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Robert Berke

Robert Berke

Robert Berke is an energy financial analyst with experience as a government consultant to the State of Alaska.  

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Putin’s Tough Choice: China Or The West


“With Tillerson's confirmation, Exxon just annexed the United States,” --anonymous blogger.

To many observers, the appointment of Tillerson to the helm the State Dept signaled the Administration’s priority of supporting the oil industry, which in recent years has been under severe pressure from OPEC’s campaign of over-production that forced prices down to a post-recession low.

Seen from a different angle, the move also signals Exxon, the oil giant, establishing a strong connection with the Administration. As the former CEO of Exxon, and a member of the Board of Directors of the company that was the core of the original Rockefeller Family’s Standard Oil monopoly, Tillerson also brings direct contact with the Rockefeller Family, whose members remain on the Exxon Board.

Former Secretary of State, Condaleeza Rice, who also sits on the BoD, along with Former CIA Director and Defense Secretary, Robert Gates, both listed as an Exxon consultant, also were strong backers of Tillerson to Trump.

It’s hardly a coincidence that Henry Kissinger, for decades, the Rockefeller Family’s chief foreign policy advisor, with strong personal connections to Russian President Putin, has emerged as a chief foreign policy advisor to the Trump Administration.

Nor is it surprising that published reports of Kissinger’s advice to Trump is to seek to normalize US/Russian relations, diametrically opposed to the Obama/Clinton policies of confrontation with Russia.

It is also part of a broader strategy to tempt Russia towards closer relations with the US/EU while sacrificing its growing close relations with China, viewed by Trump, as it was by Obama and Clinton, as the chief obstacle to the U.S. dominant global leadership. As a critical part of the deal, Russia is expected to accede to sacrifice its budding alliance with Iran.

Now the human drama watch begins; will Putin cave in to the demands of the West to renounce his allies in exchange for the improved relation and the dropping of sanctions?

The West has in hand some very powerful means of persuasion, including increased Russian access to the huge European energy market, restored western financial credit, access to Western technology, and a seat at the global decision-making table, all of which Russia badly needs and wants. Consider that three Russian proposed natural gas pipelines to Europe have been stalled since sanctions were imposed over Ukraine, leaving billions of dollars on the table.

Foreshadowing all of this was a news leak late last year in Germany’s Bild Zeitung, that Kissinger has drafted a plan to officially recognize Crimea as part of Russia and lift the Obama administration’s economic sanctions.

What this means for Russia, just now emerging from nearly two years of recession, is a possible return to prosperity, an offer that any national leader would find hard to resist. Related: Is Iran Planning On Breaking Its OPEC Pledge?

Putin’ supporters refuse to believe that the strong-minded autocrat will turn against his EurAsian friends, particularly China given the signed momentous multi-billion dollar energy deals with Russia, as well as Russia’s central position in the roll-out of the China's enormous Silk Road project.

The problem for Russia is that the opportunities for participation in Chinese Silk Road ventures require heavy upfront investment with profits only linked to a distant future, while the Russian government budget is in dire need now. Instead, the Western promises, for example, such as pipelines, can be built in one year on already existing and ongoing projects with the EU, with guaranteed financing and payoffs.

Russia's also understands that despite its emerging friendship with Iran, Iran is also the single strongest competitor to Russia for the European and Asian energy markets.

What are the signs that Putin may accede to the new deal? No doubt the signs will become clear first in Syria, where Trump has announced his intent to seek closer coordination with Russian military forces, as revealed in the recent Trump/Putin phone conversation.

According to depka.com, often referred to as the voice of Israeli intelligence, Putin has already reached an agreement with the US, Russia, and Turkey to develop separate safe haven zones in Syria that clearly exclude Iran and Hizbollah. Whether this report is wish-fulfillment or accurate is yet to be determined.

If this plan has really been approved by the US and Russia, as the Israeli site contends, then it’s clear that Iran and Hezbollah have been excluded, as per the strong demands of Israel and the Gulf Kingdoms, aimed at staunching the Iran crescent from extending through Iraq, Syria, Jordan, and Lebanon. It also would mean that the deal has been struck and Putin caved.

But that’s only one part of the Western plan, with much more to come. Unlike the more diplomatic Obama, Trump is on record stating that he believed that while the US military presence was at its height in Iraq, “we should have taken the oil,” and more critically, “…that we still can and should do it.” What the West wants is no less than a new deal that opens up Eurasia oil to US foreign investment. And that may be happening.

Consider that with the news of an improving energy market, due in large part to Saudi and Russian collaborative efforts, Russia announced a blockbuster deal for the sale of nearly 20% of state-owned Rosneft stock to a partnership of Glencore and Qatar’s sovereign fund.

Significantly, the deal shows Russia joining mid-eastern oil economies privatizing, or opening itself for world business, as the Saudis attempt another block-buster deal, privatizing some of their major assets in their government controlled oil company, Aramco, the largest oil company in the world.

This was closely followed by Kuwait announcement of its own major asset sale, Mexico’s announcement of its intentions to change its constitution to enable foreign investment in its energy industry that has been illegal since the 1930’s.

Most of these countries have very practical reasons for opening their energy assets to foreign investment, the most obvious is that a major enemy, ISIS, is at their gates, and they are in bad need of protection. This is happening at a time when the US President elect has recently announced to NATO allies that the price of US military protection is going up.

At a time when Mid-Eastern oil producing countries feel most threatened, they may also expect a rise in costs of their NATO “insurance policy.” Only this time, the cost may be paid by allowing participation of Western producers in Mid-Eastern energy. On top of this, the BBC reports that the Saudi Minister of Energy just announced the prospect of increased financial investments in the US energy industry, where it already has billions invested in US refining and distribution. Related: Saudis Raise March Crude Prices For All Customers


It’s also important to note that the neither the Obama or Trump government have been eager to become the primary protectors of Middle Eastern governments. Western allies have complained bitterly about Obama’s reluctance to do more than “lead from behind.” If Trumps comments are to be believed, he also has little interest in raising US stakes in the region.

Instead, the Middle Eastern wars are being outsourced to the European members of NATO, where the absence of the US leaves a major strategic gap that some NATO members hope to plug with an alliance with Russia. To Europeans, a NATO military alliance with Russia against ISIS, and radical Islam, blessed by the new US Administration, automatically means that Russian sanctions must be eased, while the EU agrees to move the Crimea issue to the back burner.

There are also solid economic reasons for the Eurasian oil producing countries to open their energy markets to the world. For the last two and a half years, the oil markets been suffering from the Saudi engineered glut. The oil business is also threatened long term by climate change and the rising alternative energy competitors. For many of the Middle Eastern oil producers, it may be a good time to take some profit and share some of the risks.

What that means is that the starting gun has gone off. The oil market is once again open for business, with Exxon likely to be leading the way. The major difference though is that for the first time in many years, highly restricted regions, particularly in the Middle Eastern kingdoms, that have for decades been shut off to most of the world, are once more opening themselves for business, a reversal of historical dimensions.

How far they’re willing to open is unknown, but even Iraq and Iran, countries that been hard-nosed in negotiating with foreign oil industries, are suddenly being far more flexible in offering contracts much more favorable to oil companies. These new contracts include provisions that oil producers have long lobbied for, enabling producers to book oil as part of their reserves, a crucial element in determining their market share price.

As long as the threat from jihadists continues, the movement to cash out or at least share risk is likely to continue. In other words, they have little choice: it’s their money or their lives, a hold-up of biblical proportions.

By Robert Berke for Oilprice.com

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Leave a comment
  • Charles on February 05 2017 said:
    Unbelievable. Everytime Obama turned around some conservative was crying about appeasement and invoking Neville Chamberlain. Now Trump is preparing to legitimize Russia's invasion of Ukraine and that's OK with the same crying conservatives. There is evil in this country and it's time to root it out.
  • Risbo on February 06 2017 said:
    Wishful thinking
  • Dan on February 06 2017 said:
    When he is loved by all but the destroyed left, why choose? He is friends to all as he helps build the Eurasia economic system.
  • Dr Mamdouh G Salameh, International Oil Economist on February 07 2017 said:
    Robert Perk’s article titled:”Putin’s Tough Choice: Chine or the West” is a pipedream. Putin is a man of principle. He is also the greatest strategist on the international arena nowadays. He will never sacrifice his strategic partnership with China for the West. Both Russia and China rank their ties as the “peak” in mutual history. This can be judged by two analytical frameworks: their converging visions of the future world order and their harmonized national interests.

    The Chinese view on the world order at this historical juncture is shared and dovetailed by Putin’s Russia. Both sides hold the view that Washington’s alienation from both Beijing and Moscow is reflected by the deeply rooted fear of the US losing hegemonic status as the “only indispensable superpower”. The indications of the US fear are plenty. From Beijing’s point of view, the U.S. decision to restart a Cold War containment strategy with the pivot towards Asia was driven by misguided fear. From Moscow’s perspective, the Western alliance took advantage of post-Soviet chaos to push the Western sphere of influence towards the Russian border.

    In sharp contrast to mutual suspicion and deteriorating relationship between Washington and Beijing, the Chinese-Russian tie has proved to be a stable strategic partnership built on mutual understanding, respect and national interests.

    In view of the above, Putin will never sacrifice China for the West whom he doesn’t trust. He and China know that their strategic partnership is a healthy check on Washington’s “unipolar folly”.
  • Tony Papagallo on February 07 2017 said:
    thats a tough call for a man who has outwitted America at every turn.
    Trust China, or a barrel full of monkeys, like I said, its a tough call.
  • horace fase on February 07 2017 said:
    Why do you keep saying opec engineered the oil price fall. What about all the oil the US is pumping? The fact is that opec didnt act to prevent the oil price fall but they didnt cause it and you would have criticised it for protectionism if it tried to prevent the fall to $30. Now opec is acting, and the US is undermining their efforts by increasing production again. Isnt that great? Well no, because the oil market is inelastic, if there is no control the price will swing back and forth from glut to shortage. This is damaging to the global economy, destabilising to countries and painful for everyone. America first and screw everyone else? It doesnt work like that, America needs a healthy growing global economy.
  • Shahna on February 07 2017 said:
    How';s that a tough choice?

    They go with the country that respects sovereignty and keeps promises and deals or...
    with the one that ignores sovereignty and breaks promises and deals quicker'n the drop of a hat?

    Uhm.... if you were the one doing the choosing - which would YOU choose?
  • Xing An on February 09 2017 said:
    Tough choice? Hahaha! That is an American delusion. The Americans have brought down the Soviet Union and Putin's heart burns every time he thinks of it. He has been appointed by destiny to execute vengeance on the Americans. He shares a vision with China to build a Eurasian block that is independent of the West. Putin is a true statesman and a patriot. He will not cave in for a few carrots. He knows how depraved the Americans are. Americans are simply projecting their own image onto Putin to think that he is so cheap. They are like the devil who brought Jesus to a high mountain and told him, "I will give you the whole world if you bow down and worship me."
  • Alex on February 09 2017 said:
    Putin would be very stupid to trust those who lied to Russia since 1990's. Russia is out of recession while sanctions are enforced and is not desperate for any western "help" (better to say plunder).
  • RussianJew on February 09 2017 said:
    When people with no principles try to analyze people with ones the results are very funny - like that quite incoherent piece above. Those who know Russia are laughing.
  • Russ Ramey on February 11 2017 said:
    Russia and the West have much in common, both with an uneasy history dealing with the Middle Kingdom. The PRC and it's predecessors have a well known desire for the massive amount of open land and resources in Siberia.
    The majority of the working people of the PRC have not benefited from Chairman Mao's great experiment in Marxism. The system will never produce prosperity much less freedom for all her workers. It cannot.
    Putin is a pragmatist, a master chess player, an egotist of Tsarist proportions, and a proven survivor on the world stage. Russia has much to gain from good relations with the PRC AND the West. IMHO, it is time to stop requiring one or another alliance. As America achieves energy independence and gets her house in order securing our borders, our biggest challenge is to deal with militant violent sects of Islam who threaten us all. The PRC will eventually change somewhat to better fulfill the needs of her people, or collapse due to the failure inherent in the Marxist system. For the sake of our peoples, should we not work on common interests? A new cold war will have no true victors, only more wasted lives and national assets better used on improving the human condition, not worsening it.
  • Niall on February 14 2017 said:
    "Now the human drama watch begins; will Putin cave in to the demands of the West to renounce his allies in exchange for the improved relation and the dropping of sanctions?"

    Eh, no! If you're silly enough to ask that question, you've no idea what's going on! Russia and China are forcing the US out of the Middle East altogether.
  • Bill Simpson on February 17 2017 said:
    Russia isn't the UK, or Argentina. It is a vast country with enormous energy, mineral, and agricultural resources. No other country is even close. So Putin doesn't have to choose among anything. You could wall the place off, and they could survive inside there. In fact, since they export a lot of oil, gas and metals, the outsiders might suffer more than the Russians, since prices of a lot of stuff would go up.
    My point being that Putin can trade with both the West and with China. Tilting to one side or the other too far would be dumb. That is why Putin hasn't, and won't, do it.
    Once he is gone, I would expect Russia to become friendlier with Europe than with China, simply because their main population centers are much closer to Europe, than to China. In 30 years it wouldn't surprise me if Russia and Europeans were closer than the US and the Europeans. You can't drive across the Atlantic. But a truck could drive from Moscow to Paris in a couple of days.

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