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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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Russian Sanctions Might Be Obama’s Greatest Blunder

Russian Sanctions Might Be Obama’s Greatest Blunder

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? Related: The 8 Major Geopolitical Catalysts Of 2015

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. Related: How Much Punishment Can Russia’s Oil Industry Take?

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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  • David Grant on January 25 2015 said:
    Yes, I think Obama has taken all this personally and is responsible for loosing Russia which is a cataclysmic disaster for the West. As it stands now it is West with less than one billion people versus Asia with four billion people. The West is bankrupt with its central banks printing money to stop their economies sinking and Asia is rapidly industrialising. This strategy along with the China containment has set the world up for Asia to develop it own financial systems and eventually knock the feet out from under the West. Looks like the white guy is set to become the poor trailer trash of planet earth.
  • Mario Deschenes on January 25 2015 said:
    Brilliant article. Right on the money. I can't believe that there is no one in the Obama administration which saw that coming or they are totally incompetents. Obama is even talking about enforcing more sanctions against Russia following the Mariupol incident. He doesn't seem to realize that he is loosing the world support which now is turning away from the US, afraid that those same policies can he held against them in a heart beat. He's also pushing his Europeans allies (puppets) to the brink. I wouldn't be surprised that following the other BRICS countries, some nations will decided to join the China-Russia alliance.
  • Stavros H on January 26 2015 said:
    The West's energy reserves are also fast dwindling. This process will make things a real nightmare for EU and the US once the shale bubble pops. That is on top of all the other dangers for the West outlined above.
  • Jim on January 26 2015 said:
    The problem is that Putin articulated this policy as early as 2006. None of these moves began following sanctions. As you note, the Chinese pipeline had been under negotiation for 2 years. Russia has been demonizing America since at least 2003. You may be right that sanctions are a mistake, but the premise of your article is entirely false. The question is whether the West should follow Russia's long turn toward China and demonization of the West with its own initiatives, including containment.
  • Optimist on January 26 2015 said:
    Lol, unfortunately the US ain't going down that easy. If they seem to be in trouble, they will just invade another country in the middle east, and thrive on that for another 2-3 decades.
  • decent on January 26 2015 said:
    This is teh world we live in. Everything is connected. we have to make choices.

    Remembering Georgian war, Russian troops were not pulled out completely. Southern Ossetia territory was lost to russia.
    Pretty similar scenario happened now. Only Ukraine lost much bigger territories to Putin this time. Who would guarantee, that it stops? It did not stop in chechnya, it did not stop in Georgia.
    Instead it looks like Putins appetite grows, taking bigger pieces and not even trying to hide.

    also US shale gas can not compete with russias wast natural gas reserves. If, only very shortly.
  • rafa on January 26 2015 said:
    you are probably right about Russia. but never for a minute thnk the US is any different. arround there they never allow governments they dont like to be voted into power. grenada, haiti, venezuela, and pretty much all across south america. and as russia today takes pver crimea, the US has defacto occupied diego garcia for 50 years now and the owners of that country live as refugees in mauritius. dont liste to them when they claim what russia did in crimea should not be allowed in the 21 century. diego garcia was not occupied by them a century ago but this very century. the inhabitants of that island live exaclty like palestinians even though unlike the latter, they have never resorted to vieolence to get their land back.
  • SRV on January 29 2015 said:
    A "Spy" gives up information to an enemy... Snowdon is not "a spy," unless you see the American public (the target of the information release) as the enemy (no matter how often the corporate media says otherwise)!

    Obama is simply doing what any red blooded US president does... marches to the tune of the neocons that run Washington. And Putin had become a barrier to their "interests" in the middle east (on behalf of a certain allied country in the region). Putin became "a monster" once he humiliated the west be revealing the Syrian gas attack false flag, ending their plans (for now... ISIS is plan b) to finish off Assad to further the ME master plan.
  • Krzys on January 29 2015 said:
    wait, Exon threatened Obama with support for republicans in the midterms? The very same republicans that are demanding ever more stringent sanctions on russia? Brilliant strategery by Exon.
  • rbblum on February 01 2015 said:
    Today, the United States is an enemy unto itself . . . embracing a broken, perverted central banking/monetary system . . . spurning genuinely free markets . . . and, actively ignoring the ideals and values of a constitutional republic.
  • Archie on February 02 2015 said:
    to decent
    Southern Ossetia territory was never lost to Russia. Southern Ossetia as well as Abkhazia voted for their independence from Georgia and Russia only supported this claim.
    Referring to Chechnya, its not clear what you mean. Chechnya is a Russian republic and Russia was at war against separatists there, not invading anybody...

    Still it really looks like Obama takes all this personally, demonizing Putin, while noone cares about Russian strategic interests or concerns.
  • Nick Kelly on March 01 2015 said:
    It's incredible how many commentators think that the Chinese financial situation is better than the US ( I'm Canadian) and that somehow the US is at China's mercy because China has 2 trillion or so US debt.

    Folks, the debt is denominated in $US- guess where that comes from? The US could just pay it off in a bank transfer from the Fed. Now the Chinese have 2 trillion more dollars. What would like to do sir, maybe buy something from us?
    This incidentally would go a long way to fixing the real current US problem, an overvalued dollar and an undervalued yuan.

    But this is all trivial compared to the real Chinese disaster. These guys went completely nuts in 2008. From 2008 until 2015, the Chinese created more debt than the US did in the previous HUNDRED years. They poured more concrete in that period than the US did in the the 20th century.

    They built the world's largest mall in Guandong. Completed in 2005 ( before the real madness began, it featured a mile long canal with gondolas. Kind of cool but occupancy never got above 5 (five) percent and it is now being demolished as an embarrassment. Google for video.
    They built hundreds of sky scrapers that are empty, roads to nowhere, bridges etc.
    They built a city that was supposed to be their New York that is empty.
    The thousands of state owned enterprises still lose money but their loans are swept under the carpet, which is becoming distinctly lumpy.
    Remember all the restructuring in our financial crash, it was ugly, people lost money, GM etc. Try and understand that the Chinese have never done anything like that- there is no legal system with Chapters 7 and 13 etc.
    Fraud is an integral part of the system not just a problem like it is for us. Banks do not call loans to connected Party members.

    One of the largest Chinese companies to ever list in Canada, Sino-Forest turned out to be a fraud and the file has been turned over to the RCMP (lol) with several billion lost.
    The bubble is bursting- coal down 50%, iron ore down 50% copper down 40% as the artificial demand created by the world's largest act of financial madness comes crashing to earth.
    Watch out for a second revolution.

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