Vladimir Putin Signs Historic $20Bn Oil Deal With Iran To Bypass Western Sanctions
Source: Telegraph UK
By Andrew Trotman
6:58PM BST 05 Aug 2014
Vladimir Putin has attempted to sidestep Western sanctions on Russia's energy sector by signing a $20bn trade deal that could see his country become the largest importer of oil from Iran.
The five-year accord will see Russia help Iran organise oil sales as well as "cooperate in the oil-gas industry, construction of power plants, grids, supply of machinery, consumer goods and agriculture products", according to a statement by the Energy Ministry in Moscow.
News of the agreement hit US markets. The Dow fell 188 points, or 1.1pc, in late trading, led by energy companies such as Halliburton and Chesapeake. Brent Crude fell 1.5pc before recovering to trade down 0.8pc at $104.54.
The deal, which could reportedly see Russia buying 500,000 barrels of Iranian oil a day, is a win-win for both nations after they were hit with Western sanctions aimed at limiting their energy sectors.
Read more: http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11014604/Vladimir-Putin-signs-historic-20bn-oil-deal-with-Iran-to-bypass-Western-sanctions.html
So that is why the market started to tank a around 1:30p est.
bemildred
(90,061 posts)former9thward
(32,046 posts)Not anymore. We have a global economy and sanctions are the equivalent of putting a patch on a dike with 100 holes in it.
bemildred
(90,061 posts)MOSCOW, Aug 5 (Reuters) - Russian Prime Minister Dmitry Medvedev threatened on Tuesday to retaliate for the grounding of a subsidiary of national airline Aeroflot because of EU sanctions, with one newspaper reporting that European flights to Asia over Siberia could be banned.
Low-cost carrier Dobrolyot, operated by Aeroflot, suspended all flights last week after its airline leasing agreement was cancelled under European Union sanctions because it flies to Crimea, a region Russia annexed from Ukraine in March.
"We should discuss possible retaliation," Medvedev said at a meeting with the Russian transport minister and a deputy chief executive of Aeroflot.
The business daily Vedomosti reported that Russia may restrict or ban European airlines from flying over Siberia on Asian routes, a move that would impose costs on European carriers by making flights take longer and require more fuel.
http://in.reuters.com/article/2014/08/05/ukraine-crisis-russia-airlines-idINL6N0QB19B20140805
daleo
(21,317 posts)Tit for tat and eventually the whole world is...never mind.
bemildred
(90,061 posts)Russia has a lot more to lose from airline sanctions.
It's easy enough and not all that expensive to fly around Russia
However Russian airlines might find themselves boxed in with only China and Iran routes available to them.
daleo
(21,317 posts)Who needs great circle routes anyway.
jakeXT
(10,575 posts)happyslug
(14,779 posts)It also means, China can sell a ticket AND make a profit on routes it European competitors have to charge a HIGHER Fee to Break even.
Remember on these fights, the Crew and meals are relatively minor costs, it is the FUEL the drives the price of tickets. Actual fuel per mile per passenger is low, but overall plane use is high.
For example a 747-8 can carry up to 63,034 gallons of Fuel. or 15786.5 Barrels of Fuel. At $80 a barrel that comes to $1,275,292.
http://www.boeing.com/boeing/commercial/747family/pf/pf_facts.page
A 747 gets 5 miles per gallon of fuel:
http://science.howstuffworks.com/transport/flight/modern/question192.htm
Thus if you extend how far that plane has to go, you increase fuel usage by about 40 cents for every mile diverted ($2 a gallon, 5 mpg, thus $4 for ten gallons, or 40 cents per mile);
Via Russia it is 5,058.67 miles
http://www.distance.to/Beijing/London
To avoid Russia, you have to add at least 2000 miles to that distance, and about 3 hours.
Thus you have added at least $800 in fuel cost to the trip. A 747 has the capacity of 452 passenger in two classes, thus about an extra $2 to the cost of each ticket in fuel alone.
Please note the above does NOT include having to stop over, avoiding Russia means flying the 747 to to maximum range without refueling. To be on the safe side the plane would have to stop somewhere to refuel, probably Anchorage Alaska (Via Anchorage the distance is over 8000 miles).
A slightly shorter distance from London to China would be to go via Egypt then Aden then Beijing,but that is still 2500 miles longer then over Russia and, while within the range of a 747, you are getting to close to any margin of safety (Google maps says about 7600 miles). Thus this ban, will kill non-stop traffic from Europe and the US to China and the Far East. Thus you are NOT looking at a 3 hour extra time in flight, but another 2 hours on the ground while the 747 gets refueled.
All of this extra time on the ground cost money. Maintenance people have to be paid, the flight crew has to be paid. The right to use the extra runway has to be paid for. More fuel is used taking off and landing then cruising at attitude, thus it is MORE fuel then just $800 mentioned above, thus we are talking about serious increase in costs, costs that Chinese and Russian flights will NOT have to absorb (At least $1000 per flight, and I suspect closer to $2-3000).
As to the US, it is another about 1500 miles to avoid Russia from New York City so same problems.
A $2 a ticket increase in fuel cost does not sound like much, but given the other extra expenses, expenses any plane able to fly over Russia can avoid, it may be enough to make Russia a nice profit (When I check flights from London to Beijing Aeroflot was the cheapest, but it was NOT a Non-stop).
JVS
(61,935 posts)happyslug
(14,779 posts)10 gallons for every two miles, or roughly $10 a mile per divergence (at $2 a gallon). At 1000 miles that is $20,000 in fuel costs ALONE. Divide by 400 (For ease of calculation), that comes to $50 per passenger, at 2000 miles an extra $100 per passenger). If you include the other costs, including refueling and the fees for stopping over you have a HUGE increase in the price of a ticket, an increase Airlines from China and Russia do NOT have to pay.
MrNJ
(200 posts)Somebody explain this to me please.
daleo
(21,317 posts)Russia can probably refine the oil and export it to countries like China, where western sanctions are largely irrelevant for all parties involved.
bemildred
(90,061 posts)And they want to use the oil for revenue, hence the desire for Nuclear electricity generation.
Xolodno
(6,398 posts)...Probably the EU as well. There are no sanctions on energy from Russia and who is going to distinguish between Russian and Iranian oil?
Igel
(35,332 posts)1. Russia now controls a larger percentage of the world's oil.
If it decides to reduce production and create an oil shortage, it's going to have a lot of the Iranian oil tied up. Not cornering the market, per se, but increasing the leverage over it.
2. Iranian oil is mostly embargoed. Hard for them to sell it. Think of this as oil laundering. That barrel of oil Russia's selling ... is it Iranian or is it Russian?
3. They recently decided to cancel exploration and development of some oil reserves in Siberia. They lost Western oil company "start up" money and tech. This is also a way of ensuring long term supplies without dipping into their untapped reserves.
4. And, most importantly, it solidifies Russia in Asia as a friend to a country that really has great antipathy to the US. One way of building allies is to start by connecting infrastructure and economic ties. Esp. if you think you may need bases in the Indian Ocean. They're reaching out to their historical allies India, as well.
Socialistlemur
(770 posts)And exports its oil to China and Europe.
Blue Idaho
(5,051 posts)bemildred
(90,061 posts)Cayenne
(480 posts)just store credit.
Blue Idaho
(5,051 posts)Now THATS funny!
pampango
(24,692 posts)Sanctions hurt everyone. Anyone who thinks they only hurt one side, does not understand how they work. They usually hurt smaller economies (like South Africa - back in the day - and Russia) more rather than the bigger economies, because sanctions affect a larger part of their economy.
jakeXT
(10,575 posts)By STEVE ROTHWELL, AP Business Writer
NEW YORK (AP) For stock investors, the red flags were everywhere on Thursday.
There were weak corporate results, the looming end of stimulus from the Federal Reserve and tensions between the West and Russia. On top of that, some investors feared that stocks have become too pricey after three years without a significant downturn.
The confluence of worries sent the Dow Jones industrial average tumbling more than 300 points, its worst one-day drop since February. The plunge snapped a string of five straight monthly gains, and pushed the blue-chip index to a slight loss for the year.
But it wasn't just stocks that suffered. Oil fell to its lowest level since March, gold dropped and even Treasurys edged lower.
http://www.usnews.com/news/business/articles/2014/07/31/stocks-slump-as-earnings-disappoint
bemildred
(90,061 posts)In the first place, left unfettered, the markets are chaotic, i.e. not predictable even in principle, and in the second place, they are manipulated for profit, which somehow is never mentioned as the cause of a move.
WhoWoodaKnew
(847 posts)truedelphi
(32,324 posts)International Court in the Hague sided with the USA, in a decision letting Oil Smuggler/Larcenist Mikael Khodorkovsky get away with his criminal behavior.
When Russian officials first caught on towhat Mikhail Khodorkovsky was doing witht the Russian People's oil, both Barack Obama and Hillary Clinton were crying in their beer, as American officals had already arranged to have that $ 20 billions worth of oil be theirs for the taking, and fuck all to the people of the former USSR.
But now both Obama and Clinton can relax, as their friends in the Big Oil Business will be able to appropriate the mis-appropriated oil. Ain't capitalism and our system of "free markets" grand?
And ever grander, especially when its main players control the International Court of Law?
Here is a link from Rueters, regarding the oil decision:
http://www.reuters.com/article/2014/07/28/us-russia-yukos-idUSKBN0FW0TP20140728
An international arbitration court ruled on Monday that Russia must pay $50 billion for expropriating the assets of Yukos, the former oil giant whose ex-owner Mikhail Khodorkovsky fell foul of the Kremlin.
Exultant Democracy
(6,594 posts)This embargo if anything has had the reverse effect to what the West claims to want for Iran. With a major market opening up like this the money flowing in has a good chance to finally destabilize the regime by creating an economic expectation disparity.
Calista241
(5,586 posts)For some reason, I don't see that happening.
fujiyama
(15,185 posts)Iran has little refining capacity. On the other hand, outside of the West, the sanctions against Russia really haven't taken hold (Iran's are more serious). Russia will still be able to sell this to China and India.
Russia may as well ally itself with another pariah nation. As long as they have something to sell (and everyone needs oil), there will always be a buyer.
Purveyor
(29,876 posts)of the apartheid state of israel.
"Pariah nation"...indeed!