Is Russia Plotting To Bring Down OPEC?

Tyler Durden's picture

Submitted by Dalan McEndree of OilPrice

Is Russia Plotting To Bring Down OPEC?

President Putin’s recent moves in the Middle East—to shore up Bashar al-Assad’s regime in Syria through deployment of combat aircraft, equipment, and manpower and build-out of air-, naval-, and ground-force bases, and the agreement in the last week with Iran, Iraq, and Syria on intelligence and security cooperation—could contribute to Russian efforts to combat the myriad negative pressures on Russia’s vital energy industry.

Live by Energy…

Energy is the foundation of Russia, its economy, its government, and its political system. Putin has highlighted on various occasions the contribution Russia’s mineral wealth, in particular oil and natural gas, must make for Russia to be able to sustain economic growth, promote industrial development, catch up with the developed economies, and modernize Russia’s military and military industry.

Even a casual glance at the IMF’s World Economic Outlook statistics for Russia shows the tight correlation since 1992 between GDP growth on the one hand and oil and gas output, exports, and prices on the other (economic series available here). According to the IMF’s 2015 Article Iv Consultation-Press Release and Staff Report, published August 3, oil and natural gas exports comprised 65 percent of exports, 52 percent of the Federal government budget, and 14.5 percent of GDP in 2014. Including their domestic contribution, hydrocarbons represent ~30 percent of GDP.

While oil and natural gas are crucial to Russia, Russia’s crude and natural gas are crucial to its neighbors on the Eurasian landmass. Russia supplied about 30 percent (146.6 bcm) of Europe’s natural gas in 2014, and about 25 percent of its crude (3.5 mmbbl/day) in 2013. Russia’s oil and natural gas are also important to its Asian and Central Asian neighbors.

It is not only the commodities that make Russia crucial, but its massive land-based infrastructure for their distribution throughout the Eurasian landmass. As Tatiana Mitrova, head of the oil and gas department, Energy Research Institute, Russian Academy of Sciences, pointed out regarding natural gas in The Geopolitics of Russian Natural Gas:

“Russia has a unique transcontinental infrastructure in the heart of Eurasia (150,000 km of trunk pipelines), which also makes it a backbone of the evolving, huge Eurasian gas market (which could include Europe, North Africa, the Commonwealth of Independent States (CIS), Caspian Sea region, and Northeast Asia). Control over the transportation assets in this region together with vast gas reserves make Russia the key element of this new market.”

The land-based oil distribution network is smaller, but also important. The 4,000 km Druzhba pipeline delivers about 1 mmbbl/day of crude to Europe—about 30 percent of total shipments to Europe. In the Far East, Rosneft shipped 22.6 million tons of crude to China in 2014 through the East Siberian Pacific Ocean (ESPO) pipeline.

The Russian government continues to seek to extend and expand the natural gas distribution infrastructure—into Europe, with various proposed pipeline projects (Nord Stream 2, Turkish Stream 2, 3, and 4, South European Pipeline), and into China, with two large pipeline projects, Power of Siberia Pipeline (to supply China from East Siberia), and the proposed Altai pipeline (to supply China from West Siberia).

…Death by Energy

In the last few years, the threats to Russia’s energy industry have multiplied and intensified. They pose an existential threat to the industry and therefore to the Russian economy:

- The revenues Russia can earn from its crude and natural gas exports face intense pressure. The Saudi decision to let the market set prices and to pursue market share, has led to steep declines in crude and petroleum product prices. The decision also has impacted natural gas export prices negatively, since, for Russia’s long-term supply agreements, they wholly or partially are indexed to oil prices. The transition in Europe to hybrid natural gas pricing models (which take European spot hub prices into account) also has pressured natural gas pricing. (Natural gas data from Gazprom).

(Click to enlarge)

Adding to the revenue pain, natural gas export volumes have been falling, according to Gazprom (which has a monopoly on pipeline exports), as have domestic volumes within Russia:

(Click to enlarge)

It is therefore not surprising that the aforementioned IMF Article Iv Consultation-Press Release and Staff Report projected sharp declines in 2015 and 2016 from 2014 levels for oil export revenues ($109.8 billion and $96 billion respectively) and natural gas export revenues ($12 billion and $14.3 billion respectively).

(Click to enlarge)

Since these IMF projections are based on $60.1 and $65.8 per barrel prices in 2015 and 2016, oil export revenues will undershoot these pessimistic IMF projections, as crude prices are projected to stay below $60 through 2016 (EIA estimates for Brent are $54.07 and 58.57 in 2015 and 2016 respectively).

- The U.S. and European Union’s decisions to impose—and maintain—sanctions on Russia after its invasion and annexation of Crimea and invasion and informal annexation eastern Ukraine will pile more pressure on the Russian energy industry. They include bans on financing for and the supply of critical equipment and technology to important Russian energy projects. Novatek and its partners Total and Chinese National Petroleum Company still lack $15 billion of the $27 billion needed to finance the Yamal LNG plant. Denis Khramov, Russia’s deputy Minister of Natural Resources, said September 28 at a conference in Russia’s Far East that Rosneft and Gazprom are delaying some offshore drilling by two to three years because of sanctions and low oil prices. The sanctions are also impeding Gazprom’s ability to develop the Chayandinskoye and Kovyktinskoye fields in eastern Siberia, from which it plans to supply natural gas to China under the bilateral $400 billion, thirty year deal signed in 2014.

- Following the Russian invasion of Crimea and eastern Ukraine, The European Union is now even more determined to reduce its dependence on Russia for natural gas and to force Gazprom submit to EU competition rules. Europe has sought and continues to seek alternatives Russian natural gas (among them, U.S. LNG and Iranian pipeline and/or LNG). The European Commission, the European Union’s executive body, has refused to bless Gazprom’s proposed 55 bcm/year Nord Stream 2 natural gas pipeline project, citing existing surplus Gazprom pipeline capacity into Europe and insufficient future demand for Russian natural gas. Also, the EU Commission in April charged Gazprom with violating the EU’s anti-trust laws for anti-competitive practices and unfair pricing in Central and Eastern Europe. If found guilty, Gazprom could face substantial fines of around $1 billion. Even if Gazprom avoids fines and manages to reach a settlement with the EU, as it hopes to do, its European market share and pricing will remain under pressure into the future.

- The emergence of the U.S., along with Canada, as powerful crude, NGL, and natural gas producers is also a major concern for the Russian economy. This has transformed the U.S. from a market for Russian crude and natural gas (via LNG) to a global competitor. If, as seems increasingly likely, the ban on crude exports is lifted, U.S. crude will compete with Russian crude in several key markets. It would also force foreign suppliers to seek other markets for all or part of the exports they previously sent to the U.S. This in turn would intensify competition among these crude exporting countries for share in those markets. In regard to natural gas, its explosive output growth in the U.S. undercut Gazprom’s rationale for its Baltic LNG project (10 mtpa), turned the U.S. into a major (potential) LNG competitor in global LNG import markets, and, via the U.S. toll- and Henry Hub- pricing model, weakened Gazprom’s ability to insist on oil-indexed, long-term contracts.

Saving Russian Energy (and Russia) through the Middle East?

Putin’s moves in the Middle East could help Russia address the impact of these threats to the Russian energy industry. They potentially enhance the attractiveness of Russian crude and natural gas supplies compared to those from Saudi Arabia and its Gulf Arab allies.

In the selection of crude and natural gas suppliers, security is a key consideration for importers. Wary of U.S. naval power, the Chinese, for example, prefer pipeline natural gas supplies over seaborne LNG supplies. Importers therefore must take into consideration the potential threats to transport. In this critical area, Russia enjoys a decided advantage over Saudi Arabia and the Gulf Arab producers, which depend on sea transport through the Persian Gulf and the Red Sea to ship their oil and LNG.

Each of the three routes from these two bodies of water passes through a “choke point” (from the Red Sea, through the Suez Canal to Europe and through the Mandeb Strait to Asia, from the Persian Gulf through the Strait of Hormuz). By adding an airbase to their military presence in Syria, the Russians—coordinating with Iran, Syrian President Assad, and eventually possibly Iraq—would have the capability to disrupt shipments from Persian Gulf and Red Sea terminals.

Russia’s export channels are less susceptible to disruption. With the exception of LNG exports to Asia from Sakhalin, Russia sends natural gas to its customers via pipeline. About 70 percent of Russia’s seaborne oil exports are susceptible to choke points (shipments from two ports on the Gulf of Finland through the Baltic Sea to the Atlantic and one port on the Black Sea through the Turkish Strait/Bosporus to the Mediterranean), while 30 percent are not (pipeline shipments to Europe and ESPO pipeline shipments to the port of Primorsk near Vladivostok).

Putin’s moves also are strengthening Russia’s influence with OPEC. Russia already has extensive and close ties with Iran and Venezuela, and is now laying the basis for such ties with Iraq. Putin has aligned Russia with OPEC’s have nots–the members lacking financial resources to withstand low crude prices for an extended period and that have objected to Saudi policies (Iran, Iraq, Angola, Nigeria, Libya, Algeria, Ecuador, and Venezuela)—against the haves (Saudi Arabia, Kuwait, the UAE, and Qatar). He has continually supported Venezuelan President Maduro’s calls for an emergency OPEC meeting on prices and his efforts to persuade Saudi Arabia to reverse its policy. Most recently, in the beginning of September, Putin told Maduro that the two countries “must team up to shore up oil prices”.

In addition, Russia’s deputy prime minister in charge of energy policy, Arkady Dvorkovich, in the beginning of September made comments that, in tone and substance, mocked Saudi policy, saying that “OPEC producers are suffering the ricochet effects of their attempt to flush out rivals by flooding the world with excess output,” expressing doubt that OPEC members “really want to live with low oil prices for a long time,” and implying that Saudi policy is irrational.

Indeed, Russia can be seen as maneuvering to split OPEC into two blocs, with Russia, although not a member, persuading the “Russian bloc” to isolate Saudi Arabia and the Gulf Arab OPEC members within OPEC. This might persuade the Saudis to seek a compromise with the have nots.

A strategic alliance with Iran and Iraq offers Putin two more potential avenues to pressure the Saudis. They can test Saudi determination to defend their market share at any price and its wherewithal financially to do so. Iran claims it can raise crude output by one million barrels within six or so months of the lifting of sanctions. The Saudis may be calculating that Iran must first rehabilitate its oil fields and that Iran, cash poor, cannot do so quickly. If this is the case, Russia could step in, offer Iran financing, and force the Saudis to contemplate prices staying lower longer than they anticipated and therefore continuing pressure on their economy.

Russia also could cooperate with Iran and Iraq to take market share from Saudi Arabia in the vital Chinese market. As a recent Bloomberg article pointed out, Saudi Arabia, Iran, Russia, Iraq and other countries are vying intensely for sales to China, the second largest import market and the major source of demand growth in coming years. Coordinating their pricing and consistently offering the Chinese prices below the Saudi price, they could seek to win market share. Such a price war would pressure the competitors’ currencies.

Since the Russians allow the Ruble to float, Iran maintains an informal and unofficial peg for its Rial to the US$, and Iraq has indicated it is willing to adjust its peg if necessary, while the Saudis are committed to the Riyal’s peg to the US$, Russia, Iran, and Iraq would have any advantage over Saudi Arabia. To the extent that Iran and Iraq allowed their currencies to adjust, Russian, Iranian, and Iraqi revenues in local currency terms would not decline as much as Saudi revenues fixed in US$ (and might even increase) as their currencies depreciated.

Results

Each of these opportunities offers the possibility to address the pressures on the Russian energy industry. However, Putin will have to play his cards carefully. Played heavy-handedly, he could intensify fears in Europe of excessive dependence on Russian energy supplies and awaken such fears in China. This could lead the Europeans and Chinese to search for other suppliers. In addition, mismanaged confrontation with the U.S. and Europe in and over Syria could lead to broadening and strengthening of economic and financial sanctions. Moreover, neither Iran nor Iraq will want to become overly dependent on Russia, which lacks the resources they need develop their energy industries.

Finally, the opportunities assume Putin’s gambits in Syria and with Syria, Iran, and Iraq in intelligence and security cooperation will succeed. And this, given the Soviet experience in Afghanistan and Putin’s experience in eastern Ukraine, is far from certain.

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Looney's picture

I don't always drink beer, but when I do, I read Ayn Rand and von Mises.

Stay thirsty, my friends.  ;-)

Vladimir P.

knukles's picture

The way things be a-shakin', looks like the Saudis might just become buddies of the Israelis for a while in the Land of the Enemy of my Enemy is my Friend.
'Nuffin but a tue and tried tradition over yonder.

LetThemEatRand's picture

They are already buddies -- have been for years.  I think Putin knows that for all of the saber rattling of the West, the populations are comprised largely of NSAbook-dumbphone-twatter-mocha-cafe-drinking-trendies who care more about celebrity gossip than geo-politics and engaging in a major war.  Notwithstanding all of the Putin worship here, he's old school KBG and the neo-cons in the US and Isreal who have been poking at him have eroding support in the West.  He believes in the glory of the old Soviet Union. He may just be willing to call the West's bluff and go full retard and stop with the "proxy" in proxy-wars if he needs to in order to achieve his objectives.  

Occident Mortal's picture

Remember August 2013 when Prince Bandar threatened Putin with terrorists at Sochi??

 

My guess is Bandar might regret that decision now.

LetThemEatRand's picture

If I were some Saudi prince, I would be calculating a getaway plan right about now.  The question is whether the oligarchs in London, Isreal and the US who suck their balls now will continue to do so when they lose power and the ability to print petro dollars by sticking a drill in the sand.

Son of Loki's picture

Anywhere in London is safe for them since they own 90% not only of the RE there but also own 90% of the politicians there.

LetThemEatRand's picture

London bankers will bend over backwards for those who have cash flow.  They will bend you over and tell you to squeel in a New York minute if your cash flow evaporates.

Macchendra's picture

Dictatorships rely on strong arming fish in a barrel.  They don't require actual intelligence services.  Rather than having hardened computer infrastructure, they rely on death penalties for people who use fax machines.  They have not been in the real intelligence world yet.

markmotive's picture

Just another reason why the oil price is a wild card.

Howard Marks: You Have No Idea About the Oil Price

http://www.planbeconomics.com/2015/10/howard-marks-you-have-no-idea-abou...

cheka's picture

author needs to do some homework.  disinfo just like the now-defunct oildrum.com (screeching peak oil shill orgy)

so let's look at this oversupply problem -

true scarcity has no use for a cartel

this whole game is nyc.opec oil production SUPPRESSION scheme

a partially free market in oil broke out...look what happened

how take out the US frackers?  epa?  what about as this spreads overseas?  UN?

fossil fuels?  dumbasses/shills STILL call it that -- how many billions of dinosaurs have been pumped out so far?  the deep bp well?  fossils?  huh?

what do you think got saddam killed?  sure as hell wasn't the euro for oil (euro since revealed as frn-backed...see 2008 drama....see swaps with frbny on numerous euro dramas..)

Nenad's picture
Nenad (not verified) cheka Oct 7, 2015 5:50 AM
Obama will not finish his second term! Current Events Linked to Ancient Biblical Prophecy! http://motivationdose.com/is-america-babylon/
Nenad's picture
Nenad (not verified) cheka Oct 7, 2015 5:50 AM
Obama will not finish his second term! Current Events Linked to Ancient Biblical Prophecy! http://motivationdose.com/is-america-babylon/
palmereldritch's picture

The ME Hate Battery appears to be losing its charge.  Makes you wonder what happens when that happens...if history recalls...

HowdyDoody's picture

Is Russia trying to destroy OPEC?

No, OPEC is doing a fine job of that on its own. DITTO ASA.

 

 

Paveway IV's picture

"...If I were some Saudi prince, I would be calculating a getaway plan right about now..."

WHICH Saudi prince? There's something like a half-dozen branches of the House of Saud and maybe a hundred or so different princes. They're all trying to take each other out and run the place. They could have a coup every six months and NEVER run out of successors to claim the throne.

new game's picture

yea, a few too many chefs in da kitch, ha, paton place on drippy oily steroids. what a scenario with time (and cash)on their hands to fuck each other over. think i like my simple existence...

Luc X. Ifer's picture

Putin is not a childish idiot, neither Iran and the Chinesse. They want to produce a fracture in Opec and create a new eco system around the crude trough the Brics and paid with Brics currency not caca $.

 

Victor von Doom's picture

"If I were some Saudi prince, I would be calculating a getaway plan right about now.  The question is whether the oligarchs in London, Isreal and the US who suck their balls now will continue to do so when they lose power and the ability to print petro dollars by sticking a drill in the sand."

I'd say he'll get the same treatment Pompey did at Egypt.

 

datura's picture

Nothwitstanding the Putin "worship", please stop with the repeated mantra that "Putin is old KGB" and "he believes in the glory of the old Soviet Union," when you know nothing about it. He hates the Soviet Union! If people cannot study the subject to the depth and think more objectively, they should not judge, otherwise they only distort reality. If you want to criticize, please criticize that, which exists, not imagined things. 

Interview with young Vladimir Putin in 1991:  "Communism is a dangerous fairytale. It is this ideology, which almost destroyed us and which has led to the collapse of Russia. It is as if they placed a time-bomb with a delayed explosion under Russia in 1917. They created this artificial system, they created these artificial territories that had not even been on the map before (hint Ukraine), and on the other hand they destroyed that, which binds and unites civilized nations, I mean particularly the free market economy. The only thing they had to "unite" the society with was the barbed wire. So of course, once the barbed wire was cut, everything collapsed."

Then the video proceeds to show older Putin repeating very similar things about the bolsheviks and Soviet governments and how they "betrayed Russia". 

https://www.youtube.com/watch?v=N-DbixZURNM  (sorry but I don't have ENG subs, I explained the gist of what he said above).   

ThirteenthFloor's picture

+1 datura. Could not have commented better. Just because Putin is backing Assad and the pipeline, does not mean he is " out to fracture the Middle East"

Like the comment above I bet he is in and out if Syria in a month. Americans tend to project everyone as imperialists since they come from that background. Mistake to assume others think like you .

palmereldritch's picture

+1 Great stuff.  Sorry, I did not see this until after I responded to LTER.

The central planners's picture

The only thing they had to "unite" the society with was the barbed wire. So of course, once the barbed wire was cut, everything collapsed."  In our western case the only thing that unites our society is no collateral debt bubbles when all those bubbles burst or SHTF our society is going to collapse.

HowdyDoody's picture

Putin: Anyone who isn't sad to see the USSR gone desn't have a heart. Anyone who wishes to have it back doesn't have a brain"

(Or words to that effect).

 

Chris Dakota's picture
Chris Dakota (not verified) datura Oct 7, 2015 8:17 AM

The guy they call "Putins Brain" Alexander Dugin likes Ron Paul, you can see him mention him in an interveiw on youtube.

 

palmereldritch's picture

 he's old school KBG... He believes in the glory of the old Soviet Union.

FYI, IMO this part of your comment is probably the primary reason for so many 'red' votes.

Care to elaborate on that part of your assertion?...Mind you now, you will have to posit and support the argument that Putin, despite being a member of the KGB (which he is no longer because the Soviet Union no longer exists) cannot be a Russian citizen first and would not put his country first...particularly after being so well informed about nearly a century of national hostage taking and exploitation courtesy of synthetic Bankster Marxist infiltration...obviously, it goes without saying...Obama and the US still doesn't have that luxury

HowdyDoody's picture

Yeah, he was a desk jockey in the old KGB. Wow.

jcdenton's picture

he's old school KBG

 

No he's not. Never was. He was GRU. The GRU is not/was not the KGB. Putin was the director of the FSB. The FSB is not/was not ever the KGB. GRU members were/are military intelligence. (comparable to the DIA) Under the USSR, GRU members were not party members. Fierce rivals with the KGB.

The officer corps of the GRU is best described as the clandestine remnant of the past Czar's White Army. Even under the USSR, most were closet Orthodox Russian. Why we see Putin as a pious Orthodox Russian Christian today. Solzhenitsyn while alive, meeting Putin in person saw that for himself.

Wikipedia is just as wrong about this, as it is about Osama bin Laden (Col. Tim Osman), as it is about 9/11, as it is about JFK.

Source: Amb. Leo Emil Wanta, Totten Doctrine Secret Agent (1875) for President Ronald Wilson Reagan, 1980 - Present

https://app.box.com/s/hfgvcqg7gqh7i27at6sv53ywu87lwarp (See Wanta book)

Amb. Wanta has an IQ off the charts. A photographic memory such that he never needed a camera like James Bond et al, behind enemy lines. Why he was recommended by DCIs Colby and Casey, and DDCI Walters to President Reagan. Why he is today the 32.8 TRILLION Dollar Man ..

Oh, and a young Putin was there in 1990 at the signing of the General Agreement on Cooperation. Instrumental in why Putin is where he is today ..

http://eagleonetowanta.com/wp-content/uploads/2015/03/General-Agreement-...

 

He believes in the glory of the old Soviet Union.

 

Whoever told you that, go find him and punch him in the face. You are just spouting Bush-CIA-DoD/Mossad talking points.

Putin does believe in the glory of the old Russian Empire. Not much different than an American that believes in the old American Empire, pre-1898. That is where we stepped over the line. That was our "point of no return." We crossed the Rubicon right there. Next was 1907, then 1913.

Had the Maine been exposed as a false-flag, perhaps we could have proceeded to undo the sins going back to the Whiskey Rebellion. The 14th Amendment was a sham. (The '65  "Act" is a farce as well). Then again, did we have the Internet in the late 19th century? We did have "radio." Why not that could have been used as effectively as the Internet today?

Perhaps that is why as Col. Douglas Macgregor posits, even simultaneously with the Wanta Plan, we are going to have to endure a catharsis like we cannot imagine ..

http://www.thedailybell.com/exclusive-interviews/3791/Anthony-Wile-Colon...

DrinkTheKoolAid's picture

Yes. The Russians have been handling the sanctions no problem, just like the Iranians and Saddam back in the day. The neo cons over estimate their own power.

stant's picture

Warren pollock said that 3 yrs ago. We are involved in a shea vs Sunni civil war. Vlads got this. Our guys not so much. He will have this over in a month in Syria . Its been good biz for 12 yr plus.That hospital hit by the us is cover for us failure. You know rules of engagement kept us from the win bs. When in fact the war on terror was for profit . Modern day wps project from the ala1930 depression for . Gov contractors

rlouis's picture

Rules of engagement ensure the right wrestler wins.

MSimon's picture

The way things be a-shakin', looks like the Saudis might just become buddies of the Israelis for a while in the Land of the Enemy of my Enemy is my Friend.

 

The Saudis have been informally allied with the Israelis since at least 2006.

qomolangma's picture

Report: Mossad and Saudi’s pre-coordinated the Mina stampede to abduct key members of The Iranian Revolutionary Guards Corps (IRGC) - AWD News

 

"Mossad has abducted a number of Iranian Revolutionary Guards Corps (IRGC) commanders , diplomats and prominent officials at last Thursday's stampede near the holy city of Mecca."

http://awdnews.com/top-news/report-mossad-and-saudi%E2%80%99s-pre-coordi...

 

IRGC ready to make Saudi Arabia take responsibility for Mina stampede tragedy

Posted by: PressTV News Videos
Published on Oct 3, 2015

Iran’s Islamic Revolution Guards Corps says it’s prepared to give a quick response to make Saudi Arabia accept responsibility over last week’s stampede near the holy city of Mecca.

The IRGC’s Commander, Major General Mohammad Ali Jafari, said the response will be in line with the recent remarks by the Leader of Iran's Islamic Revolution’s Ayatollah Seyyed Ali Khamenei. Jafari said the I-R-G-C is ready to defend the dignity of Muslims, particularly the Iranian nation, anytime and anywhere. Earlier this week, Ayatollah Khamenei warned that any response from Iran over the Hajj stampede would be harsh and crushing. Ayatollah Khamenei also warned Riyadh against persecuting Iranian pilgrims who are still in Saudi Arabia.


https://youtu.be/9td7M6KdDzg

http://www.presstv.ir/live.html

 

MORE Links: search "Iran IRGC kidnapped Mina stampede"

OC Sure's picture

...And don't forget to crank up Rachmaninoff full blast.

Rearden-Steel's picture

All your sand are belong to us!

froze25's picture

Probably why the Russians wanted to get their SWIFT equivalent system up and running ASAP and did.

ThirteenthFloor's picture

Germany Italy and France probably want to leave now, they just haven't the balls. Once the time is right, they'll leave.

US will be isolated.

daveO's picture

On inauguration day 2017. 

scrappy's picture

The Austrian School vs. government regulation and pro-labor policies

ED: I don’t want to go too far off on a tangent because we have a lot to cover specific to your book. But I heard an interesting story when I was doing a bit of my own research throughout the years about the evolution of economic thought, and specifically the origins of the so-called Austrian School of Economics – people like von Mises and von Hayek. In the early 20th century they were essentially, as far as I could tell, creating an ideological framework in which they could make theoretical arguments to justify exorbitant rent and make it seem almost like a product of natural law – something akin to a phenomenon of nature.

MH: The key to the Austrian School is their hatred of labor and socialism. It saw the danger of democratic government spreading to the Habsburg Empire, and it said, “The one thing we have to stop is democracy. Their idea of a free market was one free of democracy and of democratic government regulating and taxing wealthy rentiers. It was a short step to fighting in the streets, using murder as a “persuader” for the particular kind of “free markets” they wanted – a privatized Thatcherite deregulated kind. To the rentiers they said: “It’s either our freedom or that of labor.”

Kari Polanyi-Levitt has recently written about how her father, Karl Polanyi, was confronted with these right-wing Viennese. His doctrine was designed to rescue economics from this school, which makes up a fake history of how economics and civilization originated.

One of the first Austrian’s was Carl Menger in the 1870s. His “individualistic” theory about the origins of money – without any role played by temples, palaces or other public institutions – still governs Austrian economics. Just as Margaret Thatcher said, “There’s no such thing as society,” the Austrians developed a picture of the economy without any positive role for government. It was as if money were created by producers and merchants bartering their output. This is a travesty of history. All ancient money was issued by temples or public mints so as to guarantee standards of purity and weight. You can read Biblical and Babylonian denunciation of merchants using false weights and measures so see why money had to be public. The major trading areas were agora spaces in front of temples, which kept the official weights and measures. And much exchange was between the community’s families and the public institutions.

Most important, money was brought into being not for trade (which was conducted mainly on credit), but for paying debts. And most debts were owed to the temples and palaces for pubic services or tribute. But to the Austrians, the idea was that anything the government does to protect labor, consumers and society from rentiers and grabbers is deadweight overhead.

Above all, they opposed governments creating their own money, e.g. as the United States did with its greenbacks in the Civil War. They wanted to privatize money creation in the hands of commercial banks, so that they could receive interest on their privilege of credit creation and also to determine the allocation of resources.

Today’s neoliberals follow this Austrian tradition of viewing government as a burden, instead of producing infrastructure free of rent extraction. As we just said in the previous discussion, the greatest fortunes of our time have come from privatizing the public domain. Obviously the government isn’t just deadweight. But it is becoming prey to the financial interests and the smashers and grabbers they have chosen to back.

ED: You’re right, I agree 100%. You encounter this ideology even in the political sociological realm like Joseph Schumpeter, or through the quasi-economic realm like von Hayek in “The Road to Serfdom.”

MH: Its policy conclusion actually advocates neo-serfdom. Real serfdom was when families had to pay all their income to the landlords as rent. Centuries of classical economists backed democratic political reform of parliaments to roll back the landlords’ power (and that of bankers). But Hayek claimed that this rollback was the road to serfdom, not away from it. He said democratic regulation and taxation of rentiers is serfdom. In reality, of course, it’s the antidote.

ED: It’s the inversion you were talking about earlier. We’re going to go into a break here in a minute but before we do I want to touch on one other point that is important in the book, again the book, Killing the Host: How Financial Parasites and Debt Bondage Destroyed the Global Economy, available from CounterPunch – very important that people pick up this book.

JuliaS's picture

"You know what the business community thinks of you? They think that a hundred years ago you were living in tents out here in the desert chopping each other's heads off and that's where you'll be in another hundred years..."

- Bryan Woodman (Syriana)

pan's picture

Get Putin on the 2016 ballot.

Omega_Man's picture

 "Following the Russian invasion of Crimea and eastern Ukraine"

 

the author sounds like a MSM BS'er

Bay of Pigs's picture

"The emergence of the U.S., along with Canada, as powerful crude, NGL, and natural gas producers is also a major concern for the Russian economy. This has transformed the U.S. from a market for Russian crude and natural gas (via LNG) to a global competitor."

That is some world class bullshit too. Guess he hasn't been following the oil sector here in the US lately?

Omega_Man's picture

Anyone who even tries to compare LNG to a pipeline you know at the moment they know squat...

Jack Burton's picture

US indeed has increased production, but it is at the high end of production costs. Energy is only as good as cost of production and transport. LNG is a giant loser as is frack oil. They are right at the top of production costs. Thus the US energy miracle only existed as long as oil was over $80. New oil finds are consistantly high cost. A big find sounds impressive, but if it takes almost as much to get it out as comes out, like Brazils deep field, it's value is minimal.

ThroxxOfVron's picture

Part of the problem is that some of the big oil finds are too big to handle even with the best tech on hand.

Deep Water Horizon was way too big to handle.  

They tried to drop the straw, got shot in the face, and barely stomped the plug in after...

There's still a fucking bonanza down there but no one will dare try to tap that bitch again until oil is $150+ and .GOV is telling them to do it and covering the liability for whatever happens...

Son of Captain Nemo's picture

the author sounds like a MSM BS'er

"."

OM

getting mighty fricken tired of those "responsible" in the professional field of truth telling that keep reminding us about the "annexation of Crimea" vs the will of the people of Crimea demanding a referendum to join Russia which they probably wouldn't have had to have done had Vicky Nuland not shown up in Kiev with "the bag of cookies" that started the violent overthrow of a legitimate democratically elected government 4 years earlier!

ForWhomTheTollBuilds's picture

I have no opinion on this article's speculations but I have realized that something like this could come to pass  and the average American wouldn't be aware of it even 10 years later.  

 

Lets just face that fact that 10 years from now the average Americans life will be noticibly shittier than it is now and people will have to decide between blaming the current POTUS for all of it (if the POTUS is not from their team) or conspicuously not noticing that things are getting shittier (if POTUS is from their team).

 

To quote Trailer Park Boys:

 

"We're sailing into a shit typhoon Randy.  That means we gotta haul in the Gib before it gets covered with shit".

 

Omega_Man's picture

Bubbles looks like a tar tar in real life too

Lets Buy The Dip's picture

putin drinks too much vodka. 

 

LOL