EDITORIAL: The Kremlin Panics

EDITORIAL

The Kremlin Panics

“We must defend ourselves, since this is our revenue base, both from oil and gas.”

— Russian “President” Dima Medvedev, December 11th

It’s hard to imagine a single act the Kremlin could take that would more conclusively demonstrate its total failure of economic policy, and its abject panic as a result, than to announce it is considering becoming a member of OPEC — which is exactly what the Kremlin did last week.  Medvedev sounded like the Nazi hordes were at the barricades and it was Moscow’s 11th hour. 

And maybe it was.

Openly admitting that Russia is fighting for its life, that its ability to sustain itself depends totally on the price of a commodity set by international markets, “President” Medvedev indicated he had no choice but to undercut Russian sovereignty still further by ceding the decision as to how much oil Russian can sell and when to the Arab petrostates.

By doing so, Russia would not only give up a massive amount of control over its own economic policy, it would burn its bridges with Europe and the United States, becoming a formal part of an organization which, subsequently, would be viewed no differently than the Warsaw Pact was during the cold war with the USSR.

And make no mistake:  There is no “solution” in OPEC membership for Russia, only a desperate bid to delay collapse.  Russia cannot afford to simply stop selling oil for long periods in order to bid up the price, as the OPEC nations can. Russia is not like them. It has a huge population that is desperately impoverished, and it is trying to wage cold war with the West through an arms race.

The RTS oil and gas index, down nearly 8% last Friday

The RTS oil and gas index, down nearly 8% last Friday

The Russian stock market seems to know this. Although the price of oil spiked up after Medvedevstarted talking about OPEC last Thursday, on Friday the stock markets took another massive hit, with both the MICEX and RTS exchanges down over 5% and the RTS oil and gas index down nearly 8%.  The markets were once again shut down to halt implosion.

And the Kremlin is getting desperate.  The ruble had its worst week in nearly a decade last week, and no amount of neo-Soviet propaganda can conceal that fact from the population.  Even its own officials are left with no choice but to admit that the economy has entered a massive recession, and Putin himself is clearly showing the strain.  Russian desperation and panic is also very clear from the Kremlin’s pathetic efforts to silence reporting on the crisis.

So perhaps the Kremlin is prepared to sell Russia to the Arabs. After all, the Kremlin has courting Islam for years now. It has been willing to provide nuclear technology to the radical Islamicists of Iran, weapons to Syria and cash to terrorist groups like Hamas and Hezbollah.  Maybe Russia is prepared, since its population is already becoming Muslim, to go all the way. Who knows, maybe “president” Putin is prepared to convert, if that’s what it takes to stay in power.

Tsarist Russia became Soviet Russia. Soviet Russia became KGB Russia.  Maybe KGB Russia will become minaret Russia?

But this begs the question:  Can Russia afford to cut back on oil sales in order to help manage the price?

The answer is simple: It’ can’t.  No matter how you look at it, OPEC is a path to destruction for Russia, another step on the nation’s inglorious slide into the dustbin of history.

8 responses to “EDITORIAL: The Kremlin Panics

  1. Can Russia aford to cut down it’s oil export , just to prop up the price of a barrel?

    I was asking myself the same questions and it seems like Kremlin thinks they can.

    I dont pass it by Kremlin to cheat and not cut oil export or try to cut as less as possible.

    I believe the U.S should respond to the threat of OPEC/Russia aligning themselves to spike up oil prices.

    We should everything to keep oil price under $55 a barrel..If we can do that , we could kill 3 bird with one stone…Russia , Iran and Venezuela.

  2. Russia/Soviet Union has never given much weight to living up to treaty obligations. So it will be with OPEC where cheating on quotas is endemic. Can we count on Russia being more ethical than Nigeria?

    Hardly.

  3. Why the Kremlin moves to OPEC ?
    This issue was raised in 1985 by former KGB head Col-General Vladimir Kryuchkov who was warning the POLITBURO that a collapse in oil prices will be followed by a collapse of the Soviet Union . He was urging the soviet leaders to move towards the OPEC in order to stabilize the prices . Instead of this , the soviet leaders choose the advice of the ” productivists ” who saw in a production surge the response : The Soviet Union began to invest billions in prospection , exploitation as prices were falling .
    This was not totally lost money : They discovered oil and gas fields in the Barents sea and the Yamal peninsula but they have no more money to buy the hardware and the technology to extract them . These are the ” arctic oil and gas fields ” which are exploited today .
    Today we can see two trends :
    – Output from the oil fields of the big Russian majors are declining : This is the first way Russia can reduce its production withoiut any coercition .
    – Independant producers which are more ” independant ” may have no financing from the federal governement and will go into bankrupcy : This is the case of an independant in the Yamal peninsula which collapsed last week !

    For those who ask themselves where the Russian govt had this idea to join the OPEC , one must remember that Kryuchkov before his death was a familiar insider of the ” first circle ” of V.Putin and met him several times on oil issues .
    http://zebrastationpolaire.over-blog.com/article-25796910.html
    Simple ! No ?

  4. If Russia were to join OPEC, they would be further distancing themselves from the US. OPEC is a cartel and cartels are illegal under US law because they restrict trade. A move into OPEC would also hurt Russia’s entry into the WTO.

  5. Russian leadership wants Russia to become another Saudi Arabia, but this is very stupid and short-sighted strategy. Middle Eastern oil has much better quality than Russian one and it’s easier to extract.

    Overall, continuing policy of being overdependent on oil exports instead of harnessing talents of Russian people to move away from oil dependency and concentrate most of the energy on making Russia an advanced technological coutry, like developing nanotechnological infrastructure.

    Actually Russia already started working on that, but apparently, building technological infrastructure is not the first priority for Putin-Medvedev regime. Oil and gas money are quicker to get so they clearly don’t think strategically.

  6. to Kolchak

    The last time the US sanctionned Russia it was the Russian monopoly on weapon exports .But as the man who saws the branch on which he seats , Russia had just given the export license for its APS ( Active Protection System ) ” ARENA ” to the Us militaro-industrial cluster . So Us soldiers must now fight in Iraq and in A-stan without this technology for their armor !

    As far as i read the consequences of Reagan embargo for the ” Druzjba ” , it was Caterpillar , Westhinghouse ,.General Electric ………which lost billions of dollars !

  7. to Kolchak

    The last time the US sanctionned Russia it was the Russian monopoly on weapon exports .But as the man who saws the branch on which he seats , Russia had just given the export license for its APS ( Active Protection System ) ” ARENA ” to the Us militaro-industrial cluster . So Us soldiers must now fight in Iraq and in A-stan without this technology for their armor !

    As far as i read the consequences of Reagan embargo for the ” Druzjba ” , it was Caterpillar , Westhinghouse ,.General Electric ………which lost billions of dollars !

  8. their lack of long term view, while short terming, will and has sentenced them to a bad situation. lets hope that the bad sitation isnt attempted to be repaired by an even worse one like last century.

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