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July 10, 2015

COMMENT: Russian masquerade born of frustration

Sitting here in the West and listening to the litany of critics lined up against Russia, all aiming their formidable firepower firmly at Moscow, their collective hammering against the Kremlin walls is as persuasive as it is articulate.

Sitting here in the West and listening to the litany of critics lined up against Russia, all aiming their formidable firepower firmly at Moscow, their collective hammering against the Kremlin walls is as persuasive as it is articulate.

The catalogue of condemnation is well-drilled and trips easily off the tongue: It’s a destabilisation package of supposedly rogue Russian soldiers purportedly involved in East Ukraine and practically encouraging a de facto separate political State, to the breathtaking annexation of Crimea last year, an act so audacious, the world seems totally mesmerised into accepting it as fact.

Some of those critics have been using a Russian word recently – ‘maskirovka’ – which as well as meaning masquerade – also appears to encompass a whole philosophy at which Moscow seems to have been pretty good at in the last century or so – laced as it is with hints of camouflage and disguise.

Has the modern Kremlin being engaged in its own form of maskirovka in East Ukraine and Crimea? Certainly there appear to be very few if any Russian military with identifiable insignia in those regions – it’s all a bit smoke and mirrors.

Clearly such destabilisation, triggered or not by Russia, has led to a catastrophic collapse in automotive numbers back home as consumers take one look at the unenviable triumvirate of painfully high interest rates, soaring inflation and a depreciating rouble and decide they would rather not purchase a shiny new car thank you very much until the decidedly rainy days have passed.

There are many from where I’m sitting who quite happily insist this is entirely of Moscow’s doing and that list above is a natural progression to and of world disapproval.

But just listen to this from the recent Saint Petersburg International Economic Forum (SPIEF), bringing together thousands of CEOs, politicians and journalists in a heatwave of truly Russian proportions.

Attending the session: ‘Never Let a Good Crisis go to Waste’ – there’s even something of the indomitable Russian spirit in the topic name – a standing-room only event designed to tackle the structural economic problems which are also currently polexaing the car industry – Fredrik Engdhal – founder of Engdahl Strategic Risk Consulting – roundly turned the tables on Kremlin critics.

Engdahl is no Russian apologist – he is a political economist and just happens to be an American living in Germany – but he delivered a withering assessment of current Western attitudes to Moscow as it endures yet another malaise – this time under some pretty hard-hitting sanctions.

“We see a transition in the entire globe right now,” said Engdahl. “Markets are not free in my view, they are man made. I see the possibility of an avant-garde role by Russia and the BRICs to build a new force of markets in Asia, Latin America and so forth. The old order is not very happy about these developments.”

This was in fact a leitmotif common to SPIEF 2015 – the reorientation of Russia away from a hostile West and into the warmer embrace of the East – a theme developed by auto brakes supplier Knorr-Bremse chairman Heinz Hermann Thiele who noted:

“Russia turning to the East is to do something normal, quite normal,” he said: “Even my company, we have strong connections with China and extremely good business. Why shouldn’t Russia do the same?”

To ram the point home, surprise visitor to SPIEF, Greek Prime Minister, Alexis Tsipras, echoed the axis tilt:

“People are asking why I am here [Russia] and not in Brussels,” said Tsipras. “The economic centre of the planet has shifted – there are new emerging forces that can play a role geopolitically.”

But why is Russia being so belligerent in Western eyes – why are its actions having a seemingly direct impact on automotive sales with no apparent end in sight?

Back to Engdahl, who listed a familiar range of issues which illustrate a sense of the encirclement Russia currently feels and has felt for the past century and which have led to an extraordinary announcement of a 40-strong increase in nuclear weapons by The Kremlin – much against past trends of cutting arms.

“Russia is being provoked militarily through the business in Ukraine,” intoned Engdahl. “The 40 intercontinental ballistic missiles were a response to the NATO heavy armaments in the area around Kaliningrad, a strategic naval base for Russia.

“Missile defence in Poland, Czech Republic, Turkey, that is all aimed not at Iran, not North Korea, it is aimed directly at Russia. There have been very, very provocative steps taken by Washington and NATO that give [cause] for that concern, not only in the Kremlin, but the world.”

That statement was met by thunderous applause in the packed audience – it struck an encirclement chord which although one on which the Kremlin plays heavily – nonetheless explains part of the nervousness with which Russia views Western encroachment – for obvious historical reasons – in the old Warsaw Pact countries.

President Putin himself also firmly played the blame game in St Petersburg, insisting after the demise of the Soviet Union, that the West and mainly the US: “were in a state of euphoria” and “began to develop the new geopolitical space they thought was unoccupied.

“This, for instance, is what caused the North Atlantic block, NATO, to go East, along with many other developments,” he added.

Just to outline how much the sanctions are hitting Russia and in turn pulling the rug under automotive sales, former adviser to Mikhail Gorbachev and current member of the Russian Academy of Sciences, Abel Aganbegyan, listed a startling array of statistics to show the country’s challenges. 

“It [went] from bad to worse in 2014 – because of the sanctions the Q4 situation deteriorated further [and] stagnation turned into a deep recession,” he said. “We have recently seen some statistics for May. GDP went down by 5%, turnover of transport went down by 4% and the worst thing is we see reducing investment for three years in a row. 

“This is emerging against the backdrop of growing inflation [of] 15.8%, prices are going up, interest rates are very high. Unemployment has grown by 590,000 [and] for the first time Russia is seeing fewer migrants coming into the country, that is because of the rouble depreciation.”

I spoke to Aganbegyan – he was certainly held in much regard in St Petersburg – and he stressed although the Russian Central Bank rate is 11.5% the level at which car purchases for example can take place is actually up to 18% making transactions extremely expensive. 

It’s a bit of a chicken and egg situation as although investment is strongly needed, oil price revenue has sharply fallen and sanctions are affecting confidence.

Russian involvement in Eastern Ukraine and Crimea has triggered those sanctions, which in turn have seen auto purchases implode.

But Russia would argue it is the very notion of the West coming East – as Putin suggests above – which is making it nervous and perhaps even creating a situation where Moscow feels it needs to establish a buffer zone in its back yard.

Maskirovka is an old Russian art, honed across centuries and has perhaps been given a facelift for the current set of circumstances.

Whatever the reality of that, there is however, no doubting Russian nervousness at what it sees as a creep Eastwards by hostile powers.

Just before I left Moscow recently, I looked at the front cover of a domestic newspaper at the airport. It featured a huge bear wearing a Russian military hat and glowering over the walls of the Kremlin at several American soldiers replete with Stars and Stripes trying to clamber over.

Just in case that message wasn’t distilled clearly enough, there was a huge ‘No Entry’ sign on the same walls.

You’re not coming through. Russia’s mask is not slipping.

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