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22 May 2014

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jon

It's a great deal for China. Russia's selling at a substantial discount, and it has to extend its Siberian gas line a good distance in order to deliver the gas. It was also a move that was bound to happen eventually.

I predicted this just after the first round of sanctions. This deal will help Russia's balance of payments, and give it more room for maneuver, but it will encourage Russia to stay reliant on its extractive industries.

In the mid to long term, Russia has much to be concerned about China's continuing development and expansion. I doubt China will be as accommodating as the European nations, should he monkey with gas deliveries. China may well find the need to push up into Siberia, or west in replication of the Great Khan's progress. Some of the Stans may feel more comfortable kinship with China than with Russia.

I'd also note that the USSR and the PRC started out as the closest of brothers, but rapidly found irreconcilable differences. Will this era's leaders be able to do better?

Marcy C.

Sir,
This is off-topic completely, but I need some info. What do you know of an ex-Soviet spy named Yuri Bezmenov. I watched a 1980's speech he gave detailing stages of social breakdown in the West and found it very unsettling. Was his analysis sincere or just more Soviet propaganda designed to make us question our system? Was he a spy at heart even after he defected?

William R. Cumming

Marcy! I believe he was discussed in a recent biography I read of James Angleton of CIA fame published in early 90's in Britain but not the USA! Unfortunately I gave my copy to a retired CIA official!

MS2

I think the content of the speech you refer to is found around pages 17-20 of this:

https://ia601206.us.archive.org/34/items/BezmenovLoveLetterToAmerica/YuriBezmenov-LoveLetterToAmerica.pdf

I have no info on his sincerity.

robt willmann

Is this the speech you are referring to by Yuri Bezmenov a/k/a Tomas Schuman?

http://www.youtube.com/watch?v=8fQoGMtE0EY

This is said to be an interview of him by G. Edward Griffin--

http://www.youtube.com/watch?v=y3qkf3bajd4

nick b

I posted this article before, but it's worth looking at again.
http://qz.com/209718/putin-hopes-china-can-solve-russias-budget-woes-but-hes-in-for-more-misery/

The RT article estimates the price negotiated by the Russians and Chinese at $350 per cubic meter of gas. The Quartz article above claims that with pipeline costs, Gazprom needs about $12 per cubic foot of gas just to break even. A little back of the envelope math tells me 1 cubic meter ~/= 35.3 cubic feet. That means, if the RT estimate is accurate, that the Chinese are paying approx. $10 per cubic foot. That's about a %17 loss per cubic foot if the numbers I read are correct. As jon said above, this is a great deal for the Chinese. Perhaps not so much for the Russians.

kao_hsien_chih

USSR and PRC were not exactly that close, from the beginning.

Mao rose in power in the CCP by eliminating the agents of the Comintern, who were his main rivals from the beginning. Since the people whom Mao got rid of were basically the allies of Kremlin, Russians were less than thrilled.

After helping engineering the "reconciliation" between KMT and CPC (the Xian Incident in 1936), massive Soviet aid flowed into China...but into Chiang Kai-Shek's army, not Mao's. Soviet advisors replaced Germans (who were being withdrawn at the insistence of the Japanese), while Soviet tanks and airplanes became commonplace in KMT armies...but nothing for Mao. It didn't hurt that Chiang had rather close ties to Russians--his son studied in USSR and was married to a Russian woman.

Mao did not forget all these slights from USSR when he took over China. In fact, even while he was receiving Soviet aid in 1950s, he kept referring to them constantly. To be fair, knowing that Mao was not a friend of USSR, Soviets did not support Mao as much as he wanted--they charged PRC substantial amounts of money for the MiG-15s and the services of Soviet pilots who flew them during the Korean War, for example. USSR-PRC relationship was going to crack sooner or later.

William R. Cumming

Chiang married one of 5 Soong sisters. One was a high Communist party official in the Kremlin.

crf

This isn't a short term thing.

It's a signal for the start of deep integration of Russian Chinese interests.

The US has Canada working in its interests (and all its water, resources, farmland and people). It allows to US to engage itself in conflicts around the world knowing that, with Canada in its back pocket, its security in these areas is already assured.

The world is likely going to get very very nasty in the future, with climate change turning currently dry areas into inhospitable zones. Canada is the United State's bulwark against those threats.

And now China has Russia. This is its resource bulwark against climate change and America's hegemony in the rest of the world. Russia is indispensable to China.

Valissa

The deals were about much more than gas, as these excerpts from a recent Stratfor post show. Then there is the issue of agreements bypassing the dollar.

Landmark China-Russia Agreements Go Far Beyond Energy http://www.stratfor.com/geopolitical-diary/landmark-china-russia-agreements-go-far-beyond-energy
… the significance of Putin's trip goes far beyond energy. The deal, along with the others reached, highlights a major shift in Sino-Russian relations that has widespread geopolitical implications. … The other agreements struck during Putin's two-day visit are unique in that they involve Chinese investments, infrastructure and businesses inside Russia. Moscow has long shied away from allowing heavy Chinese investment in its strategic projects; it feared that it would not have sufficient leverage over Chinese activities in Russia, as Moscow has had with the Europeans. … The new deals include a $10 billion aviation agreement, a $2.6 billion power grid agreement, plans to build auto manufacturing plants and housing, and increased rail connectivity. Each of these would take place in Russia. Moreover, the largest proposal on the table would give China National Petroleum Corp. a 19 percent stake in Russian oil behemoth Rosneft, giving China a seat on the board of Moscow's most prized company.

Over the past decade, Russia and China have worked well together, especially on minor economic deals. Beijing and Moscow have found common political ground, aligning constantly against Western (particularly U.S.) interests by, for example, voting in tandem at the U.N. Security Council on issues involving Iran and Syria. But the current deepening of Sino-Russian economic relations is unprecedented. … tighter bilateral relations would give Russia and China a stake in each other's futures. With significant investments in Russia, Beijing would have no desire to see an unstable Russia, and vice versa.

China now has sufficient interest in cooperating with Russia to avoid conflicts -- whether direct or in their overlapping spheres -- that could detract from Beijing's ability to manage attempts at containment by the United States and its allies. Russia is one of the few powers capable of significantly resisting or interfering with major U.S. foreign policy initiatives. Beijing's willingness to enhance its strategic relationship with Moscow reflects its belief that the United States poses a far greater threat to Chinese interests than does Russia.

Russia, China sign deal to bypass U.S. dollar http://america.aljazeera.com/articles/2014/5/20/russia-china-bankdeal.html

Afterthought... charging 5 Chinese military officers with hacking just before Putin's majorly anticipated visit to China seems poorly timed.

U.S. accuses China of cyber spying on American companies http://www.reuters.com/article/2014/05/19/us-cybercrime-usa-china-idUSBREA4I09420140519



David Habakkuk

kao_hsien_chih,

One of Stalin’s deepest fears – with very good reason – was of heresy within the communist world. It was for this reason that in the Spanish civil war Soviet efforts came to be far more concerned with eliminating Trotskyists than fighting the nationalists.

Accordingly, what Mao Zedong said to Khrushchev about Stalin when they met in 1958 comes as no surprise:

“Mao Zedong: … His first major error was one as a result of which the Chinese Communist Party was left with one-tenth of the territory that it had. His second error was that, when China was ripe for revolution, he advised us not to rise in revolution and said that if we started a war with Jiang Jieshi that might threaten the entire nation with destruction.

“N.S. Khrushchev: Wrong. A nation cannot be destroyed.

“Mao Zedong: But that is how Stalin’s cable read. Therefore I believe that the relationship between the Parties was incorrect. After the victory of our Revolution, Stalin had doubts about its character. He believed that China was another Yugoslavia.

“N.S. Khrushchev: Yes, he considered it possible.

“Mao Zedong: When I came to Moscow [in December 1949], he did not want to conclude a treaty of friendship with us and did not want to annul the old treaty with the Guomindang [Kuomintang].”

(See http://digitalarchive.wilsoncenter.org/document/112080 )

It was on precisely because he was well aware of this fear of heresy that George Kennan insisted to the historian John Lukacs, in an exchange of letters in 1995, that a united communist Germany would have been ‘the last thing Stalin would have wanted to bring about.’ He also insisted that this did not represent a change in his view – a contention which cannot simply be dismissed, since we know that he had made this argument as early as February 1947.

(See http://www.americanheritage.com/content/world-war-cold-war?page=show )

These time-worn arguments have acquired new salience, in the light of the current American enthusiasm for a new form of ‘containment’. Put bluntly, it is really quite difficult to be clear as to what Kennan, the supposed original architect of the strategy, thought was supposed to be being ‘contained’.

Valissa

Here are some excerpts from a recent Stratfor piece by Robert Kaplan:

The Old Order Collapses, Finally http://www.stratfor.com/weekly/old-order-collapses-finally
There has been something both conclusive and convulsive -- and yet sustaining -- about the crisis in Ukraine that has caused people to believe we have now entered a new chapter in international relations. As other commentators have noted, the old order has collapsed. By that they mean the period erstwhile labeled the Post Cold War.

This is a stunning formulation because it means at face value that all the blood and tragedy in Afghanistan and Iraq were not enough to signal a new phase in history, while the past few months in Ukraine were. But how can that be? The answer is that historical periods evolve very gradually -- over the years, during a decade of fighting in the Middle East, say -- whereas our recognition of these changes may happen only later, in an instant, as when Russia annexed Crimea.

… the old order soldiered on. After all, the expansion of NATO and the European Union into the former satellite states and the three Baltic republics, the nominal independence of Belarus, and the emergence of Ukraine and Moldova as buffer states effectively moved Russia bodily eastward and contained it.

This situation lasted at first because of Boris Yeltsin's weak and chaotic rule in Russia itself. But that began to change toward the turn of the millennium when the more capable Putin took charge and as Europe -- especially Central and Eastern Europe -- became more dependent on Russian natural gas pipelines. The annexation of Crimea, triggered by the fall of the pro-Russian regime in Kiev, signaled to the world that Russia was no longer contained. And thus everyone has come to realize that the old order in Europe is gone, too.
-----------

Putting it into simpler language, the US jumped the shark with it's shenanigans in Ukraine. Hubris has consequences.

China, Iran and Russia: Restructuring the global order http://www.aljazeera.com/indepth/opinion/2014/05/china-iran-russia-restructuring-201451964119463320.html

turcopolier

valissa

Pls don't get in the habit of extensively quoting proprietary material on SST. pl

Valissa

No problem, PL. I had a feeling I was copying and pasting a bit too much from those posts, and promise to be more circumspect in the future. Normally I try to avoid sharing links behind a paywall, and most of the stuff I learn from Stratfor is available open source if I take the time to search for it properly.

rkka

Rick, I will attempt to explain.

Fifteen years ago, Russia's GNP was $200 billion, the government's foreign debt was crushing, fully half of central government revenue was going to pay interest, foreign currency reserves could only cover a couple months worth of imports, and deaths were exceeding births by a million a year.

But all that was okay because FreeMarketDemocraticReformers were in charge in Moscow.


Now, Russia's GNP is about $2 trillion, the government's foreign debt is trivial, about 1% of government revenue goes to pay interest on it, Russia has half a trillion $ in foreign currency reserves, enough to pay for almost 3 years of imports if Russia stopped exporting anything, and in 2013, for the first time since 1991, births in the Russian Federation exceeded deaths.

But this is all terrible, because FreeMarketDemocraticReformers are no longer in charge in Moscow, so the Russian economy is a basket case.

See the difference between the 'non-basket case' Russian economy and the 'basket case' Russian economy?

bth

A few thoughts.

1. The Russia-China gas deal has been in negotiation for 10 years and then a month after sanctions are imposed, a 'fair price' is reached. Likely the Russians caved.

2. Crimea. What did Russia gain? Were the naval bases in jeopardy? No. So Putin is now Putin the Great but at what cost to the oligarchs and Russian economy and people? WSJ says sanctions don't matter, but they sure might to oligarch criminal enterprises. Oligarch's must be happy.

3. Syria must be a financial sink hole for Russia.

4. NATO existed to keep the Germans down and the Russians out. The US was exiting. Putin put lead in the NATO pencil. Russia could have embraced China and Iran without antagonizing NATO.

bth

This article from The Moscow Times may provide some insight. http://www.themoscowtimes.com/business/article/st-petersburg-economic-forum-kicks-off-in-troubled-times/500645.html

Ulenspiegel

The current deal was the result of more than ten years of negotiations. The NG, that is expected to be transported in this pipeline, was originally thought to be produced in addtiton to the NG exported to central Europe.

The timeing of the deal is nice propaganda, the substance is not very impressive for Russia:

1) As predicted for years the Chinese will pay much less than the Germans.

2) Due to the low price of the NG the construction of the pipeline has to be done very likely to a very high extend by cheap Chinese companies, the Russian industry is too expensive, therefore, a clear loss of added value in Russia.

3) The only surprising aspect is, that the NG price is pegged to the crude oil price. This advantage was lost for Russia in most industrial contracts with German companies in the last years, maybe, a Chinese concession in expectation of the large construction contracts.

IMHO, much more impressive move would have been to increase the LNG capacity of Russia, then Russia would have a chance to get global market prices.

From a purly startegic point of view, Russia has to answer the question at which rate Europe can reduce Russian imports in the next 20-30 years and whether the added capacities are a good substitute, my opinion was for years and still is that Russia has to invest more to hold the status quo.

When we add the fact, that under Putin the Russian government depends to an even higher extend on the export of oil and gas, the overall situation is not impressive.

Ulenspiegel

If your economy depends to an INCREASING extend on the export of declining products like oil and gas, you have a basic problem that is not solved by increasing the exports of oil and gas.
(Logic can hurt. :-))

To use the economic situation at the end of 1990ies, when a total collaps was in the realm of possibility, is nice propaganda.

Of course the situation is now better compared to 2000, but the point you ignore is, that it is still not a sustainable situation. All attemps to diversify the Russian economy have been desasters.

Russia is in a relative good position compared to 2000, because the price of crude tripled since then, nothing you can expect in the next 15 years again.

Babak Makkinejad

A quibble: Canada, Brazil, Australia, Norway, Indonesian are all resource-rich countries the export of which funds much of their income.

And I am yet to read an article that would state Australia to be an economic basket case - in spite of the ongoing demise of manufacturing in that country.

Fred

bth,

"The US was exiting."

The US is exiting its NATO treaty obligations? How did you conclude that?

How did you conclude Russian naval bases in Crimea were not at risk the by coup in Ukraine? Why do you think that the income of oligarchs is a greater concern for the Russiam Federation than any other?

Ulenspiegel

Where is the quibble?

All your examples have the same problem, they live in a non-sustainable way from the export of limited resources. The only difference is the timeframe:

Indonesia is already a net-IMPORTER of oil. :-)

Canada with its oil sands, which will be available for more than hundred years, is the other end of the spectrum.

I did not say that all oil/NG exporting countries are basket cases, that is your invention. However, with stagnating oil production, the window for Russia to create economic alternatives is much smaller than for Canada, which is the best case in respect to conventional resources, or Australia.

Norway is overall in the best position despite its declining production of oil and natural gas: It saved in contrast to most other former oil exporting countries like US or UK much of the oil-money and can cover many expenses in future from the interest. In addition, Norway has huge RE potential (aka green battery of Europe) and does not need oil or NG in significant amounts for domestic demand. Denmark is another example for the same strategy (save the huge savings).

Ulenspiegel

Where is the quibble?

All your examples have the same problem, they live in a non-sustainable way from the export of limited resources. The only difference is the timeframe:

Indonesia is already a net-IMPORTER of oil. :-)

Canada with its oil sands, which will be available for more than hundred years, is the other end of the spectrum.

I did not say that all oil/NG exporting countries are basket cases, that is your invention. However, with stagnating oil production, the window for Russia to create economic alternatives is much smaller than for Canada, which is the best case in respect to conventional resources, or Australia.

Norway is overall in the best position despite its declining production of oil and natural gas: It saved in contrast to most other former oil exporting countries like US or UK much of the oil-money and can cover many expenses in future from the interest. In addition, Norway has huge RE potential (aka green battery of Europe) and does not need oil or NG in significant amounts for domestic demand. Denmark is another example for the same strategy (save the huge savings).

bth

Q: "The US is exiting its NATO treaty obligations? How did you conclude that?" A: Well so US troops in Europe are down to about 67,000 which is a fraction of where they were at their peak. There are massive US base closures in Europe for financial reasons and we respond in Poland and the Baltic states with 600 paratroopers which is essentially just enough to show the flag. Then plus we are virtually stripped our tanks out of Europe in 2013. Outside of aircraft we don't have much at all. That's why I say the US has been backing out of Europe. It is a two decade obvious trend.

Q:"How did you conclude Russian naval bases in Crimea were not at risk the by coup in Ukraine?" A: Outside of needing to renegotiate their leases at some point in coming years there was nothing threatening the Russian naval bases that were essentially co-located with Ukrainian ships until the Russian forces betrayed their hosts and seized their ships and port facilities. Again Putin's bogey men were not real or grossly exaggerated.

Q:"Why do you think that the income of oligarchs is a greater concern for the Russiam Federation than any other?" A:Really? Well for the same reason Russia billionaires sprang from no where over the last two decades and build mansions around Putin's property, looted investment trusts set up for the betterment of Russian people and took control over oil, gas and precious metal resources. If you've ever tried to do business in Russia you would know.

charly

It looks like some parts of the German government is leaking anti-Maidan stories so don't be surprised if Nato is soon death.

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