What do we earn from selling oil?

A funny pic I found on the Internet.

http://agaroza.com/i/p/kak_rossiya_o...neft_v_usa.jpg

1. FRS prints unsecured dollars, Central Bank of Russia prints unsecured roubles, oil company X extracts real oil from earth depths of Russia.

Balanse 1: USA has dollars, Central bank has roubles, X oil company has oil

2. The oil company X sells the oil to USA and receives dollars.

Balanse 2: USA has oil, Central bank has roubles, X oil company has dollars

3. You can't spend dollars in Russia so X oil company sells them to the Central Bank and gets unsecured roubles in return.

Balanse 3: USA has oil, Central bank has dollars, X oil company has roubles

4. Central bank of Russia deposits its dollars in one of US banks and calls it foreign gold-currency reserve.

Balanse 4: USA has oil and dollars, Central bank has nothing, X oil company has unsecured roubles.

Perhaps it is better simply to print roubles and distribute them freely instead?

Ah, a very good point. Can I ask another question, though? Why not to build some infrastructure on the territory of the Russian Federation and pay for the latest and greatest infrastructure with the USDs? The bottom line will look a bit different:

A one-year balance:

US: oil is burnt -> infrastructure helped to generate GDP -> print more dollars
RF: dollars were spent -> infrastructure built -> GDP generated -> print more rubles
X oil company: 80% rubles spent to pay off the debts and 20% spent to invest into new infrastructure -> generate income better -> more GDP
-------
Total: More infrastructure -> More GDP -> more goods and services for the US and the RF citizens and all the mediators in between.

(Dollars and rubles are just the means of exchanging the goods and services fluctuating at any specific point in time. So, more dollars or less dollars doesn't really make a difference as the dollars is neither the goods nor the services, but just a media of exchange.)

What do you think of that?

Yes - it's ironic that only 20 years after Communism, the problems with capitalism are clearer in Russia than almost anywhere else.

I guess some of the Russian oil money ends up with regular people if the oligarchs and company executives actually spend the money it in Russia... I doubt they pay any taxes though!

And they forgot to add a column for Switzerland in the calculation! A lot of Russian oil money probably finds its way to Swiss bank accounts....

Quote:

---

Originally Posted by Hanna

Yes - it's ironic that only 20 years after Communism, the problems with capitalism are clearer in Russia than almost anywhere else.

---

I truly wonder what is the process that can lead to that kind of conclusion. Would you kindly be able to spell it out for me? :tease:
Presently, most of the countries in the world are capitalistic. But does it mean all of them equally prosper? I think some of the other countries are able to demonstrate much more "problems with capitalism" than Russia. Some of the soviet people were in a strange oblivion that as soon as Russia (or any other of the 15 Soviet Republics for that matter) would become capitalistic, everybody will start to prosper economically and culturally. It was the same strange oblivion that conquered the minds of Russian people at the late 19th and the early 20th century and made them change the regime from the absolute monarchy to the constitutional monarchy to the republic to the war communist to the cooperative to the socialist and now to the republic again. The truth is that the regime itself is not solving all the problems. It solves some problems and it creates other problems. It benefits some people and does ill service to others. And the transition is very painful. :instruct:

Quote:

---

Originally Posted by Crocodile

Ah, a very good point.

---

That reckoning doesn't make sense to me.

Quote:

---

Originally Posted by Crocodile

Can I ask another question, though? Why not to build some infrastructure on the territory of the Russian Federation and pay for the latest and greatest infrastructure with the USDs?

---

What kind of infrastructure and who should build that?

Quote:

---

Originally Posted by Romik

What kind of infrastructure and who should build that?

---

It's the Lada-Kalina-production-plant kind of infrastucture and it should be built by the dwarves. ;)

Crocodile, in Russia, we don't build infrastructure, we steal it. I've been on negotiations with one federal agency and when the time had come to discuss the price and we said 10 million (Roubles) they said 'No, the sum is too small. Make it 25 million and we're agreed.' I should probably mention to those who are not familiar with our realities here, that we gave back a bribe worth 15 million in order to get the contract. We got 10, the federal budget lost 25, and the official got 15. EVERY ASPECT OF RUSSIAN ECONOMY IS RULED LIKE THAT. NO EXCEPTIONS!

Some years back I would probably have agreed with the rhetorics that puts all the blame on the evil Americans, but in reality, if there are 'enemies of the state', they all live here, in Russia.

Quote:

---

Originally Posted by Ramil

Crocodile, in Russia, we don't build infrastructure, we steal it.

---

Yes, I know that. So, let's assume that in reality only 10% of the budget can be spent on the infrastructure building, 40% is spent on the luxury services within Russia, and the 50% go to the Swiss banks. Let's live with it for a moment and assumet it's ok as long as the majority of people are not starving to death.

The point I'm trying to make is that the stabilization fund or any other government-owned fund for this matter is a waste of the capital. Remember the parable about the silver talents? So, in my humble opinion, presently 'saving money' for Russia is worse than hiding their talents in an underground storage. At least, the talents were silver and didn't depriciate that much, but the modern money is just a temporary agreement. I think a govenment cannot afford to 'save their money' by just storing it somewhere. In case of an emergency those money would evaporate very quickly. On the other side, if the same money is spent by the government to build infrastructure and generate more GDP, they can issue (=print) more money and the entire country would be richer.

So, it's not really a question of 10% or the 50%. So, it's not efficient. Ok. But I'm really having hard time to observe any kind of the wise infrastructure development. Am I missing anything here?

They build already a lot of things, there are upcoming sport events, you know, maybe less of it would be better. The costs of many things pricier that anywhere else in Europe.
Actually I think the more they spend the oil money the worse it can affect the Russian economy as people would bay imported things rather than inward more often.
The best thing I think for the economy would be to stop to sell that raw materials.

Интересны комментарии на форуме автора картинки. Особенно в конце. :)

Схема "безплатной" передачи нефти из

Quote:

---

Originally Posted by Ramil

Some years back I would probably have agreed with the rhetorics that puts all the blame on the evil Americans, but in reality, if there are 'enemies of the state', they all live here, in Russia.

---

I thought that you knew! We all have the same enemy now. It is the central banks of all the countries that own our governments, and the owners of the central bank are the same people. This is not a joke, by the way. ....maybe to the bankers but not to the people like us. These are the real enemies, and not individual countries and regular people. The Russian Revolution was funded by these same bankers.

Quote:

---

Originally Posted by Sgt. Cold

I thought that you knew! We all have the same enemy now. It is the central banks of all the countries that own our governments, and the owners of the central bank are the same people. This is not a joke, by the way. ....maybe to the bankers but not to the people like us. These are the real enemies, and not individual countries and regular people. The Russian Revolution was funded by these same bankers.

---

And how they affect on Putin and others thereabouts?

Quote:

---

Originally Posted by Romik

as people would bay imported things rather than inward more often.

---

Ah, now you're talking business! So, let's be practical here: say you worked hard (or not hard) and earned $10,000. You decide you want to own a car. How would you spend your money? Would you rather buy a new VAZ-produced vehicle like Kalina or a used Japanese car like Toyota or Honda? That was a rhetoric question. So, what stops VAZ from licensing say from Toyota and start mass-producing the Corolla? It would be a bit lower quality than the equivalent Japanese, for sure, but it would still be a way better than Kalina, cheaper than importing Corollas and would therefore satisfy the internal market limiting the import. Does it make sense? So, the cost of licensing and the cost of building a plant could be partially (or fully) sponsored by the Russian Government with the oil money. That was an example of a 'kind of infrastructure' I was referring to. That would also provide more local jobs spurring the GDP. So, in the end, an average Russian citizen could afford a better car for the same money. Do you think that would qualify for the definition of "richer"?

Quote:

---

Originally Posted by Romik

They build already a lot of things, there are upcoming sport events, you know, maybe less of it would be better.

---

That is also some infrastructure, which is something, and they are looking for getting that money back once the Olympics is over. Which is good. However, that is a one-time action and not an infrastructure development plan that could (and should) be sponsored with the oil money.

Quote:

---

Originally Posted by Romik

The costs of many things pricier that anywhere else in Europe.

---

I think Ramil had already covered that. That's mainly because of the corruption.

Quote:

---

Originally Posted by Romik

Actually I think the more they spend the oil money the worse it can affect the Russian economy

---

Again, that depends what's been done with the money. If the money is calmly daydreaming in the banks, than it's worse for Russian economy, since there's no stimulus to diversify the income.

Quote:

---

Originally Posted by Romik

The best thing I think for the economy would be to stop to sell that raw materials.

---

Ok, and what do you think should Russia sell?

Quote:

---

Originally Posted by Ramil

Crocodile, in Russia, we don't build infrastructure, we steal it. I've been on negotiations with one federal agency and when the time had come to discuss the price and we said 10 million (Roubles) they said 'No, the sum is too small. Make it 25 million and we're agreed.' I should probably mention to those who are not familiar with our realities here, that we gave back a bribe worth 15 million in order to get the contract. We got 10, the federal budget lost 25, and the official got 15. EVERY ASPECT OF RUSSIAN ECONOMY IS RULED LIKE THAT. NO EXCEPTIONS!

Some years back I would probably have agreed with the rhetorics that puts all the blame on the evil Americans, but in reality, if there are 'enemies of the state', they all live here, in Russia.

---

Wow that's quite an admission. If the person got caught accepting a bribe, what would happen to them? Can they bribe their way out of trouble?

Scott

Quote:

---

Originally Posted by Romik

And how they affect on Putin and others thereabouts?

---

It has an affect on the people. The government should be responsible for printing a countries money. But now, the bankers have set up private banks called central banks that print the money and sell it to the government and charge interest. This interest accumulates and the interest on the interest is charged also, so this money can NEVER be paid off. In the USA and I assume the same in Russia, all of the income tax paid by the taxpayers goes to pay for this money to the central bankers. It is a scam. The central banks make billions on this scheme and the people are generally unaware.

All of our other financial problems are "small potatos" compared to this.

Quote:

---

Originally Posted by Crocodile

Ah, now you're talking business! So, let's be practical here: say you worked hard (or not hard) and earned $10,000. You decide you want to own a car. How would you spend your money? Would you rather buy a new VAZ-produced vehicle like Kalina or a used Japanese car like Toyota or Honda? That was a rhetoric question. So, what stops VAZ from licensing say from Toyota and start mass-producing the Corolla? It would be a bit lower quality than the equivalent Japanese, for sure, but it would still be a way better than Kalina, cheaper than importing Corollas and would therefore satisfy the internal market limiting the import. Does it make sense? So, the cost of licensing and the cost of building a plant could be partially (or fully) sponsored by the Russian Government with the oil money. That was an example of a 'kind of infrastructure' I was referring to. That would also provide more local jobs spurring the GDP. So, in the end, an average Russian citizen could afford a better car for the same money. Do you think that would qualify for the definition of "richer"?

---

Do you think who in charge of VAZ, GAZ aren't smart as you? They already have done that kind of combined infrastructure. The plants of Toyota, Volkswagen, Renault, GM and others are already present in Russia. It's difficult to be practical in Russia. Either way a choice is pricier and worse. The cheaper foreign car produced in Russia - Renault Logan is 1,5 time more expensive than the analog produced in Hungary.
To build that kind of infrastructure the oil money is not needed. If there is the demand on a product in a market, there is the possibility to return on investment producing the product locally, they take a credit, usual things, and the Russian Government has helped to implement those things like imposing blocking customs on imported cars.

Quote:

---

Originally Posted by Crocodile

Again, that depends what's been done with the money. If the money is calmly daydreaming in the banks, than it's worse for Russian economy, since there's no stimulus to diversify the income.

---

Just to spent money without returning, growth of wages without growth of productivity, increase inflation, worsening competitiveness of the economy.

Quote:

---

Originally Posted by Crocodile

Ok, and what do you think should Russia sell?

---

Released products.

Quote:

---

Originally Posted by Romik

Released products.

---

Can you give an example? If, as you said, "it's difficult to be practical in Russia" how do you envision that happening?

Quote:

---

Originally Posted by Crocodile

Can you give an example? If, as you said, "it's difficult to be practical in Russia" how do you envision that happening?

---

For example petrol instead crude oil. I don't envision what could happen, I just gave a thought that increasing spending of oil money won't help that ways as you suggested.
Now things often that it's not profitable to build an infrastructure to produce a product in Russia as anyway the same product could be imported from China 2 time cheaper and not worse in quality. And the kind of infrastructure they often build is final assembling of imported details.

Quote:

---

Originally Posted by Romik

For example petrol instead crude oil.

---

Ok, so you call the petrol a "released product" and not "raw material." (I'm not arguing about definitions, I'm just accepting what you said for the time being.) So, what do you think stops Russia from exporting petrol?

Quote:

---

Originally Posted by Crocodile

Ok, so you call the petrol a "released product" and not "raw material." (I'm not arguing about definitions, I'm just accepting what you said for the time being.) So, what do you think stops Russia from exporting petrol?

---

Well, I really don't know, there are a lot of things I don't understand. Now they involve BP to rig the Arctic that has just smeared the US shores.

Quote:

---

Originally Posted by Romik

Well, I really don't know, there are a lot of things I don't understand. Now they involve BP to rig the Arctic that has just smeared the US shores.

---

Well, perhaps the BP presented them with a better откат rate of the successful vs. the unsuccessful sea-floor drilling projects. But, let's leave the BP out of scope for now. What is the bottom line in our discussion? So far you were unable to provide an example what else Russia could export to diversify its income, in addition to the energy carriers. So, let's assume for now that is the only export available in the near future. So, what would you suggest doing with the oil money?

Quote:

---

What is the bottom line in our discussion?

---

What I have said is that contemplating of developing some kinds of infrastructure from oil money seems to me is of no use in contemporary conditions as often it's against the market.

Quote:

---

So far you were unable to provide an example what else Russia could export to diversify its income, in addition to the energy carriers.

---

What the point of any examples? I think the less would be the dependence of the economy of the fossil fuels the more any examples you would see. That example of petrol is not the ultimate kind of product I think Russia is able to produce, I believe Russia can do things of far higher level and to be quite more competitive, not just to sell oil and gas, there is history that can show something, and now there are still examples like KAMAZ that time by time has been winning the Dakar.

Quote:

---

So, let's assume for now that is the only export available in the near future. So, what would you suggest doing with the oil money?

---

It's not interesting to me to ponder where would be better to shove that oil money.

Quote:

---

Originally Posted by Romik

What the point of any examples?

---

You see, earlier you mentioned that you think Russia should stop exporting oil and start exporting something else like "released products". So, when I asked for an example, my point was that there's nothing else Russia could export at this point so that it would have any kind of strategic implications. (Selling 100 Dakkar-winning Kamazes a year will not make any strategic difference for Russia as it imports much more volume than that.) However, if you will be able to bring any real example of what "released products" Russia could export at this time (other than its natural resources), I will shut up and agree with you. Sounds like a point? ;)

Quote:

---

Originally Posted by Romik

What I have said is that contemplating of developing some kinds of infrastructure from oil money seems to me is of no use in contemporary conditions as often it's against the market.

---

Yes, I got that. Perhaps, there's no perfect solution at all. But things are relative, and some solutions are better than the others. So, what do you think would be better: (i) stop selling oil anything and get no money, (ii) let the oil money be buried in the US banks (in some US government bonds), (iii) spend it inside Russia, or (iv) spend it outside Russia? What's your call on that?

Of course there are other things that Russia can export. Some are very obvious (below) I am sure there are plenty more

Expertise in various areas if IT/Computing.
Science and niche areas of Engineering and the defense industry.
Agricultural products, timber
Mining products
Expanding on the Transiberian railway, Russia could make itself a transport hub between the Far East and Europe. This would be a massive industry that would benefit Russia a lot. It's well known that it's better and cheaper to transport overland on that route, than by ship - but this cannot start happening until the transiberian expands its capacity. This would be a worthy project to invest some oil money in, I think!

I gather the Russian leadership is well aware that it needs to diversify industry and that it is trying to make it happen, although some here have pointed out that the investment in the IT industry etc might be affected by nepotism and corruption; like in the case of the new "IT city" in Moscow.

Quote:

---

Originally Posted by Crocodile

You see, earlier you mentioned that you think Russia should stop exporting oil and start exporting something else like "released products". So, when I asked for an example, my point was that there's nothing else Russia could export at this point so that it would have any kind of strategic implications.

---

I'll try to explain simpler. It's not actual to refer everything to "at this point", "at this time". Of course, it's impossible right now to stop exporting oil and immediately to begin to export a lot of high-tech products. Imagine it like a graph, not as some sticked point. Now, for example, you can't produce a product but when there is a change of conditions to one degree you could do it, when there is another change you could produce another product and that cause others products and so on. And that refinement of crude resources is one step that itself can cause other things. Once there is a bit decrease of selling oil you'll see producing a number of released products, another bit - another number and so forth.

Quote:

---

Originally Posted by Crocodile

However, if you will be able to bring any real example of what "released products" Russia could export at this time (other than its natural resources), I will shut up and agree with you. Sounds like a point? ;)

---

No, it's doesn't sound like a point to what I've explained ;)

Quote:

---

Originally Posted by Crocodile

So, what do you think would be better: (i) stop selling oil anything and get no money, (ii) let the oil money be buried in the US banks (in some US government bonds), (iii) spend it inside Russia, or (iv) spend it outside Russia? What's your call on that?

---

It's difficult to comment that because you missing a lot of points.

Quote:

---

Originally Posted by Romik

It's not actual to refer everything to "at this point", "at this time".

---

Let me be more specific. So, what do you propose to sell right now? If that is not oil, than what? You mentioined earlier that "everything is more expensive" than in the other countires. My main question was: what do you think of doing with the oil money? Right now it is just 'saved', but I proposed to invest it into the infrastructure. So, what's your call on that? If I'm missing "a lot of points" please mention at least three. Sounds fair?

Quote:

---

If I'm missing "a lot of points" please mention at least three. Sounds fair?

---

First, I do not suggest to completely stop to sell oil in one moment.
Second, "everything is more expensive" at this time, once withdrawn a part of that money, "everything" will be somewhat cheaper.
Third, that what is just 'saved' is a bit, the budget has been deficit from the time the crisis started, mostly the money just eaten away on things many of which Russia could produce itself and spent on things that make "everything is more expensive".

Quote:

---

Let me be more specific. So, what do you propose to sell right now? If that is not oil, than what?

---

Right now I'd propose to reduce selling oil by 20%, to lessen the government costs with the exception of public-sector ones like of schools, hospitals, pensions.

Quote:

---

Originally Posted by Romik

First, I do not suggest to completely stop to sell oil in one moment.
Second, "everything is more expensive" at this time, once withdrawn a part of that money, "everything" will be somewhat cheaper.
Third, that what is just 'saved' is a bit, the budget has been deficit from the time the crisis started, mostly the money just eaten away on things many of which Russia could produce itself and spent on things that make "everything is more expensive".

---

To be honest, I didn't get the second and the third point, but I guess it's time for me to just let it go. :)

Quote:

---

Originally Posted by Romik

Right now I'd propose to reduce selling oil by 20%, to lessen the government costs with the exception of public-sector ones like of schools, hospitals, pensions.

---

Do you know what would happen with the world oil prices if Russia would officially announce it's cutting the oil sales by 20%???? The prices will jump so much that Russia would make more money will the remaining 80% than it previously did with the 100%. The OPEC would have a very difficult dilemma: should it increase the sales of its oil or keep it the same? The cost of transportation would hike and consequently the prices of all goods fueling another economical world mini-crisis. Russia would feel that too. I'm not sure you really thought your suggestion through. Also, I'm not sure what does it practically mean "lessen the government cost". Does it mean the budget cut? If yes, you can't usually tell the government they could be 20% more efficient just like that and cut their budget, so it's the schools, the hospitals and the pension beneficiaries which would feel that cut, not the government officials who might even get the increase and not ambitious and expensive government project which are meant to launder money. But, again, I feel like this conversation is unproductive and is going nowhere, so I would just let it go. :)