Global impressions ..
Mel Brooks, " It's good to be the King .."
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We aim here to bring you regular updates on factors and events impacting financial markets in the Middle East and North Africa region with an accent on foreign exchange and rates.
We also aim to bring reflections on certain topics and subjects, close to recent events, which we think are worth stopping on .
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Mel Brooks, " It's good to be the King .."
Those lines come from a 1981 movie directed by Mel Brooks. The movie was called " History of the World part 1" . In it, he plays the part of a French King before the French Revolution and abuses his power to do whatever he wants whenever he wants. In real life, the King , Louis XVI , was decapitated a few years later !
Unconstrained and unlimited power ! True, the life of a King or dictator-tyrant can be fraught with perils : in the old days, not many would find a peaceful outing of this world. Now it is a bit more quiet: they can be deposed with immunity, go in exile with their funds stashed somewhere or pass away of old age.
Why those comments ? Well, take Ukraine. Let's not go into who is right who is wrong, even though it is fairly clear that one country invaded the other, unprovoked. But the West and the US have made plenty of promises to Ukraine and its president Mr Zelensky, that they would be forever behind the country until victory. The deal until now was to give just enough support to fight the war, in funds, weapons, intelligence to keep fighting but not enough for a victory considering that Ukraine is one third Russia's population and a fraction of its territory. Mind you, we cannot completely blame them : none of the experts saw Ukraine surviving more than a few days. Even though Russia has been able to destroy more than 2/3 of the country's energy infrastructure, calling for a rough winter and cold morning showers and flatten, destroy most of the conquered land, Ukraine was not allowed to use or given the weapons that could have brought similar harm in nearby Russian land. By fear of escalation, dragging NATO into the conflict or nuclear threat even though nothing has materialized since President Putin made his first threats more than 2 years ago.
President Biden is still not allowing usage of US weapons or non-US but bearing US technology, ie, chips, to hit Russia's hinterland. And there is only very short time before next week's elections. Should Trump win, the equation radically changes. Despite Trump saying he would solve the conflict in 24 hours, I don't know who he can compel Ukraine to do so if they don't want. So it will be interesting to see.
Should Trump win and cut the funding to Ukraine, the burden will fall on Europe. Germany is the biggest provider but its chancellor probably sighs heavily at the memory of the good old days when Germany was exchanging Mercedes for cheap gas with Russia. France , despite vocal rhetoric, was and is not a big contributor and that was again highlighted when Macron reduced recent funding by 1 bn euros, budget restrictions, the country is broke..
So, the horizon looks pretty clear for President Putin. No elections to contend with, no opposition to fight, a pliable Parliament, an economy fully geared towards the war effort. It is kind of bizarre to see that most top analysts didn't see the transformation Russia went through the past 15 years. The writing was on the wall and literally : Putin wrote a dissertation in 1997 saying the great natural and mineral resources of that huge country were too important on a geopolitical and strategical perspectives to be left to the market. They had to be used to serve the will of the State. In 2007, he said that Russia had no interest or desire to be part in the US-led liberal world order. The dice were cast !
From as early as 2010 and accelerating after 2014 incursion in Ukraine, the Russian economy went through a radical transformation to make it more efficient and survive sanctions : quasi-state monopolies were created in several industries , top of them armaments. Russia became the leading exporter of cereals . Whereas Western nuclear builders struggle to win contracts and complete those they have on time and cost, Russia's Rosatom is leading the crowd. How can you starve and isolate a country of 17 mio sq km with many on the borders being quite sympathetic , whether for security , financial or economic reasons. Licit and illicit trade is booming between the likes of Kazakhstan or Georgia. Georgia is lacking drivers and trucks to ship goods to Russia through the Caucasian chain. And the last elections past weekend will facilitate it even more.
It is of course easier to create those monopolies when power is as vertical as in Russia. Whatever the King says, you do ! True there will be some leakage but the dramatic recession called by the West after the sanctions turned to be strong growth and high employment. Maybe those leakages are the price to pay for action compared to inaction in Europe where a common EU procurement policy in the defence sector is just a distant dream. The Russian Central Bank was very efficient in its management of the currency and interest rates and was able to create alternative payment systems to replace Visa or Mastercard. Yandex , the biggest social media platform , is as efficient as any of its western competitors in the tech world . Go to Moscow or St Petersburg , at least, and you will see they never had it so good !
And if Russians deserted Western Europe's capitals and holiday spots, there were found en masse in Turkey, the Emirates, Thailand, Indonesia, Egypt and also.. Mykonos !
So yes, it's good to be the King ! Time is on your side ( until it suddenly isn't, see Wagner's boss Prigozhin ). Putin might just succeed with his gamble by simply outlasting his opponents. There is a cost to it, in human lives. Many could have been avoided if not for the leakages. Promise of jail release if one chose to enrol or generous sign-in bonuses to join helped to avoid another national draft . Soldiers' salaries would reach 2000 $ a month, 3 to 4 times the average outside big cities, a conscript gets 25 $. Lump sums given to families in case of tragic outcome are also quite substantial and in Moscow, to underline the gap between the capital and the rest of the country, the mayor announced a supplementary bonus of 20k $.
The saying is that you don't chose your family but your friends . The problem with the West and its system is that friendship is not engraved in marble. It can fluctuate. Russia, and before the USSR, has been a steadfast supporter of Syria . Yes , the US has been an unconditional supporter of Israel . It was instrumental to its recognition at the UN with USSR but Stalin thought Israel would be a communist state . Support would not have been automatic if Roosevelt had still been alive but Truman was a strong supporter. The relations were not so warm for 25 years until it became clear that the US had to be fully behind Israel as the USSR were behind Egypt, Syria and Iraq . Big Game again !
Many cite the need to contain and stop Russia now ( even though more than 2/3 of this world don't care or have an opposite opinion) to prevent Putin from going further. I can see Putin's point to claim Kiyv and Ukraine as the historic homeland of the founding " Rus " 1200 years ago. Less can be said about the Baltics or other Slav and orthodox countries.
But again, if the experts couldn't imagine Ukraine fighting more than a few days and Zelensky escaping Russia's special forces, who can say what will happen in a year's time. Only Putin knows his thoughts !
One thing is sure. As a potential political leader, here is the choice. On one side , you have the US with a gruelling 18 month system of primaries and electoral campaign, between planes, buses, convoys, meetings, shaking thousands of hands, eating all sorts of things, smile, be energetic, countless interviews. On the other, Russia. Putin doesn't have to get out of his house to be re-elected !