Buy My Book Here

Fox News Ticker

Please check out my new books, "Bullied to Death: Chris Mackney's Kafkaesque Divorce and Sandra Grazzini-Rucki and the World's Last Custody Trial"

Friday, August 22, 2008

Georgia Vs. Russia: Testing Kasparov's Thesis

Last week, I wrote a piece in which I attempted to get inside the mind of Vladimir Putin. I shared a thesis first introduced by Garry Kasparov, Putin's main internal rival. Kasparov believes that every geopolitical move made by Putin is made in the attempt to boost the price of oil. Russia's economy is nearly entirely dependent on oil. The country has seen an enormous growth in wealth since the price of oil has skyrocketed. The growth in wealth has lead to Russia's increased geopolitical influence. Kasparov believes that Putin needs the price of oil as high as possible to achieve all of his geopolitical motives.

Now, according to this chart, oil has had a stead increase for most of the last year up through the middle of July. Then, for the next three weeks oil began to slide precipitously.

Then, on August 8th, he ordered an invasion of Georgia. Almost immediately, the price of oil steadied and has now begun to inch up.

This is the Baku Pipeline and it is a massive pipeline that runs oil from Azerbaijan through Turkey and it runs right through the capital of Tblisi in Georgia. Now, this pipeline only supplies about one percent of the world's oil and it isn't even running yet at full capacity, however the oil market has long stopped being about simply supply and demand. It has become more about psychology.

Any real, potential, or perceived disruption in any oil supply anywhere in the world is likely to spook the market and put upward pressure on oil. Furthermore, the geopolitical uncertainty of a war puts further upward pressure on oil. Both of these factors make the invasion of Georgia bullish for the price of oil.

In fact, it appears that the invasion of Georgia has nearly single handedly stopped what appeared to be a steady, real, and significant weakening in the oil market. Prior to the invasion of Georgia the strengthening dollar along with significant drops in worldwide demand had contributed to a stead decline in the price of oil for nearly three weeks.

Then, Russia invaded Georgia and nearly instantaneously the price of oil steadied and began to go up. Furthermore, by ignoring multiple ceasefires and maintaining troops near Tblisi, Russia also continues to threaten this pipeline. All of this continues to put upward pressure on the price of oil. It appears very possible that Russia invaded another nation, killed thousands, displaced thousands more, for nothing more than to stop the downward momentum on the price of oil and to subsequently create upward momentum to the price of oil.

Kasparov said one more thing. He said that Putin wants to create enough chaos to increase the price of oil but not so much that he creates a situation he can't control. Talk about a situation with the best of both worlds. There is nothing like the controlled chaos of a war you yourself start.


Anonymous said...

It is an interesting theory, but Russia's preparations for the invasion likely took longer than 3 weeks, so this couldn't have been a quick reaction to short-term oil market changes.

mike volpe said...

Absolutely, and Putin must have known for longer than six months that oil is speculative. If he was thinking three steps ahead, he could have prepared for something like this at any appropriate moment. The more I think about it the more that what Kasparov makes sense, and if it does, then this makes sense as well.