China and Russia, a symbiotic alliance


There are daily references to the “new” Cold War but, is it a new Cold War or simply a continuation of one that was put on hold? The animosity toward and fear of Russia has never entirely left the mindset of the West and the former East European satellites of the USSR. Russia, with its huge landmass, large standing military and nuclear arsenal has remained a potential threat to the West since 1990 and the incidents in Crimea and the Ukraine have served to reawaken the dormant fear.

Europe, having been involved in conflicts, some cold some hot, since the 1600s with Russia, has never felt comfortable with the Bear looming over them to the East. Russia, on the other hand, has never felt entirely at ease with the West on its western borders but the Soviet East European satellites served as a bulwark. Once that security buffer zone went in 1990, Russia has felt exposed and highly sensitive to any attempts by the West to bring NATO closer to their doorstep. Thus, the move to protect their Crimean warm water seaport in the Black Sea and prevent the Ukraine from joining EU and eventually, NATO.

The West’s interpretation of these moves as a threat to the EU or East Europe is a US concoction to neutralize a resurgent Russia as a geopolitical competitor. The US talks up commercial competition but cannot abide political competition.

Europe and the US, although acting in concert on sanctions on Russia, also have different considerations. Europe is dependent on Russia for energy and the US relies on Russia only for dealing with Iran and North Korea and negotiating nuclear pacts so, the US can afford to be more aggressive against Russia. There also seems to be a strong personal antipathy between Obama and Putin that goes far beyond geopolitics

Russia is under increasing economic pressure in the form of sanctions by the US and its European allies and the only thing restraining the US from imposing more severe sanctions is a possible reduction of energy exports during the coming winter season by Russia to Europe.

Russia, on the other hand, has few retaliatory weapons it can exercise, such as refusal to participate in six party negotiations with North Korea and the nuclear talks with Iran but what it needs are economic ones and as I see it, there are two very formidable ones:

The first, already in process, are the recent agreements to supply China with natural gas beginning in 2018. The eastern pipeline route will supply 30 billion cubic metres annually and a western supply route could supply as much as 100 billion cubic metres per year. Once that happens it will not be Russian that is under pressure, but Europe. Russia will no longer be dependent financially on Europe for sale of its natural gas and it could begin to shift those European supplies to China. Europe may well regret kowtowing to the US because the only alternative to Russian natural gas would be LNG sourced by tanker from the US. This would benefit the US gas producers but punish Europe with much more expensive LNG. In addition to the expensive ocean LNG tanker transport cost it would be necessary to build LNG liquefaction facilities at European ports and, from there, build pipelines to the European countries. Europe should be very worried indeed.

This prospect for relief for Russia is still about four years away and, in the meantime, The Bear, having been pushed into the embrace of the Dragon by the US, is forging closer ties with China than they have had since 1960. China has stayed  well away from disputes about the Ukraine and Crimea  but, the US pivot to Asia is aimed squarely at China so, building military and commercial ties with Russia, itself an Asian power, will create a powerful counterbalance to the US moves in the region.

The second attractive export Russia can offer China is hi-tech weaponry. China, suffering from the US ban on export of hi-tech weapons is now turning to Russia, which has a ready supply of advanced aircraft, submarines, air defence systems and ballistic missiles. So, two large sources of revenue from China will help Russia weather the US imposed sanctions storm.

Finally, there is the fragile US economy that relies to a great extent on the US dollar being the global reserve currency. Russia, China and several other countries have been agitating for some time to end the dollar’s reserve currency status by replacing it with a basket of currencies, a proposal supported by two increasingly influential political/economic blocs: SCO (Shanghai Cooperation Organisation (six country members with Russia and China the founding members) and BRICS (Brasil, Russia, India, China and South Africa. In addition, the IMF, knowing that the dollar’s day as a reserve currency are numbered, has already laid out a plan for substitution of SDRs (Special Drawing Rights) for dollars as a reserve currency.

Since the US depends on the reserve currency status of the US dollar to borrow money at will at low interest rates, loss of reserve status would end the US economic hegemony and likely either cause the US economy to collapse or create enormous damage. Either way, the US would no longer be in a position to impose itself on Russia or, any other country. No more cheap money to finance wars, no more cheap money to buy homes and cars and, with manufacturing having been outsourced, the US would have little to sustain its economy.









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