fold in short order. At the same time the rest of the world that is actually trying to produce something and rise out of poverty would be get a big boost from cheap energy.
Templeton Russia & Eastern Europe Fund
Central Europe and Russia Fund
All are down 30% or more since May (i.e., not a result of invasion, but preceding it), and slight bump up after invasion already faded. Headlines don't look good, and some interesting details on relationship of Russian economy to price of oil.
Few excerpts from Bearish on The Bear (RSX, TRF, CEE, MTL)
Kremlin Unveils Anti-Free Market Sentiment
From Economy of Russia , exports and imports main trading partners:
As was evidenced by the Yukos affair some years ago, doing business in Russia is not without its risks. Once the largest oil company in Russia, Yukos was dismembered, sold to state-controlled oil firm Rosneft, and its boss Mikhail Khodorkovsky still sits in jail on what some would regard as trumped up charges.
......
Russia Economy Could Hit A Tipping Point If Oil Reaches $90
Concerns about what were diplomatically described as "unconventional policy measures", as well as the country's excessive reliance on energy, recently prompted analysts at JPMorgan Chase & Co. downgrade Russian equities to 'underweight' from 'neutral' at the end of July. The analysts also cited the fact that the Russian domestic economy is now showing signs of strain as it grapples with inflation running at over 15% and wage growth roaring ahead at 28%, all at a time when the country's excessive reliance on oil could prove to be its Achilles heel. (For more on analyst expectations, read Analyst Forecasts Spell Disaster For Some Stocks.)
Right now, oil and gas constitute 60% of state revenues, and commodities 75% of total exports. In a recent interview with U.K.s The Telegraph, Christopher Green, chief economist at Russia's VTB bank, said the country could start facing problems if oil falls to $80-90 per barrel. According to Green, the government is now depending on crude prices of $110 per barrel to fund its budget, and it could also face a trade deficit next year, as Russian's continued love affair with pricey western imports, particularly cars, is expected to keep import growth at a double-digit pace.
The Bottom Line
Russia's recent actions in the Caucasus have succeeded in taking the country's "risk premium" a few notches higher at a time when investor confidence is already shaky. If, as feared, the long standing Russia-Ukraine dispute flairs up later this year, the negative consequences would not only be felt by Russian, but global markets as well.
Exports : $365 billion (2007 est.)
Main export partners :
Netherlands 12.3%, Germany 8.4%, Italy 8.6%, the People's Republic of China 5.4%, Ukraine 5.1%, Turkey 4.9%, Switzerland 4.1% (2006)
Imports : $260.4 billion (2007 est.)
Main import partners :
Germany 13.9%, the People's Republic of China 9.7%, Ukraine 7%, Japan 5.9%, South Korea 5.1%, United States 4.8%, France 4.4%, Italy 4.3% (2006)