It took two years for crumbling oil prices to bring the Soviet Union to its knees in the mid-1980s, and another two years of stagnation to break the Bolshevik empire altogether.
Russian ex-premier Yegor Gaidar famously dated the moment to September 1985, when Saudi Arabia stopped trying to defend the crude market, cranking up output instead. “The Soviet Union lost $20bn per year, money without which the country simply could not survive,” he wrote.
The Soviet economy had run out of cash for food imports. Unwilling to impose war-time rationing, its leaders sold gold, down to the pre-1917 imperial bars in the vaults. They then had to beg for “political credits” from the West. That made it unthinkable for Moscow to hold down eastern Europe’s captive nations by force, and the Poles, Czechs and Hungarians knew it.
“The collapse of the USSR should serve as a lesson to those who construct policy based on the assumption that oil prices will remain perpetually high. A seemingly stable superpower disintegrated in only a few short years,” he wrote.
Lest we engage in false historicism, it is worth remembering just how strong the USSR still seemed. It knew how to make things. It had an industrial core, with formidable scientists and engineers.
Vladimir Putin’s Russia is a weaker animal in key respects, a remarkable indictment of his 15-year reign. He presides over a rentier economy, addicted to oil, gas and metals, a textbook case of the Dutch Disease.
The IMF says the real effective exchange rate (REER) rose 130pc from 2000 to 2013 during the commodity super-cycle, smothering everything else. Non-oil exports fell from 21pc to 8pc of GDP.
“Russia is already in a perfect storm,” said Lubomir Mitov, Moscow chief for the Institute of International Finance. “Rich Russians are converting as many roubles as they can into foreign currencies and storing the money in vaults. There is chronic capital flight of 4pc to 5pc of GDP each year but this is no longer covered by the current account surplus, and now sanctions have caused foreign capital to turn negative, too.”
“The financing gap has reached 3pc of GDP, and they have to repay $150bn in principal to foreign creditors over the next 12 months. It will be very dangerous if reserves fall below $330bn,” he said.
“The benign outcome is a return to the stagnation of the Brezhnev era [Застой in Russian] in the early 1980s, without a financial collapse. The bad outcome could be a lot worse,” he said.
