Trump is making Russia rich again


Despite all his flaws and aggressive rhetoric, it can be argued that Donald Trump’s foreign policy is perfect for the Russian economy. Sanctions against Russia are useless if the oil price is high, and Trump is doing his best to push the price higher.

The US president is angry. Again. Donald Trump blames the OPEC oil cartel (and implicitly, Russia) for the recent run-up in oil prices that is hurting US consumers. However, the person he should be blaming is Donald Trump.

Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!
— Donald J. Trump (@realDonaldTrump) 20 April 2018.

It may seem counterintuitive, but every time the US president gives in to the warmongers and hawks in his cabinet, he makes the oil price go up, and that is good news for countries like Russia, Iran and Venezuela. What many American politicians fail to understand is that the oil market is not based solely on current supply and demand.

A big component of the oil price is the so-called “geopolitical premium.” In times of peace, the “geopolitical premium” goes negative, dragging the price of oil down, but when market suspects that another war, especially a war in the Middle East, is imminent, the “geopolitical premium” pushes the price higher.

Trump lambastes OPEC’s policies and the so-called “OPEC+” agreement on Twitter, but fails to acknowledge the unforeseen effects of his own political actions. For instance, his decision to appoint John Bolton as national security adviser made the oil market nervous.

Following the appointment, Citi’s commodity analysts published a research note claiming that “geopolitical risks are rising following the (likely) appointments of Mike Pompeo and John Bolton to US President Donald Trump’s foreign policy team and this increases the potential for disruptions to oil trade and supply. […] Bolton is a notable foreign policy hawk and a vocal critic of the Joint Comprehensive Plan of Action (JCPOA) deal, making it more likely that Trump won’t sign the sanctions waiver that is due no later than 12 May. The issue for oil markets is how to price this risk, as the decision doesn’t have a binary outcome and the timing is highly uncertain.”

If anyone needed more proof that warmongering is bad policy and it is a net negative for the average US consumer, then the effect of Bolton’s appointment is an obvious one.

Trump’s latest sanctions against the Russian aluminum giant Rusal and a host of other companies is another case of the misguided foreign policy that has ended up benefiting Moscow.

While the US mainstream media celebrated the fact that the new sanctions led to a sharp sell-off of the Russian stock market and decreased the ruble’s exchange rate against the US dollar, economists and traders noted, that the sell-off was short-lived and that the Russian federal budget, along with Russian oil companies, actually benefited from the exchange rate fluctuations.

A lower ruble means lower expenses for the oil companies and that more rubles are obtained (and paid in taxes) from the oil exports. For the wider economy, a lower ruble means that Russian companies have an advantage while foreign companies have to overcome an unfavorable exchange rate.

An ironic example of the sanctions’ unintended consequences was reported by Reuters: “French fries at McDonald’s restaurants from Moscow to Murmansk will be Russian from now on, as the American fast-food chain turns to homegrown potatoes to deal with ruble volatility caused by fluctuating oil prices and Western sanctions.”

It took the Trump administration several days to figure out that they were actually stimulating the Russian economy instead of hurting it, and then the US president fired an angry tweet, claiming that Russia is engaging in unfair currency manipulation:

Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates. Not acceptable!
— Donald J. Trump (@realDonaldTrump) 16 April 2018.