• Monthly
  • $25
  • $50
  • $100
  • $other
  • use PayPal

Spring Donation Drive

CounterPunch is a lifeboat piggybank-icon of sanity in today’s turbulent political seas. Please make a tax-deductible donation and help us continue to fight.
FacebookTwitterRedditEmail

Ukraine’s Crisis

The referendum in Crimea on March 16, 2014 will probably attach the peninsula to the Russian federation. While it is unlikely that NATO will intervene and seek a direct military confrontation with Russia, the United States and the European Union are already cooking some broad and unwise economic sanctions with which to punish Russia. Russia, for its part, has at its disposal some mighty economic weapons with which to retaliate, as needed. The economic pain from this tit for tat of sanctions will be, in particular, inflicted on the EU. Because of the interconnections between all economies and financial markets, mutual economic sanctions could drive a still fragile world economy to a financial crash. The West, acting as if it solely and arrogantly represents the international community, has formulated a hazardous policy to isolate Russia. This ill-advised strategy is extremely shortsighted on all levels. Unlike Iran, Russia is fully integrated into the global economy.

A Test for BRICS

The Ukraine crisis is a major test of BRICS‘ geopolitical validity as an economic group, political  force and potential military alliance. China, Russia’s biggest partner in BRICS, has been strangely muted about Ukraine and the Crimea referendum, urging for “restraint on all sides” and pushing for a political solution. During the emergency meeting of the United Nations Security Council on March 15, 2014, on a resolution to declare Crimea’s referendum illegal, China did not side with Russia by using its veto power but instead abstained from voting. China’s abstention does not fare well for the future of BRICS, as it plays into the strategy of the US and its EU partner to isolate Russia. China, by its abstention from the UN vote, and India, Brazil and South Africa, by their subdued responses, have already played into the hands of the US and its European allies. Will China and other BRICS members step in forcefully to stop the madness of multilateral economic sanctions?

Dumping US Treasury Bonds

Russia, to prevent the announced freeze of its assets in the US, has already acted on the looming sanctions by liquidating more than $100 billion of its holdings in US Treasury Bonds. The bonds, which represent about 80 percent of Russia’s holding in US T-Bonds, were transferred out of the US Central Bank. The withdrawal was revealed by the US central bank when it announced that its holdings in T-Bonds dropped by $105 billion for the week ending March 12, 2014, from $2.96 trillion to $2.85 trillion. This abrupt sale is three times higher than any weekly sale was at the peak of the 2008 financial crisis.

Of all countries, China has the means to diffuse the potential economic crisis by also threatening to dump US T-Bonds. China owns an estimated $1.3 trillion in US Treasury Bonds and is the number one investor amongst foreign governments. Other BRICS members such Brazil and India own respectively $250 billion and $64 billion in T-Bonds. Consequently, the threat by BRICS members of a coordinated fire sale would represent more than $1.6 trillion in T-Bonds. This would be a powerful enough “financial weapon of mass destruction,” to quote Warren Buffet,  to crash Wall Street, the US dollar, and by a ripple effect, the European financial markets.

Economic Sanctions’ Global Boomerang Effect

China has rightly warned that drastic economic sanctions against Russia, and Russia’s subsequent retaliation could make the global economy “spiral into chaos.” Sanctions on Russian exports would greatly expose the EU. Europe imports 30 percents of its gas from the Russian state-owned company Gazprom. Russia is also Europe’s biggest customer. The EU is, by far, Russia’s leading trade partner and accounts for about 50 percent of all Russian exports and imports. In 2014, EU-Russia overall trade stands at around 360 billion Euros per year. Russia’s total export to the EU, which is principally raw materials such as gas and oil, stands at around 230 billion Euros, while Russia’s imports from the EU amount to around 130 billion Euros of mainly manufactured products as well as foodstuff. The EU is also the largest investor in the Russian economy and accounts for 75 percent of all foreign investments in Russia.

In case of Western economic sanctions, Russian lawmakers have announced that they would pass a bill to freeze the assets of European and American companies that operate in Russia. On the other side, more than 100 Russian businessmen and politicians are allegedly targeted by the EU for a freeze of their European assets. Besides Alexey Miller, head of the state-owned Gazprom, the CEO of Rosneft, Igor Sechin, is also apparently on the sanction hit list. Rosneft is the largest listed oil company in the world and, as such, has partners worldwide, including in the West. For example, the US-based company Exxon-Mobil has a $500 million oil-exploration project with Rosneft in Siberia, and Exxon-Mobil is already in partnership with the Russian giant oil company to exploit Black Sea oil reserves.

Global zero sum game or is it  fracking stupid? The US’ booming fracking business and its lobbyists in Washington view Ukraine’s crisis as an opportunity to expand into new markets. They argue that the US can provide Europe with all its gas needs and, by doing so, make obsolete Russia’s main economic weapon of shutting off EU’s main gas supply. Needless to say, this would harm the Russian economy by cutting off one of  its key sources of revenue, which amounts to $230 billion a year of export to the EU.

On paper and in theory, the plan to supply the EU with natural gas from fracking sounds manageable. Fortunately, for the sake of the environment, this idea to provide Europe with gas proudly made in the USA is a pie in the sky. Fracking has been singled out as perhaps the most damaging way to extract energy, due to its pollution of water, release of the extremely strong greenhouse gas methane, and potential to cause earthquakes. Realistically, it would take at least three years to sort out the issues of transport, storage and distribution of the US-derived natural gas for Europe. Europeans have a choice: either stick to Gazprom’s cheap and reliable gas or rely on Uncle Sam’s pipe dream for their energy needs. Military escalation is unlikely once Crimea decides to join the Russian federation: NATO doesn’t have the stomach for it. On the other hand, economic sanctions and the Russian retaliations are a recipe for disaster. This game of sanctions is a global zero sum game that could make the 2008 crash look for all of us like a walk in the park.

Gilbert Mercier is the Editor in Chief of News Junkie Post, where this essay originally appeared.

More articles by:

Gilbert Mercier is the editor in chief of News Junkie Post and the author of  The Orwellian Empire.

bernie-the-sandernistas-cover-344x550

Weekend Edition
May 17, 2019
Friday - Sunday
Melvin Goodman
Trump and the Middle East: a Long Record of Personal Failure
Joan Roelofs
“Get Your Endangered Species Off My Bombing Range!”
Jeffrey St. Clair
Roaming Charges: Slouching Towards Tehran
Paul Street
It’s Even More Terrible Than You Thought
Rob Urie
Grabby Joe and the Problem of Environmental Decline
Ajamu Baraka
2020 Elections: It’s Militarism and the Military Budget Stupid!
Andrew Levine
Springtime for Biden and Democrats
Richard Moser
The Interlocking Crises: War and Climate Chaos
Ron Jacobs
Uncle Sam Needs Our Help Again?
Eric Draitser
Elizabeth Warren Was Smart to Tell FOX to Go to Hell
Peter Bolton
The Washington Post’s “Cartel of the Suns” Theory is the Latest Desperate Excuse for Why the Coup Attempt in Venezuela has Failed
Doug Johnson Hatlem
Analysis of Undecideds Suggests Biden’s Support May be Exaggerated
Peter Lackowski
Eyewitness in Venezuela: a 14-year Perspective
Karl Grossman
Can Jerry Nadler Take Down Trump?
Howie Hawkins
Does the Climate Movement Really Mean What It Says?
Gary Leupp
Bolton and the Road to the War He Wants
Jill Richardson
Climate Change was No Accident
Josh Hoxie
Debunking Myths About Wealth and Race
David Barsamian
Iran Notes
David Mattson
Social Carrying Capacity Politspeak Bamboozle
Christopher Brauchli
The Pompeo Smirk
Louis Proyect
Trotsky, Bukharin and the Eco-Modernists
Martha Burk
Will Burning at the Stake Come Next?
John W. Whitehead
The Deadly Perils of Traffic Stops in America
Binoy Kampmark
The Christchurch Pledge and a Regulated Internet
David Rosen
Florida’s Sex Wars: the Battle to Decriminalize Sex Work
Ralph Nader
Trump: Importing Dangerous Medicines and Food and Keeping Consumers in the Dark
Brett Haverstick
America’s Roadless Rules are Not Protecting Public Wildlands From Development
Alan Macleod
Purity Tests Can be a Good Thing
Binoy Kampmark
Modern Merchants of Death: the NSO Group, Spyware and Human Rights
Kim C. Domenico
Anarchism & Reconciliation, Part II
Peter LaVenia
Game of Thrones and the Truth About Class (Spoiler Warning)
Manuel E. Yepe
The Options Trump Puts on the Table
Renee Parsons
The Pompeo/Bolton Tag Team
David Swanson
Where Lyme Disease Came From and Why It Eludes Treatment
Cesar Chelala
Lowering Your Risk of Alzheimer’s Disease
Kollibri terre Sonnenblume
Our Problems are Deeper than “Capitalism” (and “Socialism” Alone Can’t Solve Them)
Chris Zinda
Delegislating Wilderness
Robert Koehler
War’s Unanswered Questions
Robert P. Alvarez
Let Prison Inmates Vote
Barbara Nimri Aziz
A Novel We Can All Relate To
David Yearsley
Carmen’s Mother’s Day Lessons
Charles R. Larson
Review: Ziya Tong’s “The Reality Bubble”
Elliot Sperber
Pharaoh’s Dream
Elizabeth Keyes
Somewhere Beyond Corporate Media Yemenis Die
FacebookTwitterRedditEmail