Putin has maintained his enormous popularity because Russia's GDP (ironically the acronym in Russian is the same as his name, VVP) has grown every year since he took over in significant ways. Much of this GDP growth is tied to the explosion of oil prices over largely the same period. Russia produces nearly 10 million barrels of oil daily. Along with natural gas, oil accounts for the overwhelming reason for Russias extraordinary growth over the last nine years. Russia currently supplies about 75% of Europe's energy needs.
Of course, with the world wide recession, Russia's extraordinary growth in wealth was threatened with it. With that, so was Putin's enormous popularity and by exension, power. To understand how Vladimir Putin thinks, the best person to ask, in my opinion, is former chess champion, Garry Kasparov, currently a political activist that opposes Putin. Kasparov has often said that Putin's every geo political move is done with the motivation of keeping oil prices as artificially high as possible. He wants, in Kasparov's view, to create enough chaos in the world to increase the price of oil, but not so much that a situation spins out of control. This would explain why Putin has gotten into bed with Iran for instance.
Putin set the average price of oil in the world at $41 per barrel earlier in the year. Such a price would absolutely devastate the Russian economy. So, if you believe, as I do, that Kasparov's thesis is right, then you also believe that Vladimir Putin will do all he can to manipulate the price of oil up. In fact, if you trace the Russian invasion of Georgia and the price of oil at the time, it is startling how well the theory held.
Starting with his appearance at the World Economic Forum in Davos, Switzerland in January of this year, Putin, along with other Russian officials, have from time to time suggested that the Dollar should no longer be the world's currency.
The one reserve currency has become a danger to the world economy: that is now obvious to everybody," he said in a speech at the World Economic Forum.
It is the first time that a Russian leader has set foot in the sanctum sanctorum of global capitalism at Davos.
Mr Putin said the leading powers should ensure an "irreversible" move towards a system of multiple reserve currencies, questioning the "reliability" of the US dollar as a safe store of value. "The pride of Wall Street investment banks don't exist any
more," he said.
For all his bluster, Mr Putin's bargaining power is weakening by the day. Russia's foreign reserves have fallen by 34pc since August to $396bn (£277bn) after months of capital flight and the collapse in the price of Urals crude oil to $45 a barrel. The rouble also fell to a record low yesterday after sliding for weeks in a controlled devaluation.
The idea is hokey, I don't believe that Putin either wants it to be implemented nor expects it to be. Putin has significantly more modest intentions in mind. Back in March, Secretary Geithner, speaking at the Council on Foreign Relations, suggested he was also open to the suggestion that the Dollar would no longer be used as the world's currency. Over the next couple hours, the value of the dollar dropped against the rest of the world's currencies.
Oil, like most commodities, is priced in dollars. If the dollar is weakened, the price of oil is artificially increased. Thus, it makes sense that Putin puppet, Dmitri Medvedev, said this earlier this morning.
Russia and India said in the past week the world economy is too dependent on the dollar and called for revisions to how $6.5 trillion in currency reserves are managed. “The dollar system or the system based on the dollar and euro have shown that they are flawed,” Russian President Dmitry Medvedev said in an interview with the Italian newspaper Corriere della Sera, repeating his proposal for a new reserve currency.
Oil has fallen more than ten percent, from $72 a barrel to $62 a barrel, in about two weeks. If you are to take Kasparov's theory, you would have to believe that Putin will need to do all he can to stop the free fall of oil and see it go back up. Suggesting that the Dollar should no longer be the world's currency is an effective way of weakening it. Weakening the dollar is an effective way of artificially raising oil prices, at least in the short term. It would also explain why Russian officials are again suggesting that the dollar should no longer be the world's currency.