let me follow your logic here russophobe:

a gallon of gasoline costs about the same in russia (i don't know where you're going in the us to find $2.95 gas, but good job finding such a bargain!) as it does in the united states. presumably, this is because the price of gasoline is set by the vaunted FREE MARKET which i'm sure you treasure very much. i suppose you could (and probably will) argue that the kremlin arbitrarily set the price of gasoline at $2.95, but if this is really price manipulation, it's not working very well! so, in short, the fact that the price of gas in russia is set by the free market (or is at least identical to the price set by the free market)is a failure...of the free market in russia. brilliant!

i'd also ad that the united states hasn't exactly done a bang-up job of building refineries (we haven't built a new one since the early 1970's) and that a lack of refining capacity is a worldwide phenomenon. in fact, the worldwide lack of refining capacity is a major reason that oil is nearly $100 a barrel.

What a moron.

The point is that Russia does not have market prices, and hence some argue for using a "purchasing power parity" index to calculate the value of its GDP. Russia has small wages so its prices are supposed to be lower, since its costs should be lower.

Russian wages are FAR below those of the USA, but the price of gas is the same. That means Russian drivers pay FAR more of their income for gas than Americans do, even though Russia has huge amounts of oil it can't even use. That's failure. That's the point of this post, you idiot.

If you have some data regarding pump price in the USA, link to it. Otherwise, you are just blowing ridiculous smoke and making yourself look like even more of a buffoon than you actually are.

And at least take the initiative to think of a name as we require. Otherwise your comments won't be published.

what "proof" can you offer for your statement that "russia does not have market prices"? the price controls on wheat and milk (an election-season stunt to buy popularity which i'm sure you're just raring to cite) don't count because those are examples of the government manipulating prices that were previously market set in two specific commodities. you claimed russia doesn't have market prices for anything, what do you have to support this assertion?

oh, and the average price of gas in the us (according to the always reliable us department of energy) is $3.11, so $2.95 a gallon would, like i said, be a pretty good bargin!

http://www.eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_home_page.html

well, anonymous, you can go here www.gasbuddy.com

todays average is 3.10 given that there are places higher there have to be places lower to make the average that amount, and so, ipso facto, there are gas prices in the US that are below 2.95 a gallon.

the price is set in russia to take advantage of those who drive maybachs and others who DO have that kind of money. www.reuters.com/article/oddlyEnoughNews/idUSN1418960920071114?feedType=RSS&feedName=oddlyEnoughNews

its not free market because at that price the market would have normally gone to a lot of trouble to make more, but the money that would be profit that would be sunk into doing more work, gets sihoned off. the price is the price that is highest this more fixed system can get away with and still remain politically popular amoung the few who count.

you admit its not working well because you accept that the aim was to have it work well. its not. the aim is to get as much cash together and therby secure for their posterity.

I agree, the US has NOT done a bang up job of opening up refinereis and such. but there is a good reason for this., the price of oil is set by OPEC, so we are not paying free market prices for it since they are mostly all communist or authoritarian states. since the price is artificially high, they can lower the price to stop building of new refineries.

then there is the sociliast contingent in the state that has attached so much controls, licensing, taxes, leins, and such that new companies cant form and explore.

right now there is a sustained high price that is making it worth dumping the money into removal from things like oil sand... to wh ich canada and ourselves has so much that once we start making economical to move that, we get less tied to the other sources.

gasoline though isnt the major product... there are many... and so even if we stop all driving, there would still be a huge demand for the stuff. we focus on gas because its the form we all see most and work with most.

in the US the only time that gas prices has ever climbed high was at the behest of OPEC taking advantage of instability. which is why they buy weapons from russia and ship them through the whole area and keep hatred a constently fomented emotion.

if they were more productive in a manufacturing and in other ways, the use of destabalization as a means of increasing the percieved value of oil wouldnt work.

natural reasources tends to be a business that a small number of population can obtain for the state a large amount of cash with little skill.

the resources become so important to the bottom line and the revenue as well as graft that the taxation from productivity and better working for the masses is not needed.

this is why in countries who have command economies they always try to grab the big easy thing that can be exploited.. that becomes replacement for dropping tax revenues from productivity and an robust market so to speak.

the cause and effect is so well known they dont even vary on the script anymore.

look at chavez land... the price controls have caused shortages that have made an impossible blace market and long lines... why? because the taking over of the natural resources and working theminto the ground for profit is seen as a clever bookkeeping game to repalce the decline in market. since their perception si that its never them, its that everyone isnt doing. they basically spend a lot of time making constant adjustments to change flows to plug leaks that constantly spring up.

they cant react fast enough so the planned economies bring poverty...

there is no skill that can allow them to control something as complex and productive as a free mearket because the free market reserves its value for the individual not the politician. since they cant control the market since they inject delay and more uncertainty... they ignore risk, reward, and payout... their analysis are too simple.. and the information is way to broad without simplfying it to the point that when they act on it they are off. they can never be on, but always one off leading to one off to more and more swings...

what keeps chaos from happening is along with this is people declining to work. it becomes wasteful. evne dangerous if you think that a working person burns more calories than a person not doing much.

people become expert at working the system for their needs as this goes on so it gets dragged on more and more. they learn to whine for their needs instead of work to fulfill their own needs..

little gets done and the rest happens as it has before.

Russia may not have a completely free market in everything, but close to it. Russia does have a free market in oil and oil products. The state does not subsidize oil sold for domestic consumption, nor does it force oil producers to sell at below-market prices in the Russian market.

The reason why gasoline prices are as high in Russia as they are in the US is due to the fact that there’s a free market for oil and oil products. This means producers have an incentive to sell these products in the market where they can earn the greatest profit. There is no incentive for producers to sell oil in one market, even the home market, for a price that is less then they can get in another market.

Where there is a free global trade in a given commodity, this necessarily leads towards an equalization of the price of that commodity between national markets.

For example, American consumers might wonder why wheat and wheat products costs as much in the USA, which is a huge grain exporter, as they do in a country that imports wheat. It is because as long as there is free trade in wheat, huge price variations cannot develop between national markets. If the price rises in one market, producers will immediately send additional production to that market, to reap the higher price and profit. But as more of the product continues to arrive, this drives the price down, until it basically falls to the overall world level again.

This is basically the law of supply and demand, which anyone with an elementary education ought to understand.

Perhaps some Russian people feel that the government ought to force Russian oil companies to sell their oil using a two-tier pricing scheme, where they would be forced to sell oil products in Russia for a lower price than they could get by selling the same products abroad.

This would be a bit like a person who lives in Florida demanding a lower price for citrus fruits, because his state produces and exports a lot of citrus. Or someone living in Michigan feeling that he ought to be able to buy a car for below- market prices, since Michigan makes a lot of cars.

In the current “global economy” that we are living in every consumer is brought into competition with every other consumer, in the competition to purchase scarce resources, such as food and gasoline. The fact that one’s own region might be a large producer of a given commodity does not entitle one to get those commodities below the market-clearing price.

Likewise, just as every consumer in the world competes with every other consumer for scarce commodities, also every worker in the world must compete with every other worker in the world for jobs and wages. For this reason large US and European companies have shifted their manufacturing operations and millions of jobs to low-wage countries, such as China and Vietnam. Manufacturing is going to Asia. Call centers and customer support are going to India. Recently a lot of the traditionally higher wage jobs such as software development and engineering are also being relocated to lower cost places.

Just as the prices for commodities tend to converge on a single price globally, the rate of wages will converge globally too. (Real wages, adjusted for inflation, will drop in the richer countries and rise in the poorer countries, until the two wage rates converge, and there is no longer any incentive left for companies to shift production abroad.

Russia does not regulate or control the price of oil domestically, and it allows the free market to set prices. Therefore we would not expect anything other than for the price of petrol products to be more or less the same in Russia as anywhere else. There might be some differences in price brought about by differences in local taxation rates and transportation costs to bring product to various markets.

If a Russian wants to fill his gas tank he must elbow his way up to the counter and pay the same price as anyone else at the counter pays, and the people he is elbowing are not only other Russians but the entire world market. It doesn't matter that the average Russian earns less than the average westerner any more than it matters whether a US customer at a US gas station earns less than the next customer. Either way the price is the same. Welcome to global capitalism!

Now in the area of natural gas Russia has required Gazprom (the national gas monopoly) to sell gas inside Russia for a fraction of the world price. Obviously Gazprom makes less money on each cubic meter of gas sold in Russia that it could get for the same cubit meter sold abroad, at market prices. So why would Gazprom do this? The short answer is that the Russian government requires them to. But Gazprom is also granted a monopoly on the export of Russian gas as compensation. Gasprom is able to reap monopoly products on the export of Russian gas, without being forced to compete with other gas exporters. But in exchange it must make gas available inside Russia for a below-market price.

This has caused problems for Russia’s bid to join the World Trade Organization (WTO). Western countries have raised the objection that allowing Russian producers to have access to below-market price gas will give them a huge unfair competitive advantage, when competing with western firms which must pay full market. This advantage is especially important in highly energy-intensive industries, where energy costs make up a substantial fraction of the total cost, such as metallurgy and aluminum smelting.

Therefore Russia has announced its intention to liberalize its domestic gas market and allow Russian gas prices to rise to world levels. This will happen first for industrial customers and only later for residential customers. The plan needs to be phased in over a number of years to allow time for Russia to make the necessary adjustments (for example increasing pensions accordingly, so that fixed-income retirees will be protected and will not suffer from the transition to higher prices).

Ultimately Russia understands that it makes no sense to force Russian companies to sell commodities cheaper in the Russian market. When commodities are kept at artificially low prices, it encourages the wasteful use of those commodities. For example, the apartment building that overheats its apartments and then tells residents to open a window if it gets too hot. Industries are not encouraged to adapt the latest energy-efficient technologies when they have access to below-market energy.

Russia has yet another reason to transition to market prices. Gazprom has been exporting Russian-produced gas to the European market. But for the domestic Russian market Gazprom buys gas from the Central Asian countries, such as Kazakhstan. These countries have a lot of gas, but they currently have no export routes other than those that lead through Russia, where Gazprom has the pipeline monopoly. Gazprom has been paying these countries below-market prices for their gas. Gazprom’s logic is that they are only allowed to charge these low prices in Russia, therefore that’s all they can offer the producers for their gas.

So Gazprom is selling the Russian-produced gas abroad, at higher world market prices and importing cheaper Central Asian gas for its domestic market, where prices are regulated by the government. The Asian states have no choice except to sell to Gazprom at the lower price because they lack access to alternative export pipelines and routes.

However the Central Asian states have been balking at the low prices that Gazprom pays them, especially when they see the high prices that Gazprom gets for exporting its gas to Europe. Here it is not having the gas that matters as much as controlling the distribution network (the pipelines) through which the gas must flow to get to market. As Gazprom controls all the pipelines it is able to set prices, both for what it pays for gas imported into Russia and gas exported from Russia.

In actual fact there is no way that Gazprom can guaranty whether a given cubic meter of gas imported from Kazakhstan has been used domestically or exported to Europe. All the gas is blended and mixed together in the Russian pipeline network. So Gazprom can only speak in aggregates. It can only say we imported "x" quantity of gas from Kazakhstan, and that gas was designated for Russia’s domestic market. But the gas sold in Europe was Russian gas, produced in Russian fields. In actual fact the gas is all mixed together, and Russia benefits from being able to buy gas cheaply in Central Asia and sell it dearly in Europe.

Of course the Central Asian republics have not failed to notice this, and there are various plans afoot to build some sort of huge gas pipeline that would bypass Russian territory and carry Central Asian gas directly to Europe. This would provide the Central Asian republics with an alternative market for their gas, as it would also provide Europe with an alternative source of supply. Russia would be squeezed at both ends, being forced to pay higher prices for the gas it imports and at the same time facing new competition in its lucrative European markets.

For this reason Russia has essentially committed itself to paying market prices to the Central Asian countries for their gas, thus removing the main motivation they have to open new export routes.

If Russia transitions its own domestic market to world market prices, then the Central Asian producers will be allowed to supply that market and reap full market prices. Furthermore, transporting gas all the way to Europe would be very expensive, as this pipeline would have to travel thousands of miles, under seas and over mountain ranges. This transportation cost must be paid by someone. In theory it means that the producers must accept a lower net price for their gas, or the consuming European countries must pay a higher price, to cover the added transit costs. In practice it means a combination of both.

But the transportation costs for sending gas across the border to supply the domestic Russian market is much cheaper. The cost savings can be split between the sellers and the buyers. For this reason Alaskan oil (from the USA) is often exported to Japan rather than the lower 48, even though the US is a large net energy importer. Transportation costs are a major component of the total cost of energy, and by minimizing these costs industry can maximize the profits.

Therefore Russia is moving ahead and will continue to move ahead with plans to allow Russian domestic gas prices to rise to world-market levels. As I said, it is very important for Russia to proceed carefully so that the impact of higher prices does not harm pensioners and other vulnerable groups in society. In general it is a better policy for Russia to allow its domestic prices to rise to world levels and mitigate the impact of those higher prices by a policy of selectively boosting incomes, which will insure the impact will not fall on the backs of Russia’s poor and vulnerable.

So what becomes of the European and American plans to build an alternative pipeline that bypasses Russia? Well if gas is already selling at market prices in Russia’s domestic market, then it does not make economic sense to sell the gas to Europe, as the transportation costs to ship the gas to Europe are exponentially higher than the cost to ship it to Russia.

However, despite the lack of good economic reasons, we can expect that the West will continue to push for construction of a new export route bypassing Russia, even if such a venture will lose vast amounts of money over its life. The West views alternative sources of (non-Russian) energy as a national security issue (or “energy security” to use the new euphemism).

The plan is to build a trans-Caspian gas pipeline which will pump large volumes of Central Asian gas under the Caspian Sea into Azerbaijan. But what happens when the gas arrives in Azerbaijan? One must simply look at a map to see that the only way this gas can get to Turkey and thus to Europe is via the Caucasus, through Russia, Iran, Georgia or Armenia. But Armenia and Turkey are historical and bitter enemies. (Even the mention of Turkey’s “Armenian genocide” sends the Turks into fits of rage.) Armenia is also an ally of Russia and has been moving closer to Iran lately, making its own plans to import Iranian gas for its own domestic needs, as the Georgian conflict with Russia has threatened Russia’s future ability to deliver those supplies.

This only leaves the tiny former Soviet republic of Georgia as a possible pipeline route. Understanding this is the key to understanding why Georgia has emerged in the crosshairs of the US, Russia and other world powers in recent years.

In 2003 US intelligence agencies staged the “Rose Revolution” in Georgia, which brought the Georgian-American (US educated) Mikheil Saakashvili to power as Georgia’s new president. Since that time the US and its allies have been flooding Georgia with military hardware and economic aid. Saakashvili himself is a hothead, with strong authoritarian if not dictatorial leanings, who never misses an opportunity to provoke and antagonize Russia for any cause real or imagined. In this regard Saakashvili behaves like the schoolboy who pokes a caged bear with a stick. But the West has been considerably more cautious in its dealings in the region, knowing full well that if Russia was really determined to flex its muscles in the Caucasus region, and pay the political price, there is little that they could do to stop it. NATO is not ready to start World War III in a fight over Russia’s historical back yard. Indeed Saakashvili has seriously miscalculated the degree of support the west will (or even can) give him if the Russian Bear goes on the move. (One can only see him fleeing back to the United States in terror under such circumstances.)

But Russia’s strategy in the region is likely to render the machinations of the little US-backed hothead in Georgia a moot point.

For its part, Russia’s strategy has been to pursue direct relationships with the Central Asian Caspian republics to persuade them that a partnership with Russia is more in their interests than moving closer to the west (and Russia insists they must make a choice one way or the other). Russia still retains enormous influence in these former Soviet republics, and the Russian security agencies have a large presence there, having long ago infiltrated most if not all of the organs of state. Many of these states are on rather shaky and unstable foundations and facing both internal and external threats. It is fair to say that several of the governments owe their continued existence directly to the security assistance they receive from the Russian Federation.

Russia has addressed these countries’ concern for the price they get for their energy by assuring them that they will get full market prices. Russia has explained that the opening of a new energy route to the West, bypassing Russia, threatens Russia’s national security, not because of its benefit to Central Asia, a benefit Russia is prepared to erase by paying higher prices, but because of it would have the effect of strengthening NATO’s hand against Russia (which does not directly affect their interests). Russia has also made it clear that these states cannot expect to be able to cooperate with western plans to undermine Russia’s security, without Russia also becoming hostile to their own security as well. In this region of the world, a partnership and understanding with Russia is essential, and is certainly more valuable than one with NATO, which is far away and does not even have easy access to the region. Russia has a long history of dealings in this region, knows it and understands it well. It is better for these countries to have vast and powerful Russia as a friend in central Asia than as their bitter enemy.

In short Russia has offered the Central Asian Caspian states an economic deal that is equal to the deal the west can give them: fair market prices for their energy. And Russia has also offered these states a security deal that is superior to anything the west can offer.

The west insists on promoting democracy even in countries where no such tradition exists. (Witness the bloody and protracted American crusade in Iraq.) The Americans are determined to promote their agenda even over the dead bodies of the supposed beneficiaries of it. But Russia is able to give these states straight-up security guarantees with no strings attached. It may be understood that Russian security guarantees primarily involve guarantees against a future Russian threat, but in any case this is a guaranty the west is not in a position to give them.

Clearly if the Central Asian countries did cooperate with the West’s plans to build an alternative gas pipeline route, besides creating an intolerable security threat to Russia, it would result in a situation where Caspian gas would be brought into direct competition with Russian gas, possibly leading to a “price war” where both sides try to capture market share at the expense of the other. But by cooperating closely with Russia, on business terms that are equitable and fair, these states can be guaranteed a higher price for their resources than they would otherwise get.

The Russian proposition does not ask the Caspian states to adapt policies that would undermine their own security or financial interests, but merely not to cooperate with the plans of those who would undermine Russia’s security and financial interests. Between peaceful neighbors and friends, not harming the interests of the other is the minimum expectation that one is entitled to.

In this vein Russia and Kazakhstan have recently announced plans to build a pipeline to transport Kazak gas to the European market. This will be the first pipeline that is not under the control of the Gazprom monopoly. Instead the ownership will be divided between Russian and Kazak partners. The pipeline will be run at maximum profitability and the profits will be split equitably between the Russian and Kazak partners.

Russia’s position is that the West and the USA already have enough “security” vis a vis Russia. It is Russia that is in the weak and vulnerable security position, not the West. Therefore anything that is done that upsets the balance of power further in the West’s favor can only be viewed as a threat to Russia. The United States, which has long pursued a policy of encircling and choking Russia certainly understands the dynamics of this, and is unwilling to relent in its efforts to continually undermine the security position of Russia.

Russia points out that it has never cut off gas supplies to the West, not during the Cold War and not even during the most tumultuous periods of its history, during the collapse of the USSR. Russia has been a stable are reliable energy partner for Europe. As important as Russian energy supplies are to Europe, they are even more important for Russia, as they make up a substantial fraction of Russia’s GDP, and an even larger fraction of its federal tax revenues. The current dependence is mutual.

Indeed Russia proposes a strategic partnership with Europe, which would increase the economic interdependence of the two sides on each other, and reduce the possibility of any future armed conflict to zero. Russia needs enhanced trade and good relations with Europe as it evolves into its new place as one of the world’s youngest democracies.

But Russia also cannot fail to remember that it is from the West that several attempts to invade Russia have come, causing untold death, misery and suffering for millions of Russians. It is not a figment of Russian imagination that even today there are powerful nations who apparently never tire in their ceaseless efforts to harm Russia and punch her even when she is down. Russia cannot be oblivious to the threats to its own security and obvious efforts to undermine its interests in the world. Russia offers the West the opportunity to interlock and interweave its economic and security interests with Russia’s in such a way that the likelihood of future conflict will be reduced to zero. It is my opinion that such a proposal offers the Europeans enormous potential for profit with minimal risk, and that such a state of affairs enhances European security interests more than pursuing a policy designed to threaten Russia and destabilize the world.

BBC News Article

Russia, Turkmenistan and Kazakhstan have reached a landmark gas pipeline deal that will strengthen Moscow's control over Central Asia's energy export routes. The BBC's regional analyst, Ian MacWilliam, examines what this means for Moscow.

Read: Original BBC Analysis on Pipeline Deal

See also: EU dreams of Central Asian gas

See also: New Europe Article

By the way, the "Purchasing Power Parity" method of calculating a country's GDP is accepted as the best method by international economists (and not just Russian economists). This method adjusts a country's GDP to take account of lower (or higher) prices in that country. Since a country's GDP is generally stated in US Dollars, and the dollar is the currency of the USA, that country's prices are compared with US price levels to determine the adjustment to calculate PPP.

However in doing this calculation, the price of everything is considered, not just the price of one commodity, such as oil or gasoline.

In those cases where the price of a commodity is the same as the price in the US, such as your example of gasoline in Russia, then there would be no GDP adjustment factor for that commodity. In other words, if the price of every commodity in Russia was the same as its US price, then Russia's dollar GDP would be the same regardless of how you calculated it.

But all prices in Russia are not the same as in the US. Where differences emerge it is mostly due not to commodities, such as oil, but to differences in the cost for land and labor. In Russia land and labor are cheaper than in the US and this results in many costs of living being lower.

Russia may have equal prices with the US for a world-market traded commodity such as oil, and oil products, but Russia still has generally cheaper prices for housing (outside of Moscow anyway, where the economic boom in Russia has caused real estate prices to soar to the most expensive in the world). A taxi cab ride in Russia is the equivalent of a dollar, bus fare is 5 cents.

Housing is a lot cheaper in Russia, everywhere but a few big cities, and people earn a lot more than average there too. Housing costs more in and near US big cities too, such as Manhattan, so much so that the majority of Americans could never afford to live there.

A person may only earn $1500 a month in Russia, but that $1500 goes a lot further in Russia than it would in the USA, therefore to compare the GDP of the two countries dollar-for-dollar would not produce an accurate comparison of the real difference in the standard of living.