commodities have as hedges against dollar instability. If we reformed our monetary control system to guarantee the real value of the dollar, we would eliminate this risk. The risk premiums currently enjoyed by oil and gold would then decline toward zero, as the new monetary system gained credibility. Interestingly enough, even a decline in world oil prices to $40/bbl would not stop the U.S. “fracking” boom (although it would slow it down). If crude oil were at $40/bbl, residual fuel oil would sell for about $32/bbl. Right now, spot natural gas prices are only $4.49/MCF, or about $27.00/FOE bbl. In other words, U.S. natural gas prices could rise by 19% from where they are now, before they would hit a price ceiling imposed by crude oil at $40/bbl. It would not take $40/bbl oil to put an end to Russian adventurism. Even assuming no change in natural gas prices, a decline in world oil prices to $80/bbl would cost the Russian oil industry $120 billion in sales, most of which would have to come out of the Russian government’s fiscal hide . Russia’s foreign exchange earnings would fall by $83 billion/year. To deal with a fall in world oil prices to $80/bbl (much less $40/bbl), Russia would have to retrench on all fronts. If the Russian government were to resort to printing rubles to try to close the yawning fiscal gap, they would make a difficult situation much, much worse. Capital would flee the country, and their economy would be disorganized by rampant inflation . Vladimir Putin would have to be lucky, as well as politically skillful, to survive in a scenario like this . Now is key – Russia is reforming their economic mix, but needs oil revenues in the short term IEA 14 ( 18 June 2014 The IEA is an autonomous organization which works to ensure reliable, affordable and clean energy for its 29 member countries and beyond. The IEA's four main areas of focus are: energy security, economic development, environmental awareness, and engagement worldwide, IEA releases review of Russian energy policies, ) By attracting large investments to modernise its ageing power generation and transmission systems as well as district heating supply chain, and by dramatically improving energy efficiency in the building and industrial sectors, Russia could develop new economic growth pillars beyond the oil and gas sectors, the International Energy Agency (IEA) says in a new report. The IEA’s in-depth review of Russian energy policies, conducted over the past year, identifies energy sector improvements that could contribute to putting the Russian economy on a robust and sustainable growth path . The report says that to maintain a leading position in hydrocarbon production and exports and to ensure sustained federal budget revenue contributions, Russia must focus on developing the most cost-efficient oil and gas resources and fostering competition in markets. Russia’s energy sectors are at a turning point. The country has made considerable achievements in its oil and gas sectors in terms of investments and production as well as market reforms in the electricity sector. Yet very large private domestic and foreign investments are needed to replace
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