The Russian Empire Strikes Back

The Colder War is real and it’s on. Below, I will break down a number of recent statements by Treasury Secretary Jacob J. Lew. In quotations are the comments out of the US Treasury Department’s Office of Public Affairs.

Russia is not bending over and giving in on the first two rounds of “sanctions” set by the United States and its bankrupt allies in Europe. So how did the US respond? With more sanctions, hoping to cripple Putin and Russia where it counts: the sale of oil and gas. Interestingly enough, it didn’t impose sanctions on Russian nuclear fuel, which just happens to power 10% of all American homes… but I digress. Let’s jump into all the comments, break them down, and see what this all means. Comments by the Treasury Secretary are indented and bold:

Given Russia’s direct military intervention and blatant efforts to destabilize Ukraine, we have deepened our sanctions against Russia today, in concert with our European allies. These steps underscore the continued resolve of the international community against Russia’s aggression.

All this means is that Russia isn’t doing what the US and its Western European allies want it to do, and they are upset about it. So until Putin and Russia are broken, more sanctions will come. However, the bigger question is, who will break first?

Russia’s economic and diplomatic isolation will continue to grow as long as its actions do not live up to its words. Russia’s economy is already paying a heavy price for its unlawful behavior. Growth has fallen to near zero, inflation is well above target, and Russian financial markets continue to deteriorate.

Perhaps Treasury Secretary Jacob J. Lew just crawled out from under a rock and hasn’t yet realized that Russia in no way is economically and diplomatically isolated. Yes, it’s true that Russia is estranged from the US and bankrupt Western European countries at the moment, but does Russia even care? Europe still heavily relies on Russian natural gas and oil, and that isn’t going to change anytime soon.

But more importantly, the Chinese, India, and the rest of Asia are more than happy to forge long-term economic and diplomatic relations with Russia, as China recently did with its $400 billion natural gas deal. This statement is nothing but an empty threat. The emerging markets are eager to work with Russia; it’s the US and Western countries imposing sanctions, not the rest of the world.

It is essential that Russia work with Ukraine and other international partners to find a lasting settlement to the conflict. If Russia does so, these new sanctions could be suspended. If instead Russia chooses to continue its violations of international law, the costs will continue to rise.

Why is it essential that Russia work with Ukraine? Putin will do whatever is best for Russia, and Russia only, and to expect anything else is nonsensical. Unfortunately, the American government wants to challenge anyone who stands up to its supremacy, and Putin is showing the world that in his case, enough is enough.

(Now, my personal opinions don’t matter here. My analysis comes from the perspective of how I believe the Russians would interpret these comments. Hopefully, that will help my American audience see how foolish said comments really are.)

If it’s a cold winter in Europe, where will Bulgaria, Finland, and Serbia get the natural gas that’s required to generate electricity and heat their populations’ homes? And did the US and the EU impose these sanctions after asking all European nations what their opinions are? Well, I doubt the Serbians, Bulgarians, and Finns had their voices heard. There is a huge market for Russian natural gas and oil, and these sanctions will backfire on Europe, especially if it’s a cold winter and the lights go out. Revolution in the streets?

As in all of the sanctions steps we have taken, we have designed the actions announced today to deliver significant pressure on the targets of our sanctions while safeguarding, to the extent possible, global financial markets and the global economy.

Okay, has the US government not learned that it cannot safeguard the financial markets and global economy? This last statement is utterly ridiculous.

So what are the big European energy companies doing? Panicking.

Wintershall, a major German provider of natural gas, just paid $1.3 billion for assets in Norway, in the attempt to secure some long-term supplies of natural gas. This is just the start.

Countries such as Romania, Serbia, Finland, and Bulgaria are maxing out all of their reserve tanks, expecting things to get a lot worse rather than better, but none of the reserve supplies will allow, say, a country like Serbia to make it through the winter without its Russian supply of natural gas.

What does this all mean to you as an investor?

The European Energy Renaissance is in full swing, and you need to be exposed to the right management teams—the ones that are bringing proven, modern technology to known producing conventional fields. This approach has been a success in North America, and it will work in Europe. It’s going to revitalize production there, which in turn will reward shareholders of the successful companies.

Natural gas in Europe currently sells at more than a 100% premium to North American natural gas prices. The Russians will get through these sanctions, and even further sanctions from the United States. However, do not take any of them seriously until the sanctions imposed by the US and UK actually hurt the US and the UK. For example, when I see the United States impose a sanction on Russian uranium, then I’ll know the US is serious. But until then, the current sanctions are nothing more than political posturing.

I’ve spent years studying and investing in energy, and the current situation is just the opening act of the Colder War, which I have laid out to subscribers in my newsletters and examine in depth in my upcoming book, The Colder War.

The Russians are led by a very powerful, insightful leader whose actions are well thought out, with clear goals in mind. Contrast that to the US, which is guided by a president whose actions are muddled at best—as seen in his failed geopolitical policy in the Middle East, his green energy mandates, and many others.

The Colder War is on, and there are fortunes to be made from it. And the choice to participate is yours.

Do I have a plug for my services? You bet I do.

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