Posts Tagged ‘Russian exports’

Why the United States needs Saudi Arabia

September 8, 2015

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This chart, which I found on Ukraine’s Euromaiden Press web site, indicates how much Russia is suffering from the world decline in oil prices.

But why are oil prices falling?  It is because Saudi Arabia, the world’s largest oil exporter, is committed to pumping oil in large volume instead of shutting back in order to prop up the price.

What gives the Saudis so much leverage is that their production costs are low, and they can make a profit at a lower price than can Russians, Venezuelans or others.

That’s why the U.S. supports Saudi Arabia’s foreign policy, and why President Obama recently reassured King Salman that the U.S. will continue its cold war against Iran despite the agreement with Iran over sanctions and nuclear facilities inspections.

My question is whether it is in the U.S. interest to wage cold war against either Iran or Russia.  There is no moral issue here.  The Iranian and Russian regimes are bad enough, but everything bad you can truthfully say about them goes double or triple or maybe 10 times for Saudi Arabia.

Can Russia diversify away from oil and gas?

January 7, 2015

SR-russia-economic-freedom-2014-chart-2-825

Russia is a land rich in natural resources and human talent.  It has been an industrial nation for more than a century.  Why hasn’t it developed a world-class manufacturing industry in anything but armaments?  If it had, Russia would not be jeopardized by falling oil prices.

russianexportschartOne explanation is that Russia has been held back by world trade treaties, which restrict Moscow’s right to subsidize its infant industries—even though that has been the method by which every new industrial nation, except Great Britain, which was the first, has made up the head start of the older industrial nations.

During the Napoleonic Wars, the young United States was cut off from trade with Europe, which New England manufacturers used as an opportunity to develop our domestic manufacturing industry.

RUSSIA_CORRUPTIONAnother is that the Russian economy is controlled by a corrupt financial oligarchy, which is interested only in extracting profit for themselves and not in building for the future.   Probably the truth lies somewhere in between.

I don’t think that having a strong oil industry in itself is a curse that prevents development of  manufacturing.

The United States was a leading oil producer and exporter in the first half of the 20th century, and Americans leveraged that advantage to develop an mass-produced auto industry, a chemical industry and other industries based on cheap and plentiful oil.

To the extent that Russia is shackled by the international economic system, the current crisis represents an opportunity to break free of that system.

To the extent that Russia’s problem is its own dysfunctional political and economic system, it means the country must either reform or become a satellite of China or the West.   Or, in the worst case, Russia could become a Ukraine writ large, a prize for other, more powerful states to fight over.

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Plummeting Oil Prices Could Bring Radical Change to Russia.  What Comes Next? by David M. Kotz for The Nation.  [Hat tip to Bill Harvey]