Russian naval expansion

[Chuck~]

1. Boutique or not, crude price can be shown to constitute by far the largest component of American refined gasoline price, and increase in crude prices can be show to absolutely dominates the price increase at the pumps we've seen. You can call your friend Rush Limbaugh to ask him what he was taking when he claimed otherwise. An unfortunate combination of SPAM SPAMMITY SPAM SPAM SPAMMITY SPAM SPAM SPAMMITY SPAM SPAM SPAMMITY SPAM SPAM SPAMMITY SPAM and some other proscription drug he was abusing, I would guess.

2. We are not talking about refined gasoline. We are talking about crude oil. So boutique'ing of gasoline is totally irrelevent to the subject. In fact, if Boutique does seriously increase refined gasoline prices, then would act to reduce gasoline demand, and thus reduce raw petroleum price. Even if you don't check your facts, you should still take care to ensure that the erroneous statements, if taken at face value, would support your conclusion.

3. Were there any globally significant discouragement to refinery construction, that would also create a bottom neck down stream of crude oil production, and would therefore also diminish the demand for crude oil. So again had your claim been true, what you claimed would act to reduce crude oil prices, not to increase it.

4. Traditionally Russian oil is non-competitive with Middle Eastern oil because Russian wells are expensive to extract, and during Russian financial crisis it was estimated that Russian petroleum requires a world price in the $30 ball park to break even. Let's assume that has not dramatically changed. Accounting for demand from China, AG Edwards estimated the fair market value of patroleum in early 2004 to be about $30. In other words in a fair market unencumbered by risk Russia oil industry will have a zero sparks spread and would therefore make no money in that market at that time.

But there is a risk, and AG Edwards estimates the risk premium caused by Iraqi war at the time to be $10, and the world oil price was persistently above $40. Thus giving Russia a $10/barrel profit margin.

At the beginning of this year, the estimated fair market value of petroleum was $45, and the continuing war in Iraq added another risk premium of about $20 to drive the market price to about $65. To put that in Russian perspective, without Iraqi war the Spark Spread for Russian oil industry would be around $15/Barrel. With Iraqi war it was about $35/barrel. Something like 2/3 of Russian oil profits would have been gone without the Iraq war induced premium.

Currently the consensus seems to be that about 1/4 - 1/3 of the crude oil price seen in the world is directly tied to risk premium charged to offset the risk created by the Iraqi war. Again putting that in Russian perspective, Iraqi war increased Russian oil profits from about $35/Barrel to about $65/barrel.

If we increase Russian break even price to account for the fact that Russian oil production cost might be partially in Euros or Yen, then proportionally the increase in Russian profitability attributable to risk premium also increases.

Oil price show long term correlation with natural gas price. So high oil price also applies upward pressure on gas prices and Russian profit margin in gas.

All this is with Chinese demand figured into equation.

[Guest]

Perhaps I should also clarify that risk premium on oil is thought to have further increased proportionally due to current American stand on the Iranian issue.
~Chuck

[Werner]

I would say the risk of the Iraqi war was factored into the cost three years ago. The current risk costs would represent uncertainty about Iran or Pakistan disrupting oil flow out of the Gulf.

It is demand, not risk that has elevated oil prices, combined with historic weaknesses in US financial instruments, driven by the political demand for low home ownership costs, subsidized by healthy tax incentives to induce less than satisfactory purchasers to buy homes.

Mean while, Chinese gasoline and oil demand is skyrocketing.

If policies in place in 1992 regarding domestic production of oil were overturned, the price of domestic crude would largely offset the current global factors. It is a farce that US companies are prohibited from prospecting in the Strait of Florida on environmental grounds, while five miles away Chinese rigs prospect in Cuban waters.

BP's modification of the Whiting plant to accommodate Canadian oil shale, sand and tar was blocked last month on environmental grounds. They were asking to dump an amount of ammonia into Lake Michigan roughly equal to the amount Gary Indiana illegally dumps as urine into the lake.

Then, of course, there's ANWR....

• Cost of Gasoline, 12 Nov 2007:
  • Distribution Costs, Marketing Costs and Profits $0.09
  • Crude Oil Cost $2.22
  • Costs of refining and terminal operations, crude oil processing, oxygenate additives, product shipment and storage, oil spill fees, depreciation, purchases of gasoline to cover refinery shortages, brand advertising, and profits. $0.43
  • Tax: ($0.62)
    • State Underground Storage Tank Fee $0.01
    • State and Local Sales Tax $0.25
    • State Excise Tax $0.18
    • Federal Excise Tax $0.18
• Retail prices $3.37

Obviously, the only winner in the gas price deal is the government, who score by far the largest profit with absolutely no investment or risk involved.

[Dave Wooley]

Russia did not stand still since the fall of Communism. Communism fell, not the Russia State. Don't mix the two up, it is a common mistake made here in the west.

You can't seriously believe technology didn't suffer during the switch from Communism. At one point, the MiG factory was making aluminum toaster ovens to pay the heat and electricity bills. The current Russian military budget is a shadow of the 1980s USSR. That was the whole point, after all. During the period they could not pay for the heating bill, I doubt if there was much impetus to work on a new generation of ESM for combat aircraft. The engineers were too busy selling their Electronika computers on E-Bay! (I bought one)


Elektronika 90 on Ebay

Sorry to correct you Werner but the Russians have been busy selling SU30s to your South American Brothers .

Dave Wooley

[Guest]

Not to put too fine of a point on it, but we should separate how good a design is from how advanced are the technologies involved. While SU-27 is indisputably an extremely outstanding fighter design, in my opinion a strong contender for the best (not the most advanced) jet fighter design ever, it was not a particularly advanced design even in its heydays. Her analogue FBW flight controls are about as sophisticated as what was found on the earliest F-16. She is essentially all metal and makes only desultory use of composite material.

The advancements made to various offsprings of the SU-27 family since the collapse of Soviet Union has largely been of a desultory nature as well, tacking on various individual equipment to create the appearance that Russia is still a player in modern fighter design progress without there being any realistic chance of Russia actually field a clean-slate post SU-27 design to really keep up with fighter design progress elsewhere.

[RNfanDan]

So, are you saying a) that the Russians still have a better aircraft than those of other major powers; or, b) that the technical advancements in lesser aircraft trump design quality, rendering the latter ineffective?

[Guest]

So, are you saying a) that the Russians still have a better aircraft than those of other major powers; or, b) that the technical advancements in lesser aircraft trump design quality, rendering the latter ineffective?

Something like that. SU-27 is not a shinning example of generally advanced state of Russian military technology, but she is an outstanding example of what Russian aviation talents can do with indifferent technology. And that was in 1985. So SU-27 definitely should not used as some sort of indication that now, in 2007, Russian military technology is still abreast of world class.

[Dave Wooley]

So, are you saying a) that the Russians still have a better aircraft than those of other major powers; or, b) that the technical advancements in lesser aircraft trump design quality, rendering the latter ineffective?

Something like that. SU-27 is not a shinning example of generally advanced state of Russian military technology, but she is an outstanding example of what Russian aviation talents can do with indifferent technology. And that was in 1985. So SU-27 definitely should not used as some sort of indication that now, in 2007, Russian military technology is still abreast of world class.

Russia is pressing ahead and keeping abreast of the technologies that make this SU34 fly. before 1941 we viewed the Japanese as being some how technically inferior.


DW

[Werner]

It's arguable that Japan was not so fractured and self-destructive as Russia today.

Russia may have the GDP of Britain, but it also has immense social problems and an intensely wasteful infrastructure which greatly reduces the likelihood that anything useful will come out of these industries. Look at the difficulties with their SLBM program. They have had so many failed launches recently. I can't actually recall a successful SLBM launch.

I have no doubt the SU-34 is a worthy aircraft. I also believe to make this happen they had to sacrifice uncounted programs in land and naval warfare systems. How many SU-34s are projected?

(According to GlobalSecurity, there are two (2) SU-34s, the others have been withdrawn by the designer as a basis for further upgrades, and the projected build is 10 per year for 20 years).

[bengtsson]

It's arguable that Japan was not so fractured and self-destructive as Russia today.

Russia may have the GDP of Britain, but it also has immense social problems and an intensely wasteful infrastructure which greatly reduces the likelihood that anything useful will come out of these industries. Look at the difficulties with their SLBM program. They have had so many failed launches recently. I can't actually recall a successful SLBM launch.

I have no doubt the SU-34 is a worthy aircraft. I also believe to make this happen they had to sacrifice uncounted programs in land and naval warfare systems. How many SU-34s are projected?

(According to GlobalSecurity, there are two (2) SU-34s, the others have been withdrawn by the designer as a basis for further upgrades, and the projected build is 10 per year for 20 years).

Maybe alot of the top line Russian miltary production is simply a way to make money. China plays a dual role as a buyer of Russian military equipment and as the Banker of last resort for the US. Their foreign curency reserves, most in US dollars, allows for big spending on Russian weapons and big loans to the US government to continue spending more than tax revenues would allow.
Russia benefits by keeping busy healthy and well funded weapons design and manufacturing firms going and also allows capital investment in high technology. All available in the free market captialist world trading system. If Russia lacks good software deisgners, a simple contract with an Indian firm can provide the best in the world at an affordable price. Point is, the Monoply on high technology that the US and Western Europe enjoyed while China and Russia went backwards under communism is over. India as well had a semi planned economy and also stagnated. . While the US invests a Trillion dollars on holding on to Iraq and borrows 2 billion a day to spend over and above US economic production, the other major nations are free to invest earned income debt free in their military development industries. This is not a situation that favours continued US domination. What would stop the Russian design bureaus from accessing world class technology to add to it's basic weapons systems? And paying hard cash for it? It's not 1980.

Bob B.

[gs]

Werner's comments about Russia indicate that it has a long way to go before it assumes superpower status. I wonder how all the Russian aircraft carriers are going to be paid for (not to mention built without the large slipways needed).

BTW, Venezuela is thinking about buying the latest Russian conventional submarine to go along with its SU-30s.

The USA is close to being a spent power similar to the UK after WWII.

We are in debt to other countries such as China. Our industries have been outsourced. Our raw materials have been depleted. We still have intellectual capital, but the world is catching up. The USA wrongly thinks NAFTA is advantageous. NAFTA merely means that every other country can compete on equal terms. American politicians wrongly think we will be able to win that competition. They wrongly assume that people in other countries are not as capable as Americans.

The main way the US has been able to survive is by printing money, which foreign nationals have historically bought as being the world's most stable currency. However, things have changed with the rise of the EURO vis-a-vis the dollar. Once the world starts to think that the EURO is a better currency, we are doomed to depression and worse. Fortunately, the US is separated by oceans from possible hostile powers and has only friendly nations on its borders. With oceans to protect us, we will still be safe although we may be poor.

[Werner]

The USA is close to being a spent power similar to the UK after WWII.

We are in debt to other countries such as China. Our industries have been outsourced. Our raw materials have been depleted. We still have intellectual capital, but the world is catching up. The USA wrongly thinks NAFTA is advantageous. NAFTA merely means that every other country can compete on equal terms. American politicians wrongly think we will be able to win that competition. They wrongly assume that people in other countries are not as capable as Americans.

The situation is not recursive, or even comparable. Globalization has made the kind of world war we've seen in the past a distant possibility. Regional bullying seems more likely the future as long as the USA is the pre-eminent military power.

It is a common misconception to view national debt or trade debt through a "zero-sum" game. If the Chinese have invested in U.S. securities, they purchased them from US entities who could then use their liberated capital for other uses. It is very unlikely this American capital has been idle while the lending instruments are in Chinese hands.

Finally, look at the announcement in stem-cells today. The announcement did not happen in the centrally planned economy of China, nor the progressive economies of Europe, but the highly Capitalist economies of Japan and the USA. Not only has the released capital been put to good use, but it has created entirely new regions of capitalism, the produce of which will have to be purchased by the rest of the world.

[Dave Wooley]

The USA is close to being a spent power similar to the UK after WWII.

We are in debt to other countries such as China. Our industries have been outsourced. Our raw materials have been depleted. We still have intellectual capital, but the world is catching up. The USA wrongly thinks NAFTA is advantageous. NAFTA merely means that every other country can compete on equal terms. American politicians wrongly think we will be able to win that competition. They wrongly assume that people in other countries are not as capable as Americans.

The situation is not recursive, or even comparable. Globalization has made the kind of world war we've seen in the past a distant possibility. Regional bullying seems more likely the future as long as the USA is the pre-eminent military power.

It is a common misconception to view national debt or trade debt through a "zero-sum" game. If the Chinese have invested in U.S. securities, they purchased them from US entities who could then use their liberated capital for other uses. It is very unlikely this American capital has been idle while the lending instruments are in Chinese hands.

Finally, look at the announcement in stem-cells today. The announcement did not happen in the centrally planned economy of China, nor the progressive economies of Europe, but the highly Capitalist economies of Japan and the USA. Not only has the released capital been put to good use, but it has created entirely new regions of capitalism, the produce of which will have to be purchased by the rest of the world.

I think "gs" is closer to the mark as your appraisal of the present situation is precisely the view of superiority we in the West have nurtured for so long. Assuming that only western styled progressivness can produce what the world needs. Those days are coming to an end as much as the end of the superior attitude adopted by the British in days of Empire. The Empire was unstainable and by 1947 Britain reluctantly had to start dismantling that Empire . The sooner we come to terms with the changes the sooner we adapt .
Dave Wooley

[Werner]

Dave, I think you still miss my point. It is no longer Germany's steel vs Britain's steel and so on. Trans-national corporations have erased those distinctions. The world's economy is no longer distributed on national lines, but on economic ones. China and the USA in conflict would destroy the computer industries of both countries. War between China and India would severely damage Dell, Gateway and HP.

If these countries approach the brink of war it is quite likely the industrialists would aggressively influence their respective leaders to stand down. Unlike WW.II, their economies are not islands, but are hopelessly intertwined.

The recent conflicts and disagreements with North Kores, Iraq, Afghanistan, Libya and so on were only viable because these countries were, either by choice or dint of other circumstances, isolated in the sense I described above. There are only a few such countries who could go to war without causing a cascade of economic problems, internal and external, out of all proportion to their nominal national share of the world's economy.

[Dave Wooley]

Dave, I think you still miss my point. It is no longer Germany's steel vs Britain's steel and so on. Trans-national corporations have erased those distinctions. The world's economy is no longer distributed on national lines, but on economic ones. China and the USA in conflict would destroy the computer industries of both countries. War between China and India would severely damage Dell, Gateway and HP.

If these countries approach the brink of war it is quite likely the industrialists would aggressively influence their respective leaders to stand down. Unlike WW.II, their economies are not islands, but are hopelessly intertwined.

The recent conflicts and disagreements with North Kores, Iraq, Afghanistan, Libya and so on were only viable because these countries were, either by choice or dint of other circumstances, isolated in the sense I described above. There are only a few such countries who could go to war without causing a cascade of economic problems, internal and external, out of all proportion to their nominal national share of the world's economy.

I take on board what you say re-globalisation and I would agree for the moment economies are interrelated and in some ways interdependent. However that' s assuming the world economies keep expending. The scenario being, what would be the impact if the worsening economic down turn in the US and Uk start impacting on developing economies? The other question if as you say that few countries could effectively go to war. Why do they {china Russia India} require spending vast sums in acquiring weapons that they have no use for and under the present situation could not use? Why is the UK prepared to spend vast sums building two new carriers it really doesn't need for bush fire wars?
Dave Wooley

[bengtsson]

Werner's comments about Russia indicate that it has a long way to go before it assumes superpower status. I wonder how all the Russian aircraft carriers are going to be paid for (not to mention built without the large slipways needed).

BTW, Venezuela is thinking about buying the latest Russian conventional submarine to go along with its SU-30s.

The USA is close to being a spent power similar to the UK after WWII.

We are in debt to other countries such as China. Our industries have been outsourced. Our raw materials have been depleted. We still have intellectual capital, but the world is catching up. The USA wrongly thinks NAFTA is advantageous. NAFTA merely means that every other country can compete on equal terms. American politicians wrongly think we will be able to win that competition. They wrongly assume that people in other countries are not as capable as Americans.

The main way the US has been able to survive is by printing money, which foreign nationals have historically bought as being the world's most stable currency. However, things have changed with the rise of the EURO vis-a-vis the dollar. Once the world starts to think that the EURO is a better currency, we are doomed to depression and worse. Fortunately, the US is separated by oceans from possible hostile powers and has only friendly nations on its borders. With oceans to protect us, we will still be safe although we may be poor.

I couldn't agree more I think your points are well taken and true. There is a real lag in America between the memory of 1945-1995 and the reality of the year 2007. The UK herself was not defeated in the wars of the 20th century, she lost her number one world power status due to economic reasons. One can look all the way back to Britain's take over of Spain's role as number one world power and see the economic reasons for that switch.
Our present position economically could be endlessly debated on a political basis. But there is only one reality and it pays no heed to political views. We either are borrowing more than we produce or we are not. Seems clear that that 2+ billion a day we borrow gives ample evidence of what the answer to that question is. Not to mention trillions of debt already on the books.
The dollar as world reserve currency has allowed the US to continue long after our industrial production went into decline. Now that status is being pulled out from under us.
The original question about Russian military production just shows that Russia has not gone away. For all the problems they have, they are not going away. The NATO eastward movement has got Mr. Putin up in arms. So I expect Russia to continue to seek allies [china, iran and others] and to seek to rebuild ,as far as money allows, a military capability second to none. Communism held them back, that system is gone. Who is standing in the way of their purchase and use of the best technology the free market has to offer. No one that I know of.

Bob B.

[Werner]

If you want an economic scenario with a likelihood of generating major war, consider an international carbon tax imposed from the outside by the "more responsible" countries on "less responsible" ones. A direct assault on one country's economy like this is the shortest road to war.

The Western economies have endured much harsher conditions than are likely to exist in the near future. The Arab Oil Boycott in the early 1970s is a perfect example. Fuel was not just historically as expensive then as no (adjusted for inflation), it was simply unavailable at any price.

If Western economies remain on the decline for a protracted period in the near future, it will be because of interference in the free market, not because of it.

As for the US debt, it is not out of the ordinary as a proportion of the domestic product. In fact, we are going into less debt as a proportion of the economic activity during this war than we did in many recent periods of peace. The US debt is not necessarily a bad thing, especially when you consider who has purchased the debt, and therefore who has a vested interest in American success.

[Dave Wooley]

If you want an economic scenario with a likelihood of generating major war, consider an international carbon tax imposed from the outside by the "more responsible" countries on "less responsible" ones. A direct assault on one country's economy like this is the shortest road to war.

The Western economies have endured much harsher conditions than are likely to exist in the near future. The Arab Oil Boycott in the early 1970s is a perfect example. Fuel was not just historically as expensive then as no (adjusted for inflation), it was simply unavailable at any price.

If Western economies remain on the decline for a protracted period in the near future, it will be because of interference in the free market, not because of it.
As for the US debt, it is not out of the ordinary as a proportion of the domestic product. In fact, we are going into less debt as a proportion of the economic activity during this war than we did in many recent periods of peace. The US debt is not necessarily a bad thing, especially when you consider who has purchased the debt, and therefore who has a vested interest in American success.

Think of those dreaded two words "Sub- prime� that are sending shivers down the spine of the banking system. US banks indulged is a spree of lending that was plain irresponsible, backed up by western, mainly UK banks purchase of that debt. Now the chickens are coming home to roost. Both economies that are heavily dependent on their semi-regulated banking systems to power their respective economies and in many respect the world economy. Great when all is going well but when the system starts to falter then the cracks become gapping fissures which has become all to evident in resent weeks in the UK banking system . If trading systems around the world begins to loose confidence in the Dollar than that may well benefit Russia as a net mineral exporter and by implication Russia�s new economic/military partners , China and India. . It could be possible that the Euro may replace the Dollar but that seems unlikely at present and given the EUs increasing dependence on gas supplies from Russia the scenarios for the future are becoming unpredictable.
Dave Wooley

[Werner]

"Sub-prime lending" was, more accurately, imposed on the banking industry by politicians, who noticed that banks were in the habit of lending mortgages only to those who could afford them. This was "unfair" to the usual suspects: women and minorities, and roundly denounced by Congressional committees.

Recently, big lenders like Citigroup and Bank of America were urged to lend to persons not legally in the USA and with no right to work. How does that happen, except by political sleight-of-hand?

[bengtsson]

"Sub-prime lending" was, more accurately, imposed on the banking industry by politicians, who noticed that banks were in the habit of lending mortgages only to those who could afford them. This was "unfair" to the usual suspects: women and minorities, and roundly denounced by Congressional committees.

Recently, big lenders like Citigroup and Bank of America were urged to lend to persons not legally in the USA and with no right to work. How does that happen, except by political sleight-of-hand?

We are off topic now, but I have to say that I think you are wrong Werner. The banks and the mortgage companies both got greedy. The loan giver made the loan knowing it would be packaged and sold as an investment unit in the market place. Since the Bank/Mortgage Company got rich of the loan origination fees, that was fine with them. The risk was sold downstream to the buyer of Mortgage Backed Securities. It was massive greed gone out of control The gorenment had nothing to do with the Bank's practices of making loans to gather up the fees and then sell the risk. I took a loan 5 years ago during the hight of this sort of thing. The bank rated me in the top 1% credit rating group. Still, the fees for a small home loan we massive! Now, my loan has been sold three times in five years and Citi holds it now and has proceeded to screw up my payments and show no sign of straightening this out. I hope the Greed Merchants at CITI go bankrupt and are jailed for theft.
I hope this is my last way of topic rant. But I can't let you blame government for the greed of fools on wall street and in the banks. They did this mess all by themsleves and payed themsleves billions in bonuses for doing it It's a nice job if you can get it. p.s. Don't believe everything Rush says in his drug induced state.
Still, answer the question about Russian naval expansion. What is stopping them from buying world class technology in the free market and using it in their already very capable weapons systems. So, we get back on topic



Bob B.