Update

DEVELOPMENTS OVER THE UKRAINE – LATE MARCH 2014

Petrodollars

PETRODOLLAR ALERT: PUTIN PREPARES TO ANNOUNCE “HOLY GRAIL” GAS DEAL WITH CHINA

By Tyler Durden on 03/21/2014

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.”

For now there have been no major developments as a result of the shift in the geopolitical axis that has seen global US influence, away from the Group of 7 (most insolvent nations) of course, decline precipitously in the aftermath of the bungled Syrian intervention attempt and the bloodless Russian annexation of Crimea, but that will soon change. Because while the west is focused on day to day developments in Ukraine, and how to halt Russian expansion through appeasement (hardly a winning tactic as events in the 1930s demonstrated), Russia is once again thinking 3 steps ahead… and quite a few steps east.

While Europe is furiously scrambling to find alternative sources of energy should Gazprom pull the plug on natgas exports to Germany and Europe (the imminent surge in Ukraine gas prices by 40% is probably the best indication of what the outcome would be), Russia is preparing the announcement of the “Holy Grail” energy deal with none other than China, a move which would send geopolitical shockwaves around the world and bind the two nations in a commodity-backed axis. One which, as some especially on these pages, have suggested would lay the groundwork for a new joint, commodity-backed reserve currency that bypasses the dollar, something which Russia implied moments ago when its finance minister Siluanov said that Russia may refrain from foreign borrowing this year. Translated: bypass western purchases of Russian debt, funded by Chinese purchases of US Treasurys, and go straight to the source.

Here is what will likely happen next, as explained by Reuters:

Igor Sechin gathered media in Tokyo the next day to warn Western governments that more sanctions over Moscow’s seizure of the Black Sea peninsula from Ukraine would be counter-productive.

 

The underlying message from the head of Russia’s biggest oil company, Rosneft, was clear: If Europe and the United States isolate Russia, Moscow will look East for new business, energy deals, military contracts and political alliances. 

 

The Holy Grail for Moscow is a natural gas supply deal with China that is apparently now close after years of negotiations. If it can be signed when Putin visits China in May, he will be able to hold it up to show that global power has shifted eastwards and he does not need the West.

More details on the revelation of said “Holy Grail”:

State-owned Russian gas firm Gazprom hopes to pump 38 billion cubic meters (bcm) of natural gas per year to China from 2018 via the first pipeline between the world’s largest producer of conventional gas to the largest consumer.

 

“May is in our plans,” a Gazprom spokesman said, when asked about the timing of an agreement. A company source said: “It would be logical to expect the deal during Putin’s visit to China.”

Summarizing what should be and is painfully obvious to all, but apparently to the White House, which keeps prodding at Russia, is the following:

The worse Russia’s relations are with the West, the closer Russia will want to be to China. If China supports you, no one can say you’re isolated,” said Vasily Kashin, a China expert at the Analysis of Strategies and Technologies (CAST) think thank.

Bingo. And now add bilateral trade denominated in either Rubles or Renminbi (or gold), add Iran, Iraq, India, and soon the Saudis (China’s largest foreign source of crude, whose crown prince also happened to meet president Xi Jinping last week to expand trade further) and wave goodbye to the petrodollar.

As reported previoisly, China has already implicitly backed Putin without risking it relations with the West. “Last Saturday China abstained in a U.N. Security Council vote on a draft resolution declaring invalid the referendum in which Crimea went on to back union with Russia. Although China is nervous about referendums in restive regions of other countries which might serve as a precedent for Tibet and Taiwan, it has refused to criticize Moscow. The support of Beijing is vital for Putin. Not only is China a fellow permanent member of the U.N. Security Council with whom Russia thinks alike, it is also the world’s second biggest economy and it opposes the spread of Western-style democracy.”

This culminated yesterday, when as we reported last night, Putin thanked China for its “understanding over Ukraine.” China hasn’t exactly kept its feelings about closer relations with Russia under wraps either:

Chinese President Xi Jinping showed how much he values ties with Moscow, and Putin in particular, by making Russia his first foreign visit as China’s leader last year and attending the opening of the Winter Olympics in Sochi last month.

 

Many Western leaders did not go to the Games after criticism of Russia’s record on human rights. By contrast, when Putin and Xi discussed Ukraine by telephone on March 4, the Kremlin said their positions were “close”.

The punchline: “A strong alliance would suit both countries as a counterbalance to the United States.” An alliance that would merely be an extension of current trends in close bilateral relations, including not only infrastructure investment but also military supplies:

However, China 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 crossing Kazakhstan.

 

If Russia is isolated by a new round of Western sanctions – those so far affect only a few officials’ assets abroad and have not been aimed at companies – Russia and China could also step up cooperation in areas apart from energy. CAST’s Kashin said the prospects of Russia delivering Sukhoi SU-35 fighter jets to China, which has been under discussion since 2010, would grow.

 

China is very interested in investing in infrastructure, energy and commodities in Russia, and a decline in business with the West could force Moscow to drop some of its reservations about Chinese investment in strategic industries. “With Western sanctions, the atmosphere could change quickly in favor of China,” said Brian Zimbler Managing Partner of Morgan Lewis international law firm’s Moscow office. 

 

Russia-China trade turnover grew by 8.2 percent in 2013 to $8.1 billion but Russia was still only China’s seventh largest export partner in 2013, and was not in the top 10 countries for imported goods. The EU is Russia’s biggest trade partner, accounting for almost half of all its trade turnover.

And as if pushing Russia into the warm embrace of the world’s most populous nation was not enough, there is also the second most populated country in the world, India.

Putin did take time, however, to thank one other country apart from China for its understanding over Ukraine and Crimea – saying India had shown “restraint and objectivity”.

 

He also called Indian Prime Minister Manmohan Singh to discuss the crisis on Tuesday, suggesting there is room for Russia’s ties with traditionally non-aligned India to flourish.

 

Although India has become the largest export market for U.S. arms, Russia remains a key defense supplier and relations are friendly, even if lacking a strong business and trade dimension, due to a strategic partnership dating to the Soviet era.

 

Putin’s moves to assert Russian control over Crimea were seen very favorably in the Indian establishment, N. Ram, publisher of The Hindu newspaper, told Reuters. “Russia has legitimate interests,” he added.

To summarize: while the biggest geopolitical tectonic shift since the cold war accelerates with the inevitable firming of the “Asian axis”, the west monetizes its debt, revels in the paper wealth created from an all time high manipulated stock market while at the same time trying to explain why 6.5% unemployment is really indicative of a weak economy, blames the weather for every disappointing economic data point, and every single person is transfixed with finding a missing airplane.

 Kerry and Lavrov

UKRAINE: U.S. PULLS BACK, AGREES TO RUSSIAN DEMANDS

VOLTAIRE NETWORK | 17 MARCH 2014

While Washington and Moscow are posturing and affirming that nothing in Ukraine will be relinquished, John Kerry and Sergei Lavrov have concluded an oral preliminary agreement to get out of the crisis: a federal reform of the Ukrainian constitution. The question is whether the United States will honour their word this time, after having reneged on the 21 February agreement half a day after signing it and perpetrating a coup d’état.

There was another phone call today between Secretary of State Kerry and the Russian Foreign Minister Lavrov. The call came after a strategy meeting on Ukraine in the White House. During the call Kerry agreed to Russian demands for a federalization of the Ukraine in which the federal states will have a strong autonomy against a neutralized central government. Putin had offered this “off-ramp” from the escalation and Obama has taken it.

The Russian announcement:

Lavrov, Kerry agree to work on constitutional reform in Ukraine
(Reuters) – Russian Foreign Minister Sergei Lavrov and U.S. Secretary of State John Kerry agreed on Sunday to seek a solution to crisis in Ukraine by pushing for constitutional reforms there, the Russian foreign ministry said.It did not go into details on the kind of reforms needed except to say they should come “in a generally acceptable form and while taking into the account the interests of all regions of Ukraine (…)
Sergei Lavrov and John Kerry agreed to continue work to find a resolution on Ukraine through a speedy launch of constitutional reform with the support of international community,” the ministry said in a statement.[1]

The idea of a “constitutional reform” is from the Russians documented in the following Russian document :

Pt01

Pt02

Pt03

It describes the process of getting to a new Ukrainian constitution and sets some parameters for it. The Russian language will be again official language next to the Ukrainian, the regions will have high autonomy, there will be no interferences in church affairs and the Ukraine will stay politically and militarily neutral. Any autonomy decision by the Crimea would be accepted. This would all be guaranteed by a “Support Group for Ukraine” consisting of the US, EU and Russia and would be cemented in an UN Security Council resolution.

It seems that Kerry and Obama have largely accepted these parameters. They are now, of course, selling this solution as their own which is, as the “non-paper” proves, not the reality.

Kerry suddenly “urging Russia” to accept the things Russia had demanded and which Kerry had earlier never mentioned:

Secretary of State John Kerry called on Moscow to return its troops in Crimea to their bases, pull back forces from the Ukraine border, halt incitement in eastern Ukraine and support the political reforms in Ukraine that would protect ethnic Russians, Russian speakers and others in the former Soviet Republic that Russia says it is concerned about.In a phone call with Russian Foreign Minister Sergey Lavrov, their second since unsuccessful face-to-face talks on Friday in London, Kerry urged Russia “to support efforts by Ukrainians across the spectrum to address power sharing and decentralization through a constitutional reform process that is broadly inclusive and protects the rights of minorities,” the State Department said.[2]

As it looks now Obama has given up. The U.S. plot to snatch the Ukraine from Russia and to integrate it into NATO and the EU seems to have failed. Russia taking Crimea and having 93% of the voters there agree to join Russia has made the main objective of the U.S. plans, to kick the Russians out of Sevastopol and thereby out of the Middle East, impossible.

The Russian (non public) threat to also immediately take the eastern and southern provinces from the Ukraine has pushed the U.S. into agreeing to the Russian conditions mentioned above. The only alternative to that would be a military confrontation which the U.S. and Europeans are not willing to risk. Despite the anti-Russian campaign in the media a majority of U.S. people as well as EU folks are against any such confrontation. The U.S. never held the cards it needed to win this game.

Should all go well and a new Ukrainian constitution fit the Russian conditions the “west” may well be allowed to pay for the monthly bills Gazprom will keep sending to Kiev.

It will take some time to implement all of this. What dirty tricks will the neocons in Washington now try to prevent this outcome?

Source
Moon of Alabama

[1] “Lavrov, Kerry agree to work on constitutional reform in Ukraine: Russian ministry”, Reuters, 16 March 2014, by Lidia Kelly, edited by Andrew Heavens.

[2] “US rejects Crimea vote, warns Russia on new moves”, by Matthew Lee, Associated Press, 16 March 2014.

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MODE OF LIFE PROJECT OBSERVES:

Despite agreements, we see in the following articles the justification of further armament of Eastern European and former Soviet nations by  the US, the EU and the apparatus of NATO. We should note that it was the initial armament  of a number of these countries after the fall of Communism in the 1990s and onwards, which was in breach of disarmament agreements with post-Communist Russia, that has created the sensitivities surrounding the developments in the Ukraine and Russia’s heavy handed response there with the build up of armed force and the annexation of Crimea as a step to ensure Russia’s own security and defence. In any case the Western mass-media, which is owned by a select few, whose interests and agendas are as questionable and as mysterious as the often speculated “New World Order”, have gone into overdrive in demonising Russia, playing up the strife amongst Ukrainians, and fanning the flames of conflict by justifying further armament of former Eastern bloc and Soviet countries like Poland and Georgia. Reuters of course, is one of those notorious global media outlets which has been leading the charge in influencing and forming public opinion on such disastrous campaigns as Iraq, Syria and Libya to name a few, and to which the world has seen since, the lies which have been exposed. Yet they stubbornly insist on their view as true, and the Ukrainian Crisis is no different, even though the circumstances may differ slightly. But in any case, as we have always said when commenting on such current affairs, one has to search and be informed, and that task is not made any easier by the fact that information is concealed or distorted to fool the public and whole nations. To my own mind, all I can see, is that the Eastern European and former Soviet nations are being seduced or torn apart by a power/influence coming from the West which is far more sinister than the evil of Communism, and promises many things, but seems to end in the moral, financial and social crisis that is epitomised by Greece, Spain, Italy, Ireland and Portugal, or the madness and civil strife of Afghanistan. Either way, people need to take note that when protests against things like the G8 occur in Western countries, they are quelled with a very heavy hand, but when riots occur in countries like Syria, Venezuela, Ukraine etc, they are encouraged as a means of violent, anarchic regime change, thus there is a pattern one can observe. It is food for thought, but for ourselves, the world will always behave according to the world’s mores and not according to the Gospel; and as far as we are concerned it is the Gospel that matters and will remain even when we all shall crash and burn due to our sinful passions! In a phrase, the politicians, the corporations, the banks and the ideologues (whether fascists, communists etc), will deceive us and blow us all up for their own aspirations, but we could not care less because they will destroy themselves in the process also; – our focus must remain as always, upon prayer, and love and service to our neighbour! May these accursed fools be forgiven, and us to find our salvation!

Poland

POLAND SPEEDS UP MISSILE DEFENSE PLAN AMID UKRAINE CRISIS

Fri Mar 21, 2014 – Reuters

(This March 20 story was corrected to show selection of best offer to take place within months, not weeks, after clarification from Polish Defence Ministry; also replaces comments from Defence Ministry spokesman)

By Marcin Goettig and Andrea Shalal

(Reuters) – Poland has decided to speed up its tender for a missile defense system, the Defence Ministry said, in a sign of Warsaw’s disquiet over the tension between neighboringUkraine and Russia.

“By the end of this year we want to already have chosen an offer. That is the acceleration by several months, compared to our original plans, that we are talking about,” Czeslaw Mroczek, Deputy Defence Minister, told Reuters.

The NATO member had planned to determine the supplier of its missile defence system in 2015, but the crisis in Ukraine and concerns about Russia’s annexation of Crimea have prompted officials to speed up the timetable.

There are four bidders: France’s Thales, in a consortium with European group MBDA and the Polish state defence group; the Israeli government; Raytheon of the United States; and the MEADS consortium led by Lockheed Martin.

One of the bidders, MEADS, said the tender was worth about $5 billion, but experts say the whole missile defence system could be worth as much as 40 billion zlotys ($13 billion), including maintenance costs. It is to be completed by the end of 2022.

Mroczek said the decision to accelerate the process was partly caused by Russia’s military intervention in Ukraine’s Crimea Peninsula.

“To a certain extent, the decision on accelerating this process is the result of a review commissioned by the prime minister and the defence minister because of the situation in Ukraine,” Mroczek said.

Poland fell under Soviet domination after World War Two, along with the rest of Eastern Europe, but was one of the first to shake off Communist rule in 1989. It has taken an active diplomatic role in the crisis over Ukraine, including by requesting NATO consultations earlier this month.

U.S. Congressman Stephen Lynch welcomed Poland’s decision to speed up its defence plans.

“I think the action in Crimea makes it abundantly clear that NATO needs to do more to upgrade its defenses, not just missile defenses,” the Massachusetts Democrat told Reuters.

“But certainly I can fully support the decision by Poland to expedite that whole process and I think it’s entirely appropriate that we should support that effort,” he added.

The first phase of the Polish system is to comprise eight sets of mid-range interceptor rockets, which may later be supplemented by short-range ones. Poland has already passed legislation to secure funding for the shield, a Defence Ministry spokesman said.

The planned system is separate from elements of a U.S. missile shield to be deployed in Poland by 2018, as confirmed by U.S. Vice President Joe Biden on a visit to Warsaw this week. ($1 = 3.0482 Polish Zlotys)

Polish Air Force's F-16 fighter jets are seen at an airbase in Lask near Lodz, central Poland

U.S., POLAND LOOK AT WIDENING ACTIVITIES AT POLISH AIR BASE

Polish Air Force F-16 fighter jets are seen at an airbase in Lask near Lodz, central Poland, June 28, 2013.

WARSAW/WASHINGTON Fri Mar 21, 2014

(Reuters) – The United States and Poland are looking at the possibility of including other NATO member states from eastern Europe in joint aviation activities at a Polish air base, a U.S. military official said on Friday.

The official was commenting on a report by Poland’s ZET radio station, which had quoted the U.S. ambassador to Poland as saying the U.S. military was preparing joint exercises with Poland, the Czech Republic, Hungary, Slovakia, Romania, Bulgaria and the Baltics, at Poland’s Lask air base.

The official, who spoke on condition of anonymity, said the radio station had mischaracterized the ambassador’s remarks.

“To summarize, he stated that the Poles and the U.S. are talking about the possibility of expanding aviation activities at Lask to potentially include other NATO partners, and then he mentioned those nations,” said the official.

The Lask air base is located in central Poland. The U.S. military has a small permanent presence there and it was used this month as the base for U.S.-Polish war games.

Location of Georgia

GEORGIA HOPES UKRAINE CRISIS WILL SPUR WEST TO ROBUST REACTION

BY MARGARITA ANTIDZE

TBILISI Tue Mar 25, 2014

(Reuters) – Six years after losing land in a war with Russia, Georgians believe the struggle for Ukraine will decide their own fate, and hope NATO and the European Union will now speed up their integration into the Western fold.

Alone among the former Soviet republics of the Caucasus, Georgia is pursuing a pro-Western course and the nation feels a strong kinship with Ukrainians who toppled Russian-backed President Viktor Yanukovich last month.

This solidarity was clear when Georgians scored a rare victory over their former Russian masters, albeit on the sports field rather than the battlefield.

To shouts of “Ukraine!”, Georgia’s rugby team convincingly beat Russia 36-10 a few days after Yanukovich’s overthrow during pro-Western protests. “It was our victory and a victory for Ukraine,” one fan, David Eristavi, said of the match. “We finally showed Russians how strong we are.”

Hundreds of Georgians have staged protests in support of Ukraine, seeing events there as a mirror image of their own fight for closer ties with the EU.

The country of 4.5 million people – which also hopes to join the NATO military alliance in the long term – now wants a strong Western response to Moscow’s annexation of Crimea. This was sealed after people in the Ukrainian region overwhelmingly voted for union with Russia in a referendum denounced by Kiev and the West as illegal.

“The outcome of the Ukrainian crisis defines the future of Georgia’s freedom, security and sovereignty,” said Helen Khoshtaria, an independent political analyst in Tbilisi. “It will define whether Russia succeeds in imposing its exclusive sphere of influence and creates dividing lines in Europe or not.”

She believes Moscow is trying to reconstitute a kind of Soviet Union, without the communism.

“If the international community fails to stop and reverse Russia’s actions it will be a message to Russia that despite some noise its actions have no real costs and it will encourage Russia to finalize creation of the ‘Soviet Union’, including through dragging Georgia in it,” Khoshtaria said.

Georgia, like Ukraine, has long had a rocky relationship with Moscow.

Russia reacted to Georgian independence in 1991 after the Soviet Union collapsed with measures ranging from trade sanctions to supporting separatists to keep the country in what Moscow considers its traditional sphere of influence.

Those policies culminated in the five-day war over Georgia’s breakaway regions of South Ossetia and Abkhazia in 2008. Russia remains in control of both to this day.

After initial statements carefully worded to avoid irritating Moscow, the parliament in Tblisi passed a resolution on March 6 criticizing Russian policy towards Ukraine and calling on the EU and NATO to speed up the process of Georgian integration.

Russia’s “aggressive acts” were posing “a serious threat not only to our friend Ukraine, but to Georgia and the whole of Europe as well”, the resolution said.

Moscow says the people of Crimea exercised their right to self determination. But Georgian Prime Minister Irakly Garibashvili told the Atlantic Council in Washington this month that he hoped the foreign governments would send a clear message

“which will underpin the notion that no third party can influence the aspirations of regional countries striving to fulfill their choices of foreign alliance”.

ROBUST RESPONSE

So far, the United States and EU have imposed visa bans and asset freezes on leading Russians. But Georgians hope the West will react more robustly on Ukraine, a nation with a population 10 times greater than their own.

“Russia cut Crimea off from Ukraine the way it cut Abkhazia and South Ossetia off from Georgia,” said 19-year-old student Levan Gabrichidze. “Ukraine is more important to Europe than Georgia is, of course … I hope Europe and the United States will be more active now, although I don’t see serious action so far.”

Despite its relatively small economy, Georgia is home to pipelines that carry Caspian gas and oil to Europe and is driving a push to deepen cooperation with Brussels and Washington despite Russian concerns. Tbilisi initialed an accord on trade and other cooperation with the EU at a summit in the Lithuanian capital of Vilnius last November.

It had been due to sign the agreement along with another former Soviet republic, Moldova, by the end of this year. However, EU leaders agreed last week to aim to have the deals sealed by June because of fears that the countries could come under Russian pressure.

Yanukovich was scheduled to sign a similar deal at the Vilnius summit but pulled out at the last minute after Russia tightened checks on Ukrainian imports and threatened to cut off its gas supplies in the depth of winter. His decision to opt for closer ties with Russia instead set off the protests that brought him down three months later.

The EU wants to avoid a repeat of the Russian trade action, which included cutting off imports of Moldovan wine last year.

“We are being extremely active with Moldova and with Georgia. We are concerned about things that can suddenly happen – how their wine is suddenly not accepted, what can happen in terms of pressure, and we are ready for that,” EU foreign policy chief Catherine Ashton said at the weekend.

Relations with NATO are more complex, although the Crimean crisis has put the question of whether Georgia might eventually be admitted into the alliance back on the agenda.

Tbilisi was once offered the prospect of eventual NATO membership but its bid has been effectively on ice since the 2008 war. A NATO summit in September is due to discuss the position of four countries – Georgia and the former Yugoslav republics of Montenegro, Macedonia and Bosnia – under the alliance’s “Open Door” policy.

Secretary-General Anders Fogh Rasmussen would make no direct comment when asked last week if NATO might consider expanding its membership, but indicated that the crisis would influence discussions at the summit in Wales.

“The formal answer (is) that it is premature to answer your question. Now, having said that, I think what we have seen in recent weeks may have an impact on this,” he said.

While countries such as Ukraine that border the EU and NATO are keen for closer ties, Georgia is alone in its ambitions among the former Soviet republics to the east in the Caucasus.

Neighboring Armenia, which hosts a Russian military base, plans to join a Moscow-led customs union. Azerbaijan has used Crimea as a possible model for restoring control over Nagorno-Karabakh, an enclave controlled by ethnic Armenians since a war in the early 1990s.

In a telephone conversation last week, the presidents of Russia and Armenia said the referendum in Crimea was “another example of the exercise of peoples’ right to self-determination through a free expression of popular will”.

Azeri President Ilham Aliyev repeated last week that his country was ready to gain control over Nagorno-Karabakh. A ceasefire was signed in 1994, but sporadic violence flares along Azerbaijan’s borders with Armenia and Nagorno-Karabakh.

Armenia_Azerbaijan and Nagorno-Karabakh

(NOTE: Nagorno-Karabakh historically was part of Armenia, and resisted the invasions and colonisation of Turkic invaders like the Azeris. The territory had been conquered by the Azeris and claimed as their land, but Nagorno-Karabakh has remained and strives to retain its Armenia identity and presence. The West’s pro-Azeri stance is based on Azerbaijan’s natural mineral and energy wealth such as petroleum, and conveniently, its dissaffection for Russia which broke it away from the Ottoman Empire and subjected it to Communism has left negative feeling amongst Azeris. For the Armenians, they cannot forget the role the Azeris played in oppressing them during the many centuries of Islamic and Ottoman rule, particularly the genocides perpertrated against them during those centuries and in which the Azeris participated in, thus Nagorno-Karabakh will always remain as a sensitive issue).

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