Thursday, May 22, 2014

Tales of Interest: Russia and the Folly of a Shifting Focus on its Eastern and Western Frontiers

    Many commentators have gotten all menstrual regarding yesterday's Eurasian natural gas accord. I must admit, it is impressive. Two seemingly similar regimes coping with a unipolar world transacting 400 billions dollars worth of natural gas in a direct trade without American currency. What greater nightmare could the U.S. be having as a result of this 'axis of mutual convenience?' Now that the dust has settled, I fear not much.

    The victory yesterday was largerly of symbolic signficance. Yes, a huge commodities trade agreement was made bipassing the world's reserve currency, but now that the details are emerging as to it's particulars, I think China may have just shanked Russia in its own prison shower. When you examine Russia's recent behaviour in Eastern Ukraine, what other options were left open to it?

    So far all that they have managed to do is seize the oil "producing" regions of a country with some impressive, yet untapped, offshore reserves. Prior to the invasion Kiev desperately tried roping in the private sector in order to access those very same pieces of real-estate, specifically British Petroleum and Exxon Mobil, and received only passing glances as costs are prohibitively high.

    Because of this over-extension into the European frontier with questionable long-term value coupled with the resultant international sanctions, Russia needed diplomatic cover, and what better way to facilitate this than to conclude a natural gas pipeline that has been frozen by ten years of negotiations. Russia may have seemingly gained an important economic ally, but do not overlook the repercussions of independence elections that have been held in the Ukraine, a move frowned upon in China while it struggles to deal with its own regions wanting independence such as Xianjiang and Tibet along with the accompanying terrorism.

    These complications are compounded by China's insistence that unlike European natural gas prices, China's will not be pegged to the price of Brent Crude. Additionally, as Mr Evans-Pritchard skillfully pointed out in this morning's Telegraph, the price will trade in a band at or below what they are already selling to Europe. Furthermore the fuel line hasn't even been built yet and will require 30 to 50 billion in investment over the next five to ten years!

   I'm sorry, but I know a bad deal when I see one. One set of problems on one frontier have basically been exchanged for another group of problems on the other. "Over-extension" has been a running theme when analyzing Russia's baffling decisions lately and this agreement is a demonstration of that. In addition to military and financial we can now add diplomatic as I am not entirely confident the Russian foreign office has the where-with-all jugggling sanctions and cultural regionalism in the West with with a crap deal and an aggressive customer in the East.

    Just as in 1905 when Russia was faced with unrest and complicated domestic and European issues it was unable to extricate itself from, they once again shifted emphasis from west to east in an attempt to assuage dissent and temper opposition. The results? Horrendous. Japan, a rising power and new player on the international scene at the time, annihilated the numerically superior Russian's at the Battle of Tsushima. Clearly ignoring problems for Russia and turning their focus somewhere else hasn't succeeded (and neither has armed conflict, apparently) . In fact the dissent in the West was allowed to fester and due to their chronic inattention along with the in-roads made in 1905, the revolution in 1917 would go on to be successful. Maybe this time they'll surprise us by showing us they've learned from the past, but I doubt it.