Basic Economics.

As in REAL economy, not this Wall Street financial BS. I already had a short exchange with Dillon yesterday on this matter, but before we get to particulars, let's recall, if one can, 1998 and default in Russia. One of the effects of major inflation which was unleashed by this default was devaluation of Ruble to US Dollar. While I omit here all this bankster mambo-jumbo, one of the effects of the weakened Ruble was the fact which at that time Judy Woodruff of CNN, being Moscow correspondent (remember when CNN was an actual news corporation?) reported with amusement: the fact that while Russian financial "markets" (financial "market" is akin to hairy baldness) were being slaughtered, Russia's industry, especially food processing, became very competitive with the flow of Western products young "Russian" so called "reformers", in reality robber barons and criminals, directed towards Russian market thus making Russian producers fight for own survival. Default corrected that and since then Russian producers never looked back. Even when hard times of 2008 or massive sanctions of 2014 happened. 

It is an economic truism that in the international economic relations a weaker domestic currency makes goods produced domestically more competitive on the international arena. That is, THAT IS, if you have the ability to produce those goods. Jamaica may weaken its Dollar whatever it wants, it changes absolutely nothing for its goods because Jamaica basically produces nothing, well, not exactly nothing (wink, wink) and weakening of its currency, in fact, makes life harder because Jamaica would have to buy more hard currency to buy goods which it really needs. It is simple as that--let's say Jamaica (or any other minor player) wants to buy a regional commercial aircraft (something like Embraer or Bombardier) for 20 million USD. For the sake of discussion let's assume Jamaican Dollar being 5 to 1 USD. In this case, for Jamaica, to buy such a plane it must have 20 million x 5 = 100 million Jamaican Dollars. But what if Jamaican Dollar weakens two fold, now it is 10 to 1 USD (exchange rate), and that means that for the same plane Jamaica will have to have 20 million x 10= 200 million Jamaican Dollars. You see how it works? Of course, Jamaica may go and mortgage a shitload of its assets for this tremendously disadvantageous rate, but no matter what Jamaica does, it needs 200 million Jamaican Dollars. 

Now comes this teeny-weeny country of Russia, which produces pretty much everything on its own, ranging from shoes and toilet paper to space ships, commercial aircraft, cars, what have you. So, say I want to buy in Russia Lada X-Ray Cross in January of 2019 for (let's round) 660, 000 ₽--I go to dealership and pay 660,000 OR $10,000 per existing exchange rate between Ruble and US Dollar then. Now, let's fast forward to March 2020. Say, I decide to buy this model now. Today exchange rate between Ruble and USD is 81 to 1. So, what would I pay for Lada today? Well, same 660,000 ₽, or....drum roll... 660,000/81= $8,148. Compare: $10,000 in December of 2019 to $8,148 in March 2020. So, Lada X-ray (and other Ladas) which, actually do sell quite well in Europe and elsewhere may drop their price in USD thus making these well-made cars even more competitive. What is going on, one may ask. Very simple explanation--unless you buy something abroad for hard currency, such as Russia buying some pharmaceutical products and pays higher price in USD (or EURO) for them due to weakening Ruble and the prices on those grow in Rubles too for domestic market, everything else what is produced home pretty much remains more-or-less unchanged. 

So, yesterday some "brainiaks" from Oilprice.com discover basic math and economic for themselves:

While the ruble is now at its lowest level against the dollar in four years, the cheaper ruble has a silver lining for Russia’s oil producers in the oil price war for market share with Saudi Arabia. The collapse of the OPEC+ deal and oil prices has hit Russia’s financial markets and currency, leading to a sharp drop in the ruble versus the U.S. dollar. The lower the ruble slides against the U.S. dollar, the lower the production costs of Russian oil companies in U.S. dollars are. To be sure, a crumbling ruble is not the preferred outcome of the oil price collapse for Russia’s monetary system and foreign currency reserves. Still, it could help Russian oil firms to have lower costs in U.S. dollars for their operations. According to calculations by Reuters, the lifting cost per barrel of oil equivalent of Russia’s largest oil producer, state-controlled Rosneft, is now lower than the costs of Saudi Arabia’s oil giant Aramco. And this is due to the falling ruble against the dollar. On the other hand, Saudi Arabia’s currency, the riyal, is pegged to the dollar at a fixed exchange rate, so the dollar costs for Saudi Aramco are the same before and after the oil price collapse and the collapse of the OPEC+ coalition. Last year, the average lifting cost in dollars per barrel of oil equivalent of Rosneft was $3.10. This compared to a $2.80 cost per barrel for Saudi Aramco, as per company financials cited by Reuters. The crumbling ruble has now cut Rosneft’s cost to $2.50 per barrel, while Aramco’s cost is the same because of the fixed exchange rate with the riyal peg to the dollar, Reuters calculations show.

Okey-dokey, boys and girls from Oilprice--back to school to study basic facts and please change the stupidest title of the article: Russia’s Unexpected Advantage In The Oil Price War. There is nothing, zilch, nada "unexpected" in this "advantage". It was planned all along and that is why "crumbling Ruble" didn't create any panic in Russia. Yes, overall global situation and the most acute crisis of liberalism will, of course, impact Russia--I already presented one example with medical supplies--but for the country which was re-industrializing like there is no tomorrow since 2007-08, this impact will be limited because not only Russia doesn't have to spent huge volumes of Rubles to buy hard currency but it makes Russia's exports extremely competitive be that selling S-400, SU-35C, Ladas or food, or, of course, hydrocarbons, especially oil. Anyone wants to fight Russia's oil? Good luck with that--costs do matter. So, they begin to suspect something in D.C.

(Bloomberg) -- The Trump administration is pressing Saudi Arabia to dial back its plan to flood the oil market after a price war with Russia sent crude prices crashing to their lowest levels in almost two decades. The U.S. wants Saudi Arabia to hold back on a plan to supply a record 12.3 million barrels a day next month, people familiar with the situation said. It’s asking for the Saudis’ help in bringing oil prices back to where they were before the market cratered in early March, one of the people said. Oil prices have plummeted since Russia and Saudi Arabia failed to reach a deal to cut back production in response to an unprecedented decline in crude demand brought on by the coronavirus pandemic. The market collapse has imperiled hundreds of thousands of jobs, wiped out tens of billions of dollars in capital spending and is threatening to force as many as 70% of U.S. shale drillers into bankruptcy.

My question in this case is this: didn't you, guys, see that coming? Have anyone in D.C. tried to mitigate the problem by engaging Russia, not Saudis, who is in real control of situation? Any diplomacy, any quid-pro-quo? No? Well, then I guess you have only yourself to blame for not having a faintest clue about Russia. Continue chest beating, while Russia will put Saudis on their knees and then will give the United States, yet another, chance to save face and come to the negotiating table. Mnuchin, as we all know, already got the message. But this activity could have been enough 4-5 years ago. Now, it doesn't go too far. Russians do not care about this Saudi shithole, but the United States for Russia are different--Russians know that for the American elites Russia is the most important and deadliest enemy which must be annihilated. So, the framework for any negotiations, thus, changes dramatically. As this Covid-19 spectacle demonstrated so well--only economically self-sufficient countries, with massive REAL sector--yes, manufacturing nearly everything they need for own existence--are the real players on the global arena who have options of escalation, both economically and militarily. Simple as that, because it is basic economics (however grossly simplified here for the sake of example). In related news:

The number of Americans filing for unemployment benefits skyrocketed to a record-breaking 3.283 million for the week ended March 21. Consensus expectations were for 1.64 million claims. The previous record was 695,000 claims filed the week ended October 2, 1982. Initial jobless claims for the week ended March 14 was revised higher to 282,000 from 281,000 and was the largest single-week increase since the Great Recession.

This is just the beginning. It is also yet another demonstration of utter incompetence and ignorance of US "elites" who long ago lost any touch with geopolitical, economic, military and any other realities. But I warned about that for years, yet, this is not the occasion on which I would have satisfaction of being right, because it is not easy to see the old world departing, knowing that for me, and others, there still were some joys and dreams.