¥uan and Waterloo of Petro$

November 12, 2014

yuan logo

(Note: ¥uan and Waterloo of Petro$ Parts I and II combined)

Ongoing western sanctions due Ukraine are pushing China and Russia to close cooperation – the great Eurasian axis is already in motion. Despite the headlines in mainstream western media related to civil war in Ukraine the primary war is being fought monetarily. The Russia-China Strategic Partnership (RCSP) is truly global in scope, having come to encompass the entire world to varying degrees. The Ukraine War might be the U.S. Dollar Waterloo event.

As the Americans and their allies are trying to squeeze Russia and Iran with a combination of economic sanctions and political isolation, alternative poles of power are emerging that soon may present a serious challenge to the U.S.-dominated world that emerged from the end of the Cold War.

The Russian response to ongoing western sanctions has been launching a counter-strategy that could bring the cost boomeranging right back to Washington. Namely, the formation of a potential non-dollar trading block among major players in the global energy markets including Iran and China.

The end of the Petrodollar

(In 1971 Richard Nixon was forced to close the gold window taking the U.S. off the gold standard and setting into motion a massive devaluation of the U.S. dollar.In an effort to prop up the value of the dollar Nixon negotiated a deal with Saudi Arabia that in exchange for arms and protection they would denominate all future oil sales in U.S. dollars. )

For decades, virtually all oil and natural gas around the world has been bought and sold for U.S. dollars. Since World War II, America’s geopolitical supremacy has rested not only on military might, but also on the dollar’s standing as the world’s leading transactional and reserve currency.

Last year Russia produced about 10.5 million bbls. of oil per day and exported 70% of it. That amounts to nearly 2.6 billion barrels with a value of nearly $250 billion at world market prices. It also exported the equivalent of nearly 1 million barrels per day of natural gas with a market value of upwards of US$50 billion. The truth is that Russia is the largest exporter of natural gas and the second largest exporter of oil in the world. If Russia starts asking for payment in currencies other than the U.S. dollar, that will essentially end the monopoly of the petrodollar.

China just overtook the US as the world’s largest economy. The US national debt is now past €17 trillion. China – their biggest creditor – has been cutting on US debt holdings and hoarding gold on the side to be prepared for the possible collapse of the dollar. The US federal government ran an estimated budget deficit of $486 billion, or 2.8 per cent of GDP, in fiscal year 2014. By contrast, Russia just posted a federal budget surplus of 2 per cent of GDP.

russia-balance-of-trade
Russia recorded a trade surplus of 15700 USD Million in September of 2014. Balance of Trade in Russia averaged 8925.26 USD Million from 1997 until 2014, reaching an all time high of 20356 USD Million in January of 2012 and a record low of -185 USD Million in February of 1998. (Source: Trading Economics )

dollar collapseWhen U.S. politicians started plan economic sanctions on Russia, they probably never even imagined that there might be serious consequences for the United States. But now the Russian media is reporting that the Russian Ministry of Finance is getting ready to pull the trigger on a “de-dollarization” plan. For decades, virtually all oil and natural gas around the world has been bought and sold for U.S. dollars. As I will explain below, this has been a massive advantage for the U.S. economy. In recent years, there have been rumblings by nations such as Russia and China about the need to change to a new system, but nobody has really had a big reason to upset the status quo. However, that has now changed. The struggle over Ukraine has caused Russia to completely reevaluate the financial relationship that it has with the United States.

The largest natural gas producer on the planet, Gazprom, has signed agreements with some of their biggest customers to switch payments for natural gas from U.S. dollars to euros. If other nations start following suit – start trading a lot of oil and natural gas for currencies other than the U.S.$ – that will be a massive blow for the petrodollar, and it could end up dramatically changing the global economic landscape.

Moscow, allied with the BRICS, is actively working to bypass the US dollar. The core point is that Russia is not alone. Besides the BRICS also the G-77, the Non-Aligned Movement (NAM), the whole Global South is critical to U.S. led bullying and would like to have other alternative in international relations. This past summer, the BRICS countries created an alternative to the largely U.S.-controlled World Bank and International Monetary Fund (IMF), and the Shanghai Cooperation Organization (SCO) added 1.6 billion people to its rolls.

G-7 vs E-7

Back in 1971, it was necessary to assure that the dollar would retain its position in world trade as the world’s premiere currency, in spite of the fact that it was no longer backed by anything. The U.S. reached an agreement with Saudi Arabia that, in trade for arms and protection, the Saudis would denominate all future oil sales, worldwide, in dollars. The other OPEC countries fell into line, and the “petrodollar” was assured.

Now the Sino-Russian cooperation is challenging the Americans, and there are many countries that would be happy to join them in dethroning the US dollar as the world’s reserve currency. The historic gas deal between Russia and China is very bad news for the petrodollar – it might be start of the “de-Americanised” world.

 

¥uan replacing the Petrodollar

petrodollarOn April 24th 2014 the Russian government organized a special “de-dollarization meeting” dedicated to finding a solution for getting rid of the US dollar in Russian export operations. Top level experts from the energy sector, banks and governmental agencies were summoned and a number of measures were proposed as a response for American sanctions against Russia.

Over the last few weeks there has been a significant interest in the market from large Russian corporations to start using various products in renminbi and other Asian currencies, and to set up accounts in Asian locations,” Pavel Teplukhin, head of Deutsche Bank in Russia, told the Financial Times, The renminbi is the official currency of the People’s Republic of China. literally means “people’s currency”. The yuan is the basic unit of the renminbi, but is also used to refer to the Chinese currency generally, especially in international contexts.

Moving the yuan towards internationalisation involves three distinct phases: turning the Chinese currency into a) a trading currency, b) an investment currency, and c) a reserve currency.

Some recent developments:

  • Chinese credit rating agency Dagong has downgraded U.S. debt from A to A- and has indicated that further downgrades are possible.
  • China has just entered into a very large currency swap agreement with the eurozone that is considered a huge step toward establishing the yuan as a major world currency.
  • Back in June 2014, China signed a major currency swap agreement with the United Kingdom. This was another very important step toward internationalizing the yuan.
  • China currently owns about 1.3 trillion dollars of U.S. debt, and this enormous exposure to U.S. debt is starting to become a major political issue within China.
  • Mei Xinyu, Commerce Minister adviser to the Chinese government, warned (on Oct 2014) China may decide to completely stop buying U.S. Treasury bonds.

China is the largest producer of gold in the world, and it has also been importing an absolutely massive amount of gold from other nations and in addition China plans to buy another 5,000 tons of gold.) There are many that are convinced that China eventually plans to back the yuan with gold and try to make it the number one alternative to the U.S. dollar.

If China does decide to back the yuan with gold and no longer use the U.S. dollar in international trade, it will have devastating effects on the U.S. economy. If other nations stopped using the dollar to trade with one another, the value of the dollar would plummet dramatically. One could claim that the entire way of life in U.S. depends on the U.S.$ being the primary reserve currency of the world. (Source: The Economic Collapse )

eu-china trade map

The dollar does not just predominate in China’s trade with the United States, but with other countries as well. The first steps towards the internationalisation of the yuan emerged in 2008-2009. At that time, businesses and companies were allowed to use the yuan in trade with Hong Kong (Xianggang), Macau, and ASEAN countries. In 2012, every Chinese company with a licence for export and import transactions was able to use the yuan. An active transition to foreign trade settlements in yuan is happening alongside an increase in the use of the national currencies of China’s trading partners. This is being facilitated by the signing of bilateral currency swaps between the People’s Bank of China (PBC) and the central banks of China’s trading partners. To date, the PBC has signed more than 20 currency swap agreements. At the end of 2013-beginning of 2014, the yuan overtook the euro in terms of the amount of payments used for international trade, and took second place after the US dollar. According to the People’s Bank of China (PBC) , there was more than 1.3 trillion yuan overseas at the end of 2013, which is equivalent to approximately US $250 billion. In fact, this money is forming an offshore yuan market. At present, the yuan can be directly converted with the US dollar, the Japanese yen, the Australian dollar, the Russian rouble, the Malaysian ringgit, and the New Zealand dollar. The latest such agreement was signed between China and New Zealand in March 2014. (Source: Strategic Culture Foundation )

 

the end of dollar

Bypassing the U.S. dollar system is a spear-head of Russia’s counter-offensive. Besides monetary war the emergencing cooperation on different pro-Russian fields and energy policy are linked to ongoing geopolitical turmoil.The wider picture includes the Sino-Russian cooperation, the BRICS, the SCO, the EEU, the energy war and other bilateral operations.

The Sino-Russian cooperation

The Russia-China strategic partnership will keep evolving very fast – with Beijing in symbiosis with Moscow’s immense natural and military-technological resources. Not to mention the strategic benefits. Faced with an increasingly hostile West, Russia is visibly turning East. In particular, China and Russia have become closer, signing a historic gas deal, conducting joint naval exercises, and increasing trade.

Gazprom signed a thirty-year gas contract worth $400 billion. The deal’s importance can be compared with a similar accord concluded in the 1960s that brought Russian gas to West Germany for the first time. Moscow and Beijing vow to more than double their bilateral trade to $200 billion by 2020, that is, roughly half of their current turnover with the EU.

It is clear that Moscow seeks an acceleration of its business ties with China. On Nov. 09, 2014 President Vladimir Putin and Chinese leader Xi Jinping signed a memorandum of understanding on the so-called “western” gas supplies route to China. Russia’s so-called “western” or “Altay” route would supply 30 billion cubic meters (bcm) of gas a year to China. The new supply line comes in addition to the “eastern” route, through the “Power of Siberia” pipeline, which will annually deliver 38 bcm of gas to China. Work on that pipeline route has already begun after a $400 billion deal was clinched in May.  It should be noted that the both deals together are propably the bigest deal in the world – the total amount of this gasinvestment and -trade is over 700 bn USD.  In addition also 16 other tradedeal was signed. Among the business issues discussed by Putin and Xi at their fifth meeting this year was the possibility of payment in Chinese yuan, including for defense deals military, Russian presidential spokesman Dmitry Peskov was cited as saying by RIA Novosti. (Source: RT )

China-Russia gas deal

In addition China and Russia have agreed to jointly build a seaport on the coast of the sea of Japan, which are projected to become one of the largest on the coast in North-East Asia. The facility will be located in our territory and will serve up to 60 million tons of cargo per year.

eurasian landbridgesAlso, China has decided to invest 400 billion rubles in the construction of high-speed highway Moscow-Kazan, which is part of transport corridor Moscow-Beijing.

Russia and China are determined to reduce U.S. and North Atlantic Treaty Organization (NATO) presence in Central Asia to what it was before the 2001 invasion of Afghanistan. The SCO has consistently rebuffed U.S. requests for observer status, and has pressured countries in the region to end U.S. basing rights. The United States was forced out of Karshi-Khanabad in Uzbekistan in 2005, and from Manas in Kyrgyzstan in 2014.

yuan vs USDAt present, the SCO has started to counterbalance NATO’s role in Asia,” says Aleksey Maslov, chair of the Department of Asian Studies of the Higher School of Economics in Moscow. And the new members, he says, want in to safeguard their interests. (Source: VoR)

China overtook Germany as Russia’s largest trading partner in 2011, Last year, China acquired 12.5 percent of Russia’s Uralkali (URKA:RM), the biggest producer of potash in the world, and China National Petroleum agreed to prepay Rosneft (ROSN:RM), run by Putin associate Igor Sechin, about $70 billion as part of a $270 billion, 25-year supply deal. That was followed by Rosneft’s $85 billion, 10-year accord with China Sinopec and China National Petroleum’s purchase of 20 percent of an Arctic gas project from Novatek for an undisclosed sum. (Source: Bloomberg Businessweek  )

The BRICS

The BRICS met 2013 in Durban, South Africa, to, among other steps, create their own credit rating agency, sidelining the “biased agendas” of the Moody’s/Standard & Poor’s variety. They endorsed plans to create a joint foreign exchange reserves pool. Initially it will include US$100 billion. It’s called a self-managed contingent reserve arrangement (CRA). brics cra

During the July (2014) BRICS Summit in Brazil the five members agreed to directly confront the West’s institutional economic dominance. The BRICS agreed to establish the New Development Bank (NDB) based in Shanghai , pushed especially by India and Brazil, a concrete alternative to the Western-dominated World Bank and the Bretton Woods system. With initial authorized capital of $100 billion, including $50 billion of equally shared initial subscribed capital, it will become one of the largest multilateral financial development institutions. Importantly, it will be open for other countries to join.

In addition creation of the Contingent Reserve Arrangement, or currency reserve pool, initially sized at $100 billion, will help protect the BRICS countries against short-term liquidity pressures and international financial shocks. Together with the NDB these new instruments will contribute to further co-operation on macroeconomic policies. According Conn Hallinan – in his article Move Over, NATO and IMF: Eurasia Is Coming – The BRICS’ construction of a Contingent Reserve Arrangement will give its members emergency access to foreign currency, which might eventually dethrone the dollar as the world’s reserve currency. The creation of a development bank will make it possible to bypass the IMF for balance-of-payment loans, thus avoiding the organization’s onerous austerity requirements.

Also it was agreed MoU’s among BRICS Export Credit and Guarantees Agencies, as well as the Cooperation Agreement on Innovation within the BRICS Interbank Cooperation Mechanism, which will offer new channels of support for trade and financial ties between the five countries.

So in near future BRICS will be trading in their own currencies, including a globally convertible yuan, further away from the US dollar and the petrodollar. All these actions are strenghtening financial stability of BRICS – a some kind of safety net precaution, an extra line of defense.

Emerging economic powers such as China, India and Brazil have long been demanding greater share of votes in multilateral development institutions like the World Bank, International Monetary Fund and the Asian Development Bank (ADP) to reflect their recent phenomenal growth. China’s economy is expected to grow to $10 trillion this year, yet its share of votes in the Bretton Woods institutions is only 3.72 percent, compared with 17.4 percent for the United States. The signing ceremony of the Memorandum of Understanding on Establishing Asian Infrastructure Investment Bank (AIIB) took place in Beijing, Oct. 24, 2014 According to ADB, in the 10 years up to 2020, the region requires investments of $8 trillion in terms of national infrastructure, or $800 billion a year. The ADB currently lends out only about 1.5 percent of this amount. The AIIB is expected to have an initial capital base of $100 billion. The AIIB, to begin with, will serve at least five objectives for China. First, it could help China invest part of its foreign exchange reserves of $3.9 trillion on commercial terms. Second, it will play a vital role in the internationalization of the yuan. And fifth, the AIIB will boost China’s global influence and enhance its soft power.

BRICS could be expanded to include the MINT countries (MINT is an acronym referring to the economies of Mexico, Indonesia, Nigeria, and Turkey.), thus furthering the organization’s scope and creating opportunities for a long-term strategic ‘flip’ of those states from their largely Western orientations.

Being in the same organization does not automatically translate into having the same politics on international questions. The BRICS and the recent Gaza conflict are a good example. China called for negotiations; Russia was generally neutral, but slightly friendly toward Israel; India was silent (Israel is New Delhi’s number-one source of arms); South Africa was critical of Israel, and Brazil withdrew its ambassador.

As Russia is taking over the position of the BRICS Chair, the next summit will be held in the city of Ufa in the Republic of Bashkortostan, in July 2015.

The SCO

The Shanghai Cooperation Organization (SCO) is the cradle in which the Russian-Chinese strategic partnership (RCSP) was born and raised. Originally founded as the Shanghai Five in 1996, it was reformed as the SCO in 2001 with the inclusion of Uzbekistan. Less than a month after the BRICS’ declaration of independence from the current strictures of world finance, the SCO—which includes China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan—approved India, Pakistan, Iran, and Mongolia for membership in the organization. Also SCO has received applications for the status of observers from Armenia, Azerbaijan, Bangladesh, Belarus, Nepal and Sri Lanka.

SCO map

It was the single largest expansion of the economic cooperation and security-minded group in its history, and it could end up diluting the impact of sanctions currently plaguing Moscow over the Ukraine crisis and Tehran over its nuclear program. These countries directly fall into the immediate sphere of the RCSP, where either Russia or China can exert some degree or another of important influence to varying degrees. Also, the SCO sets out the foundations of the RCSP, listing the fight against “terrorism, separatism, and extremism in all their manifestations” (thus including Color Revolutions) as their foremost foe. It just so happens that the U.S. engages in all of these activities in its Eurasian-wide campaign of chaos and control, thereby placing it at existential odds with Russia and China, as well as the other official members. Even before the recent additions, SCO represented three-fifths of Eurasia and 25 percent of the world’s population.

For Iran, SCO membership may serve as a way to bypass the sanctions currently pounding the Iranian economy. Russia and Iran signed a memorandum in August (2014) to exchange Russian energy technology and food for Iranian oil, a move that would violate U.S. sanctions. One particular constraint is Russia’s important relationship with Israel, which Moscow will not give up unless Jerusalem drops its neutral stance and joins the U.S.-led condemnation of Russia.

Chinese President Xi Jinping has also promoted new regional security initiatives. In addition to the already existing Shanghai Cooperation Organization, a Chinese-led security institution that includes Russia and four Central Asian states, Xi wants to build a new Asia-Pacific security structure that would exclude the United States.

As for India and Pakistan energy is a major concern the membership in the oil- and gas-rich SCO is quite reasonable. Whether that will lead to a reduction of tensions between New Delhi and Islamabad over Kashmir remains to see, but at least the two traditional enemies will be in same organization to talk about economic cooperation and regional security on a regular basis.

As joint forum the SCO can ease tensions in Central Asia e.g. between SCO members Uzbekistan and Kyrgyzstan over borders, and both countries, plus Tajikistan, over water rights. Most SCO members are concerned about security, particularly given the imminent departure of the United States and NATO from Afghanistan. That country might well descend into civil war, one that could have a destabilizing effect on its neighbors. From August 24 -29, SCO members China, Russia, Kazakhstan, Kyrgyzstan, and Tajikistan took part in “Peace Mission 2014,” an anti-terrorist exercise to “subdue” a hypothetical Central Asian city that had become a center for terrorist activity.

The BRICS and the SCO are the two largest independent international organizations to develop over the past decade. There is also other developments to reduce old U.S. global dominance. The newly minted Union of South American Nations (USAN) includes every country in South America, including Cuba, and has largely replaced the Organization of American States (OAS), a Cold War relic that excluded Havana. While the United States and Canada are part of the OAS, they were not invited to join USAN.

Eurasian Economic Union (EEU)

Eurasian integration has moved to a higher level, to replace the EurAsEC came a new form of closer Association of the Eurasian Economic Union (EEU) also known as the Eurasian Union (EAU). To him by the old member States (Russia, Kazakhstan, Belarus) was joined by Armenia, the next candidate in the list on the accession of Kyrgyzstan, and later, his desire to join the EAEC expressed and Vietnam. Also the accession of Turkey and Syria are on the way.

EEU mapMoscow began building a Russian-led community in Eurasia that would give Russia certain economic benefits and, no less important, better bargaining positions with regard to the country’s big continental neighbors—the EU to the west and China to the east.

Moldova, Ukraine and Georgia have been offered by both the European Union and the Eurasian Economic Union to join their integration unions. All three countries opted for the European Union by signing association agreements on March 21, 2014. However break-away regions of Moldova (Transnistria), Ukraine (Republic of Donetsk) and Georgia (South Ossetia and Abkhazia) have expressed a desire to join the Eurasian Customs Union and integrate into the Eurasian Economic Union.

Putin is scheduled to visit Japan later in 2014 in an effort to keep Russia’s technology and investment channel to the country open. And Moscow is expected to reinvigorate ties with India, particularly in the defense technology sphere, under the leadership of newly elected Prime Minister Narendra Modi.

The Eurasian union may become an add-on to, or even an extension of, China’s Silk Road project – a common space for economic and humanitarian cooperation stretching all the way from the Atlantic to the Pacific Ocean

Treaties and development stages of Eurasian Economic Union/Structural evolution

1991  1996  2000  1995- 2007
2007 & 2011
2014 
Eurasian Economic Union (EEU)
Eurasian Economic Space
Eurasian Customs Union (ECU)
Eurasian Economic Community (EurAsEC)
Increased Integration in the Economic and Humanitarian Fields
Commonwealth of Independent States (CIS)

Other bilateral development

Russia is in the process of politically and economically integrating with Kazakhstan and soon Kyrgyzstan under the auspices of the Eurasian Union, and it has mutual security commitments with Kazakhstan, Kyrgyzstan, and Tajikistan under the Collective Security Treaty Organization (CSTO). China, on the other hand, is more of a soft leader in Central Asia, having established lucrative business contacts in recent years and struck extremely strategic energy deals with most of the region’s members, first and foremost Turkmenistan.

A Russian-Iranian strategic partnership would extend beyond Caspian and nuclear energy issues and see implicit cooperation between the two in the Mideast, especially in Syria, Iraq, and Yemen. It can even carry over into Afghanistan after the NATO drawdown by year’s end. This can help to build an alternative non-Western-centric trade network that can bolster Russia’s complex economic interdependence with other states. This would give it the opportunity to expand mutual relations beyond the economic sphere and perhaps eventually associate these states into the multilateral webs of BRICS and the SCO.

Russia is also pursuing bilateral relations with Iran with fewer constraints. This refers to nuclear energy, oil and gas, and arms deals, all based on pragmatic considerations: a Russo-Persian alliance is unlikely in view of many differences between Moscow and Tehran and thick layers of mutual suspicion. 

At the recent summit of the SCO in Dushanbe (11-12 Sep. 2014 )the cooperation with SCO-applicant Iran went wider. Some of the projects were following:

  • The well-known “Uralvagonzavod”, began talks with Iran on the supply of freight cars 40 billion annually.
  • Interestingly, Iran is not on the camera, discussing terms of oil supplies in exchange for electricity, in which Russia plans to build in Iran, the network of hydro – and thermal power plants.
  • Iran and Russia have made progress towards an oil-for-goods deal sources said would be worth up to $20 billion, which would enable Tehran to boost vital energy exports in defiance of Western sanctions. In January Reuters reported Moscow and Tehran were discussing a barter deal that would see Moscow buy up to 500,000 barrels a day of Iranian oil in exchange for Russian equipment and goods.

(Source: EN.XPPX.org )

One particular constraint is Russia’s important relationship with Israel, which Moscow will not give up unless Jerusalem drops its neutral stance and joins the U.S.-led condemnation of Russia.

russia-japan gaspipelinesPutin is scheduled to visit Japan later in 2014 in an effort to keep Russia’s technology and investment channel to the country open. Russia is interested in restarting talks to build a natural gas pipeline between its Sakhalin Island and Japan’s far northern island of Hokkaido, Russia already supplies 9.8 percent of Japan’s LNG imports. The proposed pipeline would deliver 20 billion cubic meters of natural gas every year, which at full capacity would supply 17 percent of Japan’s total natural gas imports. As an additional bonus, using a pipeline does not require the building of expensive regasification plants and natural gas from Russia would probably still be relatively cheap. This is also part of Moscow’s attempt to balance its interests and expand its energy influence eastward.

Also Moscow is expected to reinvigorate ties with India, particularly in the defense technology sphere, under the leadership of newly elected Prime Minister Narendra Modi.

South stream serbiaRussia also hopes that Russian-Serbian trade will reach 2 billion dollars this year. He said that a free trade regime existing between the two countries was contributing to steady development of Russian-Serbian economic ties. “Our reciprocal trade turnover grew by 15% to reach 1.97 billion dollars in 2013. It grew by another 16.5% to reach 1.2 billion dollars in the first half of 2014. We hope to reach the figure of 2 billion dollars this year” Putin stressed. Positive dynamics can be seen in the sphere of investments. The total volume of Russian capital investments in Serbia has exceeded 3 billion dollars, the bulk of which was channeled into the strategically important energy sector.

While Russia is consolidating its influence over the former Soviet sphere with states which it already has cultivated deep relations with, China is moving in due its strategic interest in Central Asia. For China a top priority is to be able to diversify its natural resource import routes in order to avoid the U.S. dominated Straits of Malacca.

The growing influence of China in Southeast and East Asia and the Indian Ocean is explained with “string of pearls” concept (strategic points such as Hainan Island, the Woody Islands/close to Vietnam, Chittagong/Bangladesh, Sittue and the Coco Islands/Myanmar, Hambantota/Sri Lanka etc.). The “string of pearls” strategy is aimed at protecting China’s oil flows, affirming the country as a global naval power with diverse interests throughout the world, and overcoming attempts by the USA to cut off access to or from China via the world’s oceans. Furthermore, an important task lay in minimizing potential threats in the most complex and vulnerable choke point at the junction of two oceans, named the “Malacca Dilemma”. (Source and more in Second Wind for China’s String of Pearls Strategy   by Nina Lebedeva ).

Tehran is reaching out to Beijing as well. Iran and China have negotiated a deal to trade Iran’s oil for China’s manufactured goods. Beijing is currently Iran’s number-one customer for oil. In late September, two Chinese warships paid a first-ever visit to Iran, and the two countries’ navies carried out joint anti-piracy and rescue maneuvers.

Importing more gas from Russia helps Beijing to gradually escape its Malacca and Hormuz dilemma and industrialize the immense, highly populated and heavily dependent on agriculture interior provinces.

The Northern East-West Freight Corridor (Eurasian Landbridge) is an idea to link the Far East and Europe by rail takes its origin with the construction of the Trans Siberian railway linking Moscow to Vladivostok, completed in 1916. With a length of 9,200 km it is the longest rail segment in the world. It was initially used solely as an inland rail link, but in the 1960s the Soviet Union started offering a landbridge service from Vladivostok using the Trans Siberian to reach Western Europe.

east-west freight corridor

Energy war

U.S. ally inside OPEC, the kingdom of Saudi Arabia, has been flooding the market with deep discounted oil, triggering a price war within OPEC, with Iran following suit and panic selling short in oil futures markets. The Saudis are targeting sales to Asia for the discounts and in particular, its major Asian customer, China where it is reportedly offering its crude for a mere $50 to $60 a barrel rather than the earlier price of around $100. When combined with the financial losses of Russian state natural gas sales to Ukraine and prospects of a US-instigated cutoff of the transit of Russian gas to the huge EU market this winter as EU stockpiles become low, the pressure on oil prices hits Moscow doubly. More than 50% of Russian state revenue comes from its export sales of oil and gas. The US-Saudi oil price manipulation is aimed at destabilizing several strong opponents of U.S. globalist policies. Targets include Iran and Syria, both allies of Russia in opposing a US sole Superpower. In fact the oil weapon is accelerating recent Russian moves to focus its economic power on national interests and lessen dependence on the Dollar system. If the dollar ceases being the currency of world trade, especially oil trade, the US Treasury faces financial catastrophe.

The shale gas revolution and a greater availability of LNG technologies, EU regulatory initiatives and implementation of the Third Energy Package provisions play a key role in transformations of gas markets.

ME pipelinesNow there might be a global oil war underway pitting the United States and Saudi Arabia on one side against Russia and Iran on the other.

In July 2011, the governments of Syria, Iran and Iraq signed an historic gas pipeline energy agreement which went largely unnoticed in the midst of the NATO-Saudi-Qatari war to remove Assad. The pipeline, envisioned to cost $10 billion and take three years to complete, would run from the Iranian Port Assalouyeh near the South Pars gas field in the Persian Gulf, to Damascus in Syria via Iraq territory. The agreement would make Syria the center of assembly and production in conjunction with the reserves of Lebanon. This is a geopolitically strategic space that geographically opens for the first time, extending from Iran to Iraq, Syria and Lebanon. As Asia Times correspondent Pepe Escobar put it, “The Iran-Iraq-Syria pipeline – if it’s ever built – would solidify a predominantly Shi’ite axis through an economic, steel umbilical cord.”

In ongoing oil war the U.S. shale oil producers will suffer most. According to experts’ estimates, the cost of production is around 80-90 dollars a barrel, 4-5 times more than the traditional oil. It means that the current price – 85 dollars a barrel as of October 17 – makes the companies operate in the red. Some producers will have to suspend operations facing mass bankruptcy in case the oil price falls lower than 80 dollars as shareholders start getting rid of zero profit bonds. The shale oil «soap bubble» will blow like the housing construction industry «bubble» blew in 2008. Of course, as time goes by oil prices will go up but it’ll be a different world with some US oil producers non-existent anymore…

Russia insists the South Stream project should be exempt from the effect of the Third Energy Package because it signed bilateral inter-governmental agreements with the EU countries participating in the construction of the gas pipeline on their territory before the EU’s new energy legislation came into force. Therefore, Russia says that the European Commission’s requirement to adapt these documents to the Third Energy Package contradicts the basic law principle that legislation cannot have retroactive force. The Third Energy Package requires, in particular, that a half of the capacities of the pipeline built with Russian money must be reserved for independent suppliers, i.e. for cheap and free transit of Caspian gas to Europe independently from Russia. Therefore, Russia does not recognize the legitimacy of applying the Third Energy Package to the South Stream gas pipeline project.

Bottom line

Eurasia flagRussia has accelerated its building of the Eurasian Bridge: Russia has the geostrategic opportunity of being an air, land, and sea bridge between Europe and East Asia. In line with China’s Silk Road and New Eurasian Land Bridge projects, the concept of the Northern Sea Route, and international air routes traversing Siberia, Russia can use its geographic position to reap the resultant dividends of East-West trade and thereby increasing its middleman importance.

The geopolitical situation is now transforming from traditional Sino-U.S. relations to U.S.-China-Russia triangle in which China, rather than the United States, will be the central player.

In addition the EU is worried that Russia will turn east and Europe will lose much of its Russian market share. At a time when the euro area threatens to collapse, where an acute economic crisis has led the U.S. into a debt of up to 14 940 billion, and where their influence is dwindling in the face of the emerging BRICS powers, it becomes clear that the key to economic success and political domination lies mainly in the control of the energy source of the century: gas.

With China signing the natural gas deal with Russia and the president of China publicly stating that it’s time to create a new security model for the Asian nations that includes Russia and Iran, it’s clear China has chosen Russia over the U.S. Today the US-backed wars in Ukraine and in Syria are but two fronts in the same strategic war to cripple Russia and China and to rupture any Eurasian counter-pole to a U.S.-controlled regions. In each, control of energy pipelines, this time primarily of natural gas pipelines—from Russia to the EU via Ukraine and from Iran and Syria to the EU via Syria—is the strategic goal.

So far U.S. has bullied its way around smaller nations for too long now. It seems to me that finally there is coming to be a coalition of new axis with Eurasia and China. Russia and China are leading of developing a network of “parallel structures” to existing international organizations and institutions. The end goal is create an alternative reality for international engagement, so that China can expand its own influence while escaping the restrictions of the current U.S.-dominated system.

In my conclusion the era when the IMF, World Bank, and U.S. Treasury could essentially dictate international finances and intimidate or crush opponents with sanctions, pressure and threads are drawing to a close – the BRICS and the Shanghai Cooperation Organization are two nails in that coffin. These independent poles (BRICS, SCO, USAN) are developing fast and it remains to see what their ultimate impact on international politics will be – my scenario is that the impact will be a drastic shift from U.S. dominance to more balanced juxtaposition of U.S. and Eurasia.

eurasia revolution

Advertisements

Kosovo Referendum Prepares the Ground for Tripartite Approach

February 17, 2012

Ethnic Serbs living in northern Kosovo – municipalities of Zubin Potok, Zvecan, northern Mitrovica and Leposavic – have been voting in a two-day referendum on February 14.-15. The question was simple: Voters were asked simply ”Do you accept the institutions of the so-called ‘Republic of Kosovo’ established in Pristina?”. Turnout was at 75.28%. Final results will be made known on February 19th – just after the fourth anniversary of Kosovo’s independence declaration – but early estimate is that 99.74 % were against Pristina’s sovereignty. In Kosovo case the figure probably reflects good the opinion of local Serb population. The result shows that the barricades against EULEX were not just the work of “criminals” and “radicals” but instead have real popular support.

One should note that question about northern municipalities of Kosovo is only one – even if a core one – aspect in Kosovo framework. During NATO-bombing and after ethnic cleansing implemented by Kosovo Albanians, nearly 200.000 Serbs and Romas escaped to Serbia where they are living like internal refugees many of them in temporary conditions. Despite naïve multiethnic ideas in Brussels they have not any intentions to risk their lives by returning hostile environment and their destroyed homes. In my opinion international community – which allowed this problem to happen – should finance a housing program in Serbia for these refugees (or officially IDPs). Second core question is the fate of some half of remaining Kosovo Serbs namely those who are living in isolated enclaves outside northern municipalities in Kosovo. These enclaves are protected by KFOR troops and should be so long as Pristina administrated part of Kosovo is so hostile as it still is.

High Tension in Kosovo North

Tension has been high in northern Kosovo since last July. The situation escalated when Kosovo Serbs put up roadblocks and barricades to stop the deployment of Kosovo customs officers to border points between north Kosovo municipalities and Serbia. Several rounds of violence has occurred; a Kosovo policeman was killed and several NATO troops injured. The north was the scene of unrest in November, when some 50 soldiers from the NATO-led KFOR peacekeeping force were hurt in a dispute between the two sides over control of border crossings. This Pristina’s failed attempt to seize the northern boundary with support by EULEX and KFOR have demonstrated that using force does not solve dispute.

The governing coalition in Belgrade has called on the Serbs to end the blockade, refrain from violence and abandon the referendum and same time several EU nations, especially Germany, want Serbia’s government to make deals with Pristina so that Serbia could get EU candidate status this Spring.

In Brussels, the EU said it was preparing for a new round of talks between Belgrade and Pristina aimed at easing tensions in northern Kosovo. “There is a particular situation in the north that needs a solution, but neither violence nor barricades, or a referendum contributes to it,” EU spokeswoman Maja Kocijancic said. “Only a dialogue can achieve that.” (Source AP ) Earlier the EU pressured Serbia intensely in November and December, demanding that it force the northern Kosovo Serbs to remove their barricades in the name of “freedom of movement”. KFOR fought several actions against barricades, inflicting – and taking – casualties.

The burned down border crossing Jarinje on Kosovo's northern frontier with Serbia in the early hours on July 28, 2011. (SASA DJORDJEVIC/AFP/Getty Images)

Time to Exit-strategy?

However the western powers have on the drawing board also an other strategy of fostering change to avoid reinforcing the status quo in the north. The press in Pristina has reported about secret meetings between the Kosovo government, the US ambassador and chief of the International Civilian Office (ICO), Pieter Feith,on a new plan to push the UN out of the north. An “EU House” will be established in the north to promote the “European perspective” and to cooperate with “progressive forces” willing to work with Pristina, “parallel” municipalities in the north would remain unrecognized and “Advisory Councils led by moderate Kosovo Serbs” chosen by Pristina taking place from democratically elected bodies in Leposavic, Zubin Potok and Zvecan. To make space for these innovations the United Nations Mission in Kosovo (UNMIK) Administration in Mitrovica (UAM), that administers north Mitrovica under UN Security Council Resolution 1244, will be closed.

Also the International Steering Group (ISG) had meeting on January 24th in Vienna to deside its 2012 program for Kosovo. Despite its name ISG represents only countries which have advocated Kosovo Albanian separatism, cover costs of Kosovo Albanian state-building efforts.cover costs of Kosovo Albanian state-building efforts and try to underestimate UN Security Council Resolution 1244 – which btw represents in Kosovo highest international law. Anyway ISG issued a communique calling upon the government of Kosovo to continue to implement the Ahtisaari Plan, aiming to complete outstanding elements so that the period of “supervised independence” could terminate by the end of this year. While the outcome both politically and on operation theatre has been modest as best and the results related to investments almost non-visible, ISG probably his hurry to implement fast exit-strategy.

Marko Prelec from International Crisis Group concludes well the situation now since last summer tensions started in his post Update on Northern Kosovo Barricades. A quote:

The situation shows with crystal clarity the folly of the “freedom of movement” campaign, which cost tens of millions of Euros (flying Kosovo officials to, and from, the border day after day runs into serious money), dozens of injuries, made travel more difficult for real people and achieved nothing. All this started because of the basic disputes between Kosovo and Serbia, over Kosovo’s independence and territorial integrity. Trying to use issues like freedom of movement – or the rule of law – as tools to change locals’ minds about sovereignty issues, rather than as ends in themselves, just damages the tool. The dispute isn’t a technicality and cannot be resolved as though it were.

or back to Dialogue?

Dialogue between Belgrade and Pristina has poor history. Serbs and Albanians have been in negotiations and talks frequently over the past two decades – from the tentative efforts of the 1990s to the doomed talks in Rambouillet, France, in 1999 and the later “status” talks between 2005 (Ahtisaari’s pseudo-talks) and 2007 (“Troika” led talks). None of these has led to tangible results and left outsiders imposing an outcome, be it NATO intervention or proposing the Ahtisaari plan.

The original or better to say official aim of international community was to build “standards before status”, on 2005 the task was seen impossible so the slogan changed to “standards and status”. Even this was unrealistic so Feb. 2008 “European”standards were thrown away to garbage and “status without standards” precipitately accepted by western powers. For international community I don’t see any success story with this backward progress. Thus the multiethnic idea is far away despite EU’s billions. The remaining Serbs in Kosovo are barricaded into enclaves keeping their lives mainly with help of international KFOR troops or in de facto separated Serb majority region in North Kosovo. This has changed former multiethnic province more mono-ethnic one.

Rewrite History: The Map of Destroyed Shrines in Post-war Kosovo

(To see picture above in full size click here!)

The new situation has forced also International Crisis Group (ICG) to admit the defeat of its Kosovo policy recommendations during last decade. ICG has acted as informal extension of U.S. State Department however pretending to be neutral mediator and think tank. During earlier “status” negotiations 2005 it endorsed preconditions before talks and afterwards supported sc Ahtisaari plan. Now in their new analysis ”Kosovo and Serbia after the ICJ Opinion”  ICG sees Kosovo’s partition with land swap one of possible solutions during coming talks between Belgrad and Pristina.

The fact on the ground is that northern part of Kosovo is integrated to Serbia like it always has been, as well those parts south of Ibar river, which are not ethnically cleansed by Kosovo Albanians. Serbia still runs municipalities, courts, police, customs and public services, and the EU Rule of Law Mission (EULEX) has been unable to deploy more than a token presence there.

During the course of events, the Ahtisaari Plan was implemented in south Kosovo, the north, however, remained outside Kosovo institutions and the ICO, and the Ahtisaari Plan was not implemented there. The Ahtisaari Plan derived a formula that would allow Kosovo Serbs to have their own local institutions and communal life with continued linkages to Serbia, but within the framework of a multi-ethnic Kosovo. If partition option – which in my opinion is pragmatic, the best and even realistical way to solve Kosovo conflict – is not yet possible so then the Ahtisaari Plan might be temporary base for compromise. The Plan however needs some modification. A new follow-up – entitled ‘The Ahtisaari Plan and North Kosovo’ – is presented by TransConflict and it might be achievable as the policy paper is authored by Gerard Gallucci, the former UN Regional Representative in Mitrovica.

My Scenario

Kosovo … a Serbian province, occupied and now international protectorate administrated by UN Kosovo mission; as quasi-independent pseudo-state has good change to become next “failed” or “captured” state; today’s Kosovo is already safe-heaven for war criminals, drug traffickers, international money laundry and radical Wahhabists – unfortunately all are also allies of western powers”.

(Ari Rusila)

US based Freedom House gave in their last report (2012) rank partly free to Kosovo related to political rights and civil liberties (5,4 points respectively), while Serbia got rank free (2,2) and e.g also Croatia (1,2), Bulgaria (2,2) and Romania (2,2) got rank free, while Bosnia-Herzegovina (4,3) and Albania (3,3) fell to category partly free. (Note: Each country is assigned a numerical rating from 1 to 7 for both political rights and civil liberties, with 1 representing the most free and 7 the least free.) So even western powers must addmit that despite billions of dollars for Kosovo state-building efforts during last 12 years the outcome is that the protectorate still is among the worst in region related to political rights and civil liberties. One could ask why then Kosovo Serbs should go backwards by integrating to that society when better the alternative could be integrate also officially to more developed Serbia.

In my opinion Kosovo will remain a frozen conflict probably whole this decade. The western powers can not addmit – yet – that their intervention was a mistake, international community can not addmit its failure with capasity-/state-building efforts after squandering billions of Euros, noor that instead of multiethnic democracy the out outcome mono-ethnic tribe-society.  EULEX etc will continue to build some facades and pseudo-activities like it used to do, Pristina pretends that north is integral part of their quasi-independent pseudo-state which the North never has been, the Kosovo institutions do not exist in the north, and it is very unlikely that they will be established there soon. Hard-line Serbs keep claim about Kosovo as Serbian province, which it indeed has been but after 1999 situation on the ground changed; instead the today’s government in Belgrade might change in next elections. What is clear after referendum is that population in Kosovo’s northern municipalities does not want to integrate Pristina lead institutions, they want to continue their living as part of Serbia like they always have been, in short they want reunify northern municipalities with Serbia again.

After this quite pessimistic view one can ask if there is any other way forward. From my point of view there is the negotiation option. But this time negotiations should base facts on the ground instead of high-flown ideas in Washington and Brussels, around negotiation table in addition to Belgrade and Pristina representatives should be also local stakeholders from northern Kosovo and selected by local population. The referendum made positions clear for tripartite approach.

More eg in Kosovo: Two years of Pseudo-state

Serbia: Kosovo vs EU?


NATO 2020: Downsizing Instead of Reshaping

August 30, 2010

Note:

My article was originally published on August 30, 2010 as OP-ED in a collaborative project to create recommendations for NATO’s new Strategic Concept by Atlantic-Community.Org (open think tank).

Ari RUSILA: Rather than providing for collective defense, today’s Alliance is invited to join American wars. Instead of scribbling a new Strategic Concept for NATO that will preserve the dominant position of the US, it might be wiser for European states to develop a New Security Structure within the EU to replace the Cold War relic.

During last sixty years, the security environment and NATO’s role within it have both changed considerably. Threats are more diverse, as the main enemy of the Alliance disappeared in the 1990s. An attack in North America or Europe by the army of an outside state is highly unlikely. Instead of providing for collective defense, NATO is invited to fight US wars by attacking sovereign states. While experts are busy planning the new Strategic Concept, they have avoided a core question: Is NATO needed in the post-Cold War security structure, or could today’s challenges be better met by replacing the Alliance with existing, modernized organizations?

Attack is the Best Defense?

Today’s NATO is an extension of US State Department, where the role of other members is to support US wars, guarantee the quarterly profits of the US military-industrial complex (MIC), and try to cover damages and failures of these aggressions economically by using “soft power.”

From her side, the US is motivated by the prospect of gaining control over the world’s main energy resources. Examples include the US “Silk Road Strategy” (SRS) and the GUUAM (Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova) Group, which aimed to block Russia from gas fields in the Caspian Sea, cut her connection to Iran, and isolate Moscow politically. Most conflicts from the Balkans to Afghanistan have their roots in the SRS. Russia’s counter actions have been successful, and both the SRS strategy and GUUAM have been failures. Today, the main focus of the US is to keep a foothold in Central and South Asia and to prevent the expansion of China. NATO’s role is to provide political backing and financial support for these American foreign policy goals, and does not necessarily reflect the EU’s interests (read more in my article Is GUUAM dead?).

Threats Today and in the Near Future

The collapse of Communism removed the original idea of NATO’s existence, and among the Allies there is a growing fatigue to participate in real or imaginary attacks around the world led by an American cowboy policy. The changed security environment has raised the question of NATO’s continuing relevance, and so a new Strategic Concept is being developed to define new threats in order to legitimate the Alliance’s existence. The following can have some relevance:

  • Nuclear weapons and other weapons of mass destruction (WMD), and their means of delivery, whether in the hands of irresponsible states or non-state actors.
  • Malevolent use of modern technology and information systems by individuals, organizations and states to target the vulnerable areas of societies is today’s reality – cyber space is a growing battlefield.
  • Globalization is making borders more fluid, so the flow of goods, services, people, technology, crime and weapons is increasing. Open borders can be used to harm different societies by groups with political, religious, economic, or criminal motivations. Also, the communication, transport, and transit routes that link the multi-polar world together are increasingly vulnerable.
  • Climate change, migration of people, struggle over raw materials, and clean water can also be the cause of future conflicts.
  • Intrastate conflicts will continue, caused by both ethnic and economic factors.

The New Security Structure

The New Security Structure – which could replace NATO – should in my opinion cover the whole crisis cycle, from prevention to crisis management to post-crisis stabilization and capacity-building measures. From the EU perspective, the core of this structure should be a combination of the European Security and Defence Policy (ESDP), the Common Foreign and Security Policy (CFSP), and EU Battlegroups (EUBG). An even wider structure could be created by reinforcing the OSCE as the main security organization in Europe, but this may require a longer time. In order to respond to today’s threats, the ESDP/CFSP/EUBG should coordinate its activities with the UN/Department of Peacekeeping Operations (world wide crisis cycle management), the IAEA (nuclear and other WMD), Interpol/Europol (organized crime, cyberwar) and FRONTEX (borders).

One crucial question, at least during the transitional period from NATO to the New Security Structure, is the coordination of US hard power with EU soft power in ongoing operations. If EUBG is not enough, more military muscle can be provided by the US. However, America will only help its European partners if the US military-industrial complex has some interest in doing so. Additionally, private firms will be more than ready to take on the dirty jobs: assassinations of terrorists, torture, and trafficking, among others (as they are currently doing in Pakistan on the CIAs payroll). Europe must work to establish its own security structure in order to free itself from the obligation of being complicit in such tactics, which are accepted means of defending and spreading western democratic values under the current US-dominated Alliance.



EU’s phone number?

March 23, 2010

HOW many presidents does it take to represent the EU at a diplomatic conference? Three. That’s the number of European “leaders” going to future G20 talks. (The Sunday Express Comment)

Former US Foreign secretary Henry Kissinger once asked what’s the EU’s phone number. Few months ago EU finally started to act according the Lisbon Treaty with promises that it would make the EU more streamlined in reaching objective that the EU should speak with one voice. Seems it didn’t.

The Sunday Express reported following:


Under the treaty terms, an obscure Belgian politician, Herman Van Rompuy, was appointed EU president and meant to represent all the people in the EU. He doesn’t. His jealous rival, Commission president José Barroso, will accompany him to the talks as will, at times, the head of state holding the rotating presidency of the European Council. No wonder foreign leaders are confused. Politically, the EU is a joke.

Mr Van Rompuy, the former Belgian prime minister dismissed last month by Ukip MEP Nigel Farage as a “damp rag” and a “low-grade bank clerk”, is the permanent president of the European Council. That means he has overall responsibility for foreign policy and security matters.And while the commission’s President Barroso will speak on climate change, there are a number of areas where their responsibilities overlap. One is energy, which is considered both a security and a commission policy area. Only when these circumstances arise will the pair of presidents decide who is to speak, however.

So even three EU presidents to one summit? Is this the last final nail in the coffin of the Lisbon Treaty aim to clarify the positions of EU? How about baroness Ashton, doomed to be a bystander? It seems that instead EU’s phone number Brussels will send a phone book to Washington, Moscow and Beijing.

After top post EC selection I concluded in my article “EU foreign policy in relation of EC selections”following:

The appointments may be good or bad depending which European perspective one likes most. Besides EC bureaucracy and puppet parliament we now have two more officials without authority, respect and proven skills at top level international politics. This means that big players are still calling to London, Berlin and Paris instead of Brussels. For Euro-sceptics this guarantees that EU will not be a key player in international politics its role will be controlling citizens with directives in small details, an discussion forum for joint economical actions.

There is urgent need to streamline EU foreign policy, EC and European External Action Service (EEAS) for implementing Lisbon ideas. Otherwise EU must wait similar situations as e.g. in “Floppenhagen” COP15. Of course if the whole EEAS, with its €6 billion a year development budget to squander, is such a joke than the nomination of Ashton allows to understand so nothing needs to be done and decline of EU as actor in international politics can continue so that the union can concentrate to its core function as distributor of agricultural funds. Is it good or bad depends from the viewpoint.

I’ve always questioned whether the construction would work… the post [EU foreign minister] is set up in a way that makes it virtually impossible.(Carl Bild)


Will Coin work in Afghanistan?

December 11, 2009

“After 18 months, our troops will begin to come home.” (Barack Obama)

They are coming already in coffins.” (Ari Rusila)


US President Obama finally announced his new counter-insurgency (aka “Coin”) strategy in Afghanistan – which continues mostly the strategy of his predecessor Mr. Bush. Generals and influential – if not decisive – military-industrial complex got what they want and once again USA is seeking military solution to mainly political problem. I am interested to see if the selected strategy can be implemented, against or for whom it is planed, what is the role of Europe in this game and whether there would be maybe better alternatives available.

President Obama justified sending 30,000 more troops to Afghanistan at a cost of $30 billion a year. US mission is seize the initiative against a resurgent Taliban while building the capacity of Afghan forces so that American and NATO forces can gradually hand off security responsibilities to the Afghans. Also, support the further development of the Afghan economy and key Afghan civilian institutions. The troops should start to return after 18 months on Summer 2011 just before next US President election.

COIN

Counterinsurgency: military, paramilitary, political, economic, psychological, and civic actions taken by a government to defeat insurgency. Political power is the central issue in insurgencies and counterinsurgencies.

A figure of Mr. David Kilcullen, the counterinsurgency strategist and aid of General Petraeus, describes well the different elements of Coin.


Coin theory emphasises a “population-centric” over an “enemy-centric” approach. It disinters the language of “clear, hold and build”, resonant of the Vietnam era, and describes soldiers and marines as “nation-builders as well as warriors” (to borrow a phrase from the US army’s much-lauded 2006 counter-insurgency field manual, co-authored by the celebrated General David Petraeus). Coin is predicated on the idea that it is possible to win supporters for an insurgency by providing security and basic services, and ensuring the presence of a strong, legitimate government.

Mike Whitney in his article Obama’s plan for Afghanistan gives an other perspective to new strategy:

Militarily, the goal is to pit one ethnicity against the other, to incite civil war, and to split the country in smaller units that can be controlled by warlords working with Washington. But instead of unifying the different ethnic regions of Afghanistan, the NATO occupation seems headed more toward a de facto partition of these regions. The foreign policy team that President Obama has assembled includes some of the same figures who advocated the ethnic-sectarian partition of Yugoslavia and Iraq. Obama’s Special Envoy to Af-Pak, Richard Holbrooke, authored the agreement that partioned Bosnia into Serb and Muslim-Croat republics in 1995, in effect rubber-stamping the ethnic cleansing that had forcibly removed populations during a three-year civil war. He also turned a blind eye when Serb civilians were expelled from Croatia the same year, and from Kosovo in 1999.

During his inaugural visit to Washington, new German defence secretary, Karl Theodor zu Guttenberg said it was necessary to put aside “the romantic idea of democratization of the whole country along the lines of the western model” and instead “transfer control of individual provinces step by step to the Afghan security forces.” The new strategy of “regionalization” is aimed at dividing Afghanistan into individual cantons—in a similar manner to what took place in Lebanon and the former Yugoslavia. Up to now the US-NATO occupation supported the government of Hamid Karzai and sold the process to the public as “democratization”. However, occupation forces are moving increasingly to hand over power directly to regional warlords and their militias—on the assumption that such regional forces will follow the orders of their imperial masters. As soon as there is no more danger in a specific province, Guttenberg declared, then the international troops should be withdrawn from that area.

Will it work?

“It’s an expensive gamble to undertake armed nation-building on behalf of a corrupt government of questionable legitimacy.” (Russ Feingold, Democrat Senator of Wisconsin)

Leave the Rag Heads to their rocks . Close the borders. (one alternative strategy in discussion forums)

The only Afghans that will welcome US troops are the ones that can successfully exploit them to wipe out rival tribes. The rest want them dead. However the new plan hopes that U.S. troop numbers and operations will set the Taliban on its heels and give the Afghan government and friendly regional authorities the time and space they need to hold off the Taliban on their own.

The US Army Field manual (2006) emphasises the importance of “troop density”, or the ratio of security forces to inhabitants: “20 counter-insurgents per 1,000 residents (or 1:50) is often considered the minimum troop density required for effective Coin operations”.

The CIA estimates Afghanistan’s population, as of July 2009, to be roughly 28.4 million. Thus, going by the 1:50 ratio, the size of the US-led coalition force would need to be approximately 568,000 troops. Even adding in the 97,000 Afghan police officers and the 100,000-odd Afghan soldiers leaves the NATO-led force more than 200,000 counter-insurgents short of the “minimum”.

Mehdi Hassan gives even more pessimistic view over Coin numbers game in his article “Two sides of the Coin”. He claims that the Afghan National Army is plagued by desertion: 10,000 recruits have disappeared in recent months. Soldiers are under-equipped and underpaid; some 15 per cent of them are thought to be drug addicts. Dominated by Tajik troops from the north of the country, the “national” army has little or no credibility in the southern, Pashtun areas of Afghanistan, where the Taliban mainly operate, and from where they draw ethnic support.

A quote from mentioned article of Mr. Hassan:

The Afghan army is useless and the police are corrupt,” says Dan Plesch, director of the Centre for International Studies and Diplomacy at the School of Oriental and African Studies. “So what does McChrystal propose? More useless troops and corrupt police. It’s a counter-intuitive solution.” According to Plesch, there is a yawning gap between Coin theory and practice. “It’s all fine on paper, but that doesn’t translate into success on the ground,”

According to a recent statistics, one gallon oil costs the invading troops $ 400 and annual expenditure of one soldier is almost one million US dollar. They have to pay $ 30 billion more per year for the troops surge recently announced by Obama. The administration already planned to spend $73bn on Afghanistan in the fiscal year 2010. Now the total will be over $100bn.

To these numbers, add a shadow footprint consisting of tens of thousands of private contractors – 73,968 according to a September 21, 2009 Congressional Research Service (CRS) Report as of June 2009. Included are familiar names like Kellogg, Brown and Root, Fluor Corp, Lockheed Martin and hired guns like DynCorp and Xe (formerly Blackwater USA) costing tens of billions of dollars in Iraq and Afghanistan for lack of oversight so scandalous that rampant waste, fraud, and abuse go unmonitored and will worsen with more troops. Additionally the infamous Blackwater, now called Xe, is at work for the CIA, which is spearheading the covert Pakistan war, and this all costs money, big money. So, fortunately, the agency still has the opium crop to cover the shortfalls in budget or cash.

President Karzai said that Afghanistan would not be able to pay for its own security until at least 2024, underscoring his government’s long-term financial dependence on the United States and NATO even as President Obama has pledged to begin withdrawing American troops in 2011.

Against whom?

Afghanistan is no longer home to al-Qaeda (Pakistan is), and al-Qaeda doesn’t need Afghan territory to be a threat. Nor is it certain the Taliban would invite al-Qaeda back in if it had the chance. President Barack Obama’s description of the al Qaeda “cancer” in that country left out one key fact: U.S. intelligence officials have concluded there are only about 100 al Qaeda fighters in the entire country. With 100,000 troops in Afghanistan at an estimated yearly cost of $30 billion, it means that for every one al Qaeda fighter, the U.S. will commit 1,000 troops and $300 million a year.

A powerful grass roots movement has blossomed in Afghanistan, giving its people new hope, self-esteem and a sense of belonging. The problem for US is that this movement is the Taliban. The Taliban and their allies have shadow governments in 33 of Afghanistan’s 34 provinces. There is a fear among Western military officials and diplomats that the Taliban insurgents are doing much more than the Afghan government to establish good governance and accountability. The Taliban aid groups also coordinate widely their activities with the Taliban in remote areas, so the Taliban can claim the credit and not the government. In the remote provinces, the Taliban’s efforts have reinforced two images: on the other hand an absent and/or corrupt Afghan central government and effective and accountable Taliban administration on the other. It seems logical that what Afghanistan needs is not solutions from the top down but from the bottom up. Now it seems that the Taliban — a dispersed people’s movement, spanning thousands of villages, through which the Afghan people can regain a sense of control over their government – is answering better the to the needs of ordinary citizens than US and their puppet government in Kabul.

If local commitment or participation to “new” strategy is weak I think that it does not have any possibilities to realize. Speaking about local motivation to help Yanks to implement their task it might be good idea to recall a couple of years old CBS documentary – “Bombing Afghanistan“- A little comparison of the Russian past and current practice of a Yank in Afghanistan. A couple of extracts:

“During the Russian invasion we have not heard of 10 members of one family being killed by Russians in one incident. But the Americans did that, “remarked a Villager.

“We used to hate the Russians much more than Americans,” replied the Villager. “But now when we see all this happening, I am telling you Russians behave much better than the Americans.”

Instead of terrorists or Al Oaeda US seem to fight against just ordinary citizens.

For whom?

If it is difficult to find the real enemy for new US strategy in Afghanistan the better question could be for whom the strategy will be implemented. Given the influence of military-industrial complex in US (foreign)policy the answer may be found from that direction.

The vital interest of US could be to ensure that Pakistan does not become a failed state with, in the worst case, its nuclear weapons falling into the hands of terrorists. Ironically the US provides one-third of the entire budget of the Pakistani Inter-Services Intelligence, which e.g. India consistently highlights as the mastermind of terrorism in the region.

One can have an reasonable understanding that the core issue in this war is not Afghanistan or “defending the American people” — but establishing a stable U.S. domination over a broad and highly strategic swath reaching from Iran (east of Afghanistan) to Pakistan (west of Afghanistan).

Equally, there is better awareness in Delhi that the war in Afghanistan is not merely about hunting down Osama bin Laden but is also a war with an agenda towards Central Asia, Russia, China and Iran.

US military-industrial complex has been shaping the country’s economy and affecting its foreign policy. the last decade of military adventurism A recent count found the Department had 47,000 primary contractors, or over 100,000 firms, including subcontractors, and if a full tally of the Federal money headed their way were made, it would lift the published defense budget by about two-thirds, or $300 billion. The avalanche of money sustains and coopts everyone from Halliburton ($6 billion in one recent year) to Electronic Data Systems Corporation ($2.4 billion) to Verizon ($277 million) to Proctor & Gamble ($362 million) Even academia is in tow, with about 350 colleges and universities agreeing to do Pentagon-funded research. Amid all this waste the Pentagon spares no effort to keep the media on its side, both in the US and elsewhere. Believe it or not, the military allocated at least $4.7 billion this year to “influence operations” and has more than 27,000 employees devoted to such activities.

Besides military industry also energy sector has its interests in Afghanistan. In his article “The Great Game – The War For Caspian Oil And Gas” Christopher Bollyn describes following:


Those that control the oil routes out of Central Asia will impact all future direction and quantities of flow and the distribution of revenues from new production, Enron, the biggest contributor to the Bush campaign of 2000, conducted the feasibility study for a $2.5 billion Trans-Caspian gas pipeline, which is being built under a joint venture agreement signed in February 1999 between Turkmenistan and two American companies, Bechtel and General Electric Capital Services. Enron, a Texas-based gas and energy company, together with Amoco, British Petroleum, Chevron, Exxon, Mobil and Unocal are all engaged in a multi-billion dollar frenzy to extract the reserves of Azerbaijan, Kazakhstan, and Turkmenistan.

Noble rhetoric about fighting for justice and democracy is masking a less noble struggle for control of an estimated $5 trillion of oil and gas resources from the Caspian Basin .,” The Trans-Afghanistan Pipeline is slated to be completed in 2014, with $7.6 billion in funding from the Asian Development Bank.

EU as bystander – Russia proposes Security Treaty


From an European perspective has it has been humiliating to wait months what President Obama will decide about Afghanistan – where is the EU alternative given the praise above in my quote? There is much talk in EU of civilian crisis management skills and soft power to resolve conflicts. If such expertise exists why there is no alternative strategies prepared in EU, why EU is outsourcing strategical planning to USA.

I am not saying that an Afghanistan strategy prepared in EU machinery or by European think tanks would be better than that now planned in Pentagon. What interferers me is that there is even try to make it. There is some civil-military co-operation models in Europe, some experience about implemented missions, some studies about “comprehensive approach”. Why EU’s machinery has not developed a program for Afghanistan with its own LogFrame methods?

How the EU’s role in international politics can grow if it does not create alternative models from EU’s own strengths. and not anticipated the initiative to implement them?

More over EU foreign policy possibilities e.g. in my article “Could EU lead the 3rd way out from confrontation

There is also possibilities for wider preparation to deal with international conflicts by developing the ideas proposed Russian President Medvedev. From my point of view his Treaty of European security –draft should be given the change. In his speech in the Serbian Parliament 20/10/2009 he summarized as follows:

Preparing and signing a European Security Treaty could be a starting point for creating a common security zone in the Euro-Atlantic region, and would provide equal and reliable guarantees to all states.

The idea is to build an international cooperation mechanism under UN Security Council responding to threads and challenges in the security sphere. I think that now it is time at least discuss about lessons learned, develop, copy and apply better practices and the forum should be much more wider than Pentagon only. Will the outcome be a new structure or updated old one shall be seen but even more important is to start process itself.

A guestion of Pashtunistan?

Pashtunistan is not on any map, but it’s where leaders of Al Qaeda and the Taliban both hide. It straddles 1,000 miles of the 1,600-mile Afghan-Pakistani border. It is inhabited by the ethnic Pashtuns, a fiercely independent people that number 12 million on the Afghan side and 27 million on the Pakistani side. They have a language (Pashto), an elaborate traditional code of legal and moral conduct (Pashtunwali), a habit of crossing the largely unmarked border at will, and a centuries-long history of foreign interventions that ended badly for the foreigners. Today, the enemies of the United States are nearly all in Pashtunistan, an aspirational name coined long ago by advocates of an independent Pashtun homeland.

The Americans can fight openly only in Afghanistan, not in Pakistan, and the Taliban know it. What to do with Pakistan, bomb it to stone age or what? I hope that planning of Pakistan case has started and is going on with higher standards that Afghanistan case has implemented.

Grass root approach needed instead top to bottom

A revolutionary war is 20 per cent military action and 80 per cent political is a formula that reflects the truth.” (David Galula, Counter-Insurgency Warfare: Theory and Practice, 1964)

U.S. spending in Iraq 2003-2006 was 1.4% civilian, 98.6% military” (Dan Sullivan, Sep 2006)

The strategy which Obama now selected has been in public more than three months. I really wonder how the brainstorming during this time has not better outcome than to continue strategy which President Bush already began years ago.

In my previous article “Afghanistan – to be or not” I present other options and summarize my idea as follows:

My conclusion is that the core question is not in or out. I would see the word with as best practice for future relations between the US / EU and Afghanistan.

The civil component and its use is a core question related to further developments in Afghanistan. Normally in US operations the numbers of civilians are normally a tiny fraction of what the military surge numbers are. Capacity building is critical not just in Kabul or inside military compounds, but out there in the field at the district and local levels.

Without local commitment any solution – military or civilian – is not sustainable. Of course if the perspective is only to next U.S. election campaign then real solutions are not the core question.

Bottom line

15. Do not try to do too much with your own hands. Better the Arabs do it tolerably than that you do it perfectly. It is their war, and you are to help them, not to win it for them. Actually, also, under the very odd conditions of Arabia, your practical work will not be as good as, perhaps, you think it is.” (T.E.Lawrence, “Twenty-Seven Articles”, 20.08.1917)

This is a 10-year, trillion-dollar effort and does not match up with our interests,” Obama said while receiving a memo over costs of McChrystal plan. I agree and have doubts whether the new strategy will serve only to guarantee the wins of military-industrial complex.

The Taliban wrote in a statement emailed to news organizations that they have “no agenda of meddling in the internal affairs of other countries and is ready to give legal guarantee if the foreign forces withdraw from Afghanistan,”

Critics of the new focus on counter-insurgency theory claim it is a tactical gimmick that enables policy-makers to avoid thinking long and hard about what the endgame in Afghanistan will actually look like. It is not a recipe for winning the war in the long run, they say; it is only for avoiding defeat in the short run.

Sun Tzu wrote in The Art of War following: “Strategy without tactics is the slow road to victory, but tactics without strategy is the noise before defeat.” I agree and would add that if there is no vision about endgame one does not even know is the road leading to victory or defeat.

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed…. We pay for a single destroyer with new homes that could have housed more than 8,000 people…. This is not a way of life at all, in any true sense. (President Dwight Eisenhower)



EU’s Community Initiatives would bring Europe closer to its people

June 20, 2009

Blogactiv.eu” –article, posted by “Challenge for Europe” on 19th June 2009  highlights the importance of EU’s Community Initiatives as most successful popular direct contacts between the EU institutions and the citizens in their local communities.

“The EU mobilized European citizens in getting together, discovering sustainable practices elsewhere, while getting involved in decision-making at home. It opened doors to similar initiatives in Member states and accession countries and made Europe tangible.”

The article also makes proposal that EU should again substantially invest into local initiatives and bottom-up support in order to bring Europe closer to its people.

I full agree with initiative made by “Challenge for Europe“.  I personally have been enjoying about the real progress on the ground while managing many international “bottom up” projects financed by EU.  I also agree that real effect can best be achieved through participatory planning methods and commitment of local stakeholders is the key element for successful project implementation. As side effect I don’t expect only EU citizens feel EU closer but also that people outside member-states could see EU as practical partner instead of colonialist administrator or mastermind.

When the project is made like desk plan in Washington or Brussels with some cooperation with state’s central government there always is a risk of more or less big gap between beneficiary needs and centralized aims. Some of these failures I  have earlier described in my writings “World Bank destroyed Albanian village in joint operation with corrupted Government…” , “UN death Camps, EU money, local negligence” and “Squandering Kosovo’s Aid Funds”.

Personally I am most interested about EU community initiatives which are improving cooperation between regions/institutions inside EU and those outside of them.  Projects inside ENPI (EU’s neighbourhood policy tool) as well Interreg and Framework programs allow some actions implemented also outside EU borders.  As the challenges and practices many times differ a lot of those inside EU the situation makes it possible to develop good and creative practices to all participants.


From my point of view new community initiatives should be more implemented especially on the fields which normally are under EU’s external relations, enlargement policy, pre-accession instruments, CFSP (common foreign policy) or ESDP (security & defence policy). Characteristic today is that huge EU funding is going through programmes, operations and missions on those fields based on centralized planning and only fraction at best is planned with local stakeholders.

The key element is the local participation, without it the results can be like in Afghanistan which is going opposite direction than originally intended (more e.g. in my article “Karzai’s administration worse than Taliban”).  Same case in Bosnia-Herzegovina where ethnic groups are building their own statehood components against EU’s efforts to strengthen centralized state. Same in Kosovo where despite high-flown statements about developing “European” standards the province is still a tribe leaded protectorate with poor administrative record, unsustainable economy and captured by crime organized crime groups.

To close the gap between centralized (Brussels, state level) aims and practice on field (regional or mission level) the following actions could according my experience be useful:

  • improvement of situation analysis,
  • developing field experience feedback during missions or program period,
  • applying “project cycle management” practice in operation/mission/program planning procedure,
  • Logical Framework Approach should be applied through the process,
  • Special need is also use Participatory Planning methods so that all stakeholders can commit to actions.

The EU funding(programs) should not be too fixed, new – and old – community initiatives should give free space for local challenges because then it is also possible to find some creative solutions, good practices for both participants in EU member-states as well outside of them.



EU’s Community Initiatives would bring Europe closer to its people

June 20, 2009

Blogactiv.eu” –article, posted by “Challenge for Europe” on 19th June 2009  highlights the importance of EU’s Community Initiatives as most successful popular direct contacts between the EU institutions and the citizens in their local communities.

“The EU mobilized European citizens in getting together, discovering sustainable practices elsewhere, while getting involved in decision-making at home. It opened doors to similar initiatives in Member states and accession countries and made Europe tangible.”

The article also makes proposal that EU should again substantially invest into local initiatives and bottom-up support in order to bring Europe closer to its people.

I full agree with initiative made by “Challenge for Europe“.  I personally have been enjoying about the real progress on the ground while managing many international “bottom up” projects financed by EU.  I also agree that real effect can best be achieved through participatory planning methods and commitment of local stakeholders is the key element for successful project implementation. As side effect I don’t expect only EU citizens feel EU closer but also that people outside member-states could see EU as practical partner instead of colonialist administrator or mastermind.

When the project is made like desk plan in Washington or Brussels with some cooperation with state’s central government there always is a risk of more or less big gap between beneficiary needs and centralized aims. Some of these failures I  have earlier described in my writings “World Bank destroyed Albanian village in joint operation with corrupted Government…” , “UN death Camps, EU money, local negligence” and “Squandering Kosovo’s Aid Funds”.

Personally I am most interested about EU community initiatives which are improving cooperation between regions/institutions inside EU and those outside of them.  Projects inside ENPI (EU’s neighbourhood policy tool) as well Interreg and Framework programs allow some actions implemented also outside EU borders.  As the challenges and practices many times differ a lot of those inside EU the situation makes it possible to develop good and creative practices to all participants.


From my point of view new community initiatives should be more implemented especially on the fields which normally are under EU’s external relations, enlargement policy, pre-accession instruments, CFSP (common foreign policy) or ESDP (security & defence policy). Characteristic today is that huge EU funding is going through programmes, operations and missions on those fields based on centralized planning and only fraction at best is planned with local stakeholders.

The key element is the local participation, without it the results can be like in Afghanistan which is going opposite direction than originally intended (more e.g. in my article “Karzai’s administration worse than Taliban”).  Same case in Bosnia-Herzegovina where ethnic groups are building their own statehood components against EU’s efforts to strengthen centralized state. Same in Kosovo where despite high-flown statements about developing “European” standards the province is still a tribe leaded protectorate with poor administrative record, unsustainable economy and captured by crime organized crime groups.

To close the gap between centralized (Brussels, state level) aims and practice on field (regional or mission level) the following actions could according my experience be useful:

  • improvement of situation analysis,
  • developing field experience feedback during missions or program period,
  • applying “project cycle management” practice in operation/mission/program planning procedure,
  • Logical Framework Approach should be applied through the process,
  • Special need is also use Participatory Planning methods so that all stakeholders can commit to actions.

The EU funding(programs) should not be too fixed, new – and old – community initiatives should give free space for local challenges because then it is also possible to find some creative solutions, good practices for both participants in EU member-states as well outside of them.

 



%d bloggers like this: