Streetwise Professor

In a stroke of good fortune for BP shareholders, the deal with Rosneft is apparently dead because BP, its TNK-BP AAR “partners”, and Rosneft were unable to come to terms on buying out AAR.   And although reports are somewhat murky (go figure!) apparently price wasn’t the issue.  Trust was.  Between the Russians.

In particular, the AAR Russians wanted the Rosneft Russians to provide legal guarantees that the buyout of AAR from TNK-BP would proceed after TNK-BP agreed to let the BP-Rosneft share swap and Arctic JV proceed.  There is an issue of asynchronous performance here, and AAR evidently doesn’t trust Rosneft to follow through on its part of the deal once AAR gave its approval to the BP-Rosneft tie-up that is contrary to the current TNK-BP shareholder agreement:

“We made some progress but not enough,” a person close to the Russian shareholders said. A key sticking point was AAR’s insistence on guarantees that the buyout would be completed if AAR let BP and Rosneft proceed with their planned swap and arctic partnership first, the people close to the talks said. They said Rosneft was uncomfortable with that demand.

This is especially amusing in light of the way that Putin’s and the government’s (which amounts to the same thing) failure to force AAR to concede its rights is being spun:

One person close to the process says the Russian shareholders’ ability to defend their position is not to do with Mr Sechin’s waning power, but is connected to a concerted new drive by the Russian president and the government to improve the investment climate.

“The president and the government demonstrated that Russia is a place where rule of law and the sanctity of contracts is respected by not interfering, no matter how high or powerful a politician is steering the deal, and by saying that the parties should resolve their differences in London’s High Court.”

I had to clean off my computer screen and keyboard after reading that bit. (Note to self: never take a gulp of coffee when reading something where the subject of Russia’s adherence to “rule of law and sanctity of contracts” might be mentioned.)

First, “the president” doesn’t really have much to do with it, really.  If you’ve been paying the least bit of attention in recent weeks, you will have noted a dramatic ramping up of efforts to make Medvedev look like a total chump.  Not that those efforts were ever absent, or that it’s all that difficult to do: Just that the efforts have been put into overdrive recently: the “Popular Front” effort is just the most obvious manifestation of that, and the release of the Medvedev dance video the most entertaining and embarrassing.  Really, his theme song should be Otis Redding’s Mr. Pitiful.

Meaning that if Putin really felt that this was an issue on which Medvedev was trying to put is stamp, and was using to appear presidential and to establish his credentials as an independent leader, it would have been exactly the issue on which Putin would have intervened as obnoxiously as possible.  No, if things are happening this way, it is because Putin wants it to happen this way, and that if anything Medvedev’s preferences would cut the other way.

That’s why I think this is a more reasonable interpretation:

But other observers say the collapse of the talks are more an indication of the power of the AAR group of shareholders, led by Mikhail Fridman, in Russia’s political hierarchy, while once again casting foreign investors into uncertainty as to whether investment security lies with partnering with the state.

Which mainly leaves the question of the source of the power of Fridman et al, or what deal they’ve made with Putin.

Second, evidently even AAR doesn’t believe that this is a harbinger of the rule of law.  If it did, why wouldn’t it trust Rosneft to adhere to an agreement?

Third, that whole improving the investment climate thing isn’t working out so well, is it?  Witness the continued capital flight.  Note especially that Russians are at the head of the pack when it comes to getting their money out of the country: there’s that Russians-not-trusting-Russians thing again.  Witness too the spate of canceled Russian IPOs due to lack of demand: there are six including the five mentioned in this article plus ChelPipe.  All this in the face of a sharply higher oil price, which in 2006-2008 led to boom times in Russia.  Not now: economic growth has actually slowed to an anemic 4.1 percent.  (Anemic by comparison to what would be expected in the aftermath of a major decline in the economy in 2008-2009, and in comparison to the growth rates observed the last time oil prices spiked.)

Fourth, even if the hands-off approach to AAR’s assertion of its contractual rights is indeed an attempt to convince the world that Russia is endeavoring to adhere to the rule of law, in fact it just adds to the unpredictability of the place.  BP thought it knew how the game is played.  It didn’t.  It thought a roof was necessary and sufficient, and that Sechin could be its roof.  Wrong.  So anybody watching has to ask: Is this a one off?  Is it just the result of some unknown deal between Fridman et al and Putin?  How is this game played?

As long as the system remains institutionally undeveloped and intensely personalized, foreign investors will tread with trepidation.  There has to be some certainty that commitments made by the state are credible: AAR’s reluctance to trust Rosneft makes it clear that not even powerful Russians believe that they are so.

Fifth, if you follow the news, you’ll see many more discordant notes that completely contradict the meme of Russia’s newfound commitment to the rule of law.  For instance, the prosecution of Alexei Navalny or the continued efforts to prosecute William Browder–efforts spearheaded by the very tax cheats who robbed his company and effectively murdered his employee who attempted to fight the robbery, and who the Russian government is incapable of or more likely is completely uninterested in prosecuting.

Rosneft is now considering approaching another international oil company, such as Shell or ExxonMobil, to partner with in Arctic exploration.  The whole BP fiasco is hardly calculated to make them jump at the chance.  Again, who even knows what the rules are?  What’s more, post-Mocando, BP was desperate–Shell and XOM aren’t.  BP was a fool that rushed in where angels fear to tread, and it would take an even greater fool to follow in its footsteps.  Rex Tillerson is not a fool.  The Chinese have also been mooted as potential partners, but (a) they don’t have the Arctic expertise needed, and (b) if you haven’t noticed, Rosneft (with Transneft acting as the stalking horse) and China are already at loggerheads over a relatively simple pipeline/oil sale deal.

No, it is is becoming increasingly clear that Putin intends to dominate Russian politics and government for the foreseeable future (even if he can’t start a new Lada!), and people are drawing the appropriate implications from that.  The hamster wheel from hell will keep spinning.  Putin’s Purgatory will continue, and indeed will become even more stifling and static.  It is conventional wisdom that Russians pine for stability.  Be careful what you pine for.

Or Igor Sechin’s for that matter?   Based on photos–not much!–but given the Frankenstein deal that Rosneft, AAR, TNK-BP and BP are stitching together, they must be really valuable.  That’s because the only reason to proceed with this monstrosity is to save Dudley’s and Sechin’s faces.

How wacky is the structure proposed by BP and apparently accepted by AAR? This wacky:

Three details of the January deal have been changed, Vedomosti reported.

Firstly TNK-BP replaces BP in the share swap. Second, the shares which were to be traded are to be placed in a ring-fenced fund exclusively for investment spending.

Finally, BP and Rosneft cannot elect their own representatives on to each other’s boards. Voting rights on behalf of the swapped shares will be held by an independent fund manager.

So, no board representation, the shares cannot be voted, BP’s ownership in the Arctic venture is diluted by half, BP is stitched even tighter with the AAR crowd that it hates (with said hate returned with interest–one swap that keeps on paying), the Arctic prospects must be explored through TNK-BP which doesn’t have the technical expertise to do so, thereby requiring BP people to be assigned to TNK-BP, which is hugely inefficient and is one of the things that led to the blowup culminating in Dudley’s ouster a couple of years back.  I’m sure I left something out, but that’s more than enough to convince any sane person to say tomato-tomahto let’s call the whole thing off.

This wasn’t obviously a great deal for BP under the originally proposed terms.  I thought it was a bad risk putting so many eggs in the Russian basket, and wrote it off as a testament to BP’s desperation, post-Macondo.  But that deal was a jewel, compared to this . . . thing . . . being stitched together now.

But Sechin (and apparently Putin) and Dudley are so invested in a deal–any deal, apparently–that they feel compelled to proceed.  Again, only face saving can explain this.   BP’s shareholders should revolt, because they’re paying for Dudley’s mug with their money.  So should the Russian people, because they’re paying for Sechin’s, but pigs have yet to learn to fly.

The only party that will come out of this deal happy will be the AAR guys.  They will, no doubt, make the lives  everybody at Rosneft and BP’s so miserable in the coming months that they will get bought out at a handsome price.  One would hope that they use some of the money to sculpt a bust of Dudley, because the value of his visage will make them even filthier rich than they already are.

Haven’t written much Russia stuff lately–too many competing stories, too much competing for my time, and too much same-old, same-old in Russia.  But enough things have accumulated to deserve some comment.

First, to prove, as if more proof were needed, that Vladimir Putin is 110 percent Checkist, and -10 percent economist, he refuses even to countenance the possibility that his inane attempts to keep a lid on prices has caused shortages of gasoline. Instead, he sees dark conspiracies:

Russian Prime Minister Vladimir Putin accused oil companies on Thursday of a “conspiracy” to force up gasoline prices, as the world’s largest oil producer struggles to combat fuel shortages.

Putin rebuked Deputy Prime Minister Igor Sechin, his point man for energy, for suggesting at a government meeting that price rises had resulted from a lack of oil products offered for sale on commodities exchanges.

“It’s not a shortage. This is not about a shortage. This is a conspiracy. They are colluding,” Putin told Sechin, who serves on the board of state-controlled oil major Rosneft and is widely seen as the chief spokesman for the industry.

What a maroon.  And Sechin.  Oi  Perhaps his remark on commodity exchanges was mis-translated, because otherwise I have no clue what he was talking about.

By the way, the price control bug is spreading: here’s a story about China using “legal” means to impose unofficial price controls, with predictable effects (note the empty shelves in the pic).

Story 2.  When the Russia-China oil pipeline deal was signed, I predicted that the Russians would bridle at the super-secret pricing terms as soon as given the opportunity–and would attempt to renegotiate the terms later.  (My surmise at the time was the super-secrecy was intended to conceal how unfavorable the terms were–and hence how desperate the Russians were.)  The entertaining and informative John Helmer has some details:

This is unusual outspokenness from the state pipeline company whose chief executive, Nikolai Tokarev, has made a career of secretiveness. All the more curious, says a Russian analyst of state contracting practices, Alexei Navalny. He told Asia Times that the conflict with CNPC is not really with the pipeline company Transneft, but with the oil producer and exporter, state oil company Rosneft. Navalny has filed Moscow court actions as a shareholder of Rosneft for disclosure of the terms of the company’s contract to sell oil to CNPC. He believes the price formula set by Rosneft is “far from a market one”, and accordingly it is understandable why the Russian side wants now to extract more profit from the trade, while the Chinese insist on sticking to the contract formula. Navalny does not speculate on how the oil pricing is tied to Rosneft’s and Transneft’s repayments of their China loans.

Taking the longer-term Chinese view, over the 20-year contract term, with deliveries of about 2.3 billion barrels, at annual value at this year’s price average of not less than $10 billion, and if the price average holds up, a full-term value of $200 billion, this $2 per barrel dispute ought to be something the two sides can agree to share — without going to a court in London and without damaging the windfall both are enjoying. If they can’t, the usually reticent Tokarev will no doubt have to explain to Putin why not.

Not surprised.  It would be very interesting to see those contract terms . . . somehow I think that if revealed, they would be more “colonial” than the PSAs (like the one for Sakhalin II) that Putin raged about in the mid-00s.

Speaking of oil, the Arbitrage Court has given BP the worst of all worlds: approval of the Rosneft-BP share swap, and the right to participate in Arctic exploration efforts–but only through TNK-BP.  So now TNK-BP and BP–and now Rosneft–will be the Siamese triplets from hell for the foreseeable future.  Good luck with that.  Be careful what you ask for, Dud: you might get it, and in this case you did.

Last, Dmitry Gorenberg (whom I will meet when on a panel speaking about blogging as an academic at the Association for Slavic, East European, and Eurasian Studies meetings in November) posted the editor’s introduction from the new issue of Russian Politics and Law.  Two of the articles by obvious Russophobes named Gudkov and Petrov present an analysis that is very similar to the natural state-based analysis I’ve presented on SWP over the last 4 years or so:

Lev Gudkov’s article on “The Nature of ‘Putinism’ ” judges Putinism to be a particular type of post-totalitarian authoritarianism in which the political police wields power on behalf of the private interests of bureaucratic clans or corporations. Furthermore, he argues that this system of power is not merely conservative but is designed specifically to block the development of the rest of society and to prevent its modernization. Control in this system is exercised by the security services, who seek to milk both the state and society for their own personal enrichment. [Emphasis added.]

Gudkov notes that this political system has a fundamentally different character from either the Soviet regime or a regular personalistic authoritarian regime such as that found in other countries. The new aspects of Putinism include its system for the legitimation of rule and its technology of power. Unlike Soviet-style totalitarian regimes, the Putinist political system is not a party-state, where the ruling political party has merged with the state. The regime also lacks an overarching ideology that seeks to justify its rule, nor does it engage in mass terror campaigns against political opponents. Furthermore, the population has partial freedom of access to information and the ability to engage in opposition activity as long as it does not threaten the ruling elite.

Unlike authoritarian states, the Putinist regime has a quasi-personalist and conservative character that focuses on restoring “Russian traditions” while engaging in ever-increasing corrupt activity. The personalism of the regime is particularly important, as Russia’s leaders have partially destroyed state institutions in order to cement their control of state power.

. . . .

The destruction of state institutions is the main focus of Nikolai Petrov’s “The Political Mechanics of the Russian Regime: Substitutes Versus Institutions.” Petrov argues that over the last ten years, Putin and his associates have eviscerated all state institutions except the presidency by systematically stripping them of any real power or purpose. What has been left behind are decorative institutions that appear to retain the powers of their former selves while actually performing few if any useful functions. The symbol of this transformation is the frequently cited remark by Boris Gryzlov, the Speaker of the State Duma, that the parliament is no place for political discussion. The substantive roles of both the Duma and the Federation Council have been handed over to various consultative councils, while the government itself as a decision-making organ was largely replaced by the presidential administration as long as Putin was president. Regional executives were, in turn, replaced by presidential representatives to the federal districts. The substitutions reached into the private sector, as well, with the replacement of independent large corporations with corporations controlled by the state and its top officials.

Petrov calls the system that results from this effort “highly managed democracy.” Its essential characteristics include strong personal power that is unlimited by institutions, the manipulations of public opinion through the mass media, and the holding of controlled elections. The consequences of building this type of government include excessive centralization, internal conflicts, inability to make decisions, and stagnation. These consequences in turn bring about a loss of flexibility and adaptability to changing circumstances on the part of the regime, followed by a gradual loss of effectiveness in governing. The system not only fails to react to crisis but also frequently causes its own internal crises because a lack of failsafe mechanisms prevents the authorities from realizing that they are making mistaken decisions. The crisis may come from a lack of resources to maintain the patronage system that keeps the government functioning, from an internal political conflict among members of the ruling elite that spreads beyond their ability to control, or from a local crisis that expands to engulf the whole country because of the leadership’s inability to deal with it.  [Emphasis added.]

While the system is designed to maintain the current leaders’ grip on power, in the long run, Petrov believes, it guarantees its own failure as hostility to the system gradually develops among the population. Because the public lacks the ability to change the system, anti government attitudes build among the population until they reach an “explosive” level that may bring down both the leadership and the entire system of highly managed democracy.

The last italicized portion is quite similar to arguments I’ve made here, arguments rooted in theory of the political economy of the natural state.

Personalization and de-institutionalization are quite detrimental to the country’s long run prospects.  Personalized, de-institutionalized regimes have little capacity for positive change and adaptation.  They tend to become ossified if the personal leadership ages in place (which is the most likely outcome in Russia), or instead become wracked by conflict and revolution if struggles over leadership erupt (which is the second most likely outcome in Russia).

I’ve downloaded the articles and will read with interest, and will report any additional interesting insights that I glean from them.

The administration is floating–re-floating, actually–a proposal to levy a tax based on mileage driven.  From an economic perspective, this is a puzzler.  If the objective is to reduce CO2 emissions or pollution, it would be far preferable to do so via fuel taxes because (a) pollution is a function of fuel consumption, and (b) fuel consumption depends not just on mileage driven, but on vehicle size, age, maintenance, etc.  Any system that attempts to adjust the tax rate based on vehicle type and weight, etc., would still be less effective at taxing pollution than a fuel tax.  Not to mention that this would require an entirely new monitoring and enforcement mechanism that isn’t free.  All this isn’t that hard to figure out.  So what gives?   Social control comes to mind.  Any other suggestions?

Russia has announced a sharp hike in export taxes on gasoline, and a complete ban of refined petroleum exports for May.  The reason: shortages of gasoline, leading to “panic buying” in numerous regions.

Now, shortages result from price controls–almost always.  But the Russian government has no authority to set prices--officially, anyways.   But unofficially–that’s a different story.  And that’s exactly what’s happening.  Bigfoot–Putin, that is–is interfering in the market:

Government officials, and in particular Prime Minister Vladimir Putin, have strongly warned gasoline producers and retailers to maintain cheap prices for gas. “I don’t want to think that the reason for the jump in prices is as trite as the wish to crudely extract an unreasonable, maximum gain,” said Putin in mid-February.

Such statements from government officials are often recognized as a kind of informal regulation by oil and gas companies, said Elena Anankina, a senior director at the Standard & Poor’s rating agency, and the companies may be willing to make some concessions on gasoline prices in order to maintain favorable terms for negotiation on crude oil and other products. Nonetheless, price caps will produce an expected, negative effect in any market.

“Officially, the government has no authority to regulate gas prices, but in a country like Russia where the government is an important factor in doing business, even if there is no legally binding power to that statement, oil companies need to listen to what the government is saying. At the same time, as anybody who lived in the Soviet Union will tell you, if prices are artificially low by government decree, it creates a shortage,” said Anankina.

I especially like that part about “the wish to crudely extract an unreasonable, maximum gain.”  Translated: That’s my (Putin’s) job; well, me and my judo buddies’.*

Or, as this AFP story put it:

“Putin ordered (oil companies) to control wholesale and retail prices and they complied,” the Vedomosti business daily remarked.

“But world oil prices continued to grow and the companies quietly stepped up their exports, leaving only enough for the domestic market to keep their own (gas station) chains going,” Vedomosti observed.

More evidence of state pressure:

Jonathan Muir, chief financial officer of Russia’s No.3 producer TNK-BP, said on Wednesday that “regulatory pressure” on domestic fuel prices prices had cost the company $54 million in the first quarter.

One of the knouts used to beat suppliers into submission is the antitrust authorities:

In February, Prime Minister Vladimir Putin issued a stern warning over fuel prices and vowed increased oversight of the fuel business.

“This may be one of the kinds of cartel agreement for which the antimonopoly legislation includes criminal responsibility as a measure of last resort,” Federal Antimonopoly Service head Igor Artemyev said in a statement after a Monday meeting with fuel unions.

. . . .

The Altai branch of the FAS launched a suit against Rosneft and Gazprom Neft on Tuesday on suspicion of price collusion.

Uhm, no, actually.  Cartel agreements that jack up prices do not cause shortages.  Shortages occur not because prices are too high, but because they are too low.

In sum, for populist political reasons Putin pressures companies to keep down prices in Russia despite rising prices for crude and refined products abroad.  So, not surprisingly–well, maybe to Putin, who’s no economic swiftie–Russian refiners sell less in Russia and more abroad.  Moreover, the inability to charge a market clearing price in Russia leads to shortages domestically and a shifting of supplies from Russia to other markets.  It’s not that complicated.

Russia–and Putin personally–like to preen about how reliable they are as energy suppliers.  Oh, they’re reliable, all right.  You can rely on them to cut off supplies in a trice for a political or geopolitical reason.  Someone at Gazprom Neft is quoted as saying “export contracts are holy.”  Thanks for that!  I needed a laugh.

More evidence of Russia’s obvious readiness for WTO membership.  As we’ve witnessed over and over again in recent months, on things from cars to grain to energy Putin uses tariffs, export taxes, and trade bans to achieve political objectives.  Not that he’s alone in this, mind you, but he is distinctively aggressive–and unrepentent–in his use of trade restrictions to shift around rents and put out political fires in the natural state.

There’s also a potentially bigger issue looming in the background.  Inflation is picking up in Russia, and to the surprise of some analysts, Russia’s central bank is taking aggressive action (unexpectedly raising interest rates) to combat it.  Putin has made fighting inflation his top priority.  His remarks on US monetary “hooliganism” must be read in that context.  This is a politically sensitive issue, and Putin is pulling out all the stops to deal with it.

The thing is, there are some stops that are good to pull, others not.  Attempting to control inflation through export bans and price controls–official or unofficial–leads to huge real distortions.  The grain export ban is evidently leading to sharp cut backs in planting, and imposing hardships on farmers.  The gas export ban and associated information price controls will also lead to distortions.

But politicians everywhere–especially those likely seeking reelection–have a tendency to overlook those distortions and seek short term palliatives.  But in the end the costs have to be paid.

Russia is just one country coping with inflationary pressures.  What hath Ben wrought?  More on that subject as time permits.

* For a great illustration of how judo makes you really, really smart–and hence rich–check out this story about the shenanigans involving the Novorossiysk port, in which Putin’s judo buddies raked off a cool billion, no risk, no work.

I wonder if these stories may have some connection.  First, Rosneft and BP are apparently working to structure a deal to buy out AAR from TNK-BP.  Second, the Russian government has revoked a tax holiday on TNK-BP’s Verknechonskoye field, as well as another field held by Surgutneftgaz.

This will apparently cost TNK-BP $450 million.  Nice way to put some downward pressure on the value of TNK-BP–and hence the price AAR can demand for their piece of it.

Of course there are other reasons to remove the tax breaks, notably the Russian government’s need for money.

But there’s a bigger issue here too.  A constantly changing, unpredictable, and ultimately arbitrary tax regime subject to the short-term political currents in Russia (e.g., Putin promises more bennies as part of his political campaign, and the money has to come from somewhere) as well as the vicissitudes of natural state rent reshuffling, is hardly conducive to robust investment.  Russia is notorious for its low rate of investment, especially compared to its alleged peers.  Foreign direct investment is moribund, and Russians are shifting capital out of the country.  This is another short term measure that undermines the long-term prospects for Russian development.

Not that short-termism is a solely Russian phenomenon.  I hope to post soon on how it is becoming a serious problem in the US too.

I was interviewed for about 10 minutes for a Fox News story on energy prices and Obama’s anti-speculation rant: about 3 seconds made it on air.

It is becoming clear that Obama’s criticism of speculators was not a one-off. Instead, it is part of a broader campaign to demonize them. Today’s installment of the Two Minutes’ Hate came courtesy of the Justice Department (so tempted to use quotes around that). Eric Holder announced the formation of an Oil and Gas Price Fraud Working Group consisting of Department of Justice, the National Association of Attorneys General, the Commodity Futures Trading Commission, the Federal Trade Commission, the Department of the Treasury, the Federal Reserve Board, the Securities and Exchange Commission, as well as the Departments of Agriculture and Energy.  The Group’s charge is:

In March 2011, President Obama asked the Attorney General to work with federal and state agencies to monitor oil and gas markets for potential wrongdoing.   In response to the President’s call for action, Department of Justice leadership consulted with federal agencies and state attorneys general and discussed pending inquiries in some states, the most effective legal tools and areas that require additional exploration.   As a result of this examination and to further the central mission of the Financial Fraud Enforcement Task Force, the Attorney General formed the Oil and Gas Price Fraud Working Group.

The Oil and Gas Price Fraud Working Group will explore whether there is any evidence of manipulation of oil and gas prices, collusion, fraud, or misrepresentations at the retail or wholesale levels that violates state or federal laws and harms consumers or the federal government as a purchaser of oil and gas.   The Working Group will also evaluate developments in commodities markets and examine investor practices, supply and demand factors and the role of speculators and index traders in oil futures markets.

Here’s the Reuters feed on Obama’s announcement:

* ( RTR ) 04/21 02:30PM OBAMA SAYS HAS ASKED ATTORNEY GENERAL TO CREATE TEAM TO “ROOT OUT” FRAUD, MANIPULATION IN OIL MARKETS THAT COULD HIT GAS PRICES
* ( RTR ) 04/21 02:31PM OBAMA, IN PREPARED REMARKS, SAYS TEAM’S FOCUS WILL INCLUDE OIL MARKET TRADERS AND SPECULATORS
* ( RTR ) 04/21 02:31PM OBAMA SAYS WILL MAKE SURE THAT NO ONE IN OIL MARKET IS TAKING ADVANTAGE OF THE AMERICAN PEOPLE FOR THEIR OWN SHORT-TERM GAIN

Here’s some additional reporting on Obama’s remarks today:

“The attorney general’s putting together a team whose job it will be to root out any cases of fraud or manipulation in the oil markets that might affect gas prices – and that includes the role of traders and speculators,” President Obama said at a town hall meeting in Nevada on Thursday. “We are going to make sure that no one is taking advantage of American consumers for their own short-term gain.”

That same article quotes Northwestern polisci professor Laurel Harbridge, giving the enabling professoriate’s take on this gambit:

Laurel Harbridge says the formation of the investigative group is a way for the president to take control of the situation without taking more extreme steps.

“Doing something that suggests that there’s at least the possibility that gas prices are high because of manipulation or something like that kind of turns the high gas prices into something that he’s combating and he’s against rather than either a problem that can’t be dealt with or something that’s due to domestic policy decisions,” Harbridge said.

In other words, it’s an opportunistic effort to scapegoat others on the basis of zero evidence in order to distract attention from the real issues–but that’s cool!

Here’s a non-enabling professor’s take:

Craig Pirrong, a finance professor at the University of Houston who specializes in commodity prices, says the task force is hardly needed, since the agencies already have the tools to monitor for fraud and take action. [Yeah.  It’s like their day job.]

“This is a transparently political fishing expedition that insinuates that fraud or manipulation is distorting oil prices without providing even the flimsiest factual basis for such a suspicion,” Pirrong said. “This is part of a broad effort by the administration to deflect criticism with regard to gasoline prices.”

Actually, the “fishing expedition” characterization is probably optimistic.  Especially given Obama’s assertion of ownership of the issue, and his personal identification with the claim that speculators are distorting prices, there is a high likelihood that fishing expedition will give way to witch hunt.  Remember when Obama told bankers “[m]y administration is the only thing standing between you and the pitchforks”?   It is becoming increasingly clear that Obama won’t be standing between oil “speculators” and the pitchforks this time.  Indeed, he’s taking leadership of the mob.

What determines commodity prices is a complex issue.  Injecting superheated political rhetoric won’t improve our understanding, and in fact will inevitably have the exact opposite consequence.  This, combined with the implicit threat of legal investigations and perhaps legal action (“nice little market you have here–wouldn’t want anything to happen do it”) will have no positive consequences, and likely many negative ones.

It’s already ugly out there.  But it just got a whole lot uglier.

It would be nice if this witch hunt was as funny as this one:

I wouldn’t speculate on it, though.

I thought I was going to need a new computer monitor after doing a comic spit take upon reading this:

Transneft Says Higher Dividends Would Deprive Orphans, Sick

OAO Transneft, Russia’s monopoly pipeline operator, says paying more dividends would curtail aid to orphans and other charity work.

Transneft made 3.2 billion rubles ($112 million) of charitable contributions in 2009, 7.8 times more than the dividends it paid to private investors, according to the company’s financial reports. That spurred preferred shareholders such as Prosperity Capital Management Ltd. and East Capital to demand more information as they seek a larger slice of profit.

Higher dividends would reduce money destined for “the sick, supporting sport, renovating churches and monasteries,” Moscow-based Transneft said in a document dated March 16 and filed as part of the company’s appeal against a ruling requiring it to release board minutes.

Given that Transneft is one of the most corrupt companies in the galaxy, I’m guessing that the widows, orphans, and monks who are getting the cash not going to shareholders have numbered Swiss accounts, and are driven to and from vulgarly luxurious dachas in gated communities in black Mercedes with flashing blue lights, chauffeured by neckless men in black turtlenecks.

I do have to give them credit for chutzpah, though.  The thought of Transneft’s management’s tender spot for widows and churches brings to mind Nathan Detroit and his gang visiting the Save-a-Soul Mission in Guys and Dolls.

In other Russian oil transportation news, Transneft has announced that it plans to sue the Chinese oil company CNPC for underpayment on oil shipments made over the new Russia-China pipeline.  Back in 2009, at the depths of the financial crisis when Russia and China negotiated the financing for the pipeline and prices on terms that were very favorable to China, I predicted that there would be contractual disputes when prices turned around.  Could this be the first inkling of the accuracy of that forecast?  The reporting is currently too thin to tell.

That’s not surprising since Transneft, hardly a paragon of transparency (indeed, it’s the poster child for opacity), is the only source of information.  This bears some watching going forward.

Obama has inserted himself into the oil speculation debate, adding his voice to the baying mob demanding that the usual suspects be rounded up for causing excessively high oil prices:

President Barack Obama on Tuesday blamed speculators for driving gasoline prices higher and straining American consumers, saying there was enough oil in world markets to meet demand.

. . . .

Obama said that global oil supply is adequate and that speculators are driving up prices significantly.

“It is true that a lot of what’s driving oil prices up right now is not the lack of supply. There’s enough supply. There’s enough oil out there for world demand,” Obama said.

“The problem is … speculators and people make various bets, and they say, you know what, we think that maybe there’s a 20 percent chance that something might happen in the Middle East that might disrupt oil supply, so we’re going to bet that oil is going to go up real high. And that spikes up prices significantly.”

Glad that The All Knowing All Seeing Obama is able to assure us that “There’s enough oil out there for world demand.”  Was that before Libya, after, or both?

But let’s consider that last paragraph, about “speculators and people mak[ing] various bets.”  (Are speculators not people?  Or are some people who bet not speculators?  I’m confused.  Not least by the fact that we’ve been told repeatedly that Obama is so0000 articulate.  Or at least his teleprompter is.)

I say: don’t damn these people, but thank the Lord for them.  They are looking  to the future, and evaluating factors that could impact supply and demand in the future.  They are collecting and evaluating information to attempt to determine the likelihood that oil (and other commodities) will become more or less scarce.  This is essential because expectations about the future are crucial for our decision making today: how much oil to store, how many wells to drill, what kind of cars and machinery to build and buy.  You can’t do things right today unless you evaluate future risks carefully.

Yes, sometimes speculators arrive at pessimistic conclusions that cause prices to go up today.  But here’s the thing: without this “speculative” price impact, there will be no adjustments today to the risk of potential future shocks, meaning that the impact of these shocks will be even more severe in the future.

For instance, a rational response to a real risk of a future supply disruption in the Middle East–and does any sentient being believe that the risk of such a disruption has not increased?–is to store (and produce) more oil today.  That increased storage does tend to drive up current prices.

But let’s say that there is no informed speculation, and as a result no additional oil is stored or produced.  If a supply disruption indeed occurs, that oil that isn’t stored isn’t available to cushion the price impact the disruption causes, meaning that prices will spike more without the speculation than with it.  This speculation has made the present a little less pleasant, but only in order to reduce the likelihood of much greater unpleasantness in the future.

Indeed, if there is a criticism to be made of speculation, it is that too much information is collected and prices are too accurate.  Individuals collect information to earn a profit at the expense of the uninformed.  The expenditure of real resources to obtain a transfer is welfare reducing, all else equal.

Even if you buy that critique, though, you can’t criticize speculation on the grounds that Obama chooses.  By collecting information related to future supply and demand conditions, speculators acting as Obama describes ensure the more efficient allocation of resources over time.  Sometimes that indeed causes prices to be higher today–but that’s not a bad thing because it reduces the likelihood of even greater price spikes in the future.

Obama’s resort to populist anti-speculative boob bait is a piece with what we’ve seen in the last days.  I thought Obama and his people had figured out that he was overexposed and had limited his appearances.  But then he gave two speeches–one on Libya, the other on the budget–that went over like lead balloons.  Obviously acting presidential didn’t work, so Obama went back to the one thing he thinks he can do: campaign.

So in April of 2011, we’re seeing appearances and rhetoric that you’d expect to see in October, 2012.  Indeed, apparently the Ryan plan has stung him deeply, and he is responding in full Alinskyite “Pick the Target, Freeze It, Personalize It, and Polarize It” mode.  The level of mendacity is astounding, and in a perverse way, Ryan should be flattered.

How long did that era of new civility last?  Just asking.

This is distressing and revealing.  It is distressing because the nation faces a truly existential fiscal crisis.  It is revealing because it is now painfully obvious that the only thing Obama knows how to do is to fall back on political demagoguery and dishonest personal attacks, delivered in campaign settings long, long before the campaign should begin.

The fact that Obama has joined the anti-speculation know nothings reveals that he’s not the least bit interested in doing anything serious about energy either.  It’s so much easier to blame speculators who are actually providing the signal service of (a) ensuring that market prices reflect information about future supply and demand, and (b) thereby encouraging immediate responses in consumption, production, and storage that will mitigate the adverse impact of those future supply and demand risks.  That’s because it’s so much easier to shoot the messenger than to do something constructive about the message.