West’s Decarbonization Drive Pushing Russia toward Totalitarianism, Inozemtsev Says

Paul Goble

            Staunton, Oct. 22 – Many Russian liberals believe that reductions in oil and gas consumption in the West will undermine the Putin regime and force the country to modernize, Vladislav Inozemtsev says. “From the point of view of abstract logic of economic development, this is indeed the case.”

            But, the Moscow economist says, that kind of modernization is possible only in the case of an economy “open to the world.” And that is not Moscow’s approach. Instead, it is “today following an entirely different path, and it certainly will not open up to those who would undermine its foundations” (ridl.io/ru/nepredvidennye-posledstvija-dekarbonizacii/

            Consequently, Inozemtsev continues, “if the decarbonization process gathers speed, we will see … in Russia, [the return of] political totalitarianism and the planned economy from which it had appeared we escaped thirty years ago. That is why, despite price and demand fluctuations, the country’s economy and the well-being of its ruling class can’t be undermined.”

            Because that is so, the Russian ruling class is calm and even self-satisfied about the situation and is focusing only on controlling inflation within the country, using the only tools of “administrative control it knows – from anti-monopoly measures to ‘skimming off excess profits,’” neither of which bodes well for modernization of the country.

“As long as the EU does not become an ‘environmentally friendly’ and ‘carbon-neutral’ zone,” Inozemtsev says, “revenues to the Russian treasury from the extractive industries will increase in parallel with the weakening of the role of export-oriented manufacturing industries, accompanied by highly original experiments carried out by the authorities.”

And that in turn means that “Russia may turn out to be even more dependent on commodities than it was at the beginning of the Putin era. This, coupled with clearly visible trends in domestic politics, is fraught with several quite unexpected consequences,” the economist continues.

When China faced a decline in the growth of foreign demand, it adopted policies aimed at expanding domestic consumption and demand; but Russia’s approach will be very “different.” A fall in exports for oil, gas and metals can be offset in its case “only by an increase in the production of relatively useless industrial products.”

“Russia produced almost as much oil and gas in 2019 as the RSFSR did in 1989, and while the USSR exported 32% of its oil and 18% of its gas at the time, the figures for Russia in 2019 were 71.7% and 34.6%, respectively. For coal exports, the difference is even greater: 4.8% in 1989 and 44.8% in 2019.”

Moreover, Inozemtsev says, “Russia is not just an oil addict. In addition, it is still quite firmly tied precisely to the economies of countries which have declared ambitious decarbonization goals.” That means it will have to refocus its sales to countries in Asia and Africa “not too closely bound by trade relations with the EU and North America.”

Competition for these markets will be intense because production and use of hydrocarbons is likely to increase there for some time, but this market will be especially risky because these are less solvent customers. If and when they cannot pay, that can have serious consequences for economic actors in Russia as well as in the West.