The real purpose of sanctions on Russia?

7 Mar

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Ukraine cannot defeat Russia, and Nato has made clear it will not step in directly. What America and its allies will do, however, is supply arms and training to further Washington’s desire to bog down Russia – with what success it’s too early to call – in a Ukraine version of the Afghan Trap.

But ordinary Ukrainians – for whose interests Washington has, since it booted out an elected government eight years ago, shown utter disregard – will not be the only victims. Europe as a whole looks set set to pay a heavy price.

In a post on February 13, I quoted American economist and political analyst Michael Hudson:

… America no longer has the power to draw up the world’s trade and investment rules. The Eurasian heartland offers better opportunities than the USA with its increasingly desperate demand for sacrifices from NATO and other allies.

Take the U.S. drive to block Germany from Nord Stream 2 Russian gas. Merkel agreed with Trump to spend $1 billion building a new LNG port for highly priced U.S. LNG. (The plan was cancelled after US and German elections changed both leaders.)

The U.S. can only goad Russia into a military response then claim that avenging this response outweighs economic interest. As Under-Secretary of State Victoria Nuland explained in a State Department press briefing on January 27:

“If Russia invades Ukraine … Nord Stream 2 will not move forward.” 

The problem is to create a suitably offensive incident and depict Russia as the aggressor …

Yesterday, corollary arguments were made by former UK diplomat Alastair Crooke. Here, in lightly edited form, is what he wrote:

Burning Globalist Structures to Save the Globalist ‘Liberal Order’

Biden, finally, has his foreign policy ‘success’: Europe is walling itself off from Russia, China, and the emerging integrated Asian market.

In its triple strike of sanctions on Russia, the EU was not  looking to collapse the Russian financial system. Far from it: Its first instinct (with European reserves close to zero) was to continue buying Russian energy. Purchases of energy, special metals, rare earths (for high tech manufacture) and agricultural products were to be exempt. At first brush, the global financial system was to remain intact.

The aim was to block the Russian financial system’s ability to raise capital – augmented by specific sanctions on Alrosa, a major player in diamonds, and Sovcomflot, a tanker operator.

Then, on 26 February, everything changed to blitzkrieg: We’re waging all-out economic and financial war on Russia. We will collapse the Russian economy”, said French Finance Minister, Le Maire – words, he later said, he regretted.

The same day, EU, U.S. and some allies froze Russian Central Bank foreign exchange reserves. Seven banks were expelled from SWIFT. The intent was to trigger a ‘bear raid’ (mass selling) of the Rouble the following Monday to collapse its value.

The point of freezing Central Bank reserves was twofold: First, stop it propping up the Rouble. Second, create a liquidity scarcity to scare Russians into believing that some domestic banks might fail – prompting a rush at the ATMs, and a bank-run.

In August 1998, Russia defaulted on its debt and devalued the Rouble, sparking a political crisis that saw Vladimir Putin replacing Boris Yeltsin. In 2014, there was a similar U.S. attempt to crash the Rouble through sanctions and by engineering (with Saudi help) a 41% drop in oil prices.

When [German EC President] Ursula von der Leyen announced that ‘selected’ Russian banks would be expelled from SWIFT; and spelled out the near unprecedented Russian Central Bank reserve freeze, we saw a repeat of 1998. The collapse of the economy (as Le Maire said), a run on the domestic banks and the prospect of soaring inflation was meant to trigger a political crisis: this time to see Putin replaced, aka regime change in Russia, as a senior U.S. think-tanker proposed this week.

In the end, the Rouble fell but did not collapse. Rather, after an initial drop, it recovered half its early fall. Russians did queue at ATMs but a full run on banks did not materialise. It was ‘managed’ by Moscow.

What prompted the EU switch from moderate sanctions to full participation in a financial war on Russia is not clear. It may have been intense U.S. pressure, or Germany seizing an opportunity to reconfigure itself as a major military power.

And that – very simply – would not be possible without tacit U.S. encouragement.

Former Indian ambassador Melkkulangara  Bhadrakumar notes ‘that von der Leyen’s moves on February 26:

herald a profound shift in European politics. It is tempting but ultimately futile to place this shift as a reaction to Russian military operations in Ukraine. They only provide the alibi, whilst the shift is anchored on power play and has a dynamic of its own … the three developments — Germany’s decision to step up [arms spending] by an additional 100 billion euros; the EU decision to finance arms supplies to Ukraine, and Germany’s historic decision to reverse its policy not to supply arms to conflict zones — mark a radical departure in European politics since WW3. The thinking toward a military build-up, the need for Germany to be a “forceful” participant in global politics and the jettisoning of its guilt complex and get “combat ready” — all these predate the current situation around Ukraine.

The von der Leyen intervention may have been opportunism, driven by a resurgence of SPD German ambition – and perhaps by personal animus to Russia, given her family ties to the SS German capture of Kiev 1 – yet its consequences are likely profound.

To be clear, on February 26 von der Leyen pulled the plug on features critical to global financial functioning: blocking interbank messaging, confiscating foreign exchange reserves and cutting the sinews of trade. Ostensibly this ‘burning’ of global structures is to ‘save’ the liberal Order.

This must be taken in tandem with the German and EU decision to supply weapons to not just any old ‘conflict zone’ but to forces fighting Russian troops in Ukraine. The ‘Kick Ass’ parts to Ukrainian forces ‘resisting’ Russia are neo-Nazi forces with a long history of atrocities against the Russian-speaking Ukrainian peoples. Germany will be joining the U.S. in training these Nazi elements in Poland. 2 The CIA has been doing such since 2015. (So, as Russia tries to de-Nazify Ukraine, Germany and the EU are encouraging European volunteers to join in a U.S.-led effort to use Nazi elements to resist Russia, just as Jihadists were trained to resist Russia in Syria).

What a paradox! von der Leyen is building an EU ‘Berlin Wall’ – its purpose inverted now – to separate EU from Russia. And to complete the parallel, she announced that RT and Sputnik broadcasts would be banned across the EU. Europeans may only hear authorised EU messaging – though a week in, cracks are appearing in this tightly-controlled western narrative. A leading U.S. military analyst in the Daily Mail warns that:

Putin is NOT crazy and the Russian invasion is NOT failing. Believing Russia’s assault is going poorly may make us feel better but is at odds with the facts. We cannot help Ukraine if we cannot be honest about its predicament

So Biden finally has his foreign policy ‘success’: Europe is walling itself off from Russia, China, and the emerging integrated Asian market. It has sanctioned itself from ‘dependency’ on Russian natural gas (without immediate alternatives) and thrown itself in with the Biden project. Next up, the EU pivot to sanctioning China?

Will this last? Unlikely. German industry has a long history of staging its mercantile interests above wider geo-politics; and even EU interests. Germany’s business class is the political class and needs competitively-priced energy.

Whilst the rest of the world shows little enthusiasm for sanctions on Russia (China has ruled them out) Europe is in hysteria. This will not fade quickly. The new ‘Iron Curtain’ erected in Brussels may last years.

But what of the unintended consequences? The unprecedented switch-off, affecting a key part of the Globalist system, did not occur in a neutral context, but within an emotionally hyper-charged atmosphere of Russophobia.

EU states, hoping to exempt Russian energy, took no account of the Russophobic frenzy. The oil market is on strike, acting as if energy were already under Western sanctions: oil tankers were already avoiding Russian ports due to sanctions fears, and rates on Russian crude routes have exploded nine-fold in the past few days. But now, amid growing fears of complex restrictions in different jurisdictions, refiners and banks are baulking at buying any Russian oil at all, say traders and others involved in the market. Market players fear that measures to target oil exports directly could be imposed, should fighting in Ukraine intensify.

Commodity markets have been in turmoil since the Special Military Operation began. European natural gas jumped by up to 60% on Wednesday, as buyers, traders and shippers avoid Russian gas. A mix of sanctions, and commercial decisions by shippers and insurers to steer clear, has cut global supplies sharply over the last week. A default cascade by western companies is possible, supply line disruption inevitable.

Many will be affected but with Russia providing 25% of global wheat supplies, the 21% hike in wheat and 16% rise in corn prices since 1 January will be a disaster for the Middle East and elsewhere.

All this disruption comes even before Moscow responds with its own counter-measures. They have been silent so far – but what if Moscow demands that future payments for energy be in Yuan?

In sum, the changes set out by von der Leyen and the EU, with surging oil costs, could tip global markets into crisis, and set off spiralling inflation. Cost inflation, from energy costs spiralling and food disruptions, are not easily susceptible to monetary remedies. If the daily drama of the war in Ukraine starts to fade from public view, and inflation persists, the political cost of von der Leyen’s Saturday move is likely to be Europe-wide recession.

“Since well before the Russian invasion of Ukraine, Europeans have been struggling under the weight of runaway energy bills”, OilPrice.com notes. In Germany, for some, one month’s energy costs the same as they used to pay for a whole year; in the UK the government has raised the price cap for energy bills by a whopping 54%, and in Italy a recent 40% domestic energy cost hike could now nearly double.

The New York Times describes this impact on local businesses and industries as nothing short of “frightening”, as all kinds of small businesses across Europe (prior to last week’s events) have been forced to cease their operations as energy costs outweigh profits. Large industries have not been immune to sticker shock either. “Almost two-thirds of the 28,000 companies surveyed by the Association of German Chambers of Commerce and Industry this month rated energy prices as one of their biggest business risks … For those in the industrial sector, the figure was as high as 85 percent.”

One recalls that old prediction from the Middle East, that western values would turn against the West itself, and ultimately devour it.

* * *

  1. Mr Crooke refers here to a second passage from the Bhadrakumar piece just cited:

    von der Leyen’s grandfather was a … staff sergeant in the Wehrmacht [who] led a unit on the eastern Soviet front hunting down resistance groups, participated in the capture of Kiev and took part in the barbaric September 1941 Babi Yar massacre, in which more than 33,000 Jewish inhabitants of Kiev were shot.

  2. For a glimpse of the Azov Battalion at work in the besieged port of Mariupol on the Azov Sea, fifty kilometres west of the Russian border and a hundred south of Donetsk, see this Greek City Times piece: “The fascists would kill me; they don’t let us leave the city”.

9 Replies to “The real purpose of sanctions on Russia?

  1. I gather from this article that the “real” purpose of sanctions against Russia is to destroy European small businesses and starve the middle east. It isn’t immediately obvious who stands to gain from this, but hey, who cares when a good conspiracy can be created.

    You’d think that anyone who was preparing a long term strategy to move Europe away from Russian energy dependency would have chosen a time when oil and gas was in surplus, or at least prices were relatively stable, rather than when prices were already highly volatile and rising rapidly. You’d also have thought that maybe just as the world was beginning to come out of a pandemic which had disrupted trade and economies would not be a great time to start a war that had been in the planning for years.

    If we are to believe that Russia was being deliberately provoked and Ukraine encouraged to poke the bear it seems strange that more preparation would not have been made for how to take advantage without demolishing the economies of your supposed allies.

    There is cock-up and there is conspiracy. This has all the signs of cock-up.

    • The answer is quite simple Zoltan. In its shortest form it can found here in a New York Times Magazine article from 2004 by Ron Suskind – who also happens to be one of the Executive Producers on the recent film ‘Don’t Look Up’ (which again neatly encapsulates in fiction what is happening in reality):

      Suskind, Ron (October 17, 2004). “Faith, Certainty and the Presidency of George W. Bush”. The New York Times Magazine. ISSN0028–7822

      The relevant quote from the article being:

      The aide said that guys like me were ‘in what we call the reality-based community,’ which he defined as people who ‘believe that solutions emerge from your judicious study of discernible reality.’ […] ‘That’s not the way the world really works any more,’ he continued. ‘We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors … and you, all of you, will be left to just study what we do’.

      Anyone who has worked in the lower echelons of any Western organisation or institution will instantly recognise this and be able to regale anyone willing to listen with endless examples of the mindset operating and running the entirety of Western society. From economics, industry, the privatised former public sector, NGO’s/Third sector (don’t get me started on that), Education, Government, Political Parties right down to the lowest level.

      And this goes way back to the Thatcher/Reagan era – when not just junior managers but senior managers were telling people to work inefficiently and instructing engineers to shove pick axes through a gas main and a thousand and one other daft things because the mistake you make is to think people with power in the West, at every level, are thinking and acting on the basis of rationality.

      They aren’t. No one is. They are operating on the basis of the manufactured narrative in their own head. Where else did anyone think the ‘no such thing as society’ mindset was going to end up after a few decades other than an ultra-narcissistic dystopia in which millions of people across the Western World go full King Kong ape shit over pronouns and willing and eager Western Institutions and organisations are chomping at the bit to remove the ability of anyone not following the Official Narratives to be able to survive?

      From losing their livelihoods (Stock, Forstater, and a host of other GC voices) to regular people having their bank accounts permanently frozen (effectively outlawing them from being able to live and function) for donating $50 to a Trucker Protest the Official Narrative labels as “Far Right” which at the same time has spent countless $billions supporting neo nazis in Europe and Jihadist head choppers across the Near East.

      Now joined by a host of Russian Symphony Conductors, Ballet Dances, Paralympians, Football teams and even cats. They’ll be hanging Russian Monkeys next.

      Just one aspect of this clusterf*** can be found in the way we have organised ourselves in this piece written shortly after Carillion went belly up:

      https://www.harrowell.org.uk/blog/2018/01/31/in-the-eternal-inferno-fiends-torment-ronald-coase-with-the-fate-of-his-ideas/

      I dealt with Carillion in my day job when it was just a large player among others which swallowed everyone else up in that sector (like Kelly’s and Wrekin). It was obvious to all of us where they and the non system they operated under (which produces outcomes less than the sum of the parts rather than more) because we’d been operating under and experiencing the same system since the mid-80’s. As had everyone else.

      The entire ‘system’ across the Western world is run by clueless Rupert’s who don’t know their arse from a hole in the ground. Constantly re-organisng the deckchairs on the Titanic on the basis of their own constructed realities in their heads.

      Think of an entire social/geographic entity operating on the basis of Upton Sinclair’s observation: ‘Its difficult to get someone to understand something when their salary/career/world view depends on them not understanding it.”

      We have become a totally infantilised culture. High on our own bullshit rhetoric and sophistry. Recruiting people at every level for decades on the basis not on their ability to think but to obey orders. Think of a turbo-charged version of German society at the time of the incident of ‘The Captain of Koepernik’

      And now no one knows any different or better anywhere. Experience, expertise, knowledge have not been valued for so long its become effectively extinct apart from a few aging relics at various levels.

      Like for instance, Scott Ritter or Paul Craig Roberts or Andrei Martyanov – who have similar scathing things to say about the total absence of any kind of calibre of anyone running the West – from politicians and diplomats to military top brass and the education system, particularly in the US, that produces nothing but total sodding numpties.

      All they know is rent seeking. Which is why the US and the West has de-industrialised. And its not an either or dichotomy Zoltan – cock up or conspiricy. It can, and more often is both at the same time.

      Because you are dealing with people whose minds have not matured. Drunk on their own hubris. Who think the world is a school playground and they are the biggest, baddest and bestest.

      You want to know how bad things are going to get and how fast?

      Check this BTL comment in this piece from Economist Michael Hudson:

      https://www.nakedcapitalism.com/2022/03/america-shoots-its-own-dollar-empire-in-economic-attack-on-russia.html

      Referring to BBC interview this morning – March 7 – with Tory MP and oil trader Alan Duncan:

      “Gordon
      March 7, 2022 at 8:11 am

      This morning the BBC’s flagship morning news and current affairs programme, ‘Today’ had a short interview with Alan Duncan, oil trader and senior Conservative MP (see Wikipedia). (Interview starts just after 2hrs 39mins).

      Asked about the oil markets he responded that gas is what matters. Oil is fairly flexible; it can be moved about. But when he woke up this morning the price of natural gas on futures markets was about 450 pence/therm. In the course of three hours it touched 800 pence/therm before falling back. He went on to say that this means the companies that supply gas throughout Europe won’t be able to pay their margin calls in the futures market, they risk going bankrupt in a matter of days and the whole process of distributing natural gas across Europe is now a matter of logistics. The danger is that, although the volume may still be there, the corporate mechanisms, the companies that keep it moving, will have folded. We are on the edge of a dystopian collapse. We are looking at gas which is the equivalent of $600 oil.

      “We have to be careful not to sanction ourselves.”

      Weirdly, I’ve seen next to nothing on the BBC on the impact of higher energy prices on industry with the exception of this item on fertilisers and food.”

      Logistics eh! Who’d ‘ave thought? You understand what he’s saying Zoltan? No gas. Because the whole logistics chain is Kaput. Within days! And then we start to see the systemic knock on effects. In fertiliser production. Farming. Food production. Food prices.

      For the past forty years I’ve maintained that when it comes to a choice between profit and control, control will win every time. Its built into the DNA of Western elite driven culture over not just generations but centuries.

      As explained here:

      https://www.theguardian.com/business/2006/mar/12/theobserver.observerbusiness5

      This mindset does not do Strategy – at least not in terms of the concept you and I understand. All those running the show care about is them being at the top, in control, and winning. You and I don’t matter. Even when the ‘prize’ is a sinking ship it matters not to these people. As long as they are in charge of everything that’s all that matters.

    • “Russia was being deliberately provoked and Ukraine encouraged to poke the bear”
      That would be the conspiracy part.

      “it seems strange that more preparation would not have been made for how to take advantage without demolishing the economies of your supposed allies”
      That would be the cock-up part.
      Both can be present at the same time and usually are.

    • “it seems strange that more preparation would not have been made for how to take advantage without demolishing the economies of your supposed allies”

      On the other hand perhaps demolishing the economies of your supposed allies would leave them open to looting by US corporations (only someone might want to keep that a secret).

  2. “in the UK the government has raised the price cap for energy bills by a whopping 54%”

    Unless my calculations were wrong, my mother’s bill is set to go up by over 60%.

    I always think that these considerations are the real underlying “deal” e.g. setting off to the supermarket and seeing those increasing spaces on the shelves, listening to old folks unable to get dental treatment and queues in chemists where the staff now do the jobs of doctors and the public can no longer get the medicine they need. Towns now increasingly resembling the sets of “The Walking Dead”, even the charity shops stocking less and less, standing in a line in Ayr with a youngster turning round and glaring at me for no apparent reason and a general sense of paranoia and mistrust.

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