Why the United States Fears Russia: Part II, The Power of Resources

By: Karla Fetrow

Russia’s Economic Growth

Russia, by its very size, seems like a formidable country.  Even after the Soviet Union split away into various states, Russia was still the largest country in the world.   It’s population density, however, is very low.  One hundred, forty three million is not a lot of people in terms of population and land mass.  The environment is rugged, the climate often harsh, with a large area encompassed within the Arctic Circle.  The largest towns and cities remain close to Europe.  The rest of Russia is basically rural.

Natural selection in this unforgiving region has created a strong, resilient, competitive  people. Some of the world’s greatest literary artists and classical music have come from Russia; some of the best scientists, machinery and advanced technology.  Russia is the type of country that, if it doesn’t take the number one position, is always a close contender.  Twelve years after its economic break-down, it once again is on its way up as a leading natural resource supplier and strong contender for economic influence.

Russia is one of the world’s richest countries in raw materials, many of which are significant inputs for an industrial economy. Russia accounts for around 20 percent of the world’s production of oil and natural gas and possesses large reserves of both fuels. This abundance has made Russia virtually self-sufficient in energy and a large-scale exporter of fuels. Oil and gas were primary hard-currency earners for the Soviet Union, and they remain so for the Russian Federation. Russia also is self-sufficient in nearly all major industrial raw materials and has at least some reserves of every industrially valuable nonfuel mineral–even after the productive mines of Ukraine, Kazakstan, and Uzbekistan no longer were directly accessible. Tin, tungsten, bauxite, and mercury were among the few natural materials imported in the Soviet period. Russia possesses rich reserves of iron ore, manganese, chromium, nickel, platinum, titanium, copper, tin, lead, tungsten, diamonds, phosphates, and gold, and the forests of Siberia contain an estimated one-fifth of the world’s timber, mainly conifers.

Russia has at its fingertips, a very much in demand but underdeveloped resource; rare earth.  Recently, China sent stock brokers scrambling when it announced it was cutting back the exportation of rare earth.  China, which reportedly controls 97 percent of the global supply of rare earth minerals, said it will reduce its effective export quota by 35 percent for the first half of 2011 compared to the year-ago period.  Rare earths are essential in the manufacture of many electronic products, including PC monitors and television sets, as well as wind turbines and hybrid cars.

According to Joe Weisenthal, in a January 4, 2011 report “What The Rare Earth Bulls Don’t Want You To Realize” rare earth isn’t very rare at all.  China controls 97% of the earths production, mainly because it has the loosest environmental laws.  Rare earth is made up of seventeen different metals, some of which are radioactive and some of which are chemically toxic. Rare earth contains lanthanide and molybdenum compounds, concentrates, and oxides using open-pit mining techniques. Lanthanides (which include cerium, lanthanum, and yttrium) and are used in everything from cell phones and computers to X-ray film and television glass.

Additionally, Japan claims it has found synthetic substitutes for the metal compounds found in rare earth.  This has not kept speculators from debating over a now wide open market.  Said Jim Rogers of Beacon Equity Research, in an interview on India’s business channel, ET Now, “The future of rare earth is great. What is happening is the prices are going through the roof because the Chinese do control the supply, but it is pure simple capitalistic economics now.”

Rogers said the global rush to locate potential rare earth supplies outside of China could provide investors a play on these commodities. Mining companies based in China have been investing outside China as well, with Africa as a focus of some Chinese mining firms to meet future demand.

At Molycorp Inc., the owner of one of the world’s largest rare-earth deposit outside of China, shares went up fifteen percent after stating it may double its planned production to help meet global demand after China cut export quotas. The stock has gained more than fourfold since the company raised $394 million in an initial public offering in July to help fund the restart of its Mountain Pass mine in California.

According to “Commodity Online”, Russia contains more rare earth holdings than China.  According to their December 8, 2010 article, Russia has 27.9 million metric tons of rare earths under the A+B+C1 classification, according to country’s only exporter of the rare-earth minerals, Polyfer Handels.

The reserves will be higher than that of China’s 27-million-ton estimate assigned to China by Japan’s Trade Ministry agency JOGMEC last year.

Japan, the biggest importer of rare earths, put the reserves of Russia and other former Soviet countries at about 19 million tons.  The explanation for the discrepancy in estimates is that the Russian system does not fully correspond with other nations’ classifications. The A+B+C1 grade indicates tonnage for a fully explored resource.  The race for new rare earth sources is on, and Russia is ready.

The Inevitable Influence of Russian Politics

The Western world was shocked when billionaire tycoon, Mikhail Khodorkovsy was sentenced to stay behind bars until the year 2017, after a court in Moscow issued its maximum possible punishment on charges of theft and money laundering.  Judge Viktor Danilkin sentenced Khodorkovsky, 47, and his business partner, Platon Lebedev, 54, to 14 years in a penal colony, including time already served, meaning the pair will not be free for seven more years.

The trial was widely condemned as a farce and the verdict declared unjust.  The New York Times stated, “Once the most famous of the Russian oligarchs, Mr. Khodorkovsky led his company to become the best-run, fastest-growing, most transparent company in the country — a gleaming symbol of hope for Russian industry. He was once Russia’s richest person and one of the country’s most influential. His fate has remained an important political barometer in Russia. The imprisonment of Mr. Khodorkovsky and the destruction of Yukos are still regarded as a blight on Kremlin efforts to present Russia as a democratic, business-friendly country, a problem many believe would be significantly diminished if he were freed.”

Vladimir Putin

The Russian Ministry responded.  “In connection with the statements voiced in Washington and a number of capitals in the European Union regarding the trial of M. Khodorkovsky and P. Lebedev, we would like to underline once again that this issue is under the jurisdiction of the court system of the Russian Federation. Attempts to put pressure on the court are unacceptable.”  The ministry went on to say, “We are counting on everyone to mind his own business – both at home and in the international arena.”

A June 16, 2004 article in BBC News announced, “Russia’s richest man, Mikhail Khodorkovsky, was arrested in October 2003 when masked and armed members of the security police force FSB stormed his private jet at an airport in Siberia.”  The article speculates as to how much of the events leading to his arrest were entirely political.  “His arrest came hot on the heels of his activities in the political arena, including the acquisition of the rights to publish the prestigious Moskovskiye Novosti newspaper, and his hiring of a leading investigative journalist highly critical of President Vladimir Putin,” it states. “Mr Khodorkovsky had also extended his political involvement by giving money to nearly all political parties – including the communists.”

The tycoon has consistently said he is not tied to any particular party. “Large companies cannot finance political parties as their shareholders and employees have different political views,” he said while still in charge of Yukos.

However he has made no secret that he supports the liberal opposition to President Putin.

“Ideologically I am close to the Union of Rightist Forces (SPS) and Yabloko, and I continue to finance these parties,” he said before his arrest.

Arresting and placing in prison one of the world’s wealthiest men must be a little disturbing to a Western society accustomed to keeping the laws in favor of capital enterprise.  Iceland discovered in 2009 that not even an entire country has enough influence to challenge the corporate giants in a corruption scandal.  Many felt fraud was involved in the Holland and London banking institutions, a fraud that triggered the bankruptcy of Iceland by freezing Iceland’s accounts, and Kaupthing took the banks to the high courts to prove it.

The courts ruled in favor of Holland and London.  Iceland continues to attempt a fair payment negotiation with the banks, and has even appealed to the U.S. for support, according to Wikileaks documents.  Ireland would probably like to do the same.

According to the UK Guardian, Ireland is, per capita, the most indebted country in the EU. Its budget deficit of 14.3% is higher even than in Greece. For a decade, the “Celtic tiger” economy was the poster child of free-market globalisation. Now, this bedraggled alley cat of an economy is neo-liberalism’s favourite example of how to cut your way to recovery. Ireland’s government has slashed public-sector spending by 7.5% of gross domestic product with a series of drastic cuts this year: public sector pay by 15%, child benefit by 10%, unemployment benefit by 4.1%. Another €3bn will be removed next year, a total of 10% of GDP over three years: these measures are equivalent to the British government slashing its budget not by the £6.25bn planned by George Osborne in 2010, but by an incomprehensibly gigantic £150bn.

Yet despite the cuts, dubbed “masochistic” by the Financial Times, Ireland’s debt is still growing, thanks to the desperate bailing out of its banks. Irish critics fear this economic death-spiral could lead to a decade of grinding austerity, a generation lost to unemployment and, worse, the return of a spectre that has haunted Ireland for two centuries: mass emigration.

Ireland, along with the citizens of many countries suffering from the impact of the weakened dollar and consequent economic collapse, would like a fair rates plan to help pay off their debts.  They would like to feel the banking institutions and major credit holders would negotiate an agreement that would keep their economy from sliding further into bankrupt oblivion.  This has not happened.  In fact, bankers are warning of another possible devaluation of the dollar, and have already begun petitioning for another bail-out.

The Western world condemned Russia for its decision regarding Mikhail Khodorkovsky, a decision the Russian people seemed to think was a fair one.  In an article by Craig Mellow, in “Russia Markets: Beyond Khodorkovsky,” the author states, “Khodorkovsky is a poor martyr. He blandly swindled investors in his oil company, Yukos, through grotesque share dilutions before finding the religion of transparency in his last few years at liberty. His concrete political aims were keeping Russian oil giants from paying their fair share of taxes and opening remaining state assets like Gazprom to privatization at knock-down prices. Crusading for democracy was an afterthought at best.”

Removing the Mask; A Personal Reflection

Since the end of World War II, when an alliance with Russia dissolved over political disparities, only the worst of Russian exploitations and brutalities have been presented to the Western world.  The Russian people remain a mysterious boogy man tale, used to frighten adults into correct political behavior.  During the Cold War, Alaska was practically a shut down case of National Security.  Military bases were always on the alert.  Anti-missiles were conceived to fight missiles, physical fitness programs included the ability to hike over glaciers and scale cliffs, standard bomb drills were given out in all the schools, and instructions posted in all public places on bomb shelters and how to prepare for an air attack.

Dutch Harbor, Alaska

At a very early age, I began to notice the disparity in the great Russian menace and the behavior of the Russian people living within the Alaskan community.  Coastal Alaska is liberally dotted with Russian villages, some of which even extend into the Interior.  They were generally involved in fishing, farming or small business, were self-supporting communities and attended the Russian Orthodox Church.  Many Alaskan Natives are also Russian Orthodox, having converted to the religion long before Alaska was sold to the United States.  Russian and Alaskan villages are often found side by side with no more disruptions to society in general than a Japanese restaurant or a Jewish synagogue.  They are part of Alaska’s distinct incorporation.

My parents explained that the Russians who lived here were traditionalists and not communist, which was why they were not evil.  As a child, I accepted that if we surrendered to communism, we would be giving up our basic Constitutional rights.  I understood these rights as doctrines taught to me for as long as I could remember, but it took years of studying political science before I began to understand that communism was connected to the aspect of communal; a concept of shared property and inhabitant rights to the control of their own natural resources.  Considering the sometimes blurred lines of property ownership in my cultural upbringing, this difference in political views didn’t seem like a very life threatening situation.

In 1980, I moved to Mexico.  Not only was Mexico unafraid of Communist Russia, one of the five recognized parties was communist.  “Communism is not considered a threat to the Mexican Republic,” explained one party official, a PRI representative.  “Much of our politics are already swayed by socialized viewpoints.  We have socialized medicine.  We have government funded low cost stores for basic food items.  We have an open market.  It keeps the communists happy.  It keeps the socialists happy.  It creates balanced politics.”

During the peso crash, one of the first countries to demonstrate support for Mexico was Russia.  Russian literature and magazines were readily available, with Russian/ Spanish translations.  Russian films appeared on the screens.  In 1982, I attended an enormous Russian exposition held in Mexico City.  There, I was able to view Russian technology; huge tractors and combines rivaling the workmanship of John Deere, marvelous applications in advanced electronics, blueprints and scale models of working environmental projects, movies and Russian dancing; but the most enjoyable part of the entire exposition were their Dixieland jazz musicians.

I’m a product of the seventies, a rock and roll fan who followed the outdoor concerts, the indoor performances, the travels and experiences of the big bands.  By the time I reached Mexico, I had pretty much put aside my music lusts and was following the more instinctual urges of the creative artist involved in one of the world’s great dramas.   I still greatly enjoyed live music, but had extended my preferences to a few more International flavors.

I’m not sure exactly what I expected from the Dixieland jazz performers.  I was musing at the time that although I’d seen every kind of machine that could assist in Mexico’s agriculture and its oil industry, many wonderful ways to build within the environment, I had not seen one weapon of destruction.  Neither had I seen hate America propaganda.  In fact, I was about to listen to a group of young, tow-headed Russian citizens give their interpretation of Dixieland music.

What I heard amazed me.  Not even Jethro Tull had sent such an electric shock of pure, unadulterated energy.  This group, made up primarily of men and women in their mid-twenties, not only sang in perfect English, but with the most marked enthusiasm of any group I’ve ever encountered.  They loved what they were doing.  Their eyes glowed.  Their fingers rushed over the strings of their instruments, delivering a fondness for Dixie the Appalachian people would have been proud to hear.  The noise of the crowd was thundering as they cheered the Dixieland performers on.

I was never able to forget this hospitable side of Russia, this love for music and beauty.  When I returned to Alaska, the Iron Curtain had come down.  The entire coast rejoiced as Russian relatives were free once more to visit each other on either side of the border.  Russian handcrafts became as plentiful as Native crafts.  Colorful traditional Russian dress and the more conservative modern, were seen freely on the streets.

When the Russian economy suffered, Alaskan hearts suffered.  The affluent beginnings of trade, dwindled.  Store fronts closed up and went home.  The next wave of Russian immigrants came from the desperate, the hungry.  They were mail order brides, hired workers, poor relatives of Russian Alaskans.  Some were entrepreneurs, bringing with them illicit activities such as underage prostitution and extorting illegal immigrants.  We absorbed them, but we did not fear them.  Russia continued to be the next door neighbor with which we had a lot to catch up on.

Russia began climbing out of its economic crisis in twelve years, a feat the United States might be hard-pressed to follow.  It remains strong because it’s still a vast country with an enormous number of natural resources.  Regardless of what the Western world thinks, it will exert its own political influence.

Our leaders are not worried about the impact Russian could have on Western freedoms.  They haven’t expressed a moment of concern for quickly eroding democracies.  Perhaps what our politicians, our National leaders are afraid of is that Russia presents its own solution to corporate magistrates who remain billionaires even while the foundations of entire countries are crumbling.  It fears the Russian solution will be just a little appealing to the general public that have been trampled under the tide of financial irresponsibility.  It fears Russia will expose the shelters of exclusive monetary protection and their unethical establishment.  It fears that Russia will once again be a dominating force in the world market, and that this time, it will win.

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