Last week, I warned that Russia has become the country with the ability to push the Middle East into a major war. In particular, Russia cannot and will not tolerate Saudi Arabia artificially depressing the price of oil indefinitely. Low oil prices have been very damaging for Russia’s economy. Zero Hedge today reported this morning:
Down over 5%, Russia’s RTS Index has plunged to its weakest level since Dec 2014 and the peak of its existential crisis mid-Ukraine/currency-crisis/oil-collapse. This is Russia’s biggest one-day drop since April 2015. The Ruble continues to tumble (despite CNH strength) as oil pushes to new cycle lows…
Even though the US shale oil market has also been hit badly by the drop in oil prices, Moscow see’s Saudi Arabia’s actions as a direct attack on Russia for backing Syria’s President Assad against Saudi Arabia’s wishes. I have never met Prime Minister Putin in person, but I am willing to bet he is not a man that takes threats lightly or is going to cower to Saudi Arabia. Putin cares deeply about Russia and his people, but he also cares about his profit margins like any good businessman. As such, he must take action to engineer a return of oil prices to a sustainable level. Putin is a professional and will exhaust diplomatic means; however, if they should fail and Russia is pushed into a corner, Russia will undertake covert actions to engineer the price rebound and I can’t say I blame them at all.
If the price depression continues, Moscow will act in a way that precipitates a rapid rebound of oil prices. Read more
