Greedy Goblin

Monday, December 22, 2014

Russia and the "oil weapon"

The news is all over with the financial crisis of Russia and the naive explanation: "The USA used the oil weapon against Russia." This is bullshit. Oil isn't a weapon, it's a free market product.

Wars are negative-sum actions as weapons cost money. The war in Iraq cost $2T (two-million times million dollars). That's $7000 for every US citizen, including children. On the other hand the "economic war" against Russia costs nothing to the USA. It earns them money.

The embargo against Russia is symbolic and has negligible effect (even according to US sources, that's why they demand more from Europe). The reason of the collapse of Ruble is the oil price crash. In a year, crude oil price halved. The USA government didn't (and couldn't) do that. They had an effect of its sharpness, by buying oil into strategic reserves (at high) and suddenly releasing it (at low), but had they done nothing, the price would drop the same - just over a longer time. This is a very basic supply and demand problem: oil demand is decreasing because China and Europe are both slowing down and changing to greener energy systems. Supply is increasing because fracking technology turned the USA from an oil importer to an exporter and everyone else (including Russia) uses this technology to mine more oil. Finally, the power of OPEC diminished, since they no longer control majority of the supply, so their artificial supply-decreasing moves no longer serve them.

Why does this nonsense about the "Oil Weapon" spreads? Because it serves everyone:
  • Washington can claim "we are hitting the Russian aggressors hard", which sounds much better than "we can't do shit against the Russian actions in the Crimea and Doneck".
  • Moscow can claim "we are paying for defending our sovereignty" which sounds much better than "we didn't fix our economy while we could and lived on oil money while it lasted".
  • The OPEC members can claim "we are cooperating with the Americans in a grand scheme, prices will return after", which is much-much better than "countdown to failed state"
So the situation is both good and dire to the Russians. The good thing is that they are still winning the war in Ukraine and the "world leading" USA can't even touch them. The bad thing is that they will have to say goodbye to their oil income forever and have to build a new economy based on products and services created by Russian people instead of just sprinkling up from the ground.

PS: 7/7 normal, 6/7 HC, only with random groups:

PS2: I often link "capital battles" between CFC and Mordus or Marmite, where the CFC capitals are jump freighters. But this one is a real capital battle with dreads, carriers, titans, faction battleships and clear Mordus victory (I don't know if the NPC loki killed by Goons is a MoA alt or just was very unlucky).


Another Byte on the Web. said...

South America and the middle east should also become better places in the long run with lower oil prices. Too many failed governments rely on this to sustain unsustainable systems.

daniel said...

"fracking" is when you exploit gas, not oil.

Esteban said...

The power of OPEC (actually, the power of Saudi Arabia) to influence oil prices heavily is still very much in place. And unlike on previous demand-slump occasions, the Saudis refused to cut supply.

I am not much of a conspiracy theorist, but the idea of the US-Saudi axis taking advantage of low demand to wage an oil price war on the Russia-Iran axis makes basic sense to me. Russia is in a lot of trouble with no shots fired.

Fracking, btw, is mostly irrelevant in the low oil price context. Below $60 a barrel, fracking's dead, and the US goes back to being a net importer. And the current US administration hates fracking for environmental reasons...

Provi Miner said...

opec is pushing the price lower to kill the Fracking industry as it is a direct threat to them. However, and I suspect they know this, it doesn't put the genie back into the bottle. Even if these low prices kill off this current crop of Frackers the tech is there anytime oil goes over $60 they can restart instantly with proven reserves. It is an oil war just on an corporate level. Also we all know russia won its getting onto the end of the december still mild in europe but once the cold hits russia has everything they need to force europe to be its personal bitch. easy to talk tough apr to dec much harder to talk tough while your citizens are freezing in jan-march. Oh one final thing this US admin has about 40 days left till its anti oil policy runs into a brick wall and dies a very quick death.

maxim said...

The "good and bad" things for Russia actually sound more like "good and good" to me :D

OPEC seems to only be paying lip-service to USA. The actual intent seems to be punishing USA for getting into oil market by keeping the prices so low that the USA production of oil becomes financially nonviable.

USA entered the world oil market, OPEC is pushing against it, prices drop. The effect all of this is having on Russia at this junction appears to be more of a side story.

Anonymous said...

" Also we all know russia won its getting onto the end of the december still mild in europe but once the cold hits russia has everything they need to force europe to be its personal bitch. easy to talk tough apr to dec much harder to talk tough while your citizens are freezing in jan-march."

Unless like last year, it does not get cold. Also, Russia supplies 1/3 of the gas to Europe, which, while significant, is not absolutely necessary.
Half of the EU imports go to Germany and Italy. One of those countries does not get particularly cold in the winter.

Anonymous said...

Oil isn't the only thing.
It's impossible to build all the wind parks with the resources we have. same goes for solar panels. Production wastes drinking water and other precious resources and also pumps the ohh so bad CO2 into the air.
Electricity and electronics are a bitch. Sure we need alternatives to oil, so it can be used for more useful stuff like medicine. But as long as there are no immediate deaths, businesses as usual.
Remember it's not build to last.

Anonymous said...

OPEC is flooding the market with cheap oil for one reason, and one reason only: to bankrupt US oil companies before they can profit from hydraulic fracturing.

Anonymous said...

US has no collerations with OPEC? Are you kidding me? US is everywhere where oil is. Coup d'├ętat in Venezuela, war in Iraq, trying to invade Iran because of the "suspected" nukes (yeah, we know it from somewhere, don't we?). The truth is that Russia and China said that if US invade Iran they would take actions.

The reason behind oil price drop is to destabilize Russia because it (and China) was the only countries that assured Iran of it's independency on choosing a currency to trade their oil with. Iran wanted to trade in euro, and US got scared that their petrodollar will be doomed.

"...oil demand is decreasing because
China and Europe are both slowing down and changing to greener energy systems". This is SOO untrue, that I actually feel sorry for you and your ingorance. - China Oil Consumption

If you look at EU on the site above, the consumption actually lowers, but it doesn't matter since China is eating more. And there are still countries in EU which main source of energy is oil and coal.

Besides, I assure you that within ONE year we didn't do THAT much here in EU towards greener energy. At least not enough to justify oil dropping so much.

One advice for you my friend: don't write about politics, stick to games 'cause you're better at this.

maxim said...

I don't like Stratfor (premier US analytic agency) and i don't like Friedman (the public face of said agency), but i can't deny the professionalism of their approach to analyzing various political topics.

Here is their take on Russia:

Yaggle said...

I think it's strange that most people at least in the U.S. do not even understand what is going on in Ukraine. All people know is that it's us vs. Russia so we have to win. The media here talks a lot about the oil, and how Russia is 'crumbling' but hardly ever talks about Ukraine except the issue of the plane that was shot down and how it must have been the Russian backed separatists/pro-Russia loyalists(I actually do believe that although I am doubtful how they should be labeled). But the other fighting that is going on, and the battle still going on in Ukraine for the people's loyalty never gets talked about. I don't think hardly anybody really knows what is going on. You said Russia is winning in Ukraine but I did not even know that.