Most people think of Vladimir Putin’s background as a KGB agent and the number of opponents who have fallen through the windows lately is certainly proof of that.
What most casual observers don’t know is that Putin has a law degree where he specialized in international business. In a second time, he obtained a doctorate in economics while writing his thesis on: “Strategic planning of the reproduction of the mineral resource base of a region under conditions of formation of market relations”
It’s widely considered a poor (and perhaps beachy) thesis, but there’s no denying that Putin has had a long interest in commodity markets.
Igor Danchenko and Clifford Gaddy of the Brookings Institution studied Putin’s thesis and in 2006 presented it.
The first lesson he learned was the influence of food insecurity on Putin’s thinking: his brother died of starvation during the siege of Leningrad in World War II. He also saw how food security collapsed during the collapse of the Soviet Union as deputy mayor of St. Petersburg. Around this time, gas-for-food deals were made with the private sector, but many ended in disaster due to bribes or companies failing to meet their obligations.
Putin realized that the ultimate currency a Russian official can have at his disposal is raw materials. It is therefore not surprising to find a long list of strategic materials in Putin’s 1999 article, where he lists staple foods as well as uranium, oil and gas and other materials. To summarize the first lesson, during cataclysmic events, the ultimate guarantee of Russian survival, and subsequently of wealth and development, are natural resources. As they are essential to Russia’s survival and security, they should always be kept in strategic reserve.
“Putin realized that the ultimate currency a Russian official can have at his disposal is raw material,” Danchenko wrote. A second lesson he learned is that private companies cannot be trusted.”
It also explains the number of opponents – especially in the energy sector – who have died in mysterious circumstances.
The authors wrote that Putin’s economic and political thinking has been systemic and consistent.
“He sees Russia’s mineral resources as the only ‘hard currency’ that ensures not only economic and political security, but also Russia’s very survival. Mineral resources are the ultimate insurance to overcome any crisis, and they represent a contingency plan in case of disaster.
Skip to this month and Putin’s speech at the St. Petersburg International Economic Forum. In it, he lamented Western money printing and said:
“The economy of mythical entities is inevitably replaced by economics of real values and assets.”
This goes right back to his thesis and he follows it up with a more granular prediction:
He says a sale of the world’s foreign exchange reserves will soon be underway.
“They will be converted from weakened currencies into real resources like food, energy products and other raw materials. Other countries will, of course. Obviously, this process will further fuel global dollar inflation”
With that in mind, the next domino to fall is the EU embargo on Russian oil and petroleum products on December 3. This will likely be coordinated with the G7-backed Russian oil price cap, which could be as low as $50 a barrel.
US Treasury Secretary Janet Yellen is convinced the West has the upper hand here, but Putin has been training for this moment his whole life. Arming oil the same way it used natural gas is far from unthinkable.
Meanwhile, there are reports of a wider military mobilization and there is a speech by Putin which is announced for today. A year ago, central banks raised rates by 100 basis points and an energy crisis was unthinkable. One man has the power to trigger another round of volatility; don’t underestimate it.