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6 reasons Russia does NOT want a higher oil price

Though counter-intuitive, there are several grounds Russia may want less entering its coffers from petroleum

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(bne Intellinews) – Russia is the world’s biggest oil exporter (with crude and oil products combined) and it is earning approximately $5bn more per month with the price of oil in the mid $60s than it would with a price in the mid $40s, the level at which the federal budget is based. So why does it appear the government is not comfortable with the current oil price, which surged from just over $50 per barrel in early October to just under $64 on the back of rising tensions in the Middle East? And why it may not agree to an extension of the production deal with Opec, in an effort to bring the price back below $60?

At first glance that certainly seems like a crazy position to take. But, when viewed in the context of the global oil and renewable energy market trends and, especially, against the backdrop of Russia’s changing fiscal and industrial priorities, it makes perfect sense.

Moving beyond oil vulnerability. Russia’s oil minister, Alexander Novak, indicated in early October that he favoured extending the Opec-Russia production deal into late 2018 (from the expiry in March) because it was slowly restoring supply-demand equilibrium and needed some more time to be effective. But that was when the price of Brent was drifting in the $50-55 range, which suits Russia’s best interests. If oil were to fall back to the mid $50s when the current deal ends, then Moscow would likely support an extension. But, if oil stays in the $60-65 range, or higher, then support for a deal extension is very unlikely.

The reasons for that counter-intuitive position are that it:

(1) Creates a risk of another collapse in 2018. The higher the price of oil rises then the greater the risk of more investment into, e.g. US shale and Canadian Sands projects, which, as was seen in 2014, risks a big increase in global supply.

One of the reasons why the oil price has been well supported in the mid-$50s in Q3 is because of the disruption to US production due to the flooding and storms in states such as Texas. That lost production is now coming back and the growth rate could be much higher if more projects are made commercially viable with oil trading in the $60s or higher. The International Energy Agency reported that total US oil output fell to an average of 12.9mn barrels per day in Q3 this year. It expects production to average 14.1mn b/d in Q2 next year, or an increase of 1.2mn b/d. It has already said that, with $65 oil, it will raise its forecast for later in 2018 and 2019 much higher.

Moscow has had to deal with the economic and social consequences of two recent oil price collapses, in 2008-09 and from 2014. The former was relatively short-lived while the latter was blended with the sanctions and blamed on Western economic warfare. The damage from a third collapse would likely greatly outweigh the financial gains to be made from higher oil in the meantime.

(2) Higher oil boosts alternative energy investment. Looking beyond the medium term, the higher oil price also boosts funding for alternative energy projects, such as renewables, and in the development of more efficient and cheaper electric engines and batteries. That was very clear in 2010-2013. There has been a slowing of the investment momentum since the price of oil fell steeply in late 2014 and in 2015. A more stable price in the mid $50s would preserve the hydrocarbon-renewables ratio for much longer than would be the case with a much higher oil price.

(3) Russia is more focused on economic diversification. Russia saw that the oil-driven growth model, which created the boom that drove the value of Russian GDP from $199bn in 1999 to almost $2.25 trillion in 2013, had already become much less effective after 2013. The economy had started to outgrow oil. In 2013, Russia’s GDP grew by only 1.3% or one-third that of two years earlier. That was despite the price of oil remaining close to $110 per barrel all year. Russia now needs to focus more on diversification and boosting economic and industrial efficiency. The “laziness” and “complacency” which comes with higher oil revenues could damage that programme and slow the currently positive momentum.

(4) May make it harder to prevent ruble appreciation. The fiscal rule is working in that the rising oil price is not pulling the ruble higher. Historically there was a close correlation between the ruble and oil but that is now broken. In the past a rise in the oil price boosted the ruble exchange rate, but the following graph shows that in the last three months Brent went from $56.5 to $64 while the ruble-dollar rate went from 57.5 to more than 60.

The Kremlin administration and government officials have been consistent in their message that a weaker ruble is much better for the economy than a higher ruble. The weaker ruble boosts competitiveness and helps both export-orientated industries and reduces import demand.

The fiscal rule mechanism means that the finance ministry is converting more rubles into foreign currencies the higher oil taxes go, thus increasing downward pressure on the ruble. So far that is working. The price of oil has appreciated almost 15% since the start of October while the ruble has lost 3% against the dollar. Pre the fiscal rule such a move in the oil price would have driven the ruble-dollar rate to 49. The fear is that oil in the mid $60s, or higher, would create more speculative interest in ruble assets and, possibly, would make the fiscal rule mechanism less effective.

(5) Could increase pressure for more spending. Currently there is a debate over what should be the next government’s budget policy. The debate is essentially between the fiscal conservative and spending reform agenda, sponsored by former Finance Minister Alexei Kudrin, and the more expansionist plan, sponsored by the Stolypin Club and supported by the big state sector companies. Higher oil revenues would make a compromise more likely and further reduce the momentum towards budget reform.

(6) Russia has made the move from oil dependency. In general, partly because of the evidence which started to emerge in 2013, i.e. that oil was no longer a powerful growth driver, and partly because of the actions forced on Russia by the 2014 sanctions, the country has now started to more seriously move on from the previous hydrocarbon dependency. This year less than 40% of budget revenue will come from oil and gas taxes, compared to 51% in 2014. The budget, based on the fiscal plan, is on course to balance at an oil price of approximately $44 in 2021. It needed $115 in 2013.

All of this compares a lot more favourably with the typical Opec-country model and are powerful reasons why Moscow is today more comfortable with a sustainable price in the $50s than closer to the mid-$60s.

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Foreign Banks Are Embracing Russia’s Alternative To SWIFT, Moscow Says

Given its status as a major energy exporter, Russia has leverage that could help attract partners to its new SWIFT alternative.

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Via Zerohedge


On Friday, one day after Russia and China pledged to reduce their reliance on the dollar by increasing the amount of bilateral trade conducted in rubles and yuan (a goal toward which much progress has already been made over the past three years), Russia’s Central Bank provided the latest update on Moscow’s alternative to US-dominated international payments network SWIFT.

Moscow started working on the project back in 2014, when international sanctions over Russia’s annexation of Crimea inspired fears that the country’s largest banks would soon be cut off from SWIFT which, though it’s based in Belgium and claims to be politically neutral, is effectively controlled by the US Treasury.

Today, the Russian alternative, known as the System for Transfer of Financial Messages, has attracted a modest amount of support within the Russian business community, with 416 Russian companies having joined as of September, including the Russian Federal Treasury and large state corporations likeGazprom Neft and Rosneft.

And now, eight months after a senior Russian official advised that “our banks are ready to turn off SWIFT,” it appears the system has reached another milestone in its development: It’s ready to take on international partners in the quest to de-dollarize and end the US’s leverage over the international financial system. A Russian official advised that non-residents will begin joining the system “this year,” according to RT.

“Non-residents will start connecting to us this year. People are already turning to us,”said First Deputy Governor of the Central Bank of Russia Olga Skorobogatova. Earlier, the official said that by using the alternative payment system foreign firms would be able to do business with sanctioned Russian companies.

Turkey, China, India and others are among the countries that might be interested in a SWIFT alternative, as Russian President Vladimir Putin pointed out in a speech earlier this month, the US’s willingness to blithely sanction countries from Iran to Venezuela and beyond will eventually rebound on the US economy by undermining the dollar’s status as the world’s reserve currency.

To be sure, the Russians aren’t the only ones building a SWIFT alternative to help avoid US sanctions. Russia and China, along with the European Union are launching an interbank payments network known as the Special Purpose Vehicle to help companies pursue “legitimate business with Iran” in defiance of US sanctions.

Given its status as a major energy exporter, Russia has leverage that could help attract partners to its new SWIFT alternative. For one, much of Europe is dependent on Russian natural gas and oil.

And as Russian trade with other US rivals increases, Moscow’s payments network will look increasingly attractive,particularly if buyers of Russian crude have no other alternatives to pay for their goods.

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US leaving INF will put nuclear non-proliferation at risk & may lead to ‘complete chaos’

The US is pulling out of a nuclear missile pact with Russia. The Intermediate-Range Nuclear Forces Treaty requires both countries to eliminate their short and medium-range atomic missiles.

The Duran

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Via RT


If the US ditches the Intermediate-Range Nuclear Forces Treaty (INF), it could collapse the entire nuclear non-proliferation system, and bring nuclear war even closer, Russian officials warn.

By ending the INF, Washington risks creating a domino effect which could endanger other landmark deals like the Strategic Arms Reduction Treaty (START) and collapse the existing non-proliferation mechanism as we know it, senior lawmaker Konstantin Kosachev said on Sunday.

The current iteration of the START treaty, which limits the deployment of all types of nuclear weapons, is due to expire in 2021. Kosachev, who chairs the Parliament’s Upper House Foreign Affairs Committee, warned that such an outcome pits mankind against “complete chaos in terms of nuclear weapons.”

“Now the US Western allies face a choice: either embarking on the same path, possibly leading to new war, or siding with common sense, at least for the sake of their self-preservation instinct.”

His remarks came after US President Donald Trump announced his intentions to “terminate” the INF, citing alleged violations of the deal by Russia.

Moscow has repeatedly denied undermining the treaty, pointing out that Trump has failed to produce any evidence of violations. Moreover, Russian officials insist that the deployment of US-made Mk 41 ground-based universal launching systems in Europe actually violates the agreement since the launchers are capable of firing mid-range cruise missiles.

Leonid Slutsky, who leads the Foreign Affairs Committee in parliament’s lower chamber, argued that Trump’s words are akin to placing “a huge mine under the whole disarmament process on the planet.”

The INF Treaty was signed in 1987 by then-President Ronald Reagan and Soviet leader Mikhail Gorbachev. The deal effectively bans the parties from having and developing short- and mid-range missiles of all types. According to the provisions, the US was obliged to destroy Pershing I and II launcher systems and BGM-109G Gryphon ground-launched cruise missiles. Moscow, meanwhile, pledged to remove the SS-20 and several other types of missiles from its nuclear arsenal.

Pershing missiles stationed in the US Army arsenal. © Hulton Archive / Getty Images ©

By scrapping the historic accord, Washington is trying to fulfill its “dream of a unipolar world,” a source within the Russian Foreign Ministry said.

“This decision fits into the US policy of ditching the international agreements which impose equal obligations on it and its partners, and render the ‘exceptionalism’ concept vulnerable.”

Deputy Foreign Minister Sergey Ryabkov denounced Trump’s threats as “blackmail” and said that Washington wants to dismantle the INF because it views the deal as a “problem” on its course for “total domination” in the military sphere.

The issue of nuclear arms treaties is too vital for national and global security to rush into hastily-made “emotional” decisions, the official explained. Russia is expecting to hear more on the US’ plans from Trump’s top security adviser, John Bolton, who is set to hold talks in Moscow tomorrow.

President Trump has been open about unilaterally pulling the US out of various international agreements if he deems them to be damaging to national interests. Earlier this year, Washington withdrew from the Joint Comprehensive Plan of Action (JCPOA) on the Iranian nuclear program. All other signatories to the landmark agreement, including Russia, China, and the EU, decided to stick to the deal, while blasting Trump for leaving.

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Kiev ‘Patriarch’ prepares to seize Moscow properties in Ukraine

Although Constantinople besought the Kiev church to stop property seizures, they were ignored and used, or perhaps, complicit.

Seraphim Hanisch

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The attack on the Eastern Orthodox Church, brought about by the US State Department and its proxies in Constantinople and Ukraine, is continuing. On October 20, 2018, the illegitimate “Kyiv (Kiev) Patriarchate”, led by Filaret Denisenko who is calling himself “Patriarch Filaret”, had a synodal meeting in which it changed the commemoration title of the leader of the church to include the Kyiv Caves and Pochaev Lavras.

This is a problem because Metropolitan Onuphry of the Ukrainian Orthodox Church which is canonically accepted and acts as a very autonomous church under the Moscow Patriarchate has these places under his pastoral care.

This move takes place only one week after Patriarch Bartholomew I of Constantinople unilaterally (and illegally) lifted the excommunications, depositions (removal from priestly ranks as punishment) and anathemas against Filaret and Makary that were imposed on them by the hierarchy of the Moscow Patriarchate.

These two censures are very serious matters in the Orthodox Church. Excommunication means that the person or church so considered cannot receive Holy Communion or any of the other Mysteries (called Sacraments in the West) in a neighboring local Orthodox Church. Anathema is even more serious, for this happens when a cleric disregards his excommunication and deposition (removal from the priesthood), and acts as a priest or a bishop anyway.

Filaret Denisenko received all these censures in 1992, and Patriarch Bartholomew accepted this decision at the time, as stated in a letter he sent to Moscow shortly after the censures. However, three years later, Patriarch Bartholomew received a group of Ukrainian autocephalist bishops called the Ukrainian Orthodox Church in the USA, who had been in communion with Filaret’s group. While this move may have been motivated by the factor of Bartholomew’s almost total isolation within Istanbul, Turkey, it is nonetheless non-canonical.

This year’s moves have far exceeded previous ones, though, and now the possibility for a real clash that could cost lives is raised. With Filaret’s “church” – really an agglomeration of Ukrainian ultranationalists and Neo-Nazis in the mix, plus millions of no doubt innocent Ukrainian faithful who are deluded about the problems of their church, challenging an existing arrangement regarding Ukraine and Russia’s two most holy sites, the results are not likely to be good at all.

Here is the report about today’s developments, reprinted in part from OrthoChristian.com:

Meeting today in Kiev, the Synod of the schismatic “Kiev Patriarchate” (KP) has officially changed the title of its primate, “Patriarch” Philaret, to include the Kiev Caves and Pochaev Lavras under his jurisdiction.

The primate’s new official title, as given on the site of the KP, is “His Holiness and Beatitude (name), Archbishop and Metropolitan of Kiev—Mother of the cities of Rus’, and Galicia, Patriarch of All Rus’-Ukraine, Svyaschenno-Archimandrite of the Holy Dormition Kiev Caves and Pochaev Lavras.”

…Thus, the KP Synod is declaring that “Patriarch” Philaret has jurisdiction over the Kiev Caves and Pochaev Lavras, although they are canonically under the omophorion of His Beatitude Metropolitan Onuphry of Kiev and All Ukraine, the primate of the canonical Ukrainian Orthodox Church.

Philaret and his followers and nationalistic radicals have continually proclaimed that they will take the Lavras for themselves.

This claim to the ancient and venerable monasteries comes after the Holy Synod of the Ecumenical Patriarchate announced that it had removed the anathema placed upon Philaret by the Russian Orthodox Church and had restored him to his hierarchical office. Philaret was a metropolitan of the canonical Church, becoming patriarch in his schismatic organization.

Representatives of the Ecumenical Patriarchate have clarified that they consider Philaret to be the “former Metropolitan of Kiev,” but he and his organization continue to consider him an active patriarch, with jurisdiction in Ukraine.

Constantinople’s statement also appealed to all in Ukraine to “avoid appropriation of churches, monasteries, and other properties,” which the Synod of the KP ignored in today’s decision.

The KP primate’s abbreviated title will be, “His Holiness (name), Patriarch of Kiev and All Rus’-Ukraine,” and the acceptable form for relations with other Local Churches is “His Beatitude Archbishop (name), Metropolitan of Kiev and All Rus’-Ukraine.”

The Russian Orthodox Church broke eucharistic communion and all relations with the Ecumenical Patriarchate over this matter earlier this week. Of the fourteen local Orthodox Churches recognized the world over, twelve have expressed the viewpoint that Constantinople’s move was in violation of the canons of the Holy Orthodox Church. Only one local Church supported Constantinople wholeheartedly, and all jurisdictions except Constantinople have appealed for an interOrthodox Synod to address and solve the Ukrainian matter in a legitimate manner.

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