Oil-Price Drop Russian Currency Collapse: The Lunacy of the Washington-Riyadh Axis

A top story today is the collapse of Russia's currency. Yesterday, despite the central bank raising interest rates to 17%, the ruble reached the depths of 80 to the dollar before climbing back to 68. The ruble has lost half its value since the beginning of the year. 

What's the cause of this panic? The oil-price drop engineered by the Saudis. Saudi Arabia has refused to cut production despite demands from others in OPEC. Mike Whitney has a helpful primer on the issue, "The Oil Coup: US-Saudi Subterfuge Send Stocks and Credit Reeling," which appeared yesterday on the Counterpunch web site:

Here’s what’s happening: Washington has persuaded the Saudis to flood the market with oil to push down prices, decimate Russia’s economy, and reduce Moscow’s resistance to further NATO encirclement and the spreading of US military bases across Central Asia. The US-Saudi scheme has slashed oil prices by nearly a half since they hit their peak in June. The sharp decline in prices has burst the bubble in high-yield debt which has increased the turbulence in the credit markets while pushing global equities into a tailspin. Even so, the roiled markets and spreading contagion have not deterred Washington from pursuing its reckless plan, a plan which uses Riyadh’s stooge-regime to prosecute Washington’s global resource war. Here’s a brief summary from an article by F. William Engdahl titled “The Secret Stupid Saudi-US Deal on Syria”:

The details are emerging of a new secret and quite stupid Saudi-US deal on Syria and the so-called IS. It involves oil and gas control of the entire region and the weakening of Russia and Iran by Saudi Arabian flooding the world market with cheap oil. Details were concluded in the September meeting by US Secretary of State John Kerry and the Saudi King . . . 

. . . [T]he kingdom of Saudi Arabia, has been flooding the market with deep discounted oil, triggering a price war within OPEC… The Saudis are targeting sales to Asia for the discounts and in particular, its major Asian customer, China where it is reportedly offering its crude for a mere $50 to $60 a barrel rather than the earlier price of around $100. That Saudi financial discounting operation in turn is by all appearance being coordinated with a US Treasury financial warfare operation, via its Office of Terrorism and Financial Intelligence, in cooperation with a handful of inside players on Wall Street who control oil derivatives trading. The result is a market panic that is gaining momentum daily. China is quite happy to buy the cheap oil, but her close allies, Russia and Iran, are being hit severely . . . 

According to Rashid Abanmy, President of the Riyadh-based Saudi Arabia Oil Policies and Strategic Expectations Center, the dramatic price collapse is being deliberately caused by the Saudis, OPEC’s largest producer. The public reason claimed is to gain new markets in a global market of weakening oil demand. The real reason, according to Abanmy, is to put pressure on Iran on her nuclear program, and on Russia to end her support for Bashar al-Assad in Syria….More than 50% of Russian state revenue comes from its export sales of oil and gas. The US-Saudi oil price manipulation is aimed at destabilizing several strong opponents of US globalist policies. Targets include Iran and Syria, both allies of Russia in opposing a US sole Superpower. The principal target, however, is Putin’s Russia, the single greatest threat today to that Superpower hegemony.

The danger of the the Washington-Riyadh oil-price-drop strategy to bring Russia to heel is that the panic will spread globally. The Dow has already dropped close to 1,0000 points in a week, while yesterday European markets were roiled. As Jack Ewing reports in "Anxiety Over European Banks Amid Ruble Crisis," companies perceived to have exposure to Russia took a hit. Ewing makes clear this is panic selling. European banks are much less exposed to Russia than, say, for instance, tiny Greece. Part of the problem is lack of information. When the European Central Bank ran its stress tests earlier this year it failed to include Russian loans because the ruble was perceived to be stable. Now -- after a year that saw a U.S.-backed coup in Kiev, the EU herded into a sanctions campaign against Russia following Crimea joining the Russian Federation, a civil war in Ukraine, and the recent oil-price drop -- things look very different.

Adding to the nervousness on Tuesday was the lack of precise, up-to-date information about which European banks might have large holdings of, say, Russian government debt. When the European Central Bank began its examination of the resilience of eurozone lenders at the beginning of the year, a ruble decline seemed like a remote possibility. Hardly anyone anticipated the steep fall in energy prices that would undercut the Russian economy. 

As a result, the European Central Bank did not include a ruble crisis among the hypothetical scenarios it used to test banks’ ability to withstand stress. Data released by the central bank in October following the bank review provide detailed information on individual banks’ exposure to the government debt of countries like Malta or Slovenia, but not Russia. 

The European Central Bank declined to comment on Tuesday, but a person with knowledge of its bank supervisory arm said that officials were closely monitoring banks that are exposed to the Russian economy or Russian debt.

In the vacuum of public data, investors ganged up on banks and other companies known to have large Russian holdings. The targets included Raiffeisen Bank International in Vienna and the Danish brewer Carlsberg. 

Shares of Carlsberg, whose Baltika brand is the biggest selling beer in Russia, fell 7.5 percent. A Carlsberg spokesman declined to comment, except to refer to an earnings report published last month that described the Russian market as “difficult.” Shares of Raiffeisen Bank, which earned more than 70 percent of its pretax profit from its Russian subsidiary in the first nine months of this year, fell more than 8 percent on Tuesday. 

“All financials with exposure to Russia are currently suffering,” Ingrid Krenn-Ditz, a Raiffeisen spokeswoman, said in an email. “In Russia we continue to pursue a policy of selective underwriting” with a focus on customers, she added.

The flames of panic are being fanned, and on top of this the U.S. Congress has weighed in with a new sanctions bill which also includes $350 million in direct military aid to the Kiev junta. Peter Baker writes ("Obama Signals Support for New U.S. Sanctions to Pressure Russian Economy") that the legislation empowers Obama to go after Gazprom (I wonder if this means that U.S. citizens can no longer purchase Gazprom stock); it also provides for tens of millions in "democracy promotion" in the former Soviet Union:

The legislation also authorizes the president — but does not require him — to impose sanctions on international companies that invest in certain types of unconventional Russian crude-oil energy projects and to further restrict the export of equipment for use in Russia’s energy sector. And it authorizes the president to bar investment or credit to Gazprom, the Russian state energy giant. 

In addition, the legislation authorizes the provision of lethal arms to the Ukraine government, including antitank weapons, tactical surveillance drones and counter-artillery radar. Mr. Obama has resisted sending weaponry to Kiev on the theory that it would only escalate the fighting in eastern Ukraine, so it is not clear whether he will follow through on the authorization. 

The measure went beyond only penalties to authorize $10 million in each of the next three fiscal years to counter Russian propaganda in the former Soviet Union and prioritize Russian-language broadcasting in Ukraine, Moldova and Georgia. And it authorized $20 million in each of the next three years to promote democracy, independent news media, uncensored Internet access and anticorruption efforts in Russia.

But under pressure from the Obama administration, lawmakers removed elements that would have tied the president’s hands, including a provision that would have barred lifting sanctions until Russia was not only out of Ukraine but Moldova and Georgia, too, where lingering conflicts are not likely to be resolved soon. 

“President Putin bears responsibility for any outcomes that flow from his actions and breach of the international order,” said Senator Robert Menendez, Democrat of New Jersey, the chairman of the Foreign Relations Committee, who pushed for the sanctions along with the panel’s senior Republican, Senator Bob Corker of Tennessee. “The United States Congress stands with Ukraine in the face of Russian aggression,” Mr. Menendez said.

What we need are some of those millions of dollars to be spent here at home, starting with Menendez's New Jersey. If only we could have real democracy in New Jersey then the planet wouldn't be cursed with a blatantly corrupt, bought-and-paid-for neocon machine pol like Bob Menendez. The nation would also be spared the likes of dangerous Chris Christie.

And the reason I have hope is that we are on the cusp of a democratic awakening here in the United States. I am almost convinced that popular consciousness has been raised to a level sufficient to reject Hillary Clinton's presidential candidacy. What this portends -- merely a GOP victory, another false Dem messiah (Elizabeth Warren?), or an actually split in the Democratic Party with the possibility for a third-party alternative movement -- is yet to be determined. Something is definitely happening here. The power elite are out of touch to such extent that they think they can jigger and job their way out of the mess that they have created and maintain their death grip on the control switch. The status quo is so bent and corrupted the people in charge will blow up the planet to maintain the power they have amassed