"How The World Sees Russia"

Issue #33: 11/10/2018

From the Publisher:

This week’s Rossiya Scan starts with another serious look at Sino-Russia relations.

This alliance is one of necessity, and is not set in stone. Both sides know the benefits of this relationship, and are growing closer. However, both do not trust each other, because of a tumultuous history, and their respective global ambitions.

We begin by looking at the one aspect the brings them together: fear of the U.S.

Recently, a U.S General admitted  that both countries were “peers” in terms of competition, signaling that the U.S is taking Russia and China very seriously. So much so, that analysis amongst experts about an actual conflict in the future has become more prevalent. In fact, when discussing the possibility of a war with both, a retired U.S Lt. General even admitted that the U.S would have a tough time fighting both China and Russia. This is despite the fact the U.S military defense budget, and its armed forces level of combat experience, are both much greater than those of Russia and China.

We then move on to a more detailed analysis of the Sino-Russian alliance. Here we look further into its foundation, and consider the reasons why it works, and where it could fail to work. This alliance has gotten stronger over the years. However, we foresee possible problems in the future, and shed light into this complicated relationship.

The U.S decision to officially withdraw from the Iran treaty and impose sanctions on Tehran took place this week. Oil markets did not soar like many expected. Russia and Saudi Arabia are working together to maintain the price at point that is beneficial to both. We look further into what’s happening between  Saudi Arabia and Russia, plus how the U.S’s current 'sanction-happy' foreign policy is backfiring.

Finally, we take a look at the latest new set of sanctions on Russia by the U.S. We see what effect they are having, and how they are unlikely to cause the harm the U.S hopes for. 

-Rossiya Scan

U.S General: Russia & China are “Peer Competitors”...

In March 2014, U.S President Barack Obama dismissed Russia as a “regional power”. The context of this statement was a reference to Russia’s military intervention in the Ukraine the prior month.

“Russia is a regional power that is threatening some of its immediate neighbors — not out of strength but out of weakness,” said Obama during an official European trip.

However, the winds have changed in Washington D.C, and the view of Russia as a an influential player with regional capabilities, is simply not there anymore.

“If you think about the 1990s," said Joint Chiefs of Staff Chairman Gen. Joseph Dunford referencing the collapse of the Soviet Union, according to Business Insider. "The United States had no competitor, and as we look at Russia and China today, we see Russia and China as peer competitors."

Russia and China’s ability to carry out effective attacks in all domains of warfare have now made the U.S see both as serious challengers to their military supremacy.

“From a military perspective, we have two states now that can challenge our ability to project power and challenge us in all five domains — ground, sea, air, space, and cyberspace — and that's what's different than in the 1990s," said Dunford.

Dunford is wary of calling this conflict a, “New Cold War”.

Dismissing it as merely “competition”, however, the actions of NATO, Russia and China are reminiscent of the Cold War. In fact, we at Rossiya Scan believe we are  in a “New Cold War,” and that Dunford is sugarcoating the issue, in an honest effort to defuse the situation. In other words, Dunford is aware his words carry meaning, and is acting responsibly.

As stated in a prior issue of Rossiya Scan, Russia with China, and a small contingent from Mongolia, carried out military exercises last September with Vostok-18. The latter, was the largest military exercises of its kind since 1981. All 29 NATO members, plus Sweden and Finland, also carried out massive war games in Norway for the Trident Juncture 2018 over the past few weeks. These were also the largest military war games that the NATO alliance had since the Cold War. This constant level of sword-rattling reactions, military build-ups, cyber-attacks, election meddling,  proxy-conflicts plus several espionage controversies, tell us clearly that a New Cold War is here.

The U.S remains the undisputed champ as far as overall capabilities (e.g. militarily and economically), and reach. However, if it caught in a war with China and Russia, the consequences would be dire. Even if we ignore nuclear weapons, and simply focus on conventional might. The U.S would be caught in a two front war, where China is likely to be its main point of concern.

“We do not have the capacity in the United States to be able to deter Russia, to be the bulwark against possible Russian aggression, and deal with China,” said Lt. Gen. Ben Hodges, the just-retired commander of the U.S. Army in Europe, according to the Daily Beast. Further stating that in such a war, "most of American assets would be focused in the pacific."

China, as stated in a prior issue of Rossiya Scan, is a concern for the U.S. However, China, although ally of Russia, is also a concern for Moscow, as stated before. These powers, are aware of each their ambitions, and know that each can inflict pain upon each other if necessary. That being said, China and Russia are aligned against the U.S and are unlikely to break, unless of a serious rift. They know that together they can worry less, and pose a better counter-weight on the U.S, the world’s current top power.

Read more: 

"Obama Dismisses Russia as "Regional Power' acting out of Weakness" by Scott Wilson for the Washington Post. 

"The U.S Military's Top Officer Says Russia and China Present Different Challenges - But They Both Can Rival U.S Power," by Christpher Woody for Business Insider. 

"Top General Fears War with Russia and China at the Same Time," by Gordon G. Chang for the Daily Beast. 

"Are We Truly Prepared for a War with Russia or China?" by Michael Spirtas for The Hill. 

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Sino-Russia Relations: How True is this ‘Love’?  

In previous issues, Rossiya Scan has pointed out the noteworthy, and potentially dangerous connotations of the Sino-Russian friendship. As DaShanne Stokes, a sociologist and author, once said, “if you lay with a scorpion, don’t be surprised when it finally stings you”. Currently, two scorpions lay together, patiently waiting on how this liaison will unravel.

Accusations with no definite judicial sentences (e.g. the Sergey Skripal poisoning, meddling U.S elections) and international pressure (via economic sanctions), are bringing China and Russia every day closer to one another. Western forces, are not paying the necessary attention to the reconciliation between these two global powers. Primarily because of old “perceptions”, such as the view of U.S secretary of Defense James Mattis, “which holds that mistrust between Russia and China is too deep to form meaningful strategic bonds”.

However, times change, circumstances evolve and your once perceived rival can become your roommate in tricky times. International pressure is helping China forge stronger economic ties with Russia (China is now their largest trading partner), and also build a military bond between both nations (Vostok 18). The latter should be of great concern, to Western powers.

Russia and China need to reduce dependence on U.S trade, and U.S dollar hegemony. Therefore, trade has considerably increased between these two nations, especially with militarily equipment (most recently S400 missiles and Su-35 fighter jets).

The purchase of S400 missiles from Russia, has given China a strategic military advantage in the region. These missiles allow China to control Taiwanese airspace, challenging Taiwanese air force and U.S strategic planning in the region.

Furthermore, several energy projects are being undertaken in conjunction due to western sanctions, which have squeezed Russian sources of financing, and allowed China to seize this opportunity. Most strategic projects are in the arctic circle.

Nonetheless, we also believe that China is continuously improving the development of its military equipment and with time military trade between these two nations will considerably decrease, as China develops stronger and more competitive military weapons. Russia is simply cashing in, for as long as it can in this trade relation. In the future, market share for Asia could be a source of conflict.

Besides the obvious signs of friendship and tokens of appreciation in the Sino-Russian friendship, we have also spotted a few bumps on the path.

Russia allegedly rehearsed for a potential conflict with China in the “Vostok 18” games. U.S President Donald Trump and Russian President Vladimir Putin are no longer allegedly meeting in Paris to discuss the INF treaty. However, both are likely to meet in the G20 summit in Argentina at the end of the month. As we mentioned in a prior issue, the INF treaty gives China a huge advantage, so we speculate that Russia and the U.S (perceived enemies) are likely to touch upon this during closed door meetings.

One thing is for sure, we are in unchartered waters and Russia is behaving astutely.  That being said, all hell can break loose rapidly, Russia’s hidden agenda could backfire, and leave it by itself in this situation, if its not careful. 

Read more :

“U.S Trade Sanctions Push Russia, China Closer Together,” by Jamie Seidel for News

“The United States Makes One Smart Move on Russia Sanctions,” by Jarrett Blanc for the Carnegie Endowment for International Peace

“Chinese Anger at U.S Sanctions for Russian Weapons Purchases,” by the BBC

“Why Russia and China Are Strengthening Security Ties,” by Alexander Gabuev for Foreign Affairs

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Has the U.S Overplayed Its Sanctions Card?

This past Monday, the U.S officially exited the Iran deal and re-imposed sanctions on Iran. Oil prices, should have soared as a result of this, however, they did not. The recent affairs concerning Crown Prince Mohammed bin Salman (MBS) and his alleged mastermind role behind the gruesome murder of Saudi journalist Jamal Khashoggi have brought Russia closer to Saudi Arabia. The fact that Moscow did not condemn nor seek sanctions against Riyadh, has  allowed Russia to obtain a sort of goodwill credit from MBS. This unlikely alliance could create a new set of power tools  for both petrostates. Again, Russia has placed itself as the perfect middle man in the Middle East by being able to do business with ALL parties.

Saudi Arabia and Russia can weaponize their immense reserves plus outputs to sway oil prices and dominate the market. It turns out, that the U.S was so adamant to prevent Russia from trading Iranian oil that it provided waivers to some companies to trade oil thus halting a growth in prices. Russia (already under numerous sanctions) did not yield, and said it would continue to trade oil with Iran.

Russia has also announced that it could potentially increase their output further. Saudi Arabia, on the one hand would like to decrease output in order to increase the price. The main objective of the duo, which have been cooperating since last year’s OPEC-Russia deal is to keep oil prices high,  but not high enough to render shale oil profitable. The U.S shale industry at the moment, generates cash, yet little to no free cash flows as they barely break even.  All the while being supported by very cheap debt, obligations that are subject to increase in case of a slowdown in the economy, as we are currently seeing it.

A complete prohibition in trading with Iran would have caused an increase in oil prices beyond a certain threshold.  That could have potentially permitted shale oil to become profitable. If the OPEC  (e.g. Saudi Arabia) with Russia decide to work together they could have an impact on a larger scale the world markets.

One of the vocal opponents of sanctions against Iran is France. This week Paris vowed to spearhead a project to continue doing business with Iran despite the U.S sanctions. The U.S’s decision to constantly sanction, and declare a trade war with China has led it to lose ground on the international level. The lack of dialogue from Washington D.C, and their all-around aggressive way of protecting, and boosting their national industry, is making them a difficult partner. This is likely to have consequences on their level of influence around the world, if it continues to act as it does now, in the long run. 

Read more:

"Return to Oil Production Cuts in 2019 Cannot be Ruled Out: OPEC source," byAlex Lawler and Ahmad Ghaddar for Reuters.

"Russia and Saudi Arabia’s Oil-Market Management Challenge: Kemp" by John Kemp for Reuters

"Oil Prices Drop, as ‘Trifecta’ of Trouble Might Cause Glut," by Jessica Resnick-Ault for Reuters.

"Stealing its Oil Customers, Russia Gives a Lifeline to Iran and Thumbs its Nose at the U.S," by Benoit Faucon, Anatoly Kurmanayev and Ann Simmons for the Wall Street Journal.

"Iran Sanctions Won’t fuel Oil Prices for Long," by Sarah McFarlane for the Wall Street Journal.

"As New Iranian sanctions loom , U.S aims to Plug Gaps," by Ian Talley for the Wall Street Journal.

"Russia Vows to Help Iran Counter U.S Oil Sanctions," by Nastassia Astrasheuskaya, Henry Foy, Roula Khalaf for the Financial Times. 

"France Vows to Lead EU in Defying U.S on Iran Sanctions," by Jim Brundsen and Michael Peel for the Financial Times. 

"Russia Aims to Boost Oil Output Unless Saudi Arabia Deal is Struck," by Nastassia Astrasheyskaya, David Sheppard, Anji Raval for Financial Times.

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Fresh Sanctions Hit Russia....

Last Thursday, additional sanctions against Russia were announced by the U.S Treasury Department. These sanctions are again tied to the Russian annexation of Crimea, and its ongoing alleged interference in eastern Ukraine. Sanctions were yielded against individuals and entities for, "serious human rights abuses", as well as advancing Russian interests in Crimea.

“Treasury remains committed to targeting Russian-backed entities that seek to profit from Russia’s illegal annexation and occupation of Crimea. Our sanctions are a clear reminder that efforts seeking to normalize investment and economic relationships with those operating in Crimea will not be tolerated and are subject to U.S. and EU sanctions authorities,” said Sigal Mandelker, treasury undersecretary for terrorism and financial intelligence,  in an official news release.

As stated in issue #27, sanctions were most effective when they first were implemented in 2014. The price of oil was low, and this combined with U.S sanctions dealt a big blow to Russia’s economy, which it was less ready for. Now, things are different, Russia has been adjusting to sanctions, and even taking measures to protect its economy from future sanctions. In other words, it is operating under this new reality, and finding ways to circumvent them.

The rally in the price of oil has also lessened the effect of sanctions. In fact, as discussed in issue #27,  a low price in oil has a much bigger effect the Russian economy than any U.S sanctions, and is the main culprit behind its weak state.

To again quote Daleep Sigh, a former U.S Treasury official who helped architect the sanctions against Russia in 2014, most “credible” estimates are that 60 to 90 percent of Russia’s economic woes are not because of U.S imposed restrictions, but due to the price of oil.

Hence, it is our belief in Rossiya Scan that the impact of these sanctions will be felt, but to a lesser degree than before due to higher oil prices, and a stronger level of preparedness by the Russian government.

Read more:

"U.S Hits Russia With More Crimea Sanctions, After Trump Blames Obama for Annexation," by Nicole Gaouette and Donna Borak for CNN.

"U.S Imposes New Sanctions on Russia Over Crimea," by Jordan Fabian for The Hill. 

"U.S Mulls Fresh Sanctions on Russian Oil," by Tsvetana Paraskova for OilPrice.com. 

"Treasury Department Announces New Sanctions for Russian Activity in Crimea," by Christina Wilkie for CNBC. 

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