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How Russia Can Retaliate for the Saudi-Driven Collapse in Oil

Back Iran to stir up Iran-Saudi tension and drive the price of oil back up

This article originally appeared at Zero Hedge

A week ago we explained that yet another conspiracy theory, one involving virtually every geopolitical hotzone, from Saudi Arabia, to Russia, the United States, Qatar, Syria, ISIS, and Ukraine, has become fact when our speculation from last September, namely that the plunge in oil was an choreographed move between the US and the Saudis (even if Kerry realized - we hope - that it meant a recession for the US energy producing states and a collapse in the only vibrant US industry of the past decade: shale), one seeking to dislodge Russian control over the Syrian government and to facilitate the passage of a Qatar pipeline under Syrian territory.

<figcaption>Saudi officials told the United States — that they think they have some leverage over Mr. Putin </figcaption>
Saudi officials told the United States — that they think they have some leverage over Mr. Putin

This is what the NYT said: "Saudi Arabia has been trying to pressure President Vladimir V. Putin of Russia to abandon his support for President Bashar al-Assad of Syria, using its dominance of the global oil markets at a time when the Russian government is reeling from the effects of plummeting oil prices."

The NYT added:

Saudi Arabia and Russia have had numerous discussions over the past several months that have yet to produce a significant breakthrough, according to American and Saudi officials. It is unclear how explicitly Saudi officials have linked oil to the issue of Syria during the talks, but Saudi officials say — and they have told the United States — that they think they have some leverage over Mr. Putin because of their ability to reduce the supply of oil and possibly drive up prices.

That's the quo. As for the quid, it is as we predicted:

Any weakening of Russian support for Mr. Assad could be one of the first signs that the recent tumult in the oil market is having an impact on global statecraft. Saudi officials have said publicly that the price of oil reflects only global supply and demand, and they have insisted that Saudi Arabia will not let geopolitics drive its economic agenda. But they believe that there could be ancillary diplomatic benefits to the country’s current strategy of allowing oil prices to stay low — including a chance to negotiate an exit for Mr. Assad.

"Russia has been one of the Syrian president’s most steadfast supporters, selling military equipment to the government for years to bolster Mr. Assad’s forces in their battle against rebel groups, including the Islamic State, and supplying everything from spare parts and specialty fuels to sniper training and helicopter maintenance."

To be sure, the  Chairman of the Russian State Duma International Committee Alexei Pushkov promptly rejected all the NYT allegations, writing on his Twitter account:

“There were no negotiations with the Saudis to decrease oil production in exchange for Moscow’s refusal to support Assad. Hoax.”

... but that was to be expected - after all it is not as if the two powers are on friendly terms, plus the NYT leak was meant to push the fulcrum of leverage away from Russia.  What is certain, however, is that Putin couldn't care less about his "friend" Assad, but he cares very much about Gazprom preserving its near-monopolistic dominance as marginal energy provider to Europe of last resort, one which gives Russia as much leverage over the bulk of Europe as the ECB's printing press, if not much more: Draghi's outside money only reaches about 1% of the population; Gazprom's heat reaches everyone.

However, what is key in the above chain is that while the Saudis (and Qataris) have been orchestrating events in the middle east, using the US as a diplomatic patsy, one which has provided a convenient strawman over the past year in the form of ISIS, or the same anti-Assad jihadist rebels that the same US was arming actively as recently as late 2013, the US has been carefully managing the second front in the war of European energy dominance, that involving Ukraine.

It is not secret that the chain of events that have transpired in Kiev over the past year, starting with the coup of then president Yanukovich and the preceding "Euromaidan" violence were to a great extent orchestrated by the US as the infamous "Fuck the EU" recording revealed.

Incidentally, "fucking the EU" is precisely what the US state department did, because the subsequent chain of events including economic sanctions and diplomatic pressure on Russia by the White House backfired, led to a plunge in European trade with Russia and was directly responsible for Europe's triple-dip recession of 2014.

Well, it helped one group of people: the 0.1% who benefit from the subsequently start of Europe's own QE, whose proximal catalyst was none other than the western "isolation" of Russia.

But while so far the Ukraine gambit has backfired on the west - not completely: after all, one or more western buyers did manage to "acquire" all of Ukraine's dozens of tons of gold at firesale, or lower, prices - the Saudi escalation, which is about to lead to one or more state level recessions in US oil producing regions and then, to a major economic deterioration at the national level, has indeed managed to hurt Putin far more than any trivial developments involving Ukraine (which just so happens is now ex-Crimea thanks to Victoria Nuland's strategic brilliance).

As such, while Putin may be laughing about Obama's impotence to creat any impact on the foreign arena, and is generally oblivious to what the US lame duck president does, the same can not be said of Saudi Arabia, which is very clearly involved in the global proxy war which now stretches to several continents and many countries, and whose ultimate goal is a traditional one: energy.

And since it is a proxy war, as the US demonstrated when it involved Ukraine in what is really a fight over the future of European energy dependence (be it on Russia or Qatar), Russia has every right to contemplate how it may retaliate to any additional US escalation in Urkaine. In a proxy fashion.

Which is why we were rather shocked to read what the Moscow Times wrote in an article today, in which it said that "U.S. provision of military aid to Ukraine would be seen by Moscow as a declaration of war and spark a global escalation of Ukraine's separatist conflict, Russian defense analysts said. With Russia-backed rebels in eastern Ukraine seizing new territory from the Ukrainian army, voices in Washington are demanding that Kiev be given defensive weapons and hardware — including lethal equipment — to hold the line."

But if such aid were sent, "Russia would reasonably consider the U.S. to be a direct participant in the conflict," said Evgeny Buzhinsky, a military expert at the Moscow-based PIR Center.

That is not the shocking part: in fact, it has been largely anticipated for a long time. What is, however, is the following stark admission that in the next round of retaliatory escalations, sparks will fly. Literall:

"Russian defense analysts polled by The Moscow Times said unanimously that U.S. arms transfers to Ukraine would be interpreted in Moscow as a declaration of open proxy war with Russia and inevitably lead to escalation of the conflict.

"It would become tit-for-tat," said Maxim Shepovalenko, an analyst at the Moscow-based Center for the Analysis of Strategy and Technology (CAST).

"Moscow will not just sit by calmly and see what happens, it will counteract," he said."

As for the target? Well, one could say they saw it coming from a desert away:

The Russian counterstrike could take the conflict far beyond Ukraine, according to the source on the Defense Ministry's public advisory board.

Pointing to one possible avenue of asymmetrical retaliation, the source said Moscow could give in to long-standing Chinese requests for sensitive defense technologies that would aid in its development of high-tech weapons capable of doing serious damage to U.S. naval forces in the Asia-Pacific. Moscow has so far declined China's requests on "politically correct pretenses," the source said.

The punchline:

"That's just one example. We can also encourage Iran, or even back Iran in a fight — a military operation — with Saudi Arabia, so then the prices for oil will skyrocket," the source said, explaining that these were just two possible responses.

Simple and elegant: if the US does everything in its power to deflect attention from the ongoing conflict for the control of Syria by backing a proxy civil war in Ukraine merely meant to keep Moscow off guard, a civil war that Ukraine and the west are now perilously close to losing, Russia will retaliate, but not in Kiev - that's irrelevant.

It will do so where the pain to the west would be greatest: in Saudi Arabia, the place that is the true ground zero of all Russian hurt in the past 6 months, ever since oil started tumbling from $100, and continued following the historic collapse of OPEC on Thanksgiving Day 2014, where Saudi Arabia unilaterally decided to crush the price of oil indefinitely, or until Putin comes crawling, and begging for a Saudi oil supply halt, in exchange for al-Assad's head on a silver platter.

Well, that may happen... or if the US does arm Ukraine, Russia may just do everything in its power to take the proxy war away from Ukraine, and right into the hornets' nest of the House of Saud itself.

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