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By*Ambrose Evans-Pritchard*Economics*Last updated: January 22nd, 2014
232 Comments*Comment on this article
(Photo: Getty)
There is nothing behind the facade of Vladimir Putin's regime in Russia, says William Browder from Hermitage Capital Management.
"All it will take is a fall in the price of oil to $60 a barrel and Putin will be gone within a year. You'd be surprised how brittle the system really is," he told me at the World Economic Forum in Davos.
The "fiscal break-even price" of oil needed to balance the Russian budget is now $117 a barrel. A protracted slump in crude would force the government to dig deep into its reserve funds, and that in turn would set off further capital flight.
The hedge fund manager – who describes himself as Putin's "enemy number one" – says Russia's $499bn foreign reserves would not prove much a defence in the end. "We saw this in 2008 when everything fell apart in a few months even though Russia had the world's third biggest reserves. It wasn't supposed to happen but it did."
A drop in Brent crude to $60 is not impossible. Both Deutsche Bank and Bank of America have warned of a potential glut in oil this year as sanctions against Iran are phased out and Libya's exports revive. The US is expected to add more than 1m barrels per day (b/d) this year. The Saudis may choose not to stabilise the market by cutting output, deliberately letting crude slide below the marginal cost of production of shale.
Mr Browder says Russia is already primed for Ukraine-style street protests. The catalyst could be oil, or the secondary effects of Fed tapering as it exposes structural rot across the Brics universe.
"There is no ideological fervour the sustain the regime, though Putin is trying to create a new form of ideological conservatism with his attacks on gays. Putin's allies will abandon him as soon as there is trouble," he said.
Mr Browder has been sentenced to nine years in prison by the Putin justice machinery, punishment for his campaign in the US for the Magnitsky sanctions against top Russian officials.
He faces an international extradition warrant and must be careful where he travels. Interpol refuses to enforce it, deeming it politicised. Britain, Germany, and the Netherlands tell him they will not respect the warrant, but he has take his chances if he goes anywhere else in Europe, let alone to any state across the world without a fully-functioning rule of law.
It should be obvious to any extradition court that he is a target of state persecution, but he can't be sure. "They tortured and murdered my lawyer to get at me, like sticking pins into a voodoo doll."
Ever the bear, Mr Browder has a cautionary warning for those preparing to jump back in the Brics and mini-Brics. "Emerging market stocks are a lot cheaper now, but they are not yet cheap enough."
"Lot of ill-informed money went into these countries during the credit boom. The next big thing coming is that some of these countries will start to close their capital accounts. We're already seeing it in Egypt and Brazil in different ways."
Once it spreads, there could be a chain-reaction. "People will start asking themselves which country is next. Once this start people may find they can't get their money out again."
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By*Ambrose Evans-Pritchard*Economics*Last updated: January 22nd, 2014
232 Comments*Comment on this article
(Photo: Getty)
There is nothing behind the facade of Vladimir Putin's regime in Russia, says William Browder from Hermitage Capital Management.
"All it will take is a fall in the price of oil to $60 a barrel and Putin will be gone within a year. You'd be surprised how brittle the system really is," he told me at the World Economic Forum in Davos.
The "fiscal break-even price" of oil needed to balance the Russian budget is now $117 a barrel. A protracted slump in crude would force the government to dig deep into its reserve funds, and that in turn would set off further capital flight.
The hedge fund manager – who describes himself as Putin's "enemy number one" – says Russia's $499bn foreign reserves would not prove much a defence in the end. "We saw this in 2008 when everything fell apart in a few months even though Russia had the world's third biggest reserves. It wasn't supposed to happen but it did."
A drop in Brent crude to $60 is not impossible. Both Deutsche Bank and Bank of America have warned of a potential glut in oil this year as sanctions against Iran are phased out and Libya's exports revive. The US is expected to add more than 1m barrels per day (b/d) this year. The Saudis may choose not to stabilise the market by cutting output, deliberately letting crude slide below the marginal cost of production of shale.
Mr Browder says Russia is already primed for Ukraine-style street protests. The catalyst could be oil, or the secondary effects of Fed tapering as it exposes structural rot across the Brics universe.
"There is no ideological fervour the sustain the regime, though Putin is trying to create a new form of ideological conservatism with his attacks on gays. Putin's allies will abandon him as soon as there is trouble," he said.
Mr Browder has been sentenced to nine years in prison by the Putin justice machinery, punishment for his campaign in the US for the Magnitsky sanctions against top Russian officials.
He faces an international extradition warrant and must be careful where he travels. Interpol refuses to enforce it, deeming it politicised. Britain, Germany, and the Netherlands tell him they will not respect the warrant, but he has take his chances if he goes anywhere else in Europe, let alone to any state across the world without a fully-functioning rule of law.
It should be obvious to any extradition court that he is a target of state persecution, but he can't be sure. "They tortured and murdered my lawyer to get at me, like sticking pins into a voodoo doll."
Ever the bear, Mr Browder has a cautionary warning for those preparing to jump back in the Brics and mini-Brics. "Emerging market stocks are a lot cheaper now, but they are not yet cheap enough."
"Lot of ill-informed money went into these countries during the credit boom. The next big thing coming is that some of these countries will start to close their capital accounts. We're already seeing it in Egypt and Brazil in different ways."
Once it spreads, there could be a chain-reaction. "People will start asking themselves which country is next. Once this start people may find they can't get their money out again."
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