Macro politics —> economics

I know, I know, no politics. Bear with me.

Among 300+ other American or European companies, BP has announced it is leaving Russia. It doesn’t have much choice, given the politics of the moment - and what looks like the future. BP, more than others, had very high exposure to Russia, almost 25% of their assets were in that country, a march they began in the 1990’s. It now looks as though those assets will be worth $0; the market has already discounted the company from a high of 35 in February to 29 today. It isn’t “future discounted cash flows” anymore, it’s “corporate assets on the balance sheet.”

Something else that began in the 1990’s, though not with a lot of notice, is a rapprochement between China and Russia. During the Cold War they were famously jealous/hostile to each other, a card Nixon played skillfully twenty years earlier. After the fall of the USSR, they began signing small agreements, trade, occasionally political drive, but now 20 years later they have become more fully allied aided in no small part by Russia’s Ukraine war.

Whether China truly supports Russia in this or is merely exploiting a moment of weakness doesn’t matter, the two countries have a long festered jealousy of the US in particular and the West in general. If Russia loses Western markets for its oil I’m sure China will be only too happy to replace it, and that would displace a lot of Australian coal going to China, probably to the detriment of that coal industry since there aren’t enough other customers.

“Oil” is only one example, with Western countries suddenly realizing that foreign markets can crumble in an instant, most will be more cautious investing in Russia and elsewhere. But China, which has been investing everywhere from the Middle East to South America would be happy to replace all those decadent Western countries, I’m sure, giving China another boost in “international” as it races to catch the US.

Russia is a mere afterthought here, it has less than 2% of international trade, even with its large energy exports. China? About 15%. But I see the formation of a new trading block covering a vast geography and a plethora of new markets for the Chinese. I suspect their executives are in the board rooms right now planning the next moves.

This will take years to play out, effects as drastic as happened to BP will be somewhat rare, but this seemingly “isolated” war will have geopolitical and macro economic effects around the world, and for years to come.

Oh, one more. With the freeze of Russian banked assets around the world (something Putin has been working on for a decade) and especially in the US and (even) Switzerland, it occurs to me that lots of governments are likely to mutter “If someone can just freeze our assets with the stroke of a pen, perhaps we should have more metal in our vaults and fewer electronic entries in our bank statements.” Or perhaps this will be the opening that crypto needs to garner international and governmental sanction.

It’s changing out there, and it’s macro time.

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Another Ukraine launched topix:

Seems increasingly likely to me that Russia/China form a long time horizon alliance that says hooray! for coal and gas and oil use including in dirtiest forms because

a) is cheaper in the short term and short term matters a lot to bread and circus despotisms

b) global climate change is mostly good rather than bad for both as
– although China loses parts of Yangtze and Yellow River estuary lands that can be replaced with lots of thawed out Eastern Siberia in “friendly exchange” with Russia, with China also providing crucial manufactured goods and dollars in payment for gas and petroleum), and also
– because “world community” is somewhere in between totally delusional and hopelessly weak, and so massive GCC is not only happening but will continue to accelerate regardless of feeble moralists yammering, and so we are planning and building for GCC and do not want stinking greens creating barriers and uncertainties for our plans

c) South Asia and Africa are OPEC nations are going into “deep hmmmmm” of thought and might mostly join with China and Russia.

What else?

david fb

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If Russia loses Western markets for its oil I’m sure China will be only too happy to replace it…

www.spglobal.com/commodity-insights/en/market-insights/lates…
Crude oil from Far East Russia, usually a staple for North Asian refiners, is facing a dearth of buyers this month as mounting sanctions against Russia make the trade fraught with risk…“Refineries across Northeast Asia, including China, have been cutting run rates amid lower supply of Russian crudes and limited replacement crude alternatives,” a trader with a Japanese trading house said…

Chinese independent refineries, end-users of ESPO cargoes, usually have to open a letter of credit with a banks in order to make the payment…But no banks are currently willing to provide L/Cs for Russian-related commodities to independent refineries, which instead have turned to telegraphic transfers or T/Ts to fulfill contracts, which is as good as paying in cash, according to sources…Some sellers of Russian cargoes are now said to be offering on a direct payment rather than L/C basis, but there are few takers…

Support from China was being seen as crucial for stressed Russian sellers, but has failed to take off due to the lack of clarity among buyers and payment hassles, sources said. “Honestly, I think SOEs [China’s state-owned enterprises] might not be in a hurry to touch Russian crude without a clear vision against this Ukraine-Russian situation,” a trader with a North Asian refinery said.

DB2

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… it occurs to me that lots of governments are likely to mutter “If someone can just freeze our assets with the stroke of a pen, perhaps we should have more metal in our vaults and fewer electronic entries in our bank statements.”

Works on the personal scale too.

Desert (Got gold?) Dave

Seems increasingly likely to me that Russia/China form a long time horizon alliance that says hooray! for coal and gas and oil use including in dirtiest forms because

a) is cheaper in the short term and short term matters a lot to bread and circus despotisms

b) global climate change is mostly good rather than bad for both as
– although China loses parts of Yangtze and Yellow River estuary lands that can be replaced with lots of thawed out Eastern Siberia in “friendly exchange” with Russia, with China also providing crucial manufactured goods and dollars in payment for gas and petroleum)

I don’t think so. Russia, sure, they’ll carry on pushing their coal, oil and gas: their economy depends on it to a remarkable degree from what I understand, not only to run their own country but as the overwhelmingly biggest part of their export economy, IINM. And yes, they have vast expanses of useless cold lands which could become much more valuable in a warmer world.

China though is a net importer of coal and petroleum so they don’t have the same incentive. They also have an immensely long and densely populated coastline, and a sizable chunk of the country is sub-tropical or tropical, the rest being temperate, so they also lack the ‘thaw frozen tundra’ incentive and will be exposed to heavy costs from global warming. China is also hardly known for being prone to short term thinking … rather the opposite in fact, for example their Silk Road initiative.

China can’t pivot on a dime and transform into a clean economy in the short term, but I expect them to do so in coming decades alongside the other advanced economies. Better late than never.

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BenSolar – thank goodness somebody responded to my daydreaming and gave a reasonable rebuttal. Nevertheless, I think it worth imagining that Putin and ilk might sell out Russia’s staggeringly rich Asian birthright for a bowl of usable currency pottage…

And as for more actionable yet mad METAR notions, let me scream out that the failure to reach GCC agreements that amount to anything PROVE that we no longer have a rational world system, such as brought staggeringly long lasting levels of peace and development in both the Peace of Westphalia and the Peace of the United Nations.

We are in the dangerous waters that Einstein and Bucky Fuller feared, of extreme power and no wisdom. Our only hope is the “Jaffar Mistake”

https://www.youtube.com/watch?v=2iRlViQ7rAI

david fb

And as for more actionable yet mad METAR notions, let me scream out that the failure to reach GCC agreements that amount to anything PROVE that we no longer have a rational world system, such as brought staggeringly long lasting levels of peace and development in both the Peace of Westphalia and the Peace of the United Nations.

I disagree…

… with describing either of those situations as rational.

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… it occurs to me that lots of governments are likely to mutter “If someone can just freeze our assets with the stroke of a pen, perhaps we should have more metal in our vaults and fewer electronic entries in our bank statements.”

Works on the personal scale too. Desert (Got gold?) Dave

It’s better to be practical than extremist. I agree that bank assets can be frozen, but one needs liquidity which gold does not give you. Hard currency cash is better in a crisis. Currently I have cash in US$ and €s. During my last year in Venezuela about $50 a month was enough for ordinary expenses. Free gas, free electricity, depressed prices (in US$) via hyperinflation (in Bs). When an economy collapses hard currency goes a long way. Even street vendors would exchange US$.

The Captain

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Seems increasingly likely to me that Russia/China form a long time horizon alliance that says hooray! for coal and gas and oil use including in dirtiest forms because…

December 29, 2002
Why Oil Rich Countries Are Poor

Show me one wealthy oil country.

An abundance of mineral resources is not the equivalent of wealth. Pre Colombian America had vast stores of gold and silver but you could not call the inhabitants wealthy if you consider their standard of living. Much of this gold and silver found its way to Europe via Spain. Did Spain become rich by importing all the fine metal? No, inflation is what happened because there was not a concomitant supply of goods to offset the supply of fine metal. The inflation was then exported from Spain to the rest of Europe because all of Europe did not produce enough goods and services to sop up the inflow of precious metals.

https://softwaretimes.com/files/why%20oil%20rich%20countries…

Just exporting fossil fuels will not improve Russian economics, economic progress requires production, the creation of added value. The country with the largest proven reserves of oil is bankrupt! Venezuela. Pedro Pablo Perez Alfonso got it right, “Oil is the Devil’s excrement.”

https://www.google.com/search?client=safari&rls=en&q…

The Captain

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Show me one wealthy oil country.

That’s easy – Norway.

It’s amazing how a little democratic socialism allowed the Norwegians to avoid most of the “oil curse”.

https://carnegieendowment.org/2015/09/30/oil-curse-remedial-…

intercst

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Show me one wealthy oil country.

That’s easy – Norway.

Top oil producing countries:
https://en.wikipedia.org/wiki/List_of_countries_by_oil_produ…

  1. US
  2. Canada
  3. Norway

DB2

The country with the largest proven reserves of oil is bankrupt! Venezuela. Pedro Pablo Perez Alfonso got it right, “Oil is the Devil’s excrement.”

If I recall correctly Chávez was giving oil away to curry favor and improve his own lot rather than improve the lot of the Venezuelan people?

Anymouse

https://www.bnnbloomberg.ca/freeland-has-more-room-to-spend-…

POLITICS Mar 16, 2022

Freeland has more room to spend in April budget thanks to higher oil

Theophilos Argitis, Bloomberg News

https://www.reuters.com/article/citgo-energy-bronx-assistanc…

Venezuela brings free heating oil to poor in NY

By Rebekah Kebede 3 MIN READ

NEW YORK, Dec 14 (Reuters) - Venezuela’s president, Hugo Chavez may be a pariah in Washington, but on Friday the U.S. arm of the country’s state oil company loaded up a truck of heating oil for poor Americans in New York City.

The shipment to New York’s South Bronx section follows a similar giveaway in Boston earlier this week, in the third year of U.S. heating oil assistance by Venezuela’s Citgo Petroleum. The program has grown even as tensions have mounted between Caracas and U.S. oil companies and their allies in Washington.

The US and Canada and maybe even Norway have an economy that is not over 50% reliant on oil.

How about Russia, Saudi Arabia, Venezuela? Can you say the same for them?

This is an Economics board. I would have though people here get it. Maybe not.

The Captain

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The US and Canada and maybe even Norway have an economy that is not over 50% reliant on oil. How about Russia, Saudi Arabia, Venezuela? Can you say the same for them? This is an Economics board. I would have though people here get it. Maybe not.

I get it. The problems of extractive resource economies have been known for decades. It’s just that the writer went overboard/oversimplified when he wrote: “Show me one wealthy oil country. An abundance of mineral resources is not the equivalent of wealth.”

However, it doesn’t mean that Australia hasn’t done well with mining. And for ‘one wealthy oil country’, this list of the countries with the highest median incomes has the United Arab Emerates in the #2 spot.
https://worldpopulationreview.com/country-rankings/median-in…

DB2

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