Publication in Russian on the Zen blog
https://dzen.ru/a/Z6JPIJPncX9lmkoZ
Washington has not clearly formulated Russia's mandate to return home from Ukraine. Instead, there is a split between US friends such as Canada, Mexico, and the EU. In addition, the data suggests that oil price volatility may help the Russian economy. If tariffs are imposed on Canadian oil and the United States looks to other sources, such as Venezuela, which is an ally of Russia, to help fill this gap, then we can say that this is a clear victory for Russia. I cannot predict oil prices, they may decrease, but I can say that only a free economy, including free trade, is better for humanity.
In this post, I want to talk about Russia, oil, and the economy. Let's talk about Washington's decision to impose tariffs on its neighbors and what this means for geopolitical events in Ukraine. There is quite a lot to clarify here, and I will first tell you about it from an economic point of view, using a little jargon. And I have a few ideas that I think are very important and relevant regarding the statement underlying my premise, which is that I am skeptical of Washington on the issue of a fair solution for Ukraine. So listen to me. I know that there are many bloggers jumping into the trailer who say that the president of the United States is a wild card and we don't know where he will go. Damn, wait, no one can foresee the future at all! It is possible to draw some reasonable conclusions only from the point of view of certain facts. So, the first basic premise is that according to the basic macroeconomic identity, consumption is always in the ratio Y = C + I + G + Xn - this is not an ideal ratio, but it is the consumer component of national income that is usually the strongest, and as a result, oil is a very important growth factor. It follows from this that, in general, in dynamic stochastic equilibrium models, these are people, usually one family, a typical household, and all they want is to consume one product throughout the day. If their regular income increased, they would consume more of this product. It's like in the Sims, where the family consumes one thing. But all these models are a bit unrealistic, but they make some sense, and they have modest value in terms of econometric modeling. And if you take this model and extrapolate to macroeconomics, when the only commodity consumed by the whole world is energy, then this model makes sense, because consumption, whether it's food, creates energy for the whole world, creates energy for humans. Or it's energy, say oil, which creates energy for industrial production, consumer pleasure, and utility. So this model makes sense. If we carefully study the oil markets and single this out as a predictive macroeconomic element, a component of what is happening, we can in some way draw skeptical conclusions. Let's see what's going on. The Washington administration has imposed sanctions on its friendly neighbors Canada and Mexico, in addition to small nominal sanctions on China. The price of oil has decreased slightly. It is not clear what this will lead to, but despite this, futures and oil prices tend to rise, and it looks like they will break through the $80 resistance level. If it breaks through the resistance, then we can say that the trend continues, in contrast to which Washington has agreed or requested Saudi Arabia to increase its supplies, which will lead to lower oil prices in the long term. Therefore, we know the following: when oil prices rise, consumers face short-term budget constraints, and perhaps they slightly reduce their consumption, which, say, is 70% of the GDP component. This is a small component and the correlation usually has a price elasticity from 1 to -3. Therefore, when the price of oil rises, GDP growth occurs in the short term, in the long term it can reach a negative point of 7, and these are fairly well-studied parameters. Correlation methods use fancy terms, so that in the short term, the consumer, initially with expectations or even without expectations, naturally moves from luxury goods to ordinary goods and normal values. Goods are giving way to lower-quality goods, which reduces consumption, and this has a slight impact on the economy in the medium term. Planned events, such as, say, vacations, perhaps the prices of air travel or sea travel will increase, and these activities will decrease. And in the long term, over the course of one or two years, the industry begins to postpone plans, we are witnessing an economic cycle in which there is an entry into recession or depression, and, as a rule, unemployment is the last thing you see in this cycle. So if you've ever been a boss, you know that no matter how bad bosses are, the last thing they want is to fire people, because it's painful enough, and it's also painful for shareholders. So unemployment is a delayed process, an economic indicator of industrial production, which simultaneously with consumption, or more precisely, with the expectation of consumption, are indicators predicting the future. So we can watch this as events unfold, but the driving force behind all of this is the product model I'm talking about., - this is energy, we can say that this is oil, oil prices, regardless of which brand of oil, Brent or Canadian, tend to rise, which means that the only raw-material country, Russia, for which this is actually a disease and a resource curse, directs all its GDP to fueling a geopolitical event in Ukraine at the expense of oil, when prices rise, no matter how you distribute it, it doesn't matter with restrictions, a shadow fleet or in some other way. So the question is, why is Washington pushing its friendly neighbors away? Washington seems to be considering plans to extract oil from Venezuela. And, as you know, Venezuela expresses its agreement with the dictator in Moscow. This is the first thing that makes one doubt, this is the main prerequisite for skepticism towards Washington, despite their other encouraging statements. And now those same bloggers with glowing hopes would object to me: "Oh, no, Trump is a wild card." But you know, I'll say it bluntly, I support America as a great country, and I don't mean economic power, I mean from the point of view of ideals, when it is necessary to defend freedom, justice for all. Is this wrong? I mean, when they say that Russia will 100% abandon its claims to Crimea and Donbass, withdraw its troops and the Russians will go home, it looks like a dystopian idea. Russia, which considers itself the greatest power, and I'm talking about power in the sense of transcendent power, not the power of money and oligarchs, then in this sense I'm 100% skeptical if Russia stops the game. Because it would be an unfair compromise, playing for the Tsar of Moscow through Washington, because oil prices are rising, and this is beneficial for Russia, which is in Moscow's favor. When Trump is asked if he has spoken to Moscow, and he replies that he cannot say so, and this is not a straightforward answer, it fills with skepticism. Because it's an indicator of tension in a relationship. And, conversely, the warming in relations was indicated when Trump stated bluntly that he believed in the best, and so on. Trump believes that he is an excellent negotiator who will come to a meeting 10 minutes late and make others sweat, in this case not literally, but by presenting himself as a knowledgeable negotiator who leads the meeting. So let me teach you a lesson about the history of Russia over the past 500 years, all Russia has done is "bang, bang, bang, I'm taking this land." And if negotiations are underway, then this is just a respite for Russia. The Russian government may say that they are doing this and that, accepting this and that, but the negotiator may be 50 years old, and he does not know how Russia is playing, he does not know how the president of Russia thinks. You know that the brain performs a multi-level function, and this term, which is applied to people who have a very complex lifestyle, is called reptilian. Because the reptilian part of your brain controls the basic functions. For example, I wear athletic running shoes at home, the main function of which is not to think about compromises and love, but to think about hitting or running away. Therefore, when negotiations are underway, the reptilian part of our brain, located in our medulla oblongata and slightly expanded outward, is fully responsible for negotiating geopolitics. The only thing that fuels this expansion, the reptilian part of the brain, to the Tsar of Russia is oil, regardless of what is being said and which speakers are speaking. and if there are any compromises between Washington and their friendly neighbors, then in any case it will still lead to failures. When it came to the elasticity of demand and how strongly it correlates with GDP consumption, in fact it is more than twice, given the rapid rise in oil prices and the fact that Russia has more financing opportunities than the United States, perhaps three times, I am 100% positive. that Washington's sanctions against friendly neighbors will create volatility. Even if we see only downward and upward movements at first, and perhaps some unsung hero will appear, some company from the Brics countries that will start increasing production, or maybe China will do its bit, but I continue to remain a skeptic, precisely as a researcher, since I always say: "show me the evidence, show me the real data before I can make a judgment," and even when I make a judgment, I pretty much have to talk about balanced argumentation anyway. If I had drawn a Book, and then I said, "Oh! This is an area for future research. These are pretty much buzzwords in academic circles because this is an area for future research," and Washington is playing a card that is less than "Russians, go home. Go home with your tail between your legs and admit defeat."
There is also an argument that the US tariff policy will lead to a global recession, which, in turn, will lead to a sharp decrease in oil consumption, which will cause the greatest damage to the Russian economy. It seems like a fair price. Suffer, but let Russia suffer even more. This new perspective seems to be seriously changing that outlook, but it's not perfect.
Y = C + I + G + Xn (Y is national income or GDP, C is consumer spending, I is investment, G is government spending, Xn is net exports, the difference between exports and imports).
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