Inflation and the Finite endgame: “Oil Inflation. Russia’s strategic power play” (A.Glass May 11, 2021)
On the 16th April 2021, President Biden issued new sanctions against Moscow that were specifically related to the massive cyber attack on the American IT management company SolarWinds. These ‘attacks’ began in March 2020 which ended up breaching the company’s servers, later disclosed by SolarWinds on the 9th December 2020, when Reuters, who broke the story, said originated from Russia as an elaborate and sophisticated cyber attack, detailing that the Russian hackers had added a malicious code to the company’s software systems. A “code” that was designed to attach itself to the update and bug fixing system called “Orion”, which sent out on a regular basis software updates. According to SEC documents, the 33,000 customers who use SolarWind’s IT services had received a compromised update, which also included the awaiting hackers, who, after receiving the hacked update from SolarWinds, went on to further install malware giving them complete access to the companies and organizations that use SolarWinds.
Biden’s sanctions on Russia were more of a warning shot, the most significant of the list of sanctions was barring U.S. investment banks buying Rouble denominated bonds issued by Russia’s Central Bank. Which in turn caused the US Dollar (USD) to rally in lieu of Biden announcing sanctions against Russia, the Rouble (RUB) was sold off, albeit briefly, allowing the USD to be bought, reaching 77.48 on the 4/09/2021 against the Russian currency, from its 3/16/2021 lows of 72.78. Russia like the rest of the global economy is facing an inflation problem, due to the massive amount of borrowing that has occurred throughout the pandemic, with debt piling up in all directions, Central Banks, like Russia’s, have continued on with their monetizing of debt. This slight and token gesture banning the buying of Russian debt was next to useless as a sanction. The Russian Central Bank would have absorbed any Rouble backed bonds and with the secondary bond market still open, it has allowed Russian bonds to be used for foreign investment, further indicating that Biden had not gone all the way in sanctioning Russia for the March 2020 cyber attacks. Regardless, on the 23th April 2021, Russia’s Central Bank increased interest rates to stem inflation which, according to its bureau of statistics, had shot up to 5.8% over the Central Bank’s 4% target. The markets being aware of a possible rate increase, began to sell off USD’s against the RUB, with the USD on the back foot contra to the Russian currency, it closed at 73.75 05/07/2021.
Although these Foreign Exchange moves are not blatant of economic warfare, the Russian power play/s can be seen as a counter act to American sanctions, particularly when their Central Bank is aware that inflation is an issue and most probably very close to developing into hyperinflated elements. Sending the USD down also keeps a bid on the price of oil. But, the question is; how does Russia respond in kind to American sanctions as geopolitical tensions rise? Which are evident between the two superpowers. Since Russian is a oil producer and exporter and America is predominately an importer with a struggling Shale oil market, the one thing that will work in Russia favor is militarism. While Europe and the US maintain that Ukraine is a sovereign nation, President Putin does not and on the 20th April 2021 four days after Biden announcing U.S. sanctions, Putin ordered over 100,000 troops to amass on the Ukrainian border with Russia, the oil price rose on the news, from lows of $60.85 on the 04/21/2021, remaining bid above $64 a barrel. Yet, this dangerous game that Putin is playing with the West has even a greater significance. The Arctic region.
What is estimated to be at 90 billion barrels of untapped oil in the Artic basin, Putin earlier in 2020 set forth a $300 billion dollar investment for new Russian oil and gas exploitation throughout the Arctic region, however for the investment to be profitable the oil price will have to climb higher. We may never see a return to low or even negative levels, unless a another global lockdown occurs, the higher oil price as an inflationary pressure is in favor of Russia. Which will also lead to further geopolitical tensions as countries like America, a major importer of oil, already now caught between inflation and the denial of price increases, will have to contain a militaristic Russia.
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