What scares the bear

The choice of Rex Tillerson as Secretary of State was inspired.  International diplomacy requires knowledge of the oil and gas industry, which is central to geopolitics.  T. Rex knows oil and gas in spades, and in that regard he and his country are sitting pretty, as he’s well aware.

It looks as though OPEC and Russia are going to extend their production cuts of crude.  This despite the fact that the price is only around $45 a barrel, far lower than they want it.  They have no choice.

America’s frackers are now the swing, or marginal producers in oil and gas.  It appears that they can make money at $45-55 a barrel, so that appears to be the range within which oil prices will vary for the foreseeable future.

The Russians can squeak by with $45 oil, but the real threat to their power is natural gas.  Much of Europe relies on Russian gas.  In Eastern Europe it’s up to 100% reliance in Slovakia, down to 50% in Germany.

We have an oversupply of gas, and need to ship it overseas.  This has begun, and will quicken under Trump’s lax regulatory environment.  Europe is already preparing import terminals where the gas can be unfrozen and shipped to customers.

We’re in the process of taking away one of Russia’s great export markets.  The Europeans will pay a premium for our gas, because they know it will always flow freely.  The Russians periodically cut back gas shipments as a way to flex their muscle.  They’ll soon be paying a price for such behavior.

Russia is weak, and getting weaker.  This is no time to back the bear into a corner.  At some point, geopolitical reality will bring about a Russian/American entente.  The sooner the better.

We outnumber the Russians better than two to one, our economy dwarfs theirs, and so on.  Why this fixation on Russia as the enemy?

Our great world competitor is China, and we want the Russians to understand and appreciate our legitimate national security interests in the Pacific.  There is peace on the Chinese-Russian border, and that’s the way both countries want it.  We want to get along with both Russia and China.

The United States and Russia are the world’s #1 and #2 hydrocarbon producers.  Maybe we could reach an understanding on the world’s markets, and divide it up into spheres of influence.  If you look back at the history of the oil industry, in The Prize,  you’ll see that this kind of thing used to be done all the time.

Rex Tillerson knows a lot more about this than almost anyone, and I’m glad he’s on the job.

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