Russian currency crisis deepens

by Chris Becker

The massive intervention by the Russian Central bank, where it raised rates from 10.5% to 17% yesterday, has failed to arrest the collapse in the ruble, Russian stocks and bonds. These moves have also set off shockwaves in other emerging markets, with Dubai and Saudi Arabia stock markets falling over 7%, although oil prices have slowed their descent (although Brent crude fell 2% and below $60USD a barrel).

Overnight the ruble collapsed nearly 20% accelerating its falls for this year as confidence disappeared – chart from Bloomie:

The ruble hit 80 to the USD but also has crashed past 100 against the Euro and other currencies.

From the Moscow Times:

The ruble’s tumble in recent days has sparked heavy criticism of Russia’s authorities from investors and lawmakers.

“The fall of the ruble and the equity market is not only a reaction to the low price of oil and sanctions but to a distrust of the government’s economic measures,” former Finance Minister Alexei Kudrin wrote on Twitter in the early hours of Tuesday morning.

Others said that the Central Bank and her chairwoman Elvira Nabiullina had disastrously miscalculated the situation.

“Lack of action had left the stability of the very financial system at stake. I am not sure whether Nabiullina can survive this,” analyst Ash said.

“It has only to be a matter of time before the rating agencies respond with ratings downgrades, likely to junk status.”

The RTS Index fell 12%, led mainly by a run on bank stocks, and 10-year bond yields jumped 3% to over 16%. While these moves may not have the same impact as the debt crisis in 1997, the Russian Central Bank is warning of a deep recession if oil prices remains at the $60 barrel level forecasting a near 5% retraction.

The talk on the street is capital controls are next as net capital outflows have doubled to over $130 billion as risk flows out of Russia.

What will make Putin blink here? Or OPEC for that matter?

 

More analysis from Gunnamatta (who lived and worked in Russia):

I was working in a bank in the UK on Black Wednesday and recall it very well. The thing I recall most was a currency trader and an economist I was working with having a chat and the economist describing the initial selloff after Lamont jacked up rates that morning, before the GBP was booted from the ERM as …

‘The point the credibility of the market system meets the credibility of the political system. The British economy is dead. The markets know it is dead. The markets know that keeping the pound inside the ERM is what has killed it. Lamont has just said he would make it deader. The market is making the call that there are no shades of dead.’

Something to note I suppose is that after Black wednesday the UK economy boomed. After 1998 the Russian economy boomed (sure it was oil propelled but it boomed). As I keep pointing out the Russian economy is being crushed, but it is running a budget surplus, a current acount surplus and can fund its existing debt position for some time.

The only way this comes into question is if confidence in the rouble is shattered to the point where international loan covenants are being breached (I would say we are there), and even then, as I have referred to previous, the level of dollarisation of the Russian banking system is such that it could fund a lot of calls.

The other side of all this is that Rusia – the economy not the financial system – is arguably the biggest growth prospect for Europe. The US can drive the Russian economy into the turf but it is also driving the Euro economy in a similar direction (particularly unless they can talk the Germans around to some form of stimulus).

There is a massive degree of dollarisation on the streets of Moscow (and most large Russian cities). ATMs dispense RUB and USD (and can often do EUR as well – though that has largely ceased since the EUR went into a coma). That dollarisation could be easily ended by imposing capital controls, but I dont think they would be credible with the Russian public and would only encourage a black market (which has generations of precedents).

The Economy Minister said even last night that they still werent thinking about capital controls.

What I think drove the selloff yesterday was the bond issue of Rosneft (as posited by Sergei Guriev in the FT, which indicated that the corruption in the Russian decisionmaking process is still looking after mates – in charge of Rosneft in this case).

I dont see any easy way out of this. But not just for Russia, as i think what is in play will be highly likely to have significant effects outside Russia. Part of the reason for the rebound (after RUB went to 80) is that by any measure the selloff has taken Russia to the level of being a screaming buy, even if crude dives another 25%.

To go back to the point about markets deciding dead is a finite state (as opposed to a series of increasingly dead states) the nature of that means that Russians may easily be telling themselves ‘we arent dead yet’ or (more disturbingly) ‘we have been dead before and come back’. That would be given added impetus by the idea that they are being hammered deliberately by the US (I think that straightforward enough) and the view that the Sauds are in it to cream the US fracking community, with the additional thought that if the Sauds can knock out the frackers and rebound (as the Sauds need to) then the Russians can have a piece of that action too as long as they hang together now.

That isn’t to say they will (and I dare say the ‘middle class’ in Moscow which was the core of the protest movement against Putin a couple of years ago will be thrown to the wolves with USD denominated debts and RUB based investments) but that the attempt would be fairly plausible and I would guess attempted – of course it all leads back to a severely heavy state at a certain level.

For sure the Russians people will be all too aware of the corruption in their leadership. The problem at this point becomes a geopolitical one, because the Russian public, (and arguably even many/most Ukrainians) would be of the view that the Ukrainian leadership is even more pernicious, and Putin standing his ground on Ukraine and the way they handle the Eastern Ukrainians (and particularly Crimea) will be popular not just on grounds of ethnicity (Eastern Ukraine) or territorial history (Crimea) but will be particularly popular (as I have pointed out at length previously) because of very widespread views in Russia that global capital would love to get its hands on Russian oil and wouldn’t hesitate to break Russia if it thought it could, and the view that VVP (as corrupt as he may well be) has at least prevented Russia from being raped by that global capital set the way it was being in the late 1990s and the way Ukraine’s oligarchs have continued to do…..(so that even if the US could get rid of Putin they wouldn’t be likely to get anything better in terms of popular, credible with the Russian public, Russian leadership)

 

 

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Comments

  1. Will the Western banks see their money back now the heavily leveraged Russian companies will have to struggle to pay back the loans in dollars?

    Russians may not feel too inclined to honour their agreements with Western banks either. Anyone have an idea of the impact of such a scenario?

    • My understanding is that Russia allows conversion of domestic deposits into USD. That needs to stop immediately. Until it does these rate hikes are going to be seen as acts of desperation, increasing stampede out of the rouble.

      Put banks into receivership, push losses off on foreigners and when the dust clears return them to normal operations with a new restriction: if they can’t get USD on the fx markets, don’t come to the central bank asking for them. – Johannson

      Then you have the complexity of counter claims and tightly coupled markets [participants].

      http://www.nakedcapitalism.com/2014/12/imf-world-bank-halt-lending-ukraine-franklin-templeton-4-billion-ukraine-bet-goes-bad.html

      skippy…. its like a rowdy orgy where somewhere in the pile… someone says… I can’t breath. When the strongest desire is ????

      • mig-I,

        If you can’t under stand the broader complexities involved with geopolitical events due try not to hang your fetishes on them.

        Skippy… coming from a kid that does not understand their fetish is deflationary, no matter what form it takes, is quite a pathological display.

      • Mig-I,

        What is occurring has nothing to do with fiat, its pure political. That you want it to be other wise is your issue.

        If you really want something to be concerned about try who will be the next US President and the worlds perception of that outcome.

        Skippy.. is it just me or do you seem to be increasingly hyper devolving….

        BTW

        “Capitalism and democracy are antithetical”

        ~ Paul McCulley
        Chief Economist, PIMCO Funds

        Democracy is based on one person, one vote. It’s standard of value is the individual.

        Capitalism is based on one dollar, one vote. Markets don’t serve individuals based on their existence as human beings. They serve the dollars the human can bring to market.

        Capitalism cannot function without a system of laws, but it cannot create such a system that keeps the individual as the standard of value.

        Democracy can’t invent things or do things efficiently.

        The marriage of capitalism and democracy, says McCulley, is an unholy marriage with which neither system can do without. Capitalism cannot survive without socialism to maintain a system in which it can survive, and socialism cannot function without the energy and innovative power of capitalism.

      • What is occurring has nothing to do with fiat, its pure political

        So is fiat.

        But what Japan empirically illustrates is the fact that all debt matters. Japan’s private debt levels have reset to below the pre-crisis norm, yet the economy remains depressed while public debt continues to climb (both in absolute terms, and as a percentage of GDP). If excessive private debt was the sole factor in Japan’s depression, Japan would have recovered long ago. What we have seen in Japan has been the transfer of the debt load from the private sector to the public, with only a relative small level of net deleveraging.

        http://azizonomics.com/2013/01/02/why-modern-monetary-theory-is-wrong-about-government-debt/

      • “So on the one hand, capitalism needs democracy to assert as virtuous the degenerate nature of business, and on the other, democracy requires capitalism to supply it with a sustenance that will minimally prove its freedoms, thus maintaining its perceivable moral worth. The insane truth is that capitalism enslaves democracy as its liberator then portrays itself as its equal. Subsequently, it proceeds to assume democratic advantages as its own because it vigorously promotes and markets them globally.”

      • Mig- I,

        http://cluborlov.blogspot.nl/2014/12/can-anybody-find-me-central-banker-to.html
        Reply ↓

        Ben Johannson December 16, 2014 at 5:48 pm

        Orlov is correct: the Russian central bank is an enormous part of the problem in refusing to move toward greater financial independence for the country and Putin himself appears captivated by Washington Consensus thinking. Unless this changes it’s 1998 all over again.

        1) stop convertibility

        2) raise taxes to reduce quantity of roubles and engineer a revaluation.

        3) denominate oil transactions in roubles.

        Skippy… Mig-I, your entire concept of reality is so detached from history, operational reality, its as bad is you talking your book on Bitcoin.

      • interested party

        @ Ortega

        It is becoming more apparent that capitalism is a model of politics more-so than a model of economics.

        Politics is nothing more than crowd control……so therefore, capitalism is nothing more than crowd control in a suit…..sold to us as ‘you can play too if you just sign here’…..

      • @Mig – “MMT not working out so good?”

        Actually one of the key tenets of MMT is that a country should never bind itself to someone else’s currency. The fact that Russia has done this means that it is, in fact, not following the MMT path.

      • John Aziz, the full reserve guy? WOW.

        Mig-i FYI its about balance between deflation and inflation, hyper either and you can get societal collapse. That some Countries have weaponized finance to increase their bargaining power, is old hat and full reserve never impeded it.

        You do realize the neoliberals are still pissed that after all their hard work at collapsing the USSR and setting up puppets in the after math, that Putin ran them off. The Ukraine is just a proxy fracas in an attempt to recoup that agenda, backing neo-Nazi’s is a wee bit of a tell.

        Skippy…. yet by some delusional mean you equate the whole thing to fiat… good grief.

      • This is why gold is so important.

        In the last 4 weeks one ounce of gold has increased from 52,000 rubles to 93,000 rubles early this morning.

        Hi mig,
        Don’t even try explaining any of these things to skippy…he just hasn’t done the work…he wants to see it on the Channel
        9 News first.

      • The fact that Russia has done this means that it is, in fact, not following the MMT path

        Who’s currency are they tied to?

        @skip what does full reserve have to do with fiat?

      • Interesting how McCulley struggles to understand capitalism and democracy.

        Imagine McCulley marooned on an island with a group of friendly people. They share some stuff and have some stuff to themselves. They have individual activities and do some stuff collectively as a team. They sometimes vote on some stuff and they also have a type of money and buy and sell some stuff amongst themselves.

        If this happened, then McCulley would probably have a better grasp of the situation.

      • Exactly DE, that they are operating like its pegged is wrong footed or something else is going on, that’s what allowed the Chicago boys to pull their last stunt.

        Mig-I… so whats your position on neo Ricardian vs Surplus mobs.

        Skippy… leaning towards attempting to synthesize the Sraffian theory of value and distribution with the Keynesian theory of effective demand.

      • I’ve read up on Argentina plenty Pete, the fascists assumed the private USD debt into the state then doubled down. What’s that have to do with Russia?

      • @ athalone,

        Gold is an asset class – en fin.

        Keep the faith athalone, noone is trying to stop you wrt your own trades. Its just when your mob is talking its book, after descending the mountain top, to others, that’s irksome. That you take umbrage at being pulled up about it, is your collectives problem.

        I just point out the weak points in the prospectus, civic service thingy.

        Cheers and don’t forget your offerings at the Temple K….

      • @ The Claw,

        Your allegory is an “A typical” bias conformation seeking in a vacuum exercise, emphasis on vacuum.

        Skippy… yes if only your mind was present and dictated reality [divine authority] it might hold true, but, it does not.

      • Your allegory is an “A typical” bias conformation seeking in a vacuum exercise, emphasis on vacuum.

        No that’s what MMT is, dual band or no band

      • @ Ortega,

        Long read but, highly recommend it.

        From Marx to Goldman Sachs: The Fictions of Fictitious Capital

        “Finance capitalism has become a network of exponentially growing interest-bearing claims wrapped around the production economy. The internal contradiction is that its dynamic leads to debt deflation and asset stripping. The economy is turned into a Ponzi scheme by recycling debt service to make new loans to inflate property prices by enough to justify yet new lending. But a limit is imposed by the shrinking ability of surplus income to cover the debt service falling due. That is what the mathematics of compound interest are all about.

        Borrowing to make speculative gains from asset-price inflation does not involve tangible investment in the means of production. It is based simply on M-M’, not M-C-M’. The debt overhead grows exponentially as banks and other creditors recycle their receipt of debt service into new (and riskier) loans, not productive credit.

        Half a century of IMF austerity programs has demonstrated how destructive this usurious policy is, by limiting the economy’s ability to create a surplus. Yet economies throughout the world now base their pension planning, medical insurance, state and local finances on a faith in compound interest, without seeing the inner contradiction that debt deflation shrinks the domestic market and blocks economies from developing.

        What is irrational in this policy is the impossibility of achieving compound interest in a “real” economy whose productivity is being eroded by the expanding financial overhead raking off a rising share. Meanwhile, a fiscal sleight-of-hand has taken Social Security and Medicare out of the general budget and treated them as “user fees” rather than entitlements.

        This makes blue-collar wage earners pay a much higher tax rate than the FIRE sector and the upper income brackets. FICA paycheck withholding has become a forced “saving in advance,” ostensibly to be invested for future “entitlement” spending but in practice lent to the Treasury to enable it to cut taxes on the higher brackets. Instead of financing Social Security and Medicare out of progressive taxes levied on the highest income brackets – mainly the FIRE sector – the dream of privatizing these entitlement programs is to turn this tax surplus over to financial managers to bid up stock and bond prices, much as pension-fund capitalism did from the 1960s onward.”

        http://michael-hudson.com/2010/07/from-marx-to-goldman-sachs-the-fictions-of-fictitious-capital1/

        Skippy…. Cheers

      • MIg-I,

        If I wanted a fortune cookie based reality, I could nick down to the local ethnic restaurant that supplies them w/ a meal.

        Skippy… at least that way I get some value out of the exchange…

      • Cheers for that link skippy. Indeed, M-M (a circulation which excludes C, from which surplus-value is derived) deposits us firmly in front of a roulette table, where the fervent hope is that money self-materialise as M-M’ (the increment).

        Surplus value, therefore, has detached from any dialectical, materialist underpinnings and is floating around as a ‘wager’ looking for a win, after win, after win.

        Of course, anyone who’s ever seen the inside of a casino knows that’s not how it works.

        And so the outcome is inanely predictable….

      • Fortune cookie? Yes you are blessed with my gift for brevity. To fit in your hand-waving, butterfly munching, strap-on dominating drivel one would need something akin to a cake large enough to conceal jail-breaking tools….

      • Mig-I,

        Your ripost is milquetoast… amongst other things…

        “Mig-I… so whats your position on neo Ricardian vs Surplus mobs”

        Skippy… still waiting… you do know want you don’t say is more critical than what you do say…. right?

  2. Russia has years of reserves that it built up during the good times. It won’t go broke just yet.

    Ukraine on the other hand is deteriorating fast. It needs $15 billion of emergency funds. The IMF can’t supply it all, and is demanding Greek style austerity measures. Will the EU put its money where its mouth is and stump up the cash?

    Astonishingly, right after putting sanctions on Russia, the EU has just asked Russia not to call in Ukraine’s debts. Honestly, the arrogance of the EU astounds me.

    • But the Ukraine will get financial support from the west. Russia on the other hand is being punished via a trade embargo and by the USA and the Saudi’s driving down the price of oil.

      Given the nature of Putin this could potentially lead to a very dangerous situation.

      • PF

        Its ‘Ukraine’.

        like, you know, yourself: you live in Queensland. Not ‘The Queensland’.

      • “Given the nature of Putin this could potentially lead to a very dangerous situation.”

        PF, this is where the Western media has blinded your understanding of the man. He has shown remarkable retraint in the face of internal pressures from his backers to actually do more in the Ukraine. New sanctions from the USA are all but guaranteed. They don’t care because they don’t trade with Russia. The real issue is that the Euro leaders are so weak they will destroy their own economies to do the bidding of their American masters.

        The entire thing is a joke. They sanction Russia and the Germans ask them not to call in Ukraines debt. The US has also threatened to sanction Gazprom if it turns off the gas to Ukraine. I mean the absurdity of it all is astounding, as is the transparent motives of the USA. Truly a case study in how the media ccan shape the narrative and keep the public woefully misinformed.

        Take a look at Ukraines new finance minister. She is an American citizen who was granted a Ukie passport upon appointment. She is also a former state department employee and was president of an American NGO within Ukraine that received millions in funding. How about Ukraines # 1 producer of natural gas. Joe Biden’s son was named to the board of directors only a few weeks ago. I guess this is what Nuland meant when she said “Ukraine is the real prize.” Under these circumstances Putin has been a picture of restraint. I’m sure many in his war cabinet are calling from a complete “annexation” of the East, if not a total “annexation” of the entire “country.” The US FP machine has no conscience. They will happily get into bed with terrorists or Nazis to further their global hegemony agenda. Truly sickening stuff.

    • Europe’s geographic interest is best served by turning Ukraine into a failed state fighting a prolong civil war. Ukraine is now a failed state fighting a prolong civil war..

    • “Astonishingly, right after putting sanctions on Russia, the EU has just asked Russia not to call in Ukraine’s debts. Honestly, the arrogance of the EU astounds me.”

      Really? When did they do this?

      • The German finance minister, Schaeuble called the Russian one and asked them not to dsemand repayment of Ukraine’s outstanding loan, and instead reschedule it. It’s a $3bn loan. If called it it could trigger a default. The Russians still have some cards to play in the asymmetric counter sanction game.

  3. May be the global capitalist conspiracy will blink first, if Putin decides to unleash a few Nuks in retaliation for his continued and relentless chastisement.

  4. Raising rates to 17% makes you wonder if they haven’t heard of Black Wednesday

    John Major jacked pound sterling rates from 10% to 12% to 15% in one day and the speculators saw it as a sign of weakness and kept selling…

    Soros famously made his fortune and earned the infamous title of “the man that broke the Bank of England”

    • Black Wednesday – BBC:
      https://www.youtube.com/watch?v=YBgXbTYvBfw

      Its actually pretty amusing/disturbing just how clueless the British politicians were in adopting the exchange rate mechanism policy and defending it well beyond its usefulness.

      Love the driver anecdote “It didn’t work sir. The rate rise didn’t work”

    • GunnamattaMEMBER

      I tend to see it in this light. I was working in a bank in the UK on Black Wednesday and recall it very well. The thing I recall most was a currency trader and an economist I was working with having a chat and the economist describing the initial selloff after Lamont jacked up rates that morning, before the GBP was booted from the ERM as …

      ‘The point the credibility of the market system meets the credibility of the political system. The British economy is dead. The markets know it is dead. The markets know that keeping the pound inside the ERM is what has killed it. Lamont has just said he would make it deader. The market is making the call that there are no shades of dead.’

      Something to note I suppose is that after Black wednesday the UK economy boomed. After 1998 the Russian economy boomed (sure it was oil propelled but it boomed). As I keep pointing out the Russian economy is being crushed, but it is running a budget surplus, a current acount surplus and can fund its existing debt position for some time.

      The only way this comes into question is if confidence in the rouble is shattered to the point where international loan covenants are being breached (I would say we are there), and even then, as I have referred to previous, the level of dollarisation of the Russian banking system is such that it could fund a lot of calls.

      The other side of all this is that Rusia – the economy not the financial system – is arguably the biggest growth prospect for Europe. The US can drive the Russian economy into the turf but it is also driving the Euro economy in a similar direction (particularly unless they can talk the Germans around to some form of stimulus).

      There is a massive degree of dollarisation on the streets of Moscow (and most large Russian cities). ATMs dispense RUB and USD (and can often do EUR as well – though that has largely ceased since the EUR went into a coma). That dollarisation could be easily ended by imposing capital controls, but I dont think they would be credible with the Russian public and would only encourage a black market (which has generations of precedents).

      The Economy Minister said even last night that they still werent thinking about capital controls.

      What I think drove the selloff yesterday was the bond issue of Rosneft (as posited by Sergei Guriev in the FT, which indicated that the corruption in the Russian decisionmaking process is still looking after mates – in charge of Rosneft in this case).

      I dont see any easy way out of this. But not just for Russia, as i think what is in play will be highly likely to have significant effects outside Russia. Part of the reason for the rebound (after RUB went to 80) is that by any measure the selloff has taken Russia to the level of being a screaming buy, even if crude dives another 25%.

      To go back to the point about markets deciding dead is a finite state (as opposed to a series of increasingly dead states) the nature of that means that Russians may easily be telling themselves ‘we arent dead yet’ or (more disturbingly) ‘we have been dead before and come back’. That would be given added impetus by the idea that they are being hammered deliberately by the US (I think that straightforward enough) and the view that the Sauds are in it to cream the US fracking community, with the additional thought that if the Sauds can knock out the frackers and rebound (as the Sauds need to) then the Russians can have a piece of that action too as long as they hang together now. That isn’t to say they will (and I dare say the ‘middle class’ in Moscow which was the core of the protest movement against Putin a couple of years ago will be thrown to the wolves with USD denominated debts and RUB based investments) but that the attempt would be fairly plausible and I would guess attempted – of course it all leads back to a severely heavy state at a certain level.

      For sure the Russians people will be all too aware of the corruption in their leadership. The problem at this point becomes a geopolitical one, because the Russian public, (and arguably even many/most Ukrainians) would be of the view that the Ukrainian leadership is even more pernicious, and Putin standing his ground on Ukraine and the way they handle the Eastern Ukrainians (and particularly Crimea) will be popular not just on grounds of ethnicity (Eastern Ukraine) or territorial history (Crimea) but will be particularly popular (as I have pointed out at length previously) because of very widespread views in Russia that global capital would love to get its hands on Russian oil and wouldn’t hesitate to break Russia if it thought it could, and the view that VVP (as corrupt as he may well be) has at least prevented Russia from being raped by that global capital set the way it was being in the late 1990s and the way Ukraine’s oligarchs have continued to do…..(so that even if the US could get rid of Putin they wouldn’t be likely to get anything better in terms of popular, credible with the Russian public, Russian leadership)

  5. Media types keep saying this wont be a problem if Russia goes bust. Though considering there is some $700T in credit default swaps out there in aggregate, someone somewhere must have punted at least $1T on Russia given its size.
    Reading Krugman last night I was struck by his incite into EM crisis when a small country exposed to one or two commodities suffers a large Terms of Trade decline bringing on a crisis. Money rush in Money rush out.
    Fortunately Strayia has taken to the derivative markets to hedge our offshore exposure with almost all our borrowing in AUD.
    Lucky for the FX Swap Market, we should be fine ….

  6. Oh goodie! So you’re saying this time around its going to be Asian currency crisis, sub-primey HY and dotbust all in one?

      • Some of this analysis on the topic is too simplistic and full of dire hyperbole. Most of us have lived in Australia when the AUD was USD$1.11 – and again when it was USD$0.48. Nothing really changed much! (overseas holidays cheaper, as with BMW’s, etc?) Its a bit like the share market – these things have roundabouts and swings – if you are clever, you can make fortunes playing them. Lets be honest, if the AUD depreciated 50% tomorrow, many of us would be very happy, other than the obvious inflationary pressures, the majority of Australia’s economic and productivity problems would largely cease to exist. The classic cure for Dutch disease is currency depreciation – it allows other periphery industries to suddenly become far more competitive internationally. With already extremely low PE’s, many Russian companies (some world class) are now extraordinarily investable.

        Its one of the skills one learns in the defence forces, is the ability to make decisions and seize the initiative when all others are losing their around you – or too petrified to move. It is skill that needs to be learned – sometimes you need someone screaming in your ear, move, move, move… many situations, a bad decision is better than no decision at all.

        The irony in all this is that in a world engaged in currency wars, there are a host of other countries trying to do exactly the same thing. Including China, Japan, UK, Australia, New Zealand, EU, just to name a few. Scary as it seems, its not really, Russia has huge reserves, a tough population, unified, with a currency falling faster than its income – its still running surpluses… Like Australia – nothing has fundamentally changed. Will Russia sink more – yes… but left to its own devices, its eventual rebound will be nothing short of shocking too.

        If you haven’t already, those with cash with too much fear – go long USD now. Today.

      • It’s not really the conversion rate that determines whether someone will accept your currency in an exchange, it’s the stability of that exchange rate.

      • Arguably the Russians are much better able to cope with being shut out of international capital markets than Australia.

        They still have some industrial base, a CAS and stuff the world and more importantly Europe needs.

        Russia might have to pick up their internal reforms quickly but being denied the ambrosia of Dutch Disease can help drive those reforms.

        If Putin allows small and medium sized businesses opportunities and security, and not just his mates, it could be an opportunity and the strong arm US tactics could back fire.

        Or they may succeed if the objective is to destabilise Putin so a ‘liberaliser’ can take power.

      • PF – Russia has $450bn (IMF, Sept 2014) just in unallocated monetary reserves, in addition to other assets, and a relatively small on-going deficit (with oil prices likely to increase materially in the coming years). Whereas the Australia is now borrowing $1bn per week!!!! – and is well on the road to fiscal oblivion. That mid year budget deficit is just a small taste of what is going to occur in the coming years, especially when unemployments and interest rates rise. In 2017, investment expenditure pa will be ~$70-89bn LESS pa that what we currently have in 2013/14 (and that is a very conservative estimate – just mining and LNG alone).

        Stability is only a small part of currencies. Market participants cannot separate market moves from stability – thats a fact. Arguably, stability is only a point in time… for example, do you think the AUD stable? Answer – absolutely not! Its a bloody yo-yo…

      • Pfh007 – if markets move too violently, many Russian companies will simply default (on repayment of wholesale debt) to existing debt providers claiming they cannot refinance. Most will (initially) maintain existing repayment schemes (that is the normal course of things). The lack of access to further debt will clearly hurt many Russian firms – and many will go to the wall.

        However, as with any debt – their must be a debtor – if large-scale defaults do occur, the hardest hit initially will be several large French banks, then a number of German ones. Russian equity holders in London could suddenly find that their London listings cancelled and their holdings re-listed on a Russian exchange, priced in Ruble’s. Which again will do wonders for London as IB centre.

        Its pointless defending a currency if it wants to slide. The Russians need those monetary reserves. The great irony is that most economists though they would try and stop the fall, allowing liquidity for the big IB traders to get out of their positions. But why bother? Its an open market. The big fall last night was not because the loss of confidence in Russia, it was big traders trying to get out of a very small window. I suspect inside the next week or so, the Rouble will snap back somewhat. But in the interim, the biggest losers will be big currency traders, with some pretty big margin calls coming in the next 24-48 hrs.

  7. KlimashkinaSydney

    With family in Moscow it’s hard not to delve into the conspiracy theories, which I try not to indulge, and long since shrugged off the childish sentiment.

    Whatever the causes, and I know Russia and Putin are not particularly popular in Australia right now, a wild thrashing bear that is Russia cannot be good for global politics. If the West want Putin out via the old fashioned popular uprising from economic oppression of the masses, they are probably going about it the right way, but who knows what could eventuate. Does the state collapse into a failed state itself, something like Ukraine?

    • GunnamattaMEMBER

      Exactly. As long as Ukraine is the cause (or seen as the cause) of what is unfolding there will be a lot of sentiment in Moscow for just hanging tough.

      • So nothing at all to do with US and EU sanctions in response to Russia RIGHTFULLY looking after it’s national interests, after a USA sponsored coup in the Ukraine???

        Maybe you should dig deeper and look into who the new finance minister in the Ukraine is, or perhaps who is getting the top positions in key companies and industries, as well as which companies are getting contracts in Ukraine’s various economic sectors. Maybe dig deeper still into US FP machinations and the premise that these policies are built on. Perhaps read the many works of Zbigniew Brezinski on geopolitics and the importance he places on the Ukraine, and then perhaps read up on the man himself, who he is, and what positions he has held and currently holds. Then perhaps look into the activities of American funded NGO’s on Ukraine over the course of the last five to ten years. Once you have done this, perhaps you can formulate your own viewpoint or argument that hasn’t been drilled into your tiny little brain by the Western media.

        Better still, next time you are in that neck of the woods, if you ever are, take a trip to Lviv, so you see the many commemorative statues and odes to Nazi collaborators in the centre of town. Maybe read some human rights reports that indicate hundreds of thousands of East Ukrainians have fled to Russia in the face of cluster bomb shelling of civilian targets, and the burning of buildings with women and children trapped inside. Of course Poroshenko (the man our own Tony Abbott shared a laugh and a smile with) doesn’t care, he is all for East Ukrainian children “hiding in basements” while his and other West Ukrainian children go to school. Maybe ask why right sector and Azov battalions are so fond of wearing Nazi insignia into battle.

        Perhaps listen to some experienced old timers like Henry Kissinger, more than a few former foreign ministers and ambassadors of countries like Germany, including some former heads of states, and a swathe of respected academic Russia experts, such as John Mearsheimer who have all concluded the US position on this issue is WRONG and indeed dangerous.

        If you opened your eyes and informed yourself you might see that the USA looks more and more like the USSR with each passing day. Instead you let the MSM dictate your viewpoint with their childish and asinine coverage. “Putler, Putin threatens nuclear war, Putin hits on Chinese first lade, Putin’s missile shoots down MH17, Putin is worse than Hitler and Stalin, Putin secretly tells Polish counterpart, we can split Ukraine in two and have a piece each, and the most laughable of all, Putin’s Russia is pushing NATO’s borders. I mean wake the effff up man!!!!!

      • mate, I am from that part of the world, have plenty of friends on both sides of the conflict and I was in Russia in October and watched how on the TV they were telling me how people in medieval Europe would take a shit on the stairs of castles where they lived while in Russia peasants would bath frequently at the same era of age. Putin is not a saviour of the world or the last sane leader on the planet, whatever he does is for one reason – to stay in power for as long as possible whatever it takes because otherwise he’s dead or in prison.

  8. China slows and the contagion spreads, as goes Russia so goes all commodity economies.
    Sanctions my ass what we’re looking at here is a balance of payments crises coupled with the economic/currency feedback effects that drive almost all positive feedback systems to “latch-up”

    Isn’t it amazing, at an engineering level we know so much about maintaining/creating stability in complex multipath feedback systems yet none of this knowledge finds application in the field of currency stabilization.

    • Where would be the fun in that?? Volatility is where the money’s made.

      EDIT: Lol beat me to it Mig….i didn’t refresh this page for a while so hadn’t seen your reply. Snap!

  9. FXCM has ceased trading the rubble in anticipation of capital controls – in a sense Russia’s central bank kicked an own goal with the dramatic hike signalling expectation of trouble ahead.

    ‘The rouble crash has doubled the cost of servicing nearly $700bn of external debt owed by Russian banks, companies and state bodies, mostly in dollars. They must repay $30bn this month and a further $100bn next year. Oil giant Rosneft has requested $49bn of state aid to weather the crisis.’ (AEP)

    The interest rate hike asserts pressure on domestic businesses and will likely tip Russia into recession which will further existing economic tensions.

    That long night is looking even longer.

    http://m.bbc.com/news/business-30492518

  10. GunnamattaMEMBER

    As a background primer for some people ……………

    I wrote this back in April (so its a bit out of date) but it does go to the core of why some Russians see things the wya they do. It was part of a larger piece the second half of which went into shortcomings of contemporary Russia.

    It will seem overly pro Russian (Kremlin). I am not but wanted to put some viewpoints one wouldnt normally see in the English language press (which are valid)

    For all the comment written in most of the English language press, very little comes to grips with the unfolding events in Ukraine with a preparedness to acknowledge why Russians see events the way they do, and genuinely acknowledging both Putin’s strength as a representative of the Russian people, and why he can act in the way he does with regard to Ukraine, as well as the implications of that.

    This means that just about all moves to try and bring Russia to the negotiation table on anything other than his terms have little impact, and that trying to come to a deal with Russia about Ukraine ultimately will involve the ‘West’ coming to terms with some of its own past mistakes in both Ukraine and Russia.

    Around the buoy nyet again in dealing with the Russians – The Russians, Ukraine, and the West in the age of Putin.

    The military option in Crimea and Ukraine

    There is probably not much the US and EU can do about Crimea being separated from Ukraine and rejoining Russia. Now that they have annexed it they won’t be turning back. I can’t recall VVP (Vladimir Vladimirovich Putin) ever backing down once he had set the military into operation, I can’t recall any foreign leader ever talking him around (except Gerhard Schroeder) and the number of Russian identities capable of talking him around is small. The sanctions announced thus far are extremely unlikely to induce a change of mind.

    In Crimea Russia has genuine public support – it will not be total, but it will probably be very large, and I would guess a clear majority – Crimea was not historically a part of Ukraine [it was Turkish/Crimean Tatar prior to the Russians booting them out in the 1780s] and many Russians still refer to ‘Khrushchev’s great mistake’ in giving Crimea to Ukraine. Then there is the particularly dubious status of Sevastopol within that. It was not given to the Ukrainians by Krushchev, but run pretty much directly by the Ministry of Defence in Moscow until the late 1980s, and the Russian black sea fleet and base remains the largest single employer in Crimea. The only election the Crimeans have ever voted in to determine their status saw them vote more than 90% in favour of joining Russia in the early 1990s, before George Bush senior (with his national security advisor Brent Scowcroft making some remarkably prescient observations about the future), Leonid Kravchuk and Boris Yeltsin, and subsequently Bill Clinton, decided Crimea should be part of Ukraine – and even then it wasn’t until 1997 that an agreement could be reached which would see Sevastopol remain home of the Russian Black Sea fleet.

    A quick glimpse through military history tells us that both the Russians and Germans conducted epic defensive campaigns there in WW2, the Russians whites did the same in 1920-21, the Brits French and Turks fluffed around there for ages in the 1850s and the Turks held on for ages before the Russians eventually bought out the Crimean Tatars in the late 1700s. The fact that the Russians have the Black Sea fleet and supporting units there, doesn’t really bode well for anyone trying to shunt them out with anything other than diplomacy, nor does the presence of heavier land forces facing Georgia not far away on the Krasnodar coast – from which they could easily be got to Crimea, should the need arise, but equally easily be used to threaten Eastern Ukraine (which tends to exude considerable – but not as strong as Crimea – pro Russian sentiment). That’s apart from the units being fired up in the corner where Ukraine Belarus and Russia meet, which would be quite capable of threatening Kiev in short order.

    The East of Ukraine

    In the East of Ukraine, to the East of the Dnepr River things are slightly different. Once east of the Dnepr, Russian becomes far more commonly spoken, and is the predominating language (as opposed to Ukrainian – not that there is a vast difference, Russians and Ukrainians tend to understand each other perfectly, with the difference not dissimilar to comparing someone speaking Scots English with a Glasgow dialect and slang, with a counterpart in Brisbane) and political and social sentiments more closely favour Russia. That said, it is not as overwhelming as in Crimea in that almost everywhere there will be a significant Ukrainian (as distinguishable from Russian) presence. Kharkov (or Kharkiv as Ukrainians spell it – same as Luhansk (U), Lugansk (R)) is considered something of a home of Ukrainian nationalism for many, and places like Dnepropetrovsk and Zaporozhiye have a long tradition of local autonomy.

    History and damnation…

    During the Second World War there was a sizeable partisan movement in Ukraine, fighting against both the Soviet Union and the Nazi Germans. It had originated prior to the war, during the pre-war purges, reflecting the ‘Holodomor’ or the great policy induced famine created by Stalin, accompanied by considerable state terror, to effectively break the power of the small landholding class, which predominately existed in Ukraine (This saw crops produced requisitioned by the state, forcing smaller farmers and families to starve, and their eventual relinquishing of what property rights they had and movement to Kholkoz [collective farms]). The partisan movement was headed by Stepan Bandera, who established links with, and on occasion fought alongside Nazi German troops (during the war it also fought against Nazi German troops in Ukraine) and involved armed action against Soviet and Polish forces, and Jewish inhabitants of the region, in the lead up to the Nazi invasion of the Soviet Union. Bandera remains a controversial figure to this day, with pro EU and pro Russian sides seeing him as either an anti-Semitic Nazi sympathiser (or even ally) or freedom fighter. The armed uprising against the Soviets continued until well after World War 2 (circa mid 1950s) with Bandera assassinated by KGB agents in Germany in 1959. The essential point insofar as this is mentioned here is to acknowledge that there has been considerable civil protest in Ukraine against the Soviet Union (generally seen as synonymous with Russia – though not always in Russia itself), this has often been organised and armed, has been associated with some degree of anti-Semitism, and that this has flowed into considerable anti-Russian sentiment, more predominant in the West of Ukraine.

    The evil empire Mark II?

    Although it appears that some form of pan-Russianism or imperial revivalism by Putin is in play (and indeed it may be so – but it is unlikely to be particularly credible for most Russians, meaning that, if it were to look like going awry – with impacts on the economy or social cohesiveness of Russia – Putin would then face very serious issues at home), there is also scope for seeing the move as smacking of defensiveness, and reacting to a sore point, by Russia. And that is on top of a little bit of prodding. But to get to how events have panned out to prod the Russians it is necessary (as with so many things about Russia) to explore a bit of history. The below will be a lengthy read – that’s because it is Russia, and Ukraine, and they are lands where things are rarely straightforward and regularly mind numbingly complex. It may appear at times to wander off on some tangents, particularly historical, but I will come back to the Ukraine/Crimea and Russia issue of the present. I would expect that it will initially seem to be pro-Russian, though a full reading is likely to lead to hostility from a pro-Russian reader too. I apologise for this, I have the utmost respect for the Russian and Ukrainian people, and have spent many enjoyable moments discussing issues with them. But ultimately any person trying to make sense of what is unfolding there now needs to establish a narrative, with that narrative fitting together with facts as known or reasonably established, while being as accommodating but impartial with their preferences and personal experiences as possible. For better or worse, this is my attempt.

    The Russians and their discontents

    The thing your average Russian (and the fears mounts the higher up the influence, social chain one goes – often because their claims to influence and status aren’t particularly worthy when looked at closely) fears more than anything else is ‘instability’ – for Russians the very word ‘stable’ invariably means good and ‘instability’ or ‘unstable’ is something very much to be feared.

    Although we tend to think of the 1990s in Russia as the time they took up ‘democracy’, they tend to see the same era as mass instability, where a load of pricks managed to buy the economy and buy out the democracy they may have cast an eye to in the late soviet era – with two economic collapses, two currency collapses, a massive step backwards in terms of living standards (over a decade or so), and the widespread view that they were being punished or ridiculed by the rest of the world (whether or not that view was warranted or is just paranoia is another question – it was/is widespread).

    The very idea of the sort of stuff seen on the streets of Kiev in recent months, and the series of coloured revolutions which have fairly overtly been supported by the US, in nations on Russia’s borders over the last 10 years, tends to feed into this and be seen through this prism. Many quite reasonable Russians have the suspicion that the ‘West’ wants to destabilise Russia, and that it is looking for a chance to humble their nation, and almost every man jack of them tends to the view that the ‘West’ would quite like to get its hand on control of Russia’s oil and gas – and when all is said and done, the historical view of Iraq would support such sentiments. On top of this there is a widespread view in Russia (and I think it well founded worldwide, but certainly so in Russia) that where there is chaos, there are vast fortunes to be made, and that the large fortunes tend to go to those with large fortunes to go and get it, or those with an ethical basis focussed on wealth acquisition.

    From little things, big things grow

    Much of the Russian sensitivity to the ‘West’ wanting to destabilise Russia crystallises back to the 1990s when the ‘West’ (particularly the US and EU), after observing the collapse of the Soviet Union, was seen as playing a major role in the giving away of what had hitherto been Soviet state assets for peanuts, to create a very small section of society which was uber rich – while the vast bulk of society not only remained poor but went backwards [while having their savings wiped out a couple of times]. Sure, you can argue (and I have done) that it was Russians; Yeltsin, Gaidar, Chubais and numerous others, who made the ultimate decisions to privatise when and how they did. But at the same time it was US and EU advisors, and global bodies dominated by US and EU interests such as the World Bank and IMF, pushing to privatise the assets of the former Soviet Union as possible in order to prevent the communist party (still quite popular in Russia, particularly amongst the older set, and according to many a majority of the voting population in the mid 1990s) from returning to power and recreating the Soviet Union. I have spoken with a number of direct participants in the decisionmaking processes, and a number of individuals from within the organisations privatised, and all have generally acknowledged that the assets sales were unfair on the vast majority of people, were conducted in great haste, and inordinately benefitted a small minority who could access funds to buy them – but that they had to be conducted this way in order to prevent the resurrection of the Soviet Union.

    Whether rightly or not – and my personal view is that the claim has more substance than would generally be accepted in most places in the English speaking world’s press, and the view would be stronger amongst those generations who lived through the experience – most Russians would generally be of the view that the rest of the world was quite happy to see the assets of Russia sold off to a batch of corrupt shysters, and ordinary Russians impoverished in the process, rather than the revival of the Soviet State. When Bill Clinton and George Bush senior adopted a ‘crash through or crash’ approach to pushing Russia to dismantle the Soviet state, the Russians (and the Ukrainians, Belarussians, Central Asian republics etc – but the Russians first and foremost) were in the car as the crash unfolded.

    Iconography

    Similarly the actions by the ‘West’ since then on this same tangent have done little to redress that sentiment. The number of corrupt Russian magnates who have found refuge in either the British or US legal system has long been a joke. Let’s start with the lionisation of Khodorkovsky and persistent calls for his release splashed about every major English language newspaper, when most Russians, and even many international business types associated him with the collapse of a major bank (Menatep) wiping out the savings of countless thousands, some spectacularly shady investor ripoffs (google Kenneth Dart, or read Ben Aris’ brilliant writings on the subject) or the ordering of murders of noncompliant officials (the ghost of the mayor of Nefteyugansk may point the finger). As Aris (one of the better observers on contemporary Russia) has observed, while the rest of the world was pushing for the release of Khodorkovsky the question for most Russians was not why he was imprisoned, but rather ‘why the other oligarchs weren’t in prison too’. I personally know bankers who lived in fear of having his heavies pop around when they wrote something casting doubt on the investment worthiness of his companies – and Moscow can be a place where that fear has a harder colder edge; even though he was long gone from the scene they were always careful with their words. Then there are the those oligarchs from Berezovsky, through to Andrei Borodin (Google Bank of Moscow) and beyond who got out of Moscow in a hurry, after having spent time with their snouts in the trough, and found a comfortable pad (or more often a heavily guarded luxury residence in the commuter belt) in London from which to continue agitating in one way or another against the system which had driven them out.

    That isn’t to say they don’t have cause for agitating against the body politic of Russia; sometimes they do. But seen from the view of ordinary Russians on the streets it is generally a case of these men railing against a system which they have been beneficiaries of for a long long time, and a system using approaches and processes against them, which they have previously sheltered behind in the making of staggering fortunes. Sure, the English jurisdictions have a point when they say these men couldn’t be guaranteed a fair trial. When all is said and done Russian’s don’t generally have the notion of a ‘fair’ trial the way we would – we tend to see justice [rosy eyed for sure] as blind and pursuant to the facts presented, where Russians see a ‘fair’ trial as being about a judgement as magnanimous with the consequences as the courts and authorities can get away with, pursuant to the facts they consider pertinent – ultimately Russia is traditionally more overt in assuming that law supports the power of the state, while British civil law (and its offspring) tends to assert the primacy of asset owners first and foremost. But allowing these individuals to openly seek refuge, and subsequently the system which has made them who they are, has allowed ordinary Russians to further cultivate the suspicion that the ‘West’ has it in for Russians, particularly ordinary ones. If a low level Russian jumped ship and told the English they wanted sanctuary they would probably be shunted back to Russia straight away (and asylum seeker application figures to the EU certainly bear this out). If they flew in with a briefcase containing millions of dollars, or had shifted such sums into a Swiss bank account then they would (after taking on a lawyer) invariably end up staying, without the faintest look at whether the millions of dollars enabling them to do so were in any way legally theirs. That basic equation underpins much of the ordinary Russian’s perception of that promoted in the ‘Western’ world as being a good thing for Russia – it is probably good for very rich Russians first and foremost, and may have marginal utility, if not negative consequences, for those down the pecking order.

    • GunnamattaMEMBER

      The path to happiness

      While Russia’s uber rich drive round in expensive cars and live out Rublyevskoye Schosse in epic mansions with high security and art collections etc, many of them have been known to ordinary Russians earlier in their lives, and invariably known to be keen for a buck (with the behaviours that implies) and of dubious ethicality – and this is quite widespread. Lots of Russians have first hand knowledge that the uber rich above them on the social scale are first class pricks – having worked or studied or otherwise socialised with them as little as 25 years ago. Essentially the mega wealth generation behaviours which have been carefully overlaid with a patina of respectability (the job creation, the national bequests etc) in the western world over a few hundred years have been replicated, often without the patina, in Russia in less than 25. Some people still recall another world. And, for those recalling that other world, VVP is often considered (whether rightly or wrongly) as something of a bulwark against what a batch of magnates may want to do in Russia if he wasn’t there, which they will generally assume would be not pleasant for them. This isn’t to suggest that VVP and a load of people close to the regime in Moscow and St Petersburg haven’t made themselves spectacularly wealthy – for they surely have, and I suspect that VVP may actually be amongst the world’s richest people, with people like Igor Sechin and Vladmir Yakunin, and the charmed Anatoly Chubais – but there is generally a little more discretion about ostentatious displays of wealth before the public.

      …..and Ukraine

      And if we think of that as the case in Russia, then the case in Ukraine is even more regrettable. In Russia they plausibly had people seriously thinking to try and craft a contemporary democracy; in Ukraine a batch of communist hacks simply swapped jumpers and handed out the national assets to their mates until 2004 – a nationally mandated (and internationally recognised) swindle that nobody has ever gone within a bulls roar of trying to redress. It is the beneficiaries of this swindle who are currently fighting over rights to exploit Ukraine. One lot is generally pro-Russian, the other espouses a pro EU stance. For the Yulia Tymoshenko’s and Petro Poroshenko’s there will be a Rinat Akhmetov or Andrei Kluyev, or even a Dmitryo Firtash. Both sides are profoundly corrupt, and could not give a rats toss about ordinary Ukrainians, and are more concerned about preserving their wealth than anything else. Don’t think that events on the Maidan changed a thing. The new Prime Minister Oleksandr Turchynov, a former head of the Ukraine FSB, is particularly wealthy former business partner of both Yulia Tymoshenko and Leonid Kuchma, and was charged with having destroyed documents relating to Semyon Mogilevich.

      Do not look for any form of innocence in the people aspiring to run Ukraine. They are all profoundly corrupt, and if they were to come to power they would find the administrations they presided over thoroughly corrupt, and the organisations and companies they needed to deal with corruptly owned or managed. Ukraine is in many respects every bit as much a failed state as Somalia or Zimbabwe, and this is at the core of both the strength of the discontent amongst Ukrainian people, the reason why parts of the country would rather be parts of another country, the reason why a change of government in Kiev is unlikely to have a significant impact on the running of the country, and the reason why almost nobody is seriously going to do terribly much about Ukraine other than stir the pot for a domestic audience somewhere else.

      Bullshido…….and contemporary geopolitics

      To assume that the EU would like to see a greater engagement with Ukraine would be to assume that having been burned by corruption in Bulgaria and Romania it would like to bring a bigger league corruption player inside the EU. On top of that it would be to assume that with youth unemployment, non-performing loans on bank balance sheets, and cash strapped governments from one end to the other, it would like to cough up maybe another 30 odd billion to help Ukraine into the club, and be able to sell that to the disaffected in Club Med or Ireland. To assume that Russia would want to genuinely take over any significant part of Ukraine would be to assume that it would like to have a far more potent guerrilla/terrorist issue on its hands than the Caucasus provides, and that it too will lay on the cash. To assume that the Americans genuinely want to engage with a hostile Russia in Ukraine (in any way) is to assume that they wish to blow billions of dollars, in a profoundly corrupt environment, at the end of a tenuous supply line against an adversary playing at home with weight of numbers and supplies on its side, with allies it would always be questioning. There is a lot of bullshit here.

      Putin

      The backdrop to Putin and his enduring popularity in Russia is completely missed in most English language commentary on Russia. Sure he is a former KGB (the service is now the FSB) man, but many Russians tend to associate this with ‘law and order’ and if his penchant is a tad heavy with the control of the state he is hardly anything exceptional in terms of Russian history. For most it isn’t an issue, they have never known a time when the policing of Russia wasn’t quite heavy, and wasn’t observably corrupt.

      Sure, there are definitely large protests against him, and those protesting have perfectly factual bases for doing so –Putin’s Kremlin administration is corrupt; it (if it is not part of the process) looks on while the Russian corrupt soak up billions in ostensibly state funds, anyone taking issues to court runs the risk of some dubious decisions (particularly at lower level courts), there is a peculiar ad hockery about a range of administrative processes which are not explained to the public at large, the media is controlled [much like the western media] by those close to the state, small businesses and investors in larger businesses routinely get creamed by managements, bureaucracies and employees, and sometimes find themselves facing someone else who has simply laid claim to what they thought was theirs, and as Sergei Magnitsky tragically proved again, regulatory and justice process can be brutally primitive – but the type of Russian generally protesting is a fairly small minority in the Russian scheme of things. It is only really Moscow that has anything resembling what would pass for middle class in the English language sense (it is essentially absent from most other Russian cities) and even there it is a minority.

      Even more pertinently, for many Russians, it is only in the era of Putin that this section of society has arisen – the policies of his government have created them. Indeed there are many within the administration who would point to the Putin administration as having done more for that middle class professional section of society, than any predecessor, certainly, and arguably more than even for the ordinary Russian. That doesn’t make the complaints this section of society raise about corruption and political representation any lesser, but it does lend weight to the ‘give it time’ mantra regularly trotted out by the Kremlin about political evolution. Indeed it makes the comparison with Ukraine even more dramatic – there certainly hasn’t been a rising middle class in Kiev, with corruption and political turmoil going a long way to preventing strategic economic planning – where the chaos and rampant corruption that Putin at least plausibly toned down in Russia continues unabated.

      The vast bulk of the masses in Russia are reasonably poor (hacking out an existence on USD$500-1500 a month) and for them the beauty of Putin is that by and large he has made sure that their circumstances have been on the up from pretty much the moment he came to power, and that where things have gone bad, they believe things would likely have been far worse had he not been in the controlling chair.

      How he got there

      Even looking at how he slipped into office initially is to illuminating in terms of what he means to a lot of Russians. In mid to late 1999, after Yeltsin’s family and sundry other hangers on had had their fill of the chaos to gain control of economic Russia, he was slipped in, almost as an afterthought, by those seeking someone compliant in the top job. He came initially in late 1999 as the 5th Prime Minister under Yeltsin in 18 months, in the wake of Russia’s 1998 Russian financial meltdown. Then he was made acting President 3 months prior to the ostensible end of Yeltsin’s presidency, Boris no longer even plausibly mentally or physically up to it, with Yeltsin’s family and their oligarch counterparts thinking him subservient enough to keep out of their way. A few months later during the March 2000 election he was solidly backed by pretty much the same media that had backed Yeltsin to the hilt in 1996 (when Russia truly was a chance of voting for a return to communism) and slipped into the presidential suite. He was made president of Russia by a group who had essentially assumed the presidency was their plaything, using a media which had already demonstrated its usefulness as a tool to achieve political ends for those same people. If we assume that two of the hallmarks of the Putin era include a nuanced disdain for the influence the moneyed elite may seek in a democracy, and an outright contempt for any ‘free’ press, then we may be sure that those magnates assuming the Russian presidency was a plaything, to be levered with a press they owned back in 2000, would have been an influential experience from his perspective.

      What he has done

      Now you can like Putin or loathe him, and I have come across plenty of both, but you can’t really argue too much with what he has put on the board, apart from suggesting that he could have done more. But thinking about that more shouldn’t be thought about from the point of view of London or New York (let alone somewhere as palpably mundane as Melbourne) but from the point of view of the ordinary punters of Russia; those hacking out an existence on $500-$1500 a month, on pensions, social support, or low level trades and service jobs, rather than those flying to the EU with Schengen visas once a month, fitting out their apartments with a Euroremont, or having globally transportable professions. My experience was that for most of the Russian punting class, which would be his political bedrock, he has delivered pretty much year in year out.

      What he has done, and which makes him surprisingly and genuinely popular for most foreigners in Moscow, is restore social stability (ie criminal gangs are not whacking people on the streets in Moscow the way they were in the late 1990s – which isn’t to say that there are no people being whacked on the streets, but rather that it is down to a level moderately acceptable to Russians) and restore a sense (even if that is a completely fraudulent sense) that the people of Russia (through him as president) have returned to a firmer position power wise than they had circa 1999 vis a vis the oligarch set.

      He has done this by crushing one spectacularly corrupt (Boris Berezovsky) who played a part in his rise to the presidency and offering the remaining oligarchs a deal ‘you guys stay out of politics, and I will stay away from your fortunes and looking at the process by which you acquired them’ coupled with ‘Your stealing days are over’. After a celebrated meeting with Russia’s oligarchs he subsequently broke another oligarch who didn’t want to play bat and ball (Khodorkovsky) and made an example of him. At the same time he has effectively created another batch of oligarchs as heads of large state owned enterprises (and it should be remembered that more than half the Russian economy is still owned one way or another by the state) who owe their positions largely to him. This may sound like some sort of rosy eyed yearning for a return of Marxist Russia. But ultimately look at the utter hammerings Mechel or Uralkali have taken when VVP has come out and bagged them for transfer pricing or trying to minimise Russian taxes. Or maybe recall the ‘Give me back my pen’ moment he shared with Oleg Deripaska while telling him to sort out the return of heating and electricity to the town of Pikolovo outside St Petersburg. Not quite as overt, but still there were his thoughts about Vladimir Potanin and Oleg Deripaska coming to some agreement about how Norilsk Nickel might be better run as a large company than a battlefield for two of Russia’s larger corporate egos, or his arm-twisting of Roman Abramovich to have a couple of turns as Governor of the remotest region in Russia (and to spend some of his wealth on tarting the place up a bit). Then there is all those outlays the oligarch set make in contributing to events like Sochi, or the Football World cup when it comes – the state spends big, but it expects them to spend big too, and they do.

      Dumb luck and oil……..

      Whether due to him or not, over his time in Russia’s control seat, the Russian economy has boomed. Luck is a fortune, and somewhere in his stars it was his fortune in coming to power as the price of crude rose from its late 1990s nadir of circa $10/bbl. You don’t have to tell me it was built on a single stream (energy) and is at incredible risk the moment the energy isn’t in demand. Until mid-2008 it did nothing but rise, to more than $147/bbl – at which point it was contributing well over a billion dollars a day to the Russian budget (and plenty will tell you that neither he nor his government have had much to do with it, but at the same time most acknowledge that his government has at least salted some away for a rainy day in the sovereign funds, and paid down virtually all of Russia’s international debt). Sure, for about 6 months after that Russia looked in deep trouble as it plunged again to less than $50/bbl, but even here VVP made a reasonable fist of appearing to look after the punters.

      A little something for the punters…..

      Oligarchs with massive loans to international banks were refinanced out of state coffers, but VVP got on the line to make sure they kept what could have been mass layoffs to a bare minimum. That kept them (who received the vast bulk of the bailout funds) and the punting masses (who kept their jobs and received something from the economic stimulus funds) on side. But even then he did something to placate the immediate concerns of the vast number of Russians who swap between RUB, USD and EUR on a weekly basis, with the one way ‘managed’ Rouble depreciation which ended in February 2009 – a three month one way bet against the Russian currency which cruelled economic growth up to 18 months later, but which allowed a lot of ordinary Russians the time to get their roubles into something else and pocket a small speculative gain. It wasn’t pretty and won no plaudits from economists or forex traders (Russian or otherwise – his Finance Minister, Alexei Kudrin, twice quit during that period and was twice told he couldn’t) but it did provide a mild upside for a lot of Russians, or at least the sense that they had dodged a possible worse alternative. The fact that Russia’s financial system was able to cope with this, and the Russian budget in a position to agree with it as little as 10 years after the 1998 collapse, is what Russians remember. The fact that Russia had in fact used the boom in revenues related to the oil price surge to pay off its national debt, and start spending on itself, and had an economic and financial buffer created by Putin and Kudrin. Dictatorship they may live in, but it could make a reasonable claim to economic common sense.

      Then as the world piled on loose monetary policy into commodities Russia came out of the slump. Since then growth has by previous standards been weak, but it has still been growth while Russians have been watching events in the EU unfold, while generally aware that they represent Europe’s fastest growing market and the one place where any European company looking for growth basically has to be, regardless of any concerns about corruption. Sure it is all built on oil money, but oil has been pretty much rock solid in the 100-110/bbl range for about 3 years now. The essential point to take away as far as you average Russian is concerned is that VVP represents astute economic management, and has an eye out for their circumstances, making him a fairly tolerable devil they know when contrasted with the chaos of Russia’s putative liberals and social democrats, and the mantras still being pushed from the ‘West’ regarding increased privatisation, a greater focus on property rights, user pays or contractual obligations etc, and which they last experienced in the 1990s as a chaotic sellout to the uber corrupt. Each year Gazprom and the now privatised electricity providers apply to the government to increase their charges, and each year they get considerably less than what they apply for – it is an appalling investment climate, for sure, but for a lot of ordinary everyday Russians that is an annual renewal of VVP’s looking after a lot of little people, and a reminder of what a freer market may imply.

      • GunnamattaMEMBER

        The populist in Putin…..

        After you get through all that hip pocket stuff there are his positions on a few other issues which may cause offence internationally but which pretty much reflect what the people on the street think. They don’t like gays in Russia (I know that isn’t nice, but they don’t – Moscow is the one place in the world where the proposal of a gay rights march will have the neo Nazis, church and police all lining up on the same side) and they aren’t all that keen on young punk rockers putting on performances in their cathedrals (slapping them in a Siberian prison isn’t a good look internationally, but plays fine in Russia). They do like action man types (and VVP’s exploits diving, flying, shooting, and riding, don’t hurt, and trying to explain to them that the topless horse-riding shots came across as gay elsewhere was to risk considerable indignation) and rumours about exploits with attractive women, as well as a dignified public divorce from his long term wife, also don’t hurt him. When all is said and done there is a lot more populist in Putin than he would ever be given credit for in the English language press. His people certainly do stuff ballot boxes and control all the TV stations, and the security services invariably find good dirt on any opposition figures they need to, but he does have genuine popularity – and it takes some very weird forms – with the Russian public. My considered opinion is that for all the talk about democratic process (or lack of) in Russia, even if Russia had a vote scrutinized by (well who?…….the ghost of Nelson Mandela maybe) if it didn’t vote for Putin in an election there would have to be a very good chance it would vote for something with a more than passing resemblance to him.

        Meanwhile back in Ukraine

        Now compare that experience with what has unfolded in Ukraine since the 1990s. In the early 1990s it was handed to Leonid Kravchuk, who treated it as a personal fiefdom, and then coughed up to Leonid Kuchma who did the same, only was more overtly corrupt about it. Both were former CCCP hacks and sold off the major state owned assets for peanuts (as happened in Russia) to the corrupt select few. Both were ostensibly Pro-Russia in foreign policy orientation and looked first for support from Moscow. Viktor Yushchenko led an ‘Orange revolution’ to oust Kuchma in 2004 and won an election, and there is no doubt that he (pro EU and anti Russian – they tried to poison him) was genuinely seeking to implement reform. But no sooner was he in the Ukraine presidential chair than the government, controlled by a batch of pro EU oligarchs just as corrupt as their pro-Moscow predecessors and led by Yulia Tymoshenko (noted for plaited hair, prone to seeing herself as the embodiment of Ukrainian nationalism, but as ostentatiously wealthy and corrupt as any of them) fell apart as it faced the reality of trying to reform the Ukraine economy without touching their own rent seeking positions. Amongst those who had a run as Prime Minister in Ukraine while Yushchenko was President was Viktor Yanukovych who succeeded him in the 2010 Ukraine presidential elections. 5 years of political and economic chaos saw Yushenko get about 5% of the vote when he nominated for a second term, having achieved almost nothing in doing anything about the control over the economy by the corrupt. Yanukovych was largely a return to the Kuchma and Kravchuk era of looking after the pro-Russian oligarch set. As mentioned earlier Turchynov is a former FSB heading Oligarch in his own right who has carved out a niche with Kuchma and Tymoshenko.

        Economy of the damned

        With the Ukrainian oligarch set owning everything worth owning there, including the government, Ukraine’s economy has essentially revolved around rent seeking by the powerful who feed scraps to a still born small business class and the rest. It came out of the Soviet Union as the second largest former Soviet economy. It continued to contract from the end of the Soviet era through until 1999, has been mired in corruption over the same period, and has zero prospects of sustained growth largely because the politics of the nation is an even bigger disincentive to global investors. Since the end of the Soviet era Ukraine’s economy has made less ground than any other former Soviet republic except Tajikistan (and that is really saying all you need to think about when mulling why parts of the country may be even remotely inclined to look elsewhere). Then, when you have mulled that for a moment, you can add to your thoughts the fact that with the post maidan government calling for USD30 Billion, it is credibly reported that connections of the deposed Yanukovich government have slipped about USD 70 billion out of the country, and this isn’t the first cleanout Ukraine has had in the last 25 years. From there, well that light at the end of the tunnel is probably fuelled by gas, and the bill for the gas will be to someone in Moscow – Ukraine has a significant debt issue.

        The lure of gas……

        Certainly Ukraine has coal and iron ore, steel works and heavy industry, a range of agricultural producers, and some technology industries, but all have their competition issues in markets away from Ukraine, face significant logistic and infrastructure issues, and most need significant investment. Many are energy intensive industries located in Ukraine during the Soviet era when cheap energy was a given – whereas now it is not, meaning those industries are reliant on coming to a deal with Russia.

        Arguably the best and most lucrative pie to have a finger in involves the transport of gas across the nation from Russia to the EU. Getting a slice of the gas travelling across the nation on a Soviet era gas pipeline network, inextricably linked with sourcing and paying for gas used in Ukraine, has been a nice little earner for the Ukraine oligarchy. And because the gas is invariably Russian, and invariably destined for someone in the EU who pays for it, this is, despite the current focus on Crimea, the biggest ongoing sore in Ukraine-Russia relations. It is an issue which has seen Russia spend massive sums on alternative pipelines across the Baltic and Black seas, seen half a dozen protracted price negotiations leading to agreements, complete with cutoffs which have seen Ukraine and European citizens do spells without gas during a number of winters over the last decade, and has led to a series of festering PR sores for Gazprom, Naftogaz Ukraine, and both governments.

        First up there is the rents for transhipments across Ukraine to the EU, and then there is the gas actually used in Ukraine. Back in the good old days Ukraine got the same price as the rest of the USSR which meant that much of its industry was decked out with gas fired power, and at the same time, while most of the oil transportation infrastructure went into Europe via Belarus, most of the gas went via Ukraine. Most years between 2004 (the election of Viktor Yushchenko) and 2011 (the election of Viktor Yanukovych) saw a dispute about the price of gas Ukraine was being charged by Gazprom, and the price being charged by Ukraine for the right to ship across the nation from Russia to the EU. Most involved the gas to Ukraine, through which most of Europe’s gas passes, being cut off for a week or two, invariably in the middle of winter. Regardless of who was to blame the series of disputes tended to exasperate the EU and undermine the credibility of Russia as a supplier.

        Dealing themselves in…..

        Part of the driver for this was a desire by Gazprom to de-Sovietize their pricing structure (stop giving insane discounts to former Soviet nations) and some of the backdrop also included pressure from the rest of the world for Gazprom to cease behaving like a state entity and start behaving more like a corporate one (anyone thinking Ukraine would have had a better deal from Exxon or Royal Dutch Shell should think again). Another key factor was the increasing need to do something about maintenance on the Soviet era infrastructure, and then on top of that there was the usual organisational response to doing or providing something which was in demand (raise prices) in the context of the main consumer (the EU) having no reliable alternative (there is a little bit of the monopolist in any organisation).

        The players in this series of disputes were Naftogaz of Ukraine, owned by the Ukraine government, on the one hand, and Gazprom, majority owned by the Russian government on the other. Some may think there could be a clean cut resolution at a government level to sort the issue out, but how often was this the case in any of those disputes? Google a company called RosUkrEnergo which was inserted as a link man between the players. Sure, on the Russian it was 50% owned by Gazprom, but the other half was owned by Dmitry Firtash (now being sought by the US) and Ivan Firsin and, according to plenty of reliable sources, connected with Semyon Mogilevich (also being sought by the US). These were the people who somehow insinuated themselves into a dispute which was between two state owned firms directly affecting the budgets of two nations, and which had the consequence of seeing large chunks of Europe go without gas. It says a lot that they became involved on the Ukraine side rather than the Russian. If you have a look at some of the other dodgy participants of gas deals between Russia and Ukraine you will also find one Yulia Tymoshenko’s personal interests in a deal that ended up being directly negotiated with the Kremlin. If we assume that there is a reticence to deal with some oligarchs masquerading as politicians on the part of the Russian administration, then just maybe it reflects having negotiated deals where the counterparty was an overt thief with the same people. A vast kleptocracy Russia may well be, but it’s a vast kleptocracy with enough nous to distinguish between kleptocracy and national interest (even if it is only a façade), and most Russians wouldn’t have been that surprised to find Ukrainian national interest was actually captive to, and defined by, some local kleptocrats.

        And still on the slate…..

        The other side of the gas dispute revolved around how much gas Ukraine itself was using, how much it would pay for it, as well as who and how often and how this was financed. Anyone wondering about the debts Ukraine has accumulated can start with about USD 2 Billion owed to Gazprom, and looking ahead one can assume that Ukraine will be getting used to paying more for its gas than it has been paying. No doubt we can keep our eyes out for European consumers to fret over another set of negotiations next winter, and it will be interesting (not) to see whether the US and EU can work the IMF into accepting a haircut for Russian creditors. That’s not to say that the multibillion dollar credit lines made available to Ukraine via Russia and Gazprom were in any way altruistic, but one could assume that they would be no less altruistic than credit lines made available to major debtor nations elsewhere.

        Back to the issues at hand……

        So this is broadly something of the backdrop to Ukraine you could anticipate experiencing in the Russian media at the moment. It isn’t factually incorrect, it will just strike the lay reader as overtly pro-Russian because it is the sort of stuff which simply never rates a mention in the international press, and in particular the English language press, which has essentially never stopped feeding readers the ‘evil empire’ stuff ever since VVP found it in his political interests to start calling some shots in the ‘Western’ worlds direction. And this, when all is said and done, is why the US and EU can’t really address Russia. They can’t really come out and explain to their own people the nuances of how it is that Russia is bad or evil, they have to leave it in fairly broad brush terms which fit in with a narrative to which their circulations have been accustomed for more than 100 years, and they need to do that in a way which doesn’t touch upon the welcome accorded the Russian uber rich in their real estate markets, courts, and financial systems.

        The other side

        But, of course, that narrative isn’t exactly all there is to say, and there is a downside. Ultimately Vladimir Putin’s Russia is a nation facing a number of issues, many of its own making, not least an economy likely to close in on the aspirations of a lot of people, and has at least shown an inclination to push the envelope in terms of military responses. Any significant look at Russia must address whether it has desire to create a more advanced society and economy, and ask if there is any inclination to push for greater improvement in the living circumstances of its own people. And for many any look at this question will be against a backdrop of suspecting that those in power in Russia believe that what has been done since 1998 (and most of that prior to about 2006) is all they need to do; that Russia need not evolve politically, that it doesn’t need to push for greater market involvement in its economy, that it can live with massive corruption, and that its understanding of law and legal process (and regulatory processes beyond that) is good enough, and that Russia need not learn from experiences elsewhere.

        It went on to a number of other issues………

      • “crushing one spectacularly corrupt (Boris Berezovsky)”

        You could literally see the criminality/lack of a soul in this mans eyes. I’m glad that reports say he dies penniless. He deserved far worse.

        Yeltsin may have let Russia be carved up because he was too weak to do anything about it, but the man did do one great thing in his term, he annointed Putin as his successor. When he did this, he said tow words to Putin “protect Russia.” I think he has done this.

        If anyone wants to know what Putin is really about, do not read any MSM press on the man. Every sentance is deliberately taken out of context. Listen to the man himself. Listen to his speeches and interviews uncut over the years, as well as that of his FM Sergey Lavrov. It will paint a much different picture for you than the hysteria of the MSM.

      • Excellent read, thanks for that.

        A couple of observations:

        – After the collapse of the Soviet Union lots of Russians found themselves in hostile environments such as the Baltic States and Ukraine. The were marginalised and seen as second rate, no wonder there’s lots of discontent in East Ukraine, Crimea etc.

        – Russians seem to understand one language: strength and power. I think the current western approach, no matter how blunt it seems, is the only approach that will actually yield results. Russia will otherwise just shrug its shoulders.

        – I do not subscribe to the endless “Evil West meddling meme” you hear over and over again whenever there is a conflict in the world. Look at the one conflict where the west did not want to get involved, Syria. Immense pressure was put on the west to intervene. You act, you’re having colonialist tendencies. You don’t act, apparently there is not be enough national interest involved.

        – The west has put in considerable effort towards building partnerships with Russia. Combined NATO – Russian military exercises etc. The NL invested considerably (€10 billion) in a “gas rotunda”. A distribution node built with the intention of becoming an important partner for Russia in getting its gas to European households and businesses.

        – Russians have been brought up in an environment where the state takes care of everything. Personal responsibility was stolen from them. It is no wonder they seem to have a tendency to look for scapegoats and vilify the west.

      • Rubbish, Anon. The Russians tried to build a second pipeline to get gas to European households more reliably by bypassing Ukraine. It was thwarted by the EU who changed the rules after the project had been approved.

        This is all geopolitics. What the West really fears is a natural alliance in Europe between Germany, Russia and France.

      • I take it you refer to the South Stream? While I found an article supporting your claim, it was on a rather tinfoil-hatty website…
        http://whowhatwhy.com/2014/07/23/gaspipe-diplomacy-how-ukraine-opened-the-door-to-new-u-s-russian-energy-fight/

        This one seems to make more sense to me:
        http://www.bbc.com/news/world-europe-30289412

        And, if Germany needs to be kept from partnering with the Russians, why was Nord Stream inaugurated?
        http://en.wikipedia.org/wiki/Nord_Stream

        The pipeline was officially inaugurated by the German Chancellor Angela Merkel, Russian President Dmitry Medvedev and French Prime Minister François Fillon on 8 November 2011 at the ceremony held in Lubmin.

        And, why would the Dutch have a national strategy in place in which Nord Stream and Russian gas play a central role?
        http://www.government.nl/files/documents-and-publications/leaflets/2011/12/07/the-dutch-gashub/thedutchgashub.pdf

        Nord Stream: Connecting Europe with Russia. Gasunie is a minority shareholder in the Nord Stream pipeline, a major new pipeline system which supplies gas from Russia directly to the gas grid in Germany, which is well connected to the Dutch gas grid. Nord Stream can transport 55 bcm of natural gas annually. Natural gas from the major reserves in Russia can thus be transported directly to Germany and other member states of the European Union, in particular the Netherlands, Belgium, France and the UK.

        Also, you can hardly blame EU for prudent risk mitigation by trying to become less reliant on a single gas provider.

      • Anon, as soon as you post any drivel from the BBC to confirm your views you have effectively lost the argument.

        Nord Stream was inaugurated because Gerhard Schroeder was leading Germany, and he pushed it through. Schroeder has a close friendship with Putin to this day, but more than that he pushed it through because cheap and more so reliable gas supply was in the interests of the German people as it assist the manufacturing base of that country. THIS IS WHY NORDSTREAM HAPPENED.

        The USA via it’s vassals in Brussels changed the rules of the EU post South Stream being negotiated to thwart it, via its 3rd energy package which basically says you can build it, but not own it!!!!! It was entirely designed to thwart south stream, and the EU and USA even tried to get a competing pipeline off the ground (Nabucco). They basically gave up secure and cheap gas supply from a stable supplier, costing some of the states the line would run through hundreds of millions of euro’s in rent. The part about mitigating risk from a single provider is hogwash. There is only one single provider. Where else can they get cheap gas from reliably?

        Anon you have not a single clue what you are talking about!!!!!

      • Just a different view my friend, no need to get worked up.

        I am not naive, I’m sure there is geopolitics at play in the South Stream project but to say “the west” is deliberately trying to sabotage the Russians is just as black/white as media describing Russia as an evil empire.

        My examples of Nord Stream and the Dutch national strategy at the very least debunk the “evil west” notion and shows EU states do want to partner with Russia and have significantly invested to do so.

  11. I suspect Russia’s proposed pipeline to Turkey has angered the Americans. Putin gave up because NATO kept bombing Russia’s pipeline through Bulgaria to supply gas to Southern Europe; so Southern Europe future gas supplies now being supplied via Turkey.
    Russia is also increasingly exporting military equipment…..do you think Turkey?

    • Remains to be seen how that will work. Russia and Turkey disagree on key security matters, namley Syria. This is purely an economic marriage.

      The US really has no right to be upset about it, they dangled the EU carrot in front of Turkey for, what is it now 50+ years.

      The real loser is Bulgaria, who has now, by virtue of it’s EU membership and having to follow the silly rules laid out in Brussels (laregely by the USA) has not particiapated in three large scale transfformational infrastructure projects. South Stream alone would have pumped in 400 million EUR a year in rents, not to mention a cheap, stable and virtually infinite suipply of gas.

      • Tks JC. Saudi Arabia refuses to allow Qatar to put a pipeline through its territory, so perhaps this could be part of the reason why the Americans couldn’t do a deal with Turkey.