December 15, 2024
The Weapon of Oil
Timothy Birdnow
Proof that I missed my calling.
This article from the eggheads at the National Interest argues for more engagement by the U.S. in central Asia and makes the following point:
Who says? The fact is oil is bought and sold on futures and just setting the wheels in motion leads to an immediate drop in prices. We've seen this repeatedly over the years; whenever a person friendly to drilling is elected almost immediately prices drop. That is because investers are now confident in a return and will buy oil futures, thus funding the oil companies. We saw this scenario play out both times with Trump, and also when Geoerge W. Bush was elected. You don't have to wait until you actually draw the oil from the ground and refine it; the prices begin dropping almost immediately in anticipation.
I've been arguing all along that getting oil and gas prices down would end the Ukraine war as surely as it ended the Russian invasion of Georgia.
Russia's oil and gas industry accounts for roughtly 18% of her entire GDP per quarter (it was down to 16.7% last April to June, down a bit, no doubt because of the war). That's nearly a fifth of their total GDP. Since oil is a commodity it has fluctuations, and Russia is subject to the same kinds of boom-and-bust cycles we've seen in many commodity-based economies. Texas used to suffer from that cycle of boom-and-bust as oil prices fluctuated too. But with Russia it's the main backbone of their economy.
According to Oilprice.com Russia lost 21% of her revenue when prices dropped this year. And that was just a fairly minor price drop compared to what the Trump folks are pushing to achieve.
From the article by Charles Kennedy:
Imagine how Russia will fare if we really squeeze them!
Now Russia is able to sell it's oil and gas despite the embargo by simply selling to other countries who then sell to everyone following the boycott. Easy peasy.
Russia is a third world country with first world military hardware. It was that alone that strangled the old Soviet Union; they couldn't provide for the needs of the people, and Reagan understood that and squeezed them out of existence using economic warfare (and our military spending was the tool he used to force them into bankruptcy). Oil saved Russia. But oil, like God, giveth and oil taketh away. A commodities-based economy is a developing nation economy and is subject to the vagaries of market forces beyond that nation's control.
Putin was flush with cash thanks to Biden's war on energy, and he had the security of knowing Joe Biden would not take any sort of decisive action (he'd seen that with the humiliating withdrawal from Afghanistan). Now a new sheriff is in town, and Putin either settles this thing or winds up losing as he runs out of money.
BTW it was the American efforts to build pipelines from central Asia to the West that bypassed Russian/Iranian territory that precipitated both of these invasions. The first thing Russia did in the Georgian war was attack the BKC pipeline. Georgia was going to be the prime corridor for oil and gas outside of Russian control. The same largely held true of Ukraine which controlled Russian access to the rest of Europe. In both cases American economic pressures forced Putin's hand. Oh, he didn't require much pressure; he wants to rebuild the old Tsarist impirium, but he had a ready-made excuse both times, fighting "American imperialism". All you have to do to win over the average Russian is play to their rather justifiable paranoia. The U.S. has been systematically encircling Russia for two decades now and deploying ABM systems in an iron ring around them. It was very easy to convince any Russia of the foul intentions of the United States, and of our proxies in Ukraine and Georgia.
Anyway, the author of this piece argues for greater investment and involvement in these corrupt central Asian countries, a dubious idea. Russia and China are much closer and dominate this region economically and one wonders about U.S. investment in the area. How much will be money down a rathole? In the end these countries saw what happened to Georgia and Ukraine and have no reason to move towards America, which is at best a fair-weather friend.
Anyway, I say I missed my calling because the author of this piece, while obviously knowledgeable about the region, seems to miss the point on occasion here. I still wonder how it is I wound up working in low-level jobs like bread truck driver or real estate property manager. Success is, to me, a huge mystery.
That's why I bloviate here at The Aviary I guess.
Proof that I missed my calling.
This article from the eggheads at the National Interest argues for more engagement by the U.S. in central Asia and makes the following point:
"Just before he was named as President-elect Donald Trump’s national security advisor, Representative Mike Waltz (R-FL) called for enforcing the sanctions on Russia to end Moscow’s war against Ukraine. He believes flooding the global market with American oil and gas will bring global energy prices down and weaken Moscow’s war machine.
While such a strategy will take a year or two to bring about the desired result, the Trump administration can take immediate measures to undercut Moscow’s ability to circumvent existing trade sanctions, especially in strategic regions such as Central Asia."
While such a strategy will take a year or two to bring about the desired result, the Trump administration can take immediate measures to undercut Moscow’s ability to circumvent existing trade sanctions, especially in strategic regions such as Central Asia."
Who says? The fact is oil is bought and sold on futures and just setting the wheels in motion leads to an immediate drop in prices. We've seen this repeatedly over the years; whenever a person friendly to drilling is elected almost immediately prices drop. That is because investers are now confident in a return and will buy oil futures, thus funding the oil companies. We saw this scenario play out both times with Trump, and also when Geoerge W. Bush was elected. You don't have to wait until you actually draw the oil from the ground and refine it; the prices begin dropping almost immediately in anticipation.
I've been arguing all along that getting oil and gas prices down would end the Ukraine war as surely as it ended the Russian invasion of Georgia.
Russia's oil and gas industry accounts for roughtly 18% of her entire GDP per quarter (it was down to 16.7% last April to June, down a bit, no doubt because of the war). That's nearly a fifth of their total GDP. Since oil is a commodity it has fluctuations, and Russia is subject to the same kinds of boom-and-bust cycles we've seen in many commodity-based economies. Texas used to suffer from that cycle of boom-and-bust as oil prices fluctuated too. But with Russia it's the main backbone of their economy.
According to Oilprice.com Russia lost 21% of her revenue when prices dropped this year. And that was just a fairly minor price drop compared to what the Trump folks are pushing to achieve.
From the article by Charles Kennedy:
"In November, for a second month in a row, Russia’s oil revenues slumped from the comparable month in 2023, according to Bloomberg’s estimates based on official government data released on Wednesday.
Russia has based its tax levies and calculations for November on an average price of the Urals grade of $64.72 per barrel, which was significantly down from the $81.69 per barrel used to calculate taxes a year ago.
As a result, the Kremlin pocketed last month $5.8 billion (605.2 billion Russian rubles) from oil-related taxes, down by 21% compared to November 2023.
Russia’s total oil and gas revenues also fell last month, by almost 17% on the year to $7.7 billion (801.7 billion rubles), according to Bloomberg’s calculations based on data from the Russian finance ministry.
October also saw a slump in Russian revenues. Lower oil prices and subsidies for domestic refiners resulted in a 29% annual plunge in Russia’s oil revenues in October.
The revenues from oil for the state were also impacted by the government subsidy paid to local refiners. Crude processing companies received in October the so-called damper payments, a form of subsidy to producers to encourage them to sell their refined petroleum products in Russia instead of exporting these for a higher price. Last year in October, Russia didn’t pay such incentives to its refiners.
Russia has based its tax levies and calculations for November on an average price of the Urals grade of $64.72 per barrel, which was significantly down from the $81.69 per barrel used to calculate taxes a year ago.
As a result, the Kremlin pocketed last month $5.8 billion (605.2 billion Russian rubles) from oil-related taxes, down by 21% compared to November 2023.
Russia’s total oil and gas revenues also fell last month, by almost 17% on the year to $7.7 billion (801.7 billion rubles), according to Bloomberg’s calculations based on data from the Russian finance ministry.
October also saw a slump in Russian revenues. Lower oil prices and subsidies for domestic refiners resulted in a 29% annual plunge in Russia’s oil revenues in October.
The revenues from oil for the state were also impacted by the government subsidy paid to local refiners. Crude processing companies received in October the so-called damper payments, a form of subsidy to producers to encourage them to sell their refined petroleum products in Russia instead of exporting these for a higher price. Last year in October, Russia didn’t pay such incentives to its refiners.
Imagine how Russia will fare if we really squeeze them!
Now Russia is able to sell it's oil and gas despite the embargo by simply selling to other countries who then sell to everyone following the boycott. Easy peasy.
Russia is a third world country with first world military hardware. It was that alone that strangled the old Soviet Union; they couldn't provide for the needs of the people, and Reagan understood that and squeezed them out of existence using economic warfare (and our military spending was the tool he used to force them into bankruptcy). Oil saved Russia. But oil, like God, giveth and oil taketh away. A commodities-based economy is a developing nation economy and is subject to the vagaries of market forces beyond that nation's control.
Putin was flush with cash thanks to Biden's war on energy, and he had the security of knowing Joe Biden would not take any sort of decisive action (he'd seen that with the humiliating withdrawal from Afghanistan). Now a new sheriff is in town, and Putin either settles this thing or winds up losing as he runs out of money.
BTW it was the American efforts to build pipelines from central Asia to the West that bypassed Russian/Iranian territory that precipitated both of these invasions. The first thing Russia did in the Georgian war was attack the BKC pipeline. Georgia was going to be the prime corridor for oil and gas outside of Russian control. The same largely held true of Ukraine which controlled Russian access to the rest of Europe. In both cases American economic pressures forced Putin's hand. Oh, he didn't require much pressure; he wants to rebuild the old Tsarist impirium, but he had a ready-made excuse both times, fighting "American imperialism". All you have to do to win over the average Russian is play to their rather justifiable paranoia. The U.S. has been systematically encircling Russia for two decades now and deploying ABM systems in an iron ring around them. It was very easy to convince any Russia of the foul intentions of the United States, and of our proxies in Ukraine and Georgia.
Anyway, the author of this piece argues for greater investment and involvement in these corrupt central Asian countries, a dubious idea. Russia and China are much closer and dominate this region economically and one wonders about U.S. investment in the area. How much will be money down a rathole? In the end these countries saw what happened to Georgia and Ukraine and have no reason to move towards America, which is at best a fair-weather friend.
Anyway, I say I missed my calling because the author of this piece, while obviously knowledgeable about the region, seems to miss the point on occasion here. I still wonder how it is I wound up working in low-level jobs like bread truck driver or real estate property manager. Success is, to me, a huge mystery.
That's why I bloviate here at The Aviary I guess.
Posted by: Timothy Birdnow at
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