By Tatiana Yugay
“Preventive
war is like committing suicide for fear of death”
Otto von
Bismarck
While the U.S. and the EU
entertain themselves introducing more and more sanctions against
Russia, their target doesn't participate in this petty game. If I were
the Western leaders, I would be worried, why Putin does not respond
to their attacks? From the recent events, they might know that
Putin's silence is a frightening sign. Yes, they are rather nervous
that the Russian bear would come to Ukraine and bite off its
eastern and southern provinces. At the same time, some of them have
been actively provoking Russia, possibly in order to step into a military conflict. Though the atmosphere is very tense there, I
strongly believe that Russia won't provide military aid to the
east-Ukranian federalists. All this anxiety about Russian possible
invasion of Ukraine are caused by the incapability of the West to
think strategically and foresee Putin's geopolitical moves, even though
they are very obvious.
Russia's U-turn to a
multipolar world
Being
a Eurasian superpower, Russia, as
a two-faced Janus,
has been looking to the West
and to the East
throughout its history. During two decades
after the
collapse of the Soviet Union, the Russian Janus
was looking
with hope to the West. Janus's
turn to the East
has been developing gradually as Russia has gradually realized
that the West would never regard the country as an equal partner, but will rather continue treating
it as a mere source
of raw materials. The
recent US hysteria about Putin's
letter to the EU leadership has
made it particularly clear. Putin has
warned the EU about possible difficulties of gas transit
from Russia due to Ukraine's $2.2
billion debt to Gazprom.
Furthermore, the West has become less attractive for Russia from
an economic point of view, since it has
been weakened by the Great Recession.
Meanwhile, the emerging
markets have been
demonstrating dynamic economic growth. Thus, the imprudent Western sanction
policy has served as a strong catalyst for
Russia's geopolitical shift to the East. In my opinion, we are
observing not only a temporary turn, but a long-term
U-turn of Russia
toward the East.
On March 18, the
spokesperson for the Kremlin, Dmitry Peskov
voiced the Russian position,
"If an economic partner on the one
side of the globe imposes
sanctions, we will pay attention to new partners from the globe’s
other side. The world is not monopolar, we will concentrate on other
economic partners".
In fact, Russia's
new partners aren't
that new. Russia has been gradually
strengthening economic and political ties
with two mighty non-Western clubs - the Association of Southeast
Asian Nations (ASEAN) and BRICS. According
to Alexei
Likhachev, Russia's Deputy Minister of Economic Development,
“the ASEAN countries are attractive for Russia because their
markets are "complementary" to the Russian economy unlike
the European ones. Though the trade volume with Europe is
significant, European exports don't contribute to the creation of
high-tech jobs in Russia. Concentrating on Asia is warranted because
exports in this region include high tech machinery and military
equipment not only hydrocarbons. Also, Asian markets, unlike the
markets in Europe, have a tremendous growth potential and significant
synergies with Russian economy”.
During the past 13 years, Russia has been developing close
relations within BRICS
organization, consisting of Brazil, Russia,
India, China and South Africa. Currently,
BRICS represents 42 percent of the world’s
population and about a quarter of the world’s economy, which means
that this bloc of states is an important global actor. Today, in
total, there are more than 20 formats of cooperation within the
BRICS. In
February, the member-states came to an agreement about 11 possible
projects of scientific and technical cooperation, from aeronautics to
bio- and nanotechnology. Last year, Russia's
trade turnover
with BRICS has reached $105 billion. One
of the most potent Russia's partners, which holds a membership in both clubs (ASEAN
and BRICS), is China.
During the Direct
Line on
April 17, Vladimir Putin, responding to
a question about the Russian-Chinese relations, admitted that ”they
are progressing very successfully in terms of trust and
collaboration, which are unprecedented. This includes political
cooperation and our shared views on international affairs and global
security, which is the basis for these intergovernmental
relations... We have never had such trust-based
relations in the military industry. We began holding joint drills at
sea and on land, in both China and the Russian Federation. This gives
us reason to assume that Russian-Chinese relations will be a
significant factor in global policy and will substantially influence
modern international relations”.
In 2013, the trade
volume between Russia and China has
reached
$89 billion.
Leaders of two
states called for annual bilateral trade between the two countries to
be boosted to $100 billion by 2015. Meantime,
China has already overtook
Germany as Russia's biggest buyer of crude oil this year, thanks to
Rosneft securing deals to boost eastward oil supplies via the East
Siberia-Pacific Ocean pipeline and another one
through Kazakhstan. Last year, relations
between Russia and China have been actively
developing in different fields. In particular, in 2013 the states
signed 21 trade agreements, including a new 100 million ton oil
supply deal with China’s Sinopec. On October 2013, the two
governments signed an agreement to build, jointly an oil refinery in
Tianjin, east of Beijing. In addition, China is
ready to invest $20 billion in domestic
projects in Russia, focusing on transport infrastructure, highways,
ports, and airports, and it hoped to increase investment in Russia
fourfold by 2020.
However, a millennium
deal between the two giants is still to be concluded, though, it is
already nicknamed as "Holy
Grail" by the media. The
Russian Gazprom and
the Chinese
National Petroleum Corporation (CNOOC)
are ready to strike a
thirty-year gas deal
on supplies
of 68 billion cubic meters per
year by two routes. Fast growing China
desperately needs Russian gas. According to expert assessments,
China's demand
for gas will reach 300-350 billion cubic meters per year by 2020.
China's own production can provide about 115 billion cubic meters.
Experts predict that by 2030 total gas consumption in China will
exceed the European one, which now makes about 600 billion cubic
meters. Russia and
China have been
negotiating on gas
deal since 2004.
A
stumbling block in the negotiations has been a
basic price. Recently a high-level Russian delegation visited China.
Following the talks, Chairman of OAO "Gazprom" Alexey
Miller stated,
"During this round of negotiations, we agreed on all technical
issues of the project. Progress has been made in the negotiations on
the price of gas. The parties agreed that the contract will enter
into force before the end of 2014”. It is expected that the
long-awaited contract will be signed during Putin's May visit to
China (in Russia, we keep fingers crossed!).
Currently, Russian gas is
not supplied to China, though in 2013 Russia’s biggest independent
natural gas producer, Novatek, signed preliminary memorandums with
CNPC to sell at least 3 million tons of LNG per year between Yamal
LNG and PetroChina International. Another Russian company, Rosneft,
which is 75 percent state-owned, is vastly expanding its LNG projects
to diversify its portfolio, and is focusing heavily on eastern
markets, like Japan and China.
Besides the energy sector,
the two countries look forward for further partnerships in the
defense sphere. It is expected that Moscow and Beijing will sign a
$3.5
billion
contract on the sale of 100 Su-35
fighters to China ahead of Putin's visit to Beijing in May. In 2014,
Russia and China have got a full agenda for bilateral cooperation,
which includes not only trade but also such spheres as energy,
aircraft building, mechanical engineering, military and science
cooperation, tourism, etc.
The second
largest Russia's
trading
partner within
BRICS
is India. In 2012, the
volume
of
bilateral
trade reached $11 billion,
which is rather modest in comparison with China. In
2013 this index slightly decreased. It
is expected that in the near future India
would
sign
the Economic Cooperation Agreement with the Customs Union of Russia,
Belarus and Kazakhstan.
In
case of joining India
to
the free
trade zone, its
trade with the members of the Customs
Union and,
particularly, with Russia will boost.
Traditionally, Russia and India have been closely cooperating in the
defense sphere. At that, almost every defense contract provides
for creation
of joint ventures or licensed production. In 2013, India’s import
of Russian weapons reached $4.78 billion. Another industry which
attracts India is computer-guided weapons, produced by the Russian
Morinformsystem-Agat Concern.
In February, the two states confirmed
their plans to boost cooperation in nuclear energy, with the
former backing the construction of more units at the Kudankulam
Nuclear Power Project (KNPP) and other parts of the country. Besides,
India and Russia are set to sign an agreement aimed at productive
cooperation in many spheres: space and military cooperation, trade,
construction of a pipeline from Russia to India, and plans to set up
a Joint Study Group to look into the scope of the CECA (Comprehensive
Economic Cooperation Agreement) with member-countries of the Customs
Union (the Russian Federation, Kazakhstan and Belarus).
Brazil is
a much
smaller trading partner for Russia. The total trade volume
between Russia and Brazil made $5.7 billion in 2013, however, the two
states seek to increase it up to $10 billion in the near future.
Russia imports Brazilian meat, coffee, sugar, juices and alcohol; and
exports mainly fertilizers. However, in December 2012 the states
signed a treaty on supplies of Russian helicopters to Brazil.
Farewell
to the dollar
Boosting
trade relations with non-western partners would inevitably raise a
problem of currency for
mutual settlements. Up to date, Russia has
been using US dollar in its oil and gas trade by
default. However, in a situation where the
western partners have become
less reliable
and, moreover, are
threatening with trade and financial sanction the
instinct of economic self-preservation
demands to use more secure means of payment.
Since Russia sells its own raw materials, it can change the rules. In
2013, Russian exports of crude oil and oil
products accounted for $283
billion, natural
gas exports made $67
billion and
LNG - $5.5
billion. Taking
into account the future gas deal with China and other hydrocarbon
projects, Russia can count on a big chunk of
the pie on the global
fuel and energy market which can be
nominated in any type of liquid assets.
Besides, Russia is
close to entering a
goods-for-oil swap transaction with Iran that
will give Rosneft around 500,000 barrels of Iranian oil per day to
sell in the global market.
Instead of feeding the U.S. with petrodollars,
Russia can switch to petrorubles, regional currencies and even gold.
In addition to the oil and gas trade,
Rosoboronexport,
state company specialized in weapon exports, can start trading in
rubles. Prominent US trader
Jim Sinclair believes that Russia can easily
cause the collapse of the US economy.
The economist, famous for his forecasts, explains that the strength
of the dollar is based on the US agreement with Saudi Arabia that all
contracts for fuel deliveries be in the US dollars. Now, Moscow can
cancel the
petrodollar and bring
down a colossus with
feet of clay.
As Tyler
Durden justly admits,
"If
it was the intent of the West to bring Russia and China together -
one a natural resource (if "somewhat" corrupt) superpower
and the other a fixed capital/labor output (if "somewhat"
capital misallocating and credit bubbleicious) powerhouse - in the
process marginalizing the dollar and encouraging Ruble and Renminbi
bilateral trade, then things are surely "going according to
plan."
Moreover, BRICS
countries have been repeatedly expressing their determination
to abandon the dollar in their
mutual
trade.
And
it
is not a threat which
the U.S. can easily ignore.
In 2012, the mutual trade between BRICS member states was about $280
billion. Besides,
BRICS
has an ambitious task to raise
the trade volume up to $500 billion in 2015. One
more bad news for the buck is in the air. It
is expected that in the nearest future China will declare the
yuan
as
a gold-backed
world
reserve
currency. These expectations are heated by China's recent activity in
accumulating monetary gold and its huge official
international reserves, which reached $3,7 trillion at the end of
2013. China’s central bank may have stocked up heavily on gold in
the past few years, and might own about 2,710 tons as of the end of
2013, according to an industry
expert.
According to Jim
Rickards,
next
April China
will shock the world announcing
that it has accumulated 5,000 tonnes of gold.
Besides
shifting away from the
dollar,
emerging markets have
been
making
further
arrangements
for redesigning the global finance. In
order to modernize the global economic system, which now
is
US&EU-centric,
member
states have
created the BRICS Stock Alliance and are working
on launching
their own development bank to finance large infrastructure projects. One
more direct consequence of ill-considered US sanctions is Russia's
strong decision to create its own payment processing system. As a
result of financial sanctions imposed by the
U.S. on Russian financial
institutions over Crimea, Visa and MasterCard stopped processing
transactions for several Russian banks. Currently, Visa and
MasterCard control about 85 percent of all card transactions in
Russia. At that, 90 percent of transactions are carried out within
Russia's territory. Recently, Russia’s biggest financial institute
Sberbank
said the PRO 100 payment system, that’s been in development for a
couple of years, will be launched on a massive scale within months.
Russian banking community presume that
Russia can develop its own
digital card payment system in cooperation with China, particularly,
on the basis of the UnionPay
processing system. When the
national payment processing system will be created Visa and
MasterCard would lose a big piece of Russia's market.
What
really the West is to gain at the end of the
play?
Now it's pretty
clear, why Russia doesn't participate in ridiculous
sanctions game notwithstanding US never-ending threats. Putin and his
partners are busy reconfiguring the global political and economic
landscape. The biggest loser will be the U.S. since its brand new
American dream or long-declared pivot
to Asia
would be hardly realized. Partly,
because
the U.S.
has too much bogged down in Ukraine and, mainly, because Russia
but not the U.S. has been pivoting to Asia just
now.
Obama can enjoy
himself building
houses
of cards
from
tons of dollars which the FRS has been printing
diligently.
The
EU can lose its loyal
and reliable partner
and
get instead struggling
fragments
of the Ukraine.
It is clear that the Russian economy would suffer a serious damage if
the EU were to introduce a
full-scale
economic sanctions'
regime.
However, far-reaching consequences of the above-mentioned
geopolitical shifts would more than compensate
for this
temporary
damage.
Russian
leaders and ordinary people are fully aware of future difficulties
and are ready to pay the price for regaining Crimea. When I
returned from Italy to Moscow at the end of March, I spoke with a
taxi driver who met me at the airport. He was very enthusiastic about
the Crimea story and told me that he
and his family weren't afraid of any future sanctions. “The main
thing is that the Crimea is again ours.
We, Russians, are accustomed
to difficulties. But we don't want war”. In fact, I've never seen
such a unanimity of opinions during all post-communist period. It
seems that the Russian people have finally restored its self-esteem
and identity. For the first time since the collapse of the USSR, we
are proud of our country. I believe that further sanctions would only
reinforce these feelings. Following the successful Olympic and
Paralympic Games and the peaceful reintegration of Crimea with
Russia, Putin's rating has skyrocketed. According to the
VCIOM All-Russian Public Opinion Research Center,
since the beginning of 2014, Vladimir Putin’s rating has risen 15
percent and stands at 75.7 percent – the highest in the last five
years. While
enjoying
the powerful support of his citizens, Putin can proceed with geopolitical
redesigning together with the ASEAN and BRICS
partners.
