Oil dependency: what we might learn from the Russians?

Sorry to have been AWOL for a few weeks. I have in fact been delving into the world of the former Soviet bloc to see if indeed there is anything we can learn about recovering from a crisis.

Certainly Russia has had its fair share of hardship over the past 18 months—some would say an unduly large portion. With the Georgian conflict and the stand-off over the excitingly named Star Wars missile defence plan still fresh in the minds of many columnists, a healthy serving of humble pie was largely felt to be their just desserts.

The view from Russia, of course, is rather different. It was not, they say, their banks which indulged in the “merry-go-round” of CDSs and CDOs, or their financial regulators who sat, rubber stamp at the ready, as the magical mystery tour of complex financial products traipsed across their desks.

Nor, they holler, was it their consumers who were piling on the debt to pay for their Yves Saint Laurent clothing and full Rock Band sets. And they’re right, it wasn't their fault.



Why then was Russia one of the most dramatic disaster stories of last year after the oil price collapsed? Was it a failure of government policy?

“I wouldn’t say that,” said a chief executive of a financial services company as we sat two minutes away from Red Square.

But didn’t they say they were diversifying the economy away from its oil dependence?

“I would not say that Russia has not been successful to diversify away from the commodity sector,” said a Moscow-based economist.

Their replies brought to mind a story my grandfather once told me about his experience during the war.

Unlike many grandfathers, I suspect, mine had very little time for the whole idea of war. Stationed alone on a remote Irish base where he had been tasked with watching out for, as it turned out, non-existent German ships, he hatched a plan.

Trying hard to suppress his thick Yorkshire accent and place himself in the mindset of a moustachioed general, he dialled his superior officer demanding that he be discharged from service.

This officer, suspecting that all was not as it seemed, summoned my grandfather to headquarters.

“Private, I received a call yesterday requesting your immediate discharge. Do you know anything about it?”

“No, sir,” came the reply.

“I believe it was you,” the officer said.

After a pause my grandfather looked back at his accuser.

“I’m afraid I cannot agree with that.”