Monday, July 28, 2014

Russia Will Only Get Worse. Maybe.

Putin is on the horns of a dilemna. For the first time since the dismantling of the Soviet Union, Russia faces a severe economic crisis – after enjoying years of relative prosperity – and she has a warmongering chief executive. This is a nexus of events that will shape and define Russia for at least the next decade.

Today, it just got worse:

LONDON — An international tribunal in The Hague has awarded the shareholders of the now-defunct Yukos oil company about $50 billion, in ruling on claims that the Russian government illegally seized the company from one of the country’s most powerful oligarchs.

“We are thrilled with this decision, although we know it is not the end of the road,” said Tim Osborne, director of GML, the holding company created by the Yukos founder Mikhail B. Khodorkovsky.

[…] The verdict could increase pressure on Russia at a time when its economy is already under threat after the United States and the European Union imposed sanctions on a selection of Russian individuals and companies over its support for separatists in Ukraine.

There could also be implications for Rosneft, the state-controlled Russian oil company that acquired the most important Yukos oil assets in 2007, and for the British oil giant BP, which owns close to 20 percent of Rosneft.

Now, of course, Putin is free to ignore The Hague ruling and it’s business as usual. Except Russia’s credit rating will be at risk. And it gives the West leverage over Putin and Russia at a time when he can afford neither.

You’ll notice that, while Putin pardoned Khodorovsky, there was no attempt made to restore the company to private control.

And Rosneft itself, while reporting higher earnings, has seen its oil production start to slip. There’s not $50 billion in cash reserves, I’m sure.

Politically, what does this mean? It could mean that Putin will turn his gimlet eye towards former Soviet states that produce oil and gas, and invasion and insurrections the kind that we’ve seen in Ukraine.

This would include, presumably, Uzbekistan (which has the 11th largest natural gas reserves in the world), Turkmenistan (the world’s second largest gas fields), and even Estonia, which while it doesn’t have significant energy reserves per se, does have large shale deposits, which could mean fracking, in which case, Estonia is fracked.

Conversely, if Putin is approached by cooler heads – you know, like the guy in the Oval Office – and delicately offered a way out of the problem, then the Ukraine situation itself might be resolved quietly and more important, quickly.