What Happens to the Mighty Russian Bear With Oil So Low

Interesting tidbit of info I gleaned somewhere recently, but can't remember exactly where. Apparently Russian will fail to run a budget surplus if oil falls below $80 a barrel (already there) and the global financial crisis of 2008 has hammered the Russian markets and seems to have hurt its economy as well. This has forced the Russians to pump billions of dollars from their national 'rainy day fund' into the markets and banking system, providing a double-whammy on the rainy-day fund: busted banks and a possible budget deficit and little left to cover it. (No, I don't know the exact numbers, but the gist is that the money might run out at some point.)

How does Russia cope with oil below $80 a barrel? Yes, they still have all that natural gas but still, with my knowledge of Russia, it looks like the Bear is in for some rough times. What might they look like and how might they manifest themselves? Will Russia be able to keep the Ukraine and Georgia out of NATO? (I think they will, but it will be, for lack of a better word, taxing.) Anyone else have thoughts? Brian? Liquid? ES? JPD?

Sean Paul Kelley October 17, 2008 - 4:37am

Sean Paul Kelley's diary | printer friendly version |

( categories: Analysis | Russian Federation )

If I was on their side of the chess board

facing those choices, and was getting pushed hard enough, I wouldn't be considering meek acceptance. I'd be making sure I had options in hand that sent a message and hiked the price of oil back up at the same time. Speculating on what those might be isn't cheery.

"The best-informed man is not necessarily the wisest. Indeed there is a danger that precisely in the multiplicity of his knowledge he will lose sight of what is essential."

- Dietrich Bonhoeffer

Escher Sketch October 17, 2008 - 5:23am

If I were Russia

I'd shut the spigot for about a month.

Bet you're glad I'm not Russia.

I did inhale.

Don October 17, 2008 - 6:39am

Iceland

You are a little bit late. Russia's credit default risk being priced:

Aren't they still negotiating with Iceland over 4 billion euros? And additionally financing their own banking sector with tens of billions.

I think the limit for oil price is $70, but the amount of oil produced matters too. They opened two new oil fields in Siberia. Their transport capacity is scarce, though, for one or two years.

Singular October 17, 2008 - 11:23am

I seem to recall the thinking is that OPEC...

...intends to support (defend, whatever the proper term is) oil at the $80 mark. Dunno enough about Russia's production to know what mean price level that translates to for their specific production (my understanding is that Iran, for example, trends a bit lower, on average).

From where I sit, when Russia's trending to problems might not be my ideal time for doubling down on the encirclement thing. If they're poor, they're likely to put more of their deterrent eggs in nuclear baskets - conventional parity has got to be an awful lot more expensive (and probably a generational project). Topol-M they can do... Dunno, pretty far from my speciality, I'm afraid.

“The absence of any US-Iran bilateral channel...may have the perverse effect of reinforcing Iranian interest in progressing in the nuclear realm so that the US will be forced to take it seriously and engage it directly." ~ Richard Haass

JustPlainDave October 17, 2008 - 7:44pm

OPEC may take action to prop up oil prices

Production cut could come next week, but some analysts wary

Kristen Hays | October 17

Houston Chronicle - OPEC's swift move to meet next week sparked widespread assumptions that a substantial production cut is coming to bump oil prices to at least $80 a barrel, but not all seasoned analysts see it that way.

"I doubt that very much," said Fadel Gheit, an oil analyst with Oppenheimer & Co. in New York.

"I think OPEC is trying to talk up oil prices, but they could risk throwing the economy into a deeper recession. Higher prices hurt consumer confidence and spending, and that will make it difficult to pull out of a recession," Gheit said.

Mary Novak, an analyst with Global Insight, said only three of the 13 members of the Organization of the Petroleum Exporting Countries have the flexibility to cut production below quotas — Saudi Arabia, Qatar and the United Arab Emirates. Others, including Nigeria, Angola, Venezuela and Iran, are at or below quota levels and they need those oil dollars whether they come in at $140 or $70 a barrel, she said.

"We have this idea that they have flexibility they no longer have, both in terms of production and financial need. But they have bigger populations and social welfare programs, and they need every dollar they can get," she said.

JustPlainDave October 18, 2008 - 7:27am

Well known liars

What OPEC has said, has been a good contra-indicator historically.

Singular October 18, 2008 - 8:55am

And/or it may be that they...

...have less control over the top end of the price band than is commonly thought (at least by the general public) - but I'd wager they've more control over the price floor, given current circumstances.

JustPlainDave October 18, 2008 - 1:40pm

Russia

may not have the largest reserves, but at the moment they are the world's largest producer of oil.

They cut the gas off and places like Urkraine freeze to death.

Russia's ability to fuck up this world should not be underestimated.

I did inhale.

Don October 18, 2008 - 11:29am

Something is going on

Russia has planned her budget based on $70 oil price in 2009. And I think that their fiscal year 2009 has started.

I don't think that the rising sovereign default risk of Russia can be completely based on the oil price. The market is seeing or sensing some other problems.

Reuters spreads rumors that Iceland is not going to receive Russian money. It seems that Russia doesn't have money either and the credit risk is not rising without a cause.

Singular October 18, 2008 - 9:07am

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What Happens to the Mighty Russian Bear With Oil So Low

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