Trading Jenga: Russia
Major changes are afoot on the Russian energy front. Lower prices and supply interruptions have not slowed Mr. Putin’s restructuring and expansion of Russian energy control in the area.
This is visible in the gas, electricity, and crude oil markets. In December 2015, Russia, Georgia, Armenia, and Iran signed a joint venture agreement to operate these four countries’ electricity transmission systems as a single entity to save energy and optimize electricity during periods of rationing.
Recent BBC video of Russia sorties in Iran paints a rather amazing picture of Mr. Putin’s ability to play multiple hands of cards. Bombing on the ground while negotiating joint venture partnerships seems like the USA prior to its wars in IRAQ and Afghanistan. The Russian oil production increased over 35% in 2015. This oil commodity was not used to meet internal demand. It became a major international export. Russia became the largest crude oil supplier to China in 2015. A new energy power puzzle is underway.
This energy situation requires a currency hedge. The currency trade for the Chinese Yuan versus the Rubble favors China. Expanded Russian crude markets probably make up for this factor when examining the trade from Russia’s perspective, if you ignore the cost of war in Iran.
Will Russia pursue crude oil markets previously supplied by Syria? Over fifty percent of Syria has departed in an attempt to avoid the war and find a soft landing place in Europe. Syria’s crude oil exports include France, The Netherlands, Germany, Italy, Spain, Austria, and Turkey. These are the same countries experiencing large amounts of Syrian refugees as they travel across Turkey into the Mediterranean Sea in boats.
What defines a war versus a skirmish? Over 600 sorties have been launched in Iran by Russia. Recent use of Russian planes to drop medical supplies and food into the region further confuse matters. The recent collapse of both the price of crude and the Russian ruble are signposts for global leadership to anticipate a major war in IRAN. Will war in Iran reduce global crude output and strengthen Russia’s ability to remain an international superpower?
The Russian energy business is almost a monopoly. Natural gas shortages still impact eastern Europe. The Russian electric grid is subject to weather. Stability has not been achieved. Gazprom’s expanding role in energy in Russia has created a major powerhouse capable of competing against the Vitol, Trafigura, and Mercuria in international energy trading. Gazprom supplies natural gas to Russian and 30 countries. Gazprom controls the world’s largest gas distribution systems of over 168,000 kilometers and one of the world’s largest natural gas reserves.
Gazprom can create a position of power as a swing supplier for the Middle East and Asia. Can Russian energy giants structure a trading book to compete with those in the west? Huge swings in oil prices hit below the belt and reduce foreign imports for Russia. Russian oil supply output has increased and could be used to target Syria’s crude oil customers.
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