Is Putin Getting Russia's Economy All Wrong?

[ronwagn + 6,290]

https://nationalinterest.org/blog/buzz/putin-getting-russias-spending-and-economy-all-wrong-129877

Is Putin Getting Russia's Spending and Economy All Wrong?

Putin is planning to help the poor which will also help him to maintain power. Can he do it with low oil prices? Will he sell off some of Russia's gold? It seems that he would have to in order to follow the economic plan. RCW

[Meredith Poor + 883]

As is probably expounded on elsewhere, Putin seems to have it in for the US, or at least the current US administration. The idea is basically to run fracking companies out of business.

Russia could, in theory, do fine without oil revenues. This would simply require a massive expansion of other elements in the economy, elements that require a technological sophistication Russia doesn't apparently have. Putin and his economic advisers may see a way to the end of oil. They may as well work toward that end, since they'll have to face it sooner or later. More likely sooner.

It's certainly interesting to consider that Russia could generate enough electricity via wind power to power all of Europe. This would replace gas blackmail with electricity blackmail. They would have to find some source for the turbines, which appears at the moment to be problematical. They would also have to pave Belarus and Poland with transmission lines.

[Douglas Buckland + 6,308]

“It's certainly interesting to consider that Russia could generate enough electricity via wind power to power all of Europe.”

Possibly, but Europe has it’s own wind and does not need Russia to supply it with wind.

Why would Europe buy wind generated electricity from Russia? They don’t have enough natural gas, which is why they relied on Russia.

Apparently the new green fad is to claim natural gas is evil. Europe is loaded with tree huggers. It only makes sense for Europe to go 100% renewables...and suffer the consequences.

[Otis11 + 551]

6 hours ago, Douglas Buckland said:

“It's certainly interesting to consider that Russia could generate enough electricity via wind power to power all of Europe.”

Possibly, but Europe has it’s own wind and does not need Russia to supply it with wind.

Why would Europe buy wind generated electricity from Russia? They don’t have enough natural gas, which is why they relied on Russia.

Apparently the new green fad is to claim natural gas is evil. Europe is loaded with tree huggers. It only makes sense for Europe to go 100% renewables...and suffer the consequences.

Europe could have sufficient natural gas if they actually let O&G explore and develop. No one wants to look in Europe because the cost of development (if it's even allowed) is too high due to uncertainty and regulations.

There's little reason to believe they don't have shales in certain areas if we looked...

[Guillaume Albasini + 851]

US shale benefited from certain preconditions not easy to gather in other parts of the world. And even with that endowment they failed to reach sustainable profits.

Now with US shale crumbling it would be difficult to convince the Europeans to rush in that direction. So forget about European shale. It will never happen.  To replace Russian gas Europeans could rather prefer carbon-neutral synthgas produced with renewable energy.

[Tomasz + 1,608]

Let me give you some perspective
Anno domini 2014- Oil and gas account for 70% of Russian exports and over 50% of government revenues.

2019 oil is max 35% of budget rev (and often lower m/m) and 53% exports in $ terms tax reform revolution has transformed budget make up.

Conclusion

Russia in a lot stronger position to weather oil storm than in 2014.. Look especially on budget breakeven.

One more thought - looking at the Russian economy and its statistics do not translate Western standards. The Eastern Bloc is generally a large gray area even larger in the former USSR, apart from the Baltic States. In Russia, it accounts for roughly 1/3 of the GDP.

Edited March 9, 2020 by Tomasz

[Gerry Maddoux + 3,627]

21 minutes ago, Guillaume Albasini said:

Now with US shale crumbling

It's not "crumbling." It's being transferred to Chevron, Exxon, Occidental. 

[Gerry Maddoux + 3,627]

2 minutes ago, Tomasz said:

Conclusion

Russia in a lot stronger position to weather oil storm than in 2014

Clearly. There is absolutely no way MbS can win this pissing contest! Putin will clean his clock. If MbS wishes to bankrupt the Saudi sovereign fund, this is the way to do it. 

[Ward Smith + 6,615]

3 minutes ago, Gerry Maddoux said:

Clearly. There is absolutely no way MbS can win this pissing contest! Putin will clean his clock. If MbS wishes to bankrupt the Saudi sovereign fund, this is the way to do it. 

Makes you wonder who the real traitor is in the Saudi government? 

[Tomasz + 1,608]

 

Personally, I don't think Saudi Arabia or shale oil will fall victim to the current crisis.

Of course there will be hard times for frackers  but I am sorry that I am repeating myself now we have 2020 rather than 2014.

Over the past six years investments in production have fallen by 50% and in oil exploration to the lowest level since the end of World War II.

I think Venezuela, Nigeria, Iran, Angola and Algeria or Libya have the biggest chances of falling.

From these countries, the Russians would prefer it not be Iraq (Lukoil extracts a lot of oil) Iran (Russia-friendly regime) Venezuela (milk cow and a place to piss the USA) Algeria (a great importer of Russian weapons)

As for the countries which, according to Russia, could break down, should be Kazakhstan and Azerbaijan. Kazakhstan has 40% of the Russian population, but in recent times it has been doing too much on its own and is breaking  from the Russian-Chinese alliance.

The Azerbaijani do what they shouldn't, i.e. try to send gas to Europe and are generally in conflict with one of the countries closest to Russia called Armenia.

Kazakhstan has a very dollar-based economy and, in addition, it welcomes  Western investors and wants to extract too much oil and gas.

The collapse of Ukraine and its return to the Russian family would also be a plus.

Edited March 9, 2020 by Tomasz

[ronwagn + 6,290]

1 hour ago, Guillaume Albasini said:

US shale benefited from certain preconditions not easy to gather in other parts of the world. And even with that endowment they failed to reach sustainable profits.

Now with US shale crumbling it would be difficult to convince the Europeans to rush in that direction. So forget about European shale. It will never happen.  To replace Russian gas Europeans could rather prefer carbon-neutral synthgas produced with renewable energy.

They also like biogas as it has a "green tinge". I really think they deserve the high energy prices they are going for. Too bad they are destroying their natural beauty with wind turbines though. 

[Gerry Maddoux + 3,627]

49 minutes ago, Tomasz said:

Personally, I don't think Saudi Arabia or shale oil will fall victim to the current crisis.

If they persist, Tomasz, this is the biggest existential threat to ever hit the House of Saud. If they do as MbS says (pump 12 M blls), and don't let up, there will be a palace coup, because there is no other way to salvage the sovereignty. Long and short of it. 

That said, I don't think KSA will fall either--because MbS has painted himself into a corner. He has to stop this lunacy. World order depends on it. 

[ronwagn + 6,290]

1 hour ago, Tomasz said:

 

Personally, I don't think Saudi Arabia or shale oil will fall victim to the current crisis.

Of course there will be hard times for frackers  but I am sorry that I am repeating myself now we have 2020 rather than 2014.

Over the past six years investments in production have fallen by 50% and in oil exploration to the lowest level since the end of World War II.

I think Venezuela, Nigeria, Iran, Angola and Algeria or Libya have the biggest chances of falling.

From these countries, the Russians would prefer it not be Iraq (Lukoil extracts a lot of oil) Iran (Russia-friendly regime) Venezuela (milk cow and a place to piss the USA) Algeria (a great importer of Russian weapons)

As for the countries which, according to Russia, could break down, should be Kazakhstan and Azerbaijan. Kazakhstan has 40% of the Russian population, but in recent times it has been doing too much on its own and is breaking  from the Russian-Chinese alliance.

The Azerbaijani do what they shouldn't, i.e. try to send gas to Europe and are generally in conflict with one of the countries closest to Russia called Armenia.

Kazakhstan has a very dollar-based economy and, in addition, it welcomes  Western investors and wants to extract too much oil and gas.

The collapse of Ukraine and its return to the Russian family would also be a plus.

You seem to agree that Russia has expansionist goals despite being an economic weakling. Its economy about equal with Spain. In many ways they have military might versus their neighbors but America has punished them for it under our current leadership. The people of Russia are poor, and Putin has promised them a better life. They do not want more expansion, correct me if I am wrong. They want to have a better life, and not have to worry about their basic needs. 

[Ward Smith + 6,615]

2 minutes ago, ronwagn said:

You seem to agree that Russia has expansionist goals despite being an economic weakling. Its economy about equal with Spain. In many ways they have military might versus their neighbors but America has punished them for it under our current leadership. The people of Russia are poor, and Putin has promised them a better life. They do not want more expansion, correct me if I am wrong. They want to have a better life, and not have to worry about their basic needs. 

All the spooks believe Putin is the richest man in the world hands down. Putin isn't motivated by "the Russian people" he's motivated by his wallet. 

The deep state in America wouldn't even qualify as a puddle in Russia. 

[Tomasz + 1,608]

Personally, I do not support Putin's latest idea, but this is revenge for 2014 in my opinion - simultaneous sanctions and reduction of oil prices. Russia has survived it quite well and is now launching a counterattack. and might have a last laugh.

If you ask if the state of affairs decade earlier before the big bustle around the world suited me better  I confirm that

 Among other things, because I'm nervous and now in Poland and around the world we have a total mess.

My dream is for Russia, China, USA and the European Union to get along.

Personally, Im under impression that we now have psychopaths in power - neocons and deep state  in the US, Putin, Erdogan  Chinese dictator Xi and the little dictator Kaczynski in Poland.

IMHO Angela Merkel who has been ridiculed in this forum many times  is one of the last moral person in politics

However, according to the definition, a psychopath is not a mentally ill person, but a person who does not feel and is not guided by emotions, which can mean that such a person acts much more rationally than not psychopaths.

I once read a book in which the author showed that the most psychopaths are in prisons and attention to high management positions in large corporations and its hard to determine which of them are more dangerous to a normal person.

 

Because if you add psychopaths to the rivalry of the USA and China for global dominance in which Russia wants to play the role of a key player, we have the brothel we have

Edited March 9, 2020 by Tomasz

[Tomasz + 1,608]

I can add that in my opinion the best biography of Putin in english is this one written by New York Times journalist Stanley Lee Myers

[ronwagn + 6,290]

39 minutes ago, Ward Smith said:

34 minutes ago, Tomasz said:

Personally, I do not support Putin's latest idea, but this is revenge for 2014 in my opinion - simultaneous sanctions and reduction of oil prices. Russia has survived it quite well and is now launching a counterattack.

If you ask if the state of affairs decade earlier before the big bustle around the worldsuited by better  I confirm that

 Among other things, because I'm nervous and now in Poland and around the world we have a total mess.

My dream is for Russia, China, USA and the European Union to get along.

Personally, Im under impression that we now have psychopaths in power - neocons and deep state  in the US, Putin, Erdogan  Chinese dictator Xi and the little dictator Kaczynski in Poland.

IMHO Angela Merkel who has been ridiculed in this forum many times  is one of the last moral person in politics

However, according to the definition, a psychopath is not a mentally ill person, but a person who does not feel and is not guided by emotions, which can mean that such a person acts much more rationally than not psychopaths.

I once read a book in which the author showed that the most psychopaths are in prisons and attention to high management positions in large corporations and its hard to determine which of them are more dangerous to a normal person.

Ward said: 

All the spooks believe Putin is the richest man in the world hands down. Putin isn't motivated by "the Russian people" he's motivated by his wallet. 

The deep state in America wouldn't even qualify as a puddle in Russia. Tomasz, what do you think about that. I, personally don't think he is worried at all about his vast wealth, but more about retaining control of Russia. I believe he wants to , at least, keep life in Russia bearable. I do believe he would consider taking over Kazakhstan if he had enough motive, other small enclaves with high Russian populations. What America needs to do is to make it too costly for his expansionism without triggering a major war. 

Personally, I am horrified by the extent and power of America's "Deep State". I believe that if Hillary had won we would have instantly turned into the equivalent of a European type nation. We would have no way to walk it back except through a revolution. It remains to be seen how long our current hiatus will last and what America will be when President Trump is gone. 

See Part Two of the Obama Administration Scandals https://docs.google.com/document/d/11axnqv_b3L2k9CD6HWNMwrdIECJZSxowxjO4RIc-rbE/edit

Edited March 9, 2020 by ronwagn
reference

[surrept33 + 609]

Russia's finance ministry they can use rainy day fund to withstand low oil prices for a decade:

 

https://www.ft.com/content/4009472c-620e-11ea-b3f3-fe4680ea68b5

 

Quote

 

Russia said it could withstand low oil prices for as long as a decade, setting the stage for a prolonged battle with Saudi Arabia after talks over further production cuts collapsed, leading to the biggest one-day fall in prices since the 1991 Gulf war. Russia’s finance ministry said on Monday that it would draw from its $150bn national wealth fund in order to boost budgetary spending, while oil prices remained at between $25 and $30 a barrel. It said it could maintain that level of budgetary support and cover the lost revenue for the next six to 10 years. The sudden collapse in oil prices — which fell by as much as 30 per cent on Sunday after Riyadh retaliated against Russia with threats to discount its crude and boost output — pushed the Russian currency to its lowest against the dollar since January 2016.

 

But Russia’s finance ministry appears convinced that it is better positioned than Saudi Arabia to survive the impact of the crude price drop on state revenue. “For now they are counting on this being a temporary scenario. But saying this shows they are ready for anything,” said Sofya Donets, chief Russia economist at Renaissance Capital. Alexander Novak, Russia’s energy minister, told an emergency meeting of Russia’s top economic officials on Monday that the country’s oil sector had the resources and financial reserves “to remain competitive at any predicted price range and keep its market share”. He added that Moscow would “pay special attention to providing the domestic market with a stable supply of oil products and protecting the sector’s investment potential”. Russian president Vladimir Putin, who met his top economic officials and oil executives ahead of last week’s meeting with Opec, was convinced to break the deal by Russia’s oil companies, who have opposed the production cuts since they were first agreed in 2016, according to people familiar with the talks. Rosneft, the state-run oil company headed by longtime Putin confidant Igor Sechin, said on Sunday that the deal through which Opec members, led by Saudi Arabia and joined by Russia, cut production to support crude prices had become “meaningless” for Moscow in the face of increased competition from US shale producers.

Mr Putin’s bet relies on a calculation that the Russian economy is in a stronger position today than in 2014, when a sharp devaluation of the Russian rouble forced the central bank to bail out big state lenders after Rosneft refinanced $18bn in foreign currency debt. “Now we have a chance not just to produce and sell as much as we need to, but to throw American shale overboard,” Dmitry Kiselev, the director of Russia’s main state news agency, said in a post on social media. “Our budget is much more stable than Saudi Arabia’s and is ready for low oil prices, unlike the kingdom’s.” Russia now has $570bn in foreign currency reserves compared with Saudi Arabia’s $502bn and it can balance its budget at an oil price of $42 a barrel — about half Saudi Arabia’s reported break-even point.

 

That includes the $150bn national wealth fund, derived from surplus oil and gas revenue since 2017, which now represents 9.2 per cent of gross domestic product. Those reserves could allow the finance ministry to spend as much as $1.7bn a month for the next decade to prop up government revenues if oil prices remained at current levels, it said. But Mr Putin — whose approval ratings sank to record lows last year amid anger over a fall in living standards — ordered officials to tap the national wealth fund in January to finance a package of social programmes. Those promises mean Russia will be under pressure to return to the negotiating table the longer low prices persist, according to Chris Weafer, a partner at consultancy Macro Advisory. “President Putin will not want to start scaling back budget spending,” Mr Weafer said. “If the oil price is still trading in, for example, the $20 to $30 per barrel range in the summer, then this may change. Putin will be just as reluctant to run a big budget deficit or to reduce financial reserves to a low level. That would leave the country vulnerable to future sanctions.”

 

 

Edited March 9, 2020 by surrept33

[Tomasz + 1,608]

If you read this biography of Putin, you will learn from it that Putin was one of the few officials in St. Petersburg in 90s who, as deputy mayor of the city of 5 million for foreign cooperation and business was know in bussiness comunity that he did not take bribes. 

The fact is that when his wife Ludmila had a serious car accident about 1996  after a few years as deputy mayor, he did not have $ 5,000 for an operation in Germany and had to find a sponsor from a German company through his contacts in Germany. Of course, this is also a form of bribe because the operation cost a lot but let's say it was a matter of life and death

In my opinion, he is not governed by the desire to enrich only by greed of power.

I think that for some 15 years, the CIA has been trying to detect his assets scattered all over the world, and despite the loud announcements, so far nothing has come of it.

And I think that at least let's say in 2014, they wanted to compromise him in the eyes of the Russians, but probably so far this property was not found especially large.

The authorities in Russia steal because they always stole the constructed beroucracy in the tsarist times was that the official lived on a modest salary and bribes from the population.

However, the present power steals much less than under Yeltsin, so there is progress in this respect.

I will only add that in my opinion he does not seek to return to the USSR, but rather to the situation of the nineteenth century in which there was the so-called concert of powers in which Russia was one of the most important players. Anyway, Putin has not been referring to the narrative of the Soviet era for too many years. The Great Patriotic War only to the tsarist narrative. In my opinion, he is talking about the second Yalta and recognition of Russia's superpower position

Personally think that for Putin the champion is Andropov known as the long-time head of the KGB and a man who had a lot of ideas to reform The USSR in the Chinese spirit but who quickly died as the First Secretary before he could put it into practice

Quote

 

Jarosław Makowski: Putin made a rhetorical sense. He said that Russia would withdraw its troops from the Ukrainian border. The problem is ...

Professor Andrzej de Lazari: ... in diplomacy it is often not what you think about, but what the interlocutor would like to hear. It seems that no one noticed the withdrawal of Russian troops.

So there is no breakthrough and the election on May 25 will not end the current chaos in Ukraine?

Chaos will last a long time. As such, order would be ensured either by the civil "dictatorship of the law" that we are trying to implement in the European Union, or the dictatorship of a strong leader whom the masses trust. There is no chance for a "dictatorship of law" in Ukraine, as there is no legal or civic awareness. She was never in the east, she was long forgotten in Galicia. Please remember the 90s in Russia, the Yeltsin times, when the oligarchs and the mafia ruled. The Russians call this period sadness (interregnum, immorality) or "dermocracy" ("shit"). Putin led the Russians out of her and that is why he still has their support. He promised at the beginning a "dictatorship of the law," but when it turned out that he could not lead it, that it was a utopia in Russia, he remained with authoritarianism. In Belarus, Lukashenko also has dictatorial rule and has considerable public support. In Ukraine, however, "diermokracja" continues to this day. Wałęsa was not there and neither Mazowiecki nor Geremek nor Balcerowicz. And who is More oligarchs take over governments, as during the Orange Pseudo-Revolution. Can you name any oligarch in our government? Have any of our leaders, ministers been or own a mine, smelter or refinery? The media and society - at least half civic - will not allow business to privatize politics. In Ukraine, there is neither Putin nor Lukashenko, no authority - there is anarchy. Instead of building a civil society, nationalisms are reborn there. All of course of poverty and humiliation, which led to the lawlessness of the rule of greedy thieves. Successive deaths on both sides of the conflict will only intensify mutual hatred. Nationalism is not conducive to the rule of law.

What can the West do in the current situation of the interregnum in Ukraine?

I am neither a politician nor a strategist, I look at reality above all as an historian of ideas. Unfortunately, the West gave Putin a lot of arguments. Iraq, Kosovo, Afghanistan, Libya ... Is democracy there? Hasn't the West favored Ukrainian oligarchs? Russian anyway. Did "diermocratic" Ukraine, where every policeman takes bribes, where lectures are bought from lecturers even at state universities, had any chance of joining the European Union? It should have started years ago with sanctions against the oligarchs robbing Ukraine. Russian oligarchs should not have been protected. Then the West would have the support of Ukrainian and Russian society. It is now too late and no sanctions on Putin's anti-Western policy will change, especially since it has the support of the Russian masses. A handful of occidentalists will not change the Russian mentality.

Just a few years ago, the professor wrote that Putin should be given the chance to be able to do "normal" politics with him. Today you are a critic of Putin. Why?

When Putin came to power, I believed in his promise of creating a "dictatorship of law" in Russia that, unlike Yeltsin-Oblomov, he was someone like Sztoliec, a "Russian German" who would lead Russia out of the Oblomian and Communism. I changed my mind when I saw that instead of building a civil society that respects the law, Putin is transforming himself into a nineteenth-century nationalist, fascinated by the missionary "Russian idea." Putin from the liberal of the first two terms evolved into a rightist, allegedly defending "traditional values". The saddest thing is that it is supported not only by the extreme Russian right wing, but also by many right-wing circles in the West.

Putin has almost one hundred percent support, because he took Crimea at no cost. However, if the costs of the conflict increase, will Russian society turn away from Putin? Can the Russians be the greatest threat to him?

A threat to Putin could only be another politician who would impress the Russians with strength, firmness, "idea" that would begin to account for the oligarchs. I don't think it will appear soon

 

Putin has just used the nationalist niche, and there is no chance for civil society in Russia. We realize that the West has gone to its democracy for several hundred years. He did not create it by force in Iraq or in Afghanistan, nor would he persuade her in Russia or Ukraine. The mentality has been shaped for at least several generation

 

 

Edited March 9, 2020 by Tomasz

[Gerry Maddoux + 3,627]

The Oil Wars Are Going Viral by Peter Zeihan on March 9, 2020   We just had the second-biggest oil price drop on record as Asian markets opened March 8. For the past couple of weeks the Saudis have been attempting to cobble together an oil production cut of about 1.5 million barrels per day. As of last Friday, they had been sufficiently successful to get buy-in from the bulk of both OPEC and non-OPEC members, but there was one niggling hold out: Russia. On March 7 any pretense of a deal collapsed and the Saudis committed to flooding the market. First, they lowered their asking prices for crude being shipped to Europe and Asia. Second, they announced plans to quickly ramp up output from some of their spare capacity. There was a hilarious day-long window where the Russian propaganda machine seized control of the narrative and fooled a host of financial reporters into proclaiming that Russia was going to war with the U.S. shale industry. It is difficult to delineate just how incredulous such a claim is since U.S. shale output has a lower production cost than Russian crude, but hey, people fall for propaganda allll the time.  The primary reason I laughed when I read those breathless headlines is that the Russians couldn't launch a price war even if they wanted to do so. The problem is all about location. Much of Russian production happens on difficult land that can turn swampy in the summer and freeze solid during the winter. If those wells are shut-in, particularly during the winter, the risk of well damage (up to and including explosions!) is high. In the truly frozen sections of Russia, when the time comes to restart production, you can't just turn them back on. You must re-drill them. In winter. Likely the following winter.  Russia has never cut production on purpose. Its “cuts” in 2019 were nothing more than some seasonal maintenance. The last time the Russians actually reduced output it was the Soviet collapse. It then took Russia nearly two decades to get back to where they had been.  Much of Russia’s power in the world, triply so in Europe, has to do with energy politics. The Continent counts Russia as one of its top three energy suppliers in any given year, and with the Brits now out of the EU that dependency will increase. Moscow (rightly) sees the American shale patch as a threat to that influence and so has sought to use propaganda to thwart the sector where possible, up to and including bankrolling some American environmental groups to lambast shale (ask Michael Moore and Jill Stein for details).  And at least to a degree, some of the Russian scuttlebutt on all things oil and shale are correct. The Russians supposedly have been ranting of late that the last round of Russian/OPEC oil output cuts in 2019 simply provided more market share for American shale to fill. That’s totally what happened.  Anywho, the Saudis made the reason for their moves crystal clear late March 8, saying they would compete for market share at every point they can reach where the Russians currently sell their oil, with the intent of underbidding any Russian offers. Saudi Arabia is nearly unique in that it can turn production on and off on a three-month time scale. Most other countries can't, and certainly not the Russians. In fact, the only oil production zone in the world that can adjust faster than Saudi Arabia is…the American shale patch, where new wells can come online in under six weeks, and where depletion rates are measured in months rather than years. We’re already scraping the $30 a barrel level. That’s the number where about two-thirds of U.S. shale operators find themselves crying themselves to sleep at night. Even worse (or better based on your point of view), oil prices are likely to remain lower for longer.

 

 

The first reason is the most obvious:  Courtesy of the spreading coronavirus epidemic, best guess is nearly half of the Chinese workforce is still off-line this week, and much of China’s industrial plant remains shut-down due to quarantine efforts – most notably in the industrial heartlands of the Yangtze Valley and the Pearl River Delta. China is undoubtedly going to suffer a real recession this year, which will absolutely impact manufacturing supply chains as well as the supply of consumer products globally in the second and third quarters. Chinese oil demand has probably dropped about 2 million barrels per day.  Avoiding additional widespread infections throughout the rest of China is probably statistically impossible at this point, and it is spreading globally like, well, a virus. Iran, Italy, Switzerland and South Korea have robust epidemics that have erupted in just the past two weeks. Follow-on epidemics are all but certain in France, Germany, the United States, Canada and, well, nearly everywhere else later this month and into April. The virus tends to hit less harshly than a cold in 6 out of 7 cases and is not particularly lethal if you are under age 70 and otherwise healthy, so CALM DOWN, but for everyone’s sake follow normal sanity about exposure and hygiene. Following sanity means less movement and travel and interaction and since oil is the fuel of transport, that means less oil gets used. Everywhere. The second reason is more…colorful. Riyadh and Moscow have rarely gotten along, with their biggest big blow-up occurring at the instigation of none other than Ronald Reagan. In the mid-1980s the Saudis expanded oil output in order to wreck the overextended finances of the Soviet Union. It was part of a collage of factors which heralded the Soviet collapse. With the Russians increasingly active in Iran and Syria and Iraq and Afghanistan, the Saudis have plenty of reasons to dust off an old tool and whap the Russians on the face. The third reason is more…personal. With the Americans stepping back from the world, the Saudis are finding themselves facing off against the Iranians without the American buffer between them. The Trump administration’s anti-Iranian sanctions are strangling the Iranian economy, an economy that survives on oil exports. Shrinking what little income Iran is still getting via a price war isn’t a dumb move. The fourth reason is simple economics. Saudi Arabia is annoyed not simply by Iran and Russia, but other oil producers which range from Venezuela to Ecuador to Libya to Nigeria to Angola to Norway to Azerbaijan to Kazakhstan to…American shale. Saudi Arabia has lower production costs than them all. Anything that takes the snuff out of the competition is something that’ll make the Saudis smile. Of all of these, U.S. shale will bounce back fastest, but there will be a lot of bankruptcies and consolidation between here and there. Other countries will face outcomes far more painful.  The final reason is less about economics and local strategy and more about resetting Saudi Arabia’s position in the world. The Syrian Civil War is in its final chapter. The Iranians and Russians are on the winning side…while the Saudis are on the losing side. If Russian-Saudi relations are already deteriorating, it doesn’t take much of a push for the Saudis to remind the Russians (and everyone else) that there is another field of competition – one in which the Saudis excel and the Russians (and everyone else) do not.

[ronwagn + 6,290]

1 hour ago, Tomasz said:

If you read this biography of Putin, you will learn from it that Putin was one of the few officials in St. Petersburg in 90s who, as deputy mayor of the city of 5 million for foreign cooperation and business was know in bussiness comunity that he did not take bribes. 

The fact is that when his wife Ludmila had a serious car accident about 1996  after a few years as deputy mayor, he did not have $ 5,000 for an operation in Germany and had to find a sponsor from a German company through his contacts in Germany. Of course, this is also a form of bribe because the operation cost a lot but let's say it was a matter of life and death

In my opinion, he is not governed by the desire to enrich only by greed of power.

I think that for some 15 years, the CIA has been trying to detect his assets scattered all over the world, and despite the loud announcements, so far nothing has come of it.

And I think that at least let's say in 2014, they wanted to compromise him in the eyes of the Russians, but probably so far this property was not found especially large.

The authorities in Russia steal because they always stole the constructed beroucracy in the tsarist times was that the official lived on a modest salary and bribes from the population.

However, the present power steals much less than under Yeltsin, so there is progress in this respect.

I will only add that in my opinion he does not seek to return to the USSR, but rather to the situation of the nineteenth century in which there was the so-called concert of powers in which Russia was one of the most important players. Anyway, Putin has not been referring to the narrative of the Soviet era for too many years. The Great Patriotic War only to the tsarist narrative. In my opinion, he is talking about the second Yalta and recognition of Russia's superpower position

Personally think that for Putin the champion is Andropov known as the long-time head of the KGB and a man who had a lot of ideas to reform The USSR in the Chinese spirit but who quickly died as the First Secretary before he could put it into practice

 

Putin eliminates all leaders that would be superior to him. He will only allow his approved cronies to hold power as his puppets. Many have been murdered, poisoned, rot in jail to keep Putin in power. 

[James Regan + 1,776]

15 hours ago, Meredith Poor said:

The idea is basically to run fracking companies out of business.

And that’s it folks, nail on the head.

[Rasmus Jorgensen + 1,169]

16 hours ago, Meredith Poor said:

The idea is basically to run fracking companies out of business.

That's been tried before. 

[0R0 + 6,251]

4 hours ago, Tomasz said:

 

Personally, I don't think Saudi Arabia or shale oil will fall victim to the current crisis.

Of course there will be hard times for frackers  but I am sorry that I am repeating myself now we have 2020 rather than 2014.

Over the past six years investments in production have fallen by 50% and in oil exploration to the lowest level since the end of World War II.

I think Venezuela, Nigeria, Iran, Angola and Algeria or Libya have the biggest chances of falling.

From these countries, the Russians would prefer it not be Iraq (Lukoil extracts a lot of oil) Iran (Russia-friendly regime) Venezuela (milk cow and a place to piss the USA) Algeria (a great importer of Russian weapons)

As for the countries which, according to Russia, could break down, should be Kazakhstan and Azerbaijan. Kazakhstan has 40% of the Russian population, but in recent times it has been doing too much on its own and is breaking  from the Russian-Chinese alliance.

The Azerbaijani do what they shouldn't, i.e. try to send gas to Europe and are generally in conflict with one of the countries closest to Russia called Armenia.

Kazakhstan has a very dollar-based economy and, in addition, it welcomes  Western investors and wants to extract too much oil and gas.

The collapse of Ukraine and its return to the Russian family would also be a plus.

I think your Russian perspective is missing the fact that Russia's presence in Iran and Syria is and existential threat to Saudi. They couldn't care less about the oil price if it restrains Russia's capacity to support Assad and Iran and forces their oil delivery chain to clog up and force production to stop in the warm weather oil fields, or better yet, clog up the N Sea markets so that Yamal has to be shut down, in which case it will take a year to redrill the field. Saudi has $2 Trillion of sovereign fund assets and plenty of reserves with little in debt. Russia has only $100 Billion net of external debt. They DO NOT have the wherewithal to have revenues cutoff by Saudi undercutting their prices for their main customers so as to prevent any Russian oil revenue or offloading of Russian tankers. 

I can't say that Saudi will be completely successful with Russia. But they will definitely hurt Iran and any chances of reviving Venezuela or the other dead producers like Nigeria, Algeria, Libya, of Angola. Iran may very well find itself a failed state within months of this. 

Their targeting of Russian oil buyers may very well succeed in displacing Russian deliveries to the point of clogging up Russian production and forcing production closures in Russia, not the production expansion that Rosneft wanted. The Ruble has gone from 60 to 75 in a few weeks, half the drop came today. It will get worse than oil. 

Others have poo pooed the idea of Saudi targeting Russia rather than both targeting US shale frackers as Russia's PR narrative has . Russia can't make money with oil so low. Its costs are higher than the cash costs of shale. So while Shalers fall to bankruptcy, the other side of it is reduced lease costs and little or no debt to service. The $10-15 of the production cost equation that is paper cost can go to <$5 in very short order. Majors will frack at <<$40 with a nice profit after taking in industry assets at various stages of paid for completions for next to nothing. Energy junk bonds have fallen as much as 40% this week - many already trading at 20% of  par. 

Peter Zeihan had a newsletter issue on the Russia-Saudi war. He came to similar conclusions to mine as to what the Saudi's want out of it and why.

 Don't have a URL for it yet. so I repost it. I see Gerry has posted it already so I will clear it out Note that Silicon Valley venture capital is warning client companies that no further funding is going to be available for a while, most notably, I presume, because the funnel of funds flowing from Saudi via Softbank and the sovereign funds is expected to dry up till further notice. 

The financial conditions index from Bloomberg is plunging to worse conditions than 2009 in just one week. Central banks - crickets chirping in the silence. 

 

Edited March 9, 2020 by 0R0

[ronwagn + 6,290]

https://www.bloomberg.com/quote/USDRUB:CUR A ruble is now worth 7.51 cents.