Power And Dollar

Whose Money Get Hurt In The Middle Of This Cold War 2?


Russia invaded Georgia to show Russia is still a superpower.  Certainly, Russia caught the US off guard.  And of course Russia is dragging its own feet to leaveIs the objective of “being a superpower” achievable for Russia?  What are the impacts?  What companies will get hurt the most?


Russia is no longer financially strapped like they were in the 90’s, thanks to the oil.  Military is a very costly adventure to archive national interests.  To assess if the objective is achievable is equivalent to ask if the economy can support such an activity.  Since exchange rate is different daily and purchasing power is different in each country.  A good way to measure the GDP is GDP by purchasing power parity (PPP).  This is a link to 2008 GDP PPP. 


Russia is about the scale of France, both are less than $2.1T.  The US is $13.9T while China is half of the US ($7T) and India is $3T.  Russia’s scale of economy is about 1/7 of the US and less than 1/3 of China.  Russia’s export is mainly natural resources (or defense sales).  Its exporting countries are mainly EU countries, i.e. NATO countries.  


Its economic structure is heavily dependent on 1 type of product to 1 geography (or even 1 buyer).  Anyone could have given a warning to a company that is so heavily dependent on 1 product to 1 buyer.  It is then very obvious that this strategy cannot last long.  


Since Russia’s size of economy is so small (1/7 of US), a new Cold War cannot get started.  The scale of this Cold War 2 is either small or short.  Russia’s fuel will get burnt out very fast, when compared to THE Cold War.  With the energy price keeps falling, this strategy will fail even faster.  Russia’s only hope with this strategy is to have more support from China and India to build a multi-polar world.  


The impact will be felt most heavily on companies where Russia constitutes a major part of their operation similar to their operation from NATO countries.  It need not be revenue, operation such as production or material input would be enough.  BP is an obvious example.  Energy is an industry where everyone will have to look for.  Heavy industry is another.  Anyone who has production sites in Russia can get stuck.  Russia’s militarism will increase friction with the NATO countries.  Pressures will not only come from international sanctions (if any), but also Russia’s suspicion against these companies’ operation in Russia and other CIS countries.  


August 19, 2008 - Posted by | Barack Obama, business, Current Events, economics, Investment, John McCain, mccain, Money, obama, politics, wordpress-political-blogs

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