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Sochi promoter files for bankruptcy


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#1 Disgrace

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Posted 16 December 2014 - 14:30

Sourced from ria.ru. Something for our Russian speakers to translate, but the synopsis as provided kindly by the social media user who shared the link is that the Arbitration Court of the Krasnodar region has received an application for bankruptcy by Formula Sochi, which is owned by the government of said region. I don't imagine this will have much of an effect on whether they'll be a Russian GP at all in the future, though.



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#2 wj_gibson

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Posted 16 December 2014 - 14:45

No, but the freefalling nature of the rouble may well do as I imagine the race contract is specified either in US$ or Euros. Add in the escalator and next year's race could cost double that of 2014.



#3 Ross Stonefeld

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Posted 16 December 2014 - 14:53

I thought the rumour was they paid up front?



#4 Fastcake

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Posted 16 December 2014 - 15:15

I thought the rumour was they paid up front?


Was that for the entire length of the contract? That would have been a significant outlay.

I was pretty skeptical the race would remain at Sochi after 2014 in the first place. Now that the collapse of the rouble is making even Bernie's escalator seem reasonable, its future is looking pretty dire.

#5 BlackCat

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Posted 16 December 2014 - 15:45

This Russian text does not say how big a debt and to whom there is. In the same time F Sochi has started a case against two former CEOs and wants from them about 2.5 mil roubles - for "acting aginst lawful interests of F Sochi, against the aims of operations of F Sochi and for permitting unreasoned misuse of funds/property trusted to them."



#6 aditya-now

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Posted 16 December 2014 - 16:35

So we are down to 19 races in the 2015 calendar, then?



#7 F1ultimate

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Posted 16 December 2014 - 16:59

Russia is a country that's in economical turmoil and it won't be long before Sochi joins the fate of the Valencia and Korean Grand Prix. 



#8 nosecone

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Posted 16 December 2014 - 17:04

Ah it seems like Putin wants to screw McLaren-Honda. Only 4 engines per season... that's gonna hurt especially Honda.

 

So we can add one further person to the list of people who are to blame for McLaren's valley

Whitmarsh, Micheal, Button, Putin...



#9 Richard T

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Posted 16 December 2014 - 17:55

Ah it seems like Putin wants to screw McLaren-Honda. Only 4 engines per season... that's gonna hurt especially Honda.


So we can add one further person to the list of people who are to blame for McLaren's valley
Whitmarsh, Micheal, Button, Putin...


Well played sir

#10 kevinracefan

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Posted 16 December 2014 - 18:14

I can't help about the shape I'm in...

 

I can't sing, I ain't pretty, and my legs are thin...

 

OH WELL...

 

KRF



#11 BRG

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Posted 16 December 2014 - 19:26

I am desperately worried that this might spell disaster for the Russian GP.  How can this be allowed?  An event with such history and legacy ought to be protected.  Perhaps Bernie could give them $100m or so, like he did to help out those poor Germans recently.



#12 tmekt

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Posted 16 December 2014 - 23:10

If Putin wants a race then he'll just chip in. 100m € or whatever the race costs is pocket money for a guy like that.

#13 Atreiu

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Posted 16 December 2014 - 23:29

I am desperately worried that this might spell disaster for the Russian GP.  How can this be allowed?  An event with such history and legacy ought to be protected.  Perhaps Bernie could give them $100m or so, like he did to help out those poor Germans recently.

 

You joke about history and legacy, but if Russia drops out, who do you think would most likely replace it? A place with rich history like Imola or simply the highest bidder?



#14 Fastcake

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Posted 16 December 2014 - 23:47

You joke about history and legacy, but if Russia drops out, who do you think would most likely replace it? A place with rich history like Imola or simply the highest bidder?

 

There's always the chance that the next highest bidder might design an interesting circuit, and establish a race that will be well supported and enjoyed by all in the years to come.

 

Slim perhaps, but anything is better than naked propaganda.



#15 Nitropower

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Posted 17 December 2014 - 00:00

With Tilke as designer ?
I'm not fond of acronyms but in this case I'd say "LOL"

#16 Doughnut King

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Posted 17 December 2014 - 00:07

Russia is a country that's in economical turmoil and it won't be long before Sochi joins the fate of the Valencia and Korean Grand Prix. 

 

Holding just one event at a new circuit hasn't happened for a while, though. I think the last one was Donington.


Edited by Doughnut King, 17 December 2014 - 00:08.


#17 EndlessMotion

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Posted 17 December 2014 - 00:22

With Tilke as designer ?
I'm not fond of acronyms but in this case I'd say "LOL"

 

It's true the vast majority of his circuits are boring as hell. I was always rather fond of Istanbul Park though and pretty disappointed when F1 stopped racing there. Watching the Bull's take turn 8 flat compared to the chasing pack was always a fantastic indicator of their downforce levels.

 

Can't say I'd miss the Russian GP. Hard to really gauge how good or bad a circuit it is after only one race but the promise of the layout on paper didn't really play out come race day. If it does go god knows what deal Bernie will pull out of his backside next to fill the void.



#18 Seano

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Posted 17 December 2014 - 00:34

I bet it will have sand in it.

 

Seano



#19 Petroltorque

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Posted 17 December 2014 - 06:59

Just goes to show the lack of vision on Ecclestone's part. You can't run a petro based economy with oil at $60 a barrel. People want affordable cost of living not extravagant luxuries like an F1 race. For the same reason the race in Azerbaijan is a non starter.

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#20 Ferrari_F1_fan_2001

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Posted 17 December 2014 - 07:33

If Russia stop supporting Iran and Syria the "squeeze" on their economy disappears.

#21 MissingTheApex

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Posted 17 December 2014 - 08:23

Interesting what you said Ferrari_F1_Fan_2001, for that's how I see it.  Saudi's are keeping the price of crude low as they want to destabilise Iran, which is supported by Russia.  Apparently Russia has 10 months of reserves but after that, it get's a bit dicey for their economy and then we're talking sovereign defaults.  It's poker with big chips being played by Saudi Arabia and it's going to be interesting watching how this pans out.

 

The other interesting side show is America, where hundreds, maybe thousands of small companies have taken on massive debt in order to frack for oil and gas, with many needing crude at $65+ a barrel to be profitable.

 

Sorry for the OT, but it is all linked in my opinion.



#22 Ferrari_F1_fan_2001

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Posted 17 December 2014 - 11:06

Indeed, you are correct, MissingTheApex.

 

The low prices may be great for us at the moment, but with a big player like Russia being squeezed, it is only a matter of time before their economic instability snowballs and affects the rest of the world.

 

Of course, they could set up their own BRIC economy (along with Iran, N. Korea, Venezuela and all the other 'axis of evil' countries)  and trade away off the dollar but a system like that could take X amount of years to come into fruition.

 

Alternatively, Putin could go all Samson Option and pull out Russia interests on foreign shores (the Russians are quite powerful in the Gulf nations) and counter strike like that. With Putin being ex-KGB, I'm sure his and his advisors will retaliate soon,



#23 jjcale

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Posted 17 December 2014 - 11:22

Picture this ... youre the democratically elected president of a former superpower that that is recovering from economic and political collapse a couple of decades ago. You took over from the most incompetent and corrupt government your country has ever prodced and after about a decade and a half youve brought stability and even a bit of prosperity to your people. So youre super popular but you are still under political pressure from your main opposition (who are not the "liberals" as is suggested by international media to their ignorant and gullible public but rather a motley crew of traditionalists/social conservatives, traditional nationalists, and racists/neonazis/ethno-nationalists who hanker after an even more authoritarian set up that you are accused of promoting by your enemies abroad - but unlike the "liberals", they have real traction because that is the sort of government that your people are used to and most of them actually prefer since when they tried "liberal democracy" it ended up as kleptocracy) ...so you make damned sure to provide your restive people with a steady supply of bread and circuses and you to portray yourself as a super macho strongman.... so how would feel if having spent several hundred million to put on an F1 race to show your people (and the world) that your country is still great and important the race is won by a metrosexual black guy from your second main enemy country (who would actually prefer to be from your main enemy country) and he makes it a point of duty to disrespect you live on international TV

 

 

Now imagine that you realise that all this F1 stuff is mostly hype and money is suddenly tight and you need to to spend money on beefing up your military as there is a good chance that war is coming within a few years .... what would you do?... would you still spend money on F1?


Edited by jjcale, 17 December 2014 - 11:28.


#24 femi

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Posted 17 December 2014 - 12:20

The GP will still hold:
http://www.flagworld...-broke-reports/

#25 femi

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Posted 17 December 2014 - 12:22

If Russia stop supporting Iran and Syria the "squeeze" on their economy disappears.

The squeeze are due to tumbling oil prices and to a lesser extent western countries sanctions for the war in Eastern Ukraine and to a lesser extent the annexation of Crimea.

#26 Petroltorque

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Posted 17 December 2014 - 14:23

The squeeze has absolutely nothing to do with the EU sanctions. They are targeted at specific companies, eg, Gazprom, restricting their foreign currency borrowing to 30 day loans and cutting their access to foreign currency.

 The ball breaker is the falling petro dollar. In non consolidated economies this is a perfect storm.



#27 femi

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Posted 17 December 2014 - 14:43

The squeeze has absolutely nothing to do with the EU sanctions. They are targeted at specific companies, eg, Gazprom, restricting their foreign currency borrowing to 30 day loans and cutting their access to foreign currency.
 The ball breaker is the falling petro dollar. In non consolidated economies this is a perfect storm.


That is wrong, true the biggest issues their economy is having is due to the "engineered" tumbling oil prices. The sanctions are much wider than those you listed. What you listed above covers a lot of the first round of sanctions. This is not the forum for this discussion. Please do a bit more research...

Edited by femi, 17 December 2014 - 14:44.


#28 MissingTheApex

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Posted 17 December 2014 - 17:28

60% of Russian GDP is from Petroleum/Gas.  Whilst the sanctions bit hard, properly hard, it's only when OPEC refused to slow down production that the Rouble has been info freefall.  That's about the long and the short of it.  I think more sanctions are planned and that's added to the issues, but to lose 50% of 60% of your GDP (prices are now half of what they were at the turn of the year when they were about $115 a barrel) is crippling and has far more of an affect than the sanctions, sorry, but that's the nub of it.  Imagine if England lost an income worth $900bn, that's what we're looking at; we'd be in all sorts of trouble.



#29 Petroltorque

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Posted 17 December 2014 - 20:18

60% of Russian GDP is from Petroleum/Gas.  Whilst the sanctions bit hard, properly hard, it's only when OPEC refused to slow down production that the Rouble has been info freefall.  That's about the long and the short of it.  I think more sanctions are planned and that's added to the issues, but to lose 50% of 60% of your GDP (prices are now half of what they were at the turn of the year when they were about $115 a barrel) is crippling and has far more of an affect than the sanctions, sorry, but that's the nub of it.  Imagine if England lost an income worth $900bn, that's what we're looking at; we'd be in all sorts of trouble.

Precisely! Which was the point I was making. The problem with forums is some people assume posters have no knowledge of particular fields when the opposite is true.

#30 santori

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Posted 17 December 2014 - 22:31

Picture this ... youre the democratically elected president of a former superpower that that is recovering from economic and political collapse a couple of decades ago. You took over from the most incompetent and corrupt government your country has ever prodced and after about a decade and a half youve brought stability and even a bit of prosperity to your people. So youre super popular but you are still under political pressure from your main opposition (who are not the "liberals" as is suggested by international media to their ignorant and gullible public but rather a motley crew of traditionalists/social conservatives, traditional nationalists, and racists/neonazis/ethno-nationalists who hanker after an even more authoritarian set up that you are accused of promoting by your enemies abroad - but unlike the "liberals", they have real traction because that is the sort of government that your people are used to and most of them actually prefer since when they tried "liberal democracy" it ended up as kleptocracy) ...so you make damned sure to provide your restive people with a steady supply of bread and circuses and you to portray yourself as a super macho strongman.... so how would feel if having spent several hundred million to put on an F1 race to show your people (and the world) that your country is still great and important the race is won by a metrosexual black guy from your second main enemy country (who would actually prefer to be from your main enemy country) and he makes it a point of duty to disrespect you live on international TV

 

 

Now imagine that you realise that all this F1 stuff is mostly hype and money is suddenly tight and you need to to spend money on beefing up your military as there is a good chance that war is coming within a few years .... what would you do?... would you still spend money on F1?

 

Yes, the problem is clearly with 'the metrosexual black guy' who didn't shake Putin's hand. Won't someone think of Vlad's feelings? He's a sensitive soul who was forced to debase his country and destabilise its neighbours. If you listen carefully I think you can hear someone playing the world's tiniest balalaika in the background.


Edited by santori, 17 December 2014 - 22:32.


#31 Lemnpiper

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Posted 19 December 2014 - 05:33

 This is fascinating study of  how Sochi was able to finance a F1 race  one year  , before it fell victim (perhaps) to fiscal issues involving it's source of income.

 

  This makes me wonder  if any  other nations  F1 races may also fall victim to the fluctuations of  oil prices .

 

 

  While this thread  may  seem to be drifting OT I find interesting  and just how much  some on the forum truly know.

 

    5 years from now this thread could be one of the most memorable of 2014  based on how events of the world turn out , and how such said events alter the course of how not only Formula One but other series worldwide.

 

 

       Paul



#32 MissingTheApex

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Posted 19 December 2014 - 09:18

I read a report, probably 9 weeks ago.  The crux, paraphrasing, was that the world was leading up to another 2008 fiscal incident.  One of the key drivers, was the massive debt American fracking companies had taken on board to be able to produce oil.  The base price, I think, was between $65 and $75 a barrel where they would start defaulting on their loans, as they were losing money below that.

 

Now couple into that the fact several states are revoking licenses to frack and it's an issue there.

 

The geopolitical issues in the Gulf states in the most interesting though as, as Putin is finding out, you don't need a war to bring a country to its knees.  I think this is an engineered crisis.  Whilst Russia has a lot of foreign currency reserves, money is piling out of the country.  Yesterday there was a report that the high end of the London property market has suddenly caught fire, which I believe is Russians getting their money to a safer haven.  Switzerland has just amplified the issue.

 

Going to be a bumpy ride I think, unless the Saudi's cave in.



#33 Petroltorque

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Posted 19 December 2014 - 14:55

The markets can stay volatile longer than you can stay solvent. I remember the ERM debacle of 1992 when my Mortgage interest payments went up 8 per cent in a day.
Carlos Ghosn has just stated that Renault Nissan have stopped taking orders for new cars from Russia. They can't effectively factor in the material costs with the volatility of the rouble. BMW and Jaguar Land Rover have been diverting their supplies away from Russia as well. One is left asking where is the value of an F1 race to the Russian promoter?

Edited by Petroltorque, 20 December 2014 - 06:20.


#34 femi

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Posted 19 December 2014 - 18:26

Sochi wins the 2014 race promoter's trophy
http://www.formula1....4/12/16739.html

#35 chipmcdonald

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Posted 19 December 2014 - 19:03

Their part of the global Ponzi scheme failed monday.  It will have further repercussions with the manufacturers, it's looking like Renault stands to lose the most.  Daimler probably isn't too happy, either.

 

BUT, the notion that this is sanctions is only obliquely the case.  Putin has been maneuvering with China for over a year to unhook from the dollar (which is really probably the impetus behind the U.S. supporting Ukraine regardless of anything else), and he's also been hoarding gold (ala China et al).  All nations are maneuvering for the reset.  If the planet is in a race to the bottom crashing first might not be as bad as it appears.

 

It would be ironic if Mercedes left in 2016 anyhow....



#36 femi

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Posted 19 December 2014 - 23:18

Precisely! Which was the point I was making. The problem with forums is some people assume posters have no knowledge of particular fields when the opposite is true.


The bit I disagreed with you on was this:

The squeeze has absolutely nothing to do with the EU sanctions


MissingTheApex comment that you agreed with did not agree with your statement at all - lol

#37 Petroltorque

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Posted 20 December 2014 - 06:33

The bit I disagreed with you on was this:

MissingTheApex comment that you agreed with did not agree with your statement at all - lol

You failed to appreciate my point. Perhaps it was too nuanced? The affect of the EU sanctions were not effective in bringing the Russian economy to its knees. Their central bank had enough reserves to mitigate their effects. The nexus arrived with the fall in the Petroleum prices. That was the direct effect. The sanctions, to use a statistical term are a confounder. That is a variable which has a relation to both the outcome variable; economic wealth, and predictor variable: rouble price.

Edited by Petroltorque, 20 December 2014 - 06:33.


#38 femi

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Posted 20 December 2014 - 08:48

I disagree with the notion that the sanctions had absolutely had no effect, before the free fall of the oil prices, there was a massive exodus of capital flight from Russia. It was estimated that some $140billion dollars and counting was taken out of the country as investors ran for cover and a contraction in Russian economy was predicted. The Ruble had began to fall...
 

According to the document the hit to the EU’s economy “is expected to remain contained.” The commission estimated that EU sanctions will knock 0.2 to 0.3 percentage point off the bloc’s economic growth this year and next.

By contrast, Russia’s growth rate will be cut by 0.6 percentage point in 2014 and 1.1 percentage points in 2015, it forecast. In May, the commission had a forecast of 1% growth this year and 2% next year for Russia....

The forecast also excludes any hit Russia will face from sanctions imposed by the U.S. and other countries

Still, the commission view is in line with other recent forecasts. This month, the International Monetary Fund forecast growth for Russia of just 0.2% this year and halved its 2015 forecast to 0.5%. Analysts at Barclays are forecasting around zero growth for Russia in 2014 and a contraction of 0.5% in 2015
http://www.wsj.com/a...nomy-1414583901

For the Russian banking sector, these are the most nervous times since the global financial crisis six years ago. Half a dozen of the biggest state-connected banks – accounting for more than half of Russian banking assets – have in effect been cut off from western financing by EU and US sanctions imposed over Moscow’s aggression in Ukraine.

The sliding rouble, meanwhile, creates at least the possibility that Russian consumers could start pulling their savings out of deposit accounts and swapping them into dollars. Those factors plus falling oil prices, which reduce Russia’s dollar receipts for oil exports, are creating a sharp shortage of dollar financing in the banking system.
http://www.ft.com/in...l#axzz3MQP3TyET


The Russian government central bank had already began shoring up the Ruble before oil prices began to tumble.

All the above do not contradict my point that the tumbling oil prices were the major problems facing Russian economy and the value of their currency but for anyone to argue that the sanctions had zero effect, is odd to say the least. Trade and financial services embargoes by the the US, EU, Japan etc against a country with the economic structure of Russia are always going to have an effect regardless of the price of oil. I still maintain that the real killer is the tumbling price of oil but one should not discount the impact of sanctions either.

Edited by femi, 20 December 2014 - 09:09.


#39 Petroltorque

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Posted 20 December 2014 - 17:45

If I might be allowed to point to an interesting article illustrating the in effectiveness of sanctions by Professor Christopher Davies of Oxford University. He performed a meta analysis of all economic sanction structures from 1917 to present day with very illuminating conclusions.
The crux of his argument is that sanctions only work if they are globally adhered to. Its all to easy for Russia to circumvent them by trading with the other BRIC economies. This doesn't deter from the fact that the money tap from the state to the Sochi promoter has been shut off thus explaining the insolvency.

Edited by Petroltorque, 20 December 2014 - 17:48.


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#40 femi

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Posted 20 December 2014 - 18:36

If I might be allowed to point to an interesting article illustrating the in effectiveness of sanctions by Professor Christopher Davies of Oxford University. He performed a meta analysis of all economic sanction structures from 1917 to present day with very illuminating conclusions.
The crux of his argument is that sanctions only work if they are globally adhered to. Its all to easy for Russia to circumvent them by trading with the other BRIC economies. This doesn't deter from the fact that the money tap from the state to the Sochi promoter has been shut off thus explaining the insolvency.


Sanctions do work but in a dictatorship it is the masses that suffer not the elites. Sanction busting is no substitute for 'no sanction'. Cases in point, North Korea, Iran, Iraq, Cuba etc. What sanctions do not do is achieve the goals of forcing governments to change policies, I grant that. But that is not what our discussion was about. It's about the influence of western nations sanction on the Russian Ruble slide. You guys are of the view that it had absolutely no impact and I beg to differ on that. Actually there is a BBC article out today that presented in graphic rendition with timeline that showed that the Ruble tumbled sharply in step with when the first set of sanctions were imposed and before the tumble in oil prices started. No one is denying the devastating impact of the "engineered" oil price free fall. If that free fall is approaching a tipping point even for western economies is another topic for discussion ...

 

I don't know if Sochi GP organizer issues are due to sanctions but it will still hold so it may be unrelated.  



#41 femi

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Posted 20 December 2014 - 19:24

Bernie on Sochi
http://sputniknews.c...1016066040.html

#42 SlickMick

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Posted 20 December 2014 - 20:26

Sanctions were never going to work - the EU would have caved if the escalations continued. Russia already negotiated its fall-back plan with China and others.

The oil price is what's hurting Russia and it's not a Saudi strategy, it's the US (whose government couldn't care less about keeping fracking on the back burner for a few years).

Despite the ire of its Opec partners, Saudi will play along in order to weaken Russia, weaken Iran, enable the US to finally bomb the **** out of Syria, stick in a puppet, and build a pipeline.

 

The trigger for all this was the illegal overthrow of a democratic government funded by dirty money from the US. Or go back a bit further, Russia's insistence that the US (and that idiot Hollande) couldn't drone strike yet another country and should stop arming so called friendly terrorists - the US State Dept are dangerous cretins!.



#43 Disgrace

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Posted 20 December 2014 - 20:37

The political aspect is key, but let's keep it relevant to F1.



#44 pdac

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Posted 20 December 2014 - 20:42

 

Usual responses from Bernie ...

 

"we have a contract" (so it's going to happen)

 

"there are many places we could go to who would pay more" (but this place is more important to us)

 

Sadly, people seem to believe him when he says these sort of things



#45 Lemnpiper

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Posted 21 December 2014 - 00:30

True but with the way Bernie   has engineered  where Formula 1 races are now held  political squabbles can have a far greater influence on if they will continue to be run  in all those locations.

   I have no doubt Bernie  realizes world political instability endangers the stability  of the circuit he has created.  And no matter how much "we have a contract" posturing Bernie does , I doubt he has the power to do too much.



#46 MissingTheApex

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Posted 21 December 2014 - 14:49

60% of Russian GDP comes from Oil.  60%.  That means they've just had 30% of GDP wiped out.

 

However you dress this up, it's an issue.

 

US has issues of their own as many companies have taken out large loans based on Oil at $65-75 a barrel.  If they all start defaulting, we get a situation like bad prime debt in 2008.

 

Sochi isn't happening next year unless the Oil prices comes back.



#47 Ensign

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Posted 26 December 2014 - 21:56

Sanctions were never going to work - the EU would have caved if the escalations continued. Russia already negotiated its fall-back plan with China and others.

The oil price is what's hurting Russia and it's not a Saudi strategy, it's the US (whose government couldn't care less about keeping fracking on the back burner for a few years).

Despite the ire of its Opec partners, Saudi will play along in order to weaken Russia, weaken Iran, enable the US to finally bomb the **** out of Syria, stick in a puppet, and build a pipeline.

 

The trigger for all this was the illegal overthrow of a democratic government funded by dirty money from the US. Or go back a bit further, Russia's insistence that the US (and that idiot Hollande) couldn't drone strike yet another country and should stop arming so called friendly terrorists - the US State Dept are dangerous cretins!.

 

Kremlin-speak!  It is almost certainly Saudi strategy directed at others but with Russia getting caught in it all.

 

Sanctions worked on South Africa because they hated being pariahs.  Most Russians don't care what "effeminate" Europeans and Americans think of them and they've still got the BRIC countries to fall back on (though the China deal is far more advantageous to the Chinese).

 

As for F1 the Sochi track was as terrible as any of the new ones in recent years. I switched over to the football and forgot all about it until it was over and Putin was hanging out with the drivers. It is just another Valencia. I hope it gets turfed.