longoil

Oil Will Only Fall So Far

It is no coincidence that Russian military fortunes have been directly related to oil prices for the last 30 years.

In 1979 when oil prices were at record levels, they invaded Afghanistan to expand their empire and setup a stepping stone into Iran . No doubt, Iran was probably the next target after the dust would settle from the Islam revolution and the Iran-Iraq war.

Interesting enough, when Canterall, Prudhoe Bay and the North Sea came on line in full force in 1985, the global market was glutted with 20% spare capacity. Since the USSR's major export is oil and gas, they immediately saw 75% drop in revenues as oil prices plumetted from $40 to $10 a barrel in 1985. This combined with their costly campaign in Afghanistan and trying to keep up with Reagan's SDI program eventually bankrupted the USSR and forced their breakup in 1991. They would be in an economic mailaise for next 10 years.

As prices started rising in 2001-2002, they paid off all their debt and Putin starting consolidating his power base. He orchestrated the phony tax evasion charges against Lukoil and promptly put its CEO Mikhail Khodorkovsky in jail, thus neutralizing his primary political rival. Then the company was liquidated at bargain basement prices to Putin's friends at the remaining oil companies.

Putin and Medvedev are obviously rebuilding the "evil empire" starting with the strategic areas (with pipelines) first. They know Europe will keep its complaining to a minmium since GAZPROM is the primary supplier of natural gas into Europe.

I would be very worried, if I lived in Estonia, Lithaunia or Latvia right now. When Russia expands, the Baltics are usually swallowed early on in the campaign.