Monday, March 3, 2014

Russia And China Stand Together On Ukraine

Russia And China Stand In Agreement On Ukraine - And That Is Very Bad News For The U.S.

So much for "isolating" Russia.  The Chinese government is publicly siding with Russia on the crisis in Ukraine, and that is very bad news for the United States.  Not only does it mean that the U.S. is essentially powerless to do anything about the situation in Ukraine, it also means that Russia and China are starting to understand how much economic leverage that they really have.  Yes, the Obama administration can threaten to slap "sanctions" on Russia or threaten to kick Russia "out of the G8", but those actions would not actually hurt too much.  On the other hand, Russia and China hold approximately 25 percent of all foreign-owned U.S. debt, and if they started massively dumping U.S. debt it could rapidly create a nightmare scenario.  In addition, it is important to remember that Russia is thelargest exporter of natural gas and the second largest exporter of oil in the world.  And China now imports more oil than anyone else on the planet does, including the United States.  If Russia and China got together and decided to kill the petrodollar, they could do it almost overnight.  So when it comes to Ukraine, it is definitely not the United States that has the leverage.

If China and the rest of the world abandoned Russia over Ukraine, that would be one thing.  But that is not happening at all.  In fact, China has chosen to publicly stand with Russia on this issue.  The following is from a Sky News article entitled "Russia And China 'In Agreement' Over Ukraine"...

Russian foreign minister Sergei Lavrov discussed Ukraine by telephone with his Chinese counterpart, Wang Yi, on Monday, and claimed they had "broadly coinciding points of view" on the situation there, according to a ministry statement.

And Chinese state news agency Xinhua is publicly rebuking the Westfor their handling of the Ukrainian crisis...

China's state news agency Xinhua accused western powers of adopting a Cold War- like mindset towards Russia, trying to isolate Moscow at a time when much needed mediation is need to reach a diplomatic solution to the crisis in Crimea.

Apparently clueless as to how the geopolitical chips are falling, the Obama administration is busy planning all sorts of ways that it can punish Russia...

Behind the scenes, Obama administration officials are preparing a series of possible battle plans for a potential economic assault on Russia in response to its invasion of Ukraine, an administration source close to the issue told The Daily Beast. Among the possible targets for these financial attacks: everyone from high-ranking Russian military officials to government leaders to top businessmen to Russian-speaking separatists in Ukraine. It’s all part of the work to prepare an executive order now under consideration at the Obama administration’s highest levels.

Does the Obama administration really want to start an "economic war" with Russia and potentially against China as well?

Considering how much money we owe them, and considering the fact that we desperately need them to continue to use the petrodollar, we stand to lose far more than they do.
This is one of the reasons why I have always insisted that the national debt was a national security issue.  By going into so much debt, we have given other nations such as Russia and China a tremendous amount of leverage over us.

So the stage is set.
Russia has already grabbed Crimea, and it is eyeing other territories in eastern Ukraine.
China is publicly backing Russia, and collectively they have a tremendous amount of economic leverage.
The Obama administration is barking loudly about what Russia has done, but the reality is that the U.S. has very little economic leverage at this point.
What the U.S. does have is the strongest military on the entire planet, but let us hope and pray that Obama does not decide to get the U.S. military involved in Ukraine.  That would be absolutely disastrous.
In the end, the U.S. has no good options in Ukraine.  The Obama administration helped aid and organize the violent revolution that overthrew the Ukrainian government, and now we have a giant mess.
Nobody is quite sure what comes next, but one thing is certain...
The relationship between the United States and Russia will never, ever be the same again.

Like many conflicts before it, the current battle brewing between Russia and Ukraine has a strong energy component.

Russia has a history of using its energy supplies as a control mechanism—such as the 2006 and 2009 gas wars when it cut natural gas supplies in the midst of winter and left many European nations, which rely on Russian natural gas that is shipped through Ukraine, without energy. The supply disruptions were due to “disputes over politics, price, and late payments,” says the Washington Post. 

Russia supplies virtually all of Ukraine’s natural gas and Ukraine serves as a critical transit route for sending Russian natural gas via pipeline into Europe.

Aware of its reliance on Russia, and seeking energy independence, Ukraine has taken several steps to move away from the grip Moscow holds over its energy supplies—a move that has not gone unnoticed by Russia. In addition to reducing its use, Ukraine is seeking supplies from other sources and has signed deals to develop its own resources that are thought to be “significant” and “similar to those that unlocked a boom in U.S. energy production,” reports the Christian Science Monitor (CSM).

In January 2013, Ukraine signed a $10 billion shale gas project with Royal Dutch Shell. In November, Chevron signed a similar deal. Regarding the deals, according to the Financial Times (FT), Ukraine’s president Viktor Yanukovich said: the agreements “will allow us by 2020 to become self-sufficient in gas, and, under an optimistic scenario, to become an exporter.” Before being ousted, the Yanukovich government was in negotiations with a group led by ExxonMobil, which wants to explore for oil and gas in a deep-water block in the Black Sea

The November 2013 FT report suggested that the Shell and Chevron deals “could increase tensions with Russia.”

Ukraine—which pays some of the highest natural gas prices in Europe—asked Moscow, according to Reuters, to “ease terms it considers excessive and unaffordable.”

Moscow sees that its natural gas supplies are a weapon it can, once again, wield against Ukraine. The CSM states: “By cutting a deal for discount gas with Russian President Vladimir Putin last November, Ukraine infuriated its pro-Europe contingent and entrusted its energy security to a fickle ally.” Former U.S. Ambassador to Poland Lee Feinstein adds: “It was at its most a short-term benefit, but in the long run served only to deepen Ukraine’s reliance on Russia.”

What will happen next is anyone’s guess. In the Washington Post’s February 23 coverage of the story, the Carnegie Moscow Center’s Lilia Shevtsova is reported assaying: “Ukraine’s fast meltdown caught the Kremlin off guard.”

Other Eastern European countries have been watching and are taking steps to reduce their dependence on Russia.

Ukraine knows that developing its own resources is imperative to its energy security. Being dependent on Russia for its natural gas has forced Ukraine to abandon a trade agreement with the EU—lessening its independence and renewing ties with its former master.

As this current conflict highlights, he who controls the energy controls the people—and this is why America’s continued energy abundance is important for our own energy security and that of our friends.

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