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Russia's economic moves and what they portend

Monday’s Final Phase column listed ten indicators of war preparations
within the Russian economy. The first item on the list referred to an
“unusual stockpiling of nonferrous metals.” In the months immediately
preceding a major war, Russia will have to produce a large store of new
weapons. “New military weapons (missiles, supersonic planes, etc.)
require especially stable alloys,” says the text of Soviet Military
Strategy, a book used in the education of Russia’s leading generals.

On Nov. 10 Reuters reported international “concern over Russian
(metal) supplies.” By mid-October the price of palladium had reached an
18-month high and platinum touched levels not seen in two years. “It is
a lack of material,” said metal analyst Rhona O’Connell. “There is no
material coming through from Russia this year and none expected. …”

Russia is a major producer of metal. That production is no longer
being exported. It is either being stockpiled or used by Russian

According to press reports, Russia’s new ally — the People’s
Republic of China — is also craving platinum, buying up approximately
one-fifth of the world’s annual supply. Experts say that China’s metals
purchases are unprecedented. According to Chinese officials, China’s
newfound hunger for platinum is due to an increased demand for jewelry
on the part of 1.3 billion Chinese.

If newspaper reports are to be trusted, approximately forty percent
of the world’s yearly platinum supply is being consumed by two countries
— Russia and China. Economists can believe what they want about
jewelry-laden Chinese masses, but Russia and China are currently
mobilizing missiles, aircraft and ships. The Russians are using
Chechnya as a pretext for their mobilizations. China is using the
pretext of Taiwan. Under Communist type economic arrangements, a large
mobilization of troops usually corresponds with a mobilization of
industry, which actually precedes it.

Of course, the fact that Russia is hoarding palladium and platinum
doesn’t prove anything. But if we evaluate this in the context of other
economic moves, a disturbing picture does emerge. Russia is not only an
exporter of metals, but an exporter of oil products as well — including
fuel oil, gasoline and diesel fuel.

In November 1998 Russian oil officials announced the accomplishment
of a 25.6 percent cutback in oil exports. According to an Itar-Tass
headline of Oct. 20 1998, “Russia cut export of petroleum products 26.6
percent to 30.2 million tons in eight months of 1998.” At the same
time, Russia was importing large quantities of oil from Iraq. According
to a Dow Jones Newswire story of Dec. 8 1998, Russia had imported 107
million barrels of Iraqi oil in the previous six months, amounting to 35
percent of Iraq’s total oil exports.

While the Russians were dishonestly crying “famine” in late 1998,
only weeks after the supposed financial collapse of that year, a huge
Russian industrial expansion was under way, fueled by domestic oil
resources. But the West had no clue.

Last summer Russia further cut its exports of fuel oil, gasoline, jet
fuel and diesel fuel. These products are manufactured by Russian
refineries for domestic consumption and for export. The amounts of the
export cutbacks have been confused by the complexity of the rules
imposed on Russian exporters. But open statements by Kremlin officials
suggest that Russia may be increasing its reserves. For example, there
is something odd happening with Russia’s jet fuel production.

On Nov. 4 Reuters carried a story with the headline “Russian Cargo
Industry Worried Over Jet Fuel Costs.” It seems that Russian jet fuel
prices have “risen steadily this year.” According to the Reuters story,
between Jan. 1 and Oct. 15 Russian jet fuel prices doubled (in U.S.

Yuri Mnatsakanov, a deputy chief in Russia’s leading airline, told
journalists that the rise in jet fuel prices “was completely

Another Russian airline executive, Alexandere Pleshchakov, told
Sevodnya newspaper that it was cheaper to refuel Russian planes abroad.
“And that’s unexplainable,” he said.

But there may be an explanation. Russian jet fuel is a key item of
military consumption. Before the start of a major war, Russia would
want to store large quantities of jet fuel for military use. Also,
Russia has conducted many all-arms military exercises this year,
involving many aircraft. Logically, stockpiling for war and use in
military training could seriously impact jet fuel prices, which are
typically 25 percent below Western prices.

The third item on Monday’s list of leading indicators of Russian
economic preparations for war is large government purchases of gold.
According to former CIA analyst Peter Vincent Pry, Russia’s General
Staff watches for large U.S. gold purchases. Russian generals believe
that such purchases may indicate plans for a surprise nuclear attack.

What is the logic behind this reasoning?

Gold has been used to store wealth for thousands of years. Most of
the world’s currencies are fiat money — merely paper. In the event of
a nuclear war, paper currencies might lose their value overnight.
Therefore, if a country is anticipating nuclear war, then large gold
purchases would be a logical economic step.

In this context, Russia’s central bank has — in the first ten months
of 1999 — bought around 50 metric tons of gold since January, compared
with 34 metric tons in the whole of 1998. If the Russian generals
themselves see such purchases as a sign of danger, how should we regard
the situation?

Russia is supposedly broke and they are buying up gold. They are
supposedly without means, yet they are experiencing an industrial
expansion. This expansion is not to increase the supply of consumer
goods. It is to increase the military power of Russia.

In a Nov. 1 Reuters story headlined “Russian Electricity Demand and
Output Up, Says UES, the entity that controls the Russian power
industry, “we learn that Russia’s electrical output steadily rose in the
first nine months of 1999 by 6.7 percent.

On Nov. 4 Reuters reported that Russia suddenly had “a newly healthy
economy.” In fact, Reuters quoted Russian Prime Minister Vladimir Putin
as saying, “We have succeeded in achieving industrial growth. …” But
the same Reuters story reported that annual retail sales in Russia had
plummeted 14 percent in the first nine months of 1999.

How can you have an industrial expansion with a financial collapse
plus a 14 percent decline in retail sales? What’s wrong with this

The increase in Russia’s industry seems to be centered on the Ural
mountain region and the Russian Far East. According to an Itar-Tass
story of Nov. 8, entitled “Far Eastern Railway Boosts Freight Haulage by
Over 40 Percent,” the volume of freight traffic on the Russian railroad
system east of European Russia has jumped by over 42 percent. Of
course, Russia has warehoused most of its tanks, artillery and other
military equipment east of the Urals.

The kinds of changes we’re seeing in the Russian economy are not
normal. They are not changes you would expect in an economy that is
adapting to market conditions. In fact, there is every indication that
the Russian economy isn’t oriented toward markets. An argument can be
made that it is oriented toward military production.

According to a leading Russian military text, “One of the most
important aspects of the economic preparations for war is ensuring the
viability of industry, particularly heavy and defense industry.”

Russian refined copper output reached 185,765 metric tons in the
first nine months of 1999, up 29 percent from the same period last
year. In fact, the heavy equipment for an entirely new copper industry
has recently been shipped to the Urals. Production facilities now under
construction will encompass the whole copper cycle from ore output to
copper cable and cathode copper. Russia’s new Urals copper industry
will have an output capacity of 360,000 metric tons of refined copper
per year — a further staggering increase.

“Many nonferrous and rare metals are required for military
production,” says the text of Soviet Military Strategy, a chief source
of Russian thinking on war preparedness.

But why is Russia planting its new copper industry in the Urals?

As it happens, Russia has been building huge underground cities in
the Urals, like the one at Yamantau Mountain. These spaces could be
used to house Russia’s heavy and military industries in the event of
nuclear war. “From the viewpoint of antinuclear defense,” says Soviet
Military Strategy, “it is preferred to place particularly important
industrial enterprises underground in spaces prepared in advance for
this purpose.”

The military education of Russia’s current generals was centered on a
number of books that emphasize preparedness for nuclear war. Here are a
few of the main titles: “The Armed Forces of the Soviet State”;
“Marxism-Leninism on War and Army”; “Soviet Military Strategy”; “The
Offensive”; “The People, the Army, the Commander.”

Col. M. P. Skirdo, a Doctor of Philosophical Sciences and a senior
instructor at the General Staff Academy, wrote the last title listed
above. After making the usual charges against American “imperialism,”
Skirdo wrote that “war is a continuation of politics by … means of
armed struggle.” According to Skirdo it is important to understand what
a future war will be like.

And what will a future war be like?

It will be “missile-nuclear” (raketo-iadernoe). “It is obvious that
in a future war,” wrote Skirdo, “… wide use will be made of massed
nuclear strikes.” Foresight about this fact is decisive. Such
foresight, said Skirdo, leads statesmen and soldiers to prepare the
armed forces, the economy and the people.

The Russian military philosophers of the past 40 years are very
clear, and very objective about this situation. According to Skirdo, “A
nuclear missile war will serve as a harsh, merciless test of the
economic, military, moral and political potential of the belligerent

According to the Russian text, Soviet Military Strategy, “The
preparation of industry to operate in wartime conditions constitutes the
most important part of the entire preparation of the country’s economy.”

If you are smart, if you know what is coming — so you prepare.