Stepan Demura: "If Trump signs a law on new sanctions, it will kill the Russian ruble"

The well-known trader predicts the fall of the Russian currency in August and the rapid replacement of Russian gas in Europe by the US.
Today, Russia has announced the first steps in response to the received on the eve of the US Congress a package of anti-Russian sanctions. Meanwhile, their introduction into action looks increasingly inevitable. About what it threatens the Russian economy, the budget and financial markets, the well-known financial analyst Stepan Demura told "BUSINESS Online". In his view, extremely serious damage can be caused by a ban on the purchase of Russian securities - the domestic market is entirely dominated by "hot" capital from the West.

"Sanctions, in fact, to impose a ban on any INVESTMENTS IN RUSSIAN OIL AND GAS"

- In the new package of anti-Russian sanctions adopted by the House of Representatives of the US Congress, the emphasis is on countering the construction of Russian export pipelines, primarily the Nord Stream-2. In your opinion, this will not trigger a response from the European Union, interested in the supply of our gas?

- No, of course, this sanctions package will not cause any resistance to Europe. The fact is that the European Union some time ago adopted a political decision to diversify sources of energy supplies. In essence, this means a reduction in the share of Russian oil and gas in the European market and an increase in the share of liquefied natural gas, including shale from the US and oil from other supplier countries. In the EU they are harnessed for a long time, but quickly go. And their principal decision will lead to a general reduction in revenues from the export of Russian energy carriers and, accordingly, a fall in the revenues of the Russian budget. And the new American sanctions only reflect the desire of Americans to take advantage of this changed reality.

- But officials in Russia and some experts say that the US liquefied gas, taking into account the cost of transportation and liquefaction, is much more expensive than the Russian pipeline. It turns out that Europe wringing hands, forcing to buy more expensive energy carriers instead of cheap Russian.

- Nothing like this does not work. Let these arguments remain on the conscience of Russian officials and so-called experts. There are absolutely transparent prices for the spot gas market. So, now American gas after delivery to Europe and liquefaction (that is, turning back into a gaseous state) costs about $ 100 per thousand cubic meters. While for Gazprom, the price bottom, below which gas can only be sold at a loss, is somewhere around $ 150 per thousand "cubes". Here also look, that here there can be for Europe unprofitable in respect of reorientation on deliveries of the liquefied gas from the USA and Qatar. There will be no objections in Europe to the American liquefied gas. For Europeans, increasing its supply is only a plus, as shipments from overseas diversify the European gas market and lead to lower prices on it. As for the opinion of our so-called experts, these same people said that American gas would never come to the European market at all, and even earlier, the fact that the slate revolution in North America would not lead to a decline in oil and gas prices. Do not rely on such clearly biased assessments, because life has repeatedly demonstrated their falsity.

- Shale revolution in America continues?

- Of course. Including the growing number of hubs, intended for export supplies of liquefied gas. And in Texas a new, very large oil shale deposit is being developed. There is so much associated gas in this field that Texas oil companies say: "We will give gas free of charge if oil supply contracts are signed." This is an indicator that such an energy carrier as natural gas becomes very cheap under the conditions of the oil shale revolution.

- Do you disagree with the opinion that the new anti-Russian sanctions are aimed at giving US gas suppliers an advantage over Russia in the European market?

- Sanctions have nothing to do with it. Simply, the products of Gazprom cease to be competitive on the foreign market. Our monopolist has a low cost of gas production (somewhere between $ 25 and $ 30 per thousand cubes), but all this is done on the old infrastructure, including the export infrastructure. The creation of a new one and maintenance of the existing one dramatically increases the cost of gas for end users. As a result, as I said before, break-even for Gazprom's deliveries to Europe is at the level of 150-160 dollars per 1 thousand cubic meters. Americans easily interrupt this price, their own, the lower.

- The law on the new US sanctions explicitly states that the US will oppose the construction of the North Stream-2, and also impose sanctions on all companies and individuals who will invest one million dollars or 5 million during the construction of any Russian pipeline of the year. This can complicate the prospects of building new export pipelines from Russia?

- First of all, we must understand that we do not really need these new pipes. Why worry about the fate of the "Nord Stream - 2", when the "Nord Stream - 1" is underloaded? Why are we interested in building in fact unnecessary new capacities for pumping gas to the West? I think the whole thing is in construction contracts. Excavation and laying of infrastructure are the most tasty pieces of state order, not to mention kickbacks. Hence all the excitement around the "Nord Stream - 2", "Turkish Stream" or "The Power of Siberia." Children are digging the land, infrastructure is more expensive than gold.

- By the way, about the "Turkish flow". There, after all the pipes on the bottom of the Black Sea, in my opinion, the Italian technology company should work. As soon as Donald Trump signs a new sanction law, this company will immediately fall under American sanctions, which prohibit any, including technical, assistance in the construction of Russian export pipelines. Is this a big problem for our gas workers and oil workers?

- Yes, of course, many European companies will find themselves in a difficult situation, not only those that help us lay export pipelines. Sanctions in effect impose a ban on any investment in the Russian oil and gas sector. But this is not the main thing. "Turkish flow", except for "Gazprom", nobody needs. The fact is that the Israelis have already begun laying their gas pipeline to Turkey from the Israeli part of the giant gas field Leviathan in the Mediterranean. So Turkey is turning into a hub for supplies of Middle Eastern gas to Europe. The Russian "Potok" for it does not have such a fundamental importance. The Israeli gas pipeline to Turkey will be ready next year.


- In the Russian authorities and expert circles, there is an opinion that American sanctions, including new ones, even if they do cause some economic damage, but very limited. As far as the next portion of anti-Russian measures, in your opinion, is serious and is it capable of provoking a new economic crisis in Russia?

- Yes, we often talk about funny sanctions. However, we are seeing sanctions becoming more ridiculous, but for some reason, I do not really want to laugh. In fact, the new sanctions package greatly tightens the US position towards Russia. We have been largely cut off from the world financial markets. New sanctions make this cutting final. If Trump signs a law on new sanctions (which in fact can not be doubted), this, first, will kill the ruble, because investors will not be able to carry carry trade (borrow in a stable currency at low rates and invest in unstable currency with High rates - ed. Ed.) With Russian and state, and corporate securities. Our financial market, these restrictive measures from the US simply destroy. Secondly, serious problems with the replenishment of the Russian treasury due to gas and oil revenues will begin. Therefore, I repeat: the new American sanctions are very serious and they can only be laughed at by stupid and short-sighted people.

In addition, what is even worse for the Russian economy, now the sanctions regime for Russia has come really for a long time. Neither Trump nor any other US president, according to the text of the new law, can by its decision cancel the anti-Russian sanctions. Sanctions are now codified. This is the law, not the decrees of the US president or the decisions of the US Treasury. Now only Congress can lift sanctions.

- In the text of the new sanction law, there really is an instruction to the US Treasury to consider the consequences of a possible ban on the purchase of Russian government and corporate bonds by US investors. What does it turn out that the matter can reach the West's refusal in general to lend to Russia?

- That's exactly what it turns out. A possible ban on the purchase of Russian debt damage to the US and the whole Western banking system will not do, since the amount of purely public debt in Russia is ridiculous. True, in conjunction with the corporate debt exceeds 500 billion dollars, but on a global scale this is quite a bit. For the West, there will be no damage from the ban on lending to Russia and our issuers, but it will hit the ruble very much, considering the upcoming payments on the debts of Rosneft, Gazprom and other state-controlled corporations. Usually, the debt is refinanced, that is, new loans are taken to repay old debts. If the West generally refuses to lend to us, we will have to pay back the accumulated foreign exchange reserves, and this will hit (and very badly) the ruble.

- The sanctions list includes a limited number of Russian banks and companies, even the largest ones. The possibility of borrowing in the West will remain with smaller banks that will "share" with Sberbank, VTB, Rosneft and others who have fallen under the sanctions. Is this the solution to the problem?

"It depends on the Americans." Today, some Russian companies and banks are not under sanctions, but tomorrow - already under sanctions.

- It seems that we have very few people read the text of the scandalous bill. There generally a lot of interesting and little-known details?

- They are there enough. Take, for example, the fact that US intelligence agencies - both financial and, for example, the CIA, the FBI, the Ministry of Homeland Security - should now periodically provide the US president with reports on our so-called oligarchs with assets and actually living outside Russia , And also about their relatives and in general all people participating in their financial schemes. And most importantly: the US intelligence services must report the origin of the capital of these descendants from Russia. And since the sources of these capitals, from the point of view of American law, are very, very doubtful, it will be very difficult for our oligarchs to live in the West and work with Western banks. It will be necessary for them to avoid prison term abroad, with all their strength (and high costs), as the experience of the runaway Ukrainian oligarch Dmitry Firtash shows. He was detained in Austria at the request of the FBI and was released only under an unprecedented in European judicial practice a pledge of 125 million euros. So it will be fun in the near future. A new portion of American sanctions is a very serious step with far-reaching consequences.


- What consequences of the introduction of new American sanctions will have in general for the Russian economy?

- There will be a problem of impossibility of financing a number of state programs due to a lack of funds in the budget of Russia. Access to technology will be further restricted. Corporate defaults are also possible. Our "favorite" oligarchs and so passives exceed assets, and this move by the US Congress only aggravates the situation.

- So far, judging by the official statistics and reports of the government and the Central Bank, the macroeconomic situation in Russia looks quite stable. It seems that the growth of GDP has resumed, the ruble has been stable for a long time, inflation has fallen to record low rates for the entire post-Soviet history ...

"It is enough to look at the forecasts for the past few years of our official economists, the monetary authorities, to understand: these forecasts are of little value. Usually, everything is exactly the opposite, compared to official estimates and economic forecasts. At the domestic level I can give advice: if the authorities say that everything is fine, then the next financial and economic collapse is not far off.

- What, in your opinion, is the scenario of a possible crisis caused by new anti-Russian sanctions?

- The ruble will be sprinkled first. However, this has not the most direct bearing on sanctions. The Russian currency should collapse in the short term and without tightening anti-Russian sanctions.

- What is the main reason for a possible new wave of ruble depreciation?

- This is dictated by the situation on the world financial markets, mainly in the debt market of developing countries. Although, of course, the coming collapse of the ruble, many of us will want to write off solely on sanctions, on the evil Uncle Sam, on Russophobes.

- And what are the objective, market causes of the attack on the ruble?

- The market situation is negative for the Russian currency. Soon, the fall of markets and flight from risky assets, which include bonds of developing countries and their companies, will begin. Speculators entered these risky assets with a huge "shoulder" (buying securities for borrowed funds from brokers - ed.). Soon the principle of the crowd will work, when several players begin to discard the ruble assets, deciding that the risk is already too great, and the rest will follow suit. Despite the fact that the dollar in words is the most hated asset, speculators will run into dollars.

- And when should we expect the beginning of the flight from the ruble assets?

- I think that the collapse of the ruble will begin in August.

- So soon? And to what bottom, in your opinion, can the ruble rate fall, say, before the end of this year?

- The first target of the attack of speculators on the ruble is 97 and 125 rubles per dollar. When speculators hit these goals - this year or the next - it's hard to say. The exact time is not so important, the main thing is that the target indicators of the ruble exchange rate have become very clear.

- The election of the Russian president in March of the next year, in theory, should delay the fall of the ruble. The authorities are unlikely to allow the collapse of the national currency before the re-election of Vladimir Putin. Do not agree?

- No, with the presidential elections the situation in the foreign exchange market is not connected in any way. Yes, and to affect it the Russian authorities by and large can not. The Central Bank does not have free money, our financial market is completely dominated by "hot" Western capital. In general, we are talking about the debt and foreign exchange markets. Analysts, of course, will say that before the election the ruble is held, or, conversely, to talk about why the government did not keep the ruble from collapse on the eve of the elections. But all this has nothing to do with real market processes.

- According to official reports, Russian international reserves exceed 412 billion dollars. Really such a solid airbag is not enough to keep the ruble from falling?

- These reserves include two government funds. Reserve already spent almost completely, and the Fund of future generations of interest on 40 somewhere already torn down, that is, invested. Therefore, the gold and currency reserves are no longer so great. Especially if we compare the remnants of these reserves with the total external debt - corporate and state. In total, what the Central Bank has now, if you still deduct the import payment that the country needs for 3-6 months, it will not be enough to pay even the greater part of Russian debts. The liquid reserves of the Central Bank are now 2 to 2.5 times less than the aggregate external debt. The Central Bank is unable to ensure long-term stability of the ruble. On this elementary there is no money. Hence the introduction of a floating rate, which in practice means that at any time the ruble can collapse once in two.

- The outflow of capital, which increased in the second quarter, are the first signs of the coming shocks?

- Capital outflow is a difficult thing to track. There it is necessary to understand in detail whether there was a payment of large sums of external debt, or a real flight of capital. The general figures, which are issued officially, are meaningless. There's all the salt in the details.


- It's clear with the ruble. And can the new American sanctions influence the price of oil?

- No, sanctions on the oil market do not affect. If even a big mess in the Middle East - military actions in Syria, Iraq, and even the diplomatic war of the Saudis with Qatar added to it - did not affect the price of oil in any way, what to say about the new anti-Russian sanctions. In their list, there is no direct ban on the import of Russian energy resources, which could, probably, keep oil quotes from a new fall.

- How can one explain that even the military-political crisis in the world's major oil and gas region does not affect the energy market?

- Note that all such events affected the oil market only when the price of the barrel was rising. It grew because of the actions of speculators, primarily because of the overabundance of dollar liquidity, because of "quantitative easing", that is, pumping the western economy with money. Events in the Middle East were only used by speculators as an informational excuse to further warm up the market and push prices up. But when the price of oil falls (again for purely financial and even psychological reasons), political events can do nothing with the fall of the market. The market simply does not pay attention to this so-called force majeure. Not a variety of political events determine market movements, and market movements determine our perception of these events.

- Why did the price of oil hang around $ 50 per barrel?

- Because such a hangup always completes the correction of oil prices before a new fall. The oil market simply took a break before going well down - at 15 percent.

- And to what price levels will oil drop in the short term?

- According to the American Light Light, the price will probably drop to 34 -35 dollars per barrel (now above $ 48 - Ed.).

- What are the reasons for such a decrease?

- There are no special reasons. The main reason is half a million oil traders and the so-called wave theory of their behavior. Post-factum drop can be explained by anything. For example, a slowdown in the global economy, a drop in demand for oil, or something else.

- It is fashionable to talk about the fall in oil prices due to the spread of electric vehicles.

- Precisely, electromobiles are to blame and solar batteries.

- It turns out that the real change in the dynamics of energy consumption does not affect the oil market in any way?

"That's right, it does not." A simple example: we all witnessed the price of oil falling from $ 140 per barrel to $ 30 in less than a year. At the same time, the balance of real demand and supply for oil changed by a maximum of 2 percent. That's all. This balance does not affect the movement of the market.

- Then, probably, influences the policy of the Fed.

- That's closer to the point. However, recently the policy of the Fed is quite stable, the liquidity market continues to pump.

- Janet Yellen, the head of the US Federal Reserve, nevertheless slowly increases the rate, although at the last meeting and left it at the same level of 1 - 1.25 percent per annum. Money however becomes more expensive. Does it push oil prices down?

- There are already voices that proposals for a substantial increase in the rate were a mistake. So the stability here, apparently, will continue. The oil market is left to itself, more precisely to the ebb and flow of speculative capital.

- Is it possible that the price of oil for some reason suddenly grow back to $ 100 per barrel, which would solve many of the problems of the Russian economy?

- This scenario can be ruled out, it is not worth hoping for an increase in oil prices. In the coming year, this will not happen exactly. But at the current levels, the price of oil will not remain. The cost of a barrel will fluctuate in the range of $ 30 to $ 60, I would say, until March 2018 (just before the election of the Russian president, but this is a pure coincidence). Then there will be a collapse of oil prices to 12 or even 9 dollars per barrel.

- And what a sharp fall than can be provoked?

- The so-called de-medium. This term indicates a sharp decline in leverage. Banks at times will reduce the limits of lending operations with securities and, above all, with the most risky, which include oil futures. Speculators, fleeing from ruin, will rush to discard assets, and we will see the crisis a-for 2008.