Getting Russia right by Jonathan Power

Lund, Sweden, August 7, 2015 Even today in many different ways the US and Russia remain close. There is cooperation in space, not least the International Space Station. The US regularly hires Russian rockets to launch its crews to the Station and to launch satellites. Russia sells advanced rocket engines to the US. Russia allows war material en route to Afghanistan to pass through its territory on Russian trains. Russia worked hand in glove with the US to successfully remove the large stocks of chemical weapons possessed by Syria. It shares intelligence on Muslim extremists including ISIS. Conceivably it could enter the battle against ISIS. It has encouraged Western investment including joint oil exploration of the Artic. Recently it stood side by side with the US and the EU as they forged an agreement with Iran on its nuclear industry. At the UN Security Council Russia and the US voted together for a resolution approving the agreement. President Barack Obama phoned President Vladimir Putin to thank him. US diplomats are now conceding that Russia’s claim that the neo-fascist so-called “Right Sector” in Ukraine is wrecking havoc is true. The Right Sector in the eyes of many was a key – and violent – element in the success of last year’s Maidan demonstrations that toppled President Viktor Yanukovich. When the Russian, French and German foreign ministers hammered out an agreement with the support of Ukraine’s parliamentary opposition for Yanukovich to step down at the next election the West totally “forgot” about it in the next few days as the Maidan demonstators drove Yanukovich into exile. Washington and other Western capitals supported the “democratic revolution” rather than demanding the fulfillment of the agreement. No wonder Putin was livid. What is now needed in Western capitals is an acknowledgement that they have not always got Russia and Putin right. For example in the Ossetian war/Georgian war in 2008 Russia was accused of starting it. In fact, as is now widely accepted in the West, it was Georgia’s bombing of the South Ossetian capital that triggered the war. Today many Western observers believe that the degree of Russia’s intervention in the Donbass in eastern Ukraine is grossly overstated. Not long ago the American commanding general in NATO warned that Russia was about to invade, an ill-informed or deceitful (depending on one’s perspective) viewpoint that was quickly shot down by the head of French intelligence. Back in 1999 NATO’s bombing of Belgrade which led to an independent Kosovo went against international law – the illegality of invasion when the invaders were not themselves under threat. Russia at the UN voted against this campaign, arguing that changing a country’s boundaries by force was illegal. If the West had not waged its Kosovo campaign it is probable that Russia would never have taken over Crimea. Russian paranoia was understandable when the second Russian-Chechen war broke out. Many powerful Washington insiders ignored the jihadi nature of the Chechen invasion of neighbouring Dagestan, focusing only on Russian violations of human rights. Yet today emirs, controlling perhaps as much as 80% of the Caucasus Emirate mujahedin, have declared their loyalty to ISIS. In 2011 Russia abstained on a resolution at the UN Security Council which authorized a Western initiative to use its air forces to attack those pro the regime of Muammar al-Qaddafi in order to save civilians from being massacred. In fact the Western powers went far beyond their UN mandate and fought to bring down Qaddafi. This led to the present chaos in Libya which is reducing the new “free” state to anarchy and seems to have no end in sight. Russia felt it had been double-crossed which, indeed, it had. • Gordan Hahn, the Russian watcher, who once was a Senior Associate of Washington’s prestigious Center for Strategic and International Studies, writes: “All this demonstrates again the utter futility in expanding NATO into Russia’s fear of influence (breaking a solemn agreement made with Russia). It undermines Western security in two respects. It has alienated Russia and transformed it into the West’s “greatest geo-political foe” that the Republican presidential candidates misconceptualize. Second, it runs directly contrary to the requirements of an effective global fight in the war against jihadism, which must include all major powers in a robustly institutionalized alliance.” Of course Putin on occasion is boorish and heavy-handed but it is no surprise that Putin has overwhelming support in his confrontation with the West. I believe the opinion polls which show him in the high 80% of approval. In the last 9 months I have walked the streets of Russia on three visits doing my own amateur poll. Russia responds to the policies and actions of the West. It is always the West that makes the first move on the chessboard. Russia has developed, writes Hahn, “carefully thought out plans designed to defeat the West, regardless of what the West may or may not do”. © Jonathan Power [ 820 words ] Permanent link to this article See also Jonathan Power’s review of Richard Sakwa’s pathbreaking analysis “Frontline Ukraine. Crisis in the Borderlands” –  Appallingly, we in the West have been more misled than the Russians. All earlier TFF PressInfos here If you appreciated this article tell us here • TFF provides research and public education related to the basic UN Charter norm that “peace shall be established by peaceful means”. We are always happy to hear from you or try to answer your questions. This text may be reprinted as it is with due credit and links to TFF but we shall appreciate you telling us. If shortened, please send the abridged version to obtain our permission. “TFF is an independent think tank, a global network that aims to bring about peace by peaceful means. It inspires a passion for peace from the grassroots to the corridors  of power. TFF is an all-volunteer global network. It promotes conflict-mitigation and reconciliation in general, as well as in a more targeted way in a selected number of conflict regions – through meticulous on-the-ground research, active listening, education and advocacy.The Foundation is committed to doing diagnosis and prognosis as well as proposing solutions. It does so in a clear, pro-peace manner.” TFF – The Transnational Foundation for Peace and Future Research TFF@transnational.org Vegagatan 25, S-224 57 Lund, Sweden, Tel. +46-(0)738 525200 Registered public-not-for-profit organization under Swedish law # 855001-4637

Is South Stream Pipeline Transforming Itself To “Turk Stream”?

“We believe that in the current conditions Russia cannot continue with the realisation of this project [South Stream].” (Vladimir Putin)

Russia’s $40 billion South Stream gas pipeline project came to reach a standstill on Monday 1^st Dec 2014 when, as the WSJ reports, Russian President Vladimir Putin said: “We couldn’t get necessary permissions from Bulgaria, so we cannot continue with the project. We can’t make all the investment just to be stopped at the Bulgarian border.”

The main reasons for halting the South Stream are plunging energy prices, stalling European demand, interpretation of the European Commission that all bilateral agreements (IGAs) for the construction of South Stream are all in breach of EU law and mostly the political standoff between the European Union and Moscow over the crisis in Ukraine.

The announcement on scrapping South Stream came during a visit by Russian President Vladimir Putin and Gazprom chief executive, Alexei Miller, to Turkey, during which Putin proposed building it to Turkey instead, offering its gas at a discount.

South Stream

South Stream is a Russian sponsored natural gas pipeline. As planned, the pipeline would run under the Black Sea to Bulgaria, and continue through Serbia with two branches to Bosnia and Herzegovina and to Croatia. From Serbia the pipelines crosses Hungary and Slovenia before reaching Italy. Its planned capacity is 63 billion cubic metres per year (bcm/y).

The key partner for Russia’s Gazprom in the South Stream project is Italy’s largest energy company, ENI.

Russia signed intergovernmental agreements with:

• Bulgaria – January 18, 2008;
• Serbia – January 25, 2008;
• Hungary – February 28, 2008;
• Greece – April 29, 2008;
• Slovenia – November 14, 2009;
• Croatia – March 2, 2010;
• Austria – April 24, 2010.

The construction of South Stream started on December 7, 2012 is scheduled to be completed by 2015. The offshore section of the pipeline, which will run in part along the seabed and reach the maximum depth of 2,200 m, will be 931 km long. Each of the four parallel strings of the pipeline will consist of 75,000 pipes, each 12 m long, 81 cm in diameter, 39 mm thick and weighing 9 tonnes.

South Stream and partners

Last December (2013), the European Commission said that all bilateral agreements (IGAs) for the construction of South Stream are all in breach of EU law and need to be renegotiated from scratch (Source: Euractiv ).

“Field status” as solution

The European Commission threatened to launch legal action on grounds that South Stream violates EU anti-monopoly laws, with Bulgaria halting construction in August 2014. There are two main requirements for the eligibility of major new gas infrastructure projects like South Stream to be developed in the EU in compliance with the European Commission Directive 2009/73/EC concerning common rules for the internal market in natural gas. The first one relates to the unbundling between the suppliers and the owners of infrastructure, while the second one relates to the granting of third party access to the transmission and distribution systems. This is a formality – the real cause to block South Stream from EU side is of course political confrontation due Ukraine.

Bulgaria and Russia have been discussing the possibility of reclassifying the Bulgarian section of the South Stream gas pipeline into a field pipe to exempt it from EU restrictions. Indeed “the field status” could solve all the problems on restrictions related to the EU third energy package.

In the case of the South Stream Russia’s Gazprom cannot be engaged in production, transportation, and sales of natural gas at the same time. But the pipes carrying gas from EU’s sea shelf fields have a special field status, which exempts them from the restrictions of the legislation.Under EU legislation, pipelines carrying gas from the sea shelf wells of EU countries, particularly Germany, France and Belgium, have a ‘field pipeline’ status that exempts them from the requirement for mandatory granting of access of third parties to the pipeline.Austria’s OMV, Gazprom’s partner in the Austrian section of South Stream, produces gas on the Bulgarian Black Sea shelf, and a pipeline built by OMV to carry gas from the shelf can be later included in the project by reassignment of rights. (Source and more at Novinite: Bulgaria, Russia Discuss Exempting South Stream from EU Restrictions )

Consequences

The main loser of possible cancellation of South Stream project will be Bulgaria. The direct budget revenues that Bulgaria would have had from [gas] transit were at least €400 million a year. The share in the country’s €40 billion GDP to come from South Stream was expected to be 1.5 percent, according to Bulgarian Economic Ministry. Direct investment was supposed to be around €3 billion creating around 2,500 new jobs. The Northern parts of the country, through which the main pipeline route would be laid, were expected to have significantly improved social infrastructure and become more attractive to investment.

Besides Bulgaria also Serbia, Austria and Italy would have made big time revenue, and employed lots of people in need of jobs, by being links in the South Stream chain. Now they will have to pay the Turk Stream toll booth to secure their energy needs.

“For Serbia it [South Stream] has been the cornerstone of our industrial strategy for the next 10 years so the situation is worrying us,” Vuk Jeremic, former foreign minister of Serbia, told New Europe on the sidelines of the Athens Forum 2014 on September 15. “Right now the bets are off. But I’m hopeful that there will be progress in the future. But it would have to be part of a wider development of normalisation of relations between Russia and the West which currently does not seem to be in the making,” he said. Reminding that Gazprom is one of the biggest foreign investors in Serbia, Jeremic stressed that such a project would be of immense importance for his country’s economy so there are reasons for Belgrade to be worried.”

In addition with Turk Stream a reality, Ukraine has lost its strategic energy significance. The project operator South Stream Transport estimates that European companies will lose at least 2.5 billion euros because of the abandoned project. Japanese companies who were participating in the project will lose some 320 million euros – a Japanese consortium made up of Marubeni-Itochu and Sumitomo had received a pipe supply order worth that amount. (Source: Russia Beyond the Headlines )

If Gazprom decides to choose Turkey and Greece for the South Stream route, the pipeline project would largely resemble the TANAP-TAP project to bring Azeri gas to Italy through the territories of the same countries. The Trans-Anatolian gas pipeline (TANAP) is a proposed natural gas pipeline from Azerbaijan running through Turkey. The approximately 870 km long TAP pipeline connects with TANAP, and will cross Greece and Albania before reaching Italy through an offshore section. It is to be built by a consortium led by BP, Norway’s Statoil and Azerbaijan’s SOCAR. TAP is in an advanced stage of preparation and the start of its construction is planned in 2016.

Gazprom had spent 487.5 billion rubles ($9.4 billion) in the last three years on South Stream and upgrading the Russian pipelines that would have supplied it. Some of that work can be used for a separate link to Turkey. Supply contracts and intergovernmental agreements surrounding the project remain in force. The infrastructure built in preparation for South Stream will be used for “Turk Stream”.

“Turk Stream” instead?

Related to implementation of South Stream Russia agreed on 6^th 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. While EU started to create obstacles to project and in case Bulgaria continues to obstruct the construction of the South Stream pipeline this cooperation made base for Gazprom’s “Plan B”. Also on 24 May 2014 Russian President Vladimir Putin already hinted at another route for South Stream, during his meeting with leaders of world media.

Ankara would allow South Stream to reach Turkey under the Black Sea instead of Bulgaria, as originally planned. Russia would prefer not to opt for a plan B, but if the Commission doesn’t stop pressuring Bulgaria to freeze the construction of the pipeline, this alternative appears to be a viable option.

While announcing about South Stream hold off the Russian leader said he will add an extra branch to his existing Blue Stream gas pipeline to Turkey and build a new storage and trading “hub” on the Turkish-Greek border. The pipeline will have an annual capacity of 63 billion cubic meters. A total of 14 bcm will be delivered to Turkey, which is Gazprom’s second biggest customer in the region after Germany. The rest can be shipped through Turkey’s pipeline network to the Balkans.

On the left, the planned South Stream route, to the right, the Blue Stream pipeline to Turkey. Image from http://www.gazprom.com

Russia’s energy minister Aleksandr Novak said that the new project will include a specially-constructed hub on the Turkish-Greek border for customers in southern Europe. Novak later confirmed that Vladimir Putin personally ordered for the South Stream project to be mothballed, and its existing facilities to be repurposed for the new Turkish pipeline. (Source: RT )

The clear winner of new plans is Turkey – the in-between partner and energy hub – who will take gas from Iran and Russia to Europe. In addition Russia and Turkey also noted that plans for Russian firm Rosatom to build a $20 billion nuclear power plant in Turkey are proceeding full speed ahead.

The bottom line

South Stream exposed cracks in EU strategy as Hungary, Austria, Serbia and Bulgaria among others saw it as a solution to the risk of supply disruptions via Ukraine, which have occurred three times during the last decade. Brussels, on the other hand, saw it as entrenching Moscow’s energy stranglehold on Europe. It remains to see whether Russia’s decision was final or a political ploy – a tactical step – to gain more favorable terms.

From my point of view the original South Stream is the better alternative than “Turk Stream” as it is the direct option to EU/Europe and avoid a transit risk related to Ukraine or Turkey so in my opinion the best follow-up would be attempt to solve Russia-EU differences and run pipeline directly to Europe as initially planned.

P.S:

Turkey, the country that bridges Europe with Asia is merely the latest expansion of Putin’s anti-dollar alliance as Turkey and Russia agree to use local currencies in trade. Wider perspective about this issue can be read from my article ¥uan and Waterloo of Petro$

Update 05/12/2014:

The South Stream pipeline crossing southeastern Europe could still be completed, despite the stated intention of President Vladimir V. Putin of Russia to abandon the project, according to Jean-Claude Juncker, president of the European Commission.  The comments by Mr. Juncker, at a news conference here on Thursday, indicated that the bloc was intent on keeping at least the idea of the South Stream project alive — despite the European Union’s sanctions against Russia over the crisis in Ukraine, and despite the Europeans’ longstanding skepticism about a pipeline that could extend the region’s heavy reliance on Russian energy.

“South Stream can be built,” Mr. Juncker said. But, he added, “the ball is in the court of Russia.” Mr. Juncker’s comments — as surprising in some respects as Mr. Putin’s sudden decision to reroute the pipeline — were the latest twist in a project that has became a geopolitical tug of war between Brussels and Moscow. (Source: NYT )

¥uan and Waterloo of Petro$

(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 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 )

When 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.

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

On April 24^th 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 )

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 )

 

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 )

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).

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.

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.

Moscow 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.

Russia 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.

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.

Now 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

Russia 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.

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

U.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 )

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).

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.

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.

Moscow 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.

Russia 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.

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.

Now 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

Russia 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.

 

¥uan and Waterloo of Petro$ (Part 1/2)

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 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 )

When 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.

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.

 

Yuan replacing the Petrodollar

On April 24^th 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 )

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 )

 

My conclusion

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.

Some Geostrategic Aspects in Russia vs. U.S. Relationship

An abstract of my discourse in Helsinki 11th Oct 2014

Some Geostrategic Aspects in Russia vs.U.S. Relationship by Ari RUSILA “It is not about ideology, democracy nor respect for borders – It is about money and global power.” (AR viewpoint to issue)

Arms Trade: Odessa Network

Odessa is not only Ukraine’s most important remaining port for access to the Black Sea. It has also allegedly been a key avenue for Russian companies to export, sometimes with illicit or controversial purposes, goods overseas. Russian arms to the regime of Syrian President Bashar al Assad allegedly flowed through Odessa, for example.

In my earlier article Arms Trade: The Crux Of The MIC I described where U.S. and Russia were supplying their weaponry as part of geopolitical game. One part of international arms trade is made via semi-official channels or through clandestine operations. One example about these activities – from U.S. side – is described in my article – U.S. Recycles Its Old Balkan Practice With Syria . Now there is also an example of implemented practice from Russian side.

Russia’s biggest, money-making exports — after oil and gas and other natural resources — is weaponry. Russia’s state-owned defence equipment export company Rosoboronexport seemingly has had a record year, reporting exports of almost $39 billion in 2013-14. The regions of Ukraine where pro-Russian separatists are rebelling is home to more than 50 factories that have been building specialized military equipment for Moscow over the last two decades.

Most of Russia’s massive arms exports was channeled through the Ukrainian port of Oktyabrsk – about 100 km east of Odessa. Oktyabrsk is specially built by the Soviet Union to ship weapons and possesses a number of qualities making it well-suited for arms exports: advantageous geography, specialized equipment, transportation infrastructure to major FSU defense-industrial plants, and more.

At least until 2014 Oktyabrsk the highly secure, very Russian “specialized sea port” from which the Kremlin exported out Kh-55 cruise missiles to Iran, Pechora-2 surface-to-air missiles to Eritrea, T-72 tanks to Venezuela and South Sudan, even more tanks and rockets to Myanmar (Burma) … and all of the above to Syria.

The Odessa Network

A new study by independent conflict researchers describes a heavy volume of traffic in the past two years from Ukraine’s Oktyabrsk port, just up the Black Sea coast from Odessa, to Syria’s main ports on the Mediterranean. In late 2012, Farley Mesko and Tom Wallace – security analysts at C4ADS – began investigating an intricate network of Ukraine-based individuals and logistics companies responsible for transporting weapons out of Russia and Ukraine on behalf of government sellers. Their report – The Odessa Network: Mapping Facilitators of Russian and Ukrainian Arms Transfers (later the report) presents a picture of a very opaque system, in this case the system of maritime arms transfers related to the Russian government and former Ukrainian government. C4ADS is a ,Washington-based, nonprofit research organization whose mission is to understand global conflict and security through on-the-ground research and data-driven analysis.

Despite being in Ukraine, Oktyabrsk “is functionally controlled by Russia,” and the port is headed by a former Russian navy captain and owned by a business magnate with close ties to the Kremlin, the report said. Major Russian weapons exporters have offices there, alongside Ukrainian and Russian shipping and logistics companies the report has dubbed the “Odessa Network”. Oktyabrsk is specially built by the Soviet Union to ship weapons and possesses a number of qualities making it well-suited for arms exports: advantageous geography, specialized equipment, transportation infrastructure to major FSU defense-industrial plants, and more.

The Odessa Network is a loose collection of logistics contractors for the governments of Russia and Ukraine, not independent arms dealers. Key companies and figures in Odessa include Kaalbye Group, Phoenix Trans-Servis. Affiliated EU and Russian shipping firms such as Briese Schiffahrts (and its subsidiary BBC Chartering) and Balchart play an important specialized role in transporting particularly large or sensitive shipments. To protect their weapons shipments, some of the Ukrainian and Russian firms own or contract with multiple private maritime security companies – such as Moran Security Group, Muse Professional Group, Helicon Security, Changsuk Security Group, and Al Mina Security Group – who also operate in African conflict zones. These companies’ business model revolves around staffing ships transiting dangerous areas (particularly the Gulf of Aden and Gulf of Guinea) with heavily armed FSU (Former Soviet Union) military veterans, who provide protection from pirates. The companies work with state weapons export agencies such as Rosoboronexport and Ukrspetsexport.

The Odessa Network is not a hierarchical, unitary organization. It is better characterized as a “contacts market:” clusters of individuals and firms geographically concentrated in a particular area, and performing a specific sub-task of the weapons-export process. For example, the primary logistics contractors for Russian and Ukrainian weapons exports are shipping companies headquartered in the city of Odessa, while the financial services sometimes used to ‘clean’ profits are located in Latvia.

According report there is evidence that some of these “Odessa Network” companies employ Latvian banks known or accused of money laundering and a series of Panamanian companies run by Latvian nationals who act as “proxy directors.”is a member of the EU, and so money cleaned through Latvia can readily be transferred into safe havens in Zurich or London. Over half of the $25 billion held in Latvian banks is held by foreign depositors; the IMF estimates FSU entities account for 90% of this.

The Weapons Shipment Data in report presents dataset on Russian and Ukrainian weapons shipments, and the ships, companies, and ports used to facilitate them. The dataset includes 43 separate shipment events, and at least 21 different purchasing countries. These shipments include weapons ranging from crates of surplus ammunition to state of the art SAM systems, customers ranging from countries in good international standing to states under active international sanction, and span over a decade of time. Some of these arms transfers are well-known, while others were previously undetected. These shipments were facilitated by a comparatively small group of Ukrainian and EU companies and individuals with close ties to one another, and to senior Russian and Ukrainian governmental and military-industrial officials. The report for example notes that Kaalbye –company carried arms to President Assad’s forces in Syria in 2012 and to the Venezuela government from 2011 to 2013. Previous shipments have included cruise missiles to China and Iran, assault rifles and grenades to Angola, and tanks and RPGs to South Sudan.

Government connections

A network of Ukraine-based individuals and logistics companies—referred to as the “Odessa Network” due to its key leadership being located in Odessa, Ukraine—is responsible for transporting weapons out of Russia and Ukraine on behalf of government sellers. Odessa Network company leaders have personal and financial relationships with cabinet level officials in the Russian and Ukrainian governments.

According the report the Odessa companies’ greatest asset: connections. Link and network analysis reveals that the Odessa companies and personnel are the center of a rich network of businesses and individuals who provide all the services necessary for a weapons shipment to occur. The Odessa Network firms are logistics contractors for the Russian and Ukrainian governments. State agencies such as Rosoboronexport and Ukrspetsexport own the weapons and broker almost all foreign sales. The Odessa Network companies play a critical role in making these arms transfers happen, but they only do so on behalf of powerful customers in Moscow and Kiev. The key assumption is that there must be persistent links and contractual relationships between the Odessa Network and government officials. The Odessa Network has moved billions of dollars of advanced military hardware, which indicates a high level of government trust in its competency and honesty, implying contact between leaders on both sides.

Photo credit C4ADS – http://www.c4ads.org/

Click HERE for bigger picture.

Wider view

The maritime shipments by Odessa Network are only one part of Russia’s and Ukraine’s arms trade. The Norwegian firm Eide Marine Services is the second most frequent weapons transporter in our dataset (after Kaalbye). Eide is a perfect example of how EU firms provide specialized ships to handle large or unusual cargo the Odessa firms cannot, such as warships and submarines. Eide is one of the few firms which possesses exactly such a ship, the Eide Transporter, which has been used multiple times to move unusual Russian military cargo to foreign customers. This includes Tarantul-class missile corvettes, Gepard-class frigates, and Svetlyak-class patrol boats to Vietnam, and Kilo-class submarines to China. However Eide-Odessa connections are unclear.

Many of Russia and Ukraine’s customers are geographic neighbors or landlocked, making it impractical or impossible to use sea transportation. For example, when Russia exports weapons to neighboring Kazakhstan it does so by plane, rail, or truck. Similarly, even distant customers may be purchasing military equipment that is typically not moved by sea. For example, Russia has a $300 million contract to supply Su–30 MK2 and Su–27 SKM fighters to Indonesia, but these are transported on An–124 transport aircraft, not ships. Similarly, Ukraine has a contract to supply BTR–3E1 APCs to Thailand, but previous shipments have been flown on an Il–76 to U-Tapao Airport, not shipped.

Selling of advanced weapons also indicates the facilitator of weapons shipments are an important foreign policy tool. Governmental ownership of exported weapons since the early 2000s confirms a narrative of Russian politics that emphasizes reassertion of state control over national assets (defense plants, oil and gas, industrial concerns, etc.) and profits resulting from sale of these assets being distributed to regime stakeholders via sanctioned corruption in exchange for political loyalty.

Exceptionalism

The situation in Ukraine has its effect to arms trade – not only to Russian exports but to imports too.The volume of import substitution program in the defense sector is 22.8 billion rubles, “Kommersant” writes citing a senior source in the Russian defense industry. “The sanctions will encourage the expansion of the programme of import substitution and speed up the development and introduction of new domestic technologies.”

Downriver from Dnepropetrovk is Zaporizhia, home of Motor Sich. While Russia was annexing the Crimea from Ukraine the Motor Sich inherited most of the former Soviet Union’s aeronautical engine manufacturing capability Motor Sich signed a new, upgraded co-operation agreement with Rostec, the umbrella organization for Russia’s defence industry.

Speaking about sanctions it is a bit ironic that the embargo on the rotorcraft engine exports to Russia will not have a negative impact on one significant contract – the delivery of 63 Mi-17V-5 tactical transport helicopters for the Afghan armed forces ordered by the US for some $1.33 billion.

Pridnestrovie in Context of Ukraine

Prologue

Transnistrian claim for independence is being met with a certain degree of sympathy and understanding by some of the western experts. As an example, a Finnish political analyst and blogger Ari Rusila can be named; he usually presents the Transnistrian de facto statehood in quite a positive light, admitting, in particular, that “Transnistria called my attention first because of its quite ready statehood elements without outside recognition, second because of changed circumstances in respect for international law after Kosovo unilateral declaration of independence and thirdly because I predicted that Trandnistria could be the next tinderbox of separatism between Georgian conflict and coming troubles in Ukraine”. He believes that Transnistria, if compared with Kosovo, has had in fact much more reasons to be recognised internationally.

The quote above is from a paper Transnistrian Conflict: State of Affairs and Prospects of Settlement  prepared for the International conference “Frozen Conflicts” in Europe (1st September 2012, Bled, Slovenia) by Natalia Belitser and the sitation is based on my articles published in 2008.

Pridnestrovie as next Crimea?

As the crisis in Ukraine continues to simmer, tensions in the country’s western neighbor Moldova are beginning to rise. Seeking to capitalize on President Putin’s eagerness to use the protection of Russian speaking populations in the region as a pretext to expand his territorial claims, members of two separate enclaves in Moldova are looking toward Moscow for protection.

Now after uprising and coup in Ukraine and annexing Crimea into Russia, tensions have grown to encompass Ukraine’s neighbor Moldova, which like Ukraine has been making efforts to integrate further with the West. Moldova has signed the EU association and free trade agreements at the November 2013 Vilnius summit, during which former Ukrainian President Viktor Yanukovich rejected the deals. The Moldovan government has also supported the Western-backed uprising in Ukraine. Western experts worry that the next “Crimea” could be the breakaway region of Pridnestrovie. Many locals there don’t share that fear, and if the last referendum holds, a large majority would welcome a Russian annexation.

Pridnestrovie aka Transdniestria – also known as Transnistria aka  Pridnestrovskaia Moldavskaia Respublica (PMR/TMR) – is a new and emerging country in South Eastern Europe, sandwiched between Moldova and Ukraine. The official language of Transdniestria is Russian, not Moldovan, while the vast Majority of schools teach the Cyrillic alphabet instead of the Roman alphabet used in the rest of the country. Recently  Pridnestrovie adopted Russian legislation, a clear signal of the region’s preference for joining Moscow’s customs union.

Most recently, Russian military exercises held March 25 in Moldova’s breakaway territory of Pridnestrovie have stoked these tensions. From its side the parliament (called Supreme Soviet) of Pridnestrovie has sent a proposal to the State Duma asking for in Russian legislation to join the breakaway Republic in Russia. The document originated in the DG as feedback on refering new draft law in Russia on the simplified order of joining the Russian federation new actors on the basis of a referendum, no international treaty, if in a foreign country has no effective legitimate authority “. (Source: Forum Pridnestrovie )

Now Moldova’s Pridnestrovie region is seeking to follow Crimea and join Russia and this is not causing concern only in Moldova but in neighbouring Romania, Ukraine as well in EU and Nato too.
Transdniestria – and Gagauzia – are joining to the same club with Abkhazia and South Ossetia as de facto states, namely political entities that have achieved enduring ‘internal sovereignty’ – but lack ‘external sovereignty’ in the international system. As Crimea is annexed to Russia and these other “states” can follow to join Russia or continue as de facto state, this development is creating a Northern Black Sea corridor, frontline or buffer zone.

Photo credit: The Telegraph

Good Moldavia-Pridnestrovie cooperation since 2009 and 2011 elections

New prospects for conflict settlement have appeared after parliamentary elections of 2009 in the Republic of Moldova. The new pro-Western team – the Alliance for European Integration (AEI) – that substituted the Communist Party ruling the country from 2001, proved much more pragmatic and willing to deal with its breakaway region than their predecessors pursuing rather an isolationist policy. In 2011 presidential elections President Igor Smirnov, who had been in power since Pridnestrovie declared independence in 1990, failed to be re-elected, and was replaced by opposition MP, younger leader of the ‘Revival’ movement and former speaker of the Supreme Council Yevgeny Shevchuk. These political changes engendered hopes for the settlement process to acquire a positive momentum.

The power changes in Pridnestrovie give positive boost to peace process: the official negotiation process re-started after six years interruption in November 2011 in Vilnius, Lithuania, to be followed by a meeting on February 2012 in Dublin, Ireland and on April 2012. Finally the Document of principles and procedures and agenda of negotiations were agreed in Vienna, whereas on July 2012 this Document was signed. It included such issues as freedom of movement of passengers and cargo, traffic of trains, education issues,etc. Also a new approach (joint initiative of Russia and Germany, Meseburg, 2010) by the EU and Russia to resolve the conflict was the setting up of a joint Political and Security Committee (EU-R-PSC) at minister level. Related to security issues it was stated that the EU and Russia will cooperate in particular towards a resolution of the Transdniestria conflict with a view to achieve tangible progress within the established 5 + 2 format (Russia, Ukraine, Moldova,Pridnestrovie , OSCE, EU, US). This cooperation could include a joint EU-Russia engagement, which would guarantee a smooth transition of the present situation to a final stage.

The main approach of the resumed negotiations and to the settlement process in general focuses on Confidence Building Measures (CBMs). This means that political aspects of the settlement, for example a mutually accepted status of Pridnestrovie, are not yet touched. Instead status there has been attempts to make concrete steps of issues that both sides of the conflict are interested in. These kind of initiatives have already been following:

• Engaging the sides into direct dialogue;

• Establishing joint Working/Expert Groups on confidence building measures;

• Conducting meetings at a higher level (for example, between Prime-minister of the RM Vlad Filat and leader of Pridnestrovie Yevgeny Shevchuk, also between the heads of foreign ministries Eugen Carpov and Nina Stanski);

• Elaborating and implementing national and international social and economic development projects etc.

The direct dialogue at a higher level has been clear contrast to previous lack of any kind of dialogue lasting for years. There has been a dozen WGs e.g. on economy, agriculture and environment, transport, railways, civil status acts, social and humanitarian aid, health, education, combating organised crimes and emergencies, telecommunications, and customs, whereas the WG on demilitarisation and security is not yet operating.
Growing dispute between parties started by unilateral actions by both parties during Spring 2013. First Moldova established migration control of citizens in six checkpoints, second  Pridnestroviestarted to mark border in in the sc Security Zone or line of demarcation after the Transdniestrian war (1992).
More about negotiation history in my article Transnistrian number game and in conference paper Transnistrian Conflict: State of Affairs and Prospects of Settlement  by Natalya Belitser )

Tools against Pridnestrovie by Chisinau and Kiev

Arsenal of tools, on that, with the support of Western “ideological-political sponsors” can count in Chisinau and the Kiev could be as following:

• further tightening of border crossing for the residents of Pridnestrovieh, the introduction of a total ban on border crossings by social groups and citizens (It is noteworthy in this regard that, that the admission of foreign citizens on the territory of Moldova is liberalized; Ukrainian officials should examine stats for financial gains and losses of the Moldovan side of Ukrainian companies, eg, air carriers);

• blocking of export-import operations of the Pridnestrovie side, transit of Pridnestrovie goods, that is well within the common “European” subjects as a way to European integration, with a demand for the full functioning of the Pridnestrovie Moldovan business rules;

• ban on border crossings by vehicles with Pridnestrovie number;

• refusal to issue permits for the Pridnestrovie passenger transport;

• Moldovan law on the placement of the Ukrainian checkpoints with full access to all databases and law carry out administrative functions, etc..

Russia ready if needed

Nato warns that a pro-Russian enclave of Moldova could be Moscow’s next target after Crimea. Nato’s top military Commander Europe Philip Breedlove said on 23rd March 2014 that Russia has a large force on Ukraine’s eastern border and is worried it could pose a threat to Moldova’s separatist Pridnestrovie region.Russia launched a new military exercise, involving 8,500 artillery men, near Ukraine’s border 10 days ago. Breedlove said the Russian tactic should lead the 28-nation Western military alliance to rethink the positioning and readiness of its forces in eastern Europe so that they were ready to counter Moscow’s moves.(The Telegraph)

How the Russian forces would get there. Pridnestrovie is landlocked and to go there by land would require Russian troops to travel through much of western Ukraine. However, Russian forces based in the Eastern side of the Black Sea and Crimea could conceivably stage an airlift. Since it fought a brief separatist war to breakaway from Moldova in 1991, Pridnestrovie has been home to “peacekeeping” garrison of around 1,000 Russian troops. One option is also that Russia includes Odessa in a “security belt” that would presumably stretch from Crimea to Transdniestria.

The speaker of Pridnestrovie’s separatist parliament urged Russia middle of March 2014 to incorporate the region and the republic’s parliament, called the Supreme Soviet, sent an official request to Moscow asking if Transdniestria could be allowed to join the Russian Federation. The talks within the 5+2 format (Russia, Moldova, Pridnestrovie, Ukraine, the OSCE and observers from the EU and the US) are scheduled for 10-11 April 2014.

In Moldova the appetite for European integration among Moldova’s 3.5 million people had weakened even before the crisis in Ukraine and a parliamentary election later this year may bring a return of the pro-Russian Communist Party That was forced from power in 2009. Moldova falls under the EU’s Neighborhood Policy, which contains no explicit similar promise of membership like the countries of the Western Balkans .

Gagauzia had referendum too

Transnistria (orange) and Gagauzia (red) are pro-Russian regions in Moldova (photo courtesy of Stratfor)

Following a 1991 declaration of independence, Comrat (Gagauzia’s capital) agreed to remain a part of Moldova, after Chisinau agreed to grant the region the legal status of a “special autonomous zone“. Chisinau’s control was challenged in February 2014 when Gagauzia held a referendum to join the Russia-led Eurasian Customs Union. The referendum followed Chisinau’s decision to enter a Free Trade Agreement with the European Union in November 2013–the same agreement former Ukrainian President Victor Yanukovich snubbed when he opted for the customs union with Moscow. Gagauzia has a population of about 155,000 people, mostly ethnically Gagauz, Turkic-speaking Orthodox Christians. Many locals fear that Chisinau’s EU-integration agenda masks an intention to unite Moldova with neighboring Romania.

An overwhelming majority of voters in a referendum – with turnout more than 70 % – held in the autonomous Moldovan region of Gagauzia have voted for integration with a Russia-led customs union: 98.4 percent of voters chose closer relations with the CIS Customs Union. In a separate question, 97.2 percent were against closer EU integration. In addition, 98.9 percent of voters supported Gagauzia’s right to declare independence should Moldova lose or surrender its own independence. Moldova’s government claims that referendum in Gagauzia is unconstitutional and had no legal legitimacy.

Although the security situation in Gagauzia remains calm, on 26 March, the executive committee in Comrat announced its decision to establish independent police stations in Comrat, as well as in its northern and southern cities of Briceni and Cahul. Moscow has demonstrated support for Gagauzia following the referendum. The regions governor, Mihail Formuzal visited Moscow in March 2014 and got impression that Russia was prepared to expand partnerships with Gagauzia and “provide the necessary support”. Despite an embargo against wine produced in Moldova, Russia began importing it from Gagauzia, likely as an attempt to encourage additional good will toward its benefactor.

Bottom line

It easy to say that incorporating Transdniestria – as well Gagauzia, Abkhazia, South Ossetia and Crimea – into Russia (and Nagorno-Karabakh into Armenia) is against international law (whatever it is) or some international agreements. Although Russia moving into eastern Ukraine could be–as the West says–invasion-occupation-annexation. However in my opinion these actions are more legitimate or justified than U.S.expansionism, secret wars and interventions around the globe.

The other possible scenarios than annex into Russia for Pridnestrovie are e.g:

•  Status quo maintained aka “frozen conflict” continues;

• Re-integration of the Republic of Moldova with condition of establishing a confederation including Moldova, Transdniestria as Gaugazia entities, this could be pragmatic option for Ukraine too;

• Transnistria gained its independence and state sovereignty recognized internationally

• Joining Ukraine, which option after coup in Kiev seems most unlikely option to me.

In my opinion even without international recognizion Pridnestrovie meets the requirements for sovereign statehood under international law, as it has a defined territory, a population, effective elected authority, and the capability to enter into international relations. It is currently seeking international recognition of its de facto independence and statehood. As long as Pridnestrovie’s status is unresolved, it will be a serious political obstacle to Moldova’s joining the EU, which does not want another “divided state” like Cyprus on it hands.

My previous article about Pridnestrovie:

• Confrontation Between Transnistria and Moldova Deepening

• Transnistrian number game

• Some progress with Moldova/Transdnistria dispute on 2008

• Transnistria follow-up

• Ten things you maybe didn’t know about Pridnestrovie

• The two Images of Transdnistria

• Is Transnistria the next follow up of Kosovo UDI?

 

Note: An Italian version of this article published too

Il futuro della Transnistria nel contesto della crisi Ucraina

Case Ukraine In Figures

Instead of long analysis I have collected here some flash of trivia – figures and views – related to ongoing events in Ukraine:

An U.S. view:

and with more details:

Peoples in Ukraine vote:

Peoples in Crimea think:

and more precisely:

German “Der Tagesspiegel” ongoing poll – How should the West react to Russia’s offensive in Ukraine. The results of 12000+ votes

An other German view:

Eu vs. Customs Union:

Some historical perspective:

The choice:

And the bottom line:

Whereas something stays over century through conflicts and politics:

Swallow nest castle in Crimea

Earlier about Ukraine 2014 case:

• Crimea: The referendum, the mote and the beam, by Jan Oberg

• Crimean referendum overshadows Euromaiden Crime

• Farewell Ukrainian Independency And Democracy

• Ukraine’s Would-be Coup As New Example About US Gangsterism

And earlier about Ukraine:

• Ukraine: End of Orange Revolution, start of Stabilisation

• Ukraine – choosing a new Way

• Stop to Ukraine’s and Georgia’s Nato dreams can start the policy of detente again

Crimean referendum overshadows Euromaiden Crime

A referendum on the status of Crimea is to be held on 16 March 2014. Crimea will vote on Sunday in a ballot referendum that leaders of the regional Parliament expect will ratify their decision to break away from Ukraine. Ukraine’s new leadership and its Western allies insist that the referendum is illegal. Dispute about legality or legitimacy of referendum is overshadowing the massacre in Kiev on 19.-21.Feb. 2014, an event which finalized the coup in Kiev, established the government which claims to be the legal one now in Ukraine.

Crimeans will vote on whether they want their autonomous republic to break away from Ukraine and join Russia. Ukraine – or better say present Kiev regime following the ousting of Ukrainian President Viktor Yanukovych – and the West have dismissed the referendum as illegal. Both the Crimean parliament and the city council of Sevastopol consider the referendum legitimate as they consider the ousting of the former President of Ukraine, Viktor Yanukovych, to be illegal, arguing that it did not follow due process.

The referendum

“We, the members of the parliament of the Autonomous Republic of Crimea and the Sevastopol City Council, with regard to the charter of the United Nations and a whole range of other international documents and taking into consideration the confirmation of the status of Kosovo by the United Nations International Court of Justice on July, 22, 2010, which says that unilateral declaration of independence by a part of the country doesn’t violate any international norms, make this decision,” says the text of the declaration, which was published by the Crimean media. 78 of 100 members of the parliament voted in favor of the declaration. If the referendum is in favor, the Crimean authorities will request for their country to become a constituent republic of the Russian Federation.

According to the provisional rules approved by the Crimean parliament, Ukrainian citizens aged 18 or older and registered as residents of Crimea can vote. They must produce a Ukrainian passport or any other identification document issued by the migration service. The Crimean parliament has formally invited OSCE election monitors, but the OSCE does not plan to send any because of its stance that the vote is “illegal”. Russia plans to send 24 MPs to observe the referendum and eight election officials to oversee the vote. Over 2.2 million ballots will be printed. About 1,250 voting stations will be ready. Russians comprise about 60% of Crimea’s population, Ukrainians around 25% and Tatars 12%.

The city of Sevastopol, which has a special administrative status, will hold a simultaneous referendum offering the same choices, which are following:

1. Are you in favor of the reunification of Crimea with Russia as a part of the Russian Federation?

2. Are you in favor of restoring the 1992 Constitution and the status of Crimea as a part of Ukraine?

Voters will have to mark one option affirmatively, but they cannot vote for the status quo.  A return to the 1992 Constitution — adopted after the Soviet collapse but quickly thrown out by the post-Soviet Ukraine — would effectively provide for Crimea’s independence, while remaining part of Ukraine. The Crimean government would have broad powers to chart its own course, including its relations with other nations such as Russia.

With pro-Russian forces firmly in control of Crimea politically and militarily as well popular support, it wouldn’t be a big surprise if the result is in favour of Crimea being incorporated into Russia.

Background

The transfer of the Crimean Oblast to Ukraine has been described as a “symbolic gesture,” by Nikita Khrushchev, marking the 300th anniversary of Ukraine becoming a part of the Russian Empire. Besides gesture one motivation for annaxation might be the aim to water down the influence of the nazi elements in the western Ukraine that had fought for Adolf Hitler against the Soviet Union during World War 2.

Crimea had re-gained its autonomy following a 1991 referendum. Voters were asked whether they wanted to re-establish the Crimean Autonomous Soviet Socialist Republic, which had been abolished in 1945. The proposal was approved by 94% of voters. Verkhovna Rada of Ukraine abolished the 1992 Crimean Constitution and the office of President of Crimea in 1995. Crimea gained a new constitution in 1998 that granted less autonomy; notably, any legislation passed by the Crimean parliament could be vetoed by the Ukrainian parliament.

Resentment against the central government in Kiev has been on the rise in Crimea since the 2004 Orange revolution. If, in 1996 and 2001, only half of Crimean residents supported rejoining Russia, by 2008 a survey by the Kiev based Razumkov Center showed that, among those who had made up their mind on the issue, 73 percent backed secession from Ukraine with a goal of joining Russia. In the latest poll, taken by the Crimean Republic’s Institute for Political and Sociological Research, 85 percent say they plan to take part in the referendum, and 77 percent say they will vote to join the Russian Federation.

Legal aspects

Ukraine and the West have dismissed the secession referendum in Crimea as unconstitutional and illegal but the same could be claimed about present Ukrainian government in Kiev. In my opinion the core question from legal point is that referendum itself is not against international law. The other question is that the referendum and actions after result might be against some Ukrainian constitution but one can ask how valid that and the government in Kiev are. Formally separation is similar like in Kosovo which was later deemed to be according international law. The only difference is argument if there has been oppression against local population or not; in Kosovo it was estimated that this was true so far in Crimea there is not enough evidence about case. There is of course also difference between international law and sc international community as later is more related to politics than law.

Euromaidan massacre

Former chief of Ukraine’s Security Service has confirmed allegations that snipers who killed dozens of people during the violent unrest in Kiev operated from a building controlled by the opposition on Maidan square. Shots that killed both civilians and police officers were fired from the Philharmonic Hall building in Ukraine’s capital, former head of the Security Service of Ukraine Aleksandr Yakimenko told Russia 1 channel. The building was under full control of the opposition and particularly the so-called Commandant of Maidan self-defense Andrey Parubiy who after the coup was appointed as the Secretary of the National Security and Defense Council of Ukraine, Yakimenko added. Furthermore the former security chief believes that Parubiy has been in contact with US Special Forces that could have coordinated the assault.

Snipers shoot from Maidan activists office.

There is also a theory that the snipers came from an ultra-right-wing military organization known as Ukrainian National Assembly – Ukrainian People’s Self-Defense (UNA-UNSO). According to veteran US intelligence sources, UNA-UNSO members have been behind every revolt against Russian influence. The one connecting thread in their violent campaigns is always anti-Russia. The organization is part of a secret NATO “GLADIO” organization. UNA-UNSO members have been behind every revolt against Russian influence. The one connecting thread in their violent campaigns is always anti-Russia. UNA-UNSO have been involved (confirmed officially) in the Lithuanian events in the Winter of 1991, the Soviet Coup d’etat in Summer 1991, the war for the Pridnister Republic 1992, the anti-Moscow Abkhazia War 1993, the Chechen War, the US-organized Kosovo Campaign Against the Serbs, and the August 8 2008 war in Georgia. UNA-UNSO is also reported to have close ties to the German National Democratic Party (NDP).

Evidence has accumulated demonstrating the Euromaidan movement was artificially created by the architects of color revolution – the State Department, USAID, and the Soros NGOs – and this movement, consisting in large part of sincere yet duped Ukrainians attempting to effectuate political change, was cynically used to install a preferred minion in power, namely Arseniy “Yats” Yatsenyuk, a central banker, to protect of interests of some Ukrainian oligarchs. (Source:Infowars:Order Out of Chaos: Gladio Snipers Behind Killings in Kyiv)

The outcome

Media outlets expect the choice to join Russia to be declared as winner. Thus, while by any account Crimea’s legal basis for holding a referendum is weak, so is also the legitimacy of present Ukrainian (Kiev) government especially if one takes seriously the claims related to Euromaidan massacre. It is worth recalling that when, on February 27, the Crimean parliament first decided to hold a referendum on expanding regional autonomy, it was exclusively within the context of remaining in Ukraine. It was Kiev’s ham-fisted attempt to replace key regional officials after agreeing not to do so that led to the inclusion of a second option to join Russia.

Meanwhile Russian companies withdraw billions from west, fearful that any US sanctions over the Crimean crisis could lead to an asset freeze. Sberbank and VTB, Russia’s giant partly state-owned banks, as well as industrial companies, such as energy group Lukoil, are among those repatriating cash from western lenders with operations in the US.

On the bottom line the referendum does matter. If the result is that most people in Crimea want to join Russia so this can help to find a deal between U.S., the present government and Russia. A win-win face saving solution could be that Crimea will be annexed to Russia and as compensation Ukraine will get e.g. cheaper gas deal, most oligarchs can keep their loot, the ordinary people can get at best relatively stable conditions for a while and U.S. a puppet government in Kiev. The most important outcome could be that the battle moves from verge of war to political and economic fields.

More in my earlier articlesFarewell Ukrainian Independency And Democracy  and Ukraine’s Would-be Coup As New Example About US Gangsterism