Out of left field: The coming energy crisis
Today's Financial News - Posted December 18, 2008
With so much pressure building on Russia and its energy monopoly, there’s only one release valve…
by J. Christoph Amberger
Baltimore — (TFN): As the pundits are dithering about bailouts and stimulus packages in the States, the big, untold story is building up in Eastern Europe. We’ve been following it for two months, and are marking off each consecutive step we predicted as the action unfolds:
Today, Russia’s natural-gas monopoly Gazprom threatened to halt gas supplies to Ukraine on Jan. 1 if Kiev doesn’t pay its bills. Ukraine has sent $800 million, with a little note attached saying no more will be forthcoming before the end of the year.
Ukraine still owes more than $2 billion on the November/December layaway plan.
By January 1, the lights may go out in Kiev. But since the natural gas pipeline running through Ukraine also feeds Germany and the European Union, that’s going to be bad for the Europeans. Who depend on Russia for more than half of their gas needs.
Come mid-January, when gas supplies run low even in Russia, Ukraine has no choice but to tap into the pipeline. Vladimir Putin has preemptively announced that this kind of things would not be tolerated. Gazprom “kontraktniki” may be polishing their armored personnel carriers as we speak…
Russia itself is under increasing pressure to act. Oil, the cornerstone of its new-found wealth, is now trading at just half of what the Kremlin had budgeted for 2009. The January U.S. crude oil contract fell to $38.45 a barrel after dipping as low as $37.68, the lowest price since July 2004.
Demand is gone. Speculation dead. There’s no chance to make budget.
The ruble has dropped to a record low against the euro as Russia devalued the currency for a second time this week. Foreign currency reserves were down another $17.9 billion in the week to Dec. 5. Russia’s reserves stockpile had already been reduced by 27 percent since reaching a record $598.1 billion in August. Total reserves are expected to drop by as much as $140 billion next year.
Russia’s credit rating has been slashed to BBB, the second-lowest investment grade. Capital is leaving its markets by the billions.
And they’ve just made a whole bunch of new, money-hungry best friends in Latin America who’d like to be kept in brand-new Kalashnikovs and Migs on the Kremlin’s nickel.
With so much pressure building, there’s only one release valve.
What will happen next?
Read about it in our free special report!
Next Article: Not a good day for Weyerhaeuser (NYSE:WY)
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