Streetwise Professor

September 8, 2011


Filed under: Economics,Energy,Politics,Russia — The Professor @ 9:58 am

August is over, but Russia suffered another devastating aerospace disaster: the crash in Yaroslavl of a Yak jet carrying a KHL hockey team.  Forty-three people perished, including an international roster of hockey players and coaches (such as Pavol Demitra, formerly of the St. Louis Blues).  My condolences to the victims and their families and friends.

Medvedev made a stop at the crash site, and before the cause of the crash was known, was already dispensing solutions, including the old Russian standby of industry consolidation.  Like that wasn’t predictable–and pathetic.

Insofar as causes are concerned, one report blames the crash on poor quality fuel:

Poor quality of aviation fuel could be one of possible reasons for why the Yak-42 plane crashed in Central Russia on Wednesday, killing more than 40 people, a source in the aviation industry said.

“The aircraft failed to gain the required engine takeoff speed and fell from a low height on a Volga riverbank. Refueling the plane with low-quality fuel is seen as a priority reason for the engine malfunction,” the source said on the condition of anonymity.

This is all the more interesting given this story from last week:

Deputy Prime Minister Igor Sechin gathered government officials to formulate a response to looming fuel shortages at the nation’s airports on Tuesday. Media reports had earlier speculated that Moscow airports’ fuel reserves had dropped to critical levels over recent days. Sechin announced at the meeting that a 10-day fuel reserve was to be created for the capital’s airports.

Rosaviation had earlier said that they would call on Rosrezerv to send 180,000 tons of fuel to Moscow airports in order to avoid a collapse in flight scheduling. Vladimir Putin was set to sign the order if necessary, his press-secretary, Dmitry Peskov, said on Tuesday.

Fuel in airports running out?

Kommersant reported on Friday that there was only three days worth of fuel in the capital’s airports. Sheremetyevo reserves were reportedly boosted to four days — about 20,000 tons — but it was done at the expense of other Moscow airports. The fuel crisis in the airports was first reported on Sep. 2 when Moscow airports announced that there was a kerosene shortage and supplies would run out in several days’ time.

Further recall that since the spring Putin has been browbeating refiners about the pricing of petroleum products, and that refiners had duly pledged to keep prices low.  There are no formal price controls (though the government did slap on high export duties to try to keep fuel prices lower in Russia), but in a place like Russia, a threat emanating from Putin can be a very close substitute for formal controls.

The events of the past week give credence to that interpretation.  What are the two predictable effects of price controls?  1. Shortages.  2. Declines in product quality (including adulteration).  Put it all together: government pressure to keep prices low, shortages, and if the cause of the Yak-42 crash indeed turns out to be a fuel quality problem, a decline in product quality.  It fits.

At this point, this is all conjecture.  But the conjecture is a plausible one, especially viewed in the context of the way Russia works.  The government intervenes–through scary threats–in a market.   Predictable consequences follow.  Sometimes these consequences are paid in inefficiency and inconvenience.  Sometimes they are paid in blood.

If one could trust the results of any investigation, it would be interesting to know whether fuel quality was indeed the cause.  The potential nexus between government conflict with refiners will make it even more difficult than usual to place any credence on the official findings.  That could cut both ways.  The government could want to use this as another cudgel in its ongoing battle with the refiners.  But on the other hand, such a finding could raise serious doubts about the wisdom of Putin’s bigfooting petrol prices.

So I will just say that this explanation is a plausible one, but that more definitive resolution is unlikely ever to be forthcoming.

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  1. If the world sends its athletes into the Russian meat grinder in 2014, it will be one of the truly insane acts in all of human history. An entire sports team has been wiped out! Is the world really going to give Russia a shot at many more? And that’s not even to consider the risk of terrorism into the mix! Russia’s air safety record is THIRTEEN TIMES higher than the world average ( Any government that allows its athletes to participate in the Sochi games after this appalling incident will have blood on its hands. And that includes the Russian government.

    Comment by La Russophobe — September 8, 2011 @ 7:45 pm

  2. Fuel quality was somewhat of an issue in Sakhalin, we got all our fuel from the Alliance refinery in Khabarovsk. I don’t think it ever effected aircraft, but stories of people filling up their car with something that killed the engine a kilometre down the road were common enough. Although I’m not sure where in the supply chain the switches occurred, it might well have been done by the station owner. I always used to fill up at Rosneft stations, and they seemed to be okay.

    Comment by Tim Newman — September 8, 2011 @ 11:34 pm

  3. Turbines are less sensitive to fuel quality than high performance piston engines. Jet fuel is lower octane than car fuel, and one of the reasons why Germany pushed so hard jet engine development. Only America had high-octane avgas during the war.

    Back in the USSR it was a bad idea to fill up at stations close to airports, because there was a chance the fuel was mixed with kerosene.

    Comment by So? — September 9, 2011 @ 3:12 am

  4. Russia is a woeful #56 in the world for per capita GDP, but things are even worse than they appear because Russia is #66 when surveyed for competitiveness, and that is a drop from last year.

    The reason why Russian planes are so dangerous is because, quite simply, just like the USSR, Russia can’t afford anything better because it has a lazy, corrupt, clueless population that produces hardly any value. And that should be no surprise since the country is still governed by the KGB.

    Comment by La Russophobe — September 9, 2011 @ 8:11 am

  5. So, any comments on Bams new proposal? 😉 Or you prefer to pass ? Would love to see you take on economy and the SWP proposal to get out of the mess…

    Comment by Surya — September 9, 2011 @ 8:33 am

  6. @Surya–New? I didn’t see anything new. I’ve been jammed in meetings 12+ hours/day for the past 2, and again today. Will try to get to something over the weekend. Thanks for your interest. Quick take: pretty much the opposite of everything BHO proposed. I would stop focusing on macro-econ stuff b/c I think that’s wasteful, counterproductive, or at best ineffective. Ease dramatically the burden of new and existing regs. Terminate Frank-n-Dodd & Obamacare with extreme prejudice.

    The ProfessorComment by The Professor — September 9, 2011 @ 8:43 am

  7. So? Only the US had high octane aviation fuel in WW2?
    Sorry, so did the following:
    and even Italy.

    Considering the most successful US fighter the P-51 used a British engine and was built to a British specification……..

    Comment by Andrew — September 10, 2011 @ 4:08 am


    Russians need to ask why this order wasn’t given BEFORE the crash, rather than after. They need to ask why the PRIME MINISTER is not sacked, as ANY OTHER prime minister would have been. They need to ask why their president is a traitor.

    Comment by La Russophobe — September 11, 2011 @ 4:54 pm

  9. I will not believe a supplier would supply bad fuel to an airline company, that is
    completely nuts to even think like that, Lets wait until they come up with the results, Jet Fuel (Kerosene) is pretty basic to make and hard to mess up, and I would not to be responsible for any problems, especially an aircraft.

    Very sorry to see this terrible Loss. Irreplaceable

    Comment by Ted — September 12, 2011 @ 8:28 pm

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