Thomas P.M. Barnett :: Weblog

ARTICLE: "Russian Stocks in Free Fall," by Jason Bush, BusinessWeek, 29 September 2008.

THE FINANCIAL CRISIS: "Russia Unveils $120 Billion Package to Halt Slide: Government to buy Up to $20 Billion In Blue-Chip Shares," by Gregory L. White, Wall Street Journal, 19 September 2008.

ARTICLE: "Shaky Economy Dims Russian Prospects," by Ellen Barry, New York Times, 20 September 2008.

Russia started being punished for Putin's nasty treatment of a metals company a while back (Mechel), then there was the raw treatment of BP in its partnership with TNK, but then Russia's fight with Georgia triggered a real fear-equals-flight departure of capital.

And then comes the Wall Street crisis.

Great quote:

"If foreign investors don't buy debt and equity, Russian companies will find it harder to raise capital," says Kingsmill Bond, chief strategist at investment bank Troika Dialog. "That is the Achilles' heel of this market."

Ah, but "petrocrats" can do whatever they want, we are told.

Or maybe not, once their financial connectivity with the Old Core gets real.

Russia's politically-connected companies already control much of their stock market, so when the Kremlin pumps in more money, it strengthens that control but doesn't exactly get what it wants in the process: a market that attracts FDI.

Remember, Russia went into default just a decade ago.

So yeah, the big bad old bear isn't looking so big nor bad once its real equities are put at risk.

The oil price drop was going to happen, because the driving-up of prices over the summer got a bit unreal—just not supported by the fundamentals of supply and demand. Now that things are more real (hovering around $100 instead of $150), Moscow's a bit more vulnerable to threats of financial disconnection—best delivered by investors.

Medvedev came into power with an ambitious, modernizing agenda, but now he's stuck upgrading the Russian military, whose performance in Georgia wasn't exactly impressive, plus he's got to pump all that money into markets.

So while Putin is making brave noises, Medvedev is telling anyone who will listen that Russia has no desire to go back to any autarkic economic existence:

We are in fact being pushed onto the development track which is not based on sound, normal and civilized cooperation with other countries, but rest on autonomous development behind thick walls and an iron curtain. I would like to stress once again: This is not our track. There is no use in returning back to the past. We have made our choice.

Problem being, Russian behavior has crossed wires with that choice.

And so the lesson continues to unfold, both for the puffed-up types on Moscow's side and the hysterics on our own.