Vladimir Putin's Big Short

[MikeWB]

Vladimir Putin's Big Short

Arthur Herman

The Big Short is a movie about some daring hedge-fund managers who bet on the collapse of the subprime-mortgage market in 2008 and made a fortune as a result. Vladimir Putin is making a similar "big short" by betting on the collapse of U.S. influence in the Middle East, thanks to President Obama's feckless policies and strategic retreat. The deal announced last week, in which Moscow will sell 46 MiG-29 fighter planes to our ex-ally and formerly reliable arms customer Egypt, is a sign that Putin's big short is paying off big-time — and yet another sign that Egypt, like Saudi Arabia and the rest of the Middle East, is on the brink of writing off America as an unreliable ally and a weak future partner.

The key to Putin's big short was his military intervention in Syria last year. Many observers, including some in the Obama administration, confidently predicted that he would find himself stuck in a quagmire there that would drain away Russian lives and treasure and ruin Russia's reputation in the region — maybe even signal the doom of the regime, as did the Soviet intervention in Afghanistan in 1979–80 for the USSR.

Just the opposite has happened. Putin triumphantly announced the end of core Russian military operations in Syria last month, and as Russian troops, helicopters, and planes pull out, arms orders from awed and impressed regimes around the region have poured in.

Of course, Russia has always been one of the world's top arms dealers, and Putin has aggressively pushed arms sales around the globe both as an important export business and as a way to revive Russia's defense industries and rebuild his own military. In fact, over the last five years Russian arms sales have grown by a third, to $14.5 billion — with a global order book from 50 countries of just over $55 billion.

The Syrian intervention not only saved Putin's proxy strongman, Bashir Assad, a feat that in itself has mightily impressed Middle East observers, but also gave the latest generation of Russian helicopters, armored vehicles, anti-aircraft missile systems, and particularly advanced aircraft such as the MiG-29M their first crucial combat test.

So instead of buying from the U.S., countries in the Middle East are steadily turning back to Russia, much as they did in the 1960s. Algeria, Iraq (which has ordered more than $4 billion in military equipment from Moscow), Pakistan, and Syria are all scrambling to acquire new and upgraded Russian equipment, as is Egypt, whose total Russian arms orders amounted to $5 billion in 2015. When Iran opens the $100 billion piggy bank that the end of sanctions will hand over to Tehran, the mullahs will be among Moscow's biggest weapons customers as well.

Indeed, Newsweek has reported that Moscow says it expects to see an additional $7 billion in arms sales as a result of its Syrian intervention. That's in addition to the estimated $2 billion for the Egyptian jet deal.

All this not only signals a significant and — given the life cycle of today's weapons systems — lasting downtick in America's strategic influence in the region. The fact that some of the financing for the Egyptian deal will come from the Saudis and the UAE — otherwise stalwart U.S. allies — means they, too, recognize that Russia, not the U.S., is now the stronger horse in the region. Don't be surprised if they also start turning up in the Moscow arms bazaar.

Liberals of the Bernie Sanders stripe can celebrate, of course, that those are all contracts that won't be going to U.S. defense firms such as Lockheed Martin, maker of the MiG-29's closest counterpart, the F-16 fighter. But the man with the biggest smile of all will be Vladimir Putin. He'll be making $9 billion off a Syrian intervention that cost him just under $500 million. That's a return on investment that will amaze even the boldest Wall Street fund manager, and one that makes Obama's Middle East policy look even more like the disaster it really is, for America's foreign policy.

http://www.hudson.org/research/12401-vladimir-putin-s-big-short