Vladimir Putin believes (probably correctly)
that a fall from power will mean his death. Putin came to power after the 1998
oil price crash forced a Russian bond default, drove inflation to 80% and
pushed Boris Yeltsin out of office. The price of oil has crashed again. Putin
needs a higher price of oil or a significant military victory to stay in power.
Putin's
military support of Bashir al Assad is designed to raise the price of oil by
fomenting chaos in the Middle East. The price of oil has increased from about
$45 a barrel to almost $50 a barrel for Brent crude since Putin's intervention
started, nice but insufficient.
Putin has other reasons for optimism on oil
prices. The Iran Nuclear deal guarantees a Middle East war in the next 6
months. It both permits unlimited Iranian oil sales and gives Iran access to
$150 billion in formerly frozen assets. Iran's oil revenue last year was about
$55 billion. This is big money for the Mad Mullahs to spend on weapons and
training militias and terrorists.
I don't think the Israelis, Saudis and
Egyptians are going to wait peacefully while the Iranians to make enough
nuclear weapons to wipe them out. I expect them to attack Iran's two big
economic vulnerabilities. Over 90% of Iran's oil exports flow through the Kharg
Island oil terminal, 16 miles offshore. All of Iran's gasoline, kerosene and
diesel fuel is imported. They have no refineries. If Iran's enemies bomb Kharg
Island and mine their harbors from the air, it puts Iran out of business
economically. Iran would probably try to close the Strait of Hormuz to
retaliate. Most of the Persian Gulf oil exports move through the Strait of Hormuz.
Even if the Iranians are unsuccessful, the threat of attack may be enough. If
the strait is a war zone, oil tanker ships moving through it will have no
insurance. A significant amount of oil will not reach the international market.
I come to believe that Putin's Middle East moves may be a
feint. If he’s going the military route, his target is most likely one of the three former Soviet Republics that are now NATO members. It's Putin's choice of Baltic
States: Estonia, Latvia or Lithuania. I think Lithuania is a logical choice
because taking it would give Russia land access to the Russian enclave of
Kalingrad, formerly East Prussia. Putin has recently firmed up a deal with
Belarus for a big Russian air base within striking distance of the Baltic
States. This will be the first Russian military base in Belarus since it became an independent country. The agreement didn’t get much coverage in the press. I think even a massive Russian buildup on
Lithuania’s border would not get much press either.
Barry the Brilliant has made polite gestures towards
defending the Baltic countries, but nothing that would actually be effective.
Our Smartest President Ever refuses to have more than a few hundred American
soldiers in any of these countries, and they are just passing through. Obama
also refuses to establish NATO air bases in any former Eastern Block counties
because there's a treaty with Russia that promises we won't do that. Russia
already broke that treaty, but we're still living up to it. If any NATO country
falls to Russia, the failure of NATO to defend an ally effectively would
destroy the alliance. Putin is desperate enough to try it. Given the Middle
East chaos distracting world leaders, the general weakness of NATO and the
specific weakness of the defenses in the Baltic countries, Putin has a decent
chance of getting away with it.
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