The U.S. Should Be Reaching out to Russia — Not Risking War

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by Jim Rickards, Daily Reckoning:

There’s no greater villain in the world today than Vladimir Putin. He stands accused in the media and global public opinion of rigging his recent reelection, imprisoning his political enemies, murdering Russian spies turned double-agent, meddling in Western elections, seizing Crimea, destabilizing Ukraine, supporting a murderous dictator in Syria and exporting arms to terrorist nations like Iran.

The list of bad acts laid at Putin’s feet is much longer than the one just recited, but you get the idea. He’s no Mr. Nice Guy.

At the same time, the country of Russia is more than Mr. Putin, despite his authoritarian and heavy-handed methods. Russia is the world’s 12th-largest economy, with a GDP in excess of $1.5 trillion, larger than many developed economies such as Australia (No. 13), Spain (No. 14) and the Netherlands (No. 18).

Russia is also the world’s largest oil producer, with output of 10.6 million barrels per day, larger than both Saudi Arabia (10.5 million barrels) and the United States (9 million barrels).

Russia has the largest landmass of any country in the world and a population of 144 million people, the ninth largest of any country. Russia is also the third-largest gold-producing nation in the world, with total production of 250 tons per year, about 8% of total global output and solidly ahead of the U.S., Canada and South Africa.

Contrary to many analysts’ perceptions, Russia is on a sound financial footing. Russia’s government debt-to-GDP ratio is 12.6%, which is trivial compared with 253% for Japan, 105% for the United States and 68% for Germany. Russia’s external dollar-denominated debt is also quite low compared with the huge dollar-debt burdens of other emerging-market economies such as Turkey, Indonesia and China.

Under the steady leadership of central bank head Elvira Nabiullina, the Central Bank of Russia has rebuilt its hard currency reserves to $455 billion after those reserves were severely depleted in 2015 following the collapse in oil prices that began in 2014.

Even as Russia’s foreign exchange reserves dropped from $525 billion in late 2013 to $355 billion in mid-2015, Nabiullina never stopped acquiring gold for the central bank. Total gold reserves rose from 1,275 tons in July 2015 to almost 1,900 tons today. Russia’s gold-to-GDP ratio is the highest in the world and more than double those of the U.S. and China.

Russia’s exports are not highly diversified, consisting mostly of oil and natural gas. Still, Russia is highly competitive in the export of nuclear power plants, advanced weaponry and agricultural products. This export sector produces a positive balance of trade for Russia, currently running at over $16 billion per month. Russia has not had a trade deficit in over 20 years.

More to the point, Russia is a nuclear superpower on par with the United States and well ahead of China, France, the U.K. and other nuclear powers.

In short, Russia is a country to be reckoned with despite the intense dislike for its leader from Western powers. Russia is rich in natural resources, financially sound and a nuclear superpower.

It can be disliked but it cannot be ignored.

Russia is even more important geopolitically than these favorable metrics suggest. Russia and the U.S. are likely to improve relations and move closer together despite the current animosity over election meddling and the attempted murders of ex-Russian spies.

The reason for this coming thaw has to do with the dynamics of global geopolitics. There are only three countries in the world that are rightly regarded as primary powers — the U.S., Russia and China. These three are the only superpowers.

All others are secondary powers (U.K., France, Germany, Japan, Israel, etc.) or tertiary powers (Iran, Turkey, India, Pakistan, Saudi Arabia, etc.). This strategic reality sets up a predictable three-party dynamic.

In any three-party dynamic, whether it’s a poker game or a struggle for global control, the dynamic is simple. Two of the powers align explicitly or implicitly against the third. The two-aligned powers refrain from using their power against each other in order to conserve it for use against the third power.

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