Tuesday, December 2, 2014

Falling Oil Prices Threaten Russia

Tensions Between The U.S. And Russia Are Worse Than You Realize

Nevertheless, this piece isn’t meant to be a pointless debate about which overly-centralized, archaic and corrupt nation-state is better than the other. Neither place has a political or economic structure that even comes close to providing a fertile environment in which human existence can reach its highest potential. Rather, both nation-states are controlled by a small group of ambitious, authoritarian and, when necessary, ruthless and violent men and women. That said, there are two reasons I think the following remarks by Russian Foreign Minister Sergey Lavrov are so important.

Second, Lavrov also describes the negative impact that this behavior has had on the Russian psyche generally. He expresses dismay that the U.S. status quo sees the world as unipolar, and attempts to tackle every problem from the perspective that might is right. In no uncertain terms, Lavrov makes it clear that Russia will not stand for this. I don’t think the Russians are bluffing, so this is a very dangerous situation.

Here are some excerpts from Mr. Lavrov’s remarks at the XXII Assembly of the Council on Foreign and Defence Policy in Moscow on November 22, 2014. The whole thing can be foundhere, which I strongly suggesting reading in full.

Naturally, I will start with Ukraine. Long before the country was plunged into the crisis, there was a feeling in the air that Russia’s relations with the EU and with the West were about to reach their moment of truth. It was clear that we could no longer continue to put issues in our relations on the back burner and that a choice had to be made between a genuine partnership or, as the saying goes, “breaking pots.” It goes without saying that Russia opted for the former alternative, while unfortunately our Western partners settled for the latter, whether consciously or not. In fact, they went all out in Ukraine and supported extremists, thereby giving up their own principles of democratic regime change. What came out of it was an attempt to play chicken with Russia, to see who blinks first. As bullies say, they wanted to Russia to “chicken out” (I can’t find a better word for it), to force us to swallow the humiliation of Russians and native speakers of Russian in Ukraine.
 When they deliberately decided to go down the path of escalation in Ukraine, they forgot many things, and had a clear understanding of how such moves would be viewed in Russia. They forgot the advice of, say, Otto von Bismarck, who had said that disparaging the millions-strong great Russian people would be the biggest political mistake.

President Vladimir Putin said the other day that no one in history has yet managed to subjugate Russia to its influence. This is not an assessment, but a statement of fact. Yet such an attempt has been made to quench the thirst for expanding the geopolitical space under Western control, out of a mercantile fear to lose the spoils of what they across the Atlantic had persuaded themselves was the victory in the Cold War.

Today everything is the other way around: Western leaders are publicly declaring that the sanctions should destroy the economy and trigger popular protests. So, as regards the conceptual approach to the use of coercive measures the West unequivocally demonstrates that it does not merely seek to change Russian policy (which in itself is illusory), but it seeks to change the regime — and practically nobody denies this.

Many reasonable analysts understand that there is a widening gap between the global ambitions of the US Administration and the country’s real potential. The world is changing and, as has always happened in history, at some point somebody’s influence and power reach their peak and then somebody begins to develop still faster and more effectively. One should study history and proceed from realities. The seven developing economies headed by BRICS already have a bigger GDP than the Western G7. One should proceed from the facts of life, and not from a misconceived sense of one’s own grandeur.

I can’t fail to mention Russia’s comprehensive partnership with China. Important bilateral decisions have been taken, paving the way to an energy alliance between Russia and China. But there’s more to it. We can now even talk about the emerging technology alliance between the two countries. Russia’s tandem with Beijing is a crucial factor for ensuring international stability and at least some balance in international affairs, as well as ensuring the rule of international law.

The Cold War 2.0 is going hot, and while it may someday be fought with planes, tanks, guns and bombs, the first front is being fought with oil and shale gas.
The U.S. and European sanctions against Russia will become more severe and crippling in the face of drastically falling oil prices – prices which are falling drastically because of the unprecedented boom of shale gas fracking both domestically in the U.S. and abroad in Ukraine and other locales. The oil & gas giants like Chevron and Exxon Mobil have created revolutionary conditions with now direct consequences on U.S. foreign policy and global war for dominance. Via Bloomberg:

Oil’s decline is proving to be the worst since the collapse of the financial system in 2008 and threatening to have the same global impact of falling prices three decades ago that led to the Mexican debt crisis and the end of the Soviet Union.

Russia, the world’s largest producer, can no longer rely on the same oil revenues to rescue an economy suffering from European and U.S. sanctions. 

The OPEC countries, led by Saudi Arabia, are allowing oil prices to fall drastically, in clear coordination with its Anglo masters, and in response to the sudden rise of shale gas production obtained through fracking. These Arab states will not lose power with the falling oil prices, while many other regimes will face pressure in all sectors.
Targeted at the center of this web of intrigue is, of course, Russia. Natural gas is at the center of the Ukrainian conflict – with Russia’s Gazprom supplying some 25% of Europe’s natural gas.

U.S. operatives are working overtime to undermine that by cutting off Russian gas and supplying Europe, instead, with booming shale gas from fracking in and around Ukraineand its rich mineral holdings.

An important secondary consequence of falling oil prices will come in the form of disruptions to social services in countries that have been supporting citizens with money from high oil prices – including Russia, Iran, Venezuela, Nigeria and others.
Falling oil revenue will mean less money for subsidies and handouts. For the geopolitical orchestrators in the Anglo-elite network, this is part of the strategy.

For a U.S. that many have said lost its credibility in the world, and has seen a decline in its position as the foremost global superpower and a certain, but slow decline of the petrodollar’s status as world reserve currency, the move in shale gas is a power move to level the global playing field.
The “sudden rise” of shale natural gas has been a planned, coordinated and highly strategic move. Plummeting oil prices are indeed an economic weapon against Russia, as many analysts have shown, and act to call the bluff of the other players at the table as well. It poses serious challenges to tensions with Russia, and will have immediate consequences for many other economies based on oil. Bloomberg explains the positions:

Oil’s decline is proving to be the worst since the collapse of the financial system in 2008 and threatening to have the same global impact of falling prices three decades ago that led to the Mexican debt crisis and the end of the Soviet Union.

A world already unsettled by Russian-inspired insurrection in Ukraine to the onslaught of Islamic State in the Middle East is about be roiled further as crude prices plunge. Global energy markets have been upended by an unprecedented North American oil boom brought on by hydraulic fracturing, the process of blasting shale rocks to release oil and gas.

“Russia in particular seems vulnerable,” said Allan von Mehren, chief analyst at Danske Banke A/S in Copenhagen. “A big decline in the oil price in 1997-98 was one factor causing pressure that eventually led to Russian default in August 1998.”
VTB Group, Russia’s second-largest bank, OAO Gazprombank, its third-largest lender, and Russian Agricultural Bank are already seeking government aid to replenish capital after sanctions cut them off from international financial markets. Now with sputtering economic growth, they also face a rise in bad loans.
Oil and gas provide 68 percent of Russia’s exports and 50 percent of its federal budget. Russia has already lost almost $90 billion of its currency reserves this year, equal to 4.5 percent of its economy, as it tried to prevent the ruble from tumbling after Western countries imposed sanctions to punish Russian meddling in Ukraine. The ruble is down 35 percent against the dollar since June.

Beginning early next year NATO will have a new reaction force ready, which can be deployed more rapidly on its eastern border. This new force, called "interim spearhead," will consist of a few hundred troops from Germany, the Netherlands and Norway. Troops will rotate in terms of their state of readiness, but remain at bases in their home countries.
The new secretary general of NATO, Jens Stoltenberg, announced the plan to support the Baltic members of the alliance during a press conference in Brussels at NATO headquarters.
Concerned by increased Russian military activities on land, at sea and in the air in the wake of the crisis around Ukraine, NATO decided at its summit meeting in Wales in early September to strengthen its military presence in the Estonia, Lithuania and Latvia, which have a common border with either Russia or Belarus.
The reaction from Moscow was quick. NATO was destabilizing northern Europe by holding exercises and "transferring aircraft carriers able to carry nuclear weapons to the Baltic sea", the Russian deputy ministers for foreign affairs, Alexei Meshkow, told the news agency Interfax.
Ukraine, Georgia and other democracies can become NATO members in the future. There will be no formal or informal guarantees to Russia in that respect, underlined NATO diplomats in Brussels. Russia is opposing the possible enlargement of NATO vigorously. "My main message is that I respect the decisions taken by the Ukrainians. Ukraine decided some years ago to be a non-bloc nation. Then, I respected that. Now, I have seen that the new government is announcing that they will change that. If they do, I will of course respect that too", said Stoltenberg.

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