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Why Putin is heading off the world stage

The energy paradox

The events of the last few months have set in train Vladimir Putin’s disappearance from the world stage. The only uncertainty is how long it will take, whether it will be months or years. It will happen due to unintended consequences – a concept first analysed in 1936 by American sociologist Robert Merton – of his Crimean annexation.

US Defense Secretary Robert Gates, in the memoir about his years serving under Presidents Bush and Obama, notes that during the Cold War Soviet interests were taken into account to avoid military conflict. However, “when Russia was weak in the 1990s and beyond, we did not take Russian interests seriously. We did a poor job of seeing the world from their point of view, and of managing the relationship for the long term.” He confesses that he “dutifully” supported the effort to bring Georgia and Ukraine into NATO, even knowing that this would feed Russia’s “paranoia” about the West.

Russia’s feeling of geopolitical weakness, allied to an economy that has failed to diversify and a mistrustful leader, resulted in the Crimean invasion and current troublemaking in Ukraine. But the unintended consequences of its escapade are an increase in its irrelevance to the world and the beginning of the end for Putin.

Consider these factors. Europe depends on Russia for one third of its gas needs. From complaining half -heartedly about their dependence on Russian energy, the Germans have woken up to the reality. Nuclear power could well be back on their agenda, although in 2011 it was announced that it was to be phased out by 2022. Who can doubt that serious discussions are now taking place behind closed doors between ministers and energy companies?

Meanwhile, the vociferous voices against extracting shale gas from the soil in Europe have lost ground to more widespread fears about a resurgent Russia, and the US export of shale gas to Europe, a contentious issue for some Americans, now has strong government backing.

As for Putin, he has infuriated his main constituency, the oligarchs who long ago agreed to keep out of politics in exchange for permission to carve up Russian’s economy in a monopolistic and oligopolistic way. As the stockmarket falls, the currency plummets and targeted sanctions start to bite, they are not a happy bunch. IPOs are on hold, foreign customers are wary of dealing with any company that is substantially owned by Russians and domestic banks are having trouble with their wholesale funding.

Whatever Putin does on the Ukrainian front, whether or not he compromises with the West on other multilateral issues to soften sanctions, the Russian leader has fatally undermined his own rule.

Does this scenario sound too complicated and therefore implausible? As humans we generally lack the ability to figure out what the unintended consequences of actions might be, even knowing they will always occur. Nassim Nicholas Taleb, the philosopher cum trader best known for The Black Swan, talks about narrative fallacy, in other words our tendency to construct simple stories to explain the world. Narratives about the past are often wrong. Hindsight is a myth because we do not and cannot know what did not happen, which would have resulted in a different story.

At the altar of the story and the storyteller we unconsciously sacrifice the uncertainty of human existence, what Nobel prize-winner Daniel Kahneman calls the “illusion of understanding.”

When I worked as a reporter at Bloomberg News, we were forced to find reasons for stocks going up or down. We called up analysts and traders, found the most convincing explanations, and banged them out on the screen. Those stock reports read well. Similar ones are being churned out by the media and pundits today. They are examples of narrative fallacy. Beware believing them…although sometimes, only sometimes, they may have more than a smidgen of truth about them. As does the Putin story.

This column first appeared in The Dialogue Review

catherine phelpsEU