Russia and China Creating New Global Reserve Currency

Some analysts have been talking about the possibility of Russia and China challenging the US dollar’s global reserve status. Now, it’s happening. As often happens with consequential news in the United States and the West, no one seems to notice or even care.

It shouldn’t be any surprise to those paying attention that Russia and China are strengthening their economic ties amidst continued Western sanctions on Russia.

Russia and the BRICS countries, including Brazil, Russia, India, China, and South Africa, are officially working on their own “new global reserve currency,” RT reported in late June. Nobody even seemed to notice.

“The issue of creating an international reserve currency based on a basket of currencies of our countries is being worked out,” Vladimir Putin said at the BRICS business forum in June.

Russia has been cut off from the SWIFT system; it is also pairing with China and the BRIC nations to develop “reliable alternative mechanisms for international payments” in order to “cut reliance on the Western financial system.”

In the meantime, Russia is also taking other steps to strengthen the alliance between BRIC nations, including re-routing trade to China and India, according to CNN

President Vladimir Putin said last Wednesday that Russia is rerouting trade to "reliable international partners" such as Brazil, India, China and South Africa as the West attempts to sever economic ties.

"We are actively engaged in reorienting our trade flows and foreign economic contacts towards reliable international partners, primarily the BRICS countries," Putin said in his opening video address to the participants of the virtual BRICS Summit.

In fact, “trade between Russia and the BRICS countries increased by 38% and reached US$45 billion in the first three months of the year 2022”, the report says. Meanwhile, Russian crude sales to China have hit record numbers during spring of this year, edging out Saudi Arabia as China’s primary oil supplier.

Putin said last month, "Contacts between Russian business circles and the business community of the BRICS countries have intensified. For example, negotiations are underway to open Indian chain stores in Russia and to increase the share of Chinese cars, equipment and hardware on our market."

Putin accused the West of ignoring the basic principles of the market economy" such as free trade. "It undermines business interests on a global scale, negatively affecting the wellbeing of people, in effect, of all countries," he said.

President Xi echoed Putin’s sentiments, according to a June write up by Bloomberg:

“Politicizing, instrumentalizing and weaponizing the world economy using a dominant position in the global financial system to want only impose sanctions would only hurt others as well as hurting oneself, leaving people around the world suffering. Those who obsess with a position of strength, expand their military alliance, and seek their own security at the expense of others will only fall into a security conundrum.”

There is a coordinated global challenge taking place to the US dollar - and it would be the biggest news story in decades. Now, remember that both countries have been working on, and preparing for, this situation for years.

De-dollarization has been a priority for Russia and China since 2014, when they began expanding economic cooperation following Moscow's estrangement from the West over its annexation of Crimea. Replacing the dollar in trade settlements became a necessity to sidestep US sanctions against Russia.

It seems to that the BRIC nations understand exactly how precarious of a financial situation the US and US dollar - is in. Despite the dollar’s recent strengthening, these nations have been in the midst of a multi-decade-long plan to de-dollarize.

Even before the Ukraine conflict started, both China and Russia were stockpiling gold and working on denominating transactions outside of the US dollar. It was another “secret” that was out there in the open.

Since the BRIC conference, ties between Russia and China continue to tighten, with Japan even warning this week about the pair’s strengthening of military ties - at the same time China has closely scrutinized a planned trip by House Speaker Nancy Pelosi to Taiwan.

 “As a result of the current aggression, it is possible that Russia’s national power in the medium to long term may decline, and the military balance within the region and military cooperation with China may change.

In the vicinity of Japan, Russia has made moves to strengthen cooperation with China, such as through joint bomber flights and joint warship sails involving the Russian and Chinese militaries, as well as moves to portray such military cooperation as strategic coordination.”

Japan said this alignment between the two countries “must continue to be closely watched in the future.”

While the economic gears turn behind the scenes, China is also becoming increasingly cagey about Taiwan. The country has sent warplanes into Taiwan's self-declared air defense zone identification zone many times in recent months, according to CNN, and recently alluded to the idea of a no-fly zone over Taiwan ahead of a planned visit by Nancy Pelosi.

President Biden commented on Pelosi’s travel plans this week, stating, “The military thinks it’s not a good idea right now. But I don’t know what the status of it is.”

We’re sure Pelosi will wind up going anyway. Remember, this is the same woman who danced her way through Chinatown while Covid was spreading to the US, from China, to prove she wasn’t racist.

Governor SBP, we beg to differ with you

On Saturday, Acting Governor, State Bank of Pakistan (SBP), Dr. Murtaza Syed talked about unwarranted market concerns about Pakistan’s financial position and assured the crisis will be over in a few weeks.

This is to remind him that analysts are not concerned about Pakistan’s capacity to overcome the temporary hiccups, but have objections on the way the problems are being handled by the incumbent government. The overwhelming concern is that the decision makers are pushing the country towards default, rather than acting upon the advice of International monetary Fund (IMF) to avoid the eminent default.

To be honest, even a man on street knows that the top priority of the government should be to get the tranche released from the IMF, but the economic managers have been playing their own mantra. They not only failed in submitting a plan for increase in electrify and tariffs and petroleum prices, on top priority. On the contrary, they kept on refusing to comply with the IMF requirements, till it became unavoidable. On top of that they also kept on maligning the IMF for the miseries being faced by Pakistanis.

Now talking about the numbers upsetting Pakistanis, they are fully cognizant that the country faces adverse balance of payment crisis and the need to bridge the gap by containing imports, particularly by stopping import of the luxury goods and enhancing exports. Let me put it on record that the incumbent government has failed on both the fronts, miserably.

To establish my point allow me to refer to the decision to increase electricity and gas tariffs and also curtailing supplies to textiles and clothing industry. The industry highlighted that as a result of following this absurd policy they fear losing export orders worth millions of US dollars and even closure of production facilities, as they are losing competitiveness in the global markets.

This is also to remind Syed Sahib that the incumbent government is on borrowing spree at whatever rate the dollars are offered. However, it is not following the priority, which is causing the crunch. They have been told bluntly that unless IMF issues ‘fitness’ certificate, multi-lateral and even bilateral lending will not be possible. However, their focus remains on foreign visits for ‘borrowing’.

Go two steps forward; the incumbent government has not been able to put together: 1) moratorium request and/or 2) impose quantitative restrictions on imports under Article-6 of World Trade Organization (WTO).

This compels the experts to draw the conclusion: either the economic team is incompetent and just can’t make prudent decisions or it is adamant at pushing the country towards eminent default.  

Saga of Turkish Flotilla Continues to Haunt

Twelve years after the Mavi Marmara incident caused an unprecedented diplomatic crisis between former allies Israel and Turkey, the ties between the two countries are warming up again.

Ankara broke off relations with Jerusalem following a raid by Israeli commandos on a Gaza-bound ship trying to break the naval blockade of the Hamas-run enclave. Ten pro-Palestinian Turks who were part of Turkey’s Humanitarian Relief Foundation (IHH) were killed after they attacked the commandos.

The Mavi Marmara was part of a flotilla heading to the blocked Gaza Strip to deliver humanitarian aid.

 It was the largest in a six-vessel convoy that tried to break the siege imposed by both Israel and Egypt that was designed to prevent Hamas and other groups from importing weapons and other goods that could help their military build-up.

The blockade was imposed in 2007 after Hamas took over the coastal enclave, making all goods that enter Gaza be imported under Israeli supervision through land crossings. Several ships had, over the years, attempted to break the blockade, but were stopped by the Israeli Navy and deported from Israel.

 “We can’t let anyone in. If we let one in, we will lose control and if we did that, within three months, we would see Iranian ships in Gaza,” said Eliezer Marom, commander of the Israeli Navy from 2007–2011.

Marom was commander at the time of the Mavi Marmara and, now part of Habithonistim, a movement of Israeli defense officials who advocate for the country’s future security needs, he sat with the Magazine to tell his story.

“I spoke with the Turkish, Greek, and Italian navy chiefs and warned that there could be blood,” he said. “A military operation was our last resort. Violating our maritime borders violates our sovereignty.”

“Whoever wants to bring aid to Gaza, that’s OK. But it must be by land,” he said. “We won’t let anyone into Gaza by sea. A land and sea border is the same, even though there is no physical barrier.”

But those aboard the Mavi Marmara were different. “All of them were terrorists who belonged to IHH, and wanted to kill Israeli soldiers.”

 “It was a different story and needed to be treated seriously,” noted Marom. “It was a civilian ship that decided that it wanted to provoke and challenge Israel.”

He explained that following diplomatic and legal measures taken by Israel to stop the flotilla, the IDF and other security bodies prepared a military operation.

The operation to stop the flotilla, he said, “was the largest Navy operation” with thousands of soldiers at sea, a thousand more in Ashdod and 30 maritime vessels.

“The operation was to take over all the ships simultaneously,” he said. “I wanted to do it at night, when it’s more comfortable to act. And we wanted it to be fast” he added, explaining that Israel knew that the ships had antennas to broadcast what was happening aboard.

The navy initially made contact with the ships in the flotilla late on Sunday evening, going ship to ship and ordering them to follow them to Ashdod Port or be boarded at dawn.

The boarding of the ships started at 2 a.m. the next morning and at 4 a.m. Israeli commandos descended on ropes from helicopters onto the Mavi Marmara and were immediately attacked with clubs, knives, and metal rods. Three soldiers were taken captive.

Troops opened fire after a protester, later identified as Ken O’Keefe, a former US marine aboard the Mavi Marmara, seized a gun from one of them. When it was all over, nine of the flotilla activists were killed and dozens more were wounded, including Israeli troops. Another activist died in hospital, four years later.

“All of them were terrorists who belonged to IHH, and wanted to kill Israeli soldiers,” said Marom, adding that “they planned to do it.”

According to the former navy chief, “we didn’t have enough intelligence. If we knew that they were IHH, we would have acted differently.”

And just like Israel wasn’t expecting such violence, neither was Turkey, said Dr. Hay Eytan Cohen Yanarocak, an expert on Turkey and Turkish history at the Jerusalem Institute for Strategy and Security, and Tel Aviv University’s Moshe Dayan Center for Middle Eastern and African Studies, “In hindsight, Turkey did not expect casualties, physical damage like during a street fight maybe, but in my opinion, they didn’t expect casualties and the incident forced them to downgrade relations.”

“None of the organizers want to take responsibility. After seeing 10 people killed, none of the organizers can do such an initiative because they can be accused of leading people to their death. These flotillas were departing from European countries; it’s not easy to take such an initiative because they have to face the consequences of the act.” 

US hegemony in Middle East is a thing of past

The Jeddah Summit, requested by the United States, should have been Joe Biden’s show, “America is back”. Instead, it was a spectacle that showed America as a spent force desperately trying to stay relevant. Biden’s arrival to the region was probably comparable to Biden’s departure from Afghanistan. 

No one has managed to expose the US superpower fallacy than Russia’s Putin. And no one described that fallacy better than China’s Mao, describing the US as a, “paper tiger”, decades ago.   

Up to this week, no one managed to demonstrate that fallacy, more evidently, that Mohammed Bin Salman, the seemingly unremovable heir to the Saudi throne, who sat rejoicing his incarceration as a statesman, leading a real nation, and negotiating with his defeated US nemesis across the table. That wasn’t enough.

Then came an American reporter, shouting at Joe Biden, who sat in stone silence, whether the Saudi is still a pariah. There’s no way of knowing whether that loud dagger was plunged and twisted into Biden by MBS’ himself. It might as well have been. 

Worst still, the Superpower leader and his delegation were made to listen, in obvious shock, to the young prince across the table loudly refusing to increase oil output beyond 13 million barrel per day, which was the only reason that brought Biden to the Saudi capital.

Why MBS had to wait until Biden sat across the table to deal that humiliating blow, is open to speculation. The body language among the American delegation was interesting, to say the least. Even before MBS dealt this blow, his father, king Salman, decided to disappear after a quick handshake with Biden, giving a clear message. You deal with my son, or you don’t deal.  

America’s previous hegemony in the region is a thing of the past. Earlier, MBS received the US leader at the palace, unlike all other leaders attending, whom he met warmly at the airport. Whether that was another intended message or part of the protocol shouldn’t matter anymore.

Biden would have been better served staying at home. Trump must be relishing the spectacle and comparing it to his own welcome, complete with Saudi folk dances and a US$110 billion arms deal.  

Clearly, Biden’s declaration that America is back found no welcoming party. 

It can never be more personally humiliating than this for a sitting US president being forced to eat his words by a political operator more than 50 years his junior. Neither can the superpower fallacy be more humiliatingly exposed than this. 

No superpower worth the name can be brought to its knees in such fashion by a dependent power. If Putin or MBS have no other benefits from Ukraine’s disaster, this victory is enough for them. A previous oil searching visit to Riyadh, by Joe Biden’s ally, British Prime Minister Boris Johnson, who was recently disgracefully removed, was followed almost immediately by MBS’ trip to China. What will happen to Biden come 2024, assuming the Democrats are foolish enough to nominate him, is anybody’s guess. 

All this humiliation could have been avoided. The “emperor” could have kept his clothes.  The fallacy could have continued. Instead, the US and its NATO allies were intoxicated by past impunity when they bullied weak nations: Afghanistan, Iraq, Yemen, Vietnam, Somalia, Libya and Syria.

Perhaps that’s how far they should have limited their colonial offensive. Against weak nations that couldn’t retaliate, offensives they got away with successfully. Perhaps they should have listened to Russia’s leaders, from Mikhail Gorbachev to Vladimir Putin, and even listened to many of their own political scientists, all of whom have been repeatedly warning for 30 years, not to cross the red lines with an eastward NATO expansion to Russia’s borders.

Many of those warning about the probable consequences reminded the US how President John Kennedy dangerously reacted with DEFCON 2 to Nikita Kruchev’s decision to put Soviet missiles on America’s southern borders in Cuba. That potential holocaust was only averted after the Soviet agreed to climb down, but only when the US itself agreed to withdraw its own missiles from Soviet borders in Turkey. 

Now the US decided to take on real world powers, Russia, with a plan for China on the drawing boards. The result is not just the disastrous predicament faced by Ukrainians, but also the political debacles we have been witnessing in the past months, leading to the mother of all humiliations, when cap in hand, the US came begging MBS, that murderous outlaw leading a “pariah”, for his charity, and he, you can be certain, extorting a pound of flesh in return, before also refusing to go higher than 13 million barrel per day.  

Noteworthy, Biden’s regional tour didn’t include the UAE, a key regional player, where Biden’s Russian and Chinese counterparts were given welcomes fit for reigning emperors, not so long ago.

The UAE is progressively showing a cunning survival ability to balance not just world powers, but regional ones as well, to its own advantage. Reconciliation with Turkey, while retaining strong economic relations with Iran, the two competing major regional powers, are key to the UAE balancing act. Something that Saudi’s MBS has started to emulate. 

Biden’s single seeming success was in Israel, where he managed to hold a virtual quartet summit that included UAE’s Bin Zayed, who earlier walked away from the F35 deal after discovering the plane’s technological compromise aimed at retaining Israel’s superiority, and India’s Narendra Modi, whose government recently warned the US not to interfere with India’s sovereign decisions and its relationship with Putin’s Russia. 

There were expectations that Saudis will welcome America’s re-entry into the region and seek an offensive against Iran. No one hear that language from MBS and his spokespersons. Instead, they heard language that indicated America’s weakness and unreliability as an ally and a regional desire to find solutions with Iran.

Saudi political commentators, who never speak without their government’s approval, portrayed United States as a spent force whose time is up. The region has changed, evolved and moved on. And it can do without America. Whether that vacuum will be filled by Arabs themselves, by Iran or by America’s heirs in Tel Aviv is the question that will keep them busy in the months ahead. But America’s previous hegemony in the region is a thing of the past. 

Back home, there is a lot of soul searching required from Americans to discover how they can adjust and peacefully coexist with a changing world in which America’s word is no longer divine. More importantly, try to learn how not to be extravagant in estimating America’s position, and to instead understand the new limits of its global power. 

 Courtesy: The Tehran Times

Russia and Ukraine agree to allow food shipments out of the Black Sea

Russia and Ukraine agreed to a deal Friday to open Ukrainian ports on the Black Sea, releasing stalled grain shipments into world markets to help alleviate an ongoing food crisis and bring down global prices.

The deal between the two countries was mediated through Turkey, which helped to broker the agreement under the auspices of the United Nations. The ongoing war between Russia and Ukraine has led to a de facto blockade of Black Sea ports that have been unable to export agricultural goods like fertilizer and grain.

United Nations Secretary-General Antonio Guterres, speaking at the signing ceremony in Istanbul, hailed the deal as a “beacon of relief in a world that needs it more than ever.”

“To the representations of the Russian Federation and Ukraine, you have overcome obstacles and put aside differences to pave the way for an initiative that will serve the common interests of all. Promoting the welfare of humanity has been the driving force of these talks,” he said.

The deal will open a passage for significant volumes of commercial food export from the ports of Odessa, Chernomorsk and Yuzhne, Guterres said. Russian Foreign Minister Sergei Lavrov has said that naval mines in Ukrainian ports had been an issue for exports in the past.

“The shipment of grain and food stocks into all markets will help bridge the global food supply gap and reduce pressure for high prices,” Guterres added.

Turkish President Recep Erdogan said at the ceremony the agreement would help to ease pressure on global food prices.

“We are also helping with controlling food inflation, which has become a global problem,” Erdogan said.

Speaking to reporters later Friday, White House national security spokesman John Kirby said that the United States welcomes the development but said officials would be watching it closely, noting that Russia will need to actually comply with the agreement in order for it to be effective.  

Kirby described the Biden administration as both hopeful and “clear-eyed” about the deal.  

“If it’s fully implemented and complied with it will have an impact, but it’s just too soon to know,” Kirby said.

Other international leaders hailed the agreement.

“Putin’s barbaric invasion of Ukraine has meant some of the poorest and most vulnerable people in the world are at risk of having nothing to eat. It is vital that Ukrainian grain reaches international food markets, and we applaud Turkey and the UN Secretary General for their efforts to broker this agreement,” United Kingdom Foreign Secretary Liz Truss said in a statement from the UK foreign ministry.

Global food prices are up more than 23% since last year, according to the United Nations Food and Agriculture Organization (FAO), though they have been ticking down since May. In the US, food prices are up more than 10% annually.

Global prices for grains have fallen more than 4% since a recent high in May but are still more than 27% higher than they were a year ago, according to the FAO. Wheat prices are nearly 50% higher than they were last year.

A logistical coordination center will also be set up as part of the agreement to monitor its implementation, Guterres said.

Sheer hypocrisy of United States

Imposes sanction on sale of Russian energy products but no restrictions on buying fertilizer 

A tanker carrying a liquid fertilizer product from Russia is about to arrive in the United States, sources and vessel tracking data shows.

It is worth noting that President Joe Biden administration has not blacklisted Russian agricultural commodities, including fertilizers, in the aftermath of the Ukraine invasion.

Still, many Western banks and traders have steered clear of Russian supplies for fear of running afoul of rapidly changing rules.

Russia and Ukraine are major exporters of fertilizer, key to keeping corn, soy, rice and wheat yields high. Farmers have scaled back fertilizer use due to high prices, and cut the amount of land they plan to cultivate.

Washington sanctioned Russian crude, refined products, coal and liquefied natural gas (LNG).

The Liberia-flagged tanker Johnny Ranger was scheduled to arrive in New Orleans on Monday carrying about 39,000 tons of urea ammonium nitrate solution, a fertilizer produced by combining urea, nitric acid and ammonia, the sources and Refinitiv Eikon data showed. The vessel loaded last month at St. Petersburg, according to Eikon data.

Details on the seller and buyer were not immediately available. The US Treasury Department and the US Customs and Border Protection agency declined to comment.

A State Department spokesperson said the United States has never sanctioned food or agricultural goods from Russia. "Unlike the Russian government, we have no interest in weaponizing food to create humanitarian crises at the expense of vulnerable populations."

US non-food sanctions will remain in place until Russian President Vladimir Putin stops the war in Ukraine.

In 2021, the United States imported US$262.6 million worth of urea ammonium nitrate fertilizers from Russia, according to the Commerce Department.

This week, the US International Trade Commission revoked hefty anti-dumping and anti-subsidy duties on urea ammonium nitrate fertilizers from Russia in an effort to ease fertilizer shortages and price increases.

Fertilizer cargo from Russia heads to US as many worry about food shortages

In recent days, there are widespread worries that sky-high global fertilizer prices could lead to food shortages.

 

Arab public opinion turning against normalization with Israel

A recent poll by an American think tank has confirmed what every independent expert knows: Arab public opinion does not support the controversial policy of normalization between Israel and Arab states.

Almost two years into the signing of the controversial Abraham Accords between Israel and some Arab states, the already shaky support for normalization among Arab public opinion has dropped further, a poll by The Washington Institute showed. 

“The wave of Arab countries officially normalizing relations with Israel over the past several years stands in contrast with a growing lack of public support for the Abraham Accords in the Persian Gulf,” the Institute said, noting that those who favorably view normalization with Israel are now a “minority” in Saudi Arabia, Bahrain, and the United Arab Emirates (UAE).

It added, “TWI polling from March 2022 demonstrates that more than two thirds of citizens in Bahrain, Saudi Arabia, and UAE view the Abraham Accords unfavorably less than two years out.”

The polling stands in contrast to another one from November 2020, in which some percentage of Emiratis, Bahrainis, and Saudis showed relative optimism about normalization.

While in November 2020, nearly 40 percent of Saudis and Qataris supported the Accords, support for these agreements is now hovering between 19% to 25% in Saudi Arabia, Bahrain, and the UAE, according to the new polling. 

The number of those in Lebanon viewing the Abraham Accords “very negative” has increased from 41% in November 2020 to 66% this March, while support in Egypt has dropped from about a quarter to 13%.

Attitudes toward sub-state business and sports relations with Israel have also been remarkable in the Persian Gulf Arab countries. A further 50% of Saudis and 47% of Emiratis strongly disagreed with allowing such ties. With the exception of Kuwait, disapproval rates of allowing business or sports ties with Israelis now edge closer to half (Bahrain – 58%, KSA – 60%, UAE – 55%), the Institute said. 94% of Kuwaitis and 93% of Lebanese surveyed disagreed with the notion—and a further 77% of Lebanese and 88% of Kuwaitis strongly rejected it.

The figures from the poll bear witness to a widely held belief that ordinary Arabs do not support their leaders in establishing ties with Israel. The Abraham Accords might have succeeded in generating a limited base of support in countries that normalized ties with Israel, but they absolutely failed to bring about a drastic change in Arab public opinion. And even that limited base is now evaporating.

The polling also gives substance to the remarks by Ayatollah Seyed Ali Khamenei, the Leader of the Islamic Revolution, in his meeting with Turkish President Recep Tayyip Erdogan. 

In the meeting, Ayatollah Khamenei described the Palestinian cause as being the number one issue in the world of Islam. “Despite certain governments’ interest in the Zionist regime, nations totally oppose this usurper,” he noted. 

Independent polls confirmed that Arabs do not support normalization with Israel. And even in 2020, most polls evinced that the majority of Arabs view normalization unfavorably. A poll conducted in October 2020 by the Arab Center of Research and Policy Studies showed an unequivocal Arab opposition to normalization. It was conducted in 13 Arab countries with 28,000 respondents. The polling showed that 88% of Arabs refused the idea of recognizing Israel.

Russian pipeline resumes supplying gas to Europe

Russia has resumed pumping gas to Europe through its biggest pipeline after warnings it could curb or halt supplies altogether.

The Nord Stream 1 pipeline restarted following after a 10-day maintenance break but at a reduced level.

It may be recalled that on Wednesday, the European Commission had urged countries to cut gas use by 15% over the next seven months in case Russia switched off Europe's supply.

Russia supplies Europe 40% of its natural gas requirement last year.

Germany was the continent's largest importer in 2020, but has reduced its dependence on Russian gas from 55% to 35%. Eventually, it wants to stop using gas from Russia altogether.

Russia's President Vladimir Putin has sought to play down fears, promising that state gas firm Gazprom would fulfill all its contractual obligations. His spokesman, Dmitry Peskov, denied that Russia was using gas for political blackmail.

The pipeline is only delivering 40% of its capacity, and the head of Germany's network regulator warned that the resumption of gas flows was not a sign that tensions were easing.

"The political uncertainty and the 60% cut from mid-June unfortunately remain," Klaus Müller said.

Gazprom cut the flow of gas through Nord Stream 1 last month, blaming the delayed return - due to sanctions - of a key piece of equipment which had been serviced in Canada.

The turbine is now believed to be on its way back to Russia, but President Putin recently said that if it is not returned, supply would have to be reduced further.

He has also pointed out that another machine is due to be sent for service soon, according to Russia's Tass news agency.

The continued reduction in gas supply through Nord Stream 1 is likely to make it more difficult for countries to replenish their stores before winter, when gas usage is much higher.

European countries have been looking for alternative suppliers of gas, for example LNG from the US, which can be transported by ship.

But building the infrastructure needed to import gas from new suppliers can be expensive and time consuming, which makes it unlikely that Russian gas can be replaced completely before the coming winter.

Instead, it may be necessary to cut gas consumption, and on Wednesday the EU Commission President, Ursula von der Leyen, announced a voluntary target for all EU countries to reduce their gas use by 15%.

In late February, in response to Russia's invasion of Ukraine, Germany abruptly halted plans to open a new pipeline - Nord Stream 2 - which would double the supply of Russian gas to Germany.

Critics of the Nord Stream 2 project had long argued that it would give Russia too much control over Europe's energy supply.

 

Sri Lanka crisis: A warning to Pakistan and Bangladesh

Sri Lanka is in the midst of a deep and unprecedented economic crisis that has sparked huge protests and seen its president quit after fleeing the country - but other countries could be at risk of similar troubles, according to Kristalina Georgieva, Managing Director, International Monetary Fund (IMF).

"Countries with high debt levels and limited policy space will face additional strains. Look no further than Sri Lanka as a warning sign," said Kristalina.

She said developing nations had also been experiencing sustained capital outflows for four months in a row, putting their dreams of catching up with advanced economies at risk.

Sri Lanka is struggling to pay for crucial imports like food, fuel and medicine for its 22 million people as it battles a foreign exchange crisis. Inflation has soared about 50%, with food prices 80% higher than a year ago. The Sri Lankan rupee has slumped in value against the US dollar and other major global currencies this year.

Many blame ex-President Gotabaya Rajapaksa for mishandling the economy with disastrous policies whose impact was only exacerbated by the pandemic.

Over the years, Sri Lanka had built up a huge amount of debt - last month, it became the first country in the Asia Pacific region in 20 years to default on foreign debt.

Officials had been negotiating with the IMF for a US$3 billion bailout package. But those talks are currently stalled amid the political chaos.

The same global headwinds - rising inflation and interest rate hikes, depreciating currencies, high levels of debt and dwindling foreign currency reserves - also affect other economies in the region.

China has been a dominant lender to several of these developing nations and therefore could control their destinies in crucial ways. Buy it's largely unclear what Beijing's lending conditions have been, or how it may restructure the debt.

Where China is at fault, according to Alan Keenan from International Crisis Group, is in encouraging and supporting expensive infrastructure projects that have not produced major economic returns.

"Equally important has been their active political support for the ruling Rajapaksa family and its policies... These political failures are at the heart of Sri Lanka's economic collapse, and until they are remedied through constitutional change and a more democratic political culture, Sri Lanka is unlikely to escape its current nightmare."

Worryingly, other countries appear to be on a similar trajectory.

Pakistan

Fuel prices in Pakistan are up by around 90% since the end of May, after the government ended fuel subsidies. It's trying to rein in spending as it negotiates with the IMF to resume a bailout program.

The economy is struggling with the rising cost of goods. In June, the annual inflation rate hit 21.3%, the highest it has been in 13 years.

Like Sri Lanka, Pakistan also faces low foreign currency reserves, which have almost halved since August last year.

It has imposed a 10% tax on large-scale industry for one year to raise US$1.93 billion as it tries to reduce the gap between government revenue and spending - one of the IMF's key demands.

"If they are able to unlock these funds, other financial lenders like Saudi Arabia and the United Arab Emirates may be willing to extend credit," Andrew Wood, sovereign analyst at S&P Global Ratings said.

Former Prime Minister Imran Khan who vowed to fix some of these problems, was ousted from power although the faltering economy is not the only reason for that.

Again China plays a role here, with Pakistan reportedly owing more than a quarter of its debt to Beijing. "Pakistan appears to have renewed a commercial loan facility vis-a-vis China and this has added to its foreign exchange reserves and there are indications they will reach out to China for the second half of this year," Mr Wood added.

Bangladesh

With reserves dwindling, the government has acted fast to curb non-essential imports, relaxing rules to attract remittances from millions of migrants living overseas and reducing foreign trips for officials.

"For economies running current account deficits - such as Bangladesh, Pakistan and Sri Lanka - governments face serious headwinds in increasing subsidies. Pakistan and Sri Lanka have turned to the IMF and other governments for financial assistance," said Kim Eng Tan, a sovereign analyst at S&P Global Ratings.

"Bangladesh has had to re-prioritize government spending and impose restrictions on consumer activities," he said.

Rising food and energy prices are threatening the pandemic-battered world economy. Now developing nations that have borrowed heavily for years are finding that their weak foundations make them particularly vulnerable to global shock waves.

Are Russia and Iran friends or foes?

A budding courtship between Russia and Iran is an unwelcome development for the West in general and the United States in particular.

Russian President Vladimir Putin used a rare foreign trip on Tuesday to hold talks in Tehran with Supreme Leader Ayatollah Ali Khamenei and President Ebrahim Raisi, as well as Turkish President Tayyip Erdogan.

The fact that Russia and Iran are competing energy producers is likely to place limits on any deeper partnership.

Here's a look at some of the key questions that their developing relationship poses.

CAN IRAN HELP RUSSIA IN THE UKRAINE WAR?

US officials have said Iran is preparing to help supply Russia with several hundred unmanned aerial vehicles (UAVs), or drones, including some that are capable of firing weapons, but neither country has confirmed it. Russian presidential aide Yuri Ushakov was quoted by RIA news agency as saying Putin had not discussed the issue with Iran's leaders.

"Russia deepening an alliance with Iran to kill Ukrainians is something that the whole world should look at and see as a profound threat," US National Security adviser Jake Sullivan said last week.

Ukraine has used Turkish-supplied Bayraktar drones to lethal effect in targeting Russian units and destroying huge quantities of tanks and other armored vehicles. Jack Watling, a war expert at the RUSI think-tank in London, said Iranian drones would be useful to Russia for both reconnaissance and as loitering munitions that can bide their time in locating and engaging suitable targets.

"Beyond supplying UAVs Iran can also help Russia evade sanctions and potentially collaborate on the manufacture of weapons systems that are less dependent upon supply chains through Western countries," he said.

WHAT CAN RUSSIA LEARN FROM IRAN ON SANCTIONS?

Iran has many years of experience of defending itself against Western sanctions over its disputed nuclear program. "The Russians see Iran as being highly experienced at, and a potentially valuable partner, in evading Western sanctions," said Watling.

Russia, meanwhile, has been hit with waves of sanctions against banks, businesses and individuals over the war in Ukraine. Both countries therefore lack access to Western technology and capital, said Janis Kluge of the SWP think-tank in Berlin.

"There might be some lessons that Russia can learn from Iran... In exchange, Russia could offer military goods and possibly raw materials or grain," he said. Russia is already a major supplier of wheat to Tehran.

With some Russian banks cut off from the SWIFT international payments system, Moscow is developing an alternative in which Iranian banks could be included, Kluge said.

More broadly, Iran is part of a wider group of countries - also including China, India, Latin America and Arab and African nations - with which Russia is forging stronger ties in a bid to prove its claim that it can thrive under sanctions and that these will only rebound on the West.

HOW CAN RUSSIA AND IRAN COOPERATE ON ENERGY?

This is potentially a sensitive question, both countries are oil and gas producers, and competition between them has intensified since the start of the Ukraine war as Russia has switched more of its oil exports to China and India at knock-down prices.

"On the economic dimension, the war has significantly worsened their relationship. Moscow is eating Tehran’s lunch in commodity markets and has even fewer resources to throw at projects in Iran," said Henry Rome, deputy head of research at Eurasia Group.

Coinciding with Putin's visit, however, the National Iranian Oil Company and Russia's Gazprom signed a memorandum of understanding worth around US$40 billion under which Gazprom will help NIOC develop two gas fields and six oil fields, as well as taking part in liquefied natural gas (LNG) projects and construction of gas export pipelines.

WILL ANYTHING CHANGE IN THE IRAN NUCLEAR TALKS?

The Ukraine war has changed Moscow’s approach towards talks on reviving the 2015 Iranian nuclear deal, known as the JCPOA.

Eleven months of talks to restore the deal, which lifted sanctions on Iran in return for curbs on its nuclear program, had reached their final stages in March. But they were thrown into disarray over a last-minute Russian demand for written guarantees from Washington that Western sanctions targeting Moscow over its invasion of Ukraine would not affect its trade with Iran.

Although Russia quickly retreated under Iranian pressure, diplomatic momentum for an agreement was lost. The talks have stalled since then over various remaining issues.

Whether the deal can get back on track will be one measure of the impact of the rapprochement between Putin and Iran's leaders.

"Russia’s interference in the JCPOA talks was a significant reversal of the traditional Russian approach and probably further fanned suspicions in Tehran about Moscow’s reliability and trustworthiness," said Rome of Eurasia Group.

Europe inching towards worst energy crisis

The International Energy Agency (IEA) has warned Europe is facing a red alert over its gas consumption and significant additional reductions are needed to prepare the continent for a tough winter ahead.

The warning comes as Russian gas exports to the continent have decreased in capacity and amid maintenance work on the main pipeline to Germany (Nord Stream 1). The IEA fears that further gas cuts cannot be ruled out. 

Experts argue the European Union is struggling to secure alternatives to Russian supplies but has approved another 500 million euros in arms to Ukraine, whereby a push towards a peace settlement may save the bloc a lot of breathing space on its gas stocks, instead of the panic it finds itself in. 

The IEA itself which serves as the west’s energy watchdog says efforts to boost supplies are still falling short and the 27-member bloc needs stricter measures, such as restricting air conditioning demand (during the current heat wave in Europe) and auctioning gas supplies to industry.

Dr. Fatih Birol, the Executive Director of the IEA has said there is a global energy crisis but warned the situation is especially perilous in Europe, which is at the epicenter of the energy market turmoil. He has expressed concern about the months ahead for the continent. 

The IEA has acknowledged there has not been enough progress by the EU to ween itself of Russian gas especially on the demand side, to prevent Europe from finding itself in an incredibly precarious situation.

It says any further cuts of Russian natural gas flows to Europe, combined with other recent supply disruptions, are a red alert for the European Union, adding that as we get closer to next winter, we are getting a clearer sense of what Russia may do next. The next few months will be critical, the organization warned. 

Moscow has strongly rejected any allegations that it has been using its gas supplies for political purposes. Experts have also argued that it is not in the Kremlin’s interest to cut gas supplies as Russia would lose out financially. 

Nevertheless, Brussels the headquarters of the EU is reportedly preparing to tell the bloc members to cut gas consumption immediately, warning that without increased preservation the continent risks running short of the vital commodity this winter. 

Reports have surfaced that the European Commission will provide members with voluntary gas reduction targets by next week, which cautions that targets will be made mandatory in the event of severe disruption to supplies.

Acting jointly now will be less disruptive and costly, facilitating solidarity and avoiding the need for unplanned and uncoordinated actions later in a possible crisis situation with gas reserves running low.

The IEA warns that efforts to diversify away from Russian gas are no longer enough on their own and that Europe faces the real prospect of rationing its energy unless demand is restricted in order for storage facilities to be filled ahead of the long winter season. 

Birol says he has spoken to EU officials urging them to do all they can right now to prepare for a long, hard winter. He said, “Europe is now forced to operate in a constant state of uncertainty over Russian gas supplies, warning that we can’t rule out a complete cut-off.

The irony is that the EU initiated gas crisis by imposing unprecedented economic sanctions on Russia including hundreds of individuals, businesses, companies, entities, flights, and oil by the end of 2022. In March the bloc said it would reduce gas imports by two-thirds within a year, but there have been disagreements among EU members about this. 

The EU is evidently heavily reliant on Russian gas, yet it has threatened Moscow and at the same time, appears to have shot itself in the foot with its sanctions policy.

An EU last week recommended limiting central heating and cooling in buildings as well as the exemption of coal power stations from its target of emissions reductions.

One EU official has said talks are ongoing over what punitive measures can be enforced if mandatory targets set by the EU to cut gas are not met among member states. 

Europe had relied on Russia for about 40% of its gas but since Russia’s military intervention in Ukraine, Western sanctions have disrupted supplies. The continent imported a total of 155 billion cubic meters of gas from Russia in 2021 and consumes close to 400 billion cubic meters of gas in total during a normal year.

A new EU gas plan issues a warning that continued cuts to Russian gas supplies could lead to a drop in the bloc’s GDP by up to 1.5%, depending on the level of disruption.

Birol said, “Flows have been halted through Nord Stream [1], the biggest single gas pipeline between Russia and Europe, for what Russia says is planned maintenance that is due to end on July 21, 2022. Russia had already significantly reduced the flows coming through Nord Stream in June, and it remains unclear whether they will resume and if so, at what level, after the stipulated deadline.”

The maintenance work is routine procedure that is carried out every year and it’s not uncommon that the work would take longer than ten days. Kremlin spokesperson, Dmitry Peskov, has rejected accusations that Russia would use its gas exports to put pressure on European governments.

Nevertheless, the IEA has offered thorough guidelines and steps to the EU on how to fill European gas storage to adequate levels before winter; starting with the reduction of Europe’s current gas consumption, and putting the saved gas into storage. 

Among the advice is to bring down household electricity demand by setting cooling standards and controls. Government and public buildings should take the lead on this to set an example while campaigns should encourage behavioral changes among consumers.

If the measures proposed by the IEA are not implemented now, Europe will be in an extremely vulnerable position and could well face much more drastic cuts and curtailments later on,” the agency warned. 

It goes on to say that in addition to the measures proposed, “European governments also need to prepare the people of Europe for what may be coming. Public awareness campaigns in the context of an energy crisis have been successful previously in reducing short-term energy demand by several percent.”

According to the IEA, since Russia’s military operation in Ukraine, the amount of revenue that Moscow has collected from exporting oil and gas to Europe has doubled compared with the average of recent years – to US$95 billion. 

“The increase in Russia’s oil and gas export revenues in just the last five months is almost three times what it typically makes from exporting gas to Europe over an entire winter.” the IEA says. 

The agency warns that should Russia decide to completely cut off gas supplies before Europe can get its storage levels up to 90%, the situation will be even more grave and challenging.

The warnings and plans for Europe to cope with enough heat in the winter offers an idea on how reliant the EU is on Russian gas and how fragile the situation may become in wintertime. 

Cool heads are required at such a delicate time. Perhaps a peace deal, which the US-led NATO alliance doesn’t appear to care about, is just what’s needed.

 

Khamenei advises Erdogan not to launch military operation in Syria

Leader of the Islamic Revolution Ayatollah Khamenei received Turkish President Recep Tayyip Erdogan and his delegation on Tuesday. During the meeting, the Leader of the Islamic Revolution emphasized the need to increase cooperation between the two countries, especially commercial cooperation.

Discussing the Syrian conflict, the Leader reiterated the need to honor the territorial integrity of Syria. Responding to some statements about a possible Turkish military operation in northern Syria, he said, “Maintaining the territorial integrity of Syria is very important and any military attack in northern Syria will definitely harm Turkey, Syria and the entire region, and it will benefit the terrorists.”

Leader warned, if there is a policy to block the border between Iran and Armenia, the Islamic Republic will oppose it, as this border is a connection route that has been thousands of years old. The Leader added, “This is definitely to the detriment of Syria, Turkey, and the region. It will not achieve the expected political results from the Syrian government.”

Khamenei said the honor and greatness of the Islamic Ummah will be dependent on overcoming differences of opinion, as well as vigilance against divisive policies, mentioning the occupation regime of Israel as one of the causes of discord and enmity in the region.

The Leader considered Palestine as the first issue of the Islamic world and emphasized, “Despite the favor of some governments towards the Zionist regime, the nations are deeply opposed to this usurping regime.”

Emphasizing that the US and the Israeli regime should not be relied upon, he underlined, “Today, neither the Zionist regime, nor the United States, nor others will be able to stop the deep-rooted movement of the Palestinians, and the end result will be in the interest of the Palestinian people.”

Referring to the Turkish president's hatred of terrorist groups, Khamenei said terrorism must be countered, but a military attack in Syria will benefit terrorists, although terrorists are not limited to a specific group.

In response to the Turkish president's request for Iran's cooperation in fighting terrorist groups, the Leader said, “We will certainly cooperate with you in the fight against terrorism.”

Emphasizing that Tehran considers the security of Turkey and its borders as its own, Khamenei told Erdogan, “You also consider the security of Syria to be your security. The Syrian issues should be resolved through negotiations, and Iran, Turkey, Syria and Russia should resolve this issue through dialogue.”

Erdogan said, “In Syria, terrorist groups are supported by heavy weaponry from Western countries such as Germany, England, France, and especially the United States.”The Leader of the Islamic Revolution also called the rising cooperation between Iran and Turkey on all regional issues useful and necessary and said Iran has always defended Erdogan’s government in internal conflicts and against interference.

“As you said, we are friends of each other in difficult times and we pray for the Muslim nation of Turkey,” the Leader highlighted. 

Khamenei called the volume and quality of economic exchanges and cooperation between the two countries much less than the existing capacities, stressing that this issue should be resolved in the negotiations between the presidents.

In the meeting, which was also attended by President Ebrahim Raisi, Erdogan said it is necessary to unite the Islamic Ummah and increase the solidarity between Iran and Turkey. 

“Turkey has never been silent in the face of injustices against Iran, and the brotherhood of Iran and Turkey should expand in all areas,” Erdogan said in reference to illegal sanctions against Iran. 

Emphasizing that he has always been and will be against unilateral sanctions against Iran, Erdogan pointed out that Ankara supports Iran's legitimate demands based on the JCPOA talks and encourages Turkish companies to invest in Iran.

Referring to Iran and Turkey’s campaigns against terrorists for many years, the Turkish president said, “In Syria, terrorist groups are supported by heavy weaponry from Western countries such as Germany, England, France, and especially the United States.”

Erdogan concluded his remarks by stating that Turkey's position regarding the territorial integrity of Syria is clear, saying, “We expect the Syrian government to start political processes. At the Astana process, the Syrian issue is on top of the agenda, and we hope to achieve good results.”

Putin arrives in Iran

On Tuesday, in his first trip since the invasion of Ukraine, Russian President Vladimir Putin arrived in Iran for a summit with his Iranian and Turkish counterparts.

The three countries are working together to try to reduce the violence in Syria despite supporting opposing sides in the war. Russia and Iran are Syrian President Bashar al-Assad’s strongest backers, while Turkey supports anti-Assad insurgents.

Turkish President, Tayyip Erdogan has threatened to launch another operation in Northern Syria, which Tehran and Moscow oppose. In Tehran, Putin and Erdogan will meet to discuss a deal aimed at resuming Ukraine’s Black Sea grain exports.

The emergence of an US-backed Arab-Israeli bloc that could tilt the Middle East balance of power further away from Iran has accelerated its clerical rulers’ efforts to strengthen strategic ties with the Kremlin.

“Considering the evolving geopolitical ties after the Ukraine war, the establishment tries to secure Moscow’s support in Tehran’s confrontation with Washington and its regional allies,” said a senior Iranian official, who asked not to be named.

Sending a clear message to the West that Russia will seek to boost ties with anti-West Iran, Putin will meet the Islamic Republic’s most powerful authority, Supreme Leader Ayatollah Ali Khamenei, just a few days after US President Joe Biden visited Israel and Saudi Arabia.

Putin’s visit to Tehran is watched closely as Russia’s invasion of Ukraine has reconfigured the global oil market and because of Washington’s warning about Tehran’s plan to provide Russia with up to several hundred drones. Tehran has denied selling drones to Moscow to use in Ukraine.

Emboldened by high oil prices after the Ukraine war, Tehran is betting that with Russia’s support it could pressure Washington to offer concessions for revival of a 2015 nuclear deal.

Under the deal, Tehran curbed its sensitive nuclear work in exchange for lifting international sanctions.

But former US President Donald Trump exited the pact in 2018 and reimposed crippling sanctions on Iran. A year later, Tehran started violating nuclear limits of the pact.

Almost a year of indirect talks between Tehran and Washington in Vienna stalled in March, with Iran questioning the United States’ resolve and Washington calling on Tehran to drop extra demands.

But Moscow and Tehran, both subject to US sanctions, have overlapped interests. Iran, whose oil industry has struggled for years under US sanctions, has long relied on Chinese oil purchases to keep the economy afloat. Since the start of Ukraine war, Moscow has taken away Iran’s oil market in Asia.

In May, Reuters reported that Iran’s crude exports to China have fallen sharply as Beijing favoured heavily discounted Russian barrels, leaving almost 40 million barrels of Iranian oil stored on tankers at sea in Asia and seeking buyers.