Condoleezza Rice: Decline in Price of Oil Could Undo Putin Regime

If crude slumps to $70 a barrel, Putin might not be able to afford to pay off his cronies, Rice says.


All it would take for Vladimir Putin’s regime to begin to crumble would be for the price of oil to slump to the $70-a-barrel range, former secretary of state Condoleezza Rice told an audience last week.

Speaking at Everest Capital’s Emerging Markets Forum in Miami, Rice said that if the price of oil remains above the $100-a-barrel mark during the next few years, President Putin’s Kremlin would have the means to continue paying off cronies and keeping the current regime — which she described as an “oil syndicate” — intact. With crude currently hovering around $110 a barrel, she said, there is no incentive for Russians to change the nature of their economy.

But the days of a Russia fueled exclusively by petrodollars is waning, especially if the price of crude begins to fall, she said. Ready to replace Putin’s petrostate is a knowledge-based economy crying to break free, said Rice, also a former national security adviser to president George W. Bush and an expert on the Russian political economy. “Wouldn’t it be refreshing to see that the basis of Russian power is the knowledge and creativity of its people? They could be a very big part of the 21st century,” she said.

Rice told the audience at the emerging markets summit a story about how the former president, Dimitri Medvedev, once boasted to her that Russia produced the world’s finest mathematicians. Her response: What if they were actually working in Moscow instead of in Palo Alto and Tel Aviv? She said that Medvedev acknowledged that Russia needed to provide an ecosystem in which its homegrown talent would remain at home and help the country flourish. “The arts and sciences in Russia have been legendary even in the worst of times. Can you imagine how remarkable their economy could be if their leading scientists weren’t leaving for Silicon Valley?” she said.

Besides being extraordinarily dependent on oil, Putin’s regime has done little to censor or monitor the Internet compared to, say, China, according to Rice. The former KGB agent focuses his attention on producing state television broadcasts reminiscent of the Cold War Era — an old-line communist activity that matters little to a younger generation of Russians who receive their news over the Internet, she said.

The founder and chief investment officer of Everest Capital, Marko Dimitrijević, said that although Russia is not without its challenges, his firm has invested in that market for decades.


Later in her speech, Rice addressed recent U.S. sanctions placed on the central bank of Iran, which she said are tantamount to a nuclear weapon that has been aimed at the Iranian economy.

American-led economic sanctions against Iran are having an effect and might allow the U.S. to use diplomatic means to face down an unstable regime that she said was on the verge of producing a nuclear device. “The steady buildup of sanctions has really put them into a terrible bind,” she said. “The sanctions are beginning to bite.”

President Obama recently strengthened those sanctions in order to freeze Iranian held assets in the United States.

Still, the U.S. should be backing up those sanctions with tougher talk, she said. Rice criticized the chairman of the Joint Chiefs of Staff, General Martin Dempsey, for “talking down” the possibility of the U.S. using military action against Iran. General Dempsey recently said in a television interview that it would not be “prudent” for the U.S. to attack Iran over its nuclear program.

The chairman of the Joint Chiefs of Staff should discuss the nation’s preparedness for military action, Rice said. “Then he should finish his sentence and get off the stage,” she said of Dempsey.

Israel will choose to go it alone if America can’t get the job done diplomatically and if President Obama does not have the will to strike, according to Rice. “They won’t ask permission from the United States to launch a strike against Iran if they continue to feel threatened and isolated,” she said.