China EAEU relations at stake

Western sanctions on Russia over its Ukraine invasion are forcing China to recalibrate ties with the Eurasian Economic Framework (EAEU), an economic union of post-Soviet states, with collaborations under the Belt and Road Initiative now at risk of secondary sanctions.

Beijing and Moscow signed a joint statement on cooperation between the EAEU and belt and road projects in 2015, a year after the union between Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan was established.

China and the EAEU agreed on greater economic coordination in 13 areas, including customs, trade, intellectual property rights, e-commerce and government procurement.

The enhanced coordination meant countries would not have to choose between Russia and China, said a commentary by the China Institute of International studies.

But with Russia now subject to sweeping Western sanctions after invading Ukraine, China’s economic relations with its northern neighbour and other EAEU countries is increasingly tricky.

“Collaboration between EAEU and Belt and Road Initiative is affected because sanctions from America and Europe increased the risk of secondary sanctions for Chinese companies,” said Zhao Long, a researcher at the Shanghai Institute for International studies.

Contractors and investors involved in EAEU and belt and road joint projects could run afoul of restrictions if they seek financing or conduct other business with companies that have been targeted by Western sanctions, he said.

The risk of these secondary sanctions has prompted hundreds of businesses and multilateral institutions to suspend ties with Russia.

The Asian Infrastructure Investment Bank and Bank of China have curtailed Russian access to capital markets, according to a database compiled by Yale University’s School of Management.

Chinese tech giant Huawei has also halted new orders and furloughed some staff in Russia, the database showed.

Oil and gas behemoth Sinopec has suspended talks with Russia for a gas chemical plant worth up to US$500 million, and at least five Chinese companies stopped work on Russia’s Arctic LNG 2 project in northern Siberia at the end of May this year.

“The war in Ukraine is impacting bilateral developments between Russia and China, and the coordination within the Eurasian union,” said Paul Stronski, senior fellow at Carnegie’s Russia and Eurasia Program.

China says ‘no limits’ in cooperation with Russia

“On sanctions, we are seeing Beijing being quite supportive of Moscow in this war, which is surprising given China’s normal approach to condemn separatism and interference in the internal affairs of another country. That is essentially what Russia is doing.”

But beyond diplomatic support and motivation to buy cheap energy, many Chinese companies have been wary of running afoul of US or EU sanctions because both economies are far more important export and trade markets for companies in China, Stronski said.

The impact of sanctions imposed on Russia will be felt across the EAEU because the design of the union ties them to Russia’s own fate, according to Kataryna Wolczuk, an associate fellow at Chatham House’s Russia and Eurasia programme, and Rilka Dragneva, professor at the University of Birmingham’s school of law.

Kazakhstan and Kyrgyzstan, for example, are likely to see negative impacts on their currencies and remittances, while restrictions will affect the trade of key commodities, they wrote on the think-tank’s website last month.

Katarzyna Czerewacz-Filipowicz, an Associate Professor at Bialystok University of Technology’s faculty of engineering management in Poland, said firms like Cargotor, Maersk and Mediterranean Shipping Company have suspended rail freight services through Russia as a sign of solidarity with Ukraine.

“Sanctions have also been applied to Russian railways, and this is probably why the uncertainty about the Belt and Road Initiative arises,” she said. “However, it is worth emphasizing that the sanctions include access to financial markets and transactions in securities. Thus, they do not cover cargo transit contracts via Russia.”

A rail line from the Chinese border through Kazakhstan, Russia, Belarus and into the European Union, which was heavily subsidized by the Chinese side and seen as vital to get goods from China to Europe through the EAEU, is now dead, said Stronski.

“European suppliers now are wary about putting their goods on a train via Russia given the reputational risks, or fears that Russia will hold up these goods,” he said. “Chinese producers have grown wary of using the route, given all the same reasons.”

Increasingly alert to external uncertainty, China is prioritizing risk control and prevention for its belt and road push this year, according to a report released in early March by the National Development and Reform Commission.

And Chinese companies have already begun scaling back international investment under the initiative.

Some 194 belt and road projects valued at US$13.66 billion were announced last year, down from 399 projects valued at US$80.51 billion in 2020, according to a report by financial data provider Refinitiv released in December last year.

As for Russia, international isolation will hasten its pivot to the East by building the friend-shoring alliances, said Zhao at the Shanghai Institute for International studies.

“Members of the EAEU will hasten the free flow of trade, services, capital, labour and the progress of local settlements in the region before 2025,” he said. “They’ll also strengthen security initiatives with their allies in order to broaden the post-Soviet space of influence.”

 

Crisis in Belarus and role being played by Russia, European Union and United States

After the presidential election in Belarus on August 9, 2020, mass demonstrations broke out spontaneously throughout the country. Hundreds of thousands of people took to the streets protesting against widespread election fraud. 

These protests soon met with sustained, brutal suppression. The masses were eventually driven from the streets, yet the resistance against the Belarusian dictatorship persists to this day.

It is clear that Alyaksandr Lukashenka lost the popular legitimacy he had enjoyed for many, if not most, of the last 26 years. Why did this Belarusian revolution fail to succeed? The responses of Russia, the European Union, and the United States to the 2020–21 protest movement had a decisive impact on the pro-democracy uprising in Belarus and will continue to be crucial for how the situation in Belarus unfolds in the future.

The 2020–21 Belarusian protest movement to date can be divided into three main phases: violent repressions; temporary cease-fire; and regime retaliation. The next phase of the Belarusian crisis will be one of power transition. This transition will likely happen after the constitutional referendum scheduled for February 27, 2022. The current draft of the new Belarusian constitution proposes several crucial changes for the political system in Belarus.

First, the amendments aim to weaken the powers of the Belarusian parliament and to strengthen the role of the All-Belarusian People's Assembly (ABPA). This body which under the present constitution does not have governing status would be endowed with wide-ranging powers and would consist of 1,200 delegates loyal to the regime. The ABPA would have the power to approve Belarus’s foreign and security policy, propose changes to the constitution, draft laws, select judges of the top courts, and have other functions. The acting president would automatically become a member of the ABPA and potentially serve as its chair, if elected by the other delegates. By strengthening the powers of the ABPA, Lukashenka is trying to create an alternative center of power which would allow him to stay in the Belarusian political arena even if he decides to step down as a president.

Second, the constitutional amendments envisage the president’s immunity from prosecution and prohibit anyone who temporarily left the country in the last 20 years from running for presidency. This provision directly targets members of Belarusian political opposition who were forced to live into exile to avoid repressions. This amendment deprives the Belarusian opposition of the opportunity to challenge the ruling regime directly inside Belarus, and provides additional guarantees for the safety of Lukashenka and his entourage. 

Finally, the new constitutional provisions also grant the president immunity from prosecution and introduce a limit of two five-year presidential terms in office. However, since these restrictions would only apply going forward, Lukashenka could potentially stay in power until 2035.

Lukashenka has not yet declared whether he will step down after the referendum. The current political instability in the region, including the January protests in Kazakhstan and the escalating tensions between Russian and Ukraine, increase the chances that Lukashenka will stay in power after the referendum.

In either case, the West will not cease pressure on the Belarusian regime and will continue to support those fighting for democratic reforms there. For its part, Russia will continue to use the vulnerability of Lukashenka and his close entourage to increase its political, economic, and military presence in Belarus.

Russia, the EU and the US have all played an important role in the evolution of the 2020–21 Belarusian post-electoral crises. The Belarusian mass protests failed to succeed in August 2020, thanks both to Russia’s significant support of the Lukashenka regime and a lack of quick and comprehensive response from the EU and the US.

However, the Ryanair incident in May 2021 catalyzed increased Western action against the Lukashenka regime. It resulted in greater coordination between the EU and the US and led to the passage of several packages of targeted sanctions. Hard sanctions are likely to continue to serve as the baseline policy towards the Lukashenka regime in the near future for the EU and the US, while Russia will likely continue exerting its influence in pursuit of greater political, economic, and military integration with Belarus.  Lukashenka’s regime has a potential to maintain political control in the country in the short-term perspective. However, in the long run it will have to face the irreversible transformations happening in the Belarusian society and step on a path of political transition.

Ukraine and Belarus potential sources for a United States-Russia confrontation

Geopolitical Futures claims that one of its top priorities is to know what is coming and ensure its subscribers are informed on important issues before they hit the mainstream. 

Till lately, major news outlets were reporting that Russia was amassing troops at its border with Ukraine; an important buffer country, in an effort to reclaim former Soviet Union territory.

 Lately, Geopolitical Futures has shared an excerpt of that original forecast with the readers. The highlights are:

Ukraine and Belarus are the two places with the potential for a US-Russia confrontation. Ukraine is at risk of falling apart. Russian influence in Belarus will threaten Poland.

Ukraine is caught in the crossfire of the United States, the European Union and Russia. Nord Stream 2 and TurkStream are expected to be completed in 2019. These pipelines, which connect Russia’s supply of natural gas to the European Union and Turkey, circumvent traditional and lucrative natural gas transit routes through Ukraine, giving Moscow further leverage over the government in Kiev.

The conflict in eastern Ukraine is frozen but still volatile, and it is unclear whether Ukraine can govern what is left of its territory. Russia is better prepared for intervention there than the West is, but Moscow is betting that Ukraine’s internal dysfunctions will eventually bring much of the country, if not the government itself, back into its orbit.

At the same time, Ukraine is preparing for a presidential election, scheduled for March. Polls show no clear frontrunner, there’s a real chance the political conflict that follows will entangle outside powers, just as it did after the 2014 elections.

Belarus is also concerning. For years, Belarusian President Alexander Lukashenko has juggled relations with the West and Russia, leaning further east or west as necessity dictates. Right now, he is engaging more with the West, much to the chagrin of Russia, which is concerned about increased US military presence in Poland and Romania. Lukashenko has intimated that if a permanent US military base is installed in Poland, Minsk and Moscow may have to respond together. He has insisted that Russian troops will not be stationed in Belarus.

In Belarus, as in Ukraine, Geopolitical Futures does not expect the situation to come apart at the seams – but the competitive forces on both sides are creating tremendous pressure, which, in the shorter term, makes precise developments unpredictable.

Trade between Iran and SCO members exceeds US$23 billion

The value of trade between Iran and the members of Shanghai Cooperation Organization (SCO) rose to US$23.165 billion during the first 11 months of the current Iranian calendar year. This was disclosed by Ruhollah Latifi, spokesman of the Islamic Republic of Iran Customs Administration (IRICA) announced.

Iran has cross-border trade with 11 key member states and observer states of the Shanghai Cooperation Organization that include China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Mongolia, Pakistan, India, Afghanistan and Belarus. Among these the largest volume of trade was with China amounting to US$15.518 billion, the IRICA spokesman stated.

He put Iran’s export to the SCO members at 33.339 million tons valued at US$11.173 billion during the period under review. Out of this the highest amount of export has been to China, amounting to US$6.724 billion and the lowest was to Mongolia, amounting to US$412,809.

Iran’s imports from the member countries weighing 8.408 million tons was worth US$11.991 billion Latifi said, adding the highest amount of imports was from China (US$8.793 billion), and the lowest was from Mongolia (US$2.448 million).

The Shanghai Cooperation Organization (SCO) is a Eurasian political, economic and security alliance. Its creation was announced on 15th June 2001 in Shanghai, China by the leaders of China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan. The SCO Charter was signed in June 2002 and became effective on 19th September 2003.

Iran-Eurasian Economic Union trade reported at US$1.4 billion in 8 months

The value of non-oil trade between Iran and members of the Eurasian Economic Union (EAEU) were US$1.4 billion during the first eight months of the current Iranian calendar year (March-November 2020) as per data released by Tehran Chamber of Commerce, Industries, Mines and Agriculture (TCCIMA). Trade with Eurasia accounted for 2.8% of the country’s total non-oil trade in the mentioned period.

According to details, Iran exported 1.8 million tons of commodities worth US$639 million to the EAEU members in the period under review, registering a 20% fall in terms of weight and a 6% decline in terms of value. The country’s trade with its Eurasian partners declined 11% as compared to the previous year’s same eight-month period.

During this time span, Iran's exports to Russia and Belarus increased significantly in terms of weight and value, while exports to three other countries, namely Armenia, Kyrgyzstan, and Kazakhstan, decreased.

Eurasian destinations accounted for only 2.4 percent of Iran’s total exports in the first eight months of the current year, according to the said data.

Among Eurasian trade partners, Russia was Iran's top export destination with US$285 million, followed by Armenia with US$233 million worth of imports from the Islamic Republic, while most of Iran's imports also came from Russia (US$727 million).

Iran and Eurasian Economic Union reached a free trade agreement in October 2018 based on which about 862 commodity items were subjected to preferential tariffs. The interim agreement enabling the formation of a free trade area between Iran and the EAEU was signed on May 17, 2018, and officially came into force on October 27, 2019.

Iran is a very important market in the region and the development of ties with this country is of high significance for the EAEU members (Russia, Belarus, Armenia, Kazakhstan, and Kyrgyzstan).

The free trade agreement between Iran and the Union has laid the ground for the expansion of trade ties between the two sides.

The agreement with the bloc has increased Iran’s exports to the EAEU member states significantly, which is a turning point for the Islamic Republic's plans for boosting non-oil exports during the US sanctions.