Ukraine's Elections Produce Solidly Pro-Western Parliament

Oxanna Shevel posted an analysis of the results from Ukraine's October 26 parliamentary election and the bottom line is that pro-western parties now hold a dominant majority and pro-Russian parties have been relegated to the sidelines. This is a shift from recent years when the parliament was more evenly divided between pro-European and pro-Russian parties, and the struggle between the two sides defined Ukrainian politics.

Now the parliament is largely split between the Popular Front (Prime Minister Arsenii Yatseniuk;s party) and the Petro Poroshenko’s Block (as the name proclaims, President Petro Poroshenko’sparty), each of which received about 22% of the vote. Other pro-European (or at least not pro-Russian) parties include Samopomich (11 percent of the vote), Radical Party of Oleh Liashko (7 percent), and Batkivshchyna (6 percent). The only pro-Russian party to clear the 5% threshold needed to gain seats in the parliament was the aptly named Opposition Block, which received 9 percent of the vote.

Since 50% of the seats in the Rada are directly elected, there are a number of independents that got elected and there is some sorting out to be done. However, it appears that the Opposition Block will have about 112 seats out of a total of 423, or 26% of the seats. This leaves 74% of the seats in the hands of pro-European parties and makes a number of different majority coalition arrangements possible.The significance of this is, as Shevel puts it,

With several possible configurations for the majority, a substantial number of deputies, and even entire parties, can drop out of a coalition without a coalition collapsing, or with a different but still pro-western coalition forming in its place. The pro-Russian Opposition Block is virtually relegated to be what it name says: an opposition.

Shevel argues that one of the key reasons for this electoral outcome is Putin's moves in eastern Ukraine. By annexing Crimea and supporting separatists in Donetsk and Luhansk, Putiin is partially responsible for cutting 4 million voters, a large majority of whom would have voted pro-Russian, from the Ukrainian political system. His actions have also affected attitudes among the rest of Ukraine's voters, shifting public opinion away from Russian and towards European.

Shevel concludes,

If Putin’s fear after the victory of the Euromaidan uprising and the fall of Yanukovych was that Ukraine would turn decisively westward and leave Russia’s orbit, then by his actions in Crimea and the Donbas, Putin, ironically, may have helped created the very reality he wanted to avoid: Ukraine’s pro-western orientation is stronger now that every before. Russia had many levers over Ukraine that did not disappear after the fall of Yanukovych – including gas, trade, and the pro-Russian voters in the south and east of Ukraine – and Putin could have chosen to utilize these levers to prevent Ukraine from moving westward.  Had Putin not annexed Crimea and sponsored separatist conflict in eastern Ukraine, Ukraine would certainly have had a very different parliament after these elections, with a much stronger representation by pro-Russian parties, through which Russia could have continued to exert leverage on political developments in Ukraine.  As it is, Russia’s allies in the Ukrainian parliament will now likely number just over a quarter of its composition.

So, is Putin an idiot? That depends on what you think he is after. If you posit that he is trying to divert Ukraine away from the west, he doesn't appear to be doing a good job of it. However, if you posit that he is pursuing domestic political and economic goals (such as solidifying support among Russian conservatives and extending state control of the economy), then you might reach a different conclusion (or at least you would have to take a different path to get to it). More on that later.

Oil Prices

I hardly need to post a link to inform anyone that gas prices are down. You are probably already aware that crude oil prices have dropped over the past month or so from around $100 to the mid 80s.

What might be news is that Goldman Sachs has forecast 2015 crude oil prices to be even lower. They are predicting prices to be around $75/barrel in the West Texas market and $85 in the Brent market in the first quarter of 2015. They also predict that prices will drop another $5 lower in both markets in the second quarter. Of course, as the Reuters reported lined to above mentions, other forecasters are more bullish about oil price, but we at least have some reason to contemplate the probability that oil prices will remain low for the next 6 months or so.

Beyond the relief this will provide consumers at the gas pump, a period of lower than usual oil prices will have a big impact on Russia. Even members of the Russian government are acknowledging that lower oil prices are a serious blow to their budget and economy.

This blow may be politically significant to the extent that the regime depends on the flow of oil revenue to pay off its supporters. Where Western sanctions have been inflicting pain on the Russian economy and consumers at large, a drop in oil prices diminishes the government's primary revenue stream. Thus, it may come closer to weakening Putin's hold on power than any of the sanctions yet employed.

Of course, unlike sanctions, oil prices won't go up if Russia complies with Western demands and prices are bound to rally at some point in 2015. Therefore, low oil prices might weaken Putin in general without providing more pressure to act in the desired way vis-a-vis Ukraine. Still, it is an interesting development that is worth watching.

It will also be interesting to see what impact lower oil prices have on Venezuela's teetering economy.

Factoid: Gold Prices

So, Richard Petty is now hawking gold coins.Part of his spiel is that gold is a safe bet because it is a :hard asset."

The problem with this is that the price of gold is just that, a price. Therefore, like all prices, it is dependent on the values judgments of buyer  and sellers.

If you take a look at the history of real gold prices (see graph) you can see that when you adjust for inflation, gold has some serious ups and downs. Gold prices peaked in 1980 at about $1820 an ounce in 2012 dollars and did so again at about $1825 in 2001. (Note: from 1933 to 1975, it was illegal for private citizens in the US to own gold bullion without a special license, so the modern market for gold only dates back to the end of that period.)

It is important to note that after the peak in 1980, gold lost half its value in the next 3 years and then steadily declined (in inflation adjusted dollars) to a nadir of $338 an ounce (in 2012 dollars) in 2001. From 2001-2011 it rose at a significant rate, but has recently lost 1/3 from its value since the 2001 peak.

Not exactly a hard asset.

Hall of Shame: US pays off Brazil to keep Cotton Subsidies

Krzysztof J. Pelc has a post in the Monkey Cage about the deal between the US and Brazil in which the US pays Brazil $300 million to settle Brazil's complaint about US cotton subsidies which Brazil claims depresses the world price of cotton.

Such payoffs are explicitly against the WTO's rules but there is little  he WTO can do about it. As Pelc explains:

The key to understanding this outcome is to know that the WTO relies on a decentralized enforcement system. There is no WTO public prosecutor or WTO attorney general: No violation is challenged unless another member state files a formal complaint. And while this is meant to reassure states wary of ceding too much sovereignty to the institution, it also means that the system is ripe for collusion. In this case, the United States only had to satisfy Brazil to make the case go away — for a while.