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Putins Gambit: Crimea's Oil

Big Blocks in the Black Sea

Posted April 17, 2014

Russia's claim to Crimea is the biggest land grab in Europe since Hitler invaded Poland.

At the very least, it's as big as the Kosovo crisis in the late 1990s. And it's going to get worse before it gets better.

Events are changing rapidly in Ukraine as pro-Russian forces take over government buildings in small towns and cities alike. Russia is spurring a civil war in Ukraine and has amassed some 400,000 soldiers on its borders, knowing that Ukraine can't defend itself.

Divided, Worthless, and Weak

Europe is a weak mass of competing politics and missions. Germany alone has more than 6,000 companies that trade in Russia. It is also the largest importer of Russian oil and gas.

The Germans will do nothing.

France is crippled by its ineffectual socialist president and legacy of bad ideas.

The UK has been bought and paid for by rich Russian oligarchs who own most of London’s real estate.

And the U.S.? The U.S. simply doesn’t care. With an inept foreign policy and a booming oil and gas market, confronting Putin seems like political suicide.

The Dumb Ones are Dead

You don't get to be head of the KGB and then President of Russia for life by being a fool. After all, they killed all the bad politicians a long time ago.

Putin has very real reasons for what he is doing, and it boils down to money and power. Russia receives half of its government revenues from oil. The oil price is being propped up by both money printing at the Fed and a limited supply.

Putin needs expensive oil to survive, but his traditional reserves are dropping. Still, Russia is the world's largest producer of oil as of last month. In tonnes, Russian oil output reached 44.647 million last month compared to 40.407 million in February.

That Putin is willing to threaten war and the status quo means he believes Russia needs the oil from Crimea. It's not just warm water ports and national pride. It's oil and gas.

And Crimea might just have a lot of it. The Skifska license block — which lies to the southwest of Crimea in the Black Sea — is estimated to hold up to 8.8 trillion cubic feet of natural gas and condensate resources.

According to Rigzone:

“Royal Dutch Shell plc and Exxon Mobil Corp. were chosen in August 2012 by the Ukrainian government to lead the development of the block, with exploration due to begin in 2015. However, Shell pulled out of talks about developing Skifska in January while ExxonMobil said in early March it was putting its involvement in the project on hold.

The Skifska development — which Exxon Mobil believed capable of producing 177 billion cubic feet of gas per year — had been a key project that the Ukrainian government hoped would help give Ukraine some measure of energy independence from Russia.”

Obviously, Putin didn't want Ukraine cutting into its business. As I write this, it would appear Russian state oil companies are moving in with personnel and are laying plans to develop this block.

More Crimean Oil

There is also another block on the eastern coast of Crimea that Italy's big oil company Eni S.p.A. has signed up to explore. This exploration has now been put on hold, and word is that a team of Gazprom executives flew to Crimea in mid-March.

At the same time, Russia and China are looking to sign an oil and gas deal before Putin makes a state visit in May. It should be noted that China backed Russia in its move into Crimea.

According to Reuters, Russia's top natural gas producer Gazprom plans to start supplying China with 38 billion cubic meters of gas per year — around a quarter of Russia's exports to Europe — in 2018. These deals won't be done in U.S. dollars.

The geopolitical situation for oil is moving away from Saudi Arabia and the Middle East and toward North America and Russia.

Things just got interesting, and you can bet there will be ways to profit from the shifting landscape. Stay tuned.

All the best,

Christian DeHaemer Signature

Christian DeHaemer

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Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Crisis & Opportunity and Managing Director of Wealth Daily. He is also a contributor for Energy & Capital. For more on Christian, see his editor's page.

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