Tuesday, March 4, 2014

U.S. is in the Hands of Putin

The U.S., like it or not, irrespective of whether one is rich or poor, dumb as a bag of hammers or razor sharp, is in the hands of the Oil exporters. Particularly Saudi Arabia and Russia. Especially Russia.

I have my doubts about what is being reported is what is really going on inside of Ukraine. Dmitri Orlov's analysis has merit, but ultimately, and at this moment (and I reserve the right to change me mind on a dime), I think Dmitri is incorrect; or perhaps I should say that I think my scenario is just slightly more probable.

Of course, I lack Dmitri's native Russian experience... in this he has it all over me... but I think Putin just put (most of) his cards on the table, and I think that this has been in the contingency plan playbook for some time now. Please keep in mind that I do not think Putin is a boogey man like much of the U.S. establishment does. In fact, I think he is a first rate SOB with a serious talent for chess. I grew up in a "chess home". Chess players are simply better at combinational game theory than Lawyers. President Obama is a nice guy. His staff is bright. They probably see what has happened here, maybe even saw it coming... and realize that they can't do a damn thing about it.

The Russian political establishment are ALL chess players; the U.S political establishment are ALL lawyers. Please don't take this as a shot at lawyers. It is not. Lawyers make fine wordsmiths, and sometimes that's what you need. An experienced trial lawyer would be the next best thing to an accomplished chess player - those guys can think many steps ahead - but that's not what the U.S. has running the train set. In the final analysis, Russia and the East just won't be doing as much business with the U.S. and will be much more keen on doing business between themselves in the future and will be more interested in cutting the U.S. out of the transaction than supporting U.S.$ hegemony.

Russia, unlike Saudi Arabia has the means at its disposal to defend its Oil, Nat Gas, and Coal resources. But we are really talking about Oil.

Russia is the second largest Oil exporter in the World - over 7,000,000 bpd, or about 20% of the world export market. Putin knows, with absolute certainty, that the end is coming for Oil exports, Russian or otherwise. He knows, with certainty, that the end is much less than 20 years away. Not the potential end - the real end. As a chess player, he must know that it is better to make your move when the board is not forcing your hand. Russia has been waiting for the West to move king's knight to Ukraine, and we just did. That knight has been beheaded. Will Russia now go directly for the Queen (Checkmate is not as valuable in this case and at this moment)? We shall see.

Russia does NOT have to remove all of its exported Oil from the market. 3mm bpd would be enough, me thinks, and allow them many more years of net exports and acceptable internal conditions. But just for sh**'s and grins, Putin could, to make his point, hold up all 7 million bpd for just a week, smash asset prices the world over, and restart negotiations with a much weaker adversary. Or something like that.

(For those that think that with U.S. imports declining that this is no big deal: The removal of several million bpd of Oil exports might well firm oil prices as it weakens Russia's political adversaries. If they cut their exports by half, and the price of Oil rises 50%, Russia is still getting 75% of what it was getting on a current basis, but will dramatically increase the total take over the life of the exportable resource.)

Russia (Putin) is going to do what is in their best interests. Nothing more, nothing less. Ergo, the big question is:

Is it in Russia's best interest's to do this now? If so, they will do it, and they will do it now, and everything else is just freebee negotiating. They can make all kinds of demands, all of which the West will acquiesce to, and then will do whatever is in its best interests anyway. Its just cold, calculating chess. If it is not in their best interests to do this now, then they won't. I don't know exactly what is in their best interests at the moment... I am going to noodle it, but that doesn't mean much. We will find out soon enough. If they pull the Oil from the market it will be far more interesting than 1973's oil embargo.

And all of that nonsense, shouting and screaming, huffing and puffing, sucking and blowing you hear from the U.S. political class? They have no power to do anything about this and are merely posturing for the next political election cycle here. They will blame Obama, G.W. Bush, the Right, the Left, the Middle, the Up, the Down... but its just chess.




15 comments:

PioneerPreppy said...

Oil and Nat. Gas are only a single playing piece. Maybe two pieces. Putin laughed at the sanctions threat. Russia and China both know the US is screwed along with the West in general. All the welfare debt that has come with the social engineering has rendered us powerless when dealing with these nations. Certainly Russia and China would take a hit too if they do anything but it won't cause their governments to collapse or society to explode and start killing each other.

Greg T. Jeffers said...

Exactly my point.

Russia can weaken its political adversary tremendously while only marginally harming its people and with NO HARM or risk to the government.

If it were me? I would cut Oil exports in half, but I would do it over the course of 1 to 2 years, gradually increasing the withholding rate over time. See just how much the market can take.

Greg T. Jeffers said...

This situation is very serous stuff.

Anonymous said...

Excellent post and it has given me a lot to think on.

Idaho Homesteader

Anonymous said...

Think again: Putin may not be holding as many cards as he thinks. The Russian ruble dropped to its lowest level ever against the US dollar and Euro on Monday. Russia is bleeding investment and capital flows to the range of $17 billion monthly, and they can't afford to have the world boycott them economically. Gazprom and Sperbank, the two largest stocks on the Russian stock exchange fell 10% on Monday while the Dow fell less than 200 points. The world is starting to agree with Chancellor Merkel that Mr. Putin may have lost touch with reality. Good article in the FT which touches on this point - really the only newspaper with quality journalism not tainted by political bias.
http://www.ft.com/intl/cms/s/0/cf1ec118-a099-11e3-8557-00144feab7de.html?siteedition=intl#axzz2v1fKk8GB

Stephen B. said...

Maybe I'm just an ass, but for some reason, I find myself rooting for the Russians and not my own country and I think the reason is that somehow I've grown to respect Russia and Putin more than my own, squishy-soft countrymen and government. Indeed, if there is an "us versus them" in this, that, in and of itself, is our fault.

After what we've done in the Mideast over the past generation we have absolutely no right to complain when Russia moves in to stabilize a country on its immediate border, especially a country with so many ethnic Russians. I don't fully understand the Ukraine situation, but it does seem clear there is more to it than just a naked, imperialistic power grab on Putin's part.

Our own country has grown so pathetic in its hypocrisy.

BTW, this was an excellent blog post today.

Stephen B.

Greg T. Jeffers said...

Hey Anonymous:

Please register or use a nickname/handle. I don't debate straw men.

I don' think Putin would be terribly concerned about capital flows in my suggested scenario - and I did not say that this was a "for sure". I think this is the most likely explanation, but there are lots of other possibilities here.

Greg T. Jeffers said...

Just read the FT article.

Talk about inane and vacuous analysis. The writer should not be employed as a journalist unless working as a theatre critic.

PioneerPreppy said...

Stephen B has hit the nail on the head as to why Putin holds all the cards in this game.

Russia, China, Japan, any non-Western country could live through a long protracted economic war. Sure it would hurt them but they are not addicted to trillion dollar deficits just to keep their failed social engineering experiments going.

Two weeks into an economic war with no access to free money and the good ol US of A will begin tearing itself apart.

And it won't just be EBT welfare babies either it will be the millions of Affirmative Action government employee pensioners and easy money makers as well.

The US has made it's bed and now it must lay in it. Those of us who have not been a participant in the great government give away admire Putin's skill in a way.

tweell said...

After the breakup of the Soviet Union, Ukraine gave up their share of nukes to Russia in exchange for a treaty signed by Russia, US and UK guaranteeing their borders.
Why is our Lame Stream Media not pointing this out? IMO, to cover O's backside, and the media's longtime allegiance to socialism.

This is indeed serious, it is the obvious and repeated repudiation of a treaty. Countries used to go to war for such things. Of course, countries used to go to war over the killing of diplomats, especially ambassadors.

Obama is sooooo beyond those conservative kneejerk reactions!

Greg T. Jeffers said...

Tweel:

I don't find the president lacking here in any discernible way. The dumbest thing that he could do now would be to push Putin into doing what I am talking about.

This battle cannot be won with bullets and bombs... In fact, I don't think this "battle" can be won.

Therefor I don't think it should be fought. Oil exports, outside of Canada's tar sands, are absolutely, positively coming to an end.

How is it in our interests to wage war over them given that set of circumstances?

Anonymous said...

Risking war over the Ukraine is not in our interests however, Putin appeas to be going in for the kill. Specifically he is trying to drive a wedge between us and our allies (think KSA and the gulf states, China, et. all.)

Rather than retype what I just commented on Pioneer Preppy's blog I'll copy it here:

"...Putin isn't done ratcheting up the pressure yet. I think he fired an ICBM, making nuclear threat, specifically to invoke section 4 of the Budapest Memorandum on Security Assurances because it is the only part of the treaty requiring us to take specific action. The rest of the treaty only requires us to refrain from taking certan actions.

If that is the case; either we seek a UN Security Council resolution aginst Russia, as specified in the treaty; or our security guarantees are shown to be worthless and we lose all international support. Only part of our foreign alliances is military; why exactly, do other countries hold our debt. Obama could be the next Gorbachev.

http://www.un.org/en/ga/search/view_doc.asp?symbol=A/49/765

Best,
Dan"

I wonder if we brought the resolution before the Security Council weather Russia would veto it. Somthing tells me they wouldn't, they want to back us into a corner.

Best,
Dan

tweell said...

Alas, Russia also controls logistics to our soldiers in Afghanistan, so holds them hostage, so to speak. Pakistan has been unreliable at best, and we can't support them with flights in from carriers. Obama is doing the right thing there - ordering them to get ready to evacuate ASAP.

My point is that the US's word is also at stake here. Luckily, no one really expects Obama to do anything.

I bet the Ukraine was wishing it hadn't traded nukes for a treaty. That lesson is being noted by other nations around the world.

Greg T. Jeffers said...

Hey Dan,

Would you please expound on that a bit more?

I think you are making a good point, I just need a little more, and maybe some links regarding this if you have any

Greg T. Jeffers said...

Tweel,

Good point about Russia and AfStan Logistics.