What to make out of the present strategic impasse?

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Russian Energy Week. Screenshot from en.kremlin.ru:

By Elisabeth Hellenbroich

Beginning October the annual IMF/ World Bank report was issued, which predicted a very gloomy perspective for the world economy, underlining that in the countries that represent one third of the world economy, economic output will shrink in the coming years. “The largest economic areas, USA, European Union and China, stagnate. In a few words, the worst is still to come.” The report emphasized that “many citizens will feel the year 2023 like a ‘recession’ and the war in Ukraine, the stagnation and high inflation reopen the wounds of the pandemics crisis again, that seemed in many national economies at least at the beginning of the year overcome.” Germany according to the report is in the worst shape of all. “The biggest national economy in the Europe shrinks in the coming year by 0,3%, after a below average economic growth of 1,5% this year. Global economic growth will weaken from 6% 2021 to 3,2% this year and 2,7% in the coming year. 

In an interview with the German Daily FAZ ( Oct 12th), IMF chief economist Pierre Gourinchas  spoke about the very high inflation rates in the US and the Eurozone, explaining that three factors had come into play: disturbance in delivery chains as consequence of the pandemics; the expenditure program of the governments, triggering a high demand for goods, that had been scarce during the pandemics: “Then came the energy crisis that after the Russian invasion let the prices go through the roofs in different parts of the world. Food prices also increased because both warrior parties are producers of food.”

Being questioned why Germany is in such a bad economic shape, he stated that Germany depends strongly from energy imports, whose “prices because of the war (in Ukraine)  and sanctions” skyrocketed. Some industry branches are very hard hit.  He predicted “that Germany in the coming year will slide into recession; its economic performance is shrinking.” Being asked why the US dollar is so strong, he stated that “the dollar is particularly strong against the industrial countries, against the Euro, the Yen and the British Pound … Who buys US State bonds gets 4% interest rates – in Japan zero interest rates; Europe suffers from the sudden terms of trade shock, the sudden price development in energy and food.”

Dr. Richard Haas:  US weaponizing the Dollar through sanctions 

In the context of the latest IMF prognosis which predicts harsh recession in particular for Germany, whose energy cooperation with Russia has almost overnight come to a standstill, attention should be paid to the article by Dr. Richard Haas (chief editor of the US Magazine Foreign Affairs) which he wrote for the Foreign Affairs centennial edition (Vol.101, Number 5 September/October) under the title: “A Dangerous Decade: A Foreign Policy For a world in Crisis.” Dr. Haas described the geopolitical challenges for the US foreign policy, in particular the Russia and China threat. At the same time he warned the US that “in dealing with the many threats that will define this decade, the US needs to act with both greater caution and greater boldness in the economic realm.  There is as yet no serious alternative to the dollar as the World’s de facto reserve currency, but that day may come, especially if Washington continues to ‘weaponize’ (!) the dollar through the frequent imposition of sanctions, in particular those targeting central banks. If a competitor currency emerges, the United States will lose its ability to borrow at low rates and inflate its way out of its massive debt, which currently stands at more than $ 30 trillion, (….) ultimately however, the biggest risk for the US security in the decade to come is to be found in the United States itself. A country divided against itself cannot stand; nor can it be effective in the world, as a fractious United states will not be viewed as a reliable or predictable partner or leader.”

Putin speaks about sabotage acts on Nord Stream  pipelines

At the recent “Moscow Energy week”(12-14th October) Russian President Putin gave a speech at the plenary session of the Russian Energy Week International Forum. The topic of the panel discussion was “Global Energy in a Multipolar World.”

He was quite adamant in respect to the recent sabotage against Nord Stream 1 and Nord Stream 2 gas pipelines in the Baltic. According to him “there is no doubt that this is an act of international terrorism, the purpose of which is to undermine the energy security of the entire continent. The logic is cynical: to destroy and block cheap energy sources, hence depriving millions of people, industrial consumers of gas, heat, electricity and other resources and forcing them to buy all this at much higher prices!”  Behind the sabotage against Nord Streams are those “who want to completely sever ties between Russia and the European Union, to fully undermine and crush Europe’s political agency, weaken its industrial potential and seize the market. And of course, those who – I want to stress it – have the technical capacity to organize such explosions and in fact have committed similar sabotage in the past and were caught red–handed, but evaded punishment.” 

“The ball is now in Europe’s court, since it is certainly possible to repair the damaged gas pipeline,” Putin stated. “Russia had not been allowed to inspect. Its capacity is 27,5 billion cubic meters per year which is about 8% of Europe’s gas imports. Russia is ready to begin deliveries. The ball is in the EU’s court. If they want to, they can just turn on the tap and that is that. I repeat that we are not restricting anyone or anything and are ready to supply additional volumes in the autumn and winter period.”

He described how much Europe has been shooting itself in its own knees, emphasizing that “the ‘spot gas pricing mechanics’ have caused Europe more than 300 billion Euros in losses (!) – about 2 % of the Eurozone’s GDP. This could have been avoided if they stuck to long term oil linked contracts.” But this trading system was imposed and Gazprom was forced in part to a link to the spot market. “The resources that come to the European market are sold literally “triple the price”, as I have said, and this feeds inflation. It has already reached 10% in the Euro zone. It is hitting ordinary Europeans, as their electricity and gas bills have more than tripled over the past year.”  

Furthermore he pointed out that “rising costs are crippling local companies. Some industries are experiencing production decline in the double digit, deprived of affordable energy resources from Russia, European businesses have to shut down and look for better conditions in other jurisdictions.” The insanity of the situation is even more drastic if one pays attention to what the President continued saying: “Russia is ready to buy European products but they refuse to sell them. They imposed embargoes on several categories of goods one after the other, hence the deficit. We sell what they want to buy – and at market rates. We are ready to buy from them, but they will not sell. The deficit keeps growing, to repeat, through the fault of their own. Just do not walk away from cooperating with Russia.”

“Europe’s wellbeing in the past decade has been mainly based on cooperation with Russia!” the president stated. “We strongly believe that stability, balanced energy markets and a secure future for all nations can only be ensured through joint efforts in an open and honest dialogue based on the principles of joint responsibility and consideration for each other’s national interests. This is the kind of dialogue that we have established with our partners under the OPEC+ agreement.  In October the quota for oil production in our countries will remain at the August 2022 level, and then it will be cut by 2 million barrels per day. We hope that these decisions will suit both oil producers and consumers. At the same time the coordination between the OPEC+ partners will certainly continue to ensure the stability and predictability of the market.”

He ended his speech with an interesting proposal, stating that despite sanctions Russia will continue to be a reliable energy partner. In order to compensate for the losses of the Nord Streams he suggested that “we could move the lost volume of transit through the Nord Stream pipelines along the bottom of the Baltic Sea to the Black Sea region and thus make Türkey the main route for the supply of our fuel, our natural gas to Europe and create a major gas hub in Europe for Türkey, if our partners are interested in seeing this happen. It is an economically viable project with much higher safety levels as can be seen from recent years.” He added that “we continue the transition to settlements in national currencies when delivering Russia-energy resources. I have already mentioned on such instance where Gazprom and its Chinese partners decided to switch to ruble and yuan in equal proportion when paying for supplied gas. Some European partners have also transitioned to payment in rubles for our gas, which you are well aware of as well.”

Foreign Minister Lavrov on nuclear war and international trade cooperation 

Putin’s speech should be looked at together with an interview that was given by Russian Foreign Minister Sergej Lavrov to Mikhail Chkanikov in the magazine Argumenty y Facty, on the 8th of October. Concerning the  recent  sabotage on the Nord Stream 1 and 2 Pipelines Lavrov stated that while it is important to establish the true causes of what happened,  the “main victims are Russia and Germany.” He emphasized that it is “the United States and its suppliers of expensive overseas LNG that could benefit from it. “They are interested in forcefully ousting competitors from the European gas market.” 

Being asked about Russia’s threat to use nuclear weapons against Ukraine, the Russian Foreign Minister made clear that Russia remains committed to the statement of the leaders of five nuclear weapon states 3rd January 2022 , “which reaffirmed the postulate of the inadmissibility of nuclear war. In accordance with this document, approved at the highest level, it is necessary to prevent any armed conflict between the countries possessing nuclear weapons.”

The recent referenda and annexation of DPR and LPR were described by Lavrov as a “new geopolitical reality” that should be seen in the context of the “relationship between the right to self-determination and the principle of territorial integrity.” After many years of debate this issue would have been resolved in the “UN Declaration on Principles of International Law of 1970, which confirms the inviolability of the territorial integrity or political unity of states, provided that they have governments representing all the people living in the territory.” He particularly referred to the decision of the International Court of Justice on Kosovo in 2010.  According to it, “in the exercise  of the right to self- determination, a territory is not obliged to apply for permission to declare its sovereignty to the central authorities of the country. So a precedent was set.”

Being further asked about the many sanction packages that have been imposed against Russia especially by the US and its allies, Lavrov answered that “those who speak to Russia in the language of sanctions should remember that so far we have been rather restrained in responding to acts of economic aggression, but our patience is not unlimited. (…) Tearing the Russian economy to shreds, as Obama passionately desired, did not work. And it won’t work.”  He pointed put that in a number of European countries there is a sharp increase in prices, a drop in incomes, and a shortage of energy resources, as well as threat of social explosions, stressing that “Russia is not supporter of confrontation, we prefer dialogue.” 

Russia’s trade cooperation with countries around the Globe

Lavrov gave an overview about the countries around the globe with which Russia is closely economically cooperating. This includes China.“Russia’s trade turnover with China for 8 months of this year increased by almost a third”, while the “trade turnover with India for six months of this year increased by 120%. The growth is due not only to the growing price for the raw material component of our exports.” These are friendly countries which seek to replace the niches formed after the withdrawal of Western companies from the Russian market.  He particularly pointed to Asia-Pacific region and its importance for Russia (partners such as Indonesia, the largest Muslim country in the world; Malaysia, Philippines and Vietnam).

“Today the center of world politics and economics is shifting from the Euro-Atlantic to Eurasia and the Asia-Pacific region. Relations with the Asia-Pacific countries, including on South East Asia, have noticeably intensified in many areas”, Lavrov stated. Most indicative would be Vietnam where bilateral comprehensive strategic partnership got strengthened.  Many types of products are supplied to the Vietnam market, including fertilizers, fuels, metals and food. The implementation of major oil and gas projects in both Vietnam and Russia continues. There is also Indonesia, where “prospects for cooperation in the fuel and energy sector, ensuring food security, were discussed in detail. On the agenda are issues of infrastructure construction, construction of nuclear power plants and non–energy application of nuclear technologies, cooperation in the field of peaceful space; in the first six months trade increased by more than 1.5 times. He also mentioned that on the sidelines of the recent “VII Eastern Economic Forum” (September) substantive talks were held by President Putin “with the heads of Government and foreign ministers of Myanmar, Cambodia, Laos, and Thailand.”  

In terms of Russia’s relations with Latin America, Lavrov emphasized that “Latin America is a friendly and very promising region” and that Russia is connected by multifaceted relations that have developed over more than a century and a half. A political dialogue has been established which continues today. He stressed that he not only had many meetings with Latin American ministers at the sidelines of the UN General Assembly meeting but emphasized that it is natural that many of the Latin American countries did not join the anti-Russian sanctions – neither in 2014 nor now and that Russia’s trade with the region in the first six months of this year increased by 27% compared to the same period last year and approached $11 billion. The volume of trade with Brazil, the leading partner in the region, increased by 50.6% in January-May compared to the same period in 2021. 

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