¥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


¥uan and Waterloo of Petro$ (Part 2/2)

November 10, 2014

yuan logoU.S. sanctions due the conflict in Ukraine launched Russia’s counter-offensive with bypassing the U.S. dollar system as its spear-head. My previous article ¥uan and Waterloo of Petro$(Part ½) describes this monetary war. The gas contract, signed between Russia and China in May 2014, and a new wave of the EU sanctions in September 2014 are paving the road towards the revival of traditional (neo)realist balance of power.

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. 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.

Also, 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.

At 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.

Putin 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.

eurasia revolution

 


Freedom 2010 in Balkans and Eastwards

May 1, 2010

“Freedom of the press, freedom of association, the inviolability of domicile, and all the rest of the rights of man are respected so long as no one tries to use them against the privileged class. On the day they are launched against the privileged they are overthrown.” (Prince Peter Kropotkin)

diagram by David Nolan

diagram by David Nolan

Different aspects of freedom are globally fundamental value of human rights, civil liberties or human development in general. Human development has been described in UNDP as “a process of enlarging people’s choices”. This in turn requires the freedom of people to make their choices and the opportunities to realize them. Rankings or ratings are one kind of (process) benchmarking in which organizations or in this case states evaluate various aspects of their processes in relation to best practice.

In this article I make a short update about political rights and civil liberties, freedom of press and some economical aspects in mostly Balkans and Black Sea regions. As sources (described next paragraph) I have used last reports available. Besides regions mentioned I have included to table also top and worst scores, U.S. as old superpower and BRIC countries as rising superpowers.

Sources of this story:

United Nations Development Programme (UNDP) is is the UN’s global development network. Since 1990, annual Human Development Reports have explored challenges including poverty, gender, democracy, human rights, cultural liberty, globalization, water scarcity and climate change. The Human Development Index (HDI)Table HDR 2009 measures the average achievements in a country in three basic dimensions of human development: a long and healthy life, knowledge and a decent standard of living. More: UNDP http://hdr.undp.org/en/

Freedom House is an independent watchdog organization that supports the expansion of freedom around the world. Freedom House supports democratic change, monitors freedom, and advocates for democracy and human rights. Founded in 1941 by prominent Americans organization’s viewpoint is mostly Anglo-American. Freedom House has been publishing its Freedom in the World reports since 1972 and it publishes also Freedom in the Press report since 1980. More: Freedom House

Founded in 1973, The Heritage Foundation is a research and educational institution—a think tank—whose mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense. Together with The Wall Street Journal they publish e.g. “Economic freedom index”. More: The Heritage Foundation.

The World Economic Forum (WEF) is an independent, international organization incorporated as a Swiss not-for-profit foundation. WEF believes that economic progress without social development is not sustainable, while social development without economic progress is not feasible. WEF aims to be: the foremost organization which builds and energizes leading global communities; the creative force shaping global, regional and industry strategies; the catalyst of choice for its communities when undertaking global initiatives to improve the state of the world. WEF defines competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country. World Economic Forum has published “The Global Competitiveness Report 2009-2010” which gives an other viewpoint to economic freedom.

Reporters Without Borders is registered in France as a non-profit organisation and has consultant status at the United Nations. Reporters Without Borders is present in all five continents through its national branches. Reporters Without Borders: defends journalists and media assistants imprisoned or persecuted for doing their job, fights against censorship, gives financial aid to journalists in difficulty and works to improve the safety of journalists, especially those reporting in war zones. Reporters Without Borders has fought for press freedom on a daily basis since it was founded in 1985.

Summary table of Freedom in Balkans, Black Sea and some comparison data

(Note: the order below is made according UNDP’s “Human development index”, in other categories order can be checked from ranks)

Human development index

(UNDP)

Freedom Status

(Freedom House) Political Rights/ Civil Liberties

Economic Freedom (WSJ/THF) & Competitiveness (WEB) Press Freedom (Reporters w. borders/Freedom House)
Rank

(↑..↓

2006)

Country ///

Name & Score

P R C L Status HF/WSJ Rank/Scr

WEB Rank/

Trend

RWB

Rank/ Score

FH Rank
1. Norway (0.971) 1 1 Free 37./69.4 14 +

1./0,00

1
13. ↓ U.S.A. (0.956) 1 1 Free 8./78.0 2 – 20./4.00 24
25. Greece (0.942) 1 2 Free 73./62.7 71 — 35./ 9,00 29
29. Slovenia (0.929) 1 1 Free 61./64.7 37 ++ 37./ 9,50 25
45. Croatia (0.871) 1 2 Free 92./59.2 72 — 78./ 17,17 85
61. ↓ Bulgaria (0.840) 2 2 Free 75./62.3 76 68./15,61 76
63. ↑ Romania (0.837) 2 2 Free 63./64.2 64 + 50./12,50 88
65. Montenegro (0.834) 3 2 Free 68./ 63.6 62 + 77./17,00 80
67. Serbia (0.826) 2 2 Free 104./56.9 93 — 62./ 15,50 78
70. Albania (0.818) 3 3 Partly Free 53./66.0 96 + 82./21,75 102
71. ↑ Russia (0.817) 6 5 Not Free 143./50.3 63 – 153./60,88 175
72. Macedonia FYR (0.817) 3 3 Partly Free 56./65.7 84 + 34./ 8,75 94
75. Brazil (0.813) 2 2 Free 113./ 55.6 56 ++ 71./15,88 88
76. Bosnia-Herzegovina (0.812) 4 3 Partly Free 110./56.2 109 – 39./ 10,50 97
79. ↓ Turkey (0.806) 3 3 Partly Free 67./63.8 61 + 122./ 38,25 106
NA Kosovo (under UN 1244) 5 4 Partly Free NA NA 75./ 16,58 108
84. ↑ Armenia (0.798) 6 4 Partly Free 38./69.2 97 111./31,13 146
85. ↓ Ukraine (0.796) 3 2 Free 162./46.4 82 — 89./ 22,00 108
86. ↑ Azerbaijan (0.787) 6 5 Not Free 96./58.8 51 + 146./53,50 172
88. ↓ Iran (0.782) 6 6 Not Free 168./43.4 NA 172./104,14 187
89. ↑ Georgia (0.778) 4 4 Partly Free 26./70.4 90 81./18,83 126
92. ↑ China (0.772) 7 6 Not Free 140./51.0 29 + 168./84,50 181
117. Moldova (0.720) 3 4 Partly Free 125./53.7 NA 114./33,75 144
134. India (0.612) 2 3 Free 124./53.8 49 + 105./29,33 72
182. Niger (0.340) 5 4 Partly Free 129./52.9 NA 139./ 48,50 151

Full reports and country analysis from each category can be found from related organizations – see sources above.

Some remarks

UNDP’s methodology includes besides data collection a serial of background seminars and regional and thematic events. Due heavy preparation process the report 2009 is based to oldest data mostly from years 2006-2008. The UNDP 2010 report will launch around the world this autumn and will have three parts. First, a systematic assessment of progress and setbacks in human development since the 1970s, in which we discuss what has been achieved, what seems to work, and what are the key gaps and constraints. The second part will revisit the concept of human development – and its measurement (including the Human Development Index) – and propose the enhancements needed to help policy-makers ensure that people are at the centre of development. In this light, the third and final part would highlight concrete implications for policy and development strategies, and outline recommendations for a new development agenda.

Freedom House’s report “Freedom in the World 2010” reflects developments that took place in the calendar year 2009. The full survey, including the individual country reports, will be available in late spring 2010. The ratings process is based on a checklist of 10 political rights questions and 15 civil liberties questions. The political rights questions are grouped into three subcategories: Electoral Process (3 questions), Political Pluralism and Participation (4), and Functioning of Government (3). The civil liberties questions are grouped into four subcategories: Freedom of Expression and Belief (4 questions), Associational and Organizational Rights (3), Rule of Law (4), and Personal Autonomy and Individual Rights (4).

Related to some disputed regions Freedom House ranks status of Abkhazia and Nagorno-Karabakh as Partly Free, but South Ossetia and Transdnistria as Not Free.

WEF defines competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the sustainable level of prosperity that can be earned by an economy. In other words, more-competitive economies tend to be able to produce higher levels of income for their citizens. The productivity level also determines the rates of return obtained by investments in an economy.

Freedom House’s examination of the level of press freedom in each country currently comprises 23 methodology questions and 109 indicators divided into three broad categories: the legal environment, the political environment, and the economic environment. The 2010 report did note some changes in the region that includes Western Balkan countries. Improvements were noted in several countries, including Bulgaria and Ukraine, primarily due to fewer cases of physical attacks and harassment, as well as greater editorial and ownership diversity. Meanwhile, Armenia and Moldova both saw numerical gains as a result of reduced censorship and restrictions on news coverage. The score improvement for Serbia in 2009 reflected the fact that Kosovo was scored separately for the first time in this edition of the survey. Croatia’s score “fell from 38 to 40 due to the removal of and legal action against journalists covering war crimes, organized crime, and corruption. There was also less diversity due to rising concentration of private media ownership.”

Because freedom is so highly valued factor, there is constant debate over exactly what the word means. Disputes are often politically charged, and they are not likely ever to be completely resolved. James P.Young summarizes following:

Analysis of the idea is also complicated because it is impossible to consider freedom without taking into account related concepts such as democracy and constitutionalism, problems such as majority rule and minority rights, and the tension between liberty and equality. The American Declaration of Independence represents one of the climactic moments in the long development of the idea of freedom and arguably achieves universality, despite having grown out of the specific revolutionary situation in the colonies. Yet throughout their history, Americans have argued about how the principles found in the Declaration should be applied. For example, does the right to life rule out the death penalty?

(More e.g. in “A Short Historical Sketch on the Idea of Freedom” by James P. Young)

The bottom line

Democracy is a form of government that cannot long survive, for as soon as the people learn that they have a voice in the fiscal policies of the government, they will move to vote for themselves all the money in the treasury, and bankrupt the nation.”(Karl Marx)

While comparing different data it seems that there is some conflict between economic freedom and especially competitiveness and other political rights, civil liberties and press freedom. It remains to be seen whether present global and regional financial turmoil and environmental challenges will change the balance one way or the other.

We must plan for freedom, and not only for security, if for no other reason than only freedom can make security more secure.”(Sir Karl Popper)

Related articles:

Balkans and Failed States Index (Jan. 2009/failed state index based on social, economical and political inducators)

Competitiveness of Balkans (Oct. 2008)

Freedom in Balkans (Jan. 2009/political rights and civil liberties. Democracy, economy, poverty, movement)


The Nabucco-South Stream race intensifies

November 15, 2009

The race between the two EU’s eastern gas pipelines is going on while next winter can again show some supply problems via Ukraine. South Stream got latest boost on 11th November 2009 as Russia’s Energy Minister Sergei Shmatko and Slovenian Economy Minister Matej Lahovnik signed an agreement on the passage of the South Stream gas pipeline across Slovenian territory. Same time shareholders in the Nabucco have started talks with two European top lenders over borrowing almost €1.5 billion for the pipeline’s construction; a €5.6 billion loan is needed for the construction first stage of the project and the shareholders have also started talks with two credit insurers. Besides loan Nabucco still desperately is searching gas for its planned pipe.

With South Stream Russia is looking a more reliable route for its gas exports to Europe as it bypasses Ukraine and Belarus, where price disputes have in the past led to gas shortages. EU Commission tries with Nabucco provide a supply of gas not subject to Russian control.


The competition


The competition over gas is coming harder. In my article “New Player in Caspian Sea Power Corridor” I described how China has came to game to take big share of Turkmenistan gas.

For contest between EU’s Nabucco and Russia’s South Stream China’s actions favor later. Today’s arrangements are securing gas for South Stream while Nabucco still is searching supply. It is more clear that Nabucco should be filled with Iraqi and/or Iranian gas and political aspects related to this may delay finding(private) investors and the implementation of project as whole. In bottom line while Russia is taking its part from old gas fields and China from old and new gas fields the Nabucco pipe still is more than half empty.

More about this comparison one may find from my post “EU’s big choice – Nabucco or South Stream?“.

Bulgaria?

From 2015 South Stream is scheduled to take gas into the EU via Bulgaria. A northern branch ends up in Italy via Serbia, Hungary, Slovenia and eventually Austria. A southern route takes the gas through Greece and under the Adriatic Sea to Italy. With Slovenia Russia has all the necessary European partners for us to be able to complete its project. During Summer 2009 there was discussions if South Stream could pass Bulgaria. Russia however agreed on 6th August 2009 with Turkey about energy cooperation with South Stream and also development of Blue Stream pipeline between Russia and Turkey under Black Sea so South Stream has secured also an alternative route. After that the discussions between Bulgaria and Russia got a new boost.


Austria?

 

Austria has officially backed Nabucco even some of Austrian companies are also partners in South Stream. On 11th Nov. 2009 Russia and Austria had meeting. PM Putin said after talks with Austrian Chancellor Werner Faymann that they agreed to draft an agreement on cooperation in South Stream. Faymann said South Stream is in Austria’s interests and that Austria’s government had given a mandate to start negotiations two weeks ago. He said Nabucco and South Stream shouldn’t be viewed seen as competitors: “We believe that this is diversification as well as a chance to make the energy supply more secure,” Faymann said. More in CNBC news.

Bottom line


Russia made already on May 2009 a proposal including the South Stream gas pipeline to pump natural gas from Russia to the Balkans and onto Europe in a list of EU priority projects. The U.S./EU backed Nabucco project had been included in the list, but South Stream not yet. From my point of view I would like to see EU to change priority status from Nabucco to South Stream. Nabucco could still be kept alive in case to wait stabilisation in the Middle-East.

 


New Player in Caspian Sea Power Corridor

September 29, 2009

Competition – or development – of EU’s eastern gas supply routes has intensified this year. Both EU/U.S. backed Nabucco and Russia’s South Stream have made deals to guarantee realization of new pipelines until 2015. The EU’s new “southern corridor” – Nabucco as essential part of it – has been dubbed a version of U.S. “Silk Road Strategy” aimed to block Russia from gas fields around Caspian Sea and its connection to Iran. Russia on the other hand wants direct access to EU markets without transit via Ukraine.

Until this summer the gas game has be seen as battle between Russia and West. Now the world economic crisis and current low price of gas have brought a new player to game in fuel sector – China. With its financial strength China has now had ability to intensify its offensive towards the Caspian Sea energy sources especially in Kazakhstan (especially oil) and Turkmenistan (especially gas). Will the outcome be, that both Russia and Western powers with their companies will lose Caspian oil and gas while it will flow to East? Not necessary but from now on one can not ignore China as key player in region.

As main source related to energy game in Kazakhstan and Turkmenistan I have used Ajdar Kurtov’s fine article “SCO Yekaterinburg summit and China’s energy offensive towards the Caspian Sea”

Kazakhstan

Back in the 1990s Kazakhstan made easily available its mineral wealth to American, British, French and Italian companies. The bulk of the profit generated was channeled to Kazakhstan’s new partners. A threat loomed large of Kazakhstan turning into a third-world country with a raw exports role to play for the highly-advanced states.

However, Kazakhstan growing stronger economically, socially and politically while the world hydrocarbons market prices shooting up early this century made Kazakhstan leaders think better of their old stands. The new conditions prompted Kazakhstan to reconsider the earlier signed agreements, and Astana specifically proclaimed the objective of establishing state control over the oil and gas sector. The Kazakh authorities brought pressure to bear on the foreign companies in a bid to force the latter to accept changes to the earlier signed contracts.

The national company “KazMunaiGaz” was made responsible for advancing Kazakhstan’s state interests in the oil and gas field institutionally. Initially Kazakhstan leaders applied much the same tactic to pursue the same objective to one of Kazakhstan’s three oil refineries, the Pavlodar refinery, which is located by the Russian border and technologically oriented to Russian oil refining. The facility was privatized in January 1997 and the government’s stake placed in management by the US CCL Oil Ltd. Company on the terms of a public-private partnership agreement. But the Kazakh government prematurely terminated the agreement a few years later and handed over a 51% stake to the OAO “Mangistaumunaigaz”. The company later brought its stock of shares to 58%, with 42% of the Pavlodar oil refinery’s stock capital owned by the state. After that the national company “KazMunaiGaz” bought 51% of the “Mangistaumunaigaz” stock of shares from Indonesia’s Central Asia Petroleum and consequently gained control over the facility.

It was reported on the 16th of April 2009 that amid the world economic crisis Kazakhstan borrowed from China 10 billion dollars during N. Nazarbayev’s visit to Beijing. The Chinese CNPC Company bought a 50% stake of “Mangistaumunaigaz” for 1.4 billion dollars. Kazakhstan leaders are ousting western partners from the hydrocarbons market and refusing to meet Russian companies halfway, while losing ground to China. Chinese companies already own a third of Kazakhstan-produced oil, or more than 20 million tonnes per year. The purchasing of Kazakhstan’s “Mangistaumunaigaz” assets by China’s CNPC further tightens China’s grip on the Kazakh oil market and weakens the positions of Russia and the West in Kazakhstan’s fuel and energy complex.

Turkmenistan

China’s policy of advancing towards the Caspian Sea region resources is seen also in Turkmenistan. Ashgabat has long discussed the construction of a 6,500 kilometer gas pipeline from Turkmenistan to China to Japan. The construction project was due to be carried out in 10 years and was pretty costly (11 billion dollars, of which some 1.7 billion dollars would account for the sea section of the pipeline). Later the easterly direction of Turkmen natural gas deliveries was sort of “updated”, namely the option for laying a pipeline to Japan was dropped, with China having been made the only terminal point of delivery.

A more important development for Turkmenistan in 2006 was the republic’s president S. Niyazov’s visit to China in early April. The main agreement in a package he signed in Beijing was the General intergovernmental agreement on the implementation of the Turkmenistan – China gas pipeline project and on selling natural gas from Turkmenistan to the People’s Republic of China in the volume of 30 billion cubic metres annually for 30 years since the time the gas pipeline was commissioned, which was due in 2009.

The new Turkmenistan-China gas pipeline will be nearly 6,500 kilometres, with over 180 kilometres due to be laid in Turkmenistan, 530 kilometres, – in Uzbekistan, 1,300 kilometres, – in Kazakhstan, and over 4,500 kilometres, – in China. The overall cost of the project makes up some 20 billion dollars. 17 billion cubic metres of Turkmen gas were due to be annually exported through the development of new gas fields, while the remaining 13 billion cubic metres of annual gas exports,- through the construction of gas purification and treatment plants at the largest gas condensate field Bagtyyarlyk.

The construction of the pipeline (Turkmenistan-China) got under way in 2008 when Russian Company “Stroytransgaz” won 395 m€ contract for laying the Turkmen section of project and also plant to purify and dehydrate gas and a gas-measuring station. The Turkmen stage is expected to be finished by December 2009 and the entire pipeline in late 2010.

Iran?

On February 21st 2009 the Iranian and Turkmeni governments signed an agreement that will give Iran the rights to develop the Yolotan gas field in Turkmenistan. The deal will help Iran resolve gas supply problems in its north-eastern provinces. Turkmenistan will sell Iran an additional 350 billion cubic feet of gas annually, more than doubling current supplies of almost 300 bcf a year, according to the agreement first disclosed by Iran’s official media and later confirmed by Turkmenistan.Iran also recently offered to invest $1.7 billion for a 10 percent stake in the second phase of Azerbaijan’s huge Shah-Deniz gas field which will come on line by 2014. Iran already has a 10 percent share in the first phase and it wants to import large volumes of gas from the Azeri field. For Iran, the deals couldn’t be better suited to its objectives. It’s economically unviable currently to supply gas to its isolated, north-eastern third of the country. Getting gas from Turkmenistan would therefore make more Iranian gas available for export to Turkey.

Turkmenistan-Afghanistan-Pakistan-India (TAPI)

The Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline on the other hand would feed natural gas into downstream economies that are desperate for natural gas supplies. Afghanistan is the first of these, and energy shortages are rarely discussed as one of the problems of their economy, but with only 10 – 12% of the populace having access to electricity and with only limited natural gas resources (perhaps enough for a 100 megawatt power station), the country needs to import natural gas in large volumes. Pakistan is still desperate for help with natural gas and other energy fuels. But so far there is no pipeline to help.

There is some base to claim that U.S.military’s involvement in Afghanistan is directly related to the large reserves of natural gas in Turkmenistan. While the U.S. military may be a wholly owned subsidiary of the international (i.e. American and British)oil companies), its anyway clear that demand to increase troop levels in Afghanistan jumped a bit along with the recently publicized discovery of the very large large natural gas reserves in the Yoloten-Osman gas field in southern Turkmenistan.

Some (geo)political remarks

  • In March 1999, the U.S. Congress adopted the Silk Road Strategy Act, which defined America’s broad economic and strategic interests in a region extending from the Eastern Mediterranean to Central Asia. The act was revised in 2006 to include the energy interests of the US as one of the primary reasons for the US to be in Afghanistan – note no reference to Osama Bin Laden or Al Qaeda ;The Silk Road Strategy (SRS) outlines a framework for the development of America’s business empire along an extensive geographical corridor. The successful implementation of the SRS requires the concurrent “militarization” of the entire Eurasian corridor as a means to securing control over extensive oil and gas reserves, as well as “protecting” pipeline routes and trading corridors. This militarization is largely directed against China, Russia and Iran. More about background of this battle in my articleIs GUUAM dead?
  • As said the new pipeline will run through Uzbekistan and Kazakhstan to Xinjiang in western China. Xinjiang is becoming increasingly important as a transit route for gas pipelines from Russia and Central Asia. Given the vast region’s location several thousand kilometers inside China, it is impractical for the Chinese to protect fully the long stretches of pipelines through Xinjiang’s vast mountains and deserts so they are trying to eliminate the militant groups before the pipelines become operational. So far the unrest in Xijiang has be seen based to ethnic questions. The energy aspect explains why China’s response to unrest is and will be strong also in future.
  • Summit of the Shanghai Cooperation Organization that was called in Yekaterinburg on the 16th of June. Besides some universal ideas in statements and declarations the SCO Energy Club has to this day failed to come up with a cooperation model that would suit all member-states. China’s actions on the ground will lay the basis for actual energy cooperation in the SCO framework since instead of some remote private owner China as state (via state-owned company) is implementing the projects. Promoting energy cooperation in SCO framework must from now on take the “Chinese Factor” seriously.
  • The bad news for Russia is that there is a customer willing to take all the gas that Turkmenistan has for sale: China. It has been steadily gaining access to the energy wealth of Central Asia, while ousting American, European and Russian companies from the area. Beside oil and gas the Chinese are simultaneously planing to transport also the mineral resources in question to China’s western border.
  • For contest between EU’s Nabucco and Russia’s South Stream China’s actions favor later. Today’s arrangements are securing gas for South Stream while Nabucco still is searching supply. It is more clear that Nabucco should be filled with Iraqi and/or Iranian gas and political aspects related to this may delay finding(private) investors and the implementation of project as whole. In bottom line while Russia is taking its part from old gas fields and China from old and new gasfields the Nabucco pipe still is more than half empty.

More about background of Nabucco/South Stream battle in my articles “Is it time to bury Nabucco?” and “EU’s big choice – Nabucco or South Stream?





New Cannibalism in Europe too?

March 2, 2009

This post was first published in TH!NK ABOUT IT site 2nd March 2009.

Market economy and free trade are the prevailing trend in today’s developed countries. One drastic phenomenon of its darker side is known as “medical apartheid” or the “New Cannibalism”. One of those cases in Europe got more light last week, when new evidence from the “Human Organ Trafficking” -case came public in Serbia. (More about case in my article “War crime selected – organ harvesting from Serbs by KLA“).

The story about harvesting organs from captured Serbs by Kosovo Albanian guerrillas 1998-99 was kept undercover by western mainstream media until last April 2008 before former UN war crimes prosecutor Carla del Ponte opened her mouth. Reportages of German Der Spiegel magazine and British The Guardian followed, justice departments from Albania and Serbia started high level cooperation for case.  Also Council of Europe decided to re-examine the case, which maybe has also link to illegal organ transplant clinic raided in Pristina, Kosovo, early November 2008. (More e.g. Der Spiegel)

KLA slaughterhouse

It is believed KLA kidnapped the victims, and then secretly transported them to camps in northern Albania, where their vital organs were removed to be sold in the black market. Carla Del Ponte gave greater credence of a macabre operation, in which as many as 300 Serbs were abducted and transported to Albania to have their organs removed. In a memoir, she wrote: “Victims deprived of only their kidney were sewn up and confined again inside the shack until they were killed for their vital organs.”

The Serbian War Crimes Prosecution has so far identified 10 members of the so-called Kosovo Liberation Army (KLA) suspected of killing kidnapped Serb civilians. Those suspects identified, prosecution spokesman Bruno Vekarić said in Belgrade on 25th Wednesday , are linked with the case of decapitated soldiers, “which has been publicized by the news media”. (Source B92, Beta, Tanjug)

The prosecution (of Serbia) will send an official report to authorized institutions in Albania in order to inform them of the investigation’s new evidence. The prosecution now intends to present this new evidence to the Council of Europe rapporteur Dick Marty, who is due there March and also to chief prosecutor of Eulex mission in Kosovo to catch suspected persons. This may be more difficult as both Kosovo’s present and former Prime Ministries (commanders of KLA and best friends and allies of West) presumably have been involved in case.

EU

European Union started to show more interest into illegal organ trade on 2006 when few MEPs raised a question in European Parliament about Chinese Communist Party’s Organ Harvesting 2006. There was a good base for suspicion about the Chinese regime’s “organ harvesting,” the name for the fatal removal and sale of organs from death row prisoners and from Falun Gong practitioners held for their beliefs. (More e.g. here )

EP was also considering Olympic boycott due the case already Summer 2006. Edward McMillan-Scott, vice president of the EP had straight talks in China and he believed that nearly 400 hospitals in China shared the lucrative trade in transplant organs, with websites advertising new kidneys for $60,000. (Source)

Last year EP was calling on satellite company Eutelsat to resume broadcast of an independent Chinese-language television network into China. MEPs pointed out three areas of pressing concern for human rights in China, including the persecution of the Falun Gong spiritual group, the suppression of rights in Tibet and third the Chinese regime’s “organ harvesting,”.

Global trade


There are about 95,000 people waiting for kidney transplants in the United States and about 65,000 in Europe, said Michael Bos of the Netherlands Health Council. Annual transplant rates run about 25,000 in the United States and 16,000 in Europe. “Something like 10,000 kidneys are transplanted every year from living donors who are paid sometimes small amounts,” Bos said, calling the situation “a kind of medical apartheid.” “This goes from the poor to the rich, from underdeveloped to rich countries, from black and coloured people to whites and often from women to men.”


U.S. and European laws ban the sale of human organs and most tissue for transplant is taken fresh from the cadavers of the newly deceased. A smaller amount also comes from live donors, mostly people giving to save the life of a relative or friend. But these supplies cannot expand to meet the demand, which is booming as medical advances make transplantation more reliable and illnesses cause more cases of kidney failure.  (Source: article in Javno newsportal Apr 2nd 2007)

The U.N. World Health Oranization estimates one-fifth of the 70,000 kidneys transplanted around the world each year come from the black market.

Transplant tourism

The Geneva-based WHO believes that “transplant tourism” is rising, as rich patients bypassed bans on buying organs at home by travelling abroad to receive kidneys from poor donors. Beside kidneys also trafficking of half-livers, eyes, skin and blood is flourishing. (More e.g. UPI Jan 12th 2009)

Below: Kidney prices in different countries:

The organ trafficking is negotiated by an elaborate network of criminals. For about $150,000, an organ broker connects a buyer and seller to a “broker-friendly” U.S. hospital, where surgeons are either complicit in the scheme or willing to turn a blind eye. The organ seller typically gets a few thousand dollars, plus a chance to see a U.S. city.

Reputable U.S. medical centers transplant kidneys and other human organs they get illegally through the black market, a university anthropologist asserts. Surgeons take black-market kidneys from people in the world’s most impoverished slums and put them into wealthy dialysis patients from the United States, Europe and and Israel, Nancy Scheper-Hughes of the University of California at Berkeley told Newsweek. (Source Newsweek 10th Jan 2009)

The transplant tourism goes also opposite direction e.g. to China. One example about this global business and tourism is a case, when a New Yorker paid $60,000 to receive a kidney in a South African hospital from a Brazilian who was paid $6,000 for it; an Israeli businessman set up the deal.

The bottom line

With organ trafficking one can see inequality at its cruellest form. The main discriminative feature is between wealthy upper-class and the rest of the population. The other distinctive line goes between developed rich countries and the rest of the world.

Transplantation is a growing problem in rich states because waiting lists are growing far faster than the supply of organs. Adding the trend of changing population-structure in developed countries one can easily estimate that the need of new transplants is growing creating bigger market for illegal organ trade.

Is there anything to stop this trend? Short term I don’t believe so. Future can however change situation when research brings new solutions e.g. through gene, stem cell or material innovations. Even then the problem is who can pay these new treatments.


Balkans and Failed States Rank

January 25, 2009

Different aspects of freedom, wider human rights and civil liberties, democracy, economical, social and other kind of development are hard to implement if the state is failing or already failed. If an outstanding problem occurs, such as food crisis or a devastating hurricane, the world’s weakest states are the most exposed when crisis strikes. In the Failed States Index, FOREIGN POLICY and The Fund for Peace rank the countries where state collapse may be just one disaster away.

Founded in 1970 and now published by the Slate Group, a division of Washingtonpost.Newsweek Interactive, LLC, in Washington, D.C., FOREIGN POLICY is the premier, award-winning magazine of global politics, economics, and ideas. Their challenging “mission is to explain how the world works—in particular, how the process of globalization is reshaping nations, institutions, cultures, and, more fundamentally, our daily lives.” (More here)

Failing State?

Failing state is defined by authors of index as follows:

A state that is failing has several attributes. One of the most common is the loss of physical control of its territory or a monopoly on the legitimate use of force. Other attributes of state failure include the erosion of legitimate authority to make collective decisions, an inability to provide reasonable public services, and the inability to interact with other states as a full member of the international community.

The 12 indicators (used in Index/AR) cover a wide range of elements of the risk of state failure, such as extensive corruption and criminal behaviour, inability to collect taxes or otherwise draw on citizen support, large-scale involuntary dislocation of the population, sharp economic decline, group-based inequality, institutionalized persecution or discrimination, severe demographic pressures, brain drain, and environmental decay. States can fail at varying rates through explosion, implosion, erosion, or invasion over different time periods.

The twelve Indicators

The rank order of the states is based on the total scores of the 12 indicators. For each indicator, the ratings are placed on a scale of 0 to 10, with 0 being the lowest intensity (most stable) and 10 being the highest intensity (least stable). The total score is the sum of the 12 indicators and is on a scale of 0–120. Countries that have scores lower than 30 are categorized as Most Stable, countries that have scores more than 90 are considered as Critical, the scores between them indicates that a state is In Danger, Borderline or Stable.
The 12 indicators are divided into three groups and are following:

Social Indicators
1. Mounting Demographic Pressures
2. Massive Movement of Refugees or Internally Displaced Persons creating
Complex Humanitarian Emergencies
3. Legacy of Vengeance-Seeking Group Grievance or Group Paranoia
4. Chronic and Sustained Human Flight

Economic Indicators
5. Uneven Economic Development along Group Lines
6. Sharp and/or Severe Economic Decline

Political Indicators
7. Criminalization and/or Delegitimization of the State
8. Progressive Deterioration of Public Services
9. Suspension or Arbitrary Application of the Rule of Law and Widespread
Violation of Human Rights
10. Security Apparatus Operates as a “State Within a State”
11. Rise of Factionalized Elites
12. Intervention of Other States or External Political Actors

The numbers above are correlating with columns in Failing State Index table below.

The Index

From original Failed State Index (more in original story ) I have selected following countries to my modified table:

  • Balkan states
  • Top 3 and Worst 3 in the world
  • U.S. as old superpower
  • BRIC countries as rising superpowers

An finally here is the Index:

Rank

State

1

2

3

4

5

6

7

8

9

10

11

12

Total

177

Nor- way

2.0

1.6

1.0

1.1

2.0

1.8

1.0

1.3

1.5

1.0

1.0

1.5

16.8

176

Fin- land

2.6

1.6

1.0

2.1

1.9

2.0

0.9

1.2

1.5

0.9

0.7

2.0

18.4

175

Swe- den

3.2

3.0

1.3

2.0

2.1

1.2

1.0

1.2

1.4

0.9

1.0

1.5

19.8

161

U.S.A.

3.5

4.0

3.2

1.0

5.5

2.3

3.0

1.8

4.2

1.3

2.0

1.0

32.8

156

Slove- nia

4.0

1.7

3.4

3.5

5.2

3.0

3.2

3.5

3.5

3.0

1.1

2.0

37.1

135

Monte- negro

5.4

4.1

6.1

2.5

4.3

4.0

4.3

3.6

5.6

4.6

6.0

5.3

55.8

131

Bulga- ria

5.1

4.1

4.0

5.7

6.0

4.3

5.4

4.6

4.7

5.2

3.9

5.5

58.5

129

Croa- tia

5.1

6.3

5.7

5.0

5.5

5.3

4.4

4.1

4.5

3.9

3.9

5.7

59.4

128

Roma- nia

5.3

3.5

5.2

5.2

6.1

5.2

5.9

5.2

4.8

3.4

4.7

5.4

59.9

117

Brazil

6.3

3.3

6.1

5.0

8.8

3.7

6.2

6.0

5.6

7.1

4.9

4.6

67.6

112

Alba- nia

6.2

2.7

5.4

7.5

6.1

6.3

7.2

5.9

5.4

5.5

5.7

5.8

69.7

108

India

8.0

3.2

7.0

6.9

8.9

4.6

4.8

6.7

6.0

6.6

6.0

4.2

72.9

95

Mace- donia

5.4

4.6

7.4

7.0

7.4

6.0

7.6

5.1

5.3

5.8

6.6

6.4

74.6

72

Russia

7.0

5.4

7.5

6.5

7.9

3.7

7.9

5.9

8.7

7.0

8.0

4.2

79.7

70

Serbia

6.0

7.3

7.9

5.5

7.5

6.5

7.4

5.0

6.1

6.3

8.0

6.6

80.1

68

China

8.8

5.1

7.8

6.3

9.0

4.0

8.3

6.6

8.9

5.2

7.0

3.3

80.3

54

Bosnia

6.1

8.0

8.5

6.0

7.2

5.5

7.9

5.4

5.3

7.3

8.6

8.5

84.3

3

Zim- babwe

9.7

9.0

9.5

10.0

9.6

10.0

9.5

9.6

9.8

9.5

9.3

7.0

112.5

2

Sudan

9.0

9.6

10.0

8.8

9.3

7.3

10.0

9.5

9.9

9.8

9.9

9.9

113.0

1

Soma- lia

9.8

9.8

9.5

8.3

7.5

9.4

10.0

10.0

9.9

10.0

10.0

10.0

114.2

Final notice

This article – and statistics behind it – and my earlier article “Freedom in Balkans” are complementary to each other – same problems are viewed from different perspectives. However in general all rankings which I have quoted are representing more or less anglo-american point of view – its values and research methods. If rankings were made e.g. by some byzantine institute the results could be differ – the viewpoint and tradition for example regarding democracy are not one to one with western views. If these limitations are noted so I anyway think that discussion about findings in different countries could be valuable material for further development.