Posted by: Dr Churchill | April 1, 2014

Russia’s Putin Stock In Trade Devalued…

Oil & Gas prices have been plummeting across the world…

But nowhere gas prices have fallen as suddenly and as swiftly as they have in Greece this February. Yes, you heard this right: Greece’s gas prices have fallen overnight by a whooping fifteen percent.

It is not an accident nor a coincidence that early this March Russia invaded Ukraine an integral part of Europe, and took away Crimea. What is a major “accident” is that all of Europe stayed silent about it…

Of course it was not accidental that Greece got the Gazprom discount of 15% in order to keep Europe silent since the European Presidency is held by Greece for the first half of this year. Nor is it just a reflection of global reality or Goodwill towards the bankrupt country that the long term negotiated gas prices to Greece have fallen so far bellow the price Russia sells gas to all others…

It is rather the simple arithmetic of power, that Kremlin tallied up on how much Greece’s and by extension Europe’s quiet over Ukraine is worth. That is the only reason why Greece has been given a cool 15% discount “at-the-pump” for it’s fuel bill. This concerns all it’s imports of gas from Russia’s Gazprom — the defacto Russian State Fuel monopoly, controlled by Mr Putin — and is a clear tit-for-tat exchange for Greece’s European Presidency keeping mum about the Crimean Invasion and annexation of Ukrainian territory by Russia.

A cheap trick, and a horrible trade indeed…

And even if it was a simple trading calculation in the back of an envelope, that allowed Russia to go and invade Ukraine’s Crimea overnight without any objection, let alone any fanfare and fuss from Europe — it appears now to have been a miscalculation for both. Maybe it was an easy trade for the two sides because Greece held the European Presidency for the Six month period commencing at the beginning of this year. And maybe the “gas gift” to the impoverished country that was heralded as a boon to it’s fortunes, in reality was a simple Judas trade. Putin didn’t say to the Greek PM: “Betray your European ideals, betray your own laws, customs, norms, and identity, and further betray your allies for 30 silver coins” but in essence this is what Greece did. Because Greece was called to crucify Ukraine, and thus become Putin’s convenience whore for a pittance of gas. All in all it’s a mutually slippery slope, garden slide into the bush for a quick romp with the Gas station attendant that Mr Putin has become.

Russia offered Gas price reductions to anyone passing through the neighborhood and deemed useful enough and so it attempted to offer China the same trade through gas price discounts; but the exchange sought was refused — even though the long term gas prices were renegotiated downwards for the Sino-Dragon’s vast & fiery appetite. Putin failed to realize that he was undercutting his own feet by cheapening the world wide gas supply and thus driving his own resource economy into a downward spiral that will lead him to be unable to meet the annual budget needs. These are signs of imminent collapse and failure of a highly corrupt Russia. A Russia that is ready to implode, given the personal Putin junkets like the esoteric dictatorship, the platinum Sochi Olympics, and the Crimean takeover Paralympics.

And as a result we now hear cavalier talk of a possible “nuclear war” between the United States, and Russia; and it has become fashionable in the mainstream media as the Ukraine matter continues to escalate without end on sight.

Putin succeeded in rekindling the Cold War. An imminent Russo-American war appears to be all the rage today but we tend to forget that this looming war will be fought on European soil; and it’s effects will be felt throughout Europe. Same as Chernobyl nuked the food supply and spread cancer all over the European continent instead of limiting it’s nuclear cloud over Ukraine — this coming limited nuclear war will probably affect the innocents and the non combatants the most. Imagine adding a couple of kilotons of nuclear war into the European leaders diplomatic agenda, right next to European Energy Security and the fule prices talk…

Now to learn a valuable lesson let’s see how the Chinese leadership responded to the Crimean Invasion: Of course the gas price drop for China’s Russian import gas was offered along the lines of the deal given to Greece. Gas subsidy and price reduction long term, for China’s silence — but the outcome of these talks was vastly different. Naturally there is a faction within China’s National Security Council that wishes to “line up with Russia” over Ukraine, hoping to exploit the crisis to gain even better terms on gas, food, and raw materials exported by Russia across the border; but they are a woefully old fashioned minority and considered senile in their attachment to the old red rule book.

And as it turns out these voices have been strongly overruled by China’s unquestioned and surprisingly strong leader Mr Xi Jinping. He is a cool cat, because he knows and he plays on a far more sophisticated geopolitical strategic stage. Mr Xi plays three dimensional chess to Putin’s barely flat and chipped wooden children’s checker board…

By all accounts China, same as the EU have remained eerily quiet. Of course in the case of the European Union, with the Greek Presidency being paradoxically complacent about the dismemberment of a sovereign state in the center of Europe — one has to wonder what will be her response if the Turkish speaking people of Western Thrace were somehow joined by their compatriots in a Crimea-like invasion?

“How do you like them apples” is not a mute question after all…

Losing Crimea and perhaps losing Eastern Ukraine or the whole of the country — is just as vital for Europe as it was losing the eastern half of Poland to Stalin back in the days before the Second World War. A war that was largely sparked because of it.
And today it is because Ukraine sits geographically all around the very centre of the geographic map of continental Europe. Kiev is the midway point between the Atlantic ocean and the Ural mountains. Granted it’s not western Europe but Kiev and Ukraine is very much European territory and allowing it to slip further East is not a tectonic change but an all too seismic human Leadership failure.

Yet before one rushes to judgement against Greece’s Presidency of the European Union, and the European Union as a whole because of the all too human selfish malady of being “every man for himself” and “every Haus Frau for herself” — please remember this: In European politics, we are all ONE and the dream of a United Europe is our daily dose of reality. Otherwise we lose the boat to the very existence of Europe and we will launch into another bloody European war.

And even though the focus of a Wide-Europe as a United Europe is very much on the agenda since 1949 and the time of Robert Schuman — still in European politics today things are seldom what they appear to be, nor what they are voiced for.

So is the case here and now with the Ukrainian crisis… Many around Europe think that all is well that ends well. Except that nothing has ended. Only the can of worms has been spilled open again.

Greece’s disquieting quiet, is not entirely unwanted. Nor is it treacherous or treasonous towards the other Euro-allies, because the EU was informed ahead of time of the Russian tricky trade through the Prime Minister’s talking club — the European Council. This is where it was decided that Europe was unprepared, and unable to respond to Russia’s Crimean invasion at all. The European Council and the assorted Prime Ministers were not able to neither arrive at a consensus, nor were they able to respond forcefully, so it wouldn’t make any difference even if they had the gumption and the resolve to stand up for Ukraine. Therefore Greece was allowed to make the trade for cheap energy that is a boost to it’s economy after all. Of course everybody who is anybody — already knows this. Only Sarah Palin hasn’t gotten wind of this arrangement and wants to nuclear bomb Greece in order to teach Putin a lesson. By the way; here is where the April’s fool caveat about the year-round fool Sarah Palin, applies…

Still the EU presidency under the weakling and all too willing, and accommodating Greek Presidency is troubling; because it ensures Europe’s silence until the end of the first half of this year when the EU Presidency passes on to Italy for the remaining six months of 2014. And if you were hoping for a firm response then — You should know how loud the Italian stallion can be when his belly is full of cheap gas…

And next year Latvia is scheduled to ascede to the Presidency of Europe for the first half of 2015. Latvia which gets a cold shudder before Russia even sneezes, isn’t likely to stand up to Putin. Then tiny Luxembourg is following on the second half of the EU Presidency — so don’t expect a firm response in 2015 either. Thus the gambling assumption that Greece sold out for a pittance of Gas — the proverbial 30 silver pieces — is either false or not entirely true. It might have been a good trade for Greece and Europe to be quiet as they belly-ache and navel-gaze searching for a response; while they simply accept fait-accompli, and Realpolitik, in order to appease the alcoholic Rus.

These facts are sometimes hard to stomach — but with a leaderless Europe, a Europe without a common defense policy, let alone a common defence force; Who is to stand up to Putin’s ruthless criminality?

Mr Van Rompuy?

Mr Barosso?

Or Frau Merkel?

You’ve got to be joking…

Thank God for Nato, the Transantlantic relationship, and for the American warship fleet with the nuclear airplane carrier and their umbrella air cover and missile defence system, that are now stationed on the Black Sea — that the rest of Ukraine is not singing Mama-Russia at school in the morning already.

[ Photo: How do you like them warships? ]

Only because NATO ships have entered the Black Sea, right after Russia’s invasion, led by the United States that sent to the Black Sea a super-carrier USS George H.W. Bush because of the invasion by the Russian army of Crimea. The vast US aircraft carrier battle group has everything needed to respond to further developments in the Ukrainian invasion and the resultant crisis. The US nuclear super-carrier fleet is accompanied by 17 other ships and three submarines, comprising a battle group, which on March 3 passed through the Dardanelles channel steaming to the Black Sea; and have been patroling there since. It is widely known that US Warship George H.W. Bush is a forward attack airplane carrier, carrying 90 aircraft, including helicopters of various types, and several squadrons of F/A-18 Hornets. The accompanying submarines have each twenty four missile silos, with each silo housing a missile armed with eight separate nuclear warheads which operate as MIRV’s (Multiple Independent Re-Entry Vehicles) that can be independently targeted.

So Now What?

Well — Mutually assured destruction is now on the table because of a silly Russian gambit to wrestle Crimea away from Ukraine and destabilize Europe. Playing Russian Roulette Mr Putin attacked Ukraine so he can look less like a pussy-riot and more like a warrior from Mars.

So Putin rides again…

Putin Riding a Space Rock

[ Photo: How do you like them nipples? ]

Yet it is now same as it was forever — it is Europe’s gamble to hold on to, or to lose Ukraine.

Make no mistake: Ukraine with Crimea or not, is vital to Europe.

The stakes are high. Lose Ukraine to Russia’s bellicose mini-czar and no respect is going to be given to any of us Europeans.

And what’s a Europe without international respect and no healthy self-respect, but another loose alliance of bazaar merchants ready to fall on each other’s thinly concealed blades for another round of a bloody civil war.

A civil war in Europe is simply that: It starts as a territorial dispute on the edges and then catches fire due to appeasement that gives petty Dictators the illusion of Grandeur. It is the same like the first and the second World Wars that paried at the edges before they became conflagrations that consumed the centre of Europe and then destroyed the western world as a whole, before spilling over all the rest of the world.

Yet in this case today, Ukraine is not all lost. Not even Crimea and the Eastern part even though it appears a lost cause, because Russia’s Vladimir Putin has committed a grave strategic blunder by taking over a sovereign nation’s territory without speaking and achieving the nod of

The old wise heads of Peking are rather miffed that the upstart coffee boy to the mayor of St Petersburg and current era Minnie-me Mr Putin, erred gravely when he started burning up the international relations amongst nations rule book without a green light from China’s politburo standing committee. And now it’s too late to ask because his breach of protocol and the resultant loss of face by the Chinese — destroyed any hope of recruiting Beijing as an ally to blunt Western sanctions. Now his goodwill enterprise towards Peking and his offering gas price discounts looks doomed from the start, and with it the Kremlin’s chance of a painless victory, or any worthwhile victory at all in Crimea.

His international standing in tatters — the emperor really has no clothes this time around regardless that Putin loves to show his nipples for all to see. A rather gay image for a rabidly anti-gay man but there You have it. the problem with small men is not just Napoleon complex but a strange sense of self identity. Either the man is gay and there is nothing wrong with it; or he is a Buddhist believing that he needs to embrace that which he dislikes the most: Being gay and practicing it willy nilly all the while forbidding it to all others. He is not alone in these endeavours. One has to wonder about his sidekick Mr Medved because together they look very much like gay caped crusaders Batman and Robin but with a definite bend for the criminal enterprise instead of the straight homophobic air of Edgar Allan Hoover of the old days of FBI, who was similarly antigay before he returned every night home to the ministrations of his male lover in the comfort of his hosiery and feathered slippers.

And although the “Pussy Riot” is presently mostly out of jail, Mr Putin was careful to thank China’s Politburo for its alleged support in his victory speech on Crimea. Lies and misdemeanors never sounded so false. Putin’s foreign minister Mr Sergei Lavrov has been claiming with his usual elasticity that “Russia and China have coinciding views on the situation in Ukraine.”

This is of course a desperate lie.

China did not stand behind Russia in the UN Security Council vote on Crimea, as it had over Syria. It pointedly abstained. Its foreign ministry stated that “China always sticks to the principle of non-interference in any country’s internal affairs and respects the independence, sovereignty, and territorial integrity of Ukraine.”

We don’t know exactly what China’s Xi Jinping told President Barack Obama at The Hague this week it clearly had nothing in common with the deranged assertions of the Kremlin. The US deputy national security adviser Ben Rhodes appeared delighted by the talks, claiming afterwards that Russia could no longer count on backing from its “traditional ally”.

If so, Mr Putin is snookered. He cannot hope to escape financial suffocation by US regulatory muscle, should he send troops into Eastern Ukraine or even if he tries to stir up chaos in the Russian-speaking Donbass by means of agents provocateurs.

Nor can he hope to turn the tables on the West by joining forces with China to create a Eurasian bloc, a league of authoritarian powers in control of vast resources. Such an outcome is the obsession of the ‘Spenglerites’, the West’s self-haters convinced that the US is finished and that dollar will soon be displaced by the Eurasian Gold Ducat — odd though that may seem at a time of surging oil and gas output in the US, and an American manufacturing revival.

The reality is that China is breaking Russia’s control over the gas basins of Central Asia systematically and ruthlessly. Turkmenistan’s gas used to flow North, hostage to prices set by Gazprom. It now flows East. President Xi went in person last September to open the new 1,800 km pipeline to China from the Galkynysh field, the world’s second largest with 26 trillion cubic meters.

It will ultimately supply 65 BCM, equal to half Gazprom’s exports to Europe. Much the same is going on in Kazakhstan, where Chinese companies have taken over much of the energy industry. The politics are poignantly exposed in Wikileaks cables from Central Asia. A British diplomat is cited in a 2010 dispatch describing the “Chinese commercial colonization” of the region, saying Russia was “painfully” watching its energy domination in Central Asia slip away.

Yet more revealing is a cable quoting Cheng Guoping, China’s ambassador to Kazakhstan, warning that Russia and China are on a collision course, and China will not be the one to yield. “In the future, great power relations in Central Asia will be complicated, delicate. The new oil and gas pipelines are breaking Russia’s monopoly in energy exports.”

Mr Cheng not only expressed “a positive view of the US role in the region” but also suggested that NATO should take part as a guest at talks on the Shanghai Cooperation group — allegedly the Sino-Russian answer to EU/NATO — in order to “break the Russian monopoly in the region.” That word “break” again. So there we have it in the raw, what really goes on behind closed doors, so far removed from the pieties of a Moscow-Beijing axis.

There was much anguish about such an axis in the 1960s, then based on Communist fraternity. Henry Kissinger saw through it, suspecting that the two hostile cultures were at daggers drawn along their vast borders — “Four Thousand Kilometres of Problems” to cite the title of a 2006 opus by Moscow writer Akihero Ivasita.

George Walden exposes deep roots of this mistrust in his superb little book “China: A Wolf in the World?”. As a diplomat in Russia and then in China — one of the tiny handful of Westerners in Beijing through the Cultural Revolution — he saw first-hand how the Marxist brotherhood had come to loathe each other. Indeed, they came close to nuclear war. The CIA and State Department were dumbfounded by his accounts at a debriefing in Washington. They had no sources on the ground in Mao’s era.

Mr Walden says the Chinese have never forgiven Russia for seizing East Siberia under the Tsars, the “lost territories”. They want their property back, and they are getting it back by ethnic resettlement across the Amur and the frontier regions, much as Mexico is retaking California and Texas by the Reconquista of migration.

The population of far Eastern Siberia has collapsed to 6.3m from over 8 million twenty years ago, leaving ghost towns along the Trans-Siberian Railway. Russia has failed to make a go of its Eastern venture. With a national fertility rate of 1.4, chronic alcoholism, and a population expected to shrink by 30m to barely more than 110m by 2050 — according to UN demographers, not Mr Putin’s officials — the nation must inexorably recede towards its European bastion of Old Muscovy. The question is how fast, and how peacefully.

Mr Putin must realize by now how fatally isolated he has become, and how dangerous it would be to go a step further. Even Germany’s ever-forgiving Angela Merkel has lost patience, lamenting an “unbelievable breakdown of trust.” Enough of Europe’s gas pipelines have been switched to two-way flows since 2009 to help at least some of the vulnerable frontline states, if he tries to pick off the minnows one by one. Eight EU countries have liquefied natural gas terminals. Two more will join the club this year, in Poland and Lithuania.

The EU summit text last week was a call to arms. Officials have been ordered to draft plans within 90 days to break dependence on Gazprom. Even if this crisis blows over, Europe will take radical steps to find other sources of energy. Imports of Russian fuel may be slashed by half within a decade. For Europe is not even a gambit. What’s to lose? In the event of conflict in Ukraine they will be shut off overnight…

Capital flight from Russia reached $70bn in the first quarter. Russia’s central bank cannot defend the rouble without tightening monetary policy, driving the economy deeper into recession in the process. Russian banks and companies must roll over $155bn of foreign debts over the next twelve months in a hostile market, at a premium already over 200 basis points.

Mr Putin is discovering that global finance is more frightened of the US Securities and Exchange Commission than Russian T90 tanks. Any sanction against any oligarch linked to any Russian company could shut it out of global capital markets, potentially forcing default. Creditors in the West would be burned. But nobody cares about them once national security is at stake, something markets have been slow to grasp.

Putin has not chosen a good moment for his gamble because Europe’s gas tanks are unusually full and the price of oil is poised to fall — ceteris paribus — as Iraq’s output reaches a 35-year high, the US adds a million barrels b/d a day this year from shale, and Libya cranks up it’s fuel exports all over again. The International Energy Agency says global supply jumped by 600,000 b/d last month. Deutsche Bank predicts a glut. So does China’s Sinopec. Mr Putin needs prices near $110 to fund his budget. He may face $80 before long.

At the end of the day he has condemned Russia to the middle income trap. The windfall from the great oil boom has been wasted. Russia’s engineering skills have atrophied. Industry has been hollowed out by the Dutch Disease: the curse of over-valued currency, and reliance on commodities.

Russia’s Putin jumped the gun in Ukraine, striking before the interim government had committed any serious abuses or lost global goodwill, a remarkably sloppy and impatient “Putsch” for a KGB man.

He took Germany for a patsy, and took China for granted.

He has gained Crimea but turned the Kremlin into a pariah for another decade, if not a generation, and probably lost Ukraine forever.

It is a remarkably poor trade.



So as Putin becomes irrelevant, China is the one to watch here…

For China’s dragon is as elusive as ever.

He is likely to deftly walk a tightrope, “hiding its brilliance and biding its time” as the saying goes.

This of course will becomes a harder as the Ukrainian crisis escalates and Sino-Russian border becomes more porous, for then Beijing may have to publicly choose.

One thing is certain that it is highly unlikely that imperious Xi Jinping will throw away the great prize of G2 Sino-American “condominium” and economic cooperation for a third world prize or to rescue a squalid and incompetent regime in Moscow from its own grandiose folly.

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