Tags: Russia | Putin | gas | Gazprom

Why Is Obama Bailing Out Putin's Gazprom?

By Wednesday, 05 March 2014 07:16 AM Current | Bio | Archive

If you think American bill collectors are rude, try stiffing the Russians. Ukraine owes billions to Gazprom, Russia's state-owned natural gas giant. Vladimir Putin kindly allowed cash-strapped Kiev some extra time.

Last weekend, time ran out. Russian forces now control Ukraine's ethnically Russian Crimea region.

Yes, the situation is much more complicated than an unpaid utility bill. Others can analyze the geopolitics for you. On the money side of the matter, Putin has the West exactly where he wants us.

When you have a commodity to sell, you want to get the highest possible price. How do you convince customers to give you more cash for the same product? You drop hints that you might run out.

Merchants everywhere employ the same tactic: "Buy now — supplies are limited!" Generating uncertainty about the future compels people to buy now at a higher price, rather than take the risk of leaving empty-handed.

Of course, only the seller knows his inventory level; prospective buyers usually do not.

Putin is out-capitalizing the capitalists. Because there is a chance, however remote, that he could cut off gas shipments to Ukraine and other European countries, gas prices everywhere had to adjust higher to reflect the uncertainty.

Keep in mind that the uncertainty is all on our side. Putin already knows if he will cut off the gas. He doesn't need to wonder.

Meanwhile, Europeans have to pay higher heating bills. The longer the crisis drags on, the more money Putin makes. The only way he loses is if the gas stops flowing and/or Europe stops paying. Neither is very likely. (Note: I'm using Gazprom and Putin interchangeably because, well, they are.)

By rattling sabers and threatening sanctions, the Obama administration is simply extending Gazprom's ability to sell gas at higher prices. In reality, Russia has zero reason to cut off or reduce gas exports.

Putin's incentive is to sell as much gas as he can at the highest possible price. Creating exaggerated fear helps him do it. He used a similar tactic in last year's Syria crisis (see Who Wants Syria's Oil, and Why?).

Putin actually holds a very weak hand in this game. Gazprom's sky-high production costs are a competitive disadvantage. In the absence of geopolitical risk premium, the Russian energy sector would probably collapse. Putin seeks to avoid this by keeping oil and gas prices as high as he possibly can.

The ex-KGB warrior is playing his weak hand very well, just as you would expect. I wish the armchair warriors in Washington would stop giving him trump cards.

© 2021 Newsmax Finance. All rights reserved.


PatrickWatson
If you think American bill collectors are rude, try stiffing the Russians. Ukraine owes billions to Gazprom, Russia's state-owned natural gas giant. Vladimir Putin kindly allowed cash-strapped Kiev some extra time.
Russia,Putin,gas,Gazprom
426
2014-16-05
Wednesday, 05 March 2014 07:16 AM
Newsmax Media, Inc.
 
Newsmax TV Live
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved