Whilst there are still quite rightly continuing worries about rising inflation and a global economic slowdown, the geo-political issues seem to have now come to the fore. Thus the invasion of Georgia has been a key element to bring out some of these concerns – however, it should not simply be seen as a regional issue but rather just one factor in a far larger story.
Russia reasserting its power is not a new story although one which is of growing importance. After all, has not Russia always been an empire since Peter the Great formally proclaimed its formation in 1721? From Tsarist to Communist the Empire has existed, except for the short period under the alcoholic haze of Boris Yeltsin when the economy nosedived into near anarchy and valuable national assets were given away (salted away) to his apparatchiks who seemed to effect an astonishing amount of money laundering – often out of the country. Out of this chaos arose the power of the “Putinist” Empire buoyed by the rocketing value of the oil and commodity boom, which has allowed him to reassert the power and pride of the nation. As an ex-KGB colonel he will have no doubt been trained in key strategies of chess and thus when looking at Russian external policy, look not to one unfortunate country like Georgia, but rather at the broader chess board and see how the pieces have been deployed.
When considering Russia I have found it useful to remember something my father showed me when trying to understand the attitude of the nation. He would take the map of the world and turn it the other way around and then imagine yourself as Russia. Your southern boundaries are surrounded by unsettled, and often unreliable, neighbours most of whom seem to be keen to either break further away from or chip away at, their relationship with you. Not only that, but you then have the USA behind your back, which is never a comforting position to be in – either from enemy fire, or friendly fire come to that.
Now we can begin to understand the apparent paranoia that is prevalent in Russian attitudes to foreigners – especially as they seem to have a history of regularly invading the Empire – from Napoleon, the Crimean War, 1919, and 1941. Then, when they could at last establish a buffer zone of the USSR around the old Russia - even that finally broke apart!
So where are all the chess pieces? Ukraine has to be a vital knight. Not only is she covering the southern flank of mother Russia, she is now leaning towards the West. More than that she owns the Crimea, where the vital Russian Black Sea fleet is based in the warm water port of Sevastopol. The Russians lease this under an agreement which is due to expire in 2017, and there will no doubt be fears that a pro-Western Kiev government might not renew it. That I suspect would not be acceptable to Moscow. Additionally please remember that there is a significant Russian population in the area and, as with the Georgian disputed regions, any threat to those citizens can easily be used as justification for more forceful action.
A concerning parallel with Georgia should also be noted. The pro-Russian organisation that operates in both South Ossetia and Abkhazia also now operates in the Crimea. This group named “Proryv” has already warned of heightened tension leading to a possible “spark of serious escalation” – a concerning statement.
The other chess pieces obviously include the Baltic states and Poland, all of whom are being brought into the game but in addition to this Western Europe is also involved, as now some 60% of its gas and 30% of its oil is now coming from Russia – are the EU states in danger of becoming Russian pawns?
My problem is that I not sure that we have many political chess grand masters in the West any more who have the experience of how to effectively play the game. The “great game” that was the Cold War had bred such expertise; the Tepid Peace that followed wasted it.
With the Americans intending to plant missile defence radar systems ever closer to the borders, they should understand the reaction that they are likely to receive. If you are stupid enough to stick your hands through the bars of caged bear, you are just as likely to lose them! Mr Bush I suspect is not a chess player. With the radar agreements with the Czech and Polish governments and potentially the Ukraine wishing to join as well, this can only further aggravate an already tense situation.
The old spheres of influence that existed before may have been forgotten but the US may be forced to reconsider if the Russians decide to repeat what another young inexperienced president in the US had to deal with shortly after attaining office 40 years ago – Cuba.
Such tensions will further push risk levels and force worried investors to seek even more security. So far Oil and Gold prices have not reacted but if there is any hint of a Bear paw pressing on the pipelines to the West, then we could easily see a spike up in those prices.
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In the meantime some care watch on the banking system will be required - Mr Rogoff’s warning in Singapore may have had a touch of hyperbole – but there is no smoke without fire. Thin plumes of smoke seem to be rising from Australia’s Babcock & Brown and America’s Lehman Brothers.
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And finally......more cost effective news from a local authority as Chichester District Council installed a miniature camera in a bin bag to try and catch fly tippers. Unfortunately no one told the dustmen (sorry – waste operatives) who of course threw the bag in the lorry and carted it away. Only another £10,000 of camera lost!
Have a good weekend,
Justin A. Urquhart Stewart
Director
Seven Investment Management Limited