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Major decline in oil prices in Oct. 2014 as prices drop to $81 per barrel and are forecast to reach $70. U.S. oil production increased by about 56% or 3.1 million barrels a day since 2004. U.S. demand for gas and fuel declined 8% compared to 2004. Initially instability and wars in the Middle East sustained high oil prices in 2012-2013. Yet with growing output from shale and other sources in N. America and slowing economies of Europe and China, the situation reached a point in 2014 where supply exceeds demand. This shift more than offsets any instability in trouble spots. The situation affects the U.S. consumer favorably with an estimate of $1 billion in savings for American consumers with every one cent drop in price at the gas pump, by one estimate from Deutsche Bank analysts. Typical American families gained an extra $50 a month from the decline June to October 2014, according to analysts at Gasbuddy.com. The declines are a boost for the slowing economies of Europe, Japan, China, S, Korea and India. China's imports for 2015 are estimated at 61% of oil consumption, using official estimates. In the current slowdown the lower prices offer relief. India which imports 75% of its energy benefits signficantly, as this helps lower inflation and reduces cost of fuel subsidies for state run companies. Russia is adversely affected by the declines as it depends on oil and gas exports for 50% of the nation's budget. Estimates by AFK Sistema economists show the Russian economy contracting in 2015 with oil at near $90 per barrel (Brent crude is at about $85, and WTI at $81 in early Oct. 2014). Russia's former Finance Minister Alexei Kudrin reflects opinion among Russian executives and politicians, when he told state television that Saudi Arabia may be pushing prices lower to target Russia's oil resource based economy and Mr. Putin, in an effort to broaden the effect of sanctions. (The Saudis have strongly protested the Putin intervention in Syria.) Venezuela has used $120 per barrel and Angola $98 for its budget, leading to a strong hit for the economy. ...

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The Putin administration in Russia has set a goal for 2.5% GDP growth for 2013. The figures for the first 5 months of 2013 show growth at 1.8%. Russian president Putin told the St. Petersburg Economic Forum that central bank policies will continue inflation targeting. Putin's economic aide Ms. Elvira Nabiullina will become the new head of the central bank in July 2013. David Lipton, deputy head of the IMF told the forum the IMF assessment is that there is no slack in the Russian economy. Putin announced $13.6 billion in infrastructure investment for rail and road links, and liberalization of gas export rules, and improvements in the judicial system.

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Ilan Berman, vice president of the Foreign Policy Council in Washington D.C., cites former finance minister Alexei Kudrin about capital flight from Russia reaching as high as $160 billion in 2014. This is a result of Russian policies in Ukraine that are creating a high degree of uncertainty and investor fears about the Russian economy. The result Kudrin says would be a stagnating economy. This follows the emerging market crisis in the beginning of 2014, which hit Turkey, Argentina, and Brazil. Kudrin is respected for his efforts to strengthen Russia's finances in Putin's first term in office, and left the administration over disagreement with prime minister Medvedev on damage to finances from higher defense spending. This suggests Putin and Medvedev in their first terms as president conducted more prudent policies for the economy than they are doing in Putin's second term. A certain recklessness seems to have crept in as many respected advisors from that period have left over differences in policy, including how protests and the opposition's views should be handled. This includes Medvedev's early efforts after elections for dialogue with the opposition parties which were set aside by Putin. The danger with having a Bolivarist class of tycoons as in Venezuela and some developing countries, instead of wiser heads around him for Putin, is that he will lose the advice and counsel he so badly needs to conduct policies without letting emotions getting the better of a sound judgement. A large foreign exchange reserve is a buffer for Russia, but this needs to be used to diversify the economy away from dependence on oil and commodities by investing in technology industries to create jobs in other fields, and not wasted in higher defense spending and fighting investor sentiment for the value of the ruble. It also shows that there is an inherent value in having a "loyal opposition" and "shadow cabinet," and these institutions were not invented over centuries of practice in government without a reason, in that they actually help the governing administration pursue prudent policy without arbitrary actions. The irony is that the very fears of 1998 repeating itself with the "chaos" of western style democracy and politics and manipulation by oligarchs- a Putin complaint- is reversing the gains made by Russia since then, with another set of tycoons and vested interests in place. Russians, like the Germans can learn to make democracy work without a centuries long history of democratic traditions, elections and free media. Czarist traditions can be overcome just as the Prussian traditions were overcome, and Russians can come up with their own Wily Brandts and Gaucks, leaving behind the old history of suppressing contrary opinions. For this to happen Russians including Mr. Putin need to leave their own fears behind, and trust the Russian people for the right instincts and values and maturity of judgement, just as the Germans have done and succeeded. ...

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Russia's government lowers its forecast for GDP growth in 2013 to 1.8%. Like other emerging markets Russia is facing a slowdown in economc growth. Government forecasts are for 3% growth for 2014 and 2015. About 50% of revenues in the budget come from oil exports and Russia is still dependent on higher oil prices. The budget is likely to have a 1% of GDP deficit in 2015. President Putin is not inclined to run a large deficit to increase growth. Budget revenues are expected to come lower for 2014 and 2015 by 3.3% and 6.9% compared to forecasts. Finance ministry policy is for hiking taxes on mineral extraction 16% by 2015, and increasing excise taxes on cigarettes and alcohol. State run firms will be asked to pay out 35% of profits as dividends compared to the current 25%, providing $39 billion from this action, according to the Finance ministry.

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Factors making Russia different from other emerging markets are the foreign exchange reserves of $497 billion. From mid 2009 to the end of 2012 portfolio inflows were only 1% of GDP, according to Morgan Stanley. Problems in Russia include growth slowing to 1.5% and higher inflation with reliance on oil revenues. Russia is still dependent on oil and gas revenues and has not diversified the economy. Foreign investment is limited.

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Russia faces inflation of 7%, and the central bank policy is to fight inflation by increasing interest rates to 7% in March 2014. The crisis in Ukraine and Russian intervention in the Crimea has worsened the prospects for the economy at a delicate time after Russia's growth rate was slowing rapidly in 2013. Capital flight in 2013 accelerated in the 1st quarter with the Ukraine crisis- with about $60 billion in capital outflows in the 1st quarter 2014. Speaking at an investor conference in Moscow, the former finance minister Alexei Kudrin, who strengthened Russia's finances in Putin's previous term continued to warn about taking risks with the economy and Russia's finances. He had earlier warned about higher defense spending. He now says the sharp economic slowdown expected with a possible contraction of 1.8% in 2014, is the price Russia is paying for an independent foreign policy. The policy is popular in Russia now with Putin's rating at about 80% in April 2014, but Kudrin says this does not reflect the situation if the contraction leads to falling real incomes. As investment spending stalled in the 1st quarter, only consumer spending supports growth for the remainder of the year. Russia's Economics Ministry favors stimulus to support growth, but the central bank is concerned about keeping inflation of 7% in check, and the Finance Ministry favors current policy of building up the rainy day fund from higher oil prices. As a result no stimulus is planned even as the economy slips into a risky contraction phase. For emerging markets in 2014 political problems have exacerbated slowing growth first in Turkey in 2013, and now in Russia in 2014, with the reverse taking place in India and Indonesia where elections and a change in government lead to more optimism....

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Russia's exports to the USA only 3% of total exports, 21% to China, 19% to India, and 16% to Brazil. But does this suggest the Russian economy is insulated It exports natural gas to Germany, its largest trading partner. Are oil exports from Russia to the US so insignificant that they constute only 3% of total exports? This needs to be verified. Russia built the $478 billion reserves based on oil exports. If prices drop this will affect future increases in these reserves and affect foreign investment in the Russian economy, investment it badly needs to modernize. Russia is less affected relative o other countries, but its stock markets dropped 20% after the global markets reacted in cascading effect in January 2008. There is some insulation but not really that much and the case is overstated. Russia is starting out with a smaller manufacturing economy. It badly needs to build this up and the effects of a global slowdown will mean reduced investment than would otherwise occur.

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Elvira Nabiullina, head of Russia's central bank, is a think tank economist who was Economy minister before becoming chief economic advisor to Russian president Putin in 2012. She is one of the liberal economists in Russia who see the years of economic growth following ruble devaluation in 1998 as an example of how devaluation can actually help the economy. The devaluation lowers costs for manufacturing and agriculture, and is seen by some economists as having done more than oil price increases to help the Russian economy grow during president Putin's first term from 1999 to 2004. Nabiullina's position to support a free float after the sharp decline in the value of the ruble following the plunge in oil prices, is based on the need she sees to use the crisis to reduce Russian overdependence on imports. This policy had other advantages by reducing the need to tap Russia's foreign currency reserves to defend the ruble. Russia's gold and foreign currency reserves are at $385 billion. In Jan 2015 the central bank cut interest rates. A policy of increasing rates would trigger a sharper recesssion. Russia faces a unique situation in that the oil price decline and the decline in the value of the ruble occurred at about the same time of about 50%, so that the budget continues to be balanced. The number of rubles coming in from oil exports remains the same after the crisis. Nabiullina told Russia 24 television- "We have to live in a different zone, Russians should orient ourselves more toward our own sources of financing projects, and to give a chance to import substitution."...

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This editorial in the New York Times points out that the new president of the ANC party -that runs South Africa and has a monopoly of power in the post Apartheid years, under Mandela, Mbeki and Zuma- faces a uphill task as the ANC remains deeply divided after supporting Mr. Zuma in office till the very end. Apart from the stagnant economy, there are challenges the ANC faces in the lethargy of the post Apartheid years, and the culture of corruption, and patronage management that led to mismanagement of state enterprises.

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The ruble goes from a low of 80 to the dollar in Dec. 2014 to 50 to the dollar by May 2015. The euro also strengthens against the dollar with weakening economic conditions in the U.S. leading to a reversal in the strength of the dollar.

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With inflation running at 6.7% in Russia, the central bank has decided not to increase interest rates following the U.S. Fed's bond purchase tapering decision in Jan 2014. The ruble declined by 6% in Jan 2014 and 15% for the last year. With the economy slowing the central bank finds it difficult to raise interest rates, and with inflation the bank has less flexibility to lower rates and increase credit availability. The ruble's lower value is a result of a shrinking current account surplus, with the added effect of capital flight from markets seen as riskier by investors. Currency collapse is a sensitive issue for many Russians after the 1997 crisis and collapse of the ruble. Central bank chief Ms. Nabiullina was on television explaining the decline to ordinary Russians, saying- " It's not that the ruble is weakening but the dollar and the euro are rising in price." Economists say the ruble's weakening won't add as much to inflation as slowing demand will make it harder for retail chains to raise prices....

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Defense Secretary Gates does not see Russia as the threat it was in the Cold War, first because Russia's conventional forces are a "shadow" of what they were during the Cold War, and Russia has adverse demographic trends that will diminish Russia's ability in conventional forces. He sees the Georgian war in the context of Russia's seeking to exorcize, as he puts it, past humiliations. And Gates sees opportunities in the relationship with Russia. Such things as Russia's willingness to work with the US on Afghanistan. Evidence of this is Russia supporting the renwal of the UN resolution on Afghanistan. Another indication is that Russia he says is very worried about the drugs coming out of Afghanistan, and has been supportive to provide alternative routes for Europeans to get equipment and supplies into Afghanistan. These views come across in an interview on December 17, with Charlie Rose, a five time elected Congressman, for the PBS Charlie Rose show. They are also reflected in an article in Foreign Affairs journal's current issue. Gates was a CIA analyst and has some insightful observations. Gates told Charlie Rose that he does not see the Islamic radicals and violent Islamic extremists as a threat in the same way as the threat in the Cold War years. This threat is not as big as the threat to freedom during the Cold War. He says the failure in strategic communications was huge as agencies of the US government engaged in activities in other countries, like the Agency for International Development and the US Information Agency, were neglected starting in the in the 1990's. Communications in other countries of what the US represented and stands for was left to the Pentagon, a role the Pentagon was ill-suited for. He sees the Islamic terrorism as more of an ideological conflict. Speaking at a town hall meeting at the Balad Air Force base in Iraq, in December, Gates pointed to these communications failures as a real challenge for the new administration. But he now sees a huge opportunity in this past failure, and ways of addressing it creatively, in addition to commiting resources and people to this effort. Walter Pincus wrote this article, and its part of the fineprint analysis effort at the Washington Post in which speeches, reports, and other documents are examined by people like Pincus, to catch the really important things, uncovering the fine print that really makes the headlines. Another aspect of this fineprint effort is that there are a huge number of reports, and speeches and documents that had a tone reminiscent of the Cold War during the Georgia war and yet they do not correctly reflect the real situation about Russia, as Gates sees it from his analysis of what is actually happening. Gates has used Foreign Affairs, the Dec 17 Charlie Rose Show on PBS in which he was interviewed, and the speech at the Balad Air Force base in Iraq, to communicate his views and analysis. They are important to underline and emphasize precisely because they show that all that cold war hysteria reporting and speeches may be misleading and lead to improper conclusions and mistakes in policy, wasted effort, wasted resources, and lost lives. And just as the US strategic communications was starved of resources and effort, so also this necessary work to retrieve and give emphasis to the important things is neglected. One additional link to this is the speech, discussion, and QA session in Washington DC at the time of the G20 summit in which President Medvedev and the new administration's elder statesman and diplomat Marilyn Albright, former secretary of state, expressed their hopes and plans for a new era in Russian-American relations. ...

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About 400 million or one in 4 people people smoke in China. State ownership of the tobacco industry only makes this worse. Enforcement of bans on smoking is lax. Experts warn that this would become a major healthcare problem in China.

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The Economist points out the shortcomings in Indonesia's effort to attract foreign investment and increase growth under the Widodo administration.

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The lower oil prices in 2015 helps lower the current account deficit, which reached 7.9% in 2013, to 5% projected for 2015. Inflation is projected at 6.8%. GDP growth of 3.5% is expected for 2015. Turkey imports oil amounting to about 6% of GDP making for a large impact. Weakness is in the area of manufacturing, as Turkey's high tech exports are only 2% of manufactured exports, according to the Economist. About 1% of Turkish students have advanced computer skills. With problems in Brazil and Russia, money flowing into emerging markets is giving Turkey a second look after the emerging markets crisis in early 2014, when the lira slumped and interest rates had to be increased. The economy is recovering in 2015 from that situation. Two major beneficiaries of lower oil prices in emerging markets are India and Turkey in 2015, as both economies struggled with a large oil import bill.

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Oil prices are forecast to remain above $100 a barrel in 2012 because of higher social spending in Saudi Arabia, Iran and other countries after the democracy protests, and the threat of retaliation by Iran in the Straits of Hormuz. Iranian threats of retaliation for increased sanctions has embedded a $10-$20 premium in oil prices say some experts.

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Analysts fear an oil shock in 2012 similiar to that in 2008. There is similiarity in the situation now and in 2008- as in 2008, the surge in oil prices comes at a time of higher tensions with Iran and shrinking spare capacity. Spare capacity is at 2.5 million barrels a day on average for January and February 2012, according to the Energy Information Administration. This compares with 3.7 millon barrels a day for the same period in 2011. Part of the reason is that global oil demand is increasing in 2012 by 1 million barrels a day, to 89 million barrels a day. Technical and political problems have shutdown another 750,000 barrels a day. The problems begin to kick in during the second half of 2012. The U.S. ban on dealing with the Iranian central bank for oil trades starts in June 2012. According to the International Energy Agency, the EU embargo and U.S. sanctions will take 1 million barrels a day of Iranian crude out of the market. The result will be that demand exceeds supply by the third quarter by 1.1 million barrels a day, according to the U.S. Energy Information Administration. Use of existing reserves in Europe, the U.S. and other countries will make up the gap. The effect will be to put pressure on oil prices. May Brent crude on the ICE Futures Europe exchange was up to $125.81 a barrel, on March 16, 2012, and prices for April delivery were at $107.06 a barrel on the New York Mercantile Exchange....