Facing Crude Reckoning, Russia Strikes Deal with China

A little quick dot-connecting.

From the Earth Times we read ANALYSIS: Russia faces crude reckoning over oil prices, and then in the UK Telegraph we find that Russia strikes lucrative oil deal with China;

Moscow - The splurge of oil profits feeding Russia's years of growth has turned sticky with falling production and energy prices. This double whammy is threatening to undercut the government's economic policy as the industry that is its main source of revenue takes a battering from the country's worst financial crisis in a decade.

Scooping huge oil windfalls into state coffers over the oil industry's boom years from 1999 to 2004 has been at the root of Russia's ideology under former President Vladimir Putin.

The surplus helped pay back a national debt as part of a therapy to recover from the humiliation an impoverished Russia suffered by the Soviet collapse and then move toward a resurgent foreign policy.

It went to a sovereign-wealth fund as insurance for storms like the one which buffeted financial markets last month. And it went to subsidize domestic energy prices and a planned array of social renewal programmes.

The policy was to maximize the state's share of industry profits through high taxation and intervention.

But the floor fell out from under Russian industry at a time when leaders like state energy giant Gazprom were on a major debt-financed buying spree. Stocks of Gazprom and highly-leveraged Rosneft led a market crash last month that sucked 70 per cent of the value out of Russian shares from their peaks in May. Slapped with million-dollar margin calls by foreign lenders, Lukoil, Gazprom, Rosneft and TNK-BP asked the government for help and were promised 9 billion dollars to roll over their debt.

Rosneft and state pipeline monopoly Transneft won a reprieve last week, obtaining a credit from China under a high-level deal signed with Chinese Prime Minister Wen Jiabao in Moscow to build a long- awaited pipeline link with Russia.

The deal became possible as the drop in energy prices leveled the playing field in a drawn-out pricing dispute between Moscow and Beijing.

The planned pipeline is to reroute Siberian oil and gas now destined for European markets, in the latest warning to Western leaders of realignment provoked by the current market turmoil that could upset the West's energy security.

Situations are evolving so rapidly now given the financial solvents at work bubbling throughout global political alignments, it's sometimes difficult to keep track of exactly what's going on. We DO however, know who has lots of money, who has lots of oil, and who has little of either....,