To Russia with love and cup held high. Cyprus goes to Russia to avoid a raid on bank deposits and one might wonder if this is what the EU and the IMF had in mind all the time. In what could be a high stakes game of political chicken, it is possible that perhaps the threat to raid Cypriot bank accounts was a ploy by the EU and the IMF to get Russia to pony up to protect what is in essence a Russian satellite bank.
Seeing that almost half of the €70 billion deposits in Cypriot banks are Russian and some of that from tax evaders and money laundering, perhaps the threat was a ploy to force Russia to clean up the mess that they helped create. The EU often at odds with Russia perhaps balked at being a backstop for Russian financial shenanigans. Cyprus's finance minister Michael Sarris claims progress but no deal in a last ditch effort for Russia to come to the rescue.
The EU is talking tough as German Chancellor Angela Merkel is still demanding a raid on bank accounts is the only way to solve the issue. It almost like she would be happy to allow Russia to take over the Cyrus banks completely.
There is also an energy component underlying this story other than the risk-on/risk-off component that could have significant ramifications across Europe. Cyprus may be offering up its energy resources to Russia in return for a bailout. Cyprus has been banking on an economic renaissance based on the fact that a major natural gas discovery that may be there or may not be. Noble Energy drilled a well that has at least 7 trillion cubic feet of reserves leading to predictions of even more gas as high as perhaps another 30 to 70 trillion Cubic feet. Russia of course may move to try to solidify its suddenly shaky natural gas monopoly over Europe.
One report from the Financial Post claims that Russian energy giant Gazprom has offered the Republic of Cyprus a plan in which the company will undertake the restructuring of the country's banks in exchange for exploration rights for natural gas in Cyprus' exclusive economic zone, local media reported. They are saying that the company submitted the proposal to the office of Cypriot President Nicos Anastasiades already.
The problem is that Cyprus has already sold a significant amount of those reserves to Turkey. It is possible that Gazprom is buying something that has already been sold. This game of chicken by the powers that be in the EU and the IMF by threatening to raid bank accounts has created a risk that may damage their longer term credibility. They may have also hurt relations with Russia that still can hurt them economically if they decide to cut off their gas supply in a tiff.
This brinksmanship will provide some cover for the doves in the Federal Reserve that are getting increasing criticism for its bound buying and QE program. Oil is up a tad as the EU seems to not to be in a real hurry to pull the plug on Cyprus. The EU did promise to provide liquidity based on the existing rules. This has provided a bit of support along with a supportive energy report from the American Petroleum Institute.
The natural gas market not only has been benefiting from the cold weather but the risk trade as well. The trend of record setting demand for natural gas looks to continue and the uncertainty in Europe is helping the cause. With Russia in the background looking to flex its energy muscles and the possibility that they will gain control of Cypriot natural gas supply you would think that U.S. natural gas exports would be a no brainer. Well it would be except for the fact that we have to deal with Congress. Reuters is reporting that the U.S. Energy Dept. still reviewing comments on natural gas exports and that a House oversight panel will hold LNG export hearing on Tuesday. As of now the DOE has not taken a position on LNG exports official and lawmakers are divided over need for export limits. Reuters says that "The U.S. Energy Department will tell lawmakers on Tuesday that it is wading through nearly 200,000 comments it received in response to a report on the impact of natural gas exports, as the debate over sending more U.S. gas abroad continues. Released in December, the department-sponsored report gave a resounding endorsement of the economic benefits of exporting liquefied natural gas, saying the more exports, the better. But a vocal contingent of manufacturers and heavy industrial companies, as well as environmentalists, has blasted the report, by NERA Economic Consulting. They have called on the government to revisit the study using updated data and different criteria.
Acting Assistant Secretary for Fossil Energy Christopher Smith will testify to lawmakers that the department has not taken a position on the NERA study or an earlier analysis by the Energy Information Administration. "DOE continues to review the comments that have been received... and will address those comments when it issues decisions on the applications," Smith said in prepared testimony to the House oversight committee. Smith's testimony was released ahead of the committee's hearing on LNG exports scheduled for 3 p.m. EDT on Tuesday. The last comment period on the export report wrapped up on Feb. 25. The department said it received more than 188,000 initial comments and about 2,700 additional comments. The shale gas bonanza has led to a natural gas glut in the United States, where production has quickly begun to outpace demand. Gas drillers argue that development will be curtailed if they are not able to tap into foreign markets beyond countries that have free trade agreements with the United States. Nearly 20 projects have sought permission from the Energy Department to export gas to new markets.”
Late Breaking From Bloomberg:
Iran for the first time sees the "possibility for a breakthrough” in negotiations next month over its disputed nuclear program, the Islamic Republic's ambassador to the United Nations said. Talks in Kazakhstan three weeks ago marked a "turning point” where the U.S. and five other world powers seemed "more realistic” about Iran's bottom-line position that it has a right to enrich uranium for peaceful use, Mohammad Khazaee said in an interview March 18 at Bloomberg's New York headquarters. Khazaee, Iran's UN envoy since 2007, said the nuclear program has become a matter of "national pride, regardless of how much we need, how much it costs.” Economic sanctions haven't sapped Iran's resolve and, instead, have impeded talks by fueling Iran's suspicion of its critics, he said.