- - Sunday, January 3, 2016

Russian President Vladimir Putin has surprised the world multiple times in the past several years militarily. His invasion and subsequent annexation of Crimea, combat support of the pro-Russian separatists in East Ukraine, and the landing of an expeditionary force in Syria, cementing a new Russian presence in the Middle East, are some recent examples that caught the West off guard. 2016 could very well bring additional geopolitical surprises from the Kremlin.

The Russian economy is in shambles and is expected to shrink again in the coming year. So far, the Russian population has been behind their president, although there have been small anti-war protests and unhappiness over reduced social spending, such as for health care and education. Western sanctions are doing real damage to the Russian economy as corporations and banks can’t roll over their debt in the international markets and obtain new financing. The Kremlin has bailed out several but foreign currency reserves are slowly shrinking.

The problem is the collapse in the price of crude oil on international markets. Russia has failed since the fall of the Soviet Union to diversify its economy away from hydrocarbon production. In fact, its economy is now less diversified than it was during the U.S.S.R. The consequences of this failure are now coming to the forefront.

It is highly likely that the price of crude oil will continue to fall, possibly into the $20 area, and stay there for a very long time, without any catalyst to send the price of oil back higher. There is just too much supply on the market and there is no end in sight to the deluge of crude. Iran is coming online with more production in the coming months to years. Demand is stalling in the United States and China. American shale oil has injected a different type of price control on the oil market as shuttered fracking wells can be turned back on at a moments notice without all the cost and time other types of wells require. The effect of this phenomenon is that downward pressure on crude is here to stay.

This means that Russian federal coffers are not going to be filled anytime soon, possibly not for years. This scenario may put unbearable pressure on the Kremlin as the drive to modernize its military clashes with the public’s desire for an enhanced standard of living. Mr. Putin has brought millions of Russians into the middle class from the disastrous days of Yeltsin. Eventually, they may grow angry if this standard of living is taken away from them due to Moscow’s military adventures.

Mr. Putin has been extremely deft at using international conflict to take the public’s mind off problems at home. To borrow a phrase from Trump, Putin has made Russia great again, at least in the Russian population’s eyes. This heartfelt gratitude and support Russians feel will go a long way in enduring hardship but it won’t go on forever. The Kremlin realizes this. They have cracked down on whatever free press is left in Russia, outlawed foreign influence, and targeted the political opposition in order to maintain a firm grip on power.

The next step to prevent Russian social unrest could be additional military steps internationally. The axis of Iran, Russia, and Syria in the Middle East is an extremely interesting new development. As Russian military power and influence grows in the region, all bets are off the table as to how this power could be used. Could Russia acquire different oil production regions in the Middle East militarily? Could they stir the fires of conquest in an attempt to spike the price of crude?

The one thing the world should have learned over the last decade about Mr. Putin is that he is unpredictable and not afraid to use military force when he thinks it’s necessary for Russia (and the men who run it) and he can win. The West is feckless against Russian aggression with no leadership whatsoever. Putin must know a new American president will be much stronger and will embark on a program to rebuild American geopolitical power. Russia therefore has twelve months to get what it wants to protect the Kremlin’s hold on power domestically. These are dangerous times indeed.

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