Oil-haters and new governments

Malaysia’s and Russia’s economic trajectories, as well as political changes, often strangely converge. Thus, last week both our nations were without full-scale governments, after the recent elections. Malaysia was quicker with appointments, while Russia still lagged behind in choosing heads of some key ministries at the moment when I was writing this column.

Vladimir Putin (picture), after winning re-election on March 18, was to name the prime minister (PM) to the Parliament after that, which he did. The choice of the PM was the same, Dmitry Medvedev, though there are a lot of new faces among vice-premiers already nominated.

Nobody in Russia doubted Putin’s return to power, but many wanted changes in the future economic development.

The mood in the expert circles is in favour of choosing a new model for the whole economy.

We are not living anymore in the world of 1981 (when Tun Dr Mahathir Mohamad headed the Malaysian government for the first time). It’s not the world of 1999, when Putin took charge of Russia. And it’s not even 2008, when the serious global crisis still hadn’t hit us all. Today each nation has to rethink the drivers of growth, local or external.

Michail Dmitriev is the president of the consulting firm named “New Economic Growth”. His basic idea is simple: We are reliving the situation after the Great Depression of 1929, with a lot of political and economic shudders resulting from the historic crash of the whole world economy. Today the problem is that no nation in the world should hope to base its own growth on foreign markets, be it the European Union, US or even Asia. Or at least no foreign markets should be taken for granted.

Russia’s prosperity after the year 2000, Dmitriev claims, was directly or rather indirectly based on China’s growth. Mostly it was about oil and the rest of commodities, the prices of which had been driven by China’s insatiable appetite.

So, even when Russia was exporting oil to places like Europe, it was benefitting from its global prices hitting US$100 (RM400) per barrel, thanks to China. And then “the Chinese behemoth got tired of eating”, says Dmitriev, and Russia’s problems began.

The lean years between 2014 and 2017 helped Russia to develop its agricultural sector and to export its products to all kind of places. That’s added to our hi-tech, including the military sector which has renewed itself, and to the same good old oil and gas industry.

What’s more, the crisis of 2014 and rather reasonable governmental policy made Russia the least fossil fuel-dependent nation among the top exporters of that commodities.

Now it’s time to re-orient national economy to benefits of the new lifestyles, says the growth guru. People who work remotely on their computers and are not going to an office on daily basis, need a different model of city transportation, says he, and also more parks, sports facilities and the rest. And that’s a lot of gross national product to produce.

There are other people with similar ideas. One of them, Boris Titov, has formed a “Party of Growth” and tried to compete with Putin for presidency.

Titov’s idea of drivers of growth is to loosen the notoriously tight credit and let the small businesses flourish.

People like Titov or Dmitriev are collectively called the oil-haters. They claim that, first, the easy oil money cripple the rest of the economy, killing the need to produce anything else.

And, second, the sudden price crashes, which come sooner or later, inevitably produce devastation in the whole society.

And suddenly, in the middle of all these arguments, US President Donald Trump decided to restart economic hostilities with Iran, re-imposing sanctions on that nation. The oil prices immediately started their upward climb.

What’s funny, it’s not Russians, but Americans, namely people from Bank of America Merrill Lynch, who said that from now on you may well expect oil to hit US$90, and then US$100 per barrel. While the Russian oil experts tend to be cautious. They expect US$70, maybe US$80, if Russia-OPEC production limits hold on. But not much more, since the US oil industry will be glad to fill in the gap, theoretically left by Iranians. But then, there may be no gap at all.

There has been a sanctions oversupply in the world recently, and by now there are too many economies willing to ignore these sanctions entirely.

But if things really come to US$100 per barrel — that’s an absolute delight, some people in Russia’s (and, maybe, Malaysia’s) new governments may think. It’s right in time, when we want to show good results instantly. Groan, groan, say the oil-haters.

Easy money corrupt economies easily, making you flabby and unimaginative.

Alas, we’ll discover very soon who’s right and who’s wrong. Oil may jump up and down very rapidly in our turbulent world.

Dmitry Kosyrev is an author of 8 novels and a book of short stories as well as a columnist for 2 Moscow publications. Orientalist by education (Moscow University), he has a special love for Malaysia.