Decarbonization of World Economy will Hit Russia Harder than Any Sanctions, Inozemtsev Says

Paul Goble

            Staunton, May 29 – The Kremlin has failed to plan for or even take note of the increasingly obvious reality that the drive to reduce the use of fossil fuels around the world is going to have a more baleful impact on the Russian economy in the coming years than any combination of sanctions, Vladislav Inozemtsev says.

            In the short term, Moscow may benefit from rising prices for oil and gas, the Russian economist says; but in the middle and long term, those prices are going to fall so far that the Russian economy will no longer be able to function on the basis of their export. It will have to change or die (rosbalt.ru/posts/2021/05/28/1903938.html).

            Instead of the optimism which informs the thinking of Russian leaders today, the current situation should be a cause for real concern, Inozemtsev says. He points to what happened over the last dozen years, when Moscow laughed at the shale-oil revolution, only to see it take off and push down the value of Gazprom from an expelled one trillion US dollars to 82 billion.

            “Something similar can happen with ‘decarbonization,” he argues. And it will happen not because of any plans in the West to “’neutralize’ Russia” but rather new technologies and the commitment to “’clean’ energy’ will drive down the prices for oil and gas, on whose exports the current Russian government depends.

            Indeed, Inozemtsev argues, “the traditional energy sector soon won’t exist;” and along with its disappearance will come the disappearance of the Russian economy. “Even China won’t be able to help: it, by the way, recently passed the entire European Union in terms of the number of electric cars.”

            The best the Kremlin can come up with is to say that it is “studying” the matter. But it isn’t taking seriously the fact that underlying trends mean that energy not based on gas and oil is becoming less and less expensive and thus not only more competitive but sufficiently low to drive down any purchases of petroleum.

            What this means at the end of the day, Inozemtsev says, is that “having overcome all sanctions and putting our geopolitical competitors ‘in their place,’ we may find ourselves encountering a much more dramatic situation, when the chief Russian export produce will become not so needed” and when its use domestically will also decline.

            According to the economist, “present-day political reality will permit President Putin to rule until 2036. We wish him the health he’ll need to rule the country until that time. But then it may turn out to be the case that [Duma speaker Vyacheslav] Voloshin was right when he said ‘when there is no Putin, there is no Russia.’”

            That may or may not be true of the state as such; but it is increasingly likely that it will mean the status of Russia as “an economic subject.” Indeed, that is almost inevitable if current trends continue abroad and in Russia itself.