(January 28, 2015 at 9:06 pm)Parkers Tan Wrote:(January 28, 2015 at 8:47 pm)Chuck Wrote: From the rebound in oil prices.
The low oil price is the primary driver of russian recession. Low oil price is unsustainable because there is no fundamental reduction in oil demand, or increase in oil supply. It is only being maintained in the short term by Saudi parabia maintaining high rate of production. Saudi Arabia can't keep this up, because just like with russian governement, the fiscal integrity of Saudi governement depends on tax revenue supported by high oil prices. Saudi Arabia is willing to bleed for A while to achieve some political goals. But it's can't keep it up forever.
So the growth comes from the fact that the current low oil price which is strangling russian governement income has to rebound within 2 years at most, most analysts suggests well within 1 year.
The Saudis have about $800 billion in USD set aside -- they can play this hand for a while.
Saudi foreign reserve is the means by which the kingdom can menipulate regional politics in order to give the siberitic monarchy the influence to survive. If they don't have their foreign reserve and the influence and menipulative power it buys anti-Saudi forces within the kingdom and in the surrounding region will rise up and lynch the saud family in 6 month. So we can be sure Saudi regime's apetite for drawing down its foreign reserves for any purpose other than preserving the Saudi family rule is limited. Punishing russia for not giving ukraine freely to NATO is unlikely to be vital to survival of Saudi family rule.
Furthermore, the advant of fracking and other newly tappable reserves suggests long term oil prices will be much lower in the future than might have been expected 5 years. This means in the future, the margin in the oil Saudi arabia can sell will be much lower than in the past, which in turn means oil prices will on the whole not rise as much, thus Saudi arabia's ability to replenish depleted foreign reserve will be much less than it might have been before. This would further diminish Saudi arabia's appetite to draw down its existing reserves.
I believe maintaining low oil prices over around 6 month has already cost Saudi arabia around $100 billion. How much of its reserves is it willing to draw down? Half? I seriously doubt it. But let's say half. How long will $400 billion last at the rate of $100 billion every 6 month?
So russia returns to fiscal integrity within 2 years, tops.
