The Russian economy (catch all)

[kaur]

Putin And Gazprom

Gazprom is a unique phenomenon in the Russian political and business life. In 2007 proceeds by Gazprom amounted over $93 Bn, which is 7% of the Russian GDP. This is 2.5 times as much as our defense spending. Gazprom’s share in the industrial production is over 12% and in the cost structure of the Russian export is about 16%. The company makes about 43% of the Russian production of primary energy carriers and has similar share within the structure of the national consuming the energy resources. Gas supplies by Gazprom secure up to 40% of production of electric energy in the country. In fact, Gazprom is an energy core of the Russian economy. Stability and prospects of our economy depend greatly on effective and reliable working by the Company.

http://en.novayagazeta.ru/data/2008/63/00.html

[Watcher In The Middle]

Oil prices sustaining Russian aggression
Oil is still trading above $100 a barrel, but the recent trend is sharply downward from the July peak of $140.
By Martin Hutchinson

Russia’s central bank intervened to support the rouble last week, as foreign analysts estimated $21 billion had been pulled out of Russian securities following its incursion into Georgia.

The central bank sold $3.5-4 billion in reserves to stop further depreciation of the rouble. With nearly $600 billion of currency reserves, Russia can afford to support the rouble. It can ignore foreign bleating in the short term. Once oil prices drop, life will become tougher for Russian consumers. That’s when the West will have some leverage.

Moscow’s stock market has fallen 25% since July. Since less than 1% of Russians own stocks, this may not matter domestically. As a result, so long as oil prices remain high, Russia’s aggressive foreign policy and poor governance record have few economic, or political costs.

Link To Article

What's even more interesting is Russia's "breakeven point" on oil prices. They don't get top dollar for their crude (it's not "sweet" enough), so their overall 'bundle' price is likely under $100 a Bbl., and their "break even price" is probably above $60 a Bbl. by now, so they don't have enough to go around (increasing consumer spending, increased government spending, and greatly reduced access to external capital), with the result that spending on infrastructure has to stagnate, because there's just not enough capital - they will be tapped out. And if oil production falls, which appears to be happening, they'll be in a world of serious hurt.

The marketplace is extremely unforgiving, particularly these days.

Ask yourself a question - Putin is one very, very smart operator. Methinks he can do the math as well as anybody, and better than most. He's got a society which has a full stomach of rising economic expectations, and so far the meal's been pretty good. Now they are expecting the main course - where's it going to come from? Maybe his "stepping down" was a classic example of being "Time to get out when the getting's good."

Thoughts?

[Ron Humphrey]

Link To Article

What's even more interesting is Russia's "breakeven point" on oil prices. They don't get top dollar for their crude (it's not "sweet" enough), so their overall 'bundle' price is likely under $100 a Bbl., and their "break even price" is probably above $60 a Bbl. by now, so they don't have enough to go around (increasing consumer spending, increased government spending, and greatly reduced access to external capital), with the result that spending on infrastructure has to stagnate, because there's just not enough capital - they will be tapped out. And if oil production falls, which appears to be happening, they'll be in a world of serious hurt.

The marketplace is extremely unforgiving, particularly these days.

Ask yourself a question - Putin is one very, very smart operator. Methinks he can do the math as well as anybody, and better than most. He's got a society which has a full stomach of rising economic expectations, and so far the meal's been pretty good. Now they are expecting the main course - where's it going to come from? Maybe his "stepping down" was a classic example of being "Time to get out when the getting's good."

Thoughts?

I'd been hoping to see,but dont count out him being able to pin it on Med and come out smellin like roses

[Watcher In The Middle]

Russia's Stock Markets Tumble To Lowest Levels in Two Years
Falling Oil Prices, Political Tensions Erode Confidence
By ANDREW OSBORN Dated: September 10, 2008

MOSCOW -- Russia's stock markets slumped to their lowest levels in more than two years as falling oil prices and geopolitical tension sapped confidence.

Moscow's ruble-denominated MICEX index tumbled 9.1%, its worst showing since June 2006, while the dollar-denominated RTS index skidded 7.5%.

Investors and analysts said the drop didn't appear to be driven by news developments so much as worries about Russia's economic and political outlook amid weak markets around the world.

"The political-risk premium is high, and we'll have to live with that," said Marcus Svedberg, chief economist at Stockholm fund manager East Capital, which has about $3 billion invested in Russia. "There seems to be a lot of forced selling."

Link to Article

Here's the two nuggets that caught my eye:

The Economy Ministry predicts inflation will top 11.8% this year. The government's budget is based on a price of $82 a barrel of Russian Urals crude at a time when it has fallen to less than $100. It closed Tuesday at $97.76.

The Economy Ministry forecasts 7.8% growth this year, while the central bank is holding reserves valued at almost $582 billion.

These budget numbers can work for this year ($82 per Bbl. budget), assuming that forecast production levels are met. But the per Bbl. average yearly yield for this year is probably high enough, so unless it's a big shortfall, they'll be ok. But for next year's budget, that's a real issue. There's certainly going to be no level of tax reform on hydrocarbon production, not with those $80+++ a Bbl. budget costs, and likely increases on top of that.

No wonder Western investors (like BP) are moving their money out of Russian investments. The numbers tell you that it's pretty obvious who's next in line to be clipped.

[Watcher In The Middle]

Russia halts trading after 17% share price fall
By Catherine Belton and Charles Clover in Moscow and Rachel Morarjee in London
Published: September 16 2008

Russian shares suffered their steepest one-day fall in more than a decade on Tuesday, losing up to 20 per cent, as a sharp slide in oil prices and difficult money market conditions triggered a rush to sell.

The heads of the Russian central bank, the finance ministry and the financial market regulator met on Tuesday night for an emergency discussion on ways to halt the crisis.

Earlier, trading had been suspended on both the Micex and RTS stock exchanges as investors ignored assurances by Russian officials and a cycle of distrust set in amid liquidity fears.

Margin calls forced domestic traders to liquidate positions and brokers pulled credit lines. At least one Moscow bank failed to meet payments.

Link to Article

Wow. The investor class in the Russian markets (limited as it is) just moved "en masse" to the exits. No doubt about this one. And the biggest problem is that the Russian government's got no cards to throw out there, because nobody trusts them. And for a bigger hit, oil prices today (Light, sweet crude for October, 2008 delivery settled at $91.15 a Bbl.), with Ural crude normally running $4-6 a Bbl. cheaper, so Russia's getting close to facing some serious economic problems.

Right about now, Russia should contact the Western powers and tell them that for $300 billion, continued G8 membership, and guaranteed WTO membership in 2 years, they'll pull totally out of Georgia (including the 2 disputed provinces) and sign a ten (10) year peace treaty type deal with Georgia, and for that matter, the Ukraine also. For Russia, this type of deal (a) Gets you additional financial resources before you actually hit crisis time; (b) Get both territorial issues out of your hair - they are costing you scarce resources you don't have to spare; & (c) Re-creates a working geopolitical and economic environment and gets you out of this "Mexican Standoff" environment you are in right now. Will this cause political problems at home - you bet, but guess what, you're already there.

Now's the time to get creative, because if you are Russia, your biggest threat you have to deal with is that there is a complete lack of both confidence and trust on any basis at all. Your neighbors, business partners, the markets, and virtually all other nations - virtually nobody's in your corner. You've got to get them back, and the longer you wait, the deal's only going to get you less.

There's a lesson to be learned from Lehman Brothers - don't wait, tomorrow it will only get worse, and the deal gets worse.

Ok, this is my "Hopelessly Optimistic" post of the day.

[Schmedlap]

All 10 of those reasons are explanations for why Russia will not restore its former stature as a great power through economic growth. While some of those issues are pertinent to Russia's current strategy, I think the big picture concept is off base. Russia is not attempting to embark upon economic revitalization. Russia is seeking to regain power and reassert itself. Economic growth is one way to do that, but Russia knows that such a strategy will not work due to its corruption and negative population growth. That is why it is attempting to grab resources, assert influence in the Caspian, and establish relations with countries like Iran. It needs streams of income from petrodollars, from countries who will give economic assistance in return for security assistance, and to blackmail other countries over issues like gas pipelines and waterways.

Russia is a country that thinks it SHOULD be great, but it isn't. That is frustrating. It WANTS to be great, but won't be and can't be so long as it suffers from negative population growth. They know the clock is ticking. Because of Russia's negative population growth and the primitiveness of its institutions, the tried and true method of restoring a country's economic health is not compatible with achieving great power status in this generation. It only has the time and resources to do one or the other. It can reform or it can gamble on a belligerent foreign policy to try to rewin its perceived rightful place in the world. So what to do? Fearing that negative population growth will win out before education of its people and reform of its primitive institutions can run their courses, it apparently is opting to go all-in with a belligerent foreign policy designed to stoke nationalist sentiment through regain of lost satellite countries and to fund the state with the capture of natural resources, influence over strategic corridors, and relations with rogue states who need Russian assistance.

This is a desperate, cornered animal that will one day lash out when its gambles inevitably fail to pay off. The sad thing is that we have no incentive to help Russia succeed in its current misguided course and we also have no incentive to hasten its disintegration because we're not ready to deal with that many loose nukes. Contrary to the view that we are making Russia feel corned by way of NATO expansion, Russia is making itself feel cornered by not facing up the reality of its lost superpower status. Russia sees its current mediocre status as the walls closing in around it, rather than recognizing that the size of the room hasn't changed - it's just that the country's stature is shrinking. It's no longer an enigma in a riddle or vice versa. It's just a giant delusion with a lot of nukes and some leaders with a taste for imprudent risks and brinksmanship.

The more willing (NATO) allies and the better (SDI) defenses we have prepared, the better off we will be when this time bomb finally detonates.

[Ken White]

Vlad says he's going to increase the Russian Defense budget by 27% next year. Deja vu all over again indeed...