El-Erian Says Things Are Set To Blow In Russia

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El-Erian: Something has to give soon in Russia
Nov 11 2014, 13:36 ET | By: Stephen Alpher, SA News Editor
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  • “The [Russian] central bank’s retreat from propping up the ruble highlights the fix the country is in," writes Mohamed El-Erian. He notes the central bank's initial intervention response to sanctions helped halt a disorderly decline in the ruble, but the collapse in oil prices and pickup in capital flight have overwhelmed this strategy.
  • "Something will have to give in the next few weeks. The country’s foreign-exchange situation could spin further out of control, at one extreme, or the Russian authorities might respond strongly with a range of fiscal and monetary measures, on the other, including higher interest rates and spending cuts." Either one, says El-Erian, is sure to pressure economic growth even more in the short-term.
    http://seekingalpha.com/news/2116275-el-erian-something-has-to-give-soon-in-russia

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  • I find this very concerning as there is another option not mentioned: the Russians could take action to drive up the price of oil, say by fomenting trouble in the ME. Or they could launch a full-scale invasion of Ukraine, then use their presence as leverage to get concessions.

  • WW II with Japan was started in the aftermath of increasingly punitive sanctions applied to Japan by FDR's administration. Finally, the Japanese had had enough and responded.

  • We are playing a far more dangerous game iwth Russian than the public realizes or would approve of. It's ironic that obama's incompetent foreign policy managed to stumble into a confrontation in the one place where we had no vital interests, Ukraine.
 
Yep, Japan was being effectively cutoff from its primary energy supplies which at that time were mostly in the Dutch East-Indies (Indonesia) when they attacked. My grandfather managed to get captured on Sumatra when the Japanese invaded and occupied.

This is starting to look like the oil glut of '81. I was working in exploration at that time and got laid off so its a pretty clear memory for me. The difference this time is that we have the ability to export and in fact have become a net exporter so the boom could continue for some time. Folks may stop looking for oil if prices drop further but there has been such a huge amount of production introduced in the west that OPEC is starting to have less direct influence on price.

Low crude prices really devastate Iran and they hurt Russia considerably. I think the current oil situation has more to do with technology and policies implemented before Obama. but it is definitely having an effect on Iran, Venezuela, Russia and some of the emirates pretty much all enemies of the USA.

The problem for Russia is they don't make many products that anyone wants aside from oil and natural gas so they are dangerously under-diversified and are finding out quickly that they are vulnerable. They no longer have their client states and they are being pushed out of the commercial space industry as I write this.
 
Yes, as stated above, currency wars and low commodity prices have both been known to create tensions between countries in the past and sometimes leads to war.
 
Opec has also been suspected of collapsing the price on purpose to cause higher cost producers out of the business.
 
jem said:
Opec has also been suspected of collapsing the price on purpose to cause higher cost producers out of the business.
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They can definitely shake out the exploration types and some of the shale production processes but there is a lot of old fashioned drilling going on too.
 
I remember stories about wells having to be capped once prices go below a certain number the last time oil prices fell. I do not know... but I wonder if there is such a number now. For instance... below 70 dollars for 3 months and production gets cut long term by x percent.

I would bet the oil companies and the Saudi's have such models.
 
Spike Trader said:
Not to mention Putin is a common crook.
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He is. But no more than any other politician. Including the ones we have in Congress and the White House.

At least in Russia, it is known openly that corruption drives the system. Here, we try to pretend that corruption is outlawed and the rule of law is in place. Personally, things are much easier in Russia. Having lived there for years, I'm speaking from experience.
 
Spike Trader said:
Not to mention Putin is a common crook.
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It must gall you that Putin has an 80% popularity rating in Russia, while Obama's is less than half that.

It still baffles me why Obama is so determined to challenge Putin. I believe it all stems from Putin's refusal to go along with gay propaganda at the Olympics. That really infuriated obama.

Putin is a hard man, no question, but the Russina people truly seem to believe he has the interests of their country first and foremost. Who could say that about our president?
 
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