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Oil Market Showdown: Can Russia Outlast The Saudis?
Submitted by Dalan McEndree via OilPrice.com,
"Two men enter, one man leaves, two men enter, one man leaves, two men enter…”
November 27, oil consuming countries will celebrate the first anniversary of the Saudi decision to let market forces determine prices. This decision set crude prices on a downward path. Subsequently, to defend market share, the Saudis increased production, which exacerbated market oversupply and further pressured prices.
While the sharp decline in crude prices has saved crude consuming nations hundreds of billions of dollars, the loss in revenues has caused crude exporting countries intense economic and financial pain. Their suffering has led some to call for a change in strategy to “balance” the market and boost prices. Venezuela, an OPEC member, has even proposed an emergency summit meeting.
In practice, the call for a change is a call for Saudi Arabia and Russia, the two dominant global crude exporters, which each daily export over seven-plus mmbbls (including condensates and NGLs) and which each see the other as the key to any “balancing” moves, to bear the brunt of any production cuts.
Both, it would seem, have incentive to do so, as each has lost over $100 billion in crude revenues in 2015—and Russia bears the extra burden of U.S. and EU Ukraine-related economic and financial sanctions. Yet, while both publicly profess willingness to discuss market conditions, neither has shown any real inclination to reduce output—in fact, both countries seem committed to keeping their feet pressed to their crude output pedals. In the course of 2015, both have raised output and exports over 2014 levels—Saudi Arabia by ~500 and 550~ mbbls/day respectively and Russia by ~100 and ~150. The Saudis have repeatedly cut pricing to undercut competitors to maintain market share in the critical U.S. and China markets, while the Russian Finance Ministry recently backed away from a tax proposal which Russian crude producers said would reduce their output.
This apparent bravado notwithstanding, the two countries’ entry into the low-price Crudedome is ravaging their economies. Should crude prices decline from current levels, or even just stagnate, it is possible neither country will exit the CrudeDome under its own power.
IMF WEO Data: Recessions as far as the Eyes can See
Both Saudi Arabia and Russia paint positive portraits on current and future economic performance. At a conference in Moscow on October 14, President Putin said that Russia had reached if not passed the peak of its economic crisis and predicted economic growth in coming years. Arab News announced in the first paragraph of its report on Q2 Saudi economic performance that Q2 GDP grew 3.79 percent year-over-year, up from 2.3 percent growth in Q1.
Yet IMF October 2015 and April 2015 World Economic Outlook projections for the Russian and Saudi economies a paint pessimistic portrait, as the following three tables, forecasting GDP through 2020 in current prices/national currency, constant prices/national currency, and current prices/US$ show (all data in billions).
- In each of the data series, except the April and October ones, Russian current prices/national currency and the Saudi constant prices/national currency series, GDP declines from 2014 to 2015. (When adjusted for estimated inflation, however, the forecasts for Russian GDP current prices/national currency show GDP declining from 2014 levels—to 64,039 billion Rubles given inflation of 17.943 percent in the April series; in the October series, to 64,463 billion rubles, given inflation of 15.789 percent. The growth shown in the Saudi constant prices/national currency series results from the reduction in the deflator, which the Saudi National Statistical Office, Central Department of Statistics and Information uses to convert current national currency GDP into constant national currency. For example, decreasing the deflator from 115.073 to 94.234 in the October series and to 97.066 from 115.889 in the April series turns a decrease in GDP in current prices into an increase in GDP in constant prices).
- Between the April and the October forecasts in most of the data series, GDP deteriorates (blue font). Crude prices bear much of the responsibility: the April forecasts were based on $58.14 and $65.65 per barrel oil in 2015 and 2016 respectively, while the October projections are based $51.62 and $50.36 respectively.
- The year in which GDP exceeds 2014 GDP is noted in red font. As a result of the deterioration in GDP forecasts between April and October in the Saudi current prices/national currency series, GDP does not exceed 2014 GDP until 2018 instead of 2017; in the Russian current prices, US$ series, GDP exceeds 2014 level after 2020 instead of 2019; in the Saudi current prices/US$, the recovery is pushed to 2018 from 2017. (In inflation adjusted terms, Russian GDP in current prices, national currency would be below 2015 levels in 2020).
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In Russia, the impact of low crude revenues on GDP has raised questions about Russia’s long term economic prospects. Some see Russia’s economic growth potential as 1 percent annually or less due to low energy prices, low productivity levels, and a shrinking population, while Alexei Kudrin, finance minister from 2001 to 2011, recently commented that Russia’s growth model for the last fifteen years—using income from energy exports to drive up wages, domestic demand and therefore growth—will no longer work. With the government strapped for funds, and energy income no longer supporting domestic demand, some see investment as the sole possible driver of growth.
IMF WEO Data: Budget Deficits as far as the Eyes can See
Both the Saudi and Russian governments depend on energy revenues to fund their budgets—oil funds ~90 percent of the Saudi budget and oil and natural gas ~52 percent of the Russian budget. With the decline in prices, the Saudi budget anticipates a deficit of 20 percent of GDP in 2015 and the Russian budget a deficit of 3.3 percent of GDP. The April and October WEO budget projections in national currencies (Rubles and Riyals) show the deficits decreasing, but continuing through 2020 for both countries:
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The following table shows that as a percentage of GDP, the deficits decline steadily through 2020. However, as a percentage of GDP, the WEO October projections show the Saudi deficits remain double-digit through 2020—the potential impact of which will be discussed in the section on currencies.
(Click Image To Enlarge)
As planning for the 2016 fiscal year proceeds, fiscal reality is forcing both governments to scramble for new sources of revenues and/or opportunities to cut spending to reduce their budget deficits. The Russian government suspended the budget rule using a long term average of crude prices to set spending, since the resulting $80 average price would have dictated unreasonable spending in 2016.
President Putin ordered a 10 percent cut in Interior Ministry personnel, imposed a one million headcount ceiling on this ministry, and planned cuts in Kremlin headcount. The Finance Ministry sought a change in the mineral extraction tax formula to generate an additional 609 billion rubles in 2015 and 1.6 trillion through 2018, but pressure from the Economic and Energy Ministries and Russian producers forced the Finance Ministry to consider alternatives with less negative impact on crude production. In addition, the government reportedly is taking some $13 billion from national pension funds, while the Russian Central Bank is preparing proposals on government pension guarantees that would shift some pension funding burden from the government budget to companies and individuals.
The Saudi government is also scrambling. After an eight year hiatus from issuing sovereign debt, the Saudi government announced a plan during the summer to borrow $28 billion in 2015 and launched the borrowing with a $5 billion offering in August. The Ministry of Finance has banned contracts for new projects, hiring and promotions, and purchase of vehicles or furniture in the fourth quarter, while the newly created Council for Economic and Development Affairs must now approve all government projects worth more than $27 million. The Saudi government also is preparing to privatize airports and contemplating seeking private financing for infrastructure projects.
The budget situation puts the Saudi government in a difficult situation. On the one hand, the size of the deficits requires drastic cuts in spending, but such drastic cuts would impact politically sensitive areas such as energy subsidies, government employment opportunities for Saudi citizens, education, and economic development projects. On the other hand, depleting Saudi government reserves to finance the deficits will put the Saudi sovereign credit rating at risk, which would raise the cost of borrowing as well as pressure the Saudi currency (the consequences of which are discussed below).
IMF WEO Data: Lagging Per Capita Income as far as the Eyes can See
In both Russia and Saudi Arabia, the governments have attempted to shield their citizens from job cuts. In Russia, the government has discouraged businesses from shedding employees, while the Saudi government has maintained headcount in the government and government-related bodies, where most Saudis nationals are employed.
In terms of income, however, the situation is different. IMF WEO projections show per capita income in 2015 declining from 2014 levels in both Russia and Saudi Arabia, and only slowly recovering (the year exceeding 2014 levels in red font). (The increases in per capita income in the Russia current prices, national currency and in the Saudi constant prices, national currency series results from the same factors discussed in the section on GDP).
(Click Image To Enlarge)
Impact on Currencies
The steep decline in crude prices has pressured both currencies. The Ruble (?) has suffered two curses. First, it has declined substantially relative to “hard” currencies, such as the US$, the Euro, British Pound, and the Swiss Franc. Against the U.S. dollar, it depreciated ~29 percent from November 27, 2014 to October 13, 2015 (?48.58/US$, to ?62.77). Second, it has been and continues to be highly volatile, its fate tied to moves in crude prices. The Ruble reached its post-November 27 low on June 27 (?33.73/US$) and twice reached its high of ~?70/US$ (January 30 ?69.47, August 24 ?70.89). A chart is available on Bloomberg.
The pressure on the Ruble forced the Russian Central Bank to take a series of emergency measures. At the end of last year, it spent ~$100 billion from its foreign currency reserves to defend the Ruble (it finally abandoned the defense when it proved futile and allowed the Ruble to float). In the same period, it extended emergency “hard” currency funding to major Russian banks and businesses with “hard” currency obligations that were coming due at the end of 2014. The Central Bank also sharply raised interest rates—to 17 percent at one point—and has kept the rates high to defend the Ruble (currently ~11 percent). Two examples illustrate the impact of Ruble devaluation:
- Transaero, until recently Russia’s second largest passenger airline, attributed being forced into bankruptcy to high interest rates and a devalued Ruble—the former raised the cost of financing, the latter pushed up prices in Rubles and therefore reduced demand in Russia for international flights and increased the cost, in Rubles, of repaying foreign currency denominated loans and interest.
- The Association of European Businesses in Russia recently announced that sales of new cars and light commercial vehicles contracted 29 percent in August year-over-year and forecast a 37 percent decline for all of 2015. It cited price increases that the car manufactures were forced to take to cover the increased cost of foreign parts and systems used in domestic auto manufacturing.
Volatility is equally pernicious. As another Bloomberg article points out, Russian businesses, unsure of what the value of the Ruble will be long term or even day-to-day, are deferring investment despite generating substantial (Ruble) profits—the very investment which some believe the Russian economy needs to grow and which has been contracting for 20 months.
The Saudis have avoided both Riyal depreciation and volatility. The government has insisted it will keep the Riyal pegged at 3.75/US$ and financial markets thus far have taken comfort from Saudi reserves (estimated to exceed $660 billion). However, as deficits deplete reserves and events occur that threaten the peg and Saudi oil-related export revenues, this comfort quickly could dissipate. After the Chinese Central Bank unexpectedly devalued the Yuan by ~2 percent against the US$, bets that the Saudis would be forced to abandon the peg spiked.
Breaking the peg would devastate the Saudi economy. It would drive up the cost of imports—and Saudi Arabia depends substantially on imports for a wide variety and high percentage of necessary consumer, business, and government goods and services—from food to oil, petrochemical, and other industrial equipment and services to military equipment, supplies, and training. It would also harm the Saudis who recently have been increasing their exposure to “hard” currency denominated loans.
Sovereign Wealth and Foreign Currency Reserves
Both the Saudis and the Russians are drawing down reserves they accumulated during the $100-plus/barrel crude price era to finance their spending. Over the nine months to July 2015, Saudi reserves declined $76 billion, from $737 billion to $661 billion, implying an annual rate of $100 to $130 billion. Should large withdrawals continue, or the amounts increase, confidence in the Riyal will sink.
Besides the $100 billion the Central Bank spent defending the Ruble, the Russian government has used funds from its sovereign wealth funds (the National Welfare Fund and the Reserve Fund) to reduce to fund priority projects, particularly in the energy industry—Rosneft sought one of the largest amounts. In June, Stratfor put the draw on the sovereign wealth funds at $44 billion.
China: The Sword of Damocles
In an era of low crude prices, modest economic growth, and modest crude demand growth, both Saudi Arabia and Russia (and other crude exporters) look to China as a source of incremental revenue to make up for the massive absolute declines in revenue and are prepared to compete intensely for market share.
One can imagine, then, the panic in Riyadh and Moscow when they contemplated the implications of the Chinese Central Bank’s decision to devalue the Yuan by ~2 percent against the U.S. dollar and the possibility this was the first salvo in a series of devaluations.
- For the Saudis, devaluation, if continued, will force the government to decide between volume and revenue. Pegged to the US$, Saudi crude, priced in US$ will become more expensive for the Chinese. It will reduce demand for Saudi crude and/or make the crude of other exporters—e.g. the Russians—whose currencies float. Yet reducing the US$ price to support volumes to China will reduce crude export revenues, which, if sufficiently substantial, could undermine confidence in the Saudi economy and therefore the Riyal peg to the US$.
- For the Russians, the Chinese Central Bank announcement possibly produced excitement at the prospect of competitive advantage over the Saudis in pricing. Quickly, however, excitement may have turned into anxiety. Neither side has made public critical details—including the currency or currencies in which sales will be settled and priced—of three bilateral energy megadeals: Rosneft’s $270 billion 2013 agreement to supply 300,000 mbbl/day annually to China for 25 years; the $400 billion, 30 year agreement signed in 2014 to supply natural gas to China from Eastern Siberia; and the negotiations underway to supply natural gas from Western Siberia.
Are prices set in US$, Rubles, Yuan, a basket of currencies (US$, Euro, Swiss Franc)? Are the Chinese expected to pay in Yuan at the Yuan/Ruble exchange rate? In Rubles at the Ruble/Yuan exchange rate? In Yuan at the Yuan/US$ exchange rate? Each alternative has different implications for Rosneft’s and Gazprom’s gross and net revenues from the sale of crude (Rosneft) and natural gas (Gazprom).
And the Winner is…
Despite the intense pain they are suffering in the low price Crudedome, both the Russian and Saudi governments profess for public consumption that they are committed to their volume and market share policies.
This observer believes the two countries cannot long withstand the pain they have brought upon themselves - and this article only scratches the surface of the negative impact of low crude prices on their economies. They have, in effect, turned no pain no gain into intense pain no gain and set in motion the possibility neither will exit the low price Crudedome under its own power.
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Effete Saudi princes will cry uncle wanting their new Bell 507 Helos, before the Russian babooshkas will holler for more beets for their borscht.
The Bear can hibernate for a long time.
On the other hand, the Camel can endure without water for a long time, too.
Tough call.
Russia sells all its UST holdings and endures WTI at 20-30 rangebound for 6 months +
Saudi is forced by israel to keep its UST holdings and this creates regime change that favors Russia.
Long unseating house of saud. Short WTI
RIPS
Russian people are as tough as nails. They lived under the Bolsheviks without much complaining so they can take just about anything and come out fighting.
Don't mess with the bear. Or else.
doesn't russia have some of the worlds largest reserves of a lot of rare earth minerals and metals? you know, things other than oil for income? they aren't a one trick pony like the saudis. Also, the russians seem to be quite fond of putin, not so much in SA. The royals there ain't real popular with the peasants, and if ISIS is driven out of syria and iraq, there are going to be some angry sunni militants coming home to SA where there are no jobs, and declining reserves for welfare payments to keep the prols happy. Not so good for the house of saud. I have said it before, they will not make it past 2020, and there will be some kind of bloody coup or revolution there.
What if the oil plunge has nothing to do with the U.S. at all, and is rather a part of the strategy to bring about her final downfall? Having just read how the U.K. (read: London) has become the Saudi's biggest arms supplier - and that the U.K. is an oil importing nation. Combine that with the fact that the Kingdom of Saud (and Israel, for that matter) exists because of the bargains struck with London in exchange for their support against the Ottomans, and the whole picture is starting to come together.
Which city, in all the world, would hate the United States so bitterly that it would engage in centuryies long warefare against her citizens for the purpose of meteing out long awaited retribution?
And the winner is....
Well certainly not oil consumers, right? Using up all the remaining oil at low prices is suicide.
LOL.
Let's see if I can squirt a tear for oil producers, consumers and Gail Tverberg. And the children.
.
.
.
Nope.
How is it that the Russians "brought this upon themselves?"
Oh yeah, by refusing to submit and obey.
The real loser is the US shale oil industry. Maybe Russia and the Saudis want this industry to disappear before they cut production and prices rise.
Meanwhile back at the Ranch...
It is deepwater and fracking that are seeing ACTUAL production declines in the ACTUAL data.
The real losers are the US Oil and Gas Frackers, trillions in junk bonds about to go bust.
There would be no "trillions in junk bonds about to go bust" if not for NIRP. Three Cheers for the Political Fed Reserve.
Don't forget, Russia still supplies and sets the price for the majority of the EU's natural gas. KSA et al flame theirs off and thus OMG! that pesky NatGas pipeline, again. Not to mention, CommieGaz just called for RFP's for the construction of NordStream2, running through the Baltic Sea from Mother Russia to Doocheland
Not exactly. According to contracts that expire in 2020 (+/- 1 year) the price is set by a formula that including calorific value and spot price of crude oil as factors. Russia sets the price to whatever the market will bear in 2020/2021.
And the contracts were recast in 2014 by mutual agreement into Euros. Except Belarus (Russian Rubles) and Ukraine (US Dollars). For some reason ;-) Ukraine preferred dollars over euros.
A grumpy, hungry grizzly against a parched, pampered camel..?
Not really a tough call at all.
Nothing worse than a dry camel toe.
The side with the nuclear missiles and Iran on its side wins.
Hot war in
3....2....
There is no truth to the assertion in the article that it is Saudi Vs Russia.
In fact, it is the opposite. They are collaborating.
Pictures and articles are here as proof:
19 June 2015:
Saudi's star prince keeps rising, visits Putin in St. Petersburg
19 June 2015: Nuclear deal signed between Russia and Saudi
•
Saudi Arabia, Russia sign nuclear power cooperation deal
6 July 2015
Saudi Arabia to Invest up to $10 Billion in Russia
17 Aug 2015
Is Saudi officials' visit to Moscow a sign of warmer relations with Russia?
11 Oct 2015
Putin and Saudi defense minister meet in Russia, agree on common goals in Syria
Russia is now in M.E. to join Iran and Syria in taking control of SA...
Ya right up there with Americans thinking they can outlast Russians in a war of attrition....because the soft worthless obese fucks who can barely change the channel with a remote will outlast an entire country that just got out of 75years of gulag living.....cause....liberal logic and unicorn farts :P
A stray missile to Saudi Arabia will do the trick
Or few hundred ISIS terrorists driven from Syria to their sponsors in SA will also work
Obama was hoping to break Russia and Putin with his war on oil prices.
Oil prices at $10 a barrel in the mid 1980s led to the collapse of the USSR.
Stakes are high as US plays the oil card against Iran and Russia
John Kerry, the US secretary of state, allegedly struck a deal with King Abdullah in September under which the Saudis would sell crude at below the prevailing market price. That would help explain why the price has been falling at a time when, given the turmoil in Iraq and Syria caused by Islamic State, it would normally have been rising.
The Saudis did something similar in the mid-1980s.
http://www.theguardian.com/business/economics-blog/2014/nov/09/us-iran-r...
The Saudi regime has always been very "accomodating" where US Policy (official and otherwise) is concerned, and this reaches back many decades.
You may wish to consider the "very convenient" Oil Crisis just at the time Concorde was developed, which severely dented sales potential, in favour of the far less technologically significant 747. The conclusions drawn by Bristol Aviation (and the French partners) were pretty unanimous in this respect.
Seems America is "keen on competition", only when it is to America's advantage. Any real challenge will be "eliminated" by whatever means are most expedient, as we have all seen over the past decades.
Finally! Getting so tired of the press's fallacious meme that Russia is the only oil producer getting hammered by low oil prices as in, wake the fuck up
Which of the Kilkenny cats has the longer tail? That's an easy call to make.
Which one has more FX reserves?
Which one has a smaller population to bribe?
Which one can still borrow money on the world markets?
I'll bet on Russia, since they have a history of long suffering stoicism, and while they are in pretty rough shape, they aren't surrounded by maniacs. Saudi Arabia is a nation of welfare dependents who are as spoiled and demanding as any in Detroit or Chicago......
After all the base neccesities are water, food and shelter. And Russia can grow food and has water.
Saudis can't eat or drink oil, but they can sell it for food and water. Quite a bit at 100 USD/bbl, much less at 45 USD/bbl. Hence there is no doubt at who can withstand low oil prices longer.
People always talk about how fortunate a virtue it is for Russia to be filled with people inured and accustomed to hopeless suffering.
Well they've had a lot of practice, but they have been known to have the occasional revolution too.....
True.
"A nation of seventy million suffers, but it does not die"
Erzberger was referrring to Germany in that particular case but the sentiment is, unfortunately, universal in scope.
Lately, here on ZH we can read only about russia, putin, russia, putin, again russia and again putin. And how great they are.
US is bad, china bad, UE is terrible, Canada-of course-nightmare but russia is just great. Nevermind its one of the poorest and corrupt country in the world. Just that doesn't matter because putin is playing chess. OMFG,aren't you guys sick of it? Or are you paid for that? :)
WTI in the 20s will shit right in Canadas parade, consequently making self immolation look merciful.
Keep whining, ill give you some moar good news.
RIPS
Hey Mandea, China bad?? UE who? Canada's a nightmare?? Russia one of the poorest and most corrupt country in the world? What website are you reading, www.kyivpost.com?
In fact, Russia is a middle income country... are you sure you didn't confuse Russia with the Ukraine, the poorest country in Europe with the worst economic performance in the world??
http://knoema.com/nwnfkne/world-gdp-ranking-2015-data-and-charts
Of course the zh supercommies are paid for it.
russia has simply everything.
saud has oil and sand
Exactly. The Saudi's are also among the laziest and most poorly educations populations globally.
Russia is the only nation that is able and willing to stand up to American hegemony and put an end to it.
Perhaps because Russia is the only nation that is realistically capable of turning North America into radioactive ash.
If some other nation would step up to the plate they would get accolades too. Perhaps more than Russia.
You know, this is all about financial considerations. It hardly matters which population is stupider or more propagandized.
What matters is the burn rate and the amount of savings that can fuel that burn rate and the ability to replenish the funds being burned.
Saudi Arabia wins on all three counts. They may be stupid and lazy, but they're gonna win a petro-war with Russia. Again.
So, what are the 'burn' rates of Russia and Saudi Arabia, respectively?
Oh, stop it as well.
Because they can borrow money on the world market, the Saudi burn rate is effectively zero.
Because they have 700 B in FX and Russia has 340 B, they also have more than double the initial stake to work with.
But you go ahead and pretend that Russia can outlast Saudi Arabia if you want to.
I am not going to pretend anything. I'd really like to know. It would be interesting to bet against the Saudi Riyal peg, 3.75 SR against the USD, under the assumption that their currency will likely devalue.
I do not trust the accounting for Saudi Arabia OR Russia. All governments lie.
Something we can agree on.
That all govenrments lie.
Personally, I do not put my money on side "bets" where the actual players are allowed to both lie and change the rules whenever they want. Makes me complicit in their actions to some degree. And I lie enough as it is. I don't need to add to the burden I will have to answer for.
"russia has simply everything"
. . . including adult leadership.
Russia/Iran/China
One man enter, two men leave! One man enter, two men leave!
Yes, one of your (self-professed) moral and intellectual superiors was actually that dim in his youth...
However, in this case, the dimwit would be right, because this isn't happening in a vacuum, and there isn't necessarily only one casualty, just like in the Hollywood version.
The Russians can survive very long under extreme conditions, the Saudis are just pampered Poodles.
Well, the 1980s test match between the Russian bear men and the Saudi poodles ended in a 1-0 Saudi victory.
The 1980s - This is the result of betrayal of Gorbachev and nothing more.
This is all bullshit. When oil prices were climbing north of $100 a barrel these "analysts" were all claiming that the Sauds didn't have the capacity to ramp up production and bring down oil prices, and now they expect us to believe that the house of Saud is single handedly bringing down the price of oil. They don't know wtf they're talking about. This is a clear case of demand destruction because we are in a global depression.
correct, +1
if you're an oil producer regardless of country boundary you're hurting right now, it's a buyer's market and the buyers are tapped out... cash is king
I believe you are correct Dr.E
My personal oil consumption is 20% of what it was 2 years ago due to lifestyle changes.
Two things. Why this author is an idiot.
As stated in the article.Russia's economy 52% oil dependent vs Saudi 90% oil dependent. Russian oil is slightly cheaper so guess who outlasts who.
Russia can pull its jets out of Syria tomorrow and the Ukraine is quiet. Their air ops in Syria are estimated a about 87million a day and are only committed for 3 months or about a billion or a couple billion a year. That time-frame can be extended of course. Whoopee, they have 350 billion is reserve still so could do this for 359 years if need be.
Saudis on the other hand are in a bogged down death match with the million man Hothis on their border and getting their butt kicked as of late.
some recent gems in the news as of late
Russia completely paid off 50 billion of some external debt of some kind of old debt to China the other day. and their outstanding debt is not that large vs GDP I think around 17%
Hothis launched a scud attack on a saudi airfield killing a supposed 66 air force commanders and destroyed 17 F16s they bought from Isael. OUCH if true as it comes from Iran news.. The Sauds are also resorting to sending paid Sudan troops to Yemen to fight.
Saudis are burning through cash at an astronomical rate but the Russians have barely started to blink. And, they are at risk of ISIS turning around and heading the other way from Iraq and already 2 instances of ISIS attacks.
The Saudis are hitting the bond markets pretty hard lately.
The Sand Man and his petrodollar buddy are sweating bullets right now.
No sweat, the Saudis have Mecca and Medina lein rights to finance their agenda, and the Jewish bankers are buying, Muslims are used to paying the zionist toll to get near their sacred meteorite. https://en.wikipedia.org/wiki/Black_Stone
Exactly - it's comparing a lottery winner to a functioning economy.
@cowdiddly: As Jim Willie pointed-out a while ago, the price of oil has fluctuated very little in rubles compared to the stuff the Saudis are using for the most part?
Yes, that nutcase Jim Willie called this one hands down. These new Saudi rulers are a bunch of blithering idiots compared to the older ones and King Abdul that died.
Well, he's been calling a lot more than that hands down, not sure if you follow him closely or not.
I almost feel bad about how much I enjoy seeing bad news for the Saudis. ...almost
When the Bible proclaims (Romans 1:18-20) that God gave them over to a reprobate or useless minds one must ask what does that look like in our time, space, matter box? One answer is we have the ruthless Saudi's lording over the UN's human rights position.
I feel sorry for the many or multitudes of people who believe, based mostly on ignorance and depravity, the bible is an ancient relic with no value except for a few stories about a flood, a big tower, a wilderness experience and a big fish story and in addition a story of a baby who grew up and saved the world who had good character who was put to death unfairly by some Romans. But never to be taken seriously despite it being like an old anvil that has broken many hammers.
They outlasted Napoleon and Hitler, I believe they can outlast a bunch of Western lackeys.
They didn't outlast Ronald Reagan and King Abdullah.
King Abdullah is dead, Vlad looking good.
The Saudi succession is intact. Vlad comes from a new line of kings. The old one got burnt out.
Putin does not want to be king. There is a monarchist party in Russia but he has nothing to do with it. At the end of his second term some people in Russia suggested changing the constitution to make him a king and he refused.
Now, if you were to say he comes from a new line of presidents, I would agree.
If Obama were to declare Martial Law, and he will, then what will he be called in the long-term? Dictator, Prime Minister or King? Doesn't matter, then are only titles, but the result is the same. Putin already has a "title" in effect, but not technically, the King of Russia...just try to dethrone him though.
Actually they did. Russia is still alive.
A lot smaller than it used to be.
And Saudi Arabia appears to be the same size as before.
Maybe it's only me but virtually everything you write on this site is some flavor of utter BS in my opinion anyway? Anyone else?
Nice point.
Russia lost the Cold War. Plain and simpe Regardless of what the actual mechanism was,
eg, Raygun's peace-time weapons build, unsustainable Soviet econ, etc. What we are seeing is the Russian reaction to the
NATO push toward the Russian frontier. This has been going on since 1991 or so, and, at some point, the Russians were going to react.
They did. Seems their border and "far abroad" allies are what will get them to react (DUH!). Unfortunately, if you are a Russian,
you are, in the words of GS PATTON, paying foe your real estate twice. It would be akin to the US having to exert resources,
military, political, economic, etc, to maintain influence in Alaska or Hawaii in the case of Ukraine and Georgia and maybe England
or Canada in the case of Syria.
Yaaa, i could actually see Iran holding oil off the market for 6-12months to placate Russia. NOT!
stupid crap post
common knowledge those two gone
while Russia lives
Oh, Volky, you disappoint me. Reagan and Abdullah are people. Russia is a nation.
But the CCCP is just a memory.
CCCP had debt and an empire that was ready to break apart, plus a president who didn't realize liberalization would result in dissolution.
Russia has little debt and its president has 80+ pct favorable rating, plus he stomped on secessionist provinces.
Why not just bomb the fuck out of saudi? Win, win win for Russia. Oh, and bomb Israel too.
Anyone that has hundreds or thousands of nukes at their disposal is not going to be outlasted. Unless the people they "govern" rise up.
I am sure they can both survive until the frackers go belly up. then the US banks will have to deal with several hundreds billion $ of defaulted debt. I think it quite undecided yet just who will be carried out on their shield.
I read elsewhere on ZH today that as long as USA banks indulge in ZIRP then the frackers will find somebody willing to finance them, somehow. Frackers are going down, but it might be more of a glide than a plummet.
I wonder how long SA can hold out.
Since when are customers obliged to buy a particular product from a particular provider?
Instead of simply accepting that fact, and strategizing based upon it, both Saudi Arabia and Russia play the Geopolitical Proxy War game... AND THEY ARE NOT THE ONLY ONES!!!
And why?
Because they both offer Social Benefits to their populations that are paid for with oil money...but they book and announce them as largesse from the 'Great Nation' or 'Great Ruler', rather than as benefits totally contingent upon uncertain sales.
That's not going to work.
Prices go both UP and DOWN. If a commodities' dropping price derails an entire nation because people won't accept that Uncle Sugar can't send them something-for-nothing, then the problem is not one of economics, but of morality. Something-for-nothing to one human is Nothing-for-Something to another human.
Rulers are not gods. They cannot make manna fall from the sky. They can only take one person's JUST gains and make them into another person's UNJUST gains...at the cost of future production that the robbed individual will never essay.
An individual can steal their way to prosperity if clever enough.
But a society cannot.
Oil is probably forming a diamond: Reversal or Continuation?
goldenopportunitytrading.blogspot.com
So Putin's got to be careful what he does to Saudi Arabia, since his partner China is quite dependent upon Saudi cheap oil, at least for the short term.
But once the Chinese soon have their strategic reserves filled to the brim, that dynamic changes somewhat.
Putin should be able to then pressure Saudi Arabia via the back channels, and via its new dominant position in the Middle East, to become range-bound on its production where Putin says it should be. Timing is everything here.
Low prices are still good for the short to medium term to make sure US shale goes bust for the foreseeable future. But I would posit that once we're past that event - perhaps in another year, watch out for Putin's sledgehammer on the Saudi's towel heads....
'Russia bears the extra burden' as long as, or until, Germany decides to give the high hard-one to the 3-letter acronym spook agency that has all the dirt on politicians and their sexcapades... Germany remains the key lynchpin in much of this hullaballoo.
You have got to wonder what they have on Merkel. Any politician, in their right mind, in her position, would not be welcoming all those refugees as if they were a gift from heaven, as she has been doing
I wonder sometimes if the dirt was from her days in East Germany. But then, she seemed to be toeing the USA line extremely closely after the Snowden-NSA leak came out. Maybe NSA has more recent dirt on her?
He (with a little help from Mr. Soleimani) should just knee-cap these Fuckers while mommentum is on his side.
I just returned from Sochi and Moscow. The people I know said that things are more expensive than in the past, but on the surface everyting is flourishing. I did see a putin memorabilia vending machine at the Moscow airport that surprised me.
Stratigically the Russian population is intelligent, educated, hardworking, and well, sane. While the saudi population is medieval, paracitic, and a giant religious cult.
These two deserve each other and WILL go down together.
Russian hasn't paid some of their workers for months, how the hell do they continue this war in syria and sell oil at a loss. When do the banks finally shut them off.
This article is biased towards Russia. If Russia is in such pain, how come they are still increasing their reserves (in gold). I visited Russia in September and everything is very busy, something new under construction everywhere! New companies appearing. The construction of the second cosmodrome is also still continuing (yeah, despite the fact that some government money disappeared there and Putin had to personally intervene, scold everyone and put things in order again as usual). Rosneft said that their production cost is only 4USD and that they could manage even with the price of 20USD per barrel. And they still are able to feed and take care of the people from Donbass (who are economically blocked by Ukraine) plus some 2.5 million Ukrainian refugees. (So the comment about "shrinking population" in Russia is silly, as they now have a huge influx of new population from Ukraine:-)
As if this was not enough, Russia is still securing its hold in the Arctics and will even add more new nuclear icebreakers to its fleet.
Russia will also build a gas pipeline in Pakistan. Russia is also building nuclear plants all over the world. In conclusion, Russia is very busy increasing its reach all over the world (not just militarily) and thus securing future profits. They will suffer a little in the meantime, but no big problem. Comparing Russia (with its space, defense and other industries) with Saudi Arabia is simply stupid. Saudis do not produce anything else than oil.
"second cosmodrome is also still continuing (yeah, despite the fact that some government money disappeared there and Putin had to personally intervene, scold everyone"
I saw that, too. Nobody looked happy. At least this time Putin didn't call everybody cockroaches. A few years ago he had to knock heads together over a concrete plant that had months of salary arrears, and the disgruntled workers blocked a highway until he and his retinue came out for a meeting. He accused the company management of running around like cockroaches right before he showed up. He then forced his pet oligarch, Deripaska, who was also part owner of the plant, to write a check for the back salaries. Then Putin demanded the pen back. Classic.
Russia creates its on fiat. Does Saudi Arabia?
Another FUD article from ZH authors. It's OK. Afterall this ABC affiliates networks. But i noticed a lot has enlighted themself. That is just great!!
Wellcome to the enlighted club guys/gals. Don't mind the trolls.
It's typical of these GCHQ/NSA file:
http://cryptome.org/2012/07/gent-forum-spies.htm
You should expect, more "panic" trolls, when you got more enlightened. Good for you. Good for you...
and this is also interesting! - Digital Sovereingty - this can help decrease expensive imports and help the Russian economy even more
Russian companies are increasingly buying homegrown software to avoid international sanctions, posing a challenge to the likes of Microsoft Corp. and Oracle Corp. in the country’s $3 billion local market. For example OAO Sberbank’s life insurer in February started an online service running local operating system Rosa-Linux using an open-source PostgreSQL database, skipping alternatives from Microsoft, Oracle and International Business Machines Corp.
President Vladimir Putin’s government has laid out a plan to cut foreign program reliance to less than 50 percent by 2025. Banks and energy producers were among the first to answer Putin’s calls for “digital sovereignty,” after some were targeted in several waves of sanctions in March 2014.
The Communications Ministry wants all state-controlled entities to buy from a list of domestic providers it’s compiling and plans to offer support to domestic developers worth about 3 billion rubles this year. A draft law requiring companies to choose local suppliers or explain why they can’t has already passed the first stage of lawmaker approval.
Author: your charts suck. I recommend you try ThinkCell and make it pretty.
In the past only the prospect of war in the Middle East would rise oil prices. Not so today, think about that.
LOL, Oilprice strikes again. The Russians can easily outlast the Saudis, because apart from the oil and gas they have virtually every other resource available to them, they have water, agriculture and strong military sector, - the Saudis cannot even compare to any of that. And the fact is that all these USSA moves to "isolate" the Russians, kick them out of European energy market actually makes them stronger since they will diversify their income from the oil/gas to other sectors, it's not easy, but it is happening, not just because of sanctions, but because of the low oil prices. The Russians in the long term hold all the cards no matter how you cut it and I can perfectly understand why USSA views the Russians as their primary threat - that is because the Russians really have no weak links - they have all the resources to survive, their people are resolute, resourceful and tough and they have the largest nuclear stockpile on the planet... so USSA has a huge problem on their hands - they can surely do a lot of damage by restricting access to funding, but they cannot do much more really as they cannot overthrow the government and install a puppet regime and they cannot bomb and occupy the Russians..
Yup.
And....there are not many Russian Religious study grads from Uni...In Saudi, 40% of university grads have degrees in basically reading the Koran. Go ahead, build and economy wiht that.
Russia leads the world in mathematics and physics....they produce some of the best engineers in the world.
The house of Saud will fall before this decade is up and Saudi Arabia will fracture.
Squid
my bet is USA and Co. will likely give the Saud a bailout via a IMF type program so it can keep doing whats it doing
"While the sharp decline in crude prices has saved crude consuming nations hundreds of billions of dollars . . ."
HAHAHAHA
HAHAHAHAHAH
Yeah, but when did the consumer see prices drop?
Hahahahaaa!