Diane Francis: Putin's war on Canada's economy

Russian President Vladimir Putin addresses the nation at the Novo-Ogaryovo state residence outside Moscow on April 2, 2020. Alexei Druzhinin/AFP via Getty Images

Other than coronavirus, it is Russian President Vladimir Putin who has wreaked the most damage on Canada’s economy lately.

At an OPEC meeting in Vienna earlier this month, Russia refused a request by Saudi Arabia to cut back on oil volumes, in order to prop up prices. Snubbed, the Saudis flooded the market and an oil war began, which has decimated the American and Canadian oil industries by driving prices below the cost of production.

Now, it appears as though U.S. President Donald Trump has brokered a deal that will bring some relief, with both sides apparently agreeing to back down from their all-out war.

But it will be an uneasy truce because Putin’s boldness was a key move in his geopolitical chess game. He was willing to shoot himself in the foot (Russia is the world’s third-largest oil producer after the U.S. and Saudi Arabia) for two reasons: to continue his long-term strategy to drive high-cost producers in shale and the oilsands out of the market and, more immediately, to pressure the United States into scrapping the massive sanctions placed on its oil, gas and pipeline companies, in retaliation for its 2014 invasion of Ukraine.

In other words, the oil war’s escalation this month was Putin’s oil-for-sanctions gambit and oil producers were collateral damage.

Why did he make the move when he did? My guess is that a few weeks ago, it became obvious that Joe Biden, who’s fiercely anti-Russia, may win the U.S. presidency in the fall, so Putin had to make his move while his admirer, President Trump, was still in office (and weakened).

“Putin is lodging the oil war as he wants sanctions moderation,” wrote British markets observer Timothy Ash, who’s with Bluebay Asset Management in London.

The strategy worked and Putin got Trump’s attention, which led to a two-hour phone call between the two leaders earlier this week, and then another on April 2 between Trump and Saudi Crown Prince Mohammed bin Salman. If Russia and Saudi Arabia back down and oil prices continue rising, Trump will have managed to keep more Americans (and indirectly Canadians) employed though the coronavirus epidemic.

But the big question that remains is: what did Trump promise his pal Putin?

American sanctions have impaired the Russian economy and disrupted the operations of Russian oil giants Rosneft and Gazprom since 2014, so removing them is clearly on the top of Putin’s agenda. But that will be difficult for Trump because they work and are backed by Congress and both parties.

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Source: Diane Francis | Financial Post