So How's That Economic War on Russia Faring?

What is clearly visible so far are the great mutual economic costs - including to the West itself, but no sign of the west accomplishing its goals of weakening Putin or changing Moscow's course whatsoever

Wed, Aug 19, 2015
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Pointless, costly war started by west

This article also appeared at The Kremlin Stooge


Some Day, We’ll Look Back at This, and Laugh. And there’s no time like the present.

It was nice of Al Gore to invent the Internet, because it offers unparalleled comedic opportunities to recapture moments in time when puffed-up and self-important toads made confident predictions which later made them look like the arrogant blowhards they are.

And if you write “I am an arrogant blowhard” on your résumé, you will have just doubled your chances of being hired as whatever they are calling a journalist these days, at The Guardian.

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Exemplary of The Guardian‘s forecasting where Russia is concerned – and The Guardian never met a Russian it didn’t hate, unless they were an oligarch expat, a political dissident or a member of Pussy Riot – is this gem by The Guardian‘s “Economics Editor”, Larry Elliott; “Russia Has Just Lost the Economic War With the West”.

For those who don’t remember when the west’s economic war against Russia started, it actually kicked off with a skirmish, in which the USA stopped service in Russia to holders of Visa and Mastercard at certain sanctioned banks in Russia, back in the spring of 2014.

Customers found that their cards did not work and their accounts were frozen. Russian media promptly pointed out that American credit-card companies “had a record of bowing to political decisions from Washington”; the government imposed a security deposit fee equal to two days worth of transactions in Russia, which would cost the companies $1.9 Billion (Visa) and $1 Billion (Mastercard), and Morgan-Stanley issued a report which suggested the two credit-card giants would be better off terminating their operations in Russia, where they together had 90% of market share.

For his part, the Russian president announced that Russia would develop its own national payment system and greatly reduce its dependence on western credit-card companies.

It’s hard for me to see that as a western victory. Visa and Mastercard squealed like pigs, Russia introduced a prototype domestic card (Mir) which Mastercard signed on to co-brand, and Mastercard and Visa both humbly signed on to Russia’s national payment system, which moves processing to Russia.

This results in a huge loss of financial control for the western-based cards, and a bigger one is coming when Russia introduces its national replacement for SWIFT, the Society for Worldwide Interbank Financial Telecommunication.

Western regulatory authorities have long been accustomed to using SWIFT to read other countries’ financial mail, and a few years back, the USA pressured the supposedly non-partisan system to shut out Iran.

It’s unlikely America would have tried that with Russia – especially since European courts ruled that it was illegal – but a couple of big-mouthed American senators started hollering for it to be done, and that was enough.

You would think Larry Elliott would have learned something from that, but it is apparent that he did not. He had all summer and autumn to form an assessment of how things were lining up, and he guessed wrong:

“The west knows all about the vulnerability of Russia’s economy, its creaking factories and its over-reliance on the energy sector.

When the introduction of sanctions over Russia’s support for the separatists in Ukraine failed to bring Vladimir Putin to heel, the US and Saudi Arabia decided to hurt Russia by driving down oil prices.

Both countries will face some collateral damage as a result – and this could be considerable in the case of the US shale sector – but both were prepared to take the risk on the grounds that Russia would suffer much more pain. This has proved to be true.”

Is that so? Well, at least one insight in that passage was accurate – the damage caused to the U.S. shale industry was considerable. Have a look at this comical piece in The Economist, which is almost as big a failure at presenting the world as it actually is as The Guardian; the anonymous author hedges his analysis so hard that his regular reversals make the reader dizzy.

Goodrich Petroleum’s debts are six times the size of its market-value equity – but it says it has ample liquidity and may sell some stuff. 

At the start of 2015, it looked like the slaughter among the frackers would be horrific – but only 5 companies actually went bankrupt. The Saudis (treacherous dogs all) have failed to put Houston out of business – but big services companies such as Halliburton have fallen into losses and small ones are on life support.

Here’s another, in which The Economist does not make the link: the United States has increased its oil production to 13% of global output – but it supplies only about half its own consumption. It puts a happy face on this by describing its increase in production as far larger than its increase in consumption. That is indeed a bit of good news, but the USA still consumes more daily oil output than something like the next four nations combined (figures are from 2011), and about 20% of the world’s output.

The global economy is faltering as the World Bank lowers its projections for growth. Saudi Arabia, originally a partner in the effort to crush Russia’s economy, has continued to flood a glutted oil market that is now oversupplied by 800,000 barrels per day, and shows no sign of letting up. Meanwhile, Saudi Arabia and Russia inked 6 new trade agreements in June, one of which will see Rosatom operate up to 16 nuclear reactors in Saudi Arabia.

The USA put its head together with its Saudi partners, and worked out a scheme whereby OPEC would administer a short, sharp shock to the energy markets which would tip Putin out of bed – colour revolution successful at last, America gets to pick a new government, we’ve got momentum, baby! But that’s not the way it worked out at all. 

Who benefits from a weaker ruble? The resource exporters who are a main source of revenue for the Russian government. Putin remains as popular with Russians as he has been since his introduction to upper-echelon politics.

Meanwhile, in Europe, Russian sanctions coincided with perfect growing conditions and consequent overproduction to kick the British dairy industry in the slats. The Russian dairy market, by contrast, is surging, with some varieties of artisan goat cheese selling for $14.00 a pound at the supplier level. German cars and car parts exports to Russia fell more than 27% between January and August 2014.

The Russian food ban is “a nightmare” for French farmers. Even mighty Apple saw its smartphone sales cut in half in 2014 – although, despite the crisis, Russian smartphone sales overall were up 39%. American car brands joined the plunge as car sales in Russia tanked; however, the ruble began to regain strength in the first quarter and was the best-performing of more than 170 currencies tracked by Bloomberg – bear in mind that this is in the face of deliberate efforts to force it down.

The tumble in car sales slowed in July as government incentives began to have an effect – but the gains were all felt by Lada and Asian brands, and the only American car to even get on thev scoreboard was the Chevrolet Cruze. Expect western brands across the board to continue to suffer, as market replacement continues apace.

Let us not gild the lily: the economic war against Russia hurt, and for a day or two there was reason for western optimism that their attempt to backstab Putin out of office would bear fruit. But it didn’t, and Elliott’s brainless rah-rah cheerleading for Washington was torpedoed by Russian resolve and resilience.

The west now has the global opponent it thought it wanted, but market replacement and a rejection of western institutions within Russia signifies a decisive turning away from the west that will not easily be reversed, if ever. Vladimir Putin could run over a pensioner with his car on election day and still cruise to victory without breaking a sweat. None of the west’s goals of economic warfare against Russia have been realized. Not one.

It’s still too soon to say whether Russia will weather the storm Washington deliberately set in motion. But there is every reason to be optimistic if you are Russian, and no reason at all to be optimistic if you are one of Barack Obama’s foreign-policy drones. And John Kerry might as well just run off a cliff, because he has been an even worse Secretary of State than Hillary Clinton was – a benchmark I did not ever think to see surpassed, never mind so quickly.

As a recent Russia Insider article warned, there’s no surer way to lose the next war than to live in delusion about your own strength.

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