"How The World Sees Russia"

Issue #19: 08/04/2018

From the Publisher:

This weeks Rossiya Scan is all about the sanctions and Latin America.

The saga with Oleg Deripaska’s companies continues, and the global economic ramifications that could potentially come to play in the aftermath of this spat could potentially lead the world to a more anarchic, less U.S dependent world. In this issue, we visit this topic again and offer you the latest of this geopolitical quarrel.

Russia has become more of a global player in world geopolitics with much success. The Middle East, Europe, Africa and Asia are regions where we have showcased their successes, and failures. Latin America is another place that has been in the cross-hairs of Russia for some time. The Kremlin has forged alliances with various actors in the region, and seems keen on making its presence felt.

However, it still remains to be seen if the Russia will maintain a long lasting presence in the region. The U.S. remains the big player in the Americas, and although they have taken their eye-of-the-ball, they still are the force to be reckoned with.

Can Russia achieve in Latin America what they have done in Middle East? So far it seems difficult, and we look at the reason why with two articles.

-Rossiya Scan

Porous Sanctions? Looks like it... 

Last week, we spoke about the fact that the Russian company, EN+ (LSE:ENPL) was considering a sale to the Chinese or a nationalization. The latter would occur if they could not find a solution to the sanctions. In an interesting turn of events, the U.S Treasury stated that the deadline for the sale of stakes in Rusal (MCX:RUAL), EN+ and Gaz group (MCX:GAZA) would be granted a new deadline until October.

As stated in previous issues of Rossiya Scan, U.S. Secretary of the Treasury Steven Mnuchin has stated that the sanctions against Rusal and EN+ could be lifted if ownership changes.

Aluminum prices have already surged over 15% since the sanctions were put in place. This is affecting the U.S and world trade. Rusal is the largest aluminum producer outside of China. Regardless of the sanctions, these companies are having very good results despite sanctions, especially as the global markets purchase reserve stocks of aluminum to curtail a potential glut in supply.

 As Novatek (LSE:NCTK}, Russia’s largest independent oil producing company has shown, companies can operate under sanctions and remain successful. The latter has been under sanctions since 2014, and has managed to complete projects on time and in budget. They are also currently attracting additional funding and launching a new set of projects. The technology used by Novatek is in-house, and the funding is from China.

The key take-away from this is that firms with global reach cannot be sanctioned without disrupting global trade. There is also always around them, and the more interconnected our markets become the less effect they will have.

Read more: 

"U.S. Extends Deadline a Third Time for EN+, Rusal Gaz Group," by the Financial Times. 

"Russia's Novatek Shows Resilience Despite Sanctions," by the Financial Times. 

"Russia's Rusal Shares Drop 6.8 percent on Hong Kong Exchange,"  by Reuters staff. 

"For Investors in Russia, U.S. Sanctions will Not Pack the Same Punch as Before," by Marck Jones and Daniel Bases for Reuters. 


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 ‘For everything to change, nothing must change’ - Prince Salina in ‘Il Gattopardo’  

There have been many speculations as to the becoming of the US sanctions against Russia in the aftermath of the Helsinki summit. Some analysts and U.S Congressmen have voiced their concerns that U.S. President Donald Trump could have made a promise to Russian President Vladimir Putin to either recognize Crimea as part of Russia, or to waiver the sanctions on Russia. The uncertainty came to an end earlier this week, when Trump announced that the sanctions would not be removed, and that they would remain ‘as-is’.

The status quo is a win for Russia. Why? By stating that the sanctions remain ‘as-is’ Trump means that they will not be strengthened. The fact that he took this stance publicly, means he may have countered the intention of several members of congress to issue new sanctions against Russia. The latest bill being proposed is being called a ‘sanction bill from hell’, and aims to limit Russian uranium imports and transactions on their sovereign debt.

The latter would be a defacto ban of Russia from international borrowing. However, let us note that this is primarily in U.S dollars, so technically other currency issuances and their conversion would technically still be possible. This is the nuclear weapon the U.S could set in motion, isolating Russia to the same extent to which Argentina was until their 2015 default. That being said, this should not be a major issue for Russia since it still has one of the lowest sovereign debt levels in the world, and boasts over half a trillion dollars’ worth of currency reserves.

Moreover, the U.S also recently sanctioned Turkey, one of its NATO allies, for the jailing of U.S evangelical pastor Andre Brunson. The sanctions have shocked the Turkish government and pummeled the value of the already weak Turkish lira. Both U.S. Secretary of State Mile Pompeo and his Turkish counterpart, Mevlut Cavusoglu, spoke on Friday and emphasized that a solution would be reached. Showing signs in part that the sanctions have had the effect that the Trump administration wanted. Giving the U.S. more of a confident reason to continue their sanctions focused strategy on multiple fronts.  

How many sanctions can the world take though? Such behavior is likely to get countries to expand their monetary currency reserves, shifting it from the U.S dollar to a basket of others. Thereby chipping away U.S influence in an already increasing anarchic world.

All in all, new sanctions on Russia could happen at a later point. The current ones could also likely continue through December.  However, would it not be time for all to understand that it is in the world’s interest to sit down, and find a solution?

The Trump administration recent attempts to talk to the ‘enemies’ of the U.S could potentially lead to a better understanding amongst state actors. Regardless of your opinions on Trump, would you not like to finally have a global détente?

Read More: 

"Trump's Turkey Sanctions are All About the Midterms - but will End Up Helping Russia," by Natasha Turak for CNBC. 

"Turkey 'Agrees to Resolve Issues' over US Pastor," by DW staff.  

"Pompeo Oversells Trump's Enthusiasm for Sanctions on Russia," by Linda Qiu for the NYTIMES. 

"Trump Says Sanctions Against Russia will 'Remain as Is'," by Bob Fredericks for the NYPOST. 

"U.S Senators Introduce Russia Sanctions 'Bill from Hell'," by Patricia Zengerle from Reuters. 

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Russia’s Chess Game in Latin America…

Its alluring how most strategic geopolitical plays in the 21st century are rooted in our ancestor’s blueprints. Just to point out one of the many rules in the playbook, Julius Caesar coined the phrase “divide & conquer”; Moscow relying on a wide array of overt and covert tools has been slowly but steadily building up on this strategy in Latin America.

Dividing nations from within their governments, and feeding off the failures of the West in a key strategic region with likeminded regimes, sharing a common foe. Simultaneously, the world’s attention was focused on Russia’s moves in Eastern Europe and the Middle East diverging the attention of how Russia’s laying the pieces of the chess board in the Western hemisphere.

Latin America has been disputed for centuries, but more recently in the 20th century, the Americans and the Soviets fought fiercely to impose their sphere of influence in the region until the Soviet block collapsed. The victor, who happened to be the U.S continued to pursue its foreign policy agenda in the region. Contrarian to the U.S, Russia is building on the foundations it left decades ago, emerging again as a global superpower. Russia is promoting commercial, military, and energy interests becoming an alternative partner in diversifying US-trade relations.

Its important to understand that action is more effective in authoritarian regimes then in democratic ones; one person making a decision is faster then a proposal being pushed up the ladder through different government branches, giving Russia and Latin American authoritarian regimes the ability to adapt and seize opportunities faster. Moscow has shrewdly been strengthening relationships with allies who have shown resentment to U.S. global leadership, such as Nicaraguan President Daniel Ortega, Venezuelan President Nicolas Maduro, Bolivian President Evo Morales and now even with Andres Manuel Lopez Obrador, the socialist challenger who has become the President-elect of Mexico.

This strategy which has carefully, but meticulously been played under the radar by Russia, poses a huge threat to U.S interests. Effectively allowing Russia to gain leverage on the U.S., and present itself as an alternative in the region.

Can Russia achieve this in the long run though? The road ahead is difficult, and in the following article below, we unpack it. 

Read more: 

"Russia: Playing a Geopolitical Game in Latin America," by Julia Gurganus for Carnegie Endowment for International Peace. 

"What's Putin's Game in the Western Hemisphere," by Diana Villiers Negroponte for the Americas Quarterly. 

"Latin America in a new global political and economic scenario: What does it mean for the region?" by the Brookings Institution. 

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Can Russia Outflank the U.S. in the Americas?

With the general perspective of Russian interests in the region offered in the aforementioned extract of our newsletter, we are going to brief you on what’s going on and where it’s happening. To better understand the implications, and strategic advantages that Russia is trying to convey in Latin America.

Cuba and Russia have had long lasting ties since the Soviets placed nuclear missiles in the island facing the USA in the 1960’s, almost triggering a nuclear war. In 2016 when U.S. President Barack Obama visited Cuba, being the first since U.S President Calvin Coolidge in 1928, we saw a new dawn for Cuban-American relations. Unfortunately, U.S President Donald Trump stopped all progress to lift sanctions, and improve relations between the two countries. Thus, Russia has picked up the pieces of this failed rapprochement to once again forge a stronger relationship with Cuba.

Russia has historically done a lot for Cuba, always being a support to the regime. For example, Russia recently alleviated the Cuban government of almost $30 billions of Cold War debt (this is not news, but a reminder of how Russia slowly builds trust once again with its old friends), currently the country is in dire need for foreign investment and the Russian government has invested billions in over 50 infrastructure projects, most importantly Rosneft has resumed shipping Oil to Cuba following Venezuela’s decline in oil production. The closest distance between Cuba and Florida is 103 miles, you can easily imagine the strategic implications this alliance has.

Venezuela has vast metal and mineral resources, besides being the country with the largest oil reserves. It is also an opportunity to show the West that Russia can meddle in the western “sphere” of influence.

Let us not forget Venezuela, which was Latin America’s wealthiest and most stable democracy for most of the 20th century, was the U.S’s closest ally in the region. Venezuela and U.S. not only had strong commercial relations, but also political. Both countries, for example, worked together to overthrow Guatemalan president Jacobo Arbenz. They also again worked together to incentivize the assassination of Dominican Republic’s authoritarian leader, Rafael Trujillo. Throughout the 20th century, Venezuela was home to the most anti-Castro governments outside of the U.S., as well as the most powerful intelligence agency in the Caribbean. Thus, U.S. President John F. Kennedy had a direct line of communication with Venezuelan President Romulo Betancourt throughout the Cuban missile crisis. The Venezuelan Navy was also one of just two Latin American navies (the other being Argentina) to assist the U.S. with their naval blockade of Cuba during the crisis. Further fomenting a  key-defense partnership that would last decades, and provided Venezuela with all sorts of modern weaponry that the U.S. refused to provide to other Latin American nations, including several F-16 fighter jets . Something that allowed Venezuela to have a stronger conventional strike capability over its neighbors.

All of the above though ended with the election of Hugo Chavez in 1999. The latter autocrat destroyed his thriving nation, and in the process also smashed the Venezuela-U.S. alliance that was beneficial to both parties involved. Further fomenting new alliances to substitute the former, such as with Russia, China, Cuba and Iran. Alliances that have yet to yield any positive domestic, or international, results for Venezuela. 

Russia has committed more than $13.5 billion dollars to Venezuela since 2013. Furthermore, in 2018 a project from the past, to build the biggest Kalashnikov factory outside Russia in Venezuela found traction again. This would push Venezuela further away from the United States, a former ally that Washington D.C. wants to have back on its side.

Nicaragua has been having economic and political troubles this year as a result of the mismanagement of autocrat Nicaraguan President Daniel Ortega. The small Central American country has also felt the pain of diminishing oil and economic aid from Venezuela. The latter was a cushion that permitted Ortega to cover his governments poor economic performance. The situation has reached such a dire point that a wave of deadly protests exploded several months ago against the autocrat. Protests that have left over 400 people dead. The situation remains tense, and there is currently no end in sight to the conflict.

Nicaragua is closely positioned geographically to the U.S, and also houses a large secretive Russian-managed satellite compound at the edge of the Nejapa lagoon. They also have a military training centre, “Marshall Gregory Zhukov,” located in the headquarters of Nicaraguan army. These two locations could be used as a pivot-points by Russia in the future, who since the 1980’s has had close ties, and supported the controversial Ortega.

Mexico is another place where Russia is making moves. The Kremlin allegedly meddled in the Mexican election via subversion and disinformation in favor of the winner, Andres Manuel Lopez Obrador. The U.S borders Mexico, and with Trumps victory and tensions growing between the two countries Russia could be an interesting option to diversify risk from the U.S in the future.

The U.S is too thinly spread, and being very ineffective in optimizing resources to achieve its external political goals. None of us knows the real relationship between Putin and Trump. All in all, we believe that U.S sees China as its great threat, and is focusing its energy in resources to this part of the world. Leaving a huge gap in its backyard that Russia will gladly fill, and that is aligned with its global foreign policy objectives.

That being said, Russia still has to prove itself.

U.S. allies in Latin America have fared much better politically and economically than any that have been backed by Russia, or its  predecessor. The Kremlin has chosen to ally itself with regimes that are widely criticized and immoral.  Cuba, Venezuela and Nicaragua currently have governments that are completely inept in both public administration and foreign policy. Regimes that over time will cease to exist, and that Russia will be associated with in a negative form. This is something that would effectively lead to the exiling of Russia from the America’s for a long time.

Therefore, if Russia truly wants to have a presence in Latin America it must employ the pragmatic approach that it has successfully pursued in the Middle East, and is already starting to carryout successfully in the South China sea.

Read more: 

"Russian Interests in Venezuela: A New Cold War?" by Diana Villiers Negroponte for the Americas Quarterly. 

"We Left a Void in Cuba, Now Our Adversaries are Filling it In," by the American Security Project. 

"Forget Venezuela, Russia is Looking to Nicaragua," by W. Alejandro Sanchez for National Interest. 

"Russian Bots Accused of Meddling in Mexico's Election," by Christopher Woody for Business Insider. 

"Conflictos en El Caribe: Eisenhower y Perez Jimenez, Historia de Cooperacion y Enfrentamiento," by Gustavo Enrique Salcedo Avila for Instituto de Estudios Politicos, Universidad Central de Venezuela. (In Spanish) 

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