Vladimir Putin has recently disagreed with Saudi Arabia on limiting the amount of oil to be released to the markets. This has resulted in a global crash in the value of a barrel. The implications were huge with oil dropping by 30% and the share price of global oil producers dropping by similar amounts.
This could be viewed as a dispute or disagreement between the world’s largest oil producers for which the rest of the world has yet to react to and adjust accordingly.
There is though the possibility of a more sinister situation. For the past fifty years the global financial system has been based on the American petrodollar.
Since the great financial crisis of 2008, America and many other developed countries have increased their debt levels by reducing interest rates and printing money. The underlying problems seen in 2008 have not been tackled but only made worse.
Whilst it is true that the US has become self sufficient in oil production due to fracking, the low hanging fruit has been picked and the oil companies have tremendous debt that is required to service diminishing returns. The cost of a barrel of US oil is around $70, whilst Russian is $7 and Saudi Arabia is $3. The debt levels of Saudi mean their oil has to be sold at a much higher price.
So instead of Putin playing draughts, what if he is playing chess?
He sees that the US oil suppliers have high debt and high production costs. He sees that Trump has not ‘drained the swamp’ and reduced the inefficiency and cost of government , but indeed added to it so the US debt level has reached a size that is impossible to service. Along comes coronavirus. The US starts to suffer financial problems in many of its industries as it now has supply side problems, principally from China, and also has demand problems as people are not spending money as they are afraid to travel or go out.
The US stock market was over extended due to money printing and banks are in a precarious situation. A perfect storm is in the making. Add to this problem a plunge in the price of oil and it creates a situation where all traditional actions such as further money printing or rate reductions would be ineffective.
The American bond markets are also flashing red with yields at historic all time lows.
So, is Putin playing draughts and it is a short lived tiff with the Saudis? Or is he playing three dimensional chess and using a concurrence of situations to his advantage?
Before you answer, there are two other facts that should be taken into account.
Russia has been buying large amounts of gold, therefore if Putin wished to, he could back the ruble with gold to form a hard currency petro rouble.
In 1975 whilst at university, Putin’s PhD was on ‘The importance of energy policy for future Russian economic success.’
Respectfully, Mike Jayes
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Having at one rash time in my long life created, edited and published a needed national magazine I have the fullest admiration for Viv’s stolid determination to create a much needed independent publication embracing truthful reports and open discussion on the political ills and the constitutional dilemma of our nation state. I deliberately refrain from using the word ‘unbiased’ as biased it certainly is towards our great nation which is in direct contrast to the media in general which deliberately ignores our common law constitution that enshrines, encapsulates, expresses and upholds all that we are as a nation state.
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Respectfully, Bob Lomas