Monday, February 20, 2012

Russian Mischief at Focus of Current Global Price Runup

Clearly, given their growing capability to produce and deliver oil wherever the market dictates, and the tie between the price of oil and price of gas in Russian supply contracts, it is in the clear interest of the Russians to push up the price of Brent crude. Therefore, could it be that the tumult around deliveries of Iranian oil is merely a smokescreen to escalate prices, and that some thing far more nefarious is taking place? _Learsy_HuffPost
Russia is having problems with its own ineptitude and corruption. It is also troubled by the threat of the coming global shale oil & gas boom. Other competitive pressures likely to arise in the near future include massive supplies of unconventional liquid fuels from GTL, CTL, BTL, bitumens, kerogens -- all eventually facilitated by high quality nuclear process heat.

It is clear that Russia had to take matters into its own hands in order to drive up oil prices -- one way or another.
As the NYTimes reported, "The Russian oil industry was already reaping the rewards of higher oil prices from Iranian tensions." The Russians have been cashing in brilliantly while rendering support to Iran by such acts as vetoing or emasculating any and all meaningful U.N. resolutions that would force Iran to comply with the terms of the U.N.'s International Atomic Energy Agency mandates. It is an open question whether this is being done in solidarity with Iran, or more malignly, to solidify Iranian intransigence on matters nuclear, in the hope that the European and other world consumers' boycott of Iranian oil has maximum impact, making Russian oil more sale-able at ever higher prices. _Learsy
Meanwhile, Russia is seeking the help of the international oil companies to upgrade its oil production and refining procedures and operations. Given how Russia has behaved toward international oilcos in the past after having received help and technology transfer, it is difficult to see how this turns out well for either western oil companies or western countries in general.

At the same time that Russia is ramping up international tensions over Iran in order to pull in greater oil profits, it is also looking for the world's sympathy by claiming that Russian oil fields are declining rapidly, to the point that Russia's oil production "has peaked" and in danger of rapid decline.

Yes, certainly we should all feel sorry for Russia, the nation that is enabling nuclear proliferation in Iran and driving the world to the brink of war -- all for oil profits that will go into the Swiss bank accounts of Russian oligarchs, insiders, and quasi-dictators. The nation that lets its oil fields go to crap out of neglct, asks western corporations for help, then abruptly nationalise any resources, technologies, and assets which the outsiders unwittingly leave within the kleptocratic reaches of the Russian government.

Russia's energy reserves remain vast, deep, and wide -- and largely unexplored and undiscovered. In the hands of competent organisations, Russia's hydrocarbon production would not peak for several more decades. But pay no attention to reality -- heed only what you are told by your masters.

Raymond J. Learsy thinks that Russia is manipulating global oil markets to the detriment of all of Europe:
So here we have Russia, a major supplier of oil and gas with an economy deeply dependent on the revenues received from the sale of those commodities. According to the NYTimes article, "And the taxes the Russian government has received from those sales have been a political windfall for Prime Minister Vladimir V. Putin as he campaigns to return as Russia's president. The extra money has helped further subsidize domestic energy consumption, tamping down inflation." Combine this with a Russia that is in large measure governed by that unique version of our Wall Street "ole boys network," the alumni of Russia's highly touted secret service, the KGB. The KGB helped form Putin and many of his associates in government. Here was an organization that was the nonpareil masters of clandestine intrigue, knows how to keep secrets, and now in a sense, is running the country albeit with the trappings of democratic governance.

Fast forward-only this week, "a group of brokers and traders successfully managed to manipulate an interest rate that affects loans around the world" (Please see "Traders Manipulated Key Rate, Bank Says," Wall Street Journal). If this could happen to interest rates, so widely traded throughout the world, just think what a KGB oriented Russia could do, and not with $6,500 at their disposal, but billions upon billions. It should not be a stunning surprise to those, be they government agencies, the press, or energy focused think tanks, that the traded price of Brent crude is being gamed. _Learsy
That would be an interesting "one-two!" play by the Russians, if we believe that they are so clever and manipulative. First ramp up international tensions over Iran, then behind-the-scenes, use a bit of leverage to shift global markets to their advantage.

We know the Russian government needs every bit of hard currency it can get, to keep its people happy, and to keep powerful insiders well compensated. But the price being paid by the Iranian people is severe, and has no apparent end-point.

Needless to say, the strategy is not guaranteed to work to the satisfaction of top Russian players, indefinitely. A lot of things could go wrong....

Meanwhile, behind the scenes in Russia, a demographic, infrastructural, and public health disaster continues to play itself out, below the happy Potemkin facade. Putin has a grand strategy, but it is built on a foundation that is slowly crumbling.

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Blogger bruce said...

When the big O gets his briefings I wonder how totally lost he feels.

5:00 PM  
Blogger al fin said...

In the case of Obama, the word "briefings" may not mean what you think it means.

6:06 AM  

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