Oil and natural gas aren’t just a part of Russia’s economy, they are the economy. Up until 2014, oil accounted for 50 percent of revenue going into the budget. As long as oil and gas prices were high, Putin was able to float along, using oil profits to prop up the Russian economy and his own popularity. But as oil and gas fell, so did Putin’s ability to pretend that his policies were bringing improvement. Since 2014, the value of the ruble has plunged to a third of its former value against the dollar.
The reason is the same as the reason the coal industry is going under: fracking. Fracking for oil and natural gas has filled the US market to overflowing. It’s the reason that gas is $2 at the pump, the reason that the largest coal companies in the world are bankrupt, and the reason that over 160 oil companies have also gone bankrupt this year. Prices are so low, companies and countries that depend on fossil fuels for revenue are feeling a huge squeeze.
Those low prices crimp not just Putin’s ability to show largess at home, but slow his program to move the Russian economy to a more diverse base. And, most importantly of all, low energy prices restrict Russia’s military ability, both because less funds are available to drive military expansion, and Western nations are less inclined to look the other way based on their own population needs for natural gas pipelines controlled by Russia.
There are three things Putin needs: short term capital to pad out his shrinking budget, long term investment to fuel his ambitious expansion schemes, and someone to take the Paris Agreement off the table so all that oil in Russia keeps getting sold.
So … what to do about it? The answer is: Hire Donald Trump.
The aligning interests between Russian President Vladimir Putin, Russia’s choice for U.S. president (Donald Trump), and Big Oil represents the gravest threat to humanity (and democracy) since the rise of the Axis powers in the 1930s.
The three things Russia wants? They’re all things Trump can deliver.
Trump’s leading Secretary of State candidate, Rex Tillerson, has worked for just one company his whole life: Exxon. That doesn’t make Tillerson an expert in foreign affairs. It doesn’t make him an expert in business. It makes him an expert in a very limited subset of the oil and gas business. For Trump’s purposes,Tillerson has very specific skills.
Aleksey Pushkov, the head of Russia's Foreign Affairs Committee, tweeted high praises of Donald Trump's reported pick for secretary of State, Rex Tillerson, who has very close ties with Russian President Vladimir Putin.
Exxon has been working directly with Russia to secure drilling rights in previously virgin areas of the high Arctic. It’s a deal that earned Tillerson the “Order of Friendship” medal in 2012—the highest award Russia gives to non-citizens.
Mr. Trump called it “a great advantage” that Mr. Tillerson already knows “many of the players,” noting that he does “massive deals in Russia.” Massive doesn’t even do them justice.
Those deals, valued at between $500 billion and $1 trillion, are at risk because of US sanctions against Russian officials that were imposed after Russia’s invasion of Crimea and other areas in Ukraine. Tillerson already lobbied Congress successfully to stop a more extensive sanction bill from becoming law. Now he wants the rest of it put away.
To get a sense of just how large the deal is, Russia’s entire annual budget is around $200 billion dollars. That number currently includes a budget deficit of about $21 billion a year. On a percentage basis, that’s not all that different from the US. Except that the US annual budget is edging $3.8 trillion while running a deficit of about $500 billion. The difference here isn’t just scale, it’s that no one wants to lend money to Russia, especially not when their currency is in the tank.
Russia just surprised most observers by selling off 20 percent of Rosneft, it’s state controlled oil company, to a group of Middle Eastern investors for $11.3 billion. That deal sets the current value for what remains at Rosneft at just over $45 billion. So, in the current market, Russia could sell off its entire state-owned oil company and get enough money to address its budget crunch for a couple of years.
Or … it can make the Exxon deal and have a steady stream of income that closes that budget gap through decades. The Exxon deal is bigger than all of Rosneft by a factor of 12 or more. In fact, the deal is bigger than the market capitalization of Exxon and Rosneft combined. It could be the biggest business deal in history.
The influx of capital from the partial sale of Rosneft lets Putin patch over the yawning gaps in his budget in the short term.
Tillerson and Trump can deliver for Putin, giving him a deal that would bolster his own popularity, cement his authoritarian regime in place, and allow Russia to flex its muscles without worrying that every tank and plane might be resented by people surrendering butter for bullets.
All Trump has to do is see to it that, miraculously, the sanctions that stood in the way of the Exxon deal get neatly brushed aside and let Tillerson finish writing the largest agreement ever. With, perhaps, a few paltry billion sliding under, over, or alongside the table.
Trump can also assure Russia that all that delicious oil and gas keeps getting burned and doesn’t end up stashed in the ground because of concerns over climate change. What’s the biggest reason that Donald Trump won’t make a commitment to basic science and admit that manmade global warming is occurring? Russia needs to sell oil.
In theory, getting out of the Paris agreement is difficult, and both President Obama and the leaders of 190 nations have rushed through the agreement to make it that way. In practice, Trump doesn’t have to do a thing except talk down the agreement and ignore its limits. Penalty: $0. And US detachment from the agreement will probably result in other nations shrugging and trying to make a buck while the sun is still visible through the haze.
That’s two of Putin’s concerns down. What about the third? What can Donald Trump do that would drive up the price of oil and gas so that Putin, and Exxon, not only enjoy their massive drill-the-holy-hell out of the Arctic deal, but get maximum profit on every barrel?
There are more choices here than you might think.
Trump could try a plain-old political solution, such as providing price supports on US oil and gas under the guise of a “jobs program” that would put all those exploration and drilling workers idled by low prices back to work. Sure, that’s just paying corporations huge sums to hire a few people but … see the Carrier deal. Now imagine that deal x1,000. Oil, and to a lesser extent natural gas, are fungible commodities, so prop up the prices in the US, and Vladimir Putin gets what he needs to roll into the Balkans.
Putin and Trump could also go with a kind of joint strong arm solution. One of the reasons that prices are so low is because OPEC can’t get its act together. But if both Trump and Putin let it be known that, say “no planes for the Saudis” unless they crank back production, it could generate just enough lowered supply to give both Putin and Trump a nice look-at-all-those-jobs bounce at home.
Finally, there’s an option that may be all too appealing to Trump. He could bomb someone.
Just imagine a “hey, my new guys in intelligence who are so much smarter than the people we replaced, absolutely knew Iran was about to get the bomb, so we just had to go in.” And destroy their, uh, oil facilities. Hopefully, without giving in to Trump’s itch to use The Bomb ourselves. Trump and Putin might also choose to engage in some creative destruction in Syria and Iraq, under the aegis of “keeping oil away from ISIS.” Or heck, Trump could just muster a little instability anywhere that has a pump.
Trump can deliver for Putin on Exxon to keep Russia sitting high for decades. He can drop the Paris agreement making both US fossil fuel companies and Putin grin. And he can either take enough production off the market, or make that production uncertain enough, to drive up prices and maximize profits.
And of course, Putin can reward him. As long as Putin remembers: Trump does not accept rubles.