Russian Economy General News: #11

Vann7 wrote:Russian leadership refuse to modernize their nation economy, and become lazy and mostly focus in commodities based business

FFS Vann, are you really that stupid?

Vann7 wrote:Russia gas station project not going well....
This is what happens when you put all your eggs into a nation dependent on energy business
and exports of bananas and food.

The perfect storm sends natural gas crashing


https://www.rt.com/business/481924-perfect-storm-natural-gas/

so oil prices low.. and natural gas prices low..
Belarus threatening to halt the gas supplies to europe in nord stream 1.. and nord stream 2 paralized
because of american sanctions..   Russia hoping to finish it 1 year later..  
this is what happens ,when Russian leadership refuse to modernize their nation economy ,
and become lazy and mostly focus in commodities based business..  
only third world countries .build their economies based around commodities ..

Nord stream 1 has nothing to do with Belorussia...
Nord stream 1 starts from Vyborg and nord stream 2 starts from Ust Luga. Both of them are in Russia.

It really is hilarious and poetic justice how NATzO currency manipulators f*cked themselves when they thought they
were f*cking Russia back in 2014:

1) They nullified totally the oil price drop impact on the Russian economy since the "devaluation" of the ruble
meant that lower oil prices brought in the same amount of rubles to the Russian GDP. Since Russia does not
depend on exports and is in the top handful of countries on this planet in this advantageous category, the
"devalued" ruble did not shrink the GDP. There was a short-lived bout of inflation driven by internal business
hysteria but it did not last bast March of 2015.

2) They forced the CBR to stop backing the ruble on the forex markets. Thus they lost billions of dollars of
revenue from their speculative scamming. They went for Russia's jugular and sliced off their own testicles.
There really is a God and He is not their creation.

Since Russia does not
depend on exports and is in the top handful of countries on this planet in this advantageous category, the
"devalued" ruble did not shrink the GDP.

I think you mean imports... a devalued currency is great for exports because the foreign money is worth more local currency so you get paid more for the same thing.

Devaluation means imports become rather more expensive which encourages local production and development...

Belarus threatening to halt the gas supplies to europe in nord stream 1.. and nord stream 2 paralized
because of american sanctions.. Russia hoping to finish it 1 year later.. Laughing
this is what happens ,when Russian leadership refuse to modernize their nation economy ,
and become lazy and mostly focus in commodities based business.. No
only third world countries .build their economies based around commodities ..

As already pointed out Belarus has nothing to do with nord stream 1 or 2, but complaining about Russia not spending a lot on energy delivery options is the opposite of diversifying the economy away from energy... You are complaining that Russia is a gas station and complaining that the gas station doesn't have more distribution pipes to customers...

You want them to spend more money on delivering gas to customers who currently hold Russia under economic sanctions at the muzzle of a gun on their borders with a military organisation called HATO.

Ideally, Russia should stop making new gas pipelines to the EU and should just liquify the gas and build ships to deliver it... they can then sell to the highest bidder and make more profits and not worry about long term contracts... LNG powered ships would be effectively free for them to power... and they could sell it to anyone, not just those connected via pipes.

GarryB wrote:

Since Russia does not
depend on exports and is in the top handful of countries on this planet in this advantageous category, the
"devalued" ruble did not shrink the GDP.

I think you mean imports... a devalued currency is great for exports because the foreign money is worth more local currency so you get paid more for the same thing.

Devaluation means imports become rather more expensive which encourages local production and development...

Belarus threatening to halt the gas supplies to europe in nord stream 1.. and nord stream 2 paralized
because of american sanctions..   Russia hoping to finish it 1 year later..  Laughing
this is what happens ,when Russian leadership refuse to modernize their nation economy ,
and become lazy and mostly focus in commodities based business..   No
only third world countries .build their economies based around commodities ..

As already pointed out Belarus has nothing to do with nord stream 1 or 2, but complaining about Russia not spending a lot on energy delivery options is the opposite of diversifying the economy away from energy... You are complaining that Russia is a gas station and complaining that the gas station doesn't have more distribution pipes to customers...

You want them to spend more money on delivering gas to customers who currently hold Russia under economic sanctions at the muzzle of a gun on their borders with a military organisation called HATO.

Ideally, Russia should stop making new gas pipelines to the EU and should just liquify the gas and build ships to deliver it... they can then sell to the highest bidder and make more profits and not worry about long term contracts... LNG powered ships would be effectively free for them to power... and they could sell it to anyone, not just those connected via pipes.

Yes, that was a Freudian slip. I meant imports. But exports are not the driver of Russia's GDP either like they are for Germany and Japan.

in more news..
Putin wants ... to create conditions ,so that nobody will want to fight Russia.

Russia seeks to ‘create conditions so that NOBODY wants to fight us’ – Putin

https://www.rt.com/russia/482078-putin-trump-military-spending/


anyone see this?  
Putin is saying that he wants respect.. he told it.. clearly.
People respected inspire admiration ,so effectively they are not attacked.. and treated fairly.
Like something important..

in other words..  the thoughs behind the words are like this...
Putin is saying... the world is disrespecting us...we want respect.. to our nation and our interest.
Russia is one of the most disrespected nation in the world.. and someone need to explain that moron..
how he can earn respect back..  there is a saying... that you will not get respect for free.. that you need
to earn it.. and this is truth.. and foolish President Putin believe ,that by investing in better weapons ,that people will respect Russia more...

So please someone tell that moron...the next list ,so he can get the respect he wants.. for his nation..

How Russia can get respect list...

1) Putin should STOP!!! with his bullshit politeness and soft speaking.. Don't be polite with bullies ever...
don't do it..it doesn't work.. This doesn't means to be rude ,but to be confident and decisive.. polite people are weak personality people. that are afraid to offend others.. because think will not be able to handle it.. so they
are polite and soft.. people like that  shows insecurity and weakness.. and this is why adversaries of Russia feels pretty comfort in disrespecting Russia and its interest.. they believe.. he will do nothing.. is afraid to fight. he send the wrong message to his enemies..  

2) If Russia wants respect.. so nobody will want to fight Russia..
   then Putin needs LEADERSHIP. To be a strong confident person with strong leadership skills..
   a leader is someone that knows what he wants , and is confident that anything is possible. Putin
  will not motivate anyone being a boring person or being soft and polite... it will only encourage to not be
  taken seriously..

3) the most powerful way to earn respect and that nobody fight russia.. is with..
   Business Power .  Becausue the west is at war with Russia ,a cold/semi hot indirect war..
   Russia existence will depend of only one thing.. on Leadership.  If Putin wants success for Russia ,
   and that no nation will want to fight Russia.. then he needs Business leadership. ,that not only
    competes with the west.. but surpass it..  There is no place for putin's Russia in this world as a second best.
   Russia will only get respect ,when it becomes the world leader.. when it can compete with american top popular business , and replace them.. this will damage the western hegemony in the world and their influence too..  Russia needs to create an alternative and superior business system.. to the american one.. it can do it..
in an alliance with China..  An alternative internet.. an alternative to US high tech industry,, and more than anything.. Russia needs to be the absolute leader in space.  leader in space exploration  and militarization of space too..  instead of an economy based on bananas ,wheat and oil and gas.. instead of tourism.. and pretty expensive parks ,instead olympic medals..  Putin needs to modernize its economy.. to become heavily focused
in space and in high tech industry and digital entertainment.. Putin needs to leave behind the Russian past.. and recreate the nation and its culture in a completely new and modern way. promote patriotism through business and space leadership.. not through past victories of ancestors.. Russia needs to completely recreate itself in a better and more modern way , not attached to any religion ,but without abandoning moral system of family values. a modern culture will create jobs ,will create business.. what is the american enterntainment industry ,
that makes the country popular in the entire world.. its movies and digital games ,if not an expression of a modern culture?  Russia needs a digital economy revolution.. around Space ,high tech and entertainment..
and leave behind the potatoes and wheat records and leave behind the gas station..sell it to germany and france and tax it.. and leave behind the olympic medals. all the money putin waste in distractions ,should be better expend in competition to American business giants.. in california state. and in florida.. that NASA is located.

Like i said.. is a leadership crisis ,what Russia face.. the west have leadership thanks to its business power
and this is why they can sanction the entire world and pressure even Russian companies to obey american gov.
is an identity problem.. what Russia have.. they want to be the past.. and they should look instead at the future..
And re-invent the nation into a better way ,than ever . that is influential to the west.. why the west? to disband NATO and the American destructive system ... If Russia had a lot of leadership and influence.. [with the west.].
then nobody will be fighting russia..because russia will be respected ,will be a leader. And nations will want
to be part of the Russian world.. and abandon the unfair anglo-jewish system. The ukraine conflcit and syrian
conflict will have not happened.. if Russia was the absolute leader of the world in high tech business and space manned exploration and space tourism.. all those nations disrespecting russia will be fighting.. but only to become closer friends.. and not enemies.. to become part of that success.

Putin and Gref discussed the work of Sberbank in 2019

Russian President Vladimir Putin and Sberbank CEO German Gref discussed the work of a credit institution in 2019. According to Gref, according to Russian standards, the bank received 860 billion net profit.

And this is why the government will be buying 50% +1 shares.

Then hopefully start buying back the shares from foreign entities.

Yes, that was a Freudian slip. I meant imports. But exports are not the driver of Russia's GDP either like they are for Germany and Japan.

Guessed as much, but the low value of the ruble should make exports more attractive in all sorts of markets... especially if all materials are sourced from Russia they would be cheaper than imported material so the whole products could be put together for less...

A weak currency makes imports expensive which encourages domestic production and also domestic consumption...

anyone see this?
Putin is saying that he wants respect.. he told it.. clearly.
People respected inspire admiration ,so effectively they are not attacked.. and treated fairly.
Like something important..

Respect would be nice, but the US does not respect anyone... so the more realistic alternative is fear... some serious weapon systems that can obliterate everyone in the west... not just the western military but the entire western population... far cheaper than matching them in conventional forces...

The Russian government will delete 50% of the debt of Russian defense sector companies (375 billion rubles) and
restructure the rest at 3% for 15 years. It turns out that Russian contractors have fallen into a debt hole where
they spend their earnings paying off debt instead of upgrading their production.

Now, let me guess why they fell into a debt hole. Could it possibly have something to do with 10% lending rates?
If you think not, then you are out to lunch. You can thank the CBR under Nabiullina for this mess. The monetarist
lunatics (and 5th columnists) at the CBR are engineering a debt crisis in Russia by imposing a prime rate of 7.25%
or more which translates into private bank loan rates around 10%. This is in spite of the fact that inflation in Russia
is 3%. The CBR has not excuse to set the prime rate over 3%. In fact, the CBR is driving inflation in Russia by
inflating loan costs across the economy. Not just consumer lending. When businesses have to pay substantially more
for loans, they pass the costs onto consumers (both individuals and companies). This is direct inflation.

Recall that businesses require loans for daily operations. This is something that too many people are totally unaware of
and think that profit accumulation is how business invest in retooling and product redesign or new products. BS. They
do not have the luxury of doing this over a span of years, they need to do this as fast as possible driven my market
competition. In fact, if you believe in a free market, then you have to accept bank loans as essential to the operation
of companies. How can those companies ever accumulate the capital for anything if they are making near zero profits
in a competitive environment. That is the definition of a free market: many competitors making nearly zero profit.

Brent, WTI futures CRASH 20% over Saudi Arabia-Russia oil price war

Why no one is speaking about this ?  
Putin's gambling on Russia gas station project are collapsing again ..  
A new oil war have started by Saudi Arabia.. they are now flooding the market with oil ,
and announcing major discounts and major production increase which will sink oil prices
including Russia economy..

On Saturday, Saudi Arabia announced a stunning discount of $6 to $8 per barrel to its customers in Asia, Europe and the United States  – and said it would boost the oil production despite the global economy slowdown and crude demand drop. The sudden move was seen as a sign of an all-out oil price war, after a supply cut deal between Russia and the Organisation of the Petroleum Exporting Countries had collapsed.

https://www.rt.com/business/482631-oil-futures-brent-wti-crash/


i bet the usual so called "economy experts" in this forums will come with new excuses when Russia economy face a major recession in this year after this oil war...  a major recession should put an end to the BS reported in this forum by the so called "experts" ,who think "understand" Russia economy.    

So Russia banned from Putin's olympics and now the oil will be under $30 and for a longer time..
and not even tourism will save Putin ,with the corona virus menace.. this is what happen when you have
short sight Presidents ,that develop their nation economy in the most lazy and lamest way possible , as if the
nation was a third world banana republic in africa.. that just like Russia ,their major business are energy ,mining and food.

It will be funny if Putin ends doing exactly what kudrin adviced him , privatization of their energy industry and develop Russia economy in a much more modern way.. as the Western powers have.. with business that are near impossible to stop.. unless they want to be isolated from nation progress.

Vann, stick a fresh tampon down there and read something not written by whiny little bitches:

http://smoothiex12.blogspot.com/2020/03/opec-issue.html


Also, Russians are after Saudi scalps not other way around

F**k me but you're one dumb unit Vann...

Saudis are bleeding cash and DESPERATELY need high oil prices to meet their budget and keep their subjects complacent with their usual bribes.  The US shale patch needs high prices to keep their losses to within the range where fraudulent financial engineering can maintain the cashflow to keep the ponzi scam going. Russia produces the marginal barrel and can readily accept low oil prices for an extended period, long enough for the Saudi economy (and regime) to collapse and for the shale oil scam to finally run aground on the rocks of financial reality.

If you insist on blinding yourself through a slavish adherence to your anti-Putinist screeds then you'll have no hope of understanding what is going down.

In response to prior posts, let me make two points: zero profits in a theoretically perfectly competitive market means zero economic profits - not zero profits. That is zero profits factoring in the cost of capital.

Point two: Russia understands that  ceding production at $45-$50 a barrel oil means shifting market share to U.S. producers. They telegraphed their hand by mentioning how they could survive with cheap oil for three years due to their foreign currency reserves of $560 billion and their reserve fund of $126 billion. The problem with their logic is yes, there will be bankruptcies in the U.S. and dislocation in the debt markets and production will fall. The U.S. however views shale production as a strategic asset and as soon as oil prices recover, those fields will be recapitalized and will start producing right away. One thing America does not lack is deep capital markets. There will be a cost to Russia - if oil prices hit $20/barrel Russia will run through $45 billion a year from their reserve fund to cover their budget and Putin's national projects will be delayed or underfunded. Frankly, I think their strategy is trying to be too clever by half.

The observation about the CBR is correct. There is absolutely no conceivable reason why they maintain interest rates where they do other than to favor their banker friends or their "foreign" friends - the two are actually not unrelated. The cost to Russia GDP growth is huge.

calripson wrote:In response to prior posts, let me make two points: zero profits in a theoretically perfectly competitive market means zero economic profits - not zero profits. That is zero profits factoring in the cost of capital.

Point two: Russia understands that  ceding production at $45-$50 a barrel oil means shifting market share to U.S. producers. They telegraphed their hand by mentioning how they could survive with cheap oil for three years due to their foreign currency reserves of $560 billion and their reserve fund of $126 billion. The problem with their logic is yes, there will be bankruptcies in the U.S. and dislocation in the debt markets and production will fall. The U.S. however views shale production as a strategic asset and as soon as oil prices recover, those fields will be recapitalized and will start producing right away. One thing America does not lack is deep capital markets. There will be a cost to Russia - if oil prices hit $20/barrel Russia will run through $45 billion a year from their reserve fund to cover their budget and Putin's national projects will be delayed or underfunded. Frankly, I think their strategy is trying to be too clever by half.

But accounting takes capital depreciation into a line item cost. Companies still have to cover capital depreciation and competitive-pressure driven
retooling. There is no free lunch. Extortionate interest rates set by some non-market player like the CBR are criminally absurd. This is why capitalism
is such a fraud. Too many critical aspects are command-economy style social engineering and not any sort of market. There are no real free markets.
Take any industry like cars and you will see a distinct process of oligopolization over time. This industry basically colludes to set self-serving prices and
the consumer can lump whatever quality they dish out. These oligopolies also engage in anti-market machinations such as GM's real conspiracy to
destroy all electric urban rail and trolleybus service to replace it diesel buses.

The non-conventional oil and gas sector in the US is a ponzi racket boosted by land speculation. Tight oil and gas producers manage to maintain some
level of viability by land flipping. But this means that most players are always in the red and fail. No industry that is in the red perpetually can last.
And the reason they are in the red is that:

1) Tight extraction requires many more wells to be drilled/fracked than conventional oil and gas. This means the cost of extraction are dramatically
higher. If oil is a $40 per barrel, companies that frack the Bakken and similar formations are not making any money.

2) The production tail from each well is not long and thick but narrow and short. So the cumulative production is smaller and the production decline
is faster.

Thus there is a quadratic revenue disadvantage from tight plays. Rosy estimates about trillions of barrels of oil and centuries of gas are utter nonsense
designed to con sucker investors. There will be no long term cost recovery whatsoever. The Bakken is already declining. It was predicted to decline
decades in the future. This is due to something called physics. Tight oil and gas formations have vastly less oil and gas simply due to much tighter
rock crystal grain distribution. This is why fracking is needed with tight formations since whatever little oil and gas is there does not want to flow
through almost impermeable rock. Investor scam propaganda makes fracking sound like some new technology. It has been around since the 1950s
and the tight oil and gas plays have been known since then and are not recent finds. No company bothered to develop them until the last 20 years
because the costs were too high compared to conventional plays.

The scam about tight oil being in the trillions of barrels range is based on the lie that the Green River kerogen deposits in real shale (and not shale-like
tight sedimentary) are "oil". They are nothing of the sort. Kerogens have to cooked to produce oil. Nature does this slowly over millions of years
but humans need to do it fast. So energy has to be expended to process the kerogens out of the shale and then energy needs to be expended to
produce synthetic oil. The cost is beyond any rational economic actor or even Ponzi rackets. Shell attempted to cook the kerogens in situ and
the drive the synthetic oil out of the shale through a network of wells including ones where liquid Nitrogen was used to produce a containment
vessel inside the shale rock where a flame front was ignited. This nightmare never worked and after 40 years of trying Shell gave up. There are
no pilot or commercial kerogen to oil operations operating on the planet. In Estonia they used to mine "oil shale" (i.e. kerogen-rich shale) and
burn it like coal in furnaces. The furnace heat helped extract and then make the kerogens more easy to combust.

Let's also take into account that Russia made $billions when oil was about $10/bbl and they sit on some of the highest reserves in the world. With Vostok oil, they will be pumping lots. Then there is the process industry which makes end goods and Russia is also counting on them too as Russia sells a lot of oil processed goods.

They will find their financial sources. Using reserve money to fund the national projects is actually smart cause the return rate is already rather high so using it as investments is a great idea.

But oil prices are gonna jump a bit as soon as this coronavirus passes. As China is hit hard and half the nation is still in lockdown.

Russia says is ready to burn $ 150 Billions USD of their bank savings [Russia’s sovereign wealth fund ] to
save the their gas station economy.

Russia swiftly reacts to bloodbath in markets, says it’s ready for $25 oil

https://www.rt.com/business/482638-russia-oil-prices-fall/


So Russia is saying is ready to burn their savings.. wow if they so desperate to burn their
money ,why bother doing business that have no future ? where is the energy profits ,if they later have to
burn them? to rescue the nation ?

So Russia is saying is ready to be losers.. and lose 150 billions dollars $$$ over the period of 6-10 years ,
money they were saving , to handle a failed weak economy ,that they knew was very vulnerable for energy
markets being so unstable.. and sensitive ..

Vann, we all know you suffer from a case of stupidity but let me explain how things work.

In terms of many countries, they will use the leverage of oil or gas or both as a method of accounting balancing if they plan to push development and programs. This is a way to funnel money into major projects. All the while they use savings in order to create liquidity for future programs if money isn't available.  So to fund the national projects, they need certain amount of money and they can tap it through their budget they get from oil and gas, which accounts for 6% of their economy.

As of right now Urals is trading at 48.15/bbl meaning it still creates $8 per barrel profit for the budget. But the Russian government doesn't get that money directly. It only compares to against a specific item.  They could say the budget is set at based upon how much 1 ton of steel costs.

The major pitfall is the coronavirus issue. Once this clears we will see an upswing in manufacturing from china and Italy which will be in demand oil and oil byproducts.

Along with metals and other minerals.

"But accounting takes capital depreciation into a line item cost. Companies still have to cover capital depreciation and competitive-pressure driven retooling."

The correct way to measure economic performance is on a free cash flow basis with the cost of capital factored in - accounting depreciation is an arbitrary set of rules that have importance only in relation to tax liability. The cost of capital is a weighted average of the entity's cost of debt and cost of equity. Many firms operate in a capital destructive mode - seemingly making accounting profits, but actually destroying capital over time. (I am referring to monetary capital and not physical assets.) The question of physical vs monetary measures of economics is a different animal.

In Crashing the Oil Price, Russia Just Told the World, 'No!'

There is real power in the word “No.”
In fact, I’d argue that it is the single most powerful word in any language.
In the midst of the worst market meltdown in a dozen years which has at its source problems within global dollar-funding markets, Russia found itself in the position to exercise the Power of No.
Multiple overlapping crises are happening worldwide right now and they all interlock into a fabric of chaos.

Between political instability in Europe, presidential primary shenanigans in the U.S., coronavirus creating mass hysteria and Turkey’s military adventurism in Syria, the eastern Mediterranean and Libya, markets are finally calling the bluff of central bankers who have been propping up asset prices for years.

But, at its core, the current crisis stems from the simple truth that those prices around the world are vastly overvalued.
Western government and central bank policies have used the power of the dollar to push the world to this state.
And that state is, at best, meta-stable.
But when this number of shits get this freaking real, well… meeting the fan was inevitable.

And all it took to push a correction into a full-scale panic was the Russians saying, “No.”

The reality has been evident in the commodity markets for months. Copper and other industrial metals have all been in slumps while equity markets zoomed higher.
But it was oil that was the most confounding of all.
Most of 2019 we saw oil prices behaving oddly as events occurred with regularity to push prices higher but ultimately see them fall.
Since peaking after the killing of Iranian General Qassem Soleimani oil prices have been a one-way trade. Down.

Our inept leaders are trying to blame coronavirus as the proximate cause for all of the market’s jitters.

But that masks the truth. The problems have been there for months, pushed to the back burner by incessant Fed intervention in the dollar-funding markets.
The 2008 financial crisis was never dealt with, just papered over.
The repo crisis of last September never ended, it’s still there.
And it reappeared with ferocity this week as people sold dollars and bought U.S. treasuries pushing U.S. yields on the long end of the curve to absurd levels.

Credit markets are melting down. Stock markets are the tail, credit markets are the dog. And this dog was run over by a bus.

The Fed intervenes to keep short term interest rates from rising to preserve the fiction it is still in control.
The market wants higher rates for short-term access to dollars.
The Fed tried to help by cutting rates by 0.5% but all that did was tell people the Fed was as scared as they were. The selling resumed and gold bounced back to it’s recent high near $1690, only to be swatted down on the New York open this morning.
That didn’t work either.

And into this mess OPEC tried to save itself by asking for a historic production cut.

OPEC needs this cut to remain relevant. The cartel is dying. It’s been dying for years, kept on life support by Russia’s willingness to trade favors to achieve other geostrategic goals.
I’ve said before that OPEC production cuts are not bullish for oil just like rate cuts are not inflationary during crisis periods.
But finally Russia said No. And they didn’t equivocate. They told everyone they are prepared for lower oil prices.
The panic was palpable in the reporting on the meeting.
“Regarding cuts in production, given today’s decision, from April 1, no one — neither OPEC countries nor OPEC+ countries — are obliged to lower production,” he told reporters after the meeting.
OPEC’s Secretary General Mohammed Barkindo said the meeting had been adjourned, although consultations would continue.
“At the end of the day, it was the general, painful decision of the joint conference to adjourn the meeting,” he told reporters.
Earlier, Oanda analyst Edward Moya had suggested that a failure to reach an agreement could spell the end of OPEC+.
“No-deal OPEC+ means the three-year experiment is over. OPEC+ is dead. The Saudis are all-in on stabling oil prices and they may need to do something extraordinary,” he said.

There comes a point where negotiating with your adversaries ends, where someone finally says, “Enough.” Russia has been attacked mercilessly by the West for the crime of being Russia.

And I’ve documented nearly every twist and turn of how they have skillfully buttressed their position waiting for the right moment to get maximum return to reverse the tables on their tormentors.
And, to me, this was that perfect moment for them to finally say “No,” to get maximum effect.
When dealing with a more-powerful enemy you have to target where they are most vulnerable to inflict the most damage.
For the West that place is in the financial markets.
Remember, the first basic fact of economics. Prices are set at the margin. The only price that matters is the last one recorded.
That price sets the cost for the next unit of that good, in this case a barrel of oil, up for sale.
In a world of cartelized markets the world over, where prices are set by external actors, it is easy to forget that in the real economy (regardless of your political persuasion) the world is an auction and everything is up for bid.
High bid wins.
So, the most important geostrategic question is, “Who produces the marginal barrel of oil?”
For more than three years now, President Trump has supported his policy of Energy Dominance in a Quixotic quest for the U.S. to become that supplier. Trillions of dollars have been spent on building up domestic production to their current, unsustainable levels.
This policy pre-dates Trump, certainly, but he has been its most ardent pursuer of it, sanctioning and embargoing everyone he can to keep them off the bid.
What he could never do, however, was push Russia off that bid.
The reason U.S. production rates are unsustainable is because their costs are higher per barrel than the marginal price especially when all other prices are deflating. Simple, straightforward economics.
If they were, on balance, profitable then the industry as a whole would not have burned through a few hundred billion in free cash flow over the past decade.
That’s where the Russians’ power comes from. Russia is one of the lowest cost producers in the world. Even after paying their taxes to the government their costs are far lower, close to $20 per barrel break-even point, than anyone else in the world when one factors in external costs.
When you don’t owe anyone anything you are free to tell them, “No.”
Sure, the Saudis produce at similar cash costs to the Russians but once you factor in its budgetary needs, the numbers aren’t even close as they need something closer to $85 per barrel.
They can’t tell their people, “No,” you have to do without. Because the populous will revolt.
Russia can ride out, if not thrive, in this low price regime because :
the ruble floats to absorb price shocks in dollars.
A majority of their oil is now sold in non-dollar currencies – rubles, yuan, euros, etc. – to lessen their exposure to capital outflows
the major oil firms have little dollar-denominated debt
low extraction costs.
its primary governmental budget ebbs and flows with oil prices.
All of this adds up to Russia holding the whip hand over the global market for oil.
The ability to say, “No.”
And they will have it for years to come as U.S. production implodes. Because they can and do produce the marginal barrel of oil.
That is why oil prices plunged as much as 10% into today’s close on the news they would not cut production.
There is a cascade lurking beneath this market. There is a lot of bank and pension fund exposure in the U.S. to what is now soon-to-be non-performing fracking debt.
Liquidations will begin in earnest later this year.
But the market is handicapping this now.
I cannot overstate how important and far-reaching this move by Russia is. If they don’t make a deal here they can break OPEC. If they do make a deal it will come with strings that ensure pressure is lifted in other areas of stress for them.
The knock-on effects of oil plunging from $70 per barrel to $45 over two months will be felt for months, if not years.
And it is no shock to me that Russia held their water here. If they didn’t, I would have been surprised.
This was Putin’s opportunity to finally strike back at Russia’s tormentors and inflict real pain for their unscrupulous behavior in places like Iran, Iraq, Syria, Ukraine, Yemen, Venezuela and Afghanistan.
He is now in a position to extract maximum concessions from the U.S. and the OPEC nations who are supporting U.S. belligerence against Russia’s allies in China, Iran and Syria.
We saw the beginnings of this in his dealings with Turkish President Erdogan in Moscow, extracting a ceasefire agreement that was nothing short of a Turkish surrender.
Erdogan asked to be saved from his own stupidity and Russia said, “No.”
This condition of producing the marginal barrel of oil in a deflationary world places Russia in the driver’s seat to drive U.S. foreign policy behavior in an election year.
Talk about meddling in our elections!
The Achilles’ heel of the U.S. empire is the debt. The dollar has been its greatest weapon and it is still king. And it is a weapon with a great deal of power but wielded only against the U.S.’s allies, not Russia.
Markets will adjust and calm down in a few days. The panic will subside. But it will come back soon enough in a more virulent form. Today is a replay of 2007-08 but this time Russia is far better prepared to fight back.
And when that happens, I suspect it won’t be the Saudis or the Turks that come running to Russia to save them, but the U.S. and Europe.
At which point, I have to wonder if Putin will channel his inner Rorschach.

Tom Luongo

miketheterrible wrote:

Assuming now the same financial "burden" 375bin Rubles can bought 375bin rubles / 10 (years) / 12 (months) / 100 000 rubles (paycheck per engineer) = 31 250 engineer specials

i.e. 31 250 engineers x 10 (years) x 232 (working day per year) x (8 hours per day) = 580 000 000 working hours of engineer specialist

Now how much time does require to build a PAK-DA and S-500 and this and that

in other words Putin has with the money said (and thats without calculating in 375bin on 3% and 15years) added 580 million working hours of engineers specialist to

Russia military industry complex of !