Category: Russia and Eastern Europe Page 16 of 17

Humor in the Ukraine

On April 7, 2014

As you may be aware, it seems that protestors have seized government buildings in Eastern Ukraine and demanded a referendum on joining Russia. Ukraine claims that these protests have Russian backing. Now the protestors in Donetsk have declared independence and declared they will hold a referendum on joining Russia.

Quelle Horreur!

It is wonderful that the current, Ukrainian government, which was certainly, absolutely, not installed by protestors seizing legislative buildings, and was definitely not backed by the US, no sirree, is in a position to be outraged by government buildings being seized and outside interference in the Ukraine’s business.*

And how dare Eastern Ukrainians demand a vote on whether or not they should be able to join Russia. There was certainly no vote on their current government. No vote on whether to cut pensions in half, as the Ukrainian government plans, or to increase natural gas prices by 50%. Why should they have a vote?

This material, it writes itself.

Oh, and the US is threatening further sanctions, because it is determined to expand NATO right up to Russia’s border and force Russia into long-term, hard alliance with China, so that the between them they have both enough manufacturing and enough natural resources to form an bloc independent of the West, and peel off most of Latin America and Africa.

Notes

* I doubt they have the ability to hold such a referendum, since they don’t actually control the local government.

** For those who might have been in a news blackout, of course the current Ukrainian government was formed, by, oh, protestors forcing their way into a legislature, seizing arms from government arms depots, votes by legislators while protestors who had seized weapons and forced their way into the legislature stood over them; and, of course, with the energetic backing of the US, and probably of some European countries. Given the precedent, the complaints by Washington and Kiev are highly amusing.)

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The First Real Russian Retaliation for American Sanctions

By Ian Welsh

On April 4, 2014

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It starts:

Rosneft has recently signed a series of big contracts for oil exports to China and is close to signing a “jumbo deal” with Indian companies. In both deals, there are no US dollars involved. Reuters reports, that Russia is close to entering a goods-for-oil swap transaction with Iran that will give Rosneft around 500,000 barrels of Iranian oil per day to sell in the global market. The White House and the russophobes in the Senate are livid and are trying to block the transaction because it opens up some very serious and nasty scenarios for the petrodollar. If Sechin decides to sell this Iranian oil for rubles, through a Russian exchange, such move will boost the chances of the “petroruble” and will hurt the petrodollar.

It can be said that the US sanctions have opened a Pandora’s box of troubles for the American currency. The Russian retaliation will surely be unpleasant for Washington, but what happens if other oil producers and consumers decide to follow the example set by Russia? During the last month, China opened two centers to process yuan-denominated trade flows, one in London and one in Frankfurt. Are the Chinese preparing a similar move against the greenback? We’ll soon find out.

The US has, to use the phrase du jour, a great deal of “privilege” because the US dollar is the standard unit of trade, most significantly, trade in oil. If you get frozen out of the dollar, you get frozen out of a large part of the world economy. American sanctions can virtually destroy a country, as banks, even non-American banks, won’t do business with a country the Treasury department has forbidden doing business with.

Breaking that—moving to a multilateral world, or to a world where trading in Yuan is just as acceptable, goes a long way to breaking American power. In general, the Europeans will follow the US lead, so moving to the Euro provides no protection from America. But moving to the Yuan and the Ruble, does. Pricing large oil transaction in rubles also helps protect the Russian currency from large moves: if the ruble drops too much, people will go into it if you can buy oil in rubles, and the Russians are opening a futures operation as well, meaning traders can make that play, even if the US doesn’t like it.

Of course, the US could go harder in sanctions, making it difficult to take those winnings and get them back into dollars or Euros, but if the trade is large enough, Chinese and Oilarchy banks will clean the money and hide the flows. London and New York will then want to get in on it, and will, through their offshore subsidiaries in various banking havens.

Note also the poke in the eye: the deal to take Iranian oil and sell it as Russian oil, bypassing the sanctions against Iran.

All of this is far more harmful to America’s real interests than any sanction the US has so far imposed on Russia.

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Ukraine’s Unelected Government Imposes IMF Austerity

By Ian Welsh

On March 28, 2014

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This is perhaps best article on what actually happened in the Ukraine and Crimea: the story is a little different than what you’ve been hearing on TV or reading in the newspapers, at least if you’re in most of the West. The author does leave out some bits (like the Tatars boycotting the Crimean referendum), but overall it’s accurate.

Meanwhile the new PM in the Ukraine is imposing IMF austerity measures, like removing subsidies on Gas (50% increase) and cutting pensions (50%) cut. He says he’s on a Kamikazee mission. That’s because he’s not elected, so he can do thing that an elected leader could never do.

Which is to say: there is a coup, backed by a popular uprising in the capital, which puts in place an unelected government, which does things that elected governments repeatedly refused to do. The East and South of the country, which voted in the last elected government, is unhappy with this.

It’s really hard to conclude that Crimea didn’t do the right thing for most of their population by joining Russia. 50% increase in natural gas prices and 50% cut in pensions? Would you stand still for that? Oh, and the average pension in the Ukraine is—$160/month. $80 after it’s cut.

The last government may have been a bunch of corrupt assholes, but it’s hard to conclude that taking Russia’s deal of 15 billion dollars and subsidized gas wasn’t, actually, a better deal for most Ukrainians than approximately the same amount of money from the West + IMF austerity. And these are only some of the measures: the civil service will be slashed, the government natural gas company will be privatized (meaning even higher prices down the road), the ban on selling agricultural land to foreigners will be lifted, and so on.

The EuroMaidan’s legacy won’t just be losing Crimea, it will be turning the Ukraine into Greece.

If I were Crimean, I would have voted yes in the referendum. Russia’s a corrupt oilarchy run by a near-dictator, but it has a stronger economy and better standard of living than the Ukraine, and that’s before the IMF gets through with the Ukraine.

I don’t know what Putin’s going to do. If NATO membership were truly off the table, he’d be best served by doing nothing more. Let the Ukrainian’s destroy their own economy through IMF austerity, and in a few years, at least the eastern half of the country will be begging to join Russia.

However, if NATO membership is on the table, and it seems to be, Putin may feel he has no choice to invade. Problem is, after the West lied to Gorbachev about not expanding NATO, could Putin believe any Western promises if they were given?

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Why is Crimea Such a Great Crisis? It Shouldn’t Be.

By Ian Welsh

On March 20, 2014

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Really, I don’t understand why Crimea rejoining Russia is such a big deal. While the referendum is dubious, it does seem that the majority of the population generally prefers to be part of Russia. There have been almost zero casualties, and the Russian troops were mostly welcomed by the population.

Compare this to Kosovo, where there was ethnic cleansing on both sides, a major bombing campaign by the West which killed Serbs and so on. Or Iraq, or Libya, or Syria, or Chechnya, or South Sudan. In all of those places there was a pile of violence, a lot of people died, got tortured, raped and lost their homes. All of those, by any rational measure, are greater crises than Russia taking back a region which belonged to it for hundreds of years, whose population wants to go back.

Yes, yes, Munich, blah, blah. Russia is not strong enough to start a conventional WWIII and win. They are not insane enough to start a nuclear war.

The correct response to Crimea would be to say “well, it looks like they really do want to leave, they’re yours.”

If you don’t want Western Ukraine to go, then send in a NATO force and/or discuss formal partition of the Ukraine with the Western part immediately joining NATO. If you’re not willing to do that, then shut up.

This crisis is being made a crisis because of a hysterical over-reaction. The US and the EU thought they’d won this round, and moved the Ukraine back into their column. Putin didn’t accept that, and the West is freaking out over behaviour that is less egregious and killing far fewer people than wars that the US has been involved in for over a decade, and which is a cleaner break-off than Kosovo was.

As for setting a precedent, the precedent has been set already: in Kosovo, in South Sudan, in Eritrea and so on. National borders are not inviolable if the population doesn’t want to stay in them, and can make their point militarily or has an ally who can make the point militarily.

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The Crimean Referendum of Independence

By Ian Welsh

On March 17, 2014

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Has passed with 97% in favor of joining Russia. Those not in favor boycotted the referendum, in part due to intimidation, in part due to the fact that the question was do you favor joining Russia, or return to the 1992 constitution, in which Crimea is a part of the Ukraine, but substantially independent. There was no option to stay with the current situation.

While looking into the legal precedents, I investigated Kosovo: in 1991 they voted 99% in favor of independence. Only Albania recognized the legality of the referendum. Later, of course, Kosovo did wind up declaring its independence again. Serbia went to the International Court of Justice for an opinion on whether it was legal for Kosovo to separate. The decision was in favor, and is fascinating.

It basically amounts to this: though the declaration of independence was made by people who were in the Assembly of Kosovo, because they did not follow proper legislative procedure, did not use the words “Assembly of Kosovo” in the proclamation, and were not properly published, the proclamation was not illegal, because proclamations of independence are not generally illegal.

They also said that the ruling was a one off, and did not set precedent (sound familiar?)

The error, then, of the Crimeans may have been to have a legislative body, as a legislative body, take the decision and actually have a referendum. If they had done it, not as a legislative body, but as just folks who happen to be in the legislative assembly, without a referendum, then it would have been legal.

All of the above, of course, is pernicious nonsense. Of course many countries do not want regions to leave them, and make it illegal. But it is impossible not to conclude that those who say Crimea joining Russia is illegal are anything but flaming hypocrites if they also said that Kosovo leaving Serbia was legal. The International Court for Justice’s ruling is nothing but special pleading.

The larger issue is this: do people have the right to self-determination, and under what circumstances? I live in Canada, where Quebec has tried to separate in my lifetime. Those who were willing to let it leave asked another question: if Quebec can leave Canada, can parts of Quebec then hold a referendum and leave Quebec? As badly as Canada treats its native people, in many ways Quebec treats them worse: much of northern Quebec might prefer to stay in Canada. Of course, northern Quebec produces the hydro power which keeps southern Quebec financially viable (it is sent straight to New York.)

This is a line which is hard to draw: if you support self-determination, where does it stop? What group is large enough to be allowed to leave? If you don’t, if you think that whatever countries exist today should exist always and no one should leave then you have no such problem, but that can be a recipe for catastrophe, as Africa’s history, with all its artificial countries and their bloodshed, have shown.

Perhaps the more fundamental question is this: in a world with problem that nations can’t solve, why don’t we get rid of them entirely? (There are reasons, and good ones, but do they outweigh the good reasons to end the existence of nations?)

Western and Russian Hypocrisy on Crimea

By Ian Welsh

On March 7, 2014

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Perhaps the most tiresome part of the Crimean move to join Russia is the rhetoric on both sides. On the Russian side, we have Putin, who has long railed against states being broken up, starting with Kosovo; on the other side we have the Americans and Europeans nattering on about how no state can be broken up when they broke up Serbia, forcibly removing Kosovo from it.

States can be broken up—when it suits the West, or Russia. But when the West does it, we hear a heck of a lot less caterwauling

I remain unconvinced that starting a new cold or hot war, or imposing significant sanctions and suffering the Russian retaliation, is worth keeping Crimea in the Ukraine, when the majority of its population most likely wants to leave and it was part of Russia for centuries. The sheer hysteria of the Western response bores me: this is not the end of the world, unless we make it such.

It is also not about whether Obama is “tough enough to stand up to Putin”. As Sean-Paul Kelley has repeatedly pointed out, that’s infantilizing. There are actual issues here, around NATO expansion, around whether States can be broken up and when, around Russian economic ties to Europe; around the fact that Ukraine is practically a failed state; around the strong neo-Nazi presence in the new Ukrainian government; around the IMFs intention to impose terrible austerity on the Ukraine; on whether protesters have the right to overthrow a government and expect the rest of the country to accept it; and so on.

There interests at play here: oil and natural gas for Europe; Russian money for London; Russian military orders for France; American access to Afghanistan through Russian territory; Syria; the implicit deal for the Russians not to arm insurgents around the world with SAMs which can take out American drones; and so on.

These are issues that should be discussed, not whether Obama is “tough”. What is in America’s interest, Russia’s, the Ukraine’s, Crimea, and the people in the Ukraine who don’t want to be part of a Ukraine run by the protesters?

Oh, and were the snipers who killed all those people and led to the fall of the government actually government snipers?

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The Chinese Solution to the Ukrainian Problem

By Ian Welsh

On March 5, 2014

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The Ukraine was a mess even before the crisis:

Massively in debt. 35 billion needed over the next two years.
Aging industrial sector, located primarily in the east, which produces steel goods that no one but Russia is willing to buy.
Massive inequality, and a private sector controlled almost entirely by oligarchs.
A genuinely split population, politically.
Vast corruption.
Unable to provide enough energy for its own industries and citizens.
Not able to sell enough to foreigners to pay for what it needs to import.

The IMF had offered 4 billion dollars, contingent on ending energy subsidies and opening the economy up. Ending energy subsidies would double price of energy, which would mean that the aging industries would go out of business and many Ukrainians would freeze next winter, because they can’t afford the higher prices. The EU trade deal was nothing special either: they don’t want Ukraine’s steel or lousy, Soviet era goods.

The Ukraine has almost nothing going for it. But it does have one thing: it’s a breadbasket. The Ukraine exports a ton of wheat.

There are growing food shortages, and food prices have been rising faster than inflation for years. They will continue to do so.

The country which has expressed the most interest in Ukraine’s wheat is China. They offered, at one point, to rent fully 5% of the Ukraine’s land to farm.

China is the country in the world throwing off the most money right now, their money creation dwarfs even the United States. They cannot grow enough grain to feed their own population. China is also the only great power which still offers development to its partners: the Chinese have built roads, ports, airports and factories in Africa and Asia. Further, so long as deals are kept with them, the Chinese do not care what is done internally: they don’t consider it any of their business. Their money is not contingent on other countries engaging in the sort of austerity that the IMF, Europe and the US like to force on anyone who goes to them for money.

China is also willing to lock into long term deals, and to pay somewhat more than the market rate to insure a guaranteed supply of whatever commodity they need, whether that be oil or food.

The Ukraine has two problems which cannot be tackled under the West’s aegis: inequality, and debt. The West simply will not allow a massive restructuring or default of debt and still give the Ukraine money. Does not happen: oligarchs are sacred in the West. But what the Ukraine needs to do is restructure its debt: turn it all into 100 year bonds at 1% and tell investors to take it or leave it. And they need to expropriate the oligarchs: take away their money, power and holdings.

Neither of these things, again, can be done under the West. And once done, the West will generally refuse to trade the Ukraine what it needs.

So the obvious play is to expropriate the land needed to make a deal with China. Cut a deal with China to take virtually all of the Ukraine’s grain exports, to develop the Ukraine’s land and make its farming even more productive, and to sell the Ukraine the goods the West will stop selling them.

Meanwhile, since Russia and China are on great terms, you don’t take the Western/IMF deal, you take the Russian offer, because in addition to food the one thing you MUST have is oil and natural gas, and Russia will give you a discount on those. The only people whose debts you don’t roll over into 100 year bonds are the Russians (though you do renegotiate with them, and yeah, you can probably get great terms if you swing back into their sphere of influence and join their trade area.)

The odds of this happening, are, of course, exactly zero. The Ukraine’s west, and the current government are caught in this weird delusion where they think that, like Poland, they can get prosperity by orienting to Europe. They can’t, those days have passed, and Poland is not the Ukraine (among other things, it has very low inequality.) And the current government is in bed with the oligarchs: they turned on the last government at the right time, and the new government is appointing them to key posts.

However, things change: Europe and the IMF will wreck the Ukraine (that’s what they do), and things will get worse for ordinary people (there may be a hiatus where things get better due to a land bubble, we’ll see). When it does, Ukrainians will have another chance to realize that Western nations aren’t their friends, and only care about them as a took to screw with the Russians, or to the extent there is something of value left to loot.

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“Consequences” for Russia over the Ukraine

By Ian Welsh

On March 3, 2014

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Obama and Kerry have both told Russia there will be consequences for their actions in the Ukraine.

The question is “what consequences?” The only thing the West can do which would really hurt Russia and Putin is strong financial sanctions: freeze Russian accounts, institute a trade embargo, etc—the full Iran treatment.

The problem is that Europe needs Russia’s natural gas and oil and Britain, aka. London, aka. The City, needs Russian money. London is awash in Russian cash, and the London Real Estate market would most likely crash if real financial sanctions were put on Russia. Since real-estate and financial games are the only thing keeping Britain afloat, this is a total no-go: completely unacceptable to Britain.

Germany, meanwhile, will find any sanctions on energy completely unacceptable. They can’t replace all that natural gas before next winter, even if the US agrees to sell American natural gas to Europe.

The Russians, to put it crassly, have paid their bribes. They have made the right people in England, and Europe, rich. On top of that they supply something Europe absolutely must have: hydrocarbons.

Further, if real sanctions, like the Iranian ones were applied to Russia, the price of oil and natural gas would spike so high the world economy would go into a tailspin, even before one considers the spin-off financial effects. Russia would then orient hard to China, who in no way would go along with such sanctions, and while the initial affect would be massive, in time, all that would happen is that Russia would now firmly be a Chinese client state.

Many have noted that the ruble is dropping relative to the dollar and the Euro and say that “markets” are punishing Russia. They aren’t, because oil and natural gas prices have increased, and Russia doesn’t get paid for hydrocarbons in rubles. In fact, the crisis will probably make Russia money.

The intermediate sanction would be Visa restrictions on Putin’s closest associates, along with freezing their accounts. The problem with that is that Putin has plenty of ways to retaliate, starting with not letting the US get its gear out of Afghanistan when the Afghan government kicks the Americans out. (Getting that gear out through Pakistan will be much harder, dangerous and much more expensive.)

China, of course, is the actual threat to American hegemony. It is also the country that the Ukraine should actually be going to for help, not to the West. More on that in future posts.

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