Ever since the KGB crawled back into power, it got by on the Saudi effect using oil and gas revenues from nationalized companies to create the appearance of prosperity, but now no longer able to depend on the oil and gas billions, Vlad the Impaler is in big trouble.
Serious energy analysts in Europe spent many years trying to warn Gazprom exactly of these types of outcomes. But the problem now, is that the gas world has transformed so far beyond anything Russia can be begin to comprehend from shale shifts, that it will never be able to maintain its global stake
That’s before you consider the incredibly smart hedging strategy China has put in place on the buy side, judiciously signing tepid ‘memoranda of understandings’ with Russia, while sourcing actual supplies from Central Asia, Australasia, the Middle East, West Africa and even North American markets, as the latest fertilizer to grow Beijing’s hedges a little higher. China’s own unconventional production will hit 100bcm by 2020. You get the picture. Global shale developments have been rocketing ahead; Gazprom was caught sitting on its hands, watching the gas world change around them.
But Putin needs the money more than ever. The generals want to keep arming and the Russian public is angry over a regime that seems to care less about them, while its elites polish their golden knickknacks.
The Putin regime depended on Gazprom and with Gazprom shaky and too many dirty hands taking the money along the way, the austerity will be passed on to the public while the regime glorifies itself.
The easy days are over for Russia. After years of rising oil prices that poured ever more revenues into the nation’s coffers, it now faces tough decisions on spending.
A draconian budget plan, due to go before parliament on Friday, symbolizes the new era of austerity. And it raises big questions about how exactly Russia will make its books balance in the years ahead.
“The problem is that we have ourselves limited our expenditures – which is very correct,” Finance Minister Anton Siluanov said at the Reuters Russia Investment Summit this week, “in order to reduce our oil-and-gas dependence.”
“On the other hand we have to fulfill the decrees of the president … How can we do all this? Of course it wasn’t at all simple.”
It’s completely impossible. The cuts will have to come somewhere and they won’t hit the lavish public spectacles or the bribe networks. Foreigners will be squeezed more, which will drive more foreign businesses out of Russia.
“If the oil price goes down to say $60 and stays there for say a year the government has enough resources,” Guriev told the Summit. “If it stays there for two years the government will run out of cash and will not be able to borrow, because the markets will say: ‘We know you are gone.’”
Here’s the sticking point, if conservatives win in America and elsewhere, domestic drilling will go into high gear and the price of oil will drop. If the price of oil drops, Russia is wiped out.