The past months have brought nothing but bad news to the global oil industry, but for Russian oil companies, there is a modest positive development to report on. Prime Minister Putin signed a bill lowering the tariff on oil exports today. The reduction will take place in February. Export tariffs occupy a percentage of every barrel of oil exported so any reduction will be like an increase in the market price of oil and should be seen in the bottom line of these companies immediately.

An addition and correction to yesterday’s entry of the Moscow Minute. While we are predicting the natural gas crisis between Russia and Ukraine, we were talking about the near-term to intermediate-term, of course not long-term. The reasons for this involve the complexities of the Ukrainian political environment. If the anti-Russian candidate wins the next presidency of Ukraine, all bets are off and another crisis is very possible. The reasons for this include political and nationalistic identity as well as economic motivation. If the pro-Russian candidate wins, look for a much more harmonious relationship for much the same reasons. Areas of potential development and cooperation are many in the fields of business, trade, and foreign policy. We will be watching elections in Ukraine for their economic impact upon Russia, and you should too.

Many of you following the recent natural gas controversy between Russia and Ukraine might be wondering if it is really over. No sooner had the agreement been signed, than rumblings were heard from Kiev voicing protestations the agreement was unjust. So, is it really over? Our answer is most assuredly yes. Explaining the dynamics of Ukrainian politics would require more room than today’s Moscow Minute has to give. A brief explanation of the situation is there are competing political interests in Ukraine posturing for upcoming elections. So if the question do these headlines and quotes mean anything other than normal political fighting, that answer is no. There were rational and logical reasons of self-interest why Ukraine was a participant, arguably the instigator as well. Their public relations have taken a beating with their EU allies. If another situation were seen to be clearly instigated by Ukraine, not only is it a confrontation they can not win, relations with the EU would go from bad to worse, which would have direct economic consequences for Ukraine. This is just another example of following the news and learning to see what is not explicitly stated, and learning to ignore much of what does make it to the headlines.

Many people might be wondering with the rapid deceleration of the Russian economy that has occurred over the past six months, why hasn’t real estate dropped more drastically all over Russia, especially in Moscow? Although it has fallen somewhat, and certainly the construction industry and any new project have been certainly stopped in their tracks, it still has not dropped to the degree one might have expected. One major reason for that has been is that many Russians in times of economic uncertainty hang on to their apartments as a hedge against a depreciating Ruble. In many countries gold becomes a source of economic security, in Russia it is real estate. Real estate is lightly taxed compared to most countries in the West, so there is no real burden in keeping a property indefinitely. Russians are also increasingly hording Dollars and Euros at rates not seen for many years. Thirty one billion dollars is the figure households have increased their holdings of foreign currency over the past three months alone. What the immediate future holds in terms of the devaluation of the Ruble is hard to say, so many factors are involved it is as hard to contemplate intelligently as any major economy around the world.

A member of the Duma was recently quoted urging the government to reduce the VAT tax instead of or in addition to the reduction in income taxes that are being enacted and planned. This does have a certain undeniable logic to it as the companies that would benefit from a reduction in income tax represent a small proportion of the overall total and most of the companies in dire need of assistance will not see any. As was mentioned, a VAT tax would benefit everyone, encourage economic growth long-term and in the near-term assist many companies teetering on the abyss survive the economic crisis. It’s a rare economic policy where the more equitable decision is more than likely the better decision.

A dispute between Ukraine and Russia over natural gas costs is making worldwide headlines. While it is difficult to predict where the events will lead in the near-term, you might be asking what long-term effects this will have upon Russia in general and Gazprom in particular. A major pipeline bypassing Ukraine, called North Stream is currently under construction and will be completed in the next two to three years. Additionally, in the approaching years look for more natural gas exports to grow and pipelines to be built between Russia and its Asian neighbors, as agreements have been signed in the past couple of years, they will come to fruition in the years after North Stream is completed. So while it is difficult to predict how negative the current dispute will get and difficult to gauge its impact, the approaching years should see less vulnerability to the Russian energy industry.