Putin’s Extreme Attempts to Raise Global Oil Prices are Unsuccessful So Far

When a government depends upon oil & gas profits to fund its budget, the prices of oil & gas can determine whether the government prospers, or falls. Russia’s government finds itself in a bind, committed to ambitious and extravagant budgets — while the price of oil continues to fall.

Putin’s illegal annexation of Crimea, and his instigation and support of the bloody “insurgency” in eastern Ukraine, were meant to make oil markets nervous. Oil prices were supposed to have gone up well above $130 bbl by now. The Putin-engineered Ukrainian farce — combined with unease in Libya, Syria, Egypt, Iraq and elsewhere — was meant to give Putin and his cronies a budgetary cushion to sit on.

But instead of rising, oil prices have fallen — so far.

Oil prices continued to slide as the markets opened a new week in Asia. Crude oil fell 49 cents to trade at $94.83 and Brent Sea Oil gave up 40 cents to reach $102.88. Prices have continued to decline as geopolitical tensions around the globe remain at high alert. __Oil Prices Just Can’t Stop Falling

At this point, everyone is waiting to see what other shoes Mr. Putin may choose to drop, in support of his desperate quest for higher oil & gas prices. To this point, Putin has managed to put Russia under potentially damaging sanctions, without achieving the needed oil price hikes.

Both the EU and the U.S. have now sanctioned Russia’s highest officials and leading companies and banks. The EU list includes all of the main state-owned banks (the country’s largest). Most important, the EU added Sberbank, a cornerstone of Russia’s financial system, with assets totaling almost 30 percent of Russian GDP and about half of Russian retail deposits.

… Russia’s financial system is highly vulnerable. The banking sector’s total external debt is $214 billion, of which $107 billion is due within a year (and $129 billion within two years). Non-financial firms’ external debt totals $432 billion, with $128 billion due within a year (and $175 billion within two years). These are large numbers even for Russia, with its currency reserves of $480 billion.

… Today, though oil prices remain high, Russia’s budget and financial system face severe problems over the next two to three years. If the West introduces full-blown sanctions against the largest Russian banks — as the U.S. has already done against relatively small banks — those problems may become insurmountable. __MoscowTimes

Putin has achieved magnificent wealth for himself and his corrupt crony oligarchs. But Russia itself is living an unsustainable existence on many levels.

Europe will eventually escape its thrall to the great green fraud, and will have to face its dependency on Russian energy. Without its European customers, Russia will be unable to manage its many overseas obligations and needs for foreign technology.

Europe made itself hostage to Putin as it became more and more dependent on Russian energy – with the consequences for foreign policy that we see today. Putin can more or less turn off the lights, and the European powers have gravely neglected their defenses; witness the failure to stand up for Kiev despite the Russian menaces on its border and its reckless arming of the separatists. __USN

Without its oil & gas income, Russia has nothing. But Russia’s ageing Soviet-era oil & pipeline infrastructures are badly in need of upgrades and replacement. Without help from western oil services companies, Russia’s oil & gas production will fall — and with it will fall Putin’s political clout with foreign nations.

Russia’s entire economy is smaller than the economy of California, in GDP terms. At the same time, Russia’s land area is larger than that of any other single nation. Russia lacks the manpower and the expertise to develop and effectively occupy its own land.

Mighty and prosperous China sits on Russia’s doorstep, staring at the wealth and expanse of Siberia with an envious and devious eye. If Russia alienates every other nation except China, who will stop China from seizing the wealth and lebensraum of its northern neighbor?

Putin needs friends. He needs many powerful friends just to protect him from his “friends.” But Putin never learned to make friends — only cronies — so he must start wars and promote instability abroad, instead.

Putin has not given up on his quest to push oil prices above $130 bbl. But he may need to go back to the drawing board to devise a better plan. His current plan does not seem to be working — at least so far.

More:

Dropping Oil Prices Threaten Russia’s Fiscal Foundation

Offshore oil find off Australia

North America’s shale revolution

Global demand for oil is soft

Oil supply glut makes Russia vulnerable

Russia Trapped in 1991 A generous view of the Putin limbo that Russia finds itself in

Frack and Re-Frack Were Sitting on a Fence. Frack Fell Off and Who Was Left?

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