Russia will likely benefit, yet again, from the endless wellspring of American shortsightedness
This article originally appeared at Zero Hedge
Last year, in the aftermath of the western-mediated Ukraine presidential coup and subsequent proxy civil war between Russia and NATO countries, the US imposed sanctions, largely over the complaints of the German business lobby, on Moscow which did little to dent the Russian economy but crippled European exports to such a degree that a few months later the continent was on the verge of a triple dip recession which in turn paved the way for the ECB's QE.
That is not to say Russia was spared: Russia's economy was also substantially impacted but not by US "costs", since unlike the US, financial markets in Russia are a fraction of the size and importance they are in the west, but by the collapse in oil prices. It took US some 6 months to realize that for a commodity exporting powerhouse such as Russia, sanctions are meaningless, but crush the price of its main export and suddenly everything changes.
This was the basis for various rounds of "secret" talks between John Kerry and Saudi Arabia: to punish Russia by lowering the price of oil, which also ended up smothering not only US shale production but the most vibrant part of the US economy, and its job creation dynamo, the state of Texas.
Furthermore, the Russian economy had also been weakened recently by the Winter Olympics in Sochi, which may have been the grand spectacle Putin wanted to put on, but it came at a cost: the final bill is said to have topped $50 billion, much more than originally planned, although oil was still well above $100, in line with what had been Russia's budgeted oil price for 2015-2017.
Which is why in retrospect, the DOJ's crackdown against FIFA in general, and the Russian World Cup of 2018 in particular, may have been just the blessing in disguise that Putin, who whether he likes it or not has been forced to hunker down in cash conservation mode, wanted.
According to Reuters, Russia expects to spend more than 660 billion rubles ($12 billion) on preparations including building six new stadiums, hotels, training grounds and health facilities. "Russia won the right to host the finals in 2010 with a bid promising to overhaul the transport system, build state-of-the-art sport facilities and put several regional cities on the map."
Costly, but meaningless, airport renovations and high-speed rail links are also needed to ease travel between the 11 host cities, the most distant of which, Yekaterinburg, is almost 2,000 km (1,250 miles) from Moscow.
Below is Reuters' map of all the Russia cities whose infrastructure would require massive renovations ahead of the event:
Reuters further notes that last week the "government reduced planned spending on the World Cup by 3.5 billion rubles, the latest in a series of cuts made as the economy flags."
Since the start of 2015, the World Cup organizers have axed plans to build 25 hotels, cut the number of training grounds in each host city from four to three and reduced the capacity of some of the venues to save on building costs.
Moscow's Luzhniki stadium, which will stage the opening match and the final a month later, will be able to seat 81,000, down from the 89,000 originally billed.
"This World Cup is an image project for Putin. He really has something to prove here," a source close to the organizing committee said.
But he added: "The approach to this World Cup now is to do what was promised, with no frills, and nothing more.
Michal Karas, editor-in-chief of website Stadium Database, said many high-tech features included in designs for Russia's new stadiums have been scrapped as the weak rouble made imports more expensive.
And therein lies the rub: when it comes to projecting an outward image, for Putin it is everything or nothing, no matter the cost. However, as a result of economic (and geopolitical) developments over the past year, the cost has started to matter. And as a result, suddenly the grand vision of the world cup had to be scaled down.
Enter the US department of justice, and the FBI which as reported yesterday, is now investigating whether bribes were involved in the selection of Russia and Qatar as hosts of the 2018 and 2022 World Cup venues. And as we predicted one week ago when the FIFA scandal broke out, it is only a matter of time before Russia is stripped of its World Cup hosting.
Which would be not a single, but double victory for Putin:
- first, Putin will save billions in funds for far better uses (the IRR on mass sport spectacles is terrible), and avoid the bottomless pit that is building if not bridges, then surely road, to nowhere and stadiums that will be used once only to become grazing grounds for sheep in the years to come.
- more importantly, for a country fanned by nationalistic fervor, Putin will be able to wave the patriotic flag and slam the evil USA for not only meddling in other people's affairs, but taking away what was rightfully Russia's, thereby boosting his nationalism-inspired popularity to even greater heights.
Finally, what better time and place to stage a massive false flag event than during a world cup, one where countless international, innocent casualties can be blamed on the host nation for not providing sufficient security, leading to an even greater outcry from the global media. No world cup matches, no false flag risk.
So, ironically, the great FIFA scandal meant to strip Russia of its 2018 World Cup hosting may just end up being the deus ex win-win for Putin which the Russian leader never expected would fall straight into his lap.