Update: Bloomberg reports that Russia is seeking Chinese investment. What Bloomberg has a very superficial idea of what is at work: Russia and China now are collaborating on strategic technology. For example, Putin has approved the same of Russia’s new S400 air defense system to China, brushing aside past Russian rancor about Chinese reverse engineering of Russian systems. Russia has opened the door to Chinese tech investments in China which it previously prohibited.
“An historic investment-for-resources deal between Russia and China will neuter Europe’s punitive efforts over Ukraine and redraw the world’s energy map, but more importantly create a Eurasian dynamic that otherwise would take decades to evolve. In the 1970s, former US president Richard Nixon used the region’s complexities to divide Cold War enemies. Now his doctrine is being used against America,” write my Asia Times Online colleague Francesco Sisci today. I hope he’s wrong. Last month I noted in this space that Germany fears a Russian turn towards Asia more than any other outcome of the Ukrainian sitcom.
BEIJING — It has not happened yet, but expectations are already enormous. A massive strategic and economic shift is expected to result from Russian President Vladimir Putin’s to China in May.
After decades of fruitless talks, Moscow and Beijing are now likely ready to sign a sweeping deal which will see China invest billions of dollars in Russia, with vast resources being sold in the other direction. This correspondent first saw the agreement signed 20 years ago, when Boris Yeltsin and Jiang Zemin were the presidents, and not much occurred since. However, this time things seem to be real.
In the past, the two parties failed to finalize the fine print of the deal. There were too many differences on the price of gas, the route of the pipeline, the ownership of resources in Russia and on the distribution network in China. Now all these problems are solved — or so it appears — because of a sudden change of heart in Russia linked to the ongoing Ukrainian crisis.
The threat for Russia resulting from the crisis is that Europe will not buy its gas and oil, or will decrease its purchases. Oil prices have remained pretty low, despite the fact that the supply from other oil-exporting countries has been low or dwindling…
Now, and for the foreseeable future, problems with the oil supply hurt the producers far more than the Western consumers, who now have access to the American hoard. This makes it an issue of life and death for Russia to find an alternative consumer to Europe. Europe may suffer somewhat without Russian oil, but Russian economy could easily crack without its sales.
Now, apparently, China could realize up to 30% of its energy needs from Russia, which would equal over a third of the latter’s production. This will partially unload the European gun of not buying Russian oil and create a new dimension to ties in the whole Eurasian continent. Russian can play Europe against China and vice versa. Beijing knows this, and it is interesting to think about why China is willing to be played and help Russia in this way.
This seems a bit premature; Russia might not let its economic relations with Europe collapse so easily. Germany not only buys hydrocarbons from Russia: as The Economist reported recently, “Russia is Germany’s 11th-biggest export market, worth €36 billion ($48 billion) last year. The Committee on Eastern European Economic Relations, a lobby group representing big businesses, says that 300,000 German jobs depend on trade with Russia, 6,200 companies with German owners are active in Russia, and German companies have invested €20 billion there.” Russia does not relish the prospect of economic dependency on China. That is the logic of misguided Western policy, however. We may pull defeat out of the jaws of Cold War victory, two decades after the fact. The stupidity of Western policy is epic.
If I were playing Vladimir Putin’s side of the board, I would keep the Ukraine on a low boil rather than take overt military action. Russia’s influence in Ukraine’s military is enormous (every officer above the rank of major came up through the ranks of the Red Army), and Kiev now concedes that its security forces are “helpless” against a handful of pro-Russian gunmen occupying public buildings, because elements of the military and police are collaborating with “the Russians.” That is because they are Russians.
America policy towards Ukraine, as I wrote in the cited March 26 post, isn’t even wrong. It’s irrelevant.
Our Republican mainstream leaders are like blind men in a labyrinth clutching a thread. The thread is their ideology: they believe it will lead them to a glorious era of liberal democracy, which in their Natural Law/Natural Rights belief structure is the inevitable shape of the future. The thread has taken them over broken glass, dragon’s teeth and pitfalls; after the disasters in Iraq and Afghanistan and Libya and the collapse of the Arab Spring, they are bruised and bleeding. But they clutch the thread all the tighter, because it is all they have to guide them. Without ideology they would be utterly lost in the welter of foreign tongues, customs and prejudices.
There is a crisis in Ukraine because the country imploded after twenty years of post-Communist kleptocracy. Everybody turned up at Maidan last year, from neo-fascist crazies to democratic idealists and threw out the democratically-elected president (who was not Moscow’s first choice in 2010; the Kremlin then preferred Yulia Timoshenko). Putin had offered to bail out Ukraine with nearly $20 billion of fresh money and forbearance on perhaps $20 billion of arrears for natural gas delivery. The Ukrainians didn’t want to affiliate with Moscow, and they also didn’t want to accept IMF aid if it meant the end of the subsidies that keep most Ukrainians warm and fed. Now the economy has shut down, and the country owns $35 billion to Russia and will need yet another $15 billion this year to cover its current account deficit. That’s what the West bought into after Maidan.
Ukraine is not headed towards a glorious future of Western-style democracy. The best of its young people have emigrated. In Europe’s race towards demographic extinction Ukraine leads by six lengths. It now has per capital income of $3,300, barely above Egypt. The West is not faced with another Hitler and another Sudetenland. Putin wants what Russia always has had, namely Crimea, and wants Ukraine as a buffer against NATO. If the West attempts to bring Ukraine into NATO, Russia will use force and split the country. Why the West would want this basket case in NATO is a good question: as we just saw, the Kiev government can’t trust its own military and police. Why should we?
We should have proposed a federal solution to Ukraine before the Russians did. That’s what we will get, like it or not. Ukraine is not the issue; any discussion that begins with Ukraine is not even wrong, just irrelevant.
If we play our cards wrong, we could — as Francesco Sisci warns — undo everything that Nixon and Kissinger accomplished and help bring an unfriendly Eurasian bloc into being. I can’t think of a foreign policy more self-defeating since Napoleon III declared war on Prussia.