Russia And An Economic Iron Curtain

"From Stettin in the Baltic to Trieste in the Adriatic an iron curtain has descended across the Continent. Behind that line lie all the capitals of the ancient states of Central and Eastern Europe." Churchill, 1946

For some time the conventional wisdom has been that the largest economic and military threat the to US is an expanding China. It has the world’s largest standing army and is the fastest growing large economy in the world.

China has been viewed as unmatched as a rival to the West.

Most of that wisdom has been spun onto its head in the last two weeks. Not only has Russia invaded Georgia. It has placed missiles there. It recently menaced Poland, the site of NATO’s anti-missile shield, by saying the country is a potential target for a military attack. Over the weekend, the Times of London reported that the Russian Balkan Fleet may put nuclear weapons on its ships for the first time since the Cold War.

While the odds of a major military conflict may seem remote, an economic one could be in the offing.

Russia has the opportunity to disrupt the economies of Europe, America, and Japan. It might cost the country tens of billion of dollars in export profits, but the central government may be able to underwrite that as part of flexing it muscles.

Russia is the second largest oil exporter in the world. BP is already in a battle with the Russians over its joint venture to explore and produce new oil reserves. Royal Dutch Shell was recently forced to sell its part of a joint venture to Russian oil operation Gazprom. If Russian wants to squeeze the West by moving up global oil prices, it has already signaled that it can do so.

Russia is also the world fifth-largest exporter of grain cereals. According to the FT, Russia plans to form a state grain trading company to control up to half of the country’s cereal exports.

The marshaling of export controls is not likely to simply be handiwork to create efficiency. It is almost certainly an artifice to modestly disguise the opportunity for Russia to wage an economic war if need be.

In short, it is a Cold War waged in the corn fields.

Douglas A. McIntyre