This week U.S. President Barack Obama is meeting with Russia’s president, Dmitry Medvedev. Many political experts anticipate the meetings will set the tone on how the two countries will unify their differences.
According to an article in The Economist, “of all the great power relationships Mr Obama inherited from George Bush, Russia is the most awkward—awkward not only because it has been getting ever harder to deal with but also because it cannot be ignored.”
The article continues, “Over the past ten years, under Vladimir Putin’s leadership, Russia has become more nationalistic, corrupt and corporatist. Its economy, although much bigger than a decade ago, is even more dependent on oil and gas, an industry now controlled by a small group of kleptocratic courtiers and former spies.”
Russia has emerged as a political threat – from invading Georgia to stopping natural gas deliveries to the Ukraine and the rest of Eastern Europe. Russia is the world’s biggest producer of oil and gas. It has a seat on the U.N. Security Council and, of course, a nuclear arsenal.
However, now Russia’s economy is in despair and most analysts suggest it will take a long time to recover. Russia’s economy shrank by 9.5% in the first quarter, the worst performance in the G20 after Japan.
In fact, according to the Russian Economic Report No. 19, “the impacts on the real economy and the social sector on Russia were larger than anticipated.” Russia's real GDP in 2009 is likely to contract to about 7.9% in 2009. Unemployment could rise to 13% and poverty to 17.4% by year's end.
The financial crisis has significantly worsened not only poverty, but also the entire income distribution in Russia. A deeper-than-expected drop in real GDP of 7.9% in 2009 is causing huge changes in the composition of wealth and the overall income distribution across the country. For example, per the report, “Russia’s middle-class, measured by household consumption, is likely to shrink - by about 10 percent - from 55.6 percent to 51.2 percent (a decline of 6.2 million people).”
Over the years, Russia gained its economic might with its oil and natural gas supplies. In fact, most European Union countries are dependent on Gazprom for natural gas. But now those countries are hopeful for alternatives.
According to BBC News, Nigeria, Niger and Algeria have signed an agreement to build a multi-billion dollar gas pipeline to take Nigerian gas across the Sahara to the Mediterranean. “The giant project, which will cost an estimated $13bn, aims to deliver up to 30 billion cubic meters of gas per year for the European market.”
The report continues, “European Union nations now hope it will enable them to diversify their gas supplies – and most pressingly, reduce their reliance upon Russian gas… European Union states are keen to reduce their reliance upon Russian gas because of Gazprom's numerous price disputes in recent years with Ukraine.”
In the past Gazprom has temporarily cut supplies to Ukraine, “which in turn has reduced Russian gas deliveries to western Europe that are piped through Russia's neighbor.”
Oil and international investment expert, Chris DeHaemer, who spearheads Crisis Trader, has been following Gazprom for years. “Don’t count Russia out on this one just yet,” says DeHaemer. “Gazprom signed a separate $2.5 billion deal with Nigeria's state-owned gas firm NNPC to build new gas refineries, pipelines and power stations in Nigeria.”
“You could invest in Gazprom and catch a piece of this action, but I think there’s a better opportunity with the small energy exploration company that holds the rights to 3.2 trillion cubic feet of gas,” says DeHaemer.
The company “increased output 108% in 2008 and increased earnings 21% despite the drop in the price of oil. Right now the company has $870 million in cash and no debt. The company will use this money to build out infrastructure and expand to 35 rigs. It is also looking for new oil prospects in the Middle East, Africa and Asia.”
You can learn the details on this company in Chris’ Free Special Report, “Red Oil Wars.”
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