Cheap oil: when bad things happen to bad people
Date: December 28, 2014 - 3:20PM
Paul Sheehan Sydney Morning Herald columnist
Oil is, disproportionately, the fuel of evil. It may be the fuel of
freedom of movement but it is also the greatest root source of more
pollution and dirty politics than anything else. The good news is that
the collapse in the price of oil this year has, disproportionately,
afflicted repellent regimes.
The lower cost of fuel is bringing rough justice to Saudi Arabia,
Russia, Iran, Iraq, Libya, Venezuela, Cuba and even Islamic State. It is
also causing a world of pain to the American fracking industry, while
changed the face of geopolitics when America began pumping out as much
production as Saudi Arabia.
No one person is being bludgeoned more by lower oil prices than Russian
President Vladimir Putin. Last month, when he departed early from the
G20 summit in Brisbane, he was feeling a diplomatic chill on all fronts.
High oil prices covered a multitude of Putin's sins. Low oil prices are
achieving the opposite.
The gritty detail of how Putin and his KGB power base created a new
authoritarian elite in Russia is revealed in a superb new book, Putin's
Kleptocracy: Who Owns Russia, by Professor Karen Dawisha, an American
She shows that pluralist democracy and free markets never stood a chance
in Russia as the world marvelled at the opening up of the Soviet Union
under perestroika. While the Russian empire dismantled itself, the old
autocratic core of the Soviet system was working to ensure the new order
would be as rigged in its favour as the old order.
Dawisha follows the money trail that enabled this process, back to the
1980s when the Soviet Communist Party transferred a huge amount of money
offshore to preserve its assets at a time of disruption. The KGB,
including Putin, was central to this process.
The Dresner Bank in Germany became a key laundering asset used by Putin.
So, too, was Bank Rossiya, founded in 1990 with Communist Party funds.
Putin's Kleptocracy follows numerous money trails connected to Putin
such as the St Petersburg Real Estate Holding Company. It was
investigated by German security and found to be laundering money not
just for the Russian inner circle but for Russian mafia and Colombian
drug dealers. They were moving Russian public assets into private hands
and safe havens offshore.
Southern Spain was popular with the launderers and looters, especially
Russian organised crime figures. In 1999, as Spanish police were
tapping the phones of billionaire Boris Berezovsky and several Russian
mafia bosses, to their immense surprise they picked up the voice of
Putin. He had travelled to Spain for secret meetings, bypassing border
Putin persuaded Berezovsky and others that he and the old KGB structure
would protect their wealth amid the great uncertainty in Russia. With
the backing of many of the new wealth barons, Putin became Prime
Minister in 1999, within months of his secret visit to Spain. He became
president the following year. He immediately gained control of Gazprom,
the privatised national gas company, which became the source of enormous
cash for his projects.
While Putin talked about economic reform, he and his inner circle made
sure that doing business in Russia remained an opaque and arbitrary
process, which meant that power could be retained by the central
authority as it manipulated the courts and the tax laws to suit its
As the West bought his "reform" nonsense, Putin strengthened the grip of
his own oligarchy and projected his vision of an assertive, expansive
Russia that would be as powerful in the world as the former Soviet Union.
Putin is a propagandist at his core. He has devoted enormous energy to
subjugating the Russian media. The independent media was eviscerated.
Television news was reduced to propagating disinformation and propaganda
on a massive scale, always with the theme of Western aggression towards
Russia. The most famous dissident journalist in Russia, Anna
Politkovskaya, was assassinated near her home. Five men were convicted
of the crime but it was never clear who paid for the contract killing.
The Russian public, with little experience of democracy, bought Putin's
mythology. With oil revenues flowing, his popularity thrived.
Then came Russia's armed intervention in Ukraine, its annexation of
Crimea, the shooting down of Malaysian Airline MH17, and the imposition
of economic sanctions by the West. Capital fled. Investment stalled.
This left Russia vulnerable to the big blows of a plunge in the price of
oil and the collapse of the rouble.
Russia's stockmarket has declined 43 per cent this year, to a total
market value of around $US530 billion. This is $US100 billion less than
the market value of Apple Inc. It is less than half the value of the
Australian stockmarket, or the Swiss stockmarket.
With the value of the rouble down almost 40 per cent against the US
dollar and almost 50 per cent against the Euro, many Russian companies
with large foreign debt are facing an intense liquidity squeeze. Western
sanctions are biting harder. Thanks to Putin.
As for the world's greatest supporter and exporter of Islamic
fundamentalism, Saudi Arabia, it, too, is being buffeted. As the country
with the world's cheapest and biggest oil production, Saudi Arabia
benefits, long-term, when high-cost oil, shale oil and natural gas
producers are damaged by cheap oil.
But right now the kingdom is experiencing a debt and deficit blowout.
Government revenues have plunged by 30 per cent. Youth unemployment is
30 per cent. Public sector wages are being cut. Budget austerity has
finally caught up with the Saudi oligarchy.
Bad things eventually catch up with bad people and bad governments. This
year, it is one of the positives of cheap oil.
Source: Cheap oil: when bad things happen to bad people -