China and Russia to lead a new economic bloc

The news that Sinopec, Chinese state-run oil refiner, has canceled plans for US$500 million investment in Russia’s energy sector does not portend a general decoupling of the economies of China and Russia.

On the contrary, it signifies a temporary halt to an economic partnership that is likely to grow in size and complexity as world powers regroup into new, rival blocs in the aftermath of Russia’s invasion of Ukraine and the massive sanctions that aligned nations have levied on the aggressor.

That’s according to Ross Kennedy, a senior fellow at the Securities Studies Group and founder of Fortis Analysis, who spoke to EpochTV’s “China Insider” program on April 02, 2022.

A few weeks prior to Russia’s invasion, Chinese leader Xi Jinping and Russian President Vladimir Putin announced a “no limits” partnership, a relationship that has not shown signs of diminishing even as Moscow becomes a pariah on the world stage over its ongoing assault on Ukraine. But Beijing has not yet rushed in to provide significant economic help to Moscow, cautious about being impacted by Western sanctions in the process, according to Kennedy, a logistics and supply chain expert.

“Beijing, despite declaring pretty forcefully and openly that there are no limits on ties between Moscow and Beijing, still also has to take into consideration what the impact of sanctions may be. And right now there’s a bit of a gray area concerning how capital flow is going to work between the two countries, particularly on the investment side,” Kennedy said.

Calling China a “consumption powerhouse” that continues to need enormous amounts of energy and raw materials, Kennedy said that the availability and ease of goods produced in the Black Sea region and the eastern part of Russia still holds significant appeal for Beijing. Though China’s rulers are wary for the moment about what contravening the sanctions on Russia might mean for China’s economy. Hence Kennedy is skeptical about the long-term significance of Sinopec’s decision.

“I don’t think this is an indicator that China is cooling its support of Russia. I don’t think that it is really reflective of anything other than Sinopec, and other companies, being instructed by Beijing to just be a little bit more cautious right now and make sure that state-owned enterprises don’t have exposure to Western sanctions,” he said.

Despite the Sinopec decision, trade is still ongoing at a high volume between the two powers in such product groups as animal feed, vitamins and trace minerals, amino acids, building and construction materials, and other longstanding components of the Russia-China trade relationship, Kennedy said.

Rather than a decoupling, Kennedy sees the likelihood of Chinese state-owned enterprises ramping up their purchases of energy products and grain from Russia. In Kennedy’s analysis, China, India, and possibly other powers will take advantage of the lower prices of energy products available to be shipped by tanker from Russia as the latter power increasingly finds itself shut off from Western markets. A marked increase in non-dollar- and non-Euro-denominated transactions is highly likely, he added.

“It’s pretty clear that Moscow and Beijing and even some of the other countries of the world, like India and Iran, are working and collaborating pretty closely on having the ability to settle transactions among themselves,” Kennedy said.

The increasing reliance on transactions that do not involve Western currencies or banking systems takes place under the rubric of BRICS, the group of powers composed of Russia, China, India, Brazil, and South Africa. Kennedy sees BRICS as the nexus of this growing consolidation and formation of a bloc rivaling Western democracies.

Besides the devastation of Ukraine and the imposition of massive sanctions, Russia’s invasion of her neighbor has helped start to usher in a new geopolitical landscape. The new bloc will not emerge overnight. Rather, it is in nascent form, Kennedy said.

“We are seeing the emergence of Russia-China-led sphere of economic and geopolitical cooperation that will stand in contrast to what is more of an Anglosphere, or a transatlantic type of alliance among Canada, the US, and our NATO partners,” Kennedy said.

“I think as we look back in three years, five years, ten years, we’re going to see that it’s really two fully formed economic blocs that have some level of cooperation between them where necessary,” he continued.

To the extent that trade and cooperation occur between the rival blocs, it will depend on facilitators that have a presence in both blocs, such as India, Saudi Arabia, and possibly the United Arab Emirates, Kennedy predicted.

He called the new geopolitical configuration unprecedented since the days of the Cold War, when the world broke down largely of the Soviet Union, Western powers led by the United States, and a number of developing countries loyal to one or the other.

 

Russia condemns United States attempt to punish Pakistani Prime Minister Imran Khan

Wading into the political battle raging in Islamabad over the alleged threat made against Imran Khan’s government by an American official, Moscow on Tuesday accused the United States of committing “another attempt of shameless interference” in the internal affairs of Pakistan to punish a “disobedient” Imran Khan for not supporting the US position on Ukraine, reported DAWN, Pakistan’s leading English Newspaper.

But rejecting the Russian allegation of interference in Pakistan’s domestic politics, the US State Department said on Tuesday that it “does not support one political party over another”.

In a statement issued in Moscow, spokesperson for the Russian Ministry of Foreign Affairs, Maria Zakharova, noted that President Arif Alvi had dissolved the National Assembly on April 03, 2022 on Imran Khan’s advice, which was based on a claim that the US orchestrated a plan to topple his government.

“Immediately after the announcement of the working visit of Imran Khan to Moscow on February 23-24 this year, the United States and its Western associates began to exert rude pressure on the prime minister, demanding an ultimatum to cancel the trip,” Ms Zakharova said.

“When he nevertheless came to us, (US diplomat Donald Lu) called the Pakistani ambassador in Washington and demanded that the visit be immediately interrupted, which was also rejected,” she stated.

“According to the Pakistani media, on March 07 this year, in a conversation with Pakistani Ambassador Asad Majid, a high-ranking American official (presumably Donald Lu) sharply condemned the balanced reaction of the Pakistani leadership to the events in Ukraine and made it clear that partnerships with the United States are possible only if Imran Khan is removed from power,” the spokesperson added.

The Russian official claimed that further development of the situation left no doubt that the US decided to punish the ‘disobedient’ Imran Khan, noting how lawmakers from within the PTI switched sides to the opposition while the no-confidence vote was submitted to parliament.

“This is another attempt of shameless US interference in the internal affairs of an independent state for its own selfish purposes. The above facts eloquently testify to this,” she said.

“The Pakistan Prime Minister himself has repeatedly stated that the conspiracy against him was inspired and financed from abroad. We hope that Pakistani voters will be informed about these circumstances when they come to the elections, which should be held within 90 days after the dissolution of the National Assembly.”

The Russian Foreign Ministry’s statement came a couple of days after Imran Khan named US Assistant Secretary of State for Central and South Asia Donald Lu as the official who made threatening remarks about his regime in a letter, which the premier had brandished during a public rally in Islamabad last month.

Last month, the National Security Committee, which includes all services chiefs, had decided to issue a “strong demarche” over the letter, terming it “blatant interference in the internal affairs of Pakistan”.

The Prime Minister has alleged that the no-confidence motion against him is part of the “foreign conspiracy” to oust him from power.

When Dawn approached the US State Department for comment on the Russian statement, one of their spokespersons said that “there’s no truth to these allegations”.

The US official also explained the US position on the current political turmoil in Pakistan, pointing out that it had no favourites in this dispute.

The official said Washington “supports the peaceful upholding of constitutional and democratic principles”, indicating that the US does not want tensions between the ruling and opposition parties to lead to violence and it would support any solution that’s based on the Pakistani Constitution.

Further underlining Washington’s neutrality on this issue, the spokesperson said, “We do not support one political party over another. We support principles of rule of law and equal justice under law.”

This statement covers more ground than previous US statements on the dispute, which did not go beyond denying “allegations” of US involvement. Apparently, the detailed Russian statement, which included serious allegations against the United States, necessitated the added detail.

Saudi Arabia chooses Putin over Biden on Ukraine to keep oil Prices high

I have selected an article by David Ottaway dated March 02, 2022 and want to share it with readers of my blogs.  This may help them understand that the United States and Saudi Arabia don’t share ‘same oil policy’. 

In my opinion only United States can be held responsible for the widening breach between the two countries. 

Saudi Arabia has decided to side with Russia and spurn cries of United States for help as the Ukraine crisis sends the price of oil sky high even though it is the only country with sufficient spare oil production to stop the spiraling to its highest level in eight years. 

Saudi Arabia, Russia, and the United States are the world’s top three oil exporters, supplying collectively 30% of world demand. But Saudi Arabia is the only one with the capacity to increase production quickly, by as much as two million barrels per day, more or less immediately.

The Saudi government has come under increasing pressure from US President Joe Biden to use its leverage to lower prices. But the Saudi de facto ruler, Crown Prince Mohammed bin Salman (MBS), has just re- committed to working with Russia to keep them high. Prices have reached over US$100/barrel; up dramatically from the onset of the coronavirus pandemic two years ago, when prices at one point in April 2020 fell below zero.

The crown prince clearly feels he owes nothing personally to President Biden, who has refused to talk to him due to their falling out over the former’s involvement in the assassination of the prominent Saudi journalist Jamal Khashoggi.

Saudi Arabia has shown less and less interest in cooperating with the United States on oil matters as it has become a rival oil exporter to the Saudi kingdom.   The US companies presently export around three million barrels a day as compared to Saudi Arabia’s 6.8 million barrels. But they currently produce roughly a million barrels more because the Saudis deliberately limit their output to keep upward pressure on prices.

On the other hand, oil has brought MBS and Russian President Vladimir Putin closer than ever before – at least on oil matters. Saudi Arabia and Russia each lead a group of oil producers that have figured out how to work together to keep prices high.  The former heads the 13-Member Organization of Oil Exporting Countries (OPEC) and the latter a grouping of ten non-OPEC producers.  Together, they are referred to as OPEC+ Plus.

The Saudi prince’s siding with Putin over Biden has also been reflected in Saudi silence on the Russian invasion of Ukraine. This may be partly explained by Saudi Arabia’s own invasion of neighboring Yemen. Both leaders have said their action was motivated by historic ties and national security concerns.

At an emergency meeting Wednesday, the 23 producers voted to stick to their plan to increase their collective production by only 400,000 more barrels a day each month. By this they signaled no interest in seeing prices fall or in coming to the rescue of Western European nations facing a drop in their Russian oil imports, which account for about 30% of their total consumption.    

When it comes to oil, US-Saudi relations have turned from being more or less cooperative to outright antagonistic as the US companies have developed new methods of extracting oil and gas from shale deposits known as fracking. 

This has seen US crude oil production shoot up from 5.2 million barrels a day in 2005 to more than 12 million barrels just before the pandemic cratered the world economy in early 2020. 

This happened just as Saudi Arabia and Russia were in a standoff over increasing production. In a power play, the Saudis decided in March of that year to swamp the market with more oil to force its will on Russia, increasing their production from 9.7 million barrels a day to 12.3 million.

At the same time, they decided to try to put those US companies involved in fracking out of business.  In March 2020, they hired twenty supertankers carrying 40 million barrels of oil to the United States where it was dumped on an already saturated market. Its effect was dramatic.

On April 20, 2020 the price for a barrel of oil on the New York Mercantile Exchange actually fell to negative US$37.63, a theretofore unheard of low. The oil dump plus the pandemic-induced recession achieved the Saudi objective, scores of small fracking companies went out of business and US production dropped by more than two million barrels a day.

Biden even made a rare phone call to King Salman in early February to plead his case for more Saudi oil.

Ever since, the Saudi crown prince and his oil minister, Prince Abdulaziz bin Salman, who is his half-brother, have chosen to work with Russia and OPEC+ Plus over heeding any pleas for help from the White House. Even before the Ukraine crisis, Biden was pressing Saudi Arabia to open up its oil spigot to help relieve the ever-rising price of gasoline in the United States – one of the main causes of high inflation helping to undermine his standing in the polls. Biden even made a rare phone call to King Salman in early February to plead his case for more Saudi oil. According to the White House account of their conversation, the two leaders committed to ensuring the stability of global energy supplies.

A week later, the Saudi Oil Minister made clear his country was sticking to the agreement first worked out in July 2021 among the 23 members of OPEC+ to slowly only restore their monthly collective production at the rate of 400,000 more barrels a day. This agreement has been renewed again and again ever since.

At its meeting which lasted just 15 minutes, OPEC Plus issued a statement washing its hands of any responsibility for spiraling oil prices.  It declared the oil market well-balanced and blamed the volatility in prices on current geopolitical developments. There was no mention of Ukraine.

 

Zelensky calls for Russian expulsion from UN Security Council

Ukrainian President Volodymyr Zelensky in a dramatic video appearance at the United Nations called on the body to remove Russia from the Security Council days after evidence circulated of executions and other atrocities committed by Russian troops in his country.

Zelensky said Russia should be removed from its place as a permanent member of the Security Council, where it holds veto power, arguing that it was time to reform the global peace-keeping body.

“We are dealing with a state that is turning the veto in the UN Security Council into the right to die,” Zelensky said in his remarks. “This undermines the whole architecture of global security and allows them to go unpunished.” 

“The main thing is today, it’s time to transform the system, the United Nations,” he told the Security Council.

Photos of civilians apparently killed by Russian troops in the Kyiv suburb of Bucha — including at least one person whose hands were tied behind the back — suggested Russian troops had indiscriminately shot and killed civilians during their occupation of the town.

Satellite images indicated that bodies had been left in the streets for weeks, contradicting Russian suggestions that the photos were staged.

The Ukrainian president’s speech was accompanied by a graphic video showing harrowing images of some of the carnage discovered in Ukrainian cities that were under Russian occupation.

Among the images included what appeared to be the body of a man at the bottom of a well, the unclothed body of a child who was blindfolded and lying on top of other dead bodies, charred bodies piled on top of each other and trenches filled with bodies.

There is no provision or mechanism to remove a permanent member of the Security Council written into the UN charter. The five permanent members are Russia, the United States., United Kingdom, France and China. 

China has offered support for Russia before and during the invasion and would be unlikely to support removing Russia from the Security Council.

If Russia is not removed from the council, Zelensky said the body should just be dissolved.

“If there is no alternative and no option, then the next option would be dissolve yourself altogether,” he said. 

 

United States responsible for bringing Vienna talks to a halt

The United States is solely responsible for the current state of the Vienna talks, said Iranian Foreign Ministry spokesman on Monday. “Let us all not forget that the government which is in front of us today is not a government that adheres to its obligations,” Saeed Khatibzadeh told reporters in his weekly presser. 

The spokesman said the United States is trying to hold the remaining issues pertaining to the Vienna talk hostage to its internal affairs.

“Iran and Iranians cannot be patient forever. If the United States wants to reach an agreement, it must make a political decision as soon as possible,” he asserted.

When asked about European Union coordinator Enrique Mora's trip to Tehran, Khatibzadeh said, “During this trip, he carried some points of views and wanted to exchange opinions with us. We told Mora about our point of view. Our messages and demands were clear from the beginning. Mora's trip was to get us all out of this situation. Iran tried to use another way to resolve the remaining issues. So far, Iran has had the most initiatives.”

The spokesman continued by saying that Iran is waiting for the other side's response, but it has not received it yet.

On the pause in the talks, the diplomat said it was clear to Iran in the last two weeks that Joe Biden and the White House have not made their decision and have taken the whole agreement hostage to US partisan and internal affairs. 

“The Biden administration takes the same approach that has led to the failure of many international agreements, which is to make an international agreement subject to their own internal conflicts.

The JCPOA agreement and United Nations Security Council Resolution 2231 are the perfect examples, and it is in this context that the Biden government must make its political decision,” Khatibzadeh noted.

The spokesman said that the United States is responsible for bringing the talks to a halt. 

“The solution is in the White House,” he reiterated. 

The US must respond logically to Iran's reasonable demands, which are approved by the P4+1 members, so that we are ready to return to Vienna, Khatibzadeh noted. 

“An agreement is very much available if the United States understands that we will not cross our red lines or fall short of our demands,” the diplomat asserted.

Responding to a question about the remaining issues in the negotiations, the spokesman said, “It was not at all like we connected the West Asia region to the JCPOA." 

Iran's benefits from the JCPOA are in accordance with the text of the agreement, and UNSCR 2231 is the main mission of the Ministry of Foreign Affairs, the spokesman said. 

“Now, in the final steps, the United States is trying to prevent Iran from benefitting from the various aspects of the JCPOA. We are at a point where the Biden administration wants to follow the failed legacy of the Trump administration or act as a semi-responsible government. International actors see that the Biden government is following the same path of the previous government,” Khatibzadeh pointed out.

Responding to a question, the diplomat said that illegal and unilateral sanctions have become a common practice in the United States.

“The US believes that it is the police of the world and the domestic laws of this country are international laws. Bullying will not work,” the spokesman remarked. 

Khatibzadeh once again reiterated that Iran’s red lines are the interests of the people and the benefit of what was once discussed.

“The whole deal depends on Washington's political decision. This has been the situation for weeks now. It is a matter of individuals and entities that should be removed from the sanctions list according to the JCPOA, in addition to Iran's economic benefits from the deal. These are issues that are delaying Washington's political decision,” he stressed. 

The diplomat stated that the Biden government must show that it is the true representative of the American people.

“We have not yet received the final answer from Washington, and if Washington's answer is appropriate, we can go to Vienna as soon as possible with the points raised, not for new negotiations, but to finalize the agreement. The response and signal must come from Washington,” the spokesman concluded. 

Talks in Vienna over reviving the 2015 Iran nuclear deal have come to a standstill due to the Biden administration’s inability to make tough political decisions.

 

Germany takes temporary control of Gazprom subsidiary

Germany said Monday it has temporarily taken control of Russian gas giant Gazprom's German subsidiary to secure energy supply and critical infrastructure amid growing distrust between the trade partners in the wake of the Ukraine war.

Energy Minister Robert Habeck said the Bundesnetzagentur energy regulator would become the trustee of Gazprom Germania until September 30, 2022.

"The government is doing what is necessary to ensure security of supplies in Germany, and that includes not exposing energy infrastructures in Germany to arbitrary decisions by the Kremlin," Habeck said.

The move comes after state-owned Gazprom unexpectedly said it was withdrawing from Gazprom Germania last Friday, without disclosing a new ownership structure.

The German unit holds several key energy assets, including natural gas supplier Wingas, which has a market share of around 20% in Germany, gas storage firm Astora, a London-based trading arm and other foreign subsidiaries.

The German government made the decision to step in because of the current unclear legal structure behind Gazprom Germania and the mother firm's failure to comply with the obligation to inform German authorities of ownership changes, the Minister said.

Under German law, the government has the right to examine transactions involving non-EU firms deemed systemically relevant.

Habeck said Gazprom Germania operates critical infrastructure in Europe's biggest economy.

Under the interim arrangement, voting rights in Gazprom Germania will be transferred to the Bundesnetzagentur.

The energy regulator will also be allowed to dismiss management members and appoint new ones, as well as take all necessary measures to guarantee supplies, Habeck said.

Germany has backed sweeping Western sanctions against Moscow over its invasion of Ukraine.

But because of its heavy reliance on Russian energy imports, Berlin has so far resisted pressure to boycott Russian oil and gas.

Those calls have grown louder at home and abroad following the recent allegations of atrocities committed against civilians in the Ukrainian town of Bucha.

EU antitrust investigators last week raided the German offices of Gazprom, on suspicion the Russian state gas giant had illegally pushed up prices in Europe.

United States pressurizing European Union to buy its LNG and quit Russian gas

Pressure is mounting on the European Union to abandon Russian gas supplies as individual countries begin turning off the tap. The Baltic states of Lithuania, Latvia and Estonia became Europe’s first region to abandon Russian gas supplies entirely past weekend, and they urged other nations on the continent to do the same.

Lithuania, the first EU nation to make the move, declared on Saturday that the country was acting “in response to Russia’s energy blackmail in Europe,” according to a news release from the country’s Energy Ministry.  

But whether this leads to other countries in Europe abandoning Russia’s gas is a big question.

German Finance Minister Christian Lindner on Sunday said Russia’s crimes could not go unanswered, but on Monday argued a full-scale embargo would hurt Germany more than Russia.

“We must plan tough sanctions, but gas cannot be substituted in the short term,” Lindner told reporters before meeting with the Eurogroup, the informal body of EU finance ministers.

“We would inflict more damage on ourselves than on them,” Lindner said.

Germany is in a particularly difficult position, as it imported about 55% of its gas from Russia last year. The EU as a whole gets about 40% of its gas from Russia.

The Baltic states comparatively import much less gas from Russia. Lithuania received about 26% of its gas from Russia directly last year, according to Bloomberg. The country will now rely on liquefied natural gas (LNG) imports from the United States and Norway, Bloomberg reported, citing the country’s Energy Minister.

Morgan Bazilian, a public policy professor at the Colorado School of Mines, told The Hill that Lithuania eight years ago developed a floating storage and regasification unit at the country’s Klaipėda LNG terminal, which enables the country to take in gas from other countries.

“They were able to make the statements because of planning they had done eight years ago,” he said. “And Latvia and Estonia are sort of coming along with them.”

“While Lithuania might not be an example of how nations can get rid of Russian gas overnight, the country is a very good example of planning for your energy security and not just leaving it to market forces”, Brenda Shaffer, an international energy specialist at the Naval Postgraduate School, told The Hill.

Lithuania’s gas transmission system has been running without Russian gas imports since April 1, with zero flow of Russian gas coming through the Lithuanian-Belarusian interconnection, according to the country’s Ministry of Energy.

“From this month on — no more Russian gas in Lithuania,” Lithuanian President Gitanas Nausėda tweeted on Saturday.

Lithuanian Prime Minister Ingrida Šimonytė followed up on Sunday by tweeting, “from now and so on Lithuania won’t be consuming a cubic centimeter of toxic Russian gas.”

Meanwhile, Uldis Bariss, CEO of Latvia’s Conexus Baltic Grid, told Latvian radio this weekend, “Since April 01, 2022 Russian natural gas is no longer flowing to Latvia, Estonia and Lithuania.”

The Baltic states are much smaller economies than other nations in Europe that import Russian gas, and as a result the moves, while important, will have a smaller affect on Russia than if larger nations turned off the spigot.

Bazilian noted that while the shift gives the right optics, it is a relatively small piece of the European puzzle.

“It’s very small in comparison to, say, Germany or Italy or other countries that rely on natural gas,” Bazilian said.

In the short to medium term, a larger European embargo on Russian energy is unlikely given the dependence of nations such as Germany on Russian gas, Shaffer said.

Germany and other big EU members also have much larger industrialized manufacturing sectors dependent upon Russian gas.

This has given Russia leverage over Germany, which before Moscow’s invasion of Ukraine was backing a controversial new pipeline from Russia.

“For a country like Germany, which is heavily manufacturing based — like steel and cars and other equipment — the question of the price of the gas has very different economic impact than for a country like Lithuania, which is mostly light industry,” Shaffer said.

Shaffer also noted the tension between European climate goals and the present need to bolster traditional energy needs through more pipeline projects and LNG infrastructure.

“There is a conflict in a sense between European climate goals and building new infrastructure that would ensure their energy security,” Shaffer said. “In a strange way, almost, the climate camp would prefer the status quo.”

While the decision of the Baltic states to stop importing Russian gas will not likely carry over to the entire EU, Bazilian described the weekend’s events as a symbol that the rest of Europe is really serious about this and that the continent “is going to look to diversify from Russia.

One way to do that will be through US LNG supplies. President Biden recently announced the US would be supplying an additional 15 billion cubic meters of gas to Europe this year.

The EU has also said it is going to release a pathway on how to wean off Russian energy imports by 2027, and Bazilian expressed confidence that the US will be part of that solution.

Despite its small size, the Baltic region is yet another market that will be importing LNG, according to Shaffer. And while that won’t be solely from American sources, more market demand for LNG in general also means more demand for American LNG, she explained. 

Lithuania’s capital, Vilnius, also houses the NATO Energy Security Center of Excellence, which reflects how the country views energy “as a really important issue of national security,” Shaffer added.

“They’re sort of like the main voice within NATO on these issues, so I think it will have some impact on NATO thinking,” she said.