In fact, I’d argue that it is the single most
powerful word in any language.
In the midst of the worst market meltdown in a
dozen years which has at its source problems within
global dollar-funding markets, Russia found itself
in the position to exercise the Power of No.
Multiple overlapping crises are happening
worldwide right now and they all interlock into a
fabric of chaos.
Between political instability in Europe,
presidential primary shenanigans in the U.S.,
coronavirus creating mass hysteria and Turkey’s
military adventurism in Syria, the eastern
Mediterranean and Libya, markets are finally calling
the bluff of central bankers who have been propping
up asset prices for years.
But, at its core, the current crisis stems from
the simple truth that those prices around the world
are vastly overvalued.
Western government and central bank policies have
used the power of the dollar to push the world to
And that state is, at best, meta-stable.
But when this number of shits get this freaking
real, well… meeting the fan was inevitable.
And all it took to push a correction into a
full-scale panic was the Russians saying, “No.”
Are You Tired Of
The Lies And
“Regarding cuts in production, given today’s
decision, from April 1, no one — neither OPEC
countries nor OPEC+ countries — are obliged to
lower production,” he told reporters after the
OPEC’s Secretary General Mohammed Barkindo
said the meeting had been adjourned, although
consultations would continue.
“At the end of the day, it was the general,
painful decision of the joint conference to
adjourn the meeting,” he told reporters.
Earlier, Oanda analyst Edward Moya had
suggested that a failure to reach an agreement
could spell the end of OPEC+.
“No-deal OPEC+ means the three-year
experiment is over. OPEC+ is dead. The Saudis
are all-in on stabling oil prices and they may
need to do something extraordinary,” he said.
There comes a point where negotiating with your
adversaries ends, where someone finally says,
“Enough.” Russia has been attacked mercilessly by
the West for the crime of being Russia.
And I’ve documented nearly every twist and turn
of how they have skillfully buttressed their
position waiting for the right moment to get maximum
return to reverse the tables on their tormentors.
And, to me, this was that perfect moment for them
to finally say “No,” to get maximum effect.
When dealing with a more-powerful enemy you have
to target where they are most vulnerable to inflict
the most damage.
For the West that place is in the financial
Remember, the first basic fact of economics.
Prices are set at the margin. The only price that
matters is the last one recorded.
That price sets the cost for the next unit of
that good, in this case a barrel of oil, up for
In a world of cartelized markets the world over,
where prices are set by external actors, it is easy
to forget that in the real economy (regardless of
your political persuasion) the world is an auction
and everything is up for bid.
High bid wins.
So, the most important geostrategic question is,
“Who produces the marginal barrel of oil?”
For more than three years now, President Trump
has supported his policy of Energy Dominance in a
Quixotic quest for the U.S. to become that
supplier. Trillions of dollars have been spent on
building up domestic production to their current,
This policy pre-dates Trump, certainly, but he
has been its most ardent pursuer of it, sanctioning
and embargoing everyone he can to keep them off the
What he could never do, however, was push Russia
off that bid.
The reason U.S. production rates are
unsustainable is because their costs are higher per
barrel than the marginal price especially when all
other prices are deflating. Simple, straightforward
If they were, on balance, profitable then the
industry as a whole would not have burned through a
few hundred billion in free cash flow over the past
That’s where the Russians’ power comes from.
Russia is one of the lowest cost producers in the
world. Even after paying their taxes to the
government their costs are far lower, close to $20
per barrel break-even point, than anyone else in the
world when one factors in external costs.
When you don’t owe anyone anything you are free
to tell them, “No.”
Sure, the Saudis produce at similar cash costs to
the Russians but once you factor in its budgetary
needs, the numbers aren’t even close as they need
something closer to $85 per barrel.
They can’t tell their people, “No,” you have to
do without. Because the populace will revolt.
Russia can ride out, if not thrive, in this low
price regime because :
the ruble floats to absorb price shocks in
A majority of their oil is now sold in
non-dollar currencies – rubles, yuan, euros,
etc. – to lessen their exposure to capital
the major oil firms have little
low extraction costs.
its primary governmental budget ebbs and
flows with oil prices.
All of this adds up to Russia holding the whip
hand over the global market for oil.
The ability to say, “No.”
And they will have it for years to come as U.S.
production implodes. Because they can and do
produce the marginal barrel of oil.
That is why oil prices plunged as much as 10%
into today’s close on the news they would not cut
There is a cascade lurking beneath this market.
There is a lot of bank and pension fund exposure in
the U.S. to what is now soon-to-be non-performing
Liquidations will begin in earnest later this
But the market is handicapping this now.
I cannot overstate how important and far-reaching
this move by Russia is. If they don’t make a deal
here they can break OPEC. If they do make a deal it
will come with strings that ensure pressure is
lifted in other areas of stress for them.
The knock-on effects of oil plunging from $70 per
barrel to $45 over two months will be felt for
months, if not years.
And it is no shock to me that Russia held their
water here. If they didn’t, I would have been
This was Putin’s opportunity to finally strike
back at Russia’s tormentors and inflict real pain
for their unscrupulous behavior in places like Iran,
Iraq, Syria, Ukraine, Yemen, Venezuela and
He is now in a position to extract maximum
concessions from the U.S. and the OPEC nations who
are supporting U.S. belligerence against Russia’s
allies in China, Iran and Syria.
We saw the beginnings of this in his dealings
with Turkish President Erdogan in Moscow, extracting
a ceasefire agreement that was nothing short of a
Erdogan asked to be saved from his own stupidity
and Russia said, “No.”
This condition of producing the marginal barrel
of oil in a deflationary world places Russia in the
driver’s seat to drive U.S. foreign policy behavior
in an election year.
Talk about meddling in our elections!
The Achilles’ heel of the U.S. empire is the
debt. The dollar has been its greatest weapon and
it is still king. And it is a weapon with a great
deal of power but wielded only against the U.S.’s
allies, not Russia.
Markets will adjust and calm down in a few days.
The panic will subside. But it will come back soon
enough in a more virulent form. Today is a replay of
2007-08 but this time Russia is far better prepared
to fight back.
And when that happens, I suspect it won’t be the
Saudis or the Turks that come running to Russia to
save them, but the U.S. and Europe.
At which point, I have to wonder if Putin will
channel his inner Rorschach.
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