Russia Basks in Iceland Bailout Request

A look at what Putin gainsnewfound economic might

It's mere coincidence, of course. But to Vladimir Putin, the man who called the Soviet Union's demise the "greatest geopolitical catastrophe" of the 20th century, just the thought of saving Iceland's hide must seem like redemption.

In 1986 Iceland hosted the Reykjavik summit between Ronald Reagan and Mikhail Gorbachev, a meeting momentous for its unplanned evolution into a conversation on nuclear disarmament between the two leaders—but also as a catalyst for the 1991 August coup against Gorbachev that sparked the USSR's implosion.

"It was a sign of change in the Soviet Union, in many ways in the decline of the Soviet Union," says Shamil Yenikeyeff, a Russia expert at the Oxford Institute for Energy Studies.


Now Reykjavik is asking Moscow for a $5.5 billion emergency loan to prop up its economy after its banking system collapsed two weeks ago amid the global credit disaster. And Russia is positioned, as a revitalized once-superpower flush with cash, to rescue Iceland, a NATO member praised for its chart-topping living standard! To Putin and the Kremlin, could there be a sweeter arc to the last two decades of Russian history?

That may be putting it a bit too strongly: even if Moscow grants the loan, Iceland will need a lot more cash, probably from the International Monetary Fund's pocket. Still, Putin's famous lament suggests a partial answer to the question that's abounded since reports of the loan surfaced: What's Russia after here?

True, $5.5 billion isn't a staggering sum for a country with around 100 times as much in cash reserves. Nor is the loan a done deal: agreement wasn't reached in the first round of negotiations last week. But the gesture alone—even the possibility—is significant. After all, Russia was a financial and political basket case just 10 years ago and has its own economic woes at the moment.

Pride, surely, isn't the only prize: the seas of the "High North" are rich in fish and energy resources, and Moscow needs to show the world it's a good global citizen after trouncing Georgia this summer. But for a leadership keenly aware of Russia's less than auspicious place in modern history texts, this is an opportunity to further demonstrate that indeed there is a new world order, and it's not the one George H.W. Bush foresaw in 1990.

It's one in which, as Sandra Dias Fernandes of the Center for European Policy Studies in Brussels describes, the unipolar world is dissolving, and "the Kremlin wants to state its capacity to act unilaterally, challenging the U.S. hegemony and eventually proving the existence of a multipolar world."

Yenikeyeff puts it more simply: "What we're seeing now is the transformation of virtual Russian power into real power."

This evident power shift started, arguably, with energy, as Moscow began leveraging its vast resources politically, most notably by cutting natural gas supplies to Ukraine in the winter of 2006. Then came its brief but excessive military action against a Western ally in Georgia. Now Moscow is demonstrating its new-found economic might.


For 10 years Russia has been rebuilding its economy after the 1998 debt default that saw the ruble devalued, per capita GDP fall to under $2,000 and the average Russian's standard of living plummet. Now, however, it's capable of bailing out a developed country at a time when the growing financial meltdown makes the United States and Europe either unable or unwilling to help, even though Moscow's own markets and currency are foundering.

"The timing of the crisis offers Russia a great opportunity to expand its influence through economics, and this is just the beginning," Yenikeyeff says. "As a gesture, this is a huge deal."

To grasp how huge this must feel to Russia's leadership, consider the geo-political view from Moscow since the late 1990s. Not only has NATO evolved in that time from a " defensive alliance" into one empowered to "achieve its moral aspirations by offensive military action" in going to war against Serbia in 1999, former U.S. secretaries of state Henry Kissinger and George Shultz wrote in a recent Washington Post op-ed; recent events have been even more grating. This year the Kremlin watched Kosovo declare independence over its objections just as the United States cemented plans for a missile defense shield in the Czech Republic and Poland, and Ukraine and Georgia were mentioned for NATO membership. (As a NATO member, Iceland could block the latter, it's worth pointing out.)

These developments were "not likely to be met with Russian acquiescence," the foreign-policy mavens wrote.

As Kissinger and Schultz note, that doesn't excuse or justify Russia's recent bullying, but it does add historical perspective. One that's almost certainly at play with Iceland.

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