A freeze of a different kind

Over the weekend, the European Central Bank (ECB) decided to steal up to 40% of the bank deposits held in the Cypriot banks above EUR 100,000.

This will specifically affect a large amount of Russian owned deposits. Moreover, the Russian government was humiliated over the weekends decision for they were not consulted after having been courted earlier in the week.

Furthermore, when banks re-open, capital controls will most likely exist to prevent the free flow of money out of Cyprus.

I think Europe themselves needs to prepare for a different type of freeze.

Come this winter (December 2013-Feb 2014) I would expect Russia to re-coup some of “their” money by turning off the gas pipelines to Europe.

Energy prices will rise, utilities will be affected and the consumers pockets will be hit.

A population doesn’t like being hungry and especially freezing cold. Watch out for any growing social backlash against Europe’s politicians.

 

 

Hope equals complacency

Something that I have difficulty explaining tells me that the Cyprus situation can’t end well. This feeling is biased by the complacency exhibited by European politicians.

Loosely, there is an assumption it will be fixed by somebody. Almost a similar feeling that permeated prior to Lehman Brothers collapsing. There is also a distancing by Germany, that someone else will save Cyprus.

Keep in mind that Angela Merkel has an election in September 2013. Why would she use German money to save Cyprus following the backlash she experienced in Greece.

But here come the Russians.

I have read that $40 or $50 billion of private Russian deposits sit within Cyprus’ offshore banking haven.

Here is how you would do a sovereign bailout deal.

For a $10 billion bailout, Russia gets to protect its citizens deposits in Cyprus, take over a huge slice of Cypriot debt (which they’ll eventually make a profit from, as it’s currently trading at 65 cents in the dollar) and take ownership or security over Cyprus’ Aphrodite gas field.

The Aphrodite gas field has natural gas reserves of about 7 trillion cubic feet (tcf) worth around $45 billion. That is enough gas to meet the energy needs of 7 million households for 20 years. Cyprus only has a population of 1 million people.

Incidentally, Aphrodite sits next to Israel’s larger Leviathan (16 tcf) and Tamar (8 tcf) fields.

It possibly makes for some interesting scenarios involving the politics of Israel, Lebanon, Turkey, Syria, Iran & Russia????

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