Putin Strikes Again!
by Brittany Stepniak, Outsider Club The warning shots keep on firing over in Russia… The ruble plunged to a month low as continued depression in oil prices added further fuel to the already burning economic fire. Russia’s worsening currency crisis could spur a global financial crisis as it spills over into emerging markets and threatens our own recovery at home in the U.S. Meanwhile, Putin hasn’t been helping the situation. Instead of opening dialogue that could help ease harmful economic sanctions, he’s boosted combat as part of a plan to gain control of the Arctic, the annexed Crimean Peninsula, and Kaliningrad — the westernmost territory. All three regions could pose serious threats when it comes to potential rivalry with the U.S. and NATO. Especially when you consider that Putin recently singed a new military document, re-emphasizing sentiments that NATO “threatens Russian security”… As evidenced by Russia’s willingness to engage in deadly violence in Ukraine in order to secure control of Crimea, I’m not optimistic about the endgame results in regards to what Putin is willing to do in order to secure Kaliningrad — sandwiched right in between EU and NATO members Poland and Lithuania. Putin Update: New Friends, New Projects But Putin seems to have secured at least one ally: Indian Prime Minister Narendra Modi. The two met mid-December to procure a stronger relationship; both militarily and within the energy sector. Russia’s state-owned Rosneft signed a preliminary agreement to supply India with 10 million tons of oil over the next 10 years. Putin even invited India for assistance with the “Russian-Arctic” shelf. Allegedly, Rosneft discovered (back in September) enough oil in the Arctic to put it on par with the resource base of Saudi Arabia. The one massive hiccup in Putin’s master plan to dominate the energy market is the fact that he needs Exxon’s expertise in order to drill in the frigid offshore Arctic conditions. But sanctions, as they stand currently, prohibit Exxon from drilling there. Don’t be mistaken, the losses on Exxon’s side of things are critical as well. Russia is the company’s largest exploration area. And unless Putin articulates a more flexible willingness for dialogue with the West, his plans are going to remain lofty but futile. Meanwhile, German Gref — chairman and president of one of Russia’s largest state-owned banks — has warned of the economic consequences of this political standoff. According to Interfax, Sberbank’s President Gref said, “We will have one big state; our entire economy will be under the control of the state,” Lenders’ property would become the banks’, the state would capitalize banks, and then “the banks would purchase enterprises, turning into ‘finance industry’ groups,” Gref declared. Gref’s Grim Outlook If this scenario unfolds while oil prices remain so low, the banking crisis at large would be “enormous”, according to Gref. And Gref’s grim predictions aren’t really novel. Just a few weeks ago another banker cited the emerging catastrophe as nothing shy of “the end of the banking system.” That’s a pretty egregious statement, but certainly not completely misguided. Indeed, many experts argue that the great global recession is deepening as we speak. And if Putin remains egocentrically focused on strengthening military capabilities without more directly addressing and remedying the glaring economic woes at stake, things could get even uglier… Bloomberg reports:
“The ruble could fall further at current oil prices,” Vladimir Bragin, the head of research at Alfa Capital in Moscow, said by phone. “The decline in oil is negative for the Russian economy. Investors are hoping for stabilization.”
Brent retreated as much as 4.7 percent to $45.19 a barrel today. Russian assets have come under renewed pressure this year as Fitch Ratings last week knocked the sovereign’s credit rating to one level above investment grade. Standard & Poor’s is rethinking its score for the sovereign, warning in December it may push the rating to junk as early as this quarter.
“Investors believe that it has triggered a domino effect, and now it will be easier for both S&P and Moody’s to take similar actions, which will make another hit on the investment climate,” Andrey Dirgin, an analyst at Alfa-Forex in Moscow, says in e-mailed comments.
The five-year sovereign bond yield climbed 223 basis points in 2015, after surging 819 basis points last year. The higher costs are curtailing government plans to offer 150 billion rubles ($2.3 billion) of local-currency bonds known as OFZs by March 31, just over half of which would mature in five years or less, according to Finance Ministry figures.
It should come as no surprise, then, that investors are dumping Russian stocks and Russia’s largest lenders are slipping too. As the falling ruble continues to decrease the solvency of borrowers — simultaneously reducing the number of potential borrowers — the Russian banking system is facing great risk, according to Oleg Popov, money manager at Allianz Investments in Moscow. Consequently, this “leads to the shrinking of the banking sector over all,” he said. Continue Reading>>>