Once Again, the Worst of All Possible Worlds for Russia
As it routinely does, the Moscow Kremlin has given the people of Russia the worst of all possible worlds last week.
First, Russia alienated the West by threatening to join OPEC, showing that Russia cannot be trusted as “reliable partner” of the West. Then, Russia stabbed OPEC in the back, refusing to go along with supply cuts and other membership constraints that would force Russia to act like a member of a team, placing the team’s interests above its own. The result was that OPEC’s supply cut fell utterly flat and the price of oil continued to plummet. Meanwhile, last Wednesday the value of the Russian ruble fell to an all-time low against the euro currency.
So now, once again, everyone hates Russia, which has betrayed itself as a paper tiger making vacuous threats that have no real significance.
As Yulia Latynina has pointed out in her Moscow Times column, which we republish below, the Kremlin can’t even identify its true rivals. Obsessed with America, Russia fails to realize that the true threat to its territory comes from China — a point we have been making here on this blog for years now.
If the people of Russia do not wise up soon and realize that their very worst enemies are in the Kremlin, their nation will go the way of Tsarist Russia and the USSR, into the ashcan of history.
Streetwise Professor reports:
Oil rallied [last] week (but still finished well below $50/bbl) primarily on reports that Russia would cooperate on output cuts with OPEC. Dmitri Medvedev has hinted that Russia might actually join the organization.
There are several reasons for skepticism. First, Russia has dramatically reduced its oil export duty, and is contemplating a further cut:
Russia cut oil export duties to $287 per tonne from November 1, from $372.2 in October, in response to calls by producers who feared making losses on overseas shipments. Russia’s senior energy official, Deputy Prime Minister Igor Sechin, had lobbied for an even lower November tariff of $195.20. RIA Novosti reported that Russia could reduce oil export duty to USD 117 per tonne to USD 119 per tonne from the current USD 192.1.
Mr Alexander Sakovich deputy head of the customs payments department at the ministry said the average price for Urals crude on world markets in the monitoring period from November 15 to December 9 inclusive was USD 44.5 per barrel. He said the price could continue to change until December 15 given high volatility on the market. Mr Sakovich said duty on light petroleum products could be cut to $91-$93 per ton against the current USD 141.8 and on heavy petroleum products to USD 49 per tonne to USD 50 per tonne from the current USD 76.4.
The Russian government decided to set export duties on oil and oil products on a monthly basis from December 1st and abandon the previously accepted bimonthly practice.
The most effective way for Russia to curtail oil exports (which is the only way it would have an impact on world prices) is to keep its export tax relatively high. Lowering the export tax encourages exports, and is contrary to statements that it will cut output. Sechin’s support for lower duties is especially important in this regard.
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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.
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