One of the greatest foreign policy blunders of the Obama Administration was the push by the U.S. for economic sanctions against Russia. That led to Russia fleeing into the arms of China for refuge. In response, Russia, Europe’s largest and most populated country, is now intent on moving its vast storehouse of resources eastward, strengthening America’s largest emerging rival.
Over the last two years, the two countries have completed a $700 billion agreement for Russia to deliver energy to China, amounting to about 17% of Chinese annual supply, for a period covering twenty years, with China financing much of the initial costs of pipeline construction.
What Russia has done, in that one move, is to help repair a major hole in China’s military armor, making it invulnerable to a U.S. cut-off of sea bourn energy supplies, which until now was one of the greatest fears of Chinese military strategists.
From the Chinese perspective, this is a gift that fulfills its wildest dreams. It’s also a gift that could severely undermine the West's plans to deliver expensive Liquified Natural Gas (LNG) to China and Asia, while already facing competition from Qatar and Australia LNG, will now also run up against Russian pipeline gas through China.
That can’t be wise policy for the U.S.
Consider the fact that prior to adoption of the sanction regime, Russia and China were not even military allies. Their histories are fraught with mutual distrust, competition, and border conflicts. Although Russia has often supplied China with military equipment, it has always held back on high-tech weapons because of mistrust. Why supply advanced weapons to a country that might one day become your adversary?
Now, things have changed drastically, with both countries developing an alliance clearly balanced against the West. Recently, Russia offered China its most advanced ballistic missile system, that China had long sought in order to offset US sea and airpower superiority. With that, China will become far more capable of countering America’s pivot to Asia.
Just this week (1.20.15), China agreed to finance a high-speed rail link between Beijing and Moscow, with an estimated cost of $242 billion.
China, with its $4 trillion in foreign reserves, has become Russia’s chief creditor and partner in development of Russian energy and resources, a role that for the last decade, was dominated by western international oil giants like ExxonMobil, that have invested billions in Russia’s energy sector.
For example, “...in September 2014, ExxonMobil and Russia's Rosneft made a major discovery of huge oil and natural-gas reserves after drilling a well in the Kara Sea. However, in complying with the second round of sanctions enacted a few days before the discovery, Exxon put the $700 million project on hold and...pulled out of the Russian Arctic.” Now Russia is offering China and other Asian companies a partnership in developing Siberia and the Arctic, replacing Exxon and its peers.
How did that sit with Exxon, a company about which President Bush, the younger, once said, “Nobody tells those guys what to do.” Media reports have it that Exxon’s CEO Tillerson, in a private meeting with the President, warned Obama that if the U.S. adopted economic sanctions that threatened its business in Russia, his company and its allies would work to defeat Democrats in the 2014 Congressional bi-elections.
The White House has been silent about the meeting. Tillerson is only willing to say that he had made his objections known to the highest political authorities. But the bi-election suggests that something more than voiced objections took place in the meeting.
During the bi-election, business contributions went overwhelmingly to Republicans (75%), with energy company support for Republicans at 87%. Senator McConnell was the top beneficiary, receiving $600,000 in contributions from oil and energy companies.
Compare that to the last presidential election, only one year before, where business contributions were closer to 50/50, with Republicans holding only a slight edge . The bi-election results, a 50% swing to Republicans in business contributions, were a major factor in one of the Democrats worst defeats.
In a recent “60 Minute’ TV interview, the first question asked of the President was, “What exactly is your relationship with Vladimir Putin?” The question’s significance may have eluded the casual viewer, but for political ‘junkies’, it hit right at the heart of things i.e. were the sanctions part of a personnel vendetta against Putin, who had frequently opposed U.S. policy. The President’s casual response to the question, painted the relationship as fairly normal, but it’s hardly that.
Certainly the U.S. was frustrated with Russia over its support of Iran, Syria and its movements in Ukraine. But many White House watchers believe that the real anger originates with the offer of Russian sanctuary to Edward Snowdon, the former U.S. intelligence officer who broke the story to world media of massive public surveillance by the National Security Agency (NSA).
Recall that Snowdon’s revelations about NSA came just months after Obama’s triumphant re-election victory, with polls showing Obama’s popularity at close to a high point. The Snowdon affair shocked many of Obama’s liberal supporters and civil rights activists. The news of widespread spying by the U.S. on NATO partners also seriously undermined support for the Administration's campaign against foreign government hackers.
Before these revelations, the Republicans were seldom able to lay a glove on the President, having to resort to racially tinged attacks on birth certificates and similar nonsense. After the NSA revelations, Obama’s popularity numbers began to crater in the polls, with the fiasco of the Healthcare roll-out only adding to the damage.
Russia’s refusal to hand over the spy to U.S. authorities was followed by one of the most virulent media campaigns, demonizing Putin as the second coming of Stalin, and Russia on its way to once again re-establishing the Soviet Empire.
Ukraine was the catalyst for sanctions against Russia. That was followed by what many believe to be a U.S./Saudi orchestrated plan to collapse oil prices, aimed directly at crushing the Russian economy.
One question left unanswered was that if indeed the charges of an aggressively expansionist Russia were true, then why, when Russia trounced the Georgian army, and was literally in charge of the country where Stalin was born, did the army leave and march back to Russia?
So hostile were the media’s attacks on Putin that the arch anti-communist, Henry Kissinger, felt compelled to try to quell the furor by stating the obvious: “Putin is not Stalin.” In terms of US interests, the elder statesman believes that Russia should have been drifting closer to Europe and the West to balance a rising China. Instead, the opposite is happening, giving rise to the question; In future, will we be asking who lost Russia?
There is a tradition in gangster films, where killers are often at pains to warn their victims that their imminent murder is not personal but business, as if that should offer comfort. It reflects a shared belief by killer and victim that business sets the rules, and personal vengeance is bad for business.
The fear expressed by many is that Obama seems to have taken things personally; if so, it’s bad for business. Far worse, it may be bad for the U.S. and the West.
By Robert Berke for Oilprice.com
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