Category: Geopolitics

Russia, Iran Form Energy Cartel

The Daily Escape:

Sunset, Lookout Point, Harpswell, ME – August 2022 photo by Rick Berk Photography

Good strategy is supposed to include a look at what the logical outcomes may be, once you’ve implemented your strategic plan. Was that done when the US and the EU decided to sanction Russia about its Ukraine invasion after having sanctioned Iran, well, for being Iran?

When you treat much of the world as your enemy, you should expect them to eventually find common cause and fight back. We’re speaking about the world’s supply of natural gas (NatGas). There is a new alliance between Russia and Iran on NatGas. At Oil Price, Simon Watkins says that a new energy cartel is forming: (brackets and emphasis by Wrongo)

“The US $40 billion memorandum of understanding (MoU) signed last month between [Russia’s] Gazprom and the National Iranian Oil Company (NIOC) is a steppingstone to enabling Russia and Iran to implement their long-held plan to be the core participants in a global cartel for gas suppliers in the same mold as the Organization of the Petroleum Exporting Countries (OPEC) for oil suppliers.”

The article describes how Russia and Iran are creating a NatGas OPEC. The two countries are first and second respectively in holding the world’s largest NatGas reserves. Russia has just under 48 trillion cubic meters (tcm) and Iran has nearly 34 tcm, so the two countries are in an ideal position to form a cartel.

NatGas is a vital commodity. It is widely seen as the optimal product in the transition from fossil fuels to renewable energy. And controlling the global flow of it will be the key to energy-based power over the next 10 to 20 years. This has already been demonstrated in Russia’s hold over the EU through its NatGas supplies.

From a top-down perspective, this Russia-Iran alliance might also draw other Middle East gas producers, who have tried to be neutral between the Russia-Iran-China axis or the US-EU-Japan axis.

Qatar has long been seen by Russia and Iran as a prime candidate for this kind of gas cartel because it shares its gas field with Iran. Iran has exclusive rights over 3,700 sq.km of the well-known South Pars field (containing around 14 tcm of gas), with Qatar’s North Field comprising the remaining 6,000 sq.km (and 37 tcm of gas).

If they can enlist Qatar, this new cartel would control 60% of world gas reserves, allowing them to control NatGas prices globally. It would be logical for prices to rise, given the growing demand for NatGas in the coming decades.

America can dodge this bullet for a few years because proven gas reserves in the US amount to about 13.5 tcm. So, at the current level of production we can produce sufficient NatGas for another 13-15 years.

But this means that in a decade or so, the US, Europe, and Asia will all be more dependent on imports from Russia, Iran, and Qatar, while competing with the rest of the world for our share in order to maintain our economy and lifestyle.

So, strategy can be a bitch. By creating a global political and economic environment that pushes Russia, Iran, and Qatar into a cartel, we’ve created a significant future economic vulnerability.

There are immediate NatGas cost implications in the US today. Bloomberg’s article, A ‘Tsunami of Shutoffs’: 20 Million US Homes Are Behind on Energy Bills, paints a picture:

“…about 1 in 6 American homes…have fallen behind on their utility bills. It is, according to the National Energy Assistance Directors Association (NEADA), the worst crisis the group has ever documented. Underpinning those numbers is a…surge in electricity prices, propelled by the soaring cost of natural gas.”

That’s 16% of American homes for the math challenged. Winter in the US may not be as big a disaster as in the UK and Europe, (better insulation). But plenty of people here will have to choose between food and heat.

The world is sorting itself out into blocks of countries aligned with each other. Russia, China, Iran and perhaps India, want their own commodity-based financial system to reduce their exposure to the political impacts from the West’s corporate/state “free” market system, which has used trade as a weapon for the past few decades.

There are two ways of looking at this. We could just build this energy vulnerability into our economic planning and prepare to devote a growing share of our GDP to paying the cartel for more NatGas.

Or, we could immediately start seriously building out our renewable energy capacity. There’s a model. Europe is attempting to pivot away as quickly as possible from its dependence on Russia.

We could do the same thing.

That could reduce our exposure to imported NatGas because it’s largely a bridge from coal to renewables. Massive investing in renewables would give Russia and Iran a shorter bridge than they think they’re getting.

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Sunday Cartoon Blogging – August 7, 2022

The Labor Department on Friday reported that the economy added a seasonally adjusted 528,000 jobs in July, far more than the 258,000 economists expected to see. And the headline rate of unemployment  fell to 3.5%, back to the multi-decade low we experienced just before the start of the pandemic.

With the upward revisions to the last two months, there are now 22,000 more jobs than there were just before the pandemic. Further, the mix of these new jobs skews away from the lower paying sectors toward higher paying ones. The WSJ reports that in July, there were about a million more jobs combined in the so-called goods-producing sectors—manufacturing, construction, mining and logging—plus the retail trade and warehousing and transportation sectors, than in February 2020. And there were about a million fewer jobs in the remaining service-sector industries.

Leisure and hospitality jobs, which were the most hard-hit during the pandemic, rose by 96,000, but are still -7.1% below their pre-pandemic peak. And within the leisure and hospitality sector, food and drink establishments added 74,100 jobs, but are still about 635,000, or -5.1% below their pre-pandemic peak.

But it wasn’t all good news. The number of people employed as a share of the working-age population was 60% last month, below February 2020’s 61.2%. If it could return to that percentage, there would be millions more Americans working. An interesting fact in the employment report was that there were 656,000 more people out sick last month than in July 2019. On to cartoons.

The Kansas vote dropped on the wicked witch:

What Kansas taught us this week:

Pelosi sparks a flame:

Alex Jones finally grabbed by his appendage:

The US kills another al-Qaeda leader, but nothing changes in Afghanistan:

RIP Bill Russell:

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Saturday Soother, Taiwan Edition – August 6, 2022

The Daily Escape:

El Morro National Monument, NM – monsoon rains have turned the brown landscape green – July 2022 photo by Kirk Shoemaker

We need to talk about Taiwan. China said that they wouldn’t tolerate a visit to Taiwan by House Speaker Nancy Pelosi (D-CA), and that there would be severe consequences if she failed to heed China’s warning. But she ignored China, and went anyway.

China then launched a comprehensive set of war games, showing clearly how they might invade and take over Taiwan militarily at some point in the future. China then announced it sanctioned Pelosi and her family. Now, according to the BBC, China has said all dialogue between US and Chinese defense officials would be cancelled, while co-operation on returning illegal immigrants, climate change, and on investigating international crime would be suspended.

You know the broad outline of the issues: China viewed Pelosi’s visit as a challenge to its claims of sovereignty over Taiwan, even though Taiwan is self-ruled, and sees itself as distinct from the mainland.

As China has become a global leader, their abilities and ambitions have shifted. A 1997 trip to Taiwan by then US House Speaker Newt Gingrich, was met with little opposition, while the Speaker Pelosi visit has been met with missiles. This is a complicated issue. China doesn’t control Taiwan; it doesn’t issue travel visas for it, either. In April, a group of US Senators visited Taiwan. At the time, China’s Foreign Ministry condemned the visit in a series of tweets and press statements, but nothing more.

The US has wanted to keep Taiwan in its orbit at least since the 1950’s when General Douglas MacArthur, then the Supreme Commander of allied powers in Japan, sent a top secret “Memorandum on Formosa” to President Truman (Back then, Formosa was the name of Taiwan). To contain communism, MacArthur insisted that Truman consider the strategically located Formosa (Taiwan) as a counterbalance to the Soviet and Chinese regional expansion:

“Formosa in the hands of the Communists can be compared to an unsinkable aircraft carrier….”

He argued that Taiwan should instead be an unsinkable US aircraft carrier, projecting American power in the Pacific. As China grew in power and importance, the US adopted a policy of strategic ambiguity with respect to the two countries, wanting good relations with both and wanting to finesse the question of political control of Taiwan.

But lately, the US has been slowly walking away from the doctrine of strategic ambiguity, increasingly signaling to China that it considers Taiwan a core US interest in North Asia. That’s why the Chinese reacted so strongly to a high level politician like Pelosi visiting Taiwan.

It’s also true that the South China Sea and the Taiwan Straits are among the world’s busiest seaways, and that’s where China’s military exercises are now taking place:

Source: Bloomberg. The dots are vessels, the polygons are China’s military drill areas

The NYT’s Tom Friedman connected Pelosi’s trip to the Biden administration’s previous efforts to keep China from getting involved in Ukraine on Russia’s side:

“There are moments in international relations when you need to keep your eyes on the prize. Today that prize is crystal clear: We must ensure that Ukraine is able, at a minimum, to blunt — and, at a maximum, reverse — Vladimir Putin’s unprovoked invasion…”

Biden had held a series of tough meetings with Xi, trying to keep Beijing out of the Ukraine conflict. Friedman says that Biden told President Xi that if China entered the war in Ukraine on Russia’s side, Beijing would be risking access to its two most important export markets — the US and the EU. More from Friedman:

“By all indications…China has responded by not providing military aid to Putin — at a time when the US and NATO have been giving Ukraine intelligence support and a significant number of advanced weapons that have done serious damage to the military of Russia, China’s ostensible ally.”

So why mess with Biden’s Ukraine power play, Nancy? That’s Friedman’s question. OTOH, everyone knows that the minute we bend a knee to China is when we lose our ability to defend Taiwan and hold on to the unsinkable aircraft carrier.

China hasn’t proven itself capable of dealing with Taiwan except through threats since Chiang Kai-Shek left the mainland and took over in Taiwan in 1950. If China wants to control Taiwan without a fight, it has to stop threatening to rape her if she doesn’t want to date. Every Chinese threat increases Taiwan’s separate national identity, and decreases the chance of a peaceful Chinese takeover.

Time to leave geopolitics behind, it’s time for our Saturday Soother, where we focus on clearing our minds for the week to come. Here on the fields of Wrong, we have a crew rebuilding a stone wall by the road that was hit by a large truck a few years ago.

Let’s start by finding that one last can of nitro cold brew in the back of the refrigerator and grab a seat by a large window. Now put on your wireless headphones and listen to “Danse Bacchanale” by Camille Saint-Saëns from his opera “Samson et Dalila”, played here by the Orquesta Sinfónica Juvenil de Caracas, Venezuela in 2010:

This is played at a very quick tempo, and with passion!

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The US Jobs Market and The EU vs. Russia

The Daily Escape:

Sunset, Lake Sammamish, Issaquah, WA – June 2022 photo by Gary Hamburgh

Two pieces of news to think about today.

First, you can always tell when an economic boom is nearing its end, because the jobs market begins to get shaky. That seems to be starting. The WSJ reports that:

“Businesses in several different industries are rescinding job offers they made just a few months ago, in a sign the tightest labor market in decades may be showing cracks.”

No need to panic just yet, the labor market remains strong, with an unemployment rate at 3.6%, near a half-century low. But signs of retrenchment in hiring shows that executives are having trouble predicting the economy over the next 12 months.

And when companies revoke job offers, it indicates their view of the future business outlook has changed so quickly that it’s undoing hiring plans made only a few weeks before.

Many hiring managers say signing up new recruits remains highly competitive. The WSJ reports on a Gartner survey of more than 350 HR executives conducted in May that found around 50% thought the competition for talent would increase over the next six months. Nearly two-thirds said they hadn’t made any changes to their hiring practices or HR budgets in response to economic volatility.

But it seems there are changes afoot. Country wisdom says that a storm rarely hits us without warning. The skies turn dark, the wind picks up, the birds go quiet. It’s possible to see the signs before the storm hits if you know what to look for. We’re seeing signs now of what’s to come.

Second, there’s an adage, attributed to Trotsky, but difficult to verify, that says: “You may not be interested in war, but war is interested in you.” Those words are apt in today’s situation between Europe and Russia. CNN is reporting about an emerging flashpoint between Russia and the EU:

“Tensions are mounting around…the Russian exclave of Kaliningrad, an isolated but strategically significant territory on the Baltic coast…Russia has reacted furiously after Lithuania banned the passage of sanctioned goods…into Kaliningrad. But Lithuania says it is merely upholding European Union sanctions, and the European bloc has backed it.”

Kaliningrad is Russia’s westernmost territory and it has no land connection to Russia. It’s the only part of Russia that is completely surrounded by EU states. Here’s a map:

Estonia, Latvia, Lithuania, and Poland are all members of NATO, surrounding Kaliningrad militarily. Since Russia invaded Ukraine, experts have feared that Kaliningrad might become the next flashpoint in tensions between Moscow and Europe.

Russia says that Lithuania’s sanctions on goods transit is a blockade in violation of a 2002 agreement to allow goods to flow between Kaliningrad and Russia. Sanctions apply to about 50% of Russian shipments. The sanctioned products include construction machinery, machine tools and other industrial equipment. But food and personal travel are not sanctioned.

Since the Baltic freezes during the winter, resupplying Kaliningrad will become particularly difficult in about six months. Lithuania has also closed its airspace to Russia. A Berlin-style airlift could prove problematic as well.

Lithuania has spent years building a liquid natural gas (LNG) port and the infrastructure necessary to connect to Nordic and EU grids. She was therefore able to shut off Russian oil, gas, and coal quickly and is in a better position to do without Russia’s gas than the rest of the EU.

Lithuania imports 70% of its electricity from Sweden through a dedicated underwater cable. Sweden’s power is nuclear and hydroelectric, thus independent of Russia as well. Lithuania is also in a position to supply gas to Latvia, Estonia, and Poland through their LNG terminal.

So is Europe at a flashpoint? There’s little Moscow can do to Lithuania beyond threaten.

Is it just a matter of time before NATO and Russia are in a shooting war? Doubtful. Russia could try cutting off all oil, gas, and coal exports to the other NATO countries. Russia could then say they would sell to any countries that left NATO. That might not pop NATO’s balloon, but it might take some of the air out of it.

If Russia decided to do that, it would have to find a way to transport it’s oil, gas, and coal to alternate customers. That can’t happen quickly. Given that the adversarial relationship between Europe and Russia may last a decade or more, Russia will probably have to find alternative customers regardless.

Neither side wants to undertake drastic changes in energy supply too precipitously.

Wrongo doubts the Kaliningrad situation will lead to war, but each provocation and escalation increases the odds. We’re playing in a very high stakes game, given the nuclear weapons on all sides. But Europe and NATO can’t automatically bow to Russia’s threats.

NATO can’t be unwilling to fight, but there’s a difference between that and provoking a war. Right now, it’s difficult to see a peaceful end game between the US, NATO, and Russia

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Monday Wake Up Call – May 9, 2022

The Daily Escape:

Sunset, Lynden, WA – May 2022 photo by Randy Small Photography

A final thought about our radical Supreme Court: They should give up their black robes. White robes would be much more appropriate.

But for today, let’s talk about the Victory Day celebrations in Russia. This year marks the 77th anniversary of the end of World War II, and Russia observes it every year with military parades and patriotic messages.

Wrongo is publishing this before we learn exactly how Putin will mark the celebration. Certain pundits think that Putin will use the occasion to escalate his war in Ukraine.

UPI reported that in remarks Putin made to commemorate Victory Day, he blasted what he described as “Nazi filth” in Ukraine. He also sent congratulatory messages to the Russian-appointed figureheads of the Donetsk and Luhansk regions of eastern Ukraine, which together make up the Donbas region, for “fighting shoulder to shoulder for the liberation of their native land.”

That certainly doesn’t sound like he’s backing down on his currently stalemated war.

Others think that Putin is more likely to make the political choice to declare victory, or partial victory in the “special military operation”. They think that Putin will postpone any decision regarding mobilizing more troops, which could be politically difficult. Pat Lang, a former US intelligence officer, worries about Russia using a tactical nuclear weapon against the steel plant in Mariupol, a frightening possibility for the world.

Despite the speculation, let’s spend a few moments thinking about how the Ukraine war might end.

“Tell me how this ends” is what General Petraeus famously asked in 2003 at the outset of the Iraq War. It lasted until 2011, and then morphed into the war on ISIS, that lasted until 2017.

Since the Russian war hasn’t resulted in a clear victory, certain US and British officials are talking more openly about a “victory” in Ukraine, meaning that the West decisively degrades the Russian military’s capability. Also, there’s some talk about regime change in Moscow.

A more likely scenario is that we’ll see an extended standoff between Ukraine and Russia, without an agreed end to the war, but where neither side wishes to continue active combat. In this case, Western sanctions would continue. Russian forces would occupy all or most of the Donbass region and control a land corridor linking Crimea with the Donbass and Russia.

This outcome would have few rules of engagement, since most of the guardrails that would be part of a negotiated settlement wouldn’t exist. The US and Europe would face years of instability and the constant threat of a military miscalculation causing a spillover in Europe. A forever war in Ukraine also runs the risk of eroding support for Kyiv in the US. America isn’t emotionally able to endure another grinding military conflict, even with no troops on the ground.

Finally, there may be a negotiated settlement. But what is the compromise that all parties can live with?

Zelensky has indicated that Ukraine might agree to be a neutral country; but only on condition of stringent security guarantees, the terms of which both the US and Russia might find objectionable.

Ukraine has understandably ruled out territorial concessions, but Putin would almost certainly not agree to any settlement in which Russia were forced to leave the Donbass and Mariupol. And separatist groups there would be unhappy living under Kyiv’s rule after years of war. Also, it’s hard to see Putin compromising unless the US and Europe ease economic sanctions as part of a settlement. Removing sanctions without a Ukraine “victory” might be a difficult political pill for Biden in particular, to swallow.

We like to think that all wars end, and eventually, they do. Remember that may not happen quickly or completely. The surrender of the Confederate Army at Appomattox didn’t settle hostilities, or political and cultural tensions in the US. It didn’t resolve the related racial prejudices and political differences, which still linger today.

It shouldn’t surprise anyone that in the Ukraine war, there may not be a discrete moment marking the war’s end for many years. A protracted war would be a favorable outcome for Moscow. It would certainly be a terrible outcome for Ukraine, which is already devastated as a country.

Time to wake up, America! What’s our strategy in Ukraine? Are we even following a strategy in the Ukraine war? To help you wake up, listen to Jon Batiste perform McCartney’s “Blackbird” on The Late Show in 2016:

Note Batiste’s overture on piano which McCartney originally wrote for guitar, was inspired by Johann Sebastian Bach’s BourrĂŠe in E minor, a well-known lute piece.

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Saturday Soother – April 2, 2022

The Daily Escape:

The Devil’s Churn, Yachats, OR – 2022 photo by Bobbie Shots Photography

The war in Ukraine has brought with it a difficult information environment. We’ve had a hard time sorting the facts from the misinformation. When Biden said in his State of the Union that Russia is “isolated from the world,” that wasn’t exactly misinformation. But it wasn’t exactly true since much of the rest of the world doesn’t see it our way.

The sanctions on Russia are limited largely to the EU and NATO members plus a few other close allies like Australia, Japan, and South Korea. Other countries are much more open to continuing to trade with Russia. That was demonstrated this week by Russian Foreign Minister Sergei Lavrov’s visits to India and China.

China and India have refused to condemn Russia’s invasion outright. Both abstained from voting on UN resolutions demanding Moscow immediately stop its attack on Ukraine. At that vote in March, 144 countries condemned the invasion, but few world leaders other than those in the West have openly criticized Vladimir Putin since then.

After visiting China, where Beijing reiterated that its relationship (which is now even more vital for Russia due to the sanctions) “has no limits”, Lavrov traveled to India. US Commerce Secretary Gina Raimondo criticized India for discussing a rupee-ruble trade arrangement with Russia, which could undermine Western sanctions:

“Now is the time to stand on the right side of history, and to stand with the United States and dozens of other countries, standing up for freedom, democracy and sovereignty with the Ukrainian people, and not funding and fueling and aiding President Putin’s war,”

Visiting India is quite fashionable just now. Earlier this month, leaders from Japan and Australia held summits with their Indian counterparts. And this week, diplomats from Germany and the European Union are visiting Delhi. Lavrov’s visit coincides with a visit by Britain’s Foreign Secretary Liz Truss.

Russia has been critical to India’s increased weapons procurement. In 2018, it signed a $5 billion weapons deal with Russia for air defense missile systems. Some Western estimates say that 50% of India’s military equipment now comes from Russia.

Meanwhile, despite US pressure to increase oil production, the OPEC countries are standing by their deal with Russia. Reuters reported that when asked about Russia’s war with Ukraine at the OPEC meetings, Saudi Energy Minister Prince Abdulaziz bin Salman said that when they hold meetings:

“….everybody leaves his politics at the door”.

Japan also announced that it isn’t pulling out of the Sakhalin-1 offshore oil joint venture it has with Russia. Japanese officials have stressed since Russia’s invasion of Ukraine that the Sakhalin-1 project is crucial for Japan’s energy security.

Everyone knows that Russia is a top global exporter of energy, weapons, and wheat, so many countries are trying to say that Putin’s War isn’t their fight. These nations are all concerned about possible boomerang effects of Russian sanctions on their own economies.

Other nations including Brazil, Pakistan, and South Africa, are also staying on the sidelines.

The US spin is that these countries are actively undermining the effort to bring Russia to heel in Ukraine, but each of them has economic reasons for trying to steer a middle course on the conflict. Americans may see that as morally reprehensible, but they see it as enlightened self-interest.

Enough about geopolitics and whether countries should back the US play with Russia. It’s time for our Saturday Soother, where we try to forget about why Republicans are against capping the price for Insulin.

Or why they seem to be suddenly against what they’re calling “sportsball”. Apparently sports have become so woke that NBA, NFL and college teams are doing things like having woke slogans on their uniforms. That’s making Republicans like Ben Shapiro feel like he’s lost his safe space.

That won’t stop Wrongo and Ms. Right from watching both the men’s and women’s Final Four basketball championships this weekend.

Anyway, it’s time to let go of the internet and find a safe space of our own for a little relaxation. Let’s start by brewing up a mug of Big Trouble coffee ($16/12oz.) from Durham, NC’s Counter Culture Coffee.

Now grab a seat by a south-facing window and listen to the late Julian Bream play “The Miller’s Dance” from Manuel de Falla’s ballet. “The Three-Cornered Hat”. This performance was filmed in La Posada del Potro in CĂłrdoba, Spain in 1985. Bream was one of the most distinguished classical guitarists of the 20th century. He also played a significant role in reviving interest in the lute:

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Will Sanctions Hurt the Dollar’s Role in Trade?

The Daily Escape:

Cherry Blossoms, Univ of Washington, Seattle, WA – March 2022 photo by Erwin Buske Photography

One of the most important elements in the undeclared war between the West and Russia is how sanctions are changing both international trade and the international payments system.

The West has basically frozen Russia out of both. First, by taking Russia out of the SWIFT payments messaging system, and second, by sanctioning Russian banks and the Russian Central Bank. Third, by seizing Russia’s currency reserves that were held in the West.

All of this means that Russia can’t easily accept dollar/euro payments for exports and then convert them into rubles for use at home. By losing access to the international currency markets, it’s become impossible for Russian businesses exporting their energy, goods, or commodities to get paid. This may be a historic moment in economic history.

By freezing hundreds of billions of dollars of Russian reserves, the Russians no longer can access those dollars or euros. Sanctions mean that even the dollars and euros they could create through trade cannot buy much in the countries that support the sanctions.

Naturally Russia is looking for work-arounds for this dilemma. Selling the West anything in dollars or euros no longer makes sense: They can’t use them at home without exchanging them for rubles. And sanctions make that very difficult, since they’re closed out of our banking system.

There are two ways around this. Either use Russian banks that are not banned from SWIFT or go through an informal third-country currency exchange. Russia’s first effort is to only accept payment in rubles for its exports to “hostile nations”. That is, those nations who have imposed sanctions because of Ukraine.

In order to buy Russian oil and gas which they desperately need, Europeans will have to pay in rubles. That means either selling dollars/euros for rubles or selling them for yuan (China) or rupees (India), two countries that are not part of the sanctions regime.

The West’s move has the potential to upend the world’s trading system which today relies on payments in dollars. The dollar has been the world’s principal reserve currency since the end of World War II and is the most widely used currency for settling international trade. The dollar represents about 62% of global trade, down from much higher levels before the euro was established. The other important currencies are the euro at 20.1% and the Japanese yen at 5.7%. China’s yuan is at just 2.0% of trade settlements.

It is increasingly likely that Russia’s move will result in a further “de-dollarization” of trade. Recently, there have been new attempts to abandon the dollar. Saudi Arabia and China are planning to use the yuan in a new oil deal. Russia and India are negotiating to pay for trade in rupees.

China’s energy trade with Russia uses the dollar. Chinese energy imports from Russia soared 47.4%, an increase of more than $52.9 billion from 2021. This accounts for more than 65% of China’s total imports from Russia. Since the sanctions, both countries have stated their intention to move more of this trade to yuan.

A new multilateral financial system is emerging before our eyes. Who the participants will be, and what rules they will follow, are up in the air. The dollar will remain primary between the US and its allies, but alongside it, there could develop Russia-yuan, Saudi-yuan and India-yuan arrangements for trade in oil, minerals, and industrial products. Shifting just part of the global oil trade into the yuan is potentially huge. Oil is the world’s most traded commodity, with an annual trade value of around $14 trillion, roughly equivalent to China’s GDP last year.

We’re likely to see more trade occurring in more currencies, probably on a number of exchanges. We will see the world realign into different trading and monetary blocs, like there were in the past.

However the Ukraine war is settled, the Russian claims that the US has shot itself in the foot about the dollar’s dominating role in trade has a ring of truth. In the past, the US took Iran’s reserves after the Shah was overthrown. We froze Afghanistan’s foreign reserves earlier this year and now the West has done the same to Russia. A few years ago, the UK froze Venezuela’s gold in the Bank of England.

These systems are built on trust, and for the next few decades, trust may be lacking. So we’re looking at the possibility that there will be two quite different geo-political philosophies operating as trading partners as the non-US world develops its alternatives to the dollar as the world’s dominant trading currency.

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Monday Wake Up Call – March 28, 2022

The Daily Escape:

Soaptree Yucca at sunset, White Sands, NP – March 2022 photo by SkyVista Photography by Steve Luther

Biden ended his four days in Europe with a speech. It was designed as a call to democratic countries to stay unified even as Putin’s forces trash Ukraine. But with nine ad-libbed words at the end of a 27-minute speech, Biden created a furor by calling for Russia’s President Vladimir Putin to be pushed out of office. Biden said:

“For God’s sake, this man cannot remain in power,”

That last line was a logical conclusion to Biden’s argument in the speech about the struggle between democracy and autocracy. But it prompted many pundits to treat what Biden said as a gaffe, since it changed his long-standing insistence that the US is not engaging in regime change but is supporting Ukraine’s right to exist.

From Charlie Sykes:

“The moment was electrifying — a sort of “Mr. Gorbachev, tear down this wall” moment — until the White House hastily walked it back, insisting that what the president really meant to say was that the butcher of Ukraine should not be allowed to exercise power over his neighbors.“

Sykes says: “Biden had it right the first time.” David Rothkopf hit the nail on the head with his reaction:

“There is within Biden’s comment a kernel of truth….Vladimir Putin can’t lay waste to a country, kill tens of thousands of civilians, commit serial war crimes, and expect to be welcomed back into the community of nations. If Russia wants to be part of the community of nations, then they are going to have to produce change.”

Support for Biden’s idea also came from former Russian Chess champion Gary Kasparov, who said what the world is thinking:

This is precisely correct. Many pundits are critical of Biden for saying something provocative. But there shouldn’t be a resumption of the status quo ante, even once there’s an agreement between Russia and Ukraine. By attacking Ukraine, Russia has become a pariah state. It will remain so as long as it threatens its neighbors and as long as Putin is in power.

There can be no lifting of sanctions or concessions of territory (unless Ukraine insists on conceding it), and no reward or face-saving after the fact for Putin’s War.

Biden’s goal isn’t to negotiate an end to the war. If Ukraine wants to make concessions to Putin which allow him to keep huge chunks of their country, pay no price for the damage he’s done, do nothing to rebuild Ukraine’s flattened cities, and wait a minute until the sanctions are lifted, they can make that call themselves. Neither Biden nor our allies should press that kind of decision on them.

But let Wrongo be the first to say that Russia must be made to pay reparations for the destruction of infrastructure in Ukraine. And keeping sanctions in place until Russia pays up is the right thing to do. You don’t just get grounded for a week when you invade another country.

Russia must leave Ukraine and pay reparations. Russia must work to rejoin the community of nations. That means reestablishment of normal diplomatic and economic relationships. That won’t be possible with Putin in charge.

Russia’s military leadership certainly understands this. And they’re the ones who will have to remove Putin from power and negotiate the peace. So Biden’s frank talk makes transparent what was sub-rosa: The West is using Putin’s War as a way to weaken him to the point where he is ousted from power.

So, when pundits and foreign policy experts get upset with Biden, saying that he gave Putin less reason to negotiate, you have to ask what is there to negotiate? And who, other than Zelensky, should be negotiating with him?

Putin will leave office one way or another, and what Biden said didn’t change that.

It’s time for the pundits and foreign policy wonks to wake up! While it’s true that words matter and can sometimes express risky things that cannot be taken back, what Biden said was worth saying. Biden wasn’t talking to Putin; he was speaking to Russians with the power to remove Putin. And that’s the right strategy.

To help them wake up, listen to Sting reprise his song “Russians” originally from his 1985 debut album titled “The Dream of the Blue Turtles”. The tune was based on the Cold War. Here is his March 2022 version for guitar and cello:

Sting says:

”I’ve only rarely sung this song in the many years since it was written, because I never thought it would be relevant again. But, in the light of one man’s bloody and woefully misguided decision to invade a peaceful, unthreatening neighbor, the song is, once again, a plea for our common humanity.”

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Russia’s Repeating its Syrian Strategy in Ukraine

The Daily Escape:

Quiet stream, rural NH – March 2022 photo by Betsy Zimmerli

There are lessons from history that inform what Putin is doing in Ukraine. First, Syria demonstrates how Putin intends to operate. Putin got Russia involved in Syria in 2015 and helped Bashar al-Assad take back control of most of the country.

One part of Syria that isn’t under control is Idlib Province. That’s because Russia’s Syrian strategy was intense aerial bombardment of cities, followed by the establishment of temporary “humanitarian corridors”. That pushed civilians and fighters eventually into Idlib.

During the Syrian civil war, the Russian and Syrian militaries systematically besieged opposition-held cities, towns, and districts. They rained destruction on the populations with airstrikes, artillery and rockets blasting residential districts, hospitals, and infrastructure.

Eventually, the Russians and Syrians offered humanitarian corridors, allowing civilians and fighters to leave, and be funneled into the northwest province of Idlib. Idlib remains today the last opposition-held part in Syria. Hundreds of thousands of people used the corridors to get out of the war zones. The largest and most notorious example was the evacuation of Aleppo City in 2016, ending four years of siege. These internally displaced Syrians now make up about two-thirds of the 3 million people living in Idlib province. It is still surrounded by Syrian forces and is still hit by Russian airstrikes.

It’s now clear that Putin will bomb Ukrainian cities much like the carpet bombing of Grozny in Chechnya, or Aleppo in Syria. What’s happening on the ground in Ukraine should sound familiar to anyone who watched Russia in Syria. Here’s an up-to-date map of the military conditions in Ukraine from the UK Defence Intelligence Agency:

The map shows that despite many setbacks, Putin’s forces are close to (if they are not already) surrounding Kyiv. If you note the map legend showing “Assessed Encirclement” areas, those are places that the Russians have either captured, or are close to surrounding. They include most major Ukrainian cities.

In response, the Ukraine government in conjunction with the Russian military, have announced humanitarian corridors to allow civilians to leave cities where there is fighting between the Russian and Ukrainian armies.

In Syria, this strategy was effective. The Syrian government regained control by removing large opposition populations, many of whom remain unable to return to their home cities and towns.

This is Putin’s plan for Ukraine. Create a pocket within Ukraine that can be cut off from most resources, a rump state where most of the opposition is located. Damage or destroy most of its infrastructure. Leave it as a broken state unable to exist without outside humanitarian support. That rump state might be as small as a province, or as large as the majority of Ukraine west of the Dnieper river, as Wrongo has suggested.

A second lesson was learned by the Soviet Union’s military in Hungary. Russia’s military won’t repeat their Hungarian experience in Ukraine. In 1956, Hungarians attempted to overthrow their pro-Soviet leadership. In October 1956, the Soviets sent tanks into Budapest to crush the uprising. Many Hungarians, (called “freedom fighters” by the West), rose up against the Soviet invaders. From History.net: (emphasis by Wrongo)

“Incorrectly assuming that the sight of Soviet armor rumbling through the Hungarian capital would quickly cow Budapest’s restive population, Kremlin leadership sent in tanks without the support of infantrymen….Over the next several days, small teams of Hungarian freedom fighters throughout Budapest took on the Soviet tanks, sniping at…crewmen or destroying the vehicles with Molotov cocktails.”

The freedom fighters’ most effective tactic was the “decoy and ambush,” where a decoy team fired at a Soviet tank to attract the crew’s attention and then fled down a side street to lure the tanks into a predetermined “kill zone.” This hubris on the part of the Soviets was a mistake that wasn’t repeated in Grozny and will not be repeated in Ukraine. Hungary didn’t achieve its freedom until 1991 when the USSR collapsed.

But have the US and NATO learned any useful lessons? The West has two conflicting goals in Ukraine. First, imposing strategic defeat on Russia. And second, defending Ukraine’s sovereignty. If our only goal was protecting the sovereignty of Ukraine, then our available options might include putting boots on the ground or imposing a No Fly Zone. But we’re not willing to do either one.

Peter Pomerantsev, a Soviet-born British journalist said the West:

“is doing an AMAZING job…of responding to 2014. That’s when we needed sanctions and arming Ukrainians. We’re ‘winning’ the last war. Not sure we’ve quite caught up with this new one yet.”

The US has discussed an arms lend-lease program for Ukraine. Alexander Vindman asks where are the: (parenthesis by Wrongo)

“…medium- and long-range air defense systems, antitank weapons (beyond the Javelins that have already been provided), advanced extended-range antiarmor capabilities, coastal defense systems, high mobility artillery, and critically important UCAVs” (drones)?”

The West is dithering on the correct level of support for Ukraine. If the US and NATO provided lethal aid via lend-lease, there’s a risk that Russia will escalate. But there’s a better chance that they will not.

It would be a gamble for Putin to escalate, and it’s a gamble for Biden to provide the weapons. Our reaction so far says that the US has lost its nerve without saying the US has lost its nerve.

Sorry Ukraine, we can’t follow your example.

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Russian Sanctions: Who Blinks First?

The Daily Escape:

Secret Canyon, Moab, UT – February 2022 photo by Klaus Priebe Photographer

Collateral damage from the US and European sanctions is growing. One question is whether the West will blink before Russia.

First, a few words about Putin’s strategy. It doesn’t seem that Putin was intent on “recreating the Russian Empire” as many pundits said. Instead, he’s going to partition Ukraine, with Russia controlling Ukraine east of the Dnieper River. That includes much of Ukraine’s industrial base. The southern part of Ukraine contains 13 seaports. In 2021, they exported over 150 million tons of cargo, representing 60% of exports and 50% of imports for Ukraine. Russia has already ended Ukraine’s access to the Black Sea.

When hostilities end, Ukraine will be a land-locked country.

The Russian army will ensure that what is left of Ukraine west of the Dnieper is a broken, third-world country. The indiscriminate missile, artillery and bombing in Ukraine’s west shows that is their intent. Whatever remains of western Ukraine will be the buffer state that Putin wanted prior to the start of his war. In the end, NATO will be forced to agree to a buffer state that is smaller and much weaker than the one NATO originally refused to agree to.

The US strategy for Ukraine had several elements. First, to make the cost of Putin’s War so harsh that he wouldn’t proceed, or after proceeding, would cause him to look for an early way to end hostilities before both were badly damaged: Ukraine by Russian weapons, and Russia by Western sanctions.

Another strategy was to get Germany to reduce its dependence on Russian gas. That has begun. Last week Germany unveiled plans for a terminal to import liquefied natural gas (LNG). Germany currently has no LNG import terminals.

It shouldn’t be a surprise then to learn that the US is the prime producer and exporter of LNG, ahead of Qatar and Russia. But LNG delivered to Europe is 50% more expensive than the gas delivered by pipeline from Russia. It’s true that there’s plenty of European LNG capacity besides Germany’s new planned facility. From the National Law Review: (emphasis by Wrongo)

“The current large-scale LNG receiving countries in Europe are Belgium (one terminal), France (four terminals), Greece (one terminal), Italy (three terminals), Lithuania (one terminal), Malta (one terminal), the Netherlands (one terminal), Poland (one terminal), Portugal (one terminal), Spain (six operational), Turkey (four terminals) and the UK (three terminals). Collectively, their overall LNG capacity is 237 billion cubic meters (of gas)…which is sufficient to cover approximately 40% of Europe’s gas demand.”

It’s possible to reduce German reliance on Russian gas imports, but they can’t easily achieve total independence. Substantially higher gas prices would definitely hurt the competitiveness of German industry, and slow global economic growth. It could become German economic suicide.

A third US strategy was that Putin’s rush into Ukraine would lead to a stalemate on the ground, and that sanctions would lead to a change of government in Russia. Then the new government might turn more towards the West.

The calculation was that Russia can’t win a major (non-nuclear) war without the economic support of the West through purchases of gas, and exports of technology. We’ve discussed natural gas. Protocol’s report on Russia’s dependence on foreign chips found that European and US companies sell them a lot of microprocessors, while their memory chip imports come mostly from South Korea and the US. All are now embargoed.

It’s possible that in executing these strategies, we’re burning up the world’s economy at the same time. These strategies have helped push oil prices above $130 a barrel. Natural gas prices have shot up to over $3,900 per 1,000 cubic meters for the first time in history. This will destabilize more than a few EU countries. As we wrote, the Ukraine war has slashed wheat exports, which will lead to high food prices and shortages in countries that rely on wheat from Russia and Ukraine.

We must be careful that we aren’t sanctioning ourselves. We already have a blowback effect on the sanctions inflicted on Russia. We may see double-digit inflation globally before the end of the year.

It’s possible that every dollar of Republican and Democratic campaign spending for the November mid-terms will be spent on stickers for gas pumps: The Republican sticker will feature Biden saying “I did this” while pointing at the price on the gas pump.

The Democrats’ sticker will feature Putin pointing at the gas prices and saying, “I did this”.

Then campaign workers will spend all of their time pasting one over the other’s sticker.

Pick your poison.

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