There’s the fate of the petrodollar to consider.

The Birth of a Eurasian Century

Huffington Post 

May 19, 2014

By Pepe Escobar

A specter is haunting Washington, an unnerving vision of a Sino-Russian alliance wedded to an expansive symbiosis of trade and commerce across much of the Eurasian land mass – at the expense of the United States.

And no wonder Washington is anxious. That alliance is already a done deal in a variety of ways:

  • through the BRICS group of emerging powers (Brazil, Russia, India, China, and South Africa);
  • at the Shanghai Cooperation Organization, the Asian counterweight to NATO;
  • inside the G20; and
  • via the 120-member-nation Non-Aligned Movement (NAM).

BildTrade and commerce are just part of the future bargain. Synergies in the development of new military technologies beckon as well. After Russia’s Star Wars-style, ultra-sophisticated S-500 air defense anti-missile system comes online in 2018, Beijing is sure to want a version of it. Meanwhile, Russia is about to sell dozens of state-of-the-art Sukhoi Su-35 jet fighters to the Chinese as Beijing and Moscow move to seal an aviation-industrial partnership.

BildThis week should provide the first real fireworks in the celebration of a new Eurasian century-in-the-making when Russian President Vladimir Putin drops in on Chinese President Xi Jinping in Beijing. You remember Pipelineistan , all those crucial oil and gas pipelines crisscrossing Eurasia that make up the true circulatory system for the life of the region. Now, it looks like the ultimate Pipelineistan deal, worth $1 trillion and 10 years in the making, will be inked as well. In it, the giant, state-controlled Russian energy giant Gazprom will agree to supply the giant state-controlled China National Petroleum Corporation (CNPC) with 3.75 billion cubic feet of liquefied natural gas a day for no less than 30 years, starting in 2018.

That’s the equivalent of a quarter of Russia’s massive gas exports to all of Europe. China’s current daily gas demand is around 16 billion cubic feet a day, and imports account for 31.6% of total consumption.

Gazprom may still collect the bulk of its profits from Europe, but Asia could turn out to be its Everest. The company will use this mega-deal to boost investment in Eastern Siberia and the whole region will be reconfigured as a privileged gas hub for Japan and South Korea as well…Bild

There’s the fate of the petrodollar to consider.

And then, talking about anxiety in Washington, there’s the fate of the petrodollar to consider, or rather the “thermonuclear” possibility that Moscow and Beijing will agree on payment for

  • the Gazprom-CNPC deal not in petrodollars but in Chinese yuan.

One can hardly imagine a more tectonic shift, with Pipelineistan intersecting with a growing Sino-Russian political-economic-energy partnership. Along with it goes the future possibility of a push, led again by China and Russia, toward

  • a new international reserve currency – actually a basket of currencies – that would supersede the dollar (at least in the optimistic dreams of BRICS members).

Right after the potentially game-changing Sino-Russian summit comes a BRICS summit in Brazil in July. That’s when

  • a $100 billion BRICS development bank, announced in 2012, will officially be born as a potential
  • alternative to the International Monetary Fund (IMF) and the World Bank as a source of project financing for the developing world. More BRICS cooperation meant to bypass the dollar is reflected in the
  • Gas-o-yuan,” as in natural gas bought and paid for in Chinese currency.

(Gazprom delivering gas to China.

China Gazprom paying in Yuan (convertible into Rubles)

Gazprom funding itself increasingly in Yuan.

Russia buying Chinese goods and services in Yuan (convertible into Rubles))

Gazprom is even considering marketing bonds in yuan as part of the financial planning for its expansion. Yuan-backed bonds are already trading in Hong Kong, Singapore, London, and most recently Frankfurt. Nothing could be more sensible for the new Pipelineistan deal than to have it settled in yuan.

Beijing would pay Gazprom in that currency (convertible into rubles); Gazprom would accumulate the yuan; and Russia would then buy myriad made-in-China goods and services in yuan convertible into rubles.

It’s common knowledge that banks in Hong Kong, from Standard Chartered to HSBC — as well as others closely linked to China via trade deals — have been diversifying into the yuan, which implies that it could become one of the de facto global reserve currencies even before it’s fully convertible. (Beijing is unofficially working for a fully convertible yuan by 2018.)…

Of course, the U.S. dollar remains the top global reserve currency, involving 33% of global foreign exchange holdings at the end of 2013, according to the IMF. It was, however, at 55% in 2000. Nobody knows the percentage in yuan (and Beijing isn’t talking), but the IMF notes that reserves in “other currencies” in emerging markets have been up 400% since 2003…Bild

Despite recent serious financial struggles, the BRICS countries have been consciously working to become a counterforce to the original and – having tossed Russia out in March – once again Group of 7, or G7. They are eager to create a new global architecture to replace the one first imposed in the wake of World War II, and they see themselves as a potential challenge to the exceptionalist and unipolar world that Washington imagines for our future… Well, there is a plan BRICS – or so the BRICS nations would like to think, at least. And when the BRICS do act in this spirit on the global stage, they quickly conjure up a curious mix of fear, hysteria, and pugnaciousness in the Washington establishment.

Take Christopher Hill as an example…, a consulting firm deeply connected to the White House and the State Department. When Russia was down and out, Hill used to dream of a hegemonic American “new world order.”  Now that the ungrateful Russians have spurned what “the West has been offering” – that is, “special status with NATO, a privileged relationship with the European Union, and partnership in international diplomatic endeavors” – they are, in his view, busy trying to revive the Soviet empire. Translation: if you’re not our vassals, you’re against us. Welcome to Cold War 2.0…

Embedded in the mad dash toward Cold War 2.0 are some ludicrous facts-on-the-ground: the

  • U.S. government, with $17.5 trillion in national debt and counting, is contemplating a financial showdown with
  • Russia, the largest global energy producer and a major nuclear power, just as it’s also promoting an
  • economically unsustainable military encirclement of its largest creditor, China…Bild

The (unstated) BRICS long-term plan involves the creation of an alternative economic system featuring

  • a basket of gold-backed currencies that would bypass the present America-centric global financial system.

(No wonder Russia and China are amassing as much gold as they can.) The euro – a sound currency backed by large liquid bond markets and huge gold reserves – would be welcomed in as well… When the

  • disputes between China and its neighbors in the South China Sea and between that country and Japan over the Senkaku/Diaoyou islands meet
  • the Ukraine crisis, the inevitable conclusion will be that both
  • Russia and China consider their borderlands and sea lanes private property and aren’t going to take challenges quietly – be it via NATO expansion, U.S. military encirclement, or missile shields.

Neither Beijing nor Moscow is bent on the usual form of imperialist expansion, despite the version of events now being fed to Western publics.  Their “red lines” remain essentially defensive in nature, no matter the bluster sometimes involved in securing them.

Whatever Washington may want or fear or try to prevent, the facts on the ground suggest that, in the years ahead,

  • Beijing, Moscow, and Tehran will only grow closer, slowly but surely creating
  • a new geopolitical axis in Eurasia.

Meanwhile, a discombobulated America seems to be aiding and abetting the deconstruction of its own unipolar world order, while offering the BRICS a genuine window of opportunity to try to change the rules of the game. 

In Washington’s think-tank land, the conviction that the Obama administration should be focused on replaying the Cold War via a new version of containment policy to “limit the development of Russia as a hegemonic power” has taken hold. The recipe: weaponize the neighbors from the Baltic states to Azerbaijan to “contain” Russia…

Yet as much as the U.S. may fight the emergence of a multipolar, multi-powered world, economic facts on the ground regularly point to such developments. The question remains:

Will the decline of the hegemon be slow and reasonably dignified, or will the whole world be dragged down with it in what has been called “the Samson option”?

 Bild(The name is a reference to biblical character Samson who pushed apart the pillars of a Philistine temple, bringing down the roof and killing himself and thousands of Philistines who had captured him, crying out „Let me die with the Philistines!“)

While we watch the spectacle unfold, with no end game in sight, keep in mind that a new force is growing in Eurasia, with the Sino-Russian strategic alliance threatening to dominate its heartland along with great stretches of its inner rim…

Pepe Escobar is the roving correspondent for Asia Times/Hong Kong, an analyst for RT, and a TomDispatch regular.  

Russia’s military modernisation

The Economist    

May 24th  2014             Bild

THIS week Vladimir Putin said he had ordered 40,000 of his troops, strung along the border with Ukraine since March, back to barracks… Russia’s president may indeed wish to avoid a ground invasion. But the deployment of large numbers of well-equipped, combat-ready troops has proved useful, to intimidate and provide psychological support for the destabilisation of eastern Ukraine by pro-Russian separatists.  

For Mr. Putin, this amply justifies the painful and expensive military modernisation he began nearly seven years ago. Any illusion that Russia could be a partner of NATO and the West has gone… It is an article of faith for the Russian president that a great power must be able to project military force. He sees the modernisation of Russia’s armed forces as a vital national interest…

A fast-rising defence budget provided more money for maintenance and training, allowing large-scale exercises to become routine, while funding pensions and housing for retired officers… But the biggest reform was a ten-year weapons-modernisation programme launched in 2010, at a cost of $720 billion. The aim was to go from only 10% of kit classed as “modern” to 70% by 2020. According to IHS Jane’s, Russia’s defence spending has nearly doubled in nominal terms since 2007. This year alone it will rise by 18.4%. Reform backed by money has transformed Russia’s military effectiveness…

The Kremlin still sees NATO as an American-led alliance intent on doing Russia down, and Mr Putin is determined to prevent its further expansion… with the army Russia now has, Mr Putin can project and concentrate superior force quickly around the country’s periphery…

Russia’s strategic nuclear forces, which absorb a third of the defence budget, are still seen as the “trump card” according to Dmitry Gorenburg of CNA Corporation, a research outfit, and are critical to preserving the capacity for autonomous action by deterring Western interference. The nuclear forces, particularly the huge number of sub-strategic systems that Russia keeps, are also a necessary hedge against a rising China. Russia does not see China as an antagonist. But its fast-growing military clout and hunger for natural resources worry the Kremlin. Russian doctrine assumes that theatre nuclear missiles will compensate for inferior conventional forces…

A big question is whether Russia can afford to devote a rising share of its GDP to the armed forces. The defence budget accounts for over 20% of all public spending. A weakening economy, lower energy prices and an ageing society will lead to hard choices. But as long as Mr Putin is in the Kremlin, defence will come first. Russia’s growing military power announces that it is back as a serious country…

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