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Page added on December 12, 2014
Why Russia’s Unfazed By Falling Oil Prices
Oil is not quite as powerful a weapon against modern-day Russia as one might think.
By arguing that the slump in oil prices will finish off Russia just like it did the Soviet Union, Ambrose Evans-Pritchard, writing in the Daily Telegraph, is forgetting how far Russia has come since those dark days.
It is true that the USSR couldn’t cope with falling oil revenues and that Saudi Arabia is credited with helping to break up the former empire by dramatically increasing oil production from 2 million to 10 million barrels per day in 1985.
And sanctions could make it harder for Russian firms to access Western know-how, and ultimately affect Russia’s oil output.
But that’s only if they drag on for years—which is doubtful, given the price the EU is already paying. A cut in global oil supply—and stronger global growth—will likely rebalance the oil market in the meantime.
A measure of Russia’s improved prospects is that the population is growing again for the first time since 1992. In fact, sanctions notwithstanding, Russia’s finances look pretty stable for now.
Russia has only about $678 billion in foreign debt, which it’s been vigorously paying down from the high of $732 billion reached at the end of 2013. (The US debt to foreigners has passed $6 trillion, and it’s growing.) It’s running a record-high budget surplus and a positive balance of payments. And it’s circumventing the dollar through trade deals. Even after spending $60 billion propping up companies starved of dollar liquidity, Russia has nearly $375 billion of foreign reserves.
Although GDP growth has slowed from 2012’s torrid 4.25% pace, it’s still projected to come in at 1%, no worse than 2013.
Furious about being locked out of SWIFT—the Society for Worldwide Interbank Financial Telecommunication, which helps facilitate international financial transactions—Putin has also ordered the Russian central bank to proceed with building its own national payment settlement system as an alternative.
Then there’s “Project Double Eagle,” which will enable trade partners to price oil in gold. That will allow users to move away from the dollar (and the euro), and conduct their business in something physical and more substantial than fiat money—and Russia’s fellow BRICS nations (Brazil, India, China and South Africa) are cheering it on.
So, perhaps there’s method in Putin’s madness. Russia has not only substantially increased gold production but is stockpiling the stuff, doubling its reserves between 2008 and 2014.
It’s true that the country’s budget was based on oil prices of $96 per barrel. With oil sinking below $70, that hurts for certain. But Russia will survive. It will do some belt-tightening. And it gets a boost from the falling ruble—which is down 25% against the dollar just since the end of September—because that helps to offset losses from cheaper oil.
Russian oil companies earn dollars abroad for their exports, but spend rubles domestically. That means that their extraction budgets remain unaffected and, additionally, it ensures that government tax receipts won’t drop precipitously. Production actually rose to 10.6 million barrels per day in September, close to the highest monthly figure since the collapse of the Soviet Union. Russia’s 8 million barrels of daily export account for 15% of the total oil moving in world markets.
Ironically, Obama’s sanctions could have worse consequences for the US. If Russia ramps up production in order to raise revenues, that will lead to an even bigger fall in oil prices. And one of the primary victims will be US shale production. US fracking operations—which are more costly than conventional Russian (or Saudi) drilling—begin to get uneconomical below $70 per barrel. If the price drops to $60, many US unconventional wells will have to shut down and imports will rise once again.
Thus, the slide in oil prices threatens American energy independence and emboldens rather than weakens Russia.
Meanwhile, Russia forges ahead with exploration and infrastructure development. Putin just inked a 25-year oil deal with China that includes the construction of a brand new 3,000-mile pipeline. And he’s sending fleets of nuclear-powered icebreakers into the Arctic to stake out more reserves, along with troops to protect them.
While Americans are counting the few dollars they’ll save on gasoline now and spend on gifts this Christmas, Putin is counting all the billions he’ll make when oil rebounds.
Russia may or may not be losing the current battle. But no matter what Evans-Pritchard may think, Putin has no intention of losing the war—in fact, he’s the only one who really understands what the ultimate prize for winning it is.
As my new book, The Colder War, makes clear, the geopolitics of energy—especially the struggle between Russia and the US—is the single most important force in the world today.
Putin’s not going to spare any effort to come out on top, and the smart money isn’t betting against him. This would not mark the first time he has been wounded and come back stronger.
To discover all the ways you can invest with Putin and make a bundle in the process, sign up for Marin Katusa’s just-launched advisory, The Colder War Letter.
21 Comments on "Why Russia’s Unfazed By Falling Oil Prices"
bobinget on Fri, 12th Dec 2014 9:29 am
“Trade based oil transactions” may be one reason, among many, that there ‘appears’ to be a slump
in consumption.
W have to get away from the notion that nations at war will be entirely economically transparent.
The idea that Russia want to do away with the Petro Dollar is entirely mistaken. Were oil somehow prices in rubles instead of USD’s, Russia would be flat broke.
(dictatorships in the 21st century, sure. All Powerful
monarchies held together by a police state, come on!) History mocks ‘invincible’ kingdoms long before
social media, satellite TV.
If oil prices continue to fall on overly ambitious propaganda, Russia, Iran and Venezuela can act
unilaterally.
My thinking. The above mentioned triumvirate,
can out maneuver (manipulate) the’ invincible kingdom’. If successful Iraq, Ecuador and Algeria
will join.
Don’t forget, this so-called oil glut represents fewer
then a million barrels a day of production.
California, provided rains keep coming,
can absorb another 500,000 Bp/d ‘world wide’ surplus in 2015.
(sports utility and pick-up sales haven’t been this BRISK in many years)
Finally, to put the lie behind falling demand BS, watch this coming Wednesday’s EIA inventory report;
http://www.eia.gov/petroleum/supply/weekly/
Actual predicted consumption is an additional
one million barrels p/d. This hold true this minute.
If lower oil prices persist till spring, we can safely bet two million barrels will be REQUIRED.
islander on Fri, 12th Dec 2014 9:35 am
What is this nonsense? The article claims that Russia’s economy will keep growing, but the Russian government themselves admit that Russia will soon be in recession. It is also highly suspicious that there is no mention of the massive inflation that Russia is now experiencing because of the falling rouble.
Kenz300 on Fri, 12th Dec 2014 12:39 pm
Russia needs higher oil prices…………
Every independent oil producing company and state owned company are reevaluating future investments in light of falling prices……..
Investors and lenders are reevaluating oil company projects………..
Money for risky projects is drying up…..
Joe on Fri, 12th Dec 2014 12:44 pm
Oh my, an article without American propoganda, how novel. Usually the stories are how Russia is dying and needs help…this article is just the opposite. It is a bit one-sided towards Russia but I will say that I agree that Putin will win the war. He is banking on the future and has signed multiple deals with China, India, Turkey and Iran plus has South Korea and the mighty Japan waiting in the wings just as soon as all this “sanctions” business goes away. He is banking on the future. In the meantime Obama got us a ridiculous Environmental deal with China…yippie! In as little as 5 years things will dramatically change and sadly we will be the ones on the downward trajectory thanks to our policies.
Davy on Fri, 12th Dec 2014 1:01 pm
No joe, sorry, majority of articals and comments on PO are definitely anti American. The articals that are American positive here are absurd US MSM propaganda that the man behind the curtains love showing on this site for ridicule and sarcasm. IMA rightly so but there are ZERO American positive articles on subjects of good actions and decisions.
On your super hero Russia they are in deep doo doo. Czar Putt is going for the long odds with a US dominated financial system decouple. His bric brothers are playing along if it is profitable but with little ideological interest.
We know from the dozens of articles on the alternative sites the west is dying but the cat piss smelling crowing about Russia and China is nothing but porn from the propaganda bitches. They are as bad as the den of thieves in the west. The difference is magnitude of impact. Bad is bad whether Large or small.
green_achers on Fri, 12th Dec 2014 2:42 pm
Well, he deserves some credit for spelling “unfazed” right, but that last line is one of the sleaziest things I have read anywhere.
J-Gav on Fri, 12th Dec 2014 3:46 pm
Green- Yes, trading one mafia for another is not necessarily a winning move. And I agree that “unfazed” is a minor victory -we’ll see how it works out for ‘reign in,’ ‘rain in,’ or the original “rein in” (person on a horse with reins).
J-Gav on Fri, 12th Dec 2014 4:09 pm
Davy – Easy man. We’ve all gotta watch out for that blood pressure. Maybe especially me! That’s probably why I do some Vipassana-based mindfulness meditation from time to time. No dogmatic religious commitment needed for that.
I don’t consider myself to be “anti-American,” though I, like yourself, have a number of questions to ask TPTB concerning accountability for past and present errors of judgment (and actions). There is no doubt that Russia and China both have their own problems, and big ones at that! I think we agree there.
My questioning of the present imperial stance of the West (led by the U.S. and followed by its ‘allies’ for now) is founded on a rather simple principle: Why not try cooperation instead of competition and testosterone-charged geopolitics since the future of the planet (as a place inhabitable for mammals) depends upon it?
Like you, I used to be prickly about U.S. bashing. Now I see it doesn’t matter. Bashing of any kind will get us nowhere. We need a new paradigm.
eugene on Fri, 12th Dec 2014 5:41 pm
I wonder why anyone not madly positive about American is “anti-American”. It’s an interesting state of affairs in my mine. Certain runs along the Hitler/Stalin line. No wonder our every email/phone call is monitored. People are too stupid to understand in any really “free” country opinions are not only accepted but encouraged. Like other countries, the US has a long list of nasty behaviors that, evidently, are forbidden subjects in our “democracy” which is really a republic. But people don’t even know that.
Makati1 on Fri, 12th Dec 2014 7:46 pm
eugene, at one time, (in my youth – 40s & 50s) Americans did know that and discussion in the news and press did show both sides of the topics. The number of Top Secrets were few and they were legit, not just covering some government asses.
But, that started to disappear with Vietnam and the end of the gold backed dollar. Now the US is a police state Hitler would be proud of and a military owned economy that Stalin would drool over.
I only hate what the US has become, not the nation itself. But, I also have no feeling for my fellow Americans who did nothing to stop it, because they were too greedy/lazy to get out in the street and protest like the Constitution provides for.
I do enjoy pointing out, to the flag wavers, some of the many negatives that the US is today. It is NOT number one in anything positive anymore. It is sliding down the list toward 3rd world status faster every day. Too bad. It had every advantage and blew it.
redpill on Fri, 12th Dec 2014 7:56 pm
Uh, Eugene, WTF are you going on about?
What are these “forbidden subjects” you speak of? Not being from this country, if you are, you’re diction is for shit, perhaps you missed the Torture Report that was released this week. It sure doesn’t paint the U.S. as having behaved well, but what do you know, we’re talking about it!
I feel genuinely sorry for the Russian people, they have such potential. But alas, shit leadership is their plague.
For the largest country that spans 11 time-zones, it seems odd that she has a lower population than Pakistan, Nigeria or Bangladesh.
redpill on Fri, 12th Dec 2014 8:03 pm
Yeah Mak, you just keep cashing those S.S. checks and spouting your BS.
You sure as shit enjoy pointing out the negatives, yet offer nothing constructive to be acted upon.
Perhaps you’re the one who “blew it”, asshole.
Makati1 on Sat, 13th Dec 2014 4:13 am
Hi Red! Leadership in Russia is now superior to any in the West. Russia has been cursed with too many resources and too much land that the West has coveted for centuries. Put the US in the same history of invasion, by plundering hordes from the East, and it would not even exist. Easy to point out the problems of others. Hard to see the same or worse in your own backyard. Even harder to accept them.
There is noting “constructive to be acted upon”, because there will be no action in the US until it is too late. The sheeple know more about the Kardashians than Putin, Xi, Russia or China, and they don’t give a damn. The US is a 3rd world police state in near lock down.
As for name calling, that only exhibits your lack of intelligence/maturity. It says you have no realistic rebuttal or facts to prove your side of the argument. I laugh at you or pity you, but do not respect you.
Davy on Sat, 13th Dec 2014 6:10 am
You are a hypocritical shmuk, Mak, you name call all the time. In fact you dragged my daughter into a comment with sleazy innuendo several months ago. Red was spot on in his comments. Mak, you smell of cat piss as usual. I am ill daily from you.
Your super hero Russia and its mafia czar are in deep doo doo. The mafia state may not survive this long shot gamble on American decouple. It may participate in BAU’s downfall. I see it following Chavez Venezuela policies of militarism and foreign adventurism bankrolled by its oil wealth. I have high admiration for Russia and its culture. Russia has made significant contributions to art, science, and culture. Yet, it also gave us communism. It was communist Russia that prevented the US from going isolationist post WWII. The US was ready to demobilize and get on with prosperity despite the MIC establishment. Russia ruined this with a Stalin bent on paranoid conquest of Eastern Europe and Asia.
I have admiration for Putin. He is the greatest leader out there today. Yet, he is taking a big gamble with his people and BAU. He is a blue eyed devil with mafia and a KGB orientations. You would never find brotherly love from Putin. He may succeed in initiating something alternative to what we have now but that is something BAU will not survive. This may turn out to be a good thing but that is for historians to sort out. BAU must end or the earth as we know it will die.
Balancing this Russian rock throwing is the US and China on the other hand. The US is a global meddler with a leadership rotten to the core. Corruption, manipulation, and disregard for the rule of law is profound in the US. The constitution has been trashed and the American people are cannon fodder for the unholy alliance of the politicians, industrialists, and lobbyist. It is the worst of the worst in degree of many of the ills of BAU. China is in the same boat but with less moral hypocrisy and world meddling. China is the leading earth killer though. That to me makes China the worst of the worst.
Both Russia and America have carrying capacity abilities post BAU. Asia is toast and will suffer famine and social chaos when its vast mega population centers disperse into its toxic countryside. That is what awaits you Makie Makster. America and Russia will manage with a much small population and plenty of room and resources. Russia does have a Chinese horde to contend with. The US has the problem of its own mega population centers. Both Russia and the US have carrying capacity abilities. Asia is doing all the wrong actions with consumption growth, population growth, and continued development. The west and Russia are in decline which paradoxically is the right orientation now that we are on the bumpy descent.
dissident on Sat, 13th Dec 2014 6:54 am
http://russia-insider.com/en/2014/12/13/1828
Haha. Chew on that you Russia haters. Your wishful thinking will not create reality.
Davy on Sat, 13th Dec 2014 7:16 am
Dissy, go give your buddy Makkie a wet kiss.
dissident on Sat, 13th Dec 2014 7:43 am
http://www.bloomberg.com/news/2014-12-11/ruble-consolation-gets-putin-record-oil-income-chart-of-the-day.html
Poor littly baby, Davy, nothing to say, spraying spittle.
Davy on Sat, 13th Dec 2014 8:23 am
I love when propaganda bitches respond to me. You know diss you would do more damage to ignore me but you couldn’t resist a poke and a lame one at that.
Your Russian propaganda is missing the side effects diss. This where you take on that cat piss smell. The report is a good one but employed poorly in an unbalanced way with a cat piss agenda. IMA notice how the report mentions the benefits to Putt and not the Russian people! Putt is screwing his people for his own hubris of greatness and riches no different than any other politician globally. He is a rapist and looter of the Russian people just like his other oillygarch buddies.
Apneaman on Sat, 13th Dec 2014 12:43 pm
Psychological projection is a theory in psychology in which humans defend themselves against unpleasant impulses by denying their existence in themselves, while attributing them to others. For example, a person who is rude may constantly accuse other people of being rude.
http://en.wikipedia.org/wiki/Psychological_projection
Northwest Resident on Sat, 13th Dec 2014 1:35 pm
Apneaman — From my perspective, we see a lot of that on this forum. The average human brain is not hardwired to deal effectively with pain or threat, and projecting onto others is an in-built method for those who can’t face reality to deflect pain and discomfort away from themselves. The problem is that even when those who resort to projection are confronted with their behavior, they resort to even more projection and other self-defense mechanisms, which gets ugly fast.
Davy on Sat, 13th Dec 2014 1:41 pm
App, how about this psychology “one asshole to another” Does that fit your projection?