The Empire Strikes Back

Russia is feeling the pain of western sanctions and has begun to attempt to punch back. The problem is they have very limited power when they are financially ostracized by the west.

One more time: The Russian economy as measured by Gross Domestic Product is 25% smaller than Italy and its GDP is going to crater with the sanctions. This is the real problem. Russia economically is a pimple on the world’s economic ass. 

Russia is a gas station with a coal bin out back.

There are three areas in which the Russians have attempted to push back:

 1. Trying to prop up the Ruble.

 2. Finding alternative buyers for Russian oil.

 3. Trying to get around the trademarked luxury goods that are no longer coming to Russia.

Today, I will deal with propping up the Ruble and Russian oil.

The Ruble is crap

The Ruble is generally an “unconvertible currency” meaning it is not on par with the US Dollar, the Euro Dollar, the Pound Sterling, the Swiss Franc, and other sound, stable currencies that can be converted with impunity.

Russia’s credit rating is identical to Cuba and Argentina. 

The Ruble took a beating, but it has come back a bit, but still nobody wants a Ruble.

The Putin Power move

Putin, the guy who started the war in Ukraine — a miserable, Hitlerian thug swimming in blood — sells oil to the stupid west with particular emphasis on Europe and Germany and Italy. [How could these countries have been so stupid? Buying energy from their sworn enemy?]

Putin does this through long term oil and gas contracts denominated in Euros and USD with delivery through an elaborate series of pipelines. Under the terms of the contracts, consumers must pay to Putin Euros and USD. This is an excellent source of foreign currency for Russia and Putin that is used to feed the Putin war machine.

Putin was, of course, faced with a Ruble that was tanking, so what did the evil toad do?

Putin unilaterally mandated that all Russian gas and oil contracts had to be settled in Rubles and, if not, they would be cancelled.

Why did he do that, Big Red Car?

Ahhh, dear reader, he wanted to prop up the Ruble. The silly idea was that the consumers would have to buy up Rubles to pay their bills thereby propping up the Ruble with this artificial demand.

This created a dilemma:

 1. Putin may desperately want the Ruble to be something it isn’t — a decent currency — but he more desperately requires foreign currency since the west has blocked access to his war reserves.

 2. The consumers have clear and enforceable contracts that call for payments in either Euros or USD.

 3. The consumers told Putin, “No.” This is an idea the west needs to deploy more frequently.

So, what did Putin do, Big Red Car?

Putin, being a bully and a punk, blinked.

 1. He created a fiction that makes him feel good with his bald head.

The consumers still pay in Euros and USD, but they will pay the Gazprom Bank which then converts Euro and USD payments into Rubles.

 2. This is purely window dressing. It puts a salve on Putin’s hurt feelings.

What’s next, Big Red Car?

Oh, I fully expect Putin and Russia to cut off all oil and gas to Europe before this is over. As soon as he develops alternative markets, he will turn off the tap. You heard it here first.

What alternative markets, Big Red Car?

Putin is cozying up to both India and China.

 1. Russia and India have had a long standing relationship. Russia has been supplying India with armaments for years since buying Russian Mig-21s in 1962.

India has a border with China and has a wary view of that country.

 2. India imports 86% of its oil and is the third largest global user of oil.

 3. Prior to the invasion of Ukraine, India bought just 2% of its imported oil from Russia. In all of 2021, India bought 16MM bbl of Russian oil, but since the Russian invasion, India has bought 13MM bbl of Russian oil.

Private Indian refiners buy wayward shiploads of crude on the spot market.

 4. India is receiving a $30/bbl +/- discount on Urals oil as part of their expanded appetite for Russian oil.

 5. In an odd way, the western nations like the idea of Russia moving its oil for a $30/bbl discount — less money to fuel the Putin death machine.

India — there’s more

So, the Indians are getting cheaper oil and Russia is taking a haircut. All good.

Russia is also trying to get around the USD energy settlement convention by pretending it will trade in a Ruble – Rupee environment.

This, too, is a head fake.

 1. Russian Foreign Minister Lavrov was just in China and India trying to find a home for more Russian oil — hence my firm belief that Russia will turn off the pipelines supplying Europe.

Russian Foreign Minister and thug, Sergei Lavrov, and Indian Prime Minister Narendra Modi.

 2. Lavrov, a thoroughly ugly piece of goods, was braying that Russia and India would trade in Rubles and Rupees.

Russian Foreign Minister Lavrov’s mistress, Svetlana Polyakova, with whom Sergey often travels. Sweetheart. [Who else is getting you this kind of info? Hard pic to find.]

 3. The problem is this:

In FY 2021, India exported $2,600,000,000 of goods to Russia.

In FY 2021, India imported $5,480,000,000 of goods from Russia. 

US – India trade is a $100,000,000,000 relationship.

 4. As you can see, Russia will end up with a pile of Rupees — another currency that is not widely attractive. WTF is Russia going to do with all those Rupees? Nothing. It’s all window dressing.

India, the bottom line

India is going to buy Russian Urals oil because they can get a $30/bbl discount. This is going to happen.

India is a big buyer of Russian military gear and with their enmity toward China must continue this arrangement.

India — like China — has NOT condemned the Russian invasion of Ukraine. This speaks loud of where they are politically. Wow!

The whole oil switcheroo is not going to be done in time to impact the short term western sanctions of Russia; and, your Big Red Car thinks Russia will turn off the tap in the next 60 days as it finds other buyers for Russian oil.

So, does Putin extract the Russian teat from the sanctions wringer? No.