god hates mini-hitlers: tanking oil price a catastrophe for the putin regime

Reaganite Republican ^ | 15 October 2014 | Reaganite Republican

[Reaganite Republican]

With oil barely holding on to the $80s, the Kremlin's current leadership faces the same problem they did in the (19)80s: budget revenue half-derived from oil exports, and their backwards, inefficient economy still doesn't produce anything that anybody outside of Mother Russia is willing to spend money on- except perhaps mediocre vodka...

And when the self-deluded Russians start babbling about 'greatness' while bullying poor, semi-defenseless countries on the borders of their shabby empire, they tend to get a little caught-up in things... and put the pedal-to-the-medal until they are defeated -i.e. Afghanistan- or simply go-broke, i.e. 1991.

Yes, compared to America and her massive debt, the Kremlin's coffers appear absolutely flush- foreign reserves of $450 billion
(and that's actually a 4-year low) make us look like the spendthrift fools we are.

BUT that can all disappear in a big hurry, especially if you're trying to prop-up a sliding currency, or keep the masses opiated with a domestic-spending budget that's substantially funded by oil revenues. Consider that the Kremlin is already running a 10.3% budget deficit, and that $105/bbl is what it would take to balance the budget this year- alas, back in reality, a barrel of light, sweet crude barely brings $81 today.

When oil prices dropped precipitously in 2009, Russia's GDP lost 8% at the drop of a hat. (every dollar shaved off the price of a barrel of crude oil costs them more than $2B annually). This likely would have already been disastrous for the Putin regime five years ago, but oil prices rose again the following year 2010, propping-up the government with annual growth rates of 3-4%...
enough to keep most Russians away from the protest movement, anyway.

Note that a populace deprived of consumer goods in the 1980s
-to fund Cold War military spending in an attempt to keep up with Reagan- was the final morale-breaker among the Soviet populace, leading to a reformer and subsequent collapse of the system.

But rather than crappy, plastic consumer goods produced in the USSR, today's Russian elite -the ones who keep Putin in power- depend on imported cars, food, fashion, and booze to keep-up-with-the-Jonesoviches. Alas, a weak Russian currency, brought on by foolhardy military adventure, US/EU sanctions, and now a collapsing oil price make all those things cost much, much more in now-also-collapsing Rubles.

Sanctions over Crimea/Ukraine have also bit hard, and Russia may also soon be forced to further tap its hard currency reserves to bail out companies prevented from borrowing money on international markets
(by Western sanctions).

Another parallel with '91 might be the intellectual bankruptcy of the current regime- Reagan had made it painfully clear that the creaking Soviet system could never truly compete with the United States economically, militarily, or particularly in technology/innovation... and that Bolshevism offered nothing for the future. So what the hell does Putin stand for, besides pompous arrogance, aggression, and greed?

At very least, the expensive military modernization/expansion -backbone of Kremlin pride and power under Putin- is likely already finished. But outside of re-establishing a rump USSR in some form of alliance/customs union...
who needs Vladimir Putin around?

Anyone taking any bets where the Russian president's towering 86% approval rating will stand a year from now (if still alive and in power)?

[thackney]

The tax would create a “floor” price, say $90 per barrel.

Please, no addition Governmental manipulations of the market.

They only real way for government to help industry is quit trying to manipulate it.

No new taxes, no new regulations. Thinking the government is going to help US industry with additional taxes is crazy.

They would distort the market and make it cheaper to import gasoline than crude oil.

[TexasGunLover]

It is not a disaster when oil prices go down, except for the oil industry. Even at $80/bbl, pumping oil is profitable.

You are incorrect. I can assure you, we're preparing to shut ours down.

[TexasGunLover]

I really like the idea of US energy independence.

That's a very short sighted approach. I would rather trade my enemies relatively small amounts of money (oil is cheap) for a finite resource while leaving my own in tact. If you'd rather trade all your water to your enemy for money, go right ahead, but finite resources aren't something to use when you can simply purchase someone else's, especially when they're not a friend.

[pfony1]

I agree with you to a point.

The Saudis have the ability to bankrupt their competition (our oil producers) in the short run with predatory pricies — which will enable them to MAXIMIZE their profits in the long run.

So the market is already distorted.

My “solution” may not be the best answer — but it would take a harmful weapon out of the Saudis’ hands.

I agree that “our” clowns in Washington could not be trusted to handle such a program with any competence.

[JoeFromSidney]

There is still a market for Russian arms, caviar and minks. Real proletariat stuff.

To a large extent it is the proletariat that's buying AK-47s and ammo. My friends who own them are not exactly among the rich.

[thackney]

We still import ~7.5 MMBPD of Crude Oil. We actually import more than we need, refine into products and sell that surplus at for a trade improvement.

But when crude oil is refined, it doesn’t produce a perfect match for our consumption of all the different products that come out the refinery. We are still a net gasoline importer, while we are a diesel exporter. We also export a decent amount of the refinery “leftovers”, petroleum coke and residual oil, stuff that isn’t made into transportation fuel.

We still need more gasoline than we make ourselves, mostly imported as blending products to make the specific “recipes” required in different locations.

Making the US uneconomic with $15 import tax, as to all other countries with refining capacity, would close refineries before the US oil production would ever catch up.

I don’t believe Saudis have quite the surplus capacity you imagine, enough to bankrupt their competition. They could drive the price down to a lower level for a while, but then have no surplus capacity to handle disruptions like the next warring faction in Middle East. For example, it has taken Libya quite a while to get back up to speed. Saudi have been the only country willing to hold back production for such contingencies. Without that surplus capacity, we would see price spikes with any significant disruption that would make 2008 seem mild.

More government taxes, even on just imports, would result in us shutting down refineries, and importing more expensive products.

[pfony1]

I’m sorry I was not more clear.

The idea is to have a tax that varies to keep the price of imported oil at (for example) $90 per barrel. Therefore, if the Saudis sold a barrel to the US at $80, the tax would be $10. If Venezuela sold a barrel to the US for $70, the tax would be $20. Since $90 per barrel is less than the current market price, all current market participants “should” be protected.

I believe you know more about all the different oil markets than I do.

So maybe my thought that “Where there’s a will, there’s a way” is naive...

[SeaHawkFan]

No one is entitled to a specific price or profit.

[thackney]

I am certain, more government tax, more problems and destruction of US jobs.

And the more complicated the tax, the more problems for us.

Government is never a means of an economic solution.