Bremmer: Beware Russia Value Trap; Americas Possess ‘Shield’

November 04, 2014

Ian Bremmer is one of the foremost geopolitical analysts of our time. He is founder and president of Eurasia Group, a geopolitical risk and consulting firm based in New York. Bremmer has authored several books, including national best-sellers "The End of the Free Market: Who Wins the War Between States and Corporations?" and "Every Nation for Itself: Winners and Losers in a G-Zero World." He is a global research professor at New York University. Bremmer is a frequent contributor to publications like Reuters, The New York Times and The Wall Street Journal, and is a regular on CNBC, Bloomberg TV, Fox News Channel and CNN.

Bremmer sat down with to discuss recent developments in the Russia/Ukraine conflict and where he sees Russia headed in a world of lower oil prices. He gives his two cents on the Occupy Hong Kong protests, and tells us which regions and countries are most shielded economically from current geopolitics. Ebola has been stealing all the news headlines in recent weeks. Where are we with the Ukraine-Russia conflict? Have there been any major changes on that front?
Ian Bremmer: There have been changes. They're interesting changes. On the one hand, Putin just today [Oct. 24, 2014] was giving a big speech in front of the West where he made clear—in what's probably his most aggressive speech, in terms of anti-U.S., anti-Western rhetoric we've seen from him thus far—it's a unilateral American movement. We are to blame. The Russians are reacting, but they're not going to back down.

I see no occasion for an agreement over Ukraine at all. We do have a deal on gas, but it doesn't improve the conflict one bit. The IMF came out and said there's a 40 percent likelihood of recession in Europe. There are many European governments that really want to back away from sanctions now. So what's happening is no softness from the Russians, but a recognition that, if they maintain at least a modicum of the present ceasefire, there's a good chance they can actually start to peel many of the Europeans away from the harder-line policy on Russia.

At the same time, Ukraine is falling apart economically. There's a good chance they'll end up defaulting in 2015. The U.S. position on Russia is not softening at all. There are upcoming elections that are planned in some of the territory that's occupied by the Russians in Southeast Ukraine for the beginning of November. That itself is also going to cause big problems on the ground in Ukraine. They're considered, of course, illegitimate as they are by the international community.

There are a whole bunch of people out there asking, is the Russian market now bottomed out? Is this the right time to buy? I think the answer to that is not quite. We definitely aren't seeing the same freefall going forward as we have seen, because we're at more of a plateau in the relationship, and also because the Russians are having some momentum, having some success, both on the ground as well as in their broader diplomatic efforts.

But let's be very clear: This is not the beginning of a compromise. It is not a movement away from the throes of conflict. There are still plenty of things that can and likely will go wrong for the Ukrainians. So it's not that so many things have happened in the last couple of weeks, but we're getting a better sense of where it's going. Crude oil prices have plunged to the low $80s. Do you see these lower prices affecting Russia's foreign policy?
Bremmer: No, I do not. Lower oil prices are certainly a problem for major petrostates. But the fact is that there are very few that are going to have their geo-strategic policies affected by it. The only one that's under true near-term pressure is Venezuela, which is under pressure no matter what the oil price is. But life is getting much worse for them with the prices where they are right now.

The Russians can ride this out. If they have to spend some money out of their national reserves next year, they certainly will. I don't think it changes Russia's orientation. It might change the orientation towards the currency. It might make them reduce budget expenditures somewhat. But it's not going to make them either more aggressive on Ukraine or more willing to back down. If we see a turnaround in oil prices, or if tensions with Ukraine ease, can we see an improved Russian economy?
Bremmer: My point is, I don't think the tensions on Ukraine are going to subside significantly. I think it might be that the Europeans will start wanting to do business with Russia again. That's very different from saying that Ukraine is going to get fixed. It won't get fixed. The relationship between the U.S. and Russia is broken.

I do believe that oil prices could well surprise on the upside, especially because you're less likely to see a deal on Iran, and because Libya is falling apart. It's hard for me to imagine that oil prices are going to continue to go down very much, given that. But I don't think there's a dramatic impact there on Russia.

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