Polonium, Politics and $100 Oil

By: Adrian Ash | Fri, Aug 3, 2007
Print Email

"...If you fear that we're only a couple of headlines away from $100 oil, be careful how you buy into Russia's huge energy reserves..."

A RISK CONSULTANCY firm based in Canary Wharf's gleaming financial district emails us here at BullionVault to ask:

"We are keen if possible to get a view from you on the recent heat between the UK and Russian governments.

"Is this likely to make London a less attractive place for Russian companies to list their equity? Is the City suddenly going to go up in arms and demand further regulation? Or will it just be business as usual?"

Regular readers of the View from the Vault might guess we have no answers. They might also wonder why-in-the-hell anyone would ask us! But they'll also know we shall attempt a reply regardless. Yes, it's eight months since we last studied the hazards of Russian equities listing on the London market, right around the time that Polonium 210 poisoned a dissident Russian spy in a West End sushi bar.

Nor can we begin to guess how the LSE or City watchdog, the Financial Services Authority, might feel about becoming bit-players in Whitehall's latest comedy of errors. Chasing down the Russian spy accused of poisoning Alexander Litvinenko in Central London would surely require an extradition treaty, not a tightening of stock-market rules.

And besides, as John Kampfner notes in The Guardian, "If the UK and Russia did have an extradition treaty, what would happen to Boris Berezovsky, a one-time top Kremlin figure-turned-dissident whom Putin regards as his public enemy No.1? Berezovsky and other oligarchs now live here [in London] in opulence, thanks to our absurdly generous tax laws."

But still, we can't help wondering: Do Russian companies - most especially the gas, oil and mining companies who make up 80% of the Russian stock market - actually need to raise cash by listing on Western exchanges?

If you haven't bought into Gazprom yet, you might not get chance to buy Russia in London for much longer, perhaps. As Marc Faber has observed, what finally destroyed the Soviet Union at the end of the '80s wasn't so much the victory of Western capitalism but the collapse of global oil prices to $10 per barrel. Now oil looks firm above $60 if not $70, and "we're only a headline of significance away from $100 oil," reckons John Kilduff, an analyst in New York for Man Financial.

Little wonder then that President Putin's belligerence looks like the swagger of a man who just can't lose...so long as energy stays expensive. As it is, Russia's forex reserves now stand at No.3 behind China and Japan, and Europe needs Russian energy flows far more than Russia needs European cash in return. Or so it would seem for the foreseeable future. And as for Western companies investing in Russian resources directly, Shell's loss of its Sakhalin project...foreign gold miners' ongoing problems with Moscow's Environmental Agency licenses...and now the expulsion of Britain's trade ambassador...would suggest that capex from overseas simply isn't wanted or needed.

Foreign investment dollars are being actively scorned. Yet British companies still want in! Will they never learn? "Last month, following months of pressure from the Russian authorities, BP's 50%-owned joint venture TNK-BP was forced to sell its stake in the vast Kovykta gas field to Gazprom, the [Russian] state-controlled gas company, at a bargain price," reports Ed Crooks in the Financial Times. "But BP still sees great potential in investing in Russia, and hopes for further development of joint ventures with Gazprom and other Russian companies."

BP on Tuesday reported a 16% drop in earnings between April and June. Its No.1 competitor for British stock market cash, Shell Plc, said today it grew its earnings by 18% during the same period. No wonder then that BP needs to deal with whomever it can - and at what looks like any price in terms of risk - to catch up.

"As part of the Kovykta deal," Crooks goes on in his FT report, "BP, TNK-BP and Gazprom agreed to set up a global joint venture worth at least $3bn that could develop projects inside and outside Russia. Tony Hayward, BP's new chief executive, talked about what he described as the growth of 'reciprocity', which he said meant 'the development of not just foreign investment into Russia, but investment by Russian companies overseas'."

In other words, Russian companies are not only willing to grab control Western-owned assets in the Motherland at bargain prices, forced through by the Russian courts. They're also willing to put up their own money for joint-venture development of oil and gas projects outside Russia, too. Buying BP Plc, in other words, might just give you exposure to Russian business practices across the world.

"Deals with Russia could involve Gazprom taking stakes in BP assets worldwide, including projects in liquefied natural gas," says Crooks, "which is one of the Russian company's ambitions for expansion."

If more Russian firms did choose to follow Gazprom's example and list here in London, then at least UK investors might hope to enjoy some domestic legal protections. But why would a nationalist and recidivist Kremlin want to encourage that? Letting the wealth produced by Russia's natural resources slip overseas could easily be presented by the pro-Putin Nashi youth movement as Robber Baron Capitalism Mark II. The more profitable action - and the more politically useful - would be to seize new energy reserves. Such as, say, in the Arctic Circle...?

"Moscow has dispatched a submarine under the North Pole that is expected to arrive on Sunday to plant a titanium flag on the seabed," reports Australia's Herald Sun. "The mission is part of a race to assert rights over the area, which is rich in energy reserves."

Now throw in the two Tu95 "Bear" bomber planes that dared to near British airspace last Tuesday...the suspension of Russian visas to British citizens...the Kremlin's permission for Gazprom to build a private army of security and defense staff...and the comments in The People's Daily, China's leading newspaper, that "Britain and China are in a 'controlled' crisis."

Crude oil is trading back at a new 11-month high. Above $70 throughout July, it's starting to look awful expensive for British diplomacy...let alone investors and consumers.

 


 

Adrian Ash

Author: Adrian Ash

Adrian Ash
BullionVault.com

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the head of research at BullionVault, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the secure, low-cost gold and silver exchange for private investors. It enables you to buy and sell professional-grade bullion at live prices online, storing your physical property in market-accredited, non-bank vaults in London, New York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people from 97 countries used BullionVault, owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical silver (US$129m) as their outright property. There is no minimum investment and users can deal as little as one gram at a time. Each user's unique holding is proven, each day, by the public reconciliation of client property with formal bullion-market bar lists.

BullionVault is a full member of professional trade body the London Bullion Market Association (LBMA). Its innovative online platform was recognized in 2009 by the UK's prestigious Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development body the World Gold Council (www.gold.org) joined with the internet and technology fund Augmentum Capital, which is backed by the London listed Rothschild Investment Trust (RIT Capital Partners), in making an $18.8 million (£12.5m) investment in the business.

For more information, visit http://www.bullionvault.com

© BullionVault 2006-2014

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events - and must be verified elsewhere - should you choose to act on it.

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/