‘A blessing and a long-term curse’

Economist Nouriel Roubini on Russia’s dependence on fossil fuels and the prospects of nuclear war

Can a “new” Cold War between China and the U.S. turn nuclear? Will other authoritarian regimes follow Russia’s lead in openly waging wars to resolve territorial disputes? How have sanctions impacted Russian oligarchs? To answer these and other questions, Russian journalist Mikhail Zygar spoke with the American economist Nouriel Roubini, a professor at the NYU Stern School of Business, who served as a senior economist in the Council of Economic Advisers during U.S. President Bill Clinton’s administration, and predicted the 2008 financial crisis. The interview was released on Zygar’s YouTube channel. Meduza is publishing an abridged summary of the conversation.

From tsars to Bolsheviks to Putin

Why hasn’t Russia been able to achieve real democracy, develop an open market economy, and ease its complete dependence on oil and gas? It’s not a matter of the country’s communist history, says economist Nouriel Roubini, since other countries formerly part of the Soviet bloc have successfully transitioned to different political and economic systems. Some have joined the EU, the Eurozone, and NATO. Roubini attributes these successes to countries having a history of liberal democracy and market-oriented economy prior to communism — unlike Russia. “Russia went from tsars to Bolsheviks to a transition that eventually led to Putin in power,” remarks Roubini. In other words, Russia has never been a liberal democracy or a market economy. While it briefly seemed possible possible under Mikhail Gorbachev, Boris Yeltsin and then Vladimir Putin pushed Russia toward state capitalism.

Now, Russia suffers from “Dutch disease,” in which one type of export “crowds out” other types and impedes diversification. It’s also victim to the resource curse, which is defined as an over-reliance on natural resources, leading to rent-seeking and corruption. “Russia has never successfully diversified its economy away from natural resources, which is both a blessing and a long-term curse,” says Roubini, arguing that this is the cause of weakness and corruption in its economic and political system.

Europe’s rapid transition away from Russian oil

While Europe has long been dependent on Russian natural resources, it “has found a way, actually quite fast, to rely less on Russian oil,” notes Roubini. Concerns that Europe would be hit with a severe recession never materialized. Germany, for example, was able to “cut consumption of energy by 20% with minimal impacts on industrial production,” and replaced Russian natural gas with imports from the Middle East and the U.S.

It will be harder to prevent Russia from selling its fossil fuels to other buyers, though. There’s no way to stop Russia from exporting energy at a cheaper price to Turkey, who then sells it to Europe, despite this being more expensive for Russia. “The best we can do” is just “make it more costly and difficult” for Russia, says Roubini.

The return of oligarchs and the exodus of scientists

In terms of the impact of sanctions, the economist explains that they have prompted oligarchs to move back to Russia. Many fear that Putin could expropriate their domestic assets unless they return and ally themselves with the Kremlin. Roubini notes that many oligarchs and political allies in the Kremlin disagreed with Putin’s decision to launch a full-scale invasion of Ukraine, but feared Putin would take their assets, or imprison them and their families, if they openly expressed these opinions. Another impact of sanctioning oligarchs is that they are no longer “welcome in the West,” leading them to “[retreat] back to Russia.”

In contrast to oligarchs, Roubini notes that a large chunk of the Russian population has decided to leave the country since February 2022, leading to massive brain drain. Many scientists and programmers have moved abroad to Turkey, Georgia, Gulf countries, and Europe, causing a “significant drag on Russia’s economic growth.” With “hundreds of thousands of people” leaving Russia, Roubini says there’s little a few oligarchs can do to prevent negative economic shocks in the country.

Russia as an authoritarian role model?

Will other authoritarian regimes look at Russia and decide that they too can resolve their disputes using military means? Roubini doesn’t think so. In fact, he says that one major reason for the West’s support of Ukraine is to deter other countries from employing “military means in order to achieve territorial gains,” by demonstrating how costly the consequences can be. This is especially important given growing concerns that China could attempt to reunite with Taiwan using military force. What ends up happening in Ukraine is also important for other countries that fear Russian aggression, including the Baltics, Poland, Georgia, and Kazakhstan.

Roubini disagrees with the idea that authoritarian regimes could somehow grow stronger due to their ability to deal with economic challenges faster than democracies. Even before the invasion of Ukraine, Russia experienced mediocre economic growth. Pointing to other autocracies, he says that China has been experiencing diminishing economic growth, while Iran and North Korea face major economic crises. When countries are run by an individual, says Roubini, they are more prone to making political and economic mistakes.

The role of the Global South in the global order

While some fear that countries from the Global South could be tempted to integrate further with authoritarian regimes, Roubini believes that the West provides a model that leaves them better off than if they were to grow closer to Russia, China, North Korea, and Iran. But this requires “action, investments, opening up of trade, infrastructure, and subsidizing the green transition” on the part of the West.

Businesses from the Global South shouldn’t stop investing in the West or reconsider keeping their money in Western bank accounts out of fear they will be subject to sanctions. The risk of severe sanctions is “very limited,” explains Roubini, and will only be applied to rogue states. For example, since the West knows that India is a democracy, a market economy, and China’s rival, they accept its decision to continue importing energy supplies, fertilizer, and food from Russia.

‘De-globalization’ and nuclear war

Discussing the global economy, Roubini says recent political and economic trends point to a reversal of the 30-year period of globalization that followed the collapse of the Soviet Union, and the opening up of China and other emerging markets to the global economy. Now, there is more fragmentation, “de-globalization,” and focus on secure trade rather than free trade. He argues that this has led to lower growth rates and higher costs of production.

Now, China is preparing to build up its own currency regime in order to rely less on the dollar in case of a greater conflict with the West. China’s alliance with the BRICS bloc (Brazil, Russia, India, China, South Africa) is also gradually becoming less important, says Roubini, since the countries are all very different — economically, politically, socially, and geopolitically. For one thing, some are democratic, while others are autocratic. They all have rather mediocre economic growth, except for India. And that’s not to mention the border disputes between India and China.

Touching on the topic of nuclear war at the end of the interview, Roubini says he considers it unlikely. He does note, however, that if there were to be military conflict between great powers, it would likely escalate from conventional warfare.

If there were a conventional war between NATO and Russia, or between the U.S. and China, that conventional war would easily escalate and become unconventional. Of course, in that unconventional war, there will be Russian nuclear weapons going to destroy New York and Washington and there will be U.S. [weapons] destroying Moscow and St. Petersburg.

He hopes that it won’t come to that, adding, “that’s why we have to ensure that the conflict in Ukraine and supporting Ukraine […] doesn’t escalate into a nuclear war.”

Interview by Mikhail Zygar

Abridged summary by Sasha Slobodov