Russia's problems are everyone's problems

“Cyprus with nukes.” That’s how someone, maybe me, referred to Russia in an IM conversation this morning. It’s not really a fair comparison; Russia is a vast country loaded with natural resources, not a tiny island banking haven. But it does express a very real fear: that the world is about to experience a major financial crisis in a country that seems to deal with its internal troubles by slicing off bits of neighboring countries…

Outside the Middle East, Venezuela is already well into a long economic crisis. The Hugo Chavez regime diverted investment funds from the state-owned oil company into social spending, which caused production to decline. That was a workable trade-off when prices were rising, but now that they’re falling fast, so is Venezuela’s economy, along with political stability.

Last week, I noted that this meant the risk of serious geopolitical repercussions. (The last time oil prices experienced this kind of run-up and decline, the Soviet Union fell.) In the modern global economy, it also means the risk of financial crisis, as problems in Russia and other oil-rich nations reverberate outward through our tightly interlaced networks of finance and trade. China is already fragile, the euro zone is struggling to hold everything together, and while U.S. growth finally seems to be back on track, we will not be immune if the rest of the world is reeling.