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The price of oil decreasing dramatically and over a significant period of time, decrease in the ruble, huge investments required of the Central Bank funds to holding the ruble, without lowering interest, economic collapse and the need to offset the dramatic economic recession in Stabilization Fund, Moscow Strategic Reserve by the budget If we introduce these components in the equation the problem of the coronavirus crisis, the need to invest in limit the explosive impact and treat the sicktoo The political mistakes of the Russian leaderThe possibility of his expulsion from the Kremlin, just before the end of his current term in March 2024, is increasingly likely.
Political mistakes and crisis management: no room for populism and accountability
Vladimir Putin rites announced and with confidence, about a month ago, that Russia has no problem with coronavirus and that the pandemic and the explosion of the number of cases in its neighbor, China, did not affect it because it closed the state border. In fact, the Kremlin relied on that. the number of flights between Chinese cities and Moscow is not so relevantand the presence of the sick scattered throughout the expanses of Siberia the contact space with China and the Chinese commercial area is irrelevant because there are density of the Russian population It is so small that a true epidemic cannot explode. and lack of interest in human rightswe could add the right to life and proper medical treatment incorrect evaluations in the Kremlin, which exposed Putin to a reality that was different.
However, the pandemic affected the main Russian cities, mainly Moscow and Saint Petersburg, the capital of Russia and Putin’s hometown. a relevant picture taking. Russia, in the latest report on Tuesday April 21, 5642 new cases, constantly growing, and 51 new deaths, marking the fact that today he is with the United Kingdom, in the wave of exponential growth and at the forefront of the pandemic, still far from the top.
If we add that the Russian president suddenly disappeared from the foreground – it was even heard that he was in a self-isolation, after having contact with a doctor examined with coronavirus later – Vladimir Putin has denied any responsibility and he left the battle with the coronavirus of mayors and heads of regions. But what the federal government has forgotten is to give and basic resources to fight the coronavirus, respectively, funds for the purchase of protection materials, support for first-line doctors and medicines. 15-hour ambulance queues at the entrance to hospitals. showed the extent of the impact of the pandemic in Moscow.
It proves once again that populist leaders are struggling on all fronts with this crisis: it is not enough to give speeches, conspiracy theories of the wind and mark image points, possibly capitalizing on the charisma and public inclination towards the image of a man and a strong man. male.
Vladimir Putin is back, under public pressure and the image advisory council, assumed the next critical period and the fact that even more dead are coming, at the risk of contradicting themselves, but also associate your image with bad news and the death of the Russians. Absence and the president’s pendulum on responsibility – it was also left to mayors and heads of regions – it did not help at the level of public opinion, since growing economic difficulties strengthen internal problems and threaten to determine the collapse by implosion of the regime.
The problems of management of the current coronavirus crisis superimposed in Russia on internal policy issues and Putin’s personal interests, that is, to force amend the Constitution by referendum and to approve Vladimir Putin’s life sentence. The referendum that was to be held today, April 22., was postponed due to the outbreak of the crisis, but also without crisis management stutter, the support for Putin that remained in power after 2024, according to official figures, was less than 50%, with a low probability that the referendum will meet the required majority. Today the probability is even lower.
In fact, it turns out once again that populist leaders have trouble on all fronts with this crisis: it is not enough to give speeches, finish conspiracy theories and mark image points, possibly capitalizing on the charism and the public inclination for the image of strong man and macho man. Firstly, Vladimir Putin is already 67 years old and does not awaken the same emotion as before. So, in real crises, we need serious and professional peoplethan promises to make the country go through the crisis, who surrender or have never had political ambitions, battles of this type or pride or electoral interests in the foreground. here facts matter and The concrete and effective form of crisis management.
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Putin’s suicide battle over oil prices and the market dropped dramatically
The coronavirus crisis erupted at the worst time in Russia’s history battle for oil – prices and market. Based on a unfortunate recommendations from some of his former partners silovikiComing from the area of those who manage Russia’s energy resources, Vladimir Putin took over and launched a war for market share and the price of oil. He denounced the OPEC plus agreement with Saudi Arabia and the oil-producing countries and disagreed with a further reduction in production, beyond that already used and that had to be extended. I also believed that removes American shale oil from the market.
The result was immediate: Saudi Arabia started all the engines and flooded the market with oil., not only the one produced in the maximum limits, but also from the reserves, to the point where Russia had to fly the white flag and to come to the renegotiation, on your knees and not from positions of strength as you would have liked. But this time, the costs are much more important: An 18% reduction in current oil production, since technically, Russia does not have the possibility of making such a change, already committed by agreement, without closing a relevant number of production capacities, with substantial investments. Especially versatile production of American shale oil not affected as expected, closed and stored until market and price relaunch.
The situation, however, turned out even worse: Reduce world production by 9.7 million barrels of oil per zand, of the 100 million worldwide at the beginning of the crisis, it was insufficient to stabilize the price of a barrel of oil. Worst estimates of the fall of the US market or the cuts supposedly used by the rest of the world producers were too generous and optimistic. Today’s estimates even speak of the need for a triple increase in production cuts determine a viable formula at least from June for price stabilization.
Oil in negative territory for the first time in history: producers pay beneficiaries for taking their oil
The worst news came on Monday night when the West Texas Intermediate (WTI) barrel of oil was marketed for the first time in history, in negative territory, that is, at -32 dollars per barrel !!! this is the day that transactions with oil futures for May and when all those who have bought more oil try to get rid of it and the producers try to sell what they can. The result shows and cost component in the oil industry: In addition to the actual production, to reach the pump, the oil must be processed, transported, delivered or stored.
how warehouses are full and demand collapsed due to social distancing and self-isolation measures at home, producers pay consumers to take oil to ease other costs. further any cessation of production it involves a significant technological investment, making it easier for the oil well to open and for the oil to flow, regardless of whether you have to pay for someone to take that oil.
Worse yet, things unfortunately didn’t stop here: Tuesday the next trading day – April 22 – prices fell further, reaching minus $ 40 per barrel West Texas Intermediate (WTI). It is true that Brent oil, the benchmark for global oil prices, had only fallen less than $ 20 a barrel, in positive territory, but the influence on the markets is enormous: Oil from the Urals of Russia – whose negotiation price is complex, according to the origin and the place of delivery and is a state secret, because it is essential to establish Russia’s budget – it was sold in a Mediterranean country with $ 8.48 per barrel, the lowest price since 1998. Or Russia’s budget is $ 40 a barrel.
EPA-EFE PHOTO
Stabilization and multiple needs fund: oil, economy, budget, relaunch, fight against coronavirus
The cumulative economic effects of the crisis. are, however, Russia’s most important problem Putin and the mandate of the president in office. Because the price of oil has led to the collapse of the ruble and the need to The Central Bank will inject $ 200 million into the market on Monday to keep the quota at 77.3 rubles in dollars, a significant decrease if the price of oil reached the level of the Yeltsin period, the price of the ruble is also not good, and the injection of foreign exchange into the market to buy rubles depletes the Central Bank reservelong-term addition maintenance of interest rates – and not its descent anymore, as would be normal for the maintenance of the course – it is necessary for the period of launch of the economy, when restarting.
The price of oil and The possibility of drastically reducing production. – To say nothing of The possibility of reducing the current quantity three times stabilizing the price, that is, cutting Russian production in half, which is technically impossible: it shakes up the Russian economy a lot, not to mention of the budget. And we do not include here the effects of coronavirus and isolation, but strictly The Effects of Oil Prices and the Amount of Oil Sold. And estimates show that the June futures market will also be declining, according to large reserves already created and a full tanks, which threatens not to be emptied in May to take over other quantities, so as not to offer new storage places.
specifically, on April 21 at 6:30 p.m. at the closure transactions in moscow, the economic data showed the following:
- The ruble lost more than 3% in 24 hours
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Russian stocks and markets suffered significantly, turning completely red. No transaction was in excess!
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Brent oil, collapsed after lost 25% of its value on Monday, has stabilized less than $ 20 a barrel, the lowest price for over 18 years!!!
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A further decline, at a single-digit price, of a barrel of oil is also forecast.
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The ruble fell to 77.3 for a dollar, the lowest level since the signing of the OPEC plus agreement.
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In the stock market, the RTS index (related to the dollar) fell again by 1,000 points, a drop of more than 4.5% on a new day. The MOEX index related to transactions in rubles lost 1.3%.
On the other hand recourse to the Stabilization Fund It has become mandatory. Is about main financial resources that have accumulated during stable production and high oil prices, which is estimated at 12.9 trillion rubles (in early April) it is estimated that will end 2020 at 7 trillion rubles, just over half the current value, equivalent to $ 94.8 billion. The data belongs to the Minister of Finance, Anton Siluanov, presented to the state agency TASS. And it’s just about The impact of the decrease in the estimated price and quantities of oil production., respectively, compensation in the state budget.
The impact will be disastrous in Russia, and the proverbial strength of the Russians to resist will no longer be the same during the Leningrad blockade.
And former Economy Minister Maxim Oreshkin, an adviser to Vladimir Putin, claims that more than 2 trillion rubles will be injected for the oil market, to maintain the Russian giants and solve the problems generated by the price deficit for its own production. even though official support is that the Russian Stabilization Fund, formally called the National Welfare Fund will last until 2024 at the current price of oil (a significant decrease from the 6 years officially announced before the crisis), independent expert evaluations are much more pessimistic.
And the reason is not the calculation error of the two Russian officials. It’s just outside budget compensation for the current year and injection into the Russian energy industry, many problems remain to be solved: Russia announced for the first time an injection of 3% of GDP for the recovery of the economy after the crisis (amount considered modest anyway); so The effort and costs of local and regional administrations. to fight the coronavirus crisis you will need also offset by the federal budget, sometime; third, not yet announced social investment, job maintenance and paying it even at the level of technical unemployment, for these months.
We must not forget that, at the end of last year, Russia already had estimated growth of 1.2% of GDP, a level already considered very optimistic. This is while the standard of living of the population decreased last year. The impact will be disastrous in Russia and it’s possible that the proverbial force of the Russians to bear It is no longer that of the Leningrad blockade. further the crisis is torpedoing all of Putin’s known fortresses of the economic zone and the conjugation of all these factors – political errors, image crisis, crisis mismanagement, economic and social crisis – could be fatal to Putin. The implosion of the system, the melting of state structures such as during the Bolshevik revolution or the collapse of the former USSR, is increasingly likely.
