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Russian Military Machine Running On Fumes Part Two

If Russia refuses to cut back on, or abandon, its rearmament policies, and if the oil price does not recover to above $90 a barrel in the foreseeable future, the Russian government could find its security and prosperity of recent years rapidly transforming into deficits every bit as alarming as the problems now facing the United States.
by Martin Sieff
Washington (UPI) Oct 20, 2008
Russia's leaders are determined to massively increase their spending to expand and modernize their armed forces, but with global oil prices collapsing, where are they going to find the money to do it?

Russia is the second-largest oil exporter in the world and the largest combined oil and gas exporter. Oil exports, which were only around $13 billion in 2001, are going to be well above $210 billion this year. Credit for this dramatic expansion goes in large part to the painstaking work of Prime Minister and former President Vladimir Putin, who has a passionate command of detail as well as overall strategic planning for the Russian energy sector.

The Russian economy was still riding high as recently as a month ago, and Russian leaders were even floating the idea of a gold-backed ruble as a major international currency. The U.S. dollar has not been interchangeable for gold since President Franklin Delano Roosevelt took the United States off the gold standard three-quarters of a century ago.

Now, the collapse of global demand for oil, especially in the United States, has pulled the plug on these grandiose Russian plans. But it also poses a dilemma for Kremlin policymakers. They had been relying on the windfall profits from their enormous annual oil and gas exports to continue into the foreseeable future and had assumed these huge sums would remain available to streamline and modernize the Russian armed forces, a strategic goal that Putin repeatedly felt frustrated over during his two four-year terms as president.

RIA Novosti reported earlier this month that Russian President Dmitry Medvedev had specifically spelled out the main weapons systems that the modernized Russian armed forces urgently needed. And the programs he had in mind did not come cheap.

"We must ensure air superiority, precision strikes at land and sea targets, and timely deployment of troops," Medvedev said. "We are planning to launch a large-scale production of warships, primarily, nuclear submarines with cruise missiles and multipurpose attack submarines."

Russia's Defense Ministry previously released figures saying it would have a budget of $40 billion in federal budget funds in 2008, a 20-percent increase over 2007. In the three years 2008 to 2010, Russian military spending was projected to come to 15.5 percent to 16 percent of total federal budget spending, RIA Novosti said.

Russia's leaders do not regard these programs as a luxury: They see them as an urgent strategic necessity to reverse decades of decline.

Much of the extra money Medvedev and Putin are budgeting for their military will be hungrily gobbled up by top commanders desperate to replace their aging, obsolete and sometimes defunct Soviet-era military systems.

"We have completely exhausted the Soviet arsenals of weaponry and military equipment," Russia's deputy minister for armaments, three-star Col. Gen. Vladimir Popovkin, told the military newspaper Krasnaya Zvezda ("Red Star") in an interview that appeared Sept. 25, RIA Novosti reported.

However, energy experts say the Russian oil and gas sector can only go on generating major profits if oil remains above $90 a barrel on the world market. Last week the price fell below $70 a barrel on the New York Mercantile Exchange. Oil ministers of the 12-nation Organization of Petroleum Exporting Countries have said they hope their emergency meeting scheduled for Oct. 24 will set a secure floor for prices at only $80 a barrel -- $10 per barrel below the minimum price the Russians need.

Even this can only happen if the OPEC nations agree to slash their collective production by 1 million barrels a day. And Russia is not an OPEC member state.

If Russia refuses to cut back on, or abandon, its rearmament policies, and if the oil price does not recover to above $90 a barrel in the foreseeable future, the Russian government could find its security and prosperity of recent years rapidly transforming into deficits every bit as alarming as the problems now facing the United States.

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Russia could pull fleet out of Sevastopol: Ivanov
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