"How The World Sees Russia"

Issue #45: 02/23/2019

From the Publisher:

Is the world about to have a new Cuban Missile Crisis?

We begin this issue by looking at this claim. Russian President Vladimir Putin on Wednesday stated that Russia was willing to enter such a scenario if need be. The ending of the INF treaty was the cause of this statement. The world is a different place now with a lot more actors. The reasons for the collapse of the INF were not solely based on U.S and Russia actions. Therefore, we make the case as to why we are unlikely to see such a crisis with Russia and the U.S as the main opposing players.

The Nord Stream 2 pipeline between Russia and Germany continues to be a major source of tension between the U.S and the EU. Germany appears to be determined to see it through, and it is unlikely to be stopped. The EU appears to be split, but the energy security that is going to accompany this project is likely to outweigh any concerns. No matter what happens, the EU is going to be dependent on some outside source for such energy. This project allows it to get cheap natural gas efficiently, which is a tough bargain to pass for some countries. 

As stated in several prior issues of Rossiya Scan, Russia currently has a very powerful position in the Middle East. They have become a broker of sorts amongst all sides despite having various conflicting allegiances.

Saudi Arabia is a key player in this area and one that Russia has been able to maintain a good relationship with despite various differences. Currently, the relationship is working in great part because of an informal oil alliance. A good relationship with Riyadh is necessary for Moscow to maintain their privileged position in the area. This relationship needs to move beyond the commercial sphere for it to really solidify. Although not impossible, this is going to be difficult task for both.  Geopolitically Riyadh and Moscow do not stand together in various places or issues. Also, because their successful oil alliance is already showing signs of weakness.

-Rossiya Scan

Is The World About To Have A New Cuban Missile Crisis?

Last Wednesday, Russian President Vladimir Putin stated that Russia was ready to face another Cuban Missile Crisis,if the U.S should initiate it by deploying intermediate-range missiles in Europe.

“They (the tensions) are not a reason to ratchet up confrontation to the levels of the Cuban Missile Crisis in the 1960s. In any case that’s not what we want,” said Putin to Russian media. “If someone wants that, well OK they are welcome. I have set out today what that would mean. Let them count (the missile flight times).”

Putin earlier claimed during his state of the union speech that Russia would respond to such missile placements in Europe by aiming hypersonic missiles at the U.S.

Although Putin admitted that tensions have not yet reached the levels of the Cuban Missile Crisis, he wanted to make clear that Russia would not backdown from a similar confrontation if necessary. 

The Cuban Missile Crisis was a 13-day standoff between the USSR and the U.S in 1962.  The USSR installed missiles in Cuba, which is located 90 miles away from the southern tip of Florida in the continental U.S. Cuban leader Fidel Castro was an ally of the USSR, who supplied him with both economic aid and military support. The standoff ended when Moscow agreed to remove the missiles, as soon as Washington promised that it would not invade Cuba and would remove its missiles in Turkey.

Nuclear threats between the U.S and Russia have become a hot topic ever since talk of the potential dissolution of the Intermediate-Range Nuclear Forces (INF) treaty. However, such talk has become more prevalent since both sides exited the deal earlier this month. Each side accused each other of violating the terms of this agreement. The U.S announced its departure first, and Russia shortly after. The rhetoric between both nations has been sharpened, but concrete actions have yet to be taken. 

Are we at the dawn of a potential new Cuban Missile Criss though?

Unlikely...as stated in prior issues, we at Rossiya Scan believe that China, and the fact it was not part of this treaty, led the dissolution of it. Russia and the U.S felt uncomfortable with these shackles, and were thus happy to remove them when possible. Both wanted out, and were able to do without visibly irritating China. Again, Rossiya Scan believes that Russia has similar concerns to the U.S in relation to China, despite being an ally of theirs for the moment. The INF treaty was creature of the Cold War, and not the multipolar world of today. In fact, if there is a crisis of sorts, we at Rossiya Scan believe it will most likely be with China. 

Read more: 

"Putin says Russia Would be 'OK' With Another Cuban Missile Crisis-Level Confrontation With the U.S," by Anna Hopkins for Fox News. 

"Cuban Missile Crisis #2? I'm Ready - Putin," by Reuters video staff.

"Russia Ready for Cuban Missile CRISIS CONFRONTATION with U.S Claims Putin," by Clive Hammond for the Express.

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Berlin Wants a Pipeline With Moscow...Sorry Washington

Today in Rossiya Scan, we will examine further the implications of NS2 (Nord Stream 2), an offshore natural gas pipeline from Vyborg in the Russian Federation to Greifswald in Germany that is owned and operated by Nord Stream AG, whose majority shareholder is the Russian state company Gazprom.

This may seem like another gas pipeline to offer low priced Energy to the EU’s “pro-market energy rules”, however the political and economic implications are deeper than one would perceive at first.

For starters, the U.S and the EU’s long-time historical alliance is at disarray in various affairs. European military spending in NATO is a primary issue, with the U.S even threatening withdrawal from the military alliance, an action which would favor Russia. It seems that both are aligning for the trade dispute with China, however are finding conflicting interests in the trade dispute within the auto industry.

Last but not least, Europe is a prime market for North American Natural Gas (which is 20% more expensive then Russian gas), U.S President Donald Trump is trying to push forward North American gas in Europe, nonetheless the Germans are advancing with NS2 substantially reducing the possibility of reaching agreements with North American Natural Gas Exporters. The U.S’s interest is so firm, that they have proposed a pipeline to be built across the Atlantic to reduce European dependence on Russian gas.

Russia has been on the spotlight since its “invasion” of Crimea, with various sanctions imposed by the EU, and many driven by Germany. This is tricky and incoherent, as the nation most affected by NS2 pipeline would be Ukraine. When distributing natural gas to Europe, the pipelines need to transit via different countries when heading from Russia to the old continent. This transit has a fee/toll which needs to be paid by the product originator (Russia), this fee accounts for 2% of Ukrainian GDP which is a hefty amount to not perceive any longer, especially given the precarious economic situation they are undergoing.

Not to mention the pressure that Germany has wielded in its European allies to accept the development of this pipeline (especially with France, which is still reluctant), harming German image within the EU. “It’s very inward-looking, and has damaged Germany’s image in Europe,” said political scientist Stefan Meister at the German Council on Foreign Relations. Considering that half of Germany’s heating is fueled by gas, this pipeline makes a strong case to Germans interest.

Once again, Russia has done it though.

Using diplomacy it has managed to strike a blow to Ukraine, which is still suffering the consequences from the annexation of Crimea plus the ongoing war with alleged Russian backed separatists. Simultaneously dividing its neighbors, from the helm, whilst making them more dependent on Russia. Like it or not, Germany calls the shots in the EU, and here it is leading in its own interest. However, also in the EU’s, as far as the bloc having access to more reasonably priced natural gas, which many need. The cherry on the cake for Russia in this move is the containment of U.S foreign gas expansion. That being said, the EU is showing a massive weakness in all of this, which is clearly its own energy dependence on outside actors.

Read more:

“The Nord Stream 2 Gas Pipeline Moves On,” by The Economist staff. 

“France Moves to Halt Russia’s Nord Stream 2 Gas Pipeline,” by Oliver Moody for the Times.

“Nord Stream 2 Gas Pipeline to Open By November,” by Ian P. Johnson for DW. 

“EU Moves to Control Russian Gas Pipeline Nord Stream 2,” by Katharina Bahn for DW. 

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Can Russia Crack The Middle Eastern Puzzle?

In the past decade we have seen major shifts of power globally, most notably in the Middle East. In recent history, Europe (especially the UK & France, Italy narrowly) have controlled this region, getting their claws on the vast oil reserves this part of the world has. Once the European colonialism era came to an end, the U.S was strategically ready to pick up the broken pieces and reap the benefits. Now that the U.S is pulling back militarily, there is a new sheriff in town, although for how long?

Much of today’s Middle East is the shattered Ottoman Empire. Since the beginning of times great civilizations have sprouted in the Middle East, including the Egyptians, Phoenicians and Persians. Besides oil, the Middle East is also home to the largest religions of the world. The combination of the latter two have made it a constant battleground for political, economic and religious interests.

Today, the Middle East does not have a single ruler, each faction fends for their own interests.  There is a real melting pot of creeds and people that not always get along. The largest being, Christians, Jews and most obviously Muslims; within the Muslim branch, you also have mainly Sunni and Shia, and within each of these two branches dozens of sects all clashing with one another on top of tribes.

Now that we have given a snapshot of what was and is, lets analyze the current state of the new ‘Power Broker’ of the Middle East. Russia is in good terms with Syria (the rebellion was Sunni) which contains the naval installation in the port city of Tartus, first established in the Cold War, providing Russia's only access to the Mediterranean, crucial for both commercial and military purposes. Countering the Sunni rebellion with Russia, was Iran which is Shia and the sworn enemy of Israel, Saudi Arabia (Sunni) and the United Arab Emirates (Sunni) with whom Russia is in good terms for now.This conundrum is endless, but it highlights the point we have discussed about Russia’s Middle East friendships, which can be perceived straight up contradictory.

Saudi Arabia together with Israel have always been the closest allies of the U.S in the region. Israeli Prime Minister Benjamin Netanyahu has a strong relationship with Russian President Vladimir Putin, but Russia and Saudi Arabia don’t seem to be fully synchronized as far as politics. Most evidently, Riyadh and Moscow are on different sides of the Syrian war. Moscow also is little too close with Iran, which is Saudi Arabia's biggest rival in the region. Without this piece of the puzzle in line, Russia could lose its power broker status in the region.

Russia and Saudi Arabia are two of the three the top oil producers in the world. They each have separate political agendas that occasionally align in matters of oil. Russians are divided internally as to how close one should get to the other. For now, the temporary alliance both share in regards to the price of oil is working, but it is widely perceived to be one of just convenience.

Russia will have to resolve this issue, if they want to remain as the go to nation in the Middle East. It needs to solidify its relationship with Riyadh beyond oil to achieve this. Saudi Arabia is key to remaining effective in the Middle East, as it does have the economic might and political weight to affect any state with a presence in the Middle East. It also has vast reserves of cash, which Russia could make use of as it continues try and overcome its economic downturn. Can both converge and strengthen their relationship without drawing ire from some of their closest allies (e.g. the U.S and Iran)?

It’s difficult...but both Riyadh and Moscow have worked together effectively in matters of commerce before. The latter is usually the first step towards a proper longterm relationship.  However, like all previous power-brokers and foreign players in the Middle East, Russia's time is limited by default. Its also got its hands in too many places, and it is highly likely that at some point it will have to pick a side that force its denouement. Moscow can only extend the deadline of its presence, because eventually it will be forced out of this position. After all, power has an expiration date for everyone.  

Read more:

“How Russia's Domestic Divisions Could Foil Its Middle East Plans,” by Dimitriy Frolovskiy for Aljazeera.

“How Vladimir Putin Became the Middle East’s Power-Broker,” by The Week staff. 

“Russian resolve: Why Syria Matters to Putin,” by Sean Gordon for the Globe & Mail.

“The Middle East Since the Beginning of the 20th Century,” by the Map As History staff.

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Is The Riyadh - Moscow Oil Alliance Faltering?

The root of the biggest and most recent systemic change in global oil markets began when Saudi Arabia, the defacto leader  of the Organization of Petroleum Exporting Countries (OPEC), increased production in late 2014.

Why?

The Saudi reasoning for this was simple. U.S shale oil producers were cutting into the oil market and creating a supply overhang. Shale oil producers required a relatively high break-even point, so the Saudis flooded the market to drive prices below the breaking point of these frackers.  Essentially driving them out of business by making their practice unprofitable. Of course, Saudi Arabia has denied this line of reasoning. However, it is the belief of most market analysts that this was the strategic move behind Riyadh’s decision to ramp up production to protect their oil market share.

Riyadh's plan eventually backfired though, with oil prices dipping below $30 per barrel in January 2016. Saudi Arabia was forced to step back from its strategy, and began to cut production. This would not be enough though, and it would need to  also convince Russia, as well as other non-OPEC members. The so-called OPEC+ alliance would thus forge two deals to return markets to a kind of equilibrium. The last deal was reached last December, and it is for a period of 6 months.

This time Russia, unlike before, is reportedly leaving most of the work to Saudi Arabia. In other words, Moscow is allegedly not decreasing its output as fast as Riyadh would like.  In fact, Saudi Arabia is said to have become responsible for covering 70 percent of the overall agreed upon OPEC+ target.

In order to keep its privileged position in the Middle East, and maintain its economy from undergoing more shocks, we believe Moscow is likely continue with this pact. We also believe that Saudi Arabia is likely to weather the brunt of the overall output decrease to keep Russia in the pact for longer. Riyadh is feeling more pain than Russia with today’s prices, and it is likely to do what it can to maintain stability plus better its situation.  

As stated in a prior issue, the status quo benefits both, and we are likely to see the macro-effects of the OPEC+ deal push through because of this reality. This rift, however, between Moscow and Riyadh does further showcase that this is an alliance of pure convenience. One that can easily break, and that could put into jeopardy Russia’s role in the Middle East, as discussed in the prior article.

Read more: 

"Cracks Begin To Form in Saudi - Russian Alliance," by Tim Daiss for the for OILPRICE. 

"Iran Threatened By Russia - Saudi Oil Pact," by Nikolay Khozanov by Al-Monitor. 

"Saudi Arabia's Oil Deal With Russia is Now 'More Fragile Than Ever,'" by David Reid for CNBC.  

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