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Latest US sanctions on Russia: incitement to a coup and a new form of protectionism

The latest sanctions seem concerned as much with protecting the US’s economic positions as punishing Russia

Alexander Mercouris

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The latest round of sanctions the US Treasury has imposed on Russia are a strange affair.

Earlier rounds of sanctions have been linked to specific acts of real or alleged Russian misbehaviour e.g. the death of Sergey Magnitsky, the Crimean crisis, the war in the Donbass, the shooting down of MH17, and the alleged Russian meddling in the 2016 US Presidential election.

This latest round of sanctions is different in that it is not directly linked to any Russian action – real or alleged – at all.  Nor are the people sanctioned – for example the Russian businessman Oleg Deripaska – directly accused of anything.

In place of any specific accusation against Russia or any of the individuals concerned, here is how a statement from US Treasury Secretary Steven Mnuchin justifies the latest sanctions

The Russian government operates for the disproportionate benefit of oligarchs and government elites.  The Russian government engages in a range of malign activity around the globe, including continuing to occupy Crimea and instigate violence in eastern Ukraine, supplying the Assad regime with material and weaponry as they bomb their own civilians, attempting to subvert Western democracies, and malicious cyber activities.  Russian oligarchs and elites who profit from this corrupt system will no longer be insulated from the consequences of their government’s destabilizing activities.

(bold italics added)

In other words Russia is a bad corrupt country which does lots of bad things around the world of which the US disapproves.  Anyone in Russia who is rich (“an oligarch”) and is therefore “profiting from this corrupt system” is in some way responsible and risks being sanctioned irrespective of anything they do unless this changes.

The implication is that if they do not want to be sanctioned the “oligarchs” must overthrow Russia’s government.

The latest sanctions are therefore an incitement to a coup.  All other steps the US has taken having failed, Russia’s businessmen (“oligarchs”) are now being told that unless they engineer the overthrow of Russia’s government they will be sanctioned.

The first thing to say about this policy is that it is decades out of date.

There was a time in the 1990s when a small group of stratospherically wealthy and corrupt individuals really did control Russia’s government.

By way of example, most of the people who met in the Kremlin during the 1998 financial crisis to decide whether or not to devalue the rouble were not members of the government or even officials, and the meeting during which the decision was finally taken to devalue the rouble was chaired not by a government minister but by the former Acting Prime Minister of Russia Yegor Gaidar, who at the time was neither a member of the government nor an official, but who was merely an adviser of Russia’s President, Boris Yeltsin, who was at the time away reviewing the fleet.

The decision was in fact made by the same small group of wealthy and corrupt individuals who at that time really did control Russia’s government, meeting informally under Gaidar’s chairmanship, and not through the official structures.

It is not a misconception to call these individuals “oligarchs”.  In the 1990s that is exactly what they were.  The most politically powerful amongst them – Boris Berezovsky – was not even properly speaking a businessman.

That is not the situation in Russia today.  A person like Oleg Deripaska – the aluminium magnate whose name appears on the latest sanctions list – may be a person of great influence and power.  However he does not control Russia’s government, and has no means to do so.

I should say that I first came across the suggestion that the “oligarchs” could be mobilised to overthrow President Putin or force him to reverse his policies by imposing sanctions upon them in early 2014 at the start of the Ukrainian crisis.

As I recall reports appeared in the media that the German intelligence agency the BND was advising Chancellor Merkel that if the EU imposed sanctions on Russia the “oligarchs” would either force President Putin to change course or would overthrow him in order to save their fortunes.

Many rounds of sanctions later one might suppose that that theory had been tested to destruction.  However Steven Mnuchin’s statement suggests that faith in it dies hard.

The latest round of sanctions the US has imposed on Russian businessmen and their companies will not weaken President Putin’s position or that of the Russian government, and will not affect Russia’s economy.

As China’s semi-official English language newspaper Global Times has recently pointed out, Russia – unlike countries like Iran – has a big largely self-sufficient continental sized economy possessing immense scientific, technological and natural resources, making it therefore largely immune to sanctions.

As for the wealthy Russian individuals who the latest sanctions are targeting, the reason so many of them keep money abroad is not because they control Russia’s government, but because they do not control it, and do not wholly trust it.

The result is that they have been squirrelling away much of their money abroad, beyond their government’s reach.

Now what they are discovering is that their money is at far greater risk of being seized by the US government than by their own – something the Russian government has been telling them for years – so that it is in fact safer kept at home than it is squirrelled away abroad.

In other words the latest sanctions and Steven Mnuchin’s statement could not have played more completely into the Russian government’s hands.

With Russian businessmen being told that the money they have squirrelled abroad may be seized irrespective of what they do unless they overthrow the Russian government – something which Russian businessmen know is beyond their power and is therefore impossible – they have no realistic option if they want to keep their money safe than to bring it home.

It seems that even before Mnuchin’s statement and the latest round of sanctions that is what some of them were doing.

A few weeks ago – before the Skripal crisis – a group of Russian businessmen in London wrote to President Putin asking for permission to return home with their money because of the threats they were facing; whilst the Russian government’s latest eurobond sale, which was specifically addressed to Russian businessmen, was heavily oversubscribed as they rushed to buy bonds issued by their own government.

The latest sanctions and Mnuchin’s statement will only accelerate the process.

A policy which only strengthens Putin’s position – forcing Russian businessmen to repatriate their money to Russia and increasing their dependence on the Russian government – looks completely counterproductive, and on the face of it that is what the US’s sanctions policy is.

However there may be more than one agenda at work.

The Russians are complaining that one of the purposes of the sanctions is to block Russian arms exports, a field in which Russia has recently been encroaching on US markets, such as Turkey and Saudi Arabia, and even farther afield, to countries like Indonesia.

There is of course a political dimension to this in that arms sales tend to bring closer political ties, and the US may be especially leery of US allies like Turkey and Saudi Arabia buying arms from Russia because of the danger that this might increase Russian influence there.

However attempts to block the arms sales of a major competitor on the international arms market does have something of a look of protectionism about it, which is not altogether surprising given the recent protectionist steps being taken by the Trump administration – especially with respect to China – and the importance of arms sales not just for the US economy but for individual US companies.

With China and Russia now increasingly cooperating in aircraft development, including their planned wide body airliner, with both China and Russia producing advanced and competitive narrow body airliners (the Comac C919 and the Irkut MC-21), and with Russia advancing with its development of the new Perm family of civil aircraft engines, which are capable of powering all these aircraft, it is also understandable that the US might wish to sanction Russian arms makers given the strong linkage between arms manufacturing and the civil aircraft industry.

Just as the latest US tariffs on China seem intended – at least in part – to obstruct development of China’s artificial intelligence industry, so the latest sanctions on Russian arms makers may be intended to obstruct development of the Chinese and Russian aviation industries – and especially of Russia’s civil aircraft engine industry – given the threat these industries pose to the position of the US in the international aviation market where the US has long enjoyed market dominance, and which accounts for a significant part of its exports.

If Russia’s and China’s nascent aviation industries are one of the ultimate targets of the latest sanctions, then that might also explain the sanctioning of Oleg Deripaska, the chief executive of RUSAL – Russia’s giant aluminium conglomerate – aluminium being of course a key material used in aircraft building.

It should be said however that there may be multiple other reasons why Deripaska – one of the most powerful and toughest of all Russian businessmen – has been targeted for sanctions.

If sanctions really are evolving into a tool to protect US positions in key industries such as artificial intelligence, arms manufacturing and civil aviation, then that I suspect will surprise no-one.

All I would say about that however is that in that case the US has missed the bus.  The sort of protectionist measures the US is imposing on China, and the sort of sanctions the US is imposing on Russia, would have devastated both the Chinese and Russian economies two decades ago.

By now – as Russia’s resilience in face of sanctions shows – both the Chinese and the Russian economies have achieved a level of sophistication and size that makes them essentially impervious to these sort of actions.

By way of example, though China’s exports peaked at over 37% of its GDP in 2006, by 2016 that had fallen to under 20%.  Today the major driver of China’s economy is internal demand, just as the main driver of Russia’s economy after 2020 will be investment.  Neither can be affected by the protectionist actions or sanctions the US is taking.

This is all the more so as China and Russia – and especially China – press ahead with constructing their own alternative international financial architecture (eg. the so-called “petro-yuan“) to underpin their economies, and the trading systems which they are constructing

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Theresa May’s soft Brexit plan continues to fail, as EU now pushing for UK to leave (Video)

The Duran – News in Review – Episode 138.

Alex Christoforou

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Theresa May’s soft Brexit strategy has been such a monumental failure that even Brussels negotiators are now pushing for the UK to simply leave the union, in what has becoming a British debacle, and a thorn in the Conservative Party’s side.

Many media pundits and analysts are now asking if the latest impasse in Brexit talks means that we are indeed seeing the last days of Theresa May?

While much of the mess the Conservative Party finds themselves in because of Brexit is squarely Theresa May’s fault, much of the damage done by May’s inability to close the deal on Brexit will not go away, even if she does.

The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris discuss Theresa May’s continued failure to obtain her soft Brexit dream, placing herself (and her Conservative Party) in such an embarrassing position, that European Union negotiators, tired of never ending talks, are eager to see Britain go away, in what will be an inevitable hard Brexit.

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“Are these the last days of Theresa May?”, authored by Stephen Bush via The New Statesman:


Are these the last days of Theresa May? This morning’s papers are full of stories of plots and ultimatums to the Prime Minister unless she changes her Brexit strategy, whether from her Scottish MPs over any extension of the transition period due to concerns over fisheries policy, from her Brexiteer MPs over the backstop or from her Cabinet over practically everything.

All this before the Budget next Monday, when Philip Hammond is going to have to find some way to pay for the extra cash for the NHS and Universal Credit all while keeping to May’s pledge that debt will continue to fall as a share of GDP. So added to all May’s Brexit woes, a row over tax rises could be coming down the track.

Of course, the PM’s position has been perilous for a very long time – in fact, when you remember that her period of hegemony ran from July 2016 to June 2017, she’s actually been under threat for more of her premiership than she hasn’t. But just because you roll heads 36 times in a row doesn’t mean your chances of rolling tails aren’t 50/50 on roll 37, and May’s luck could well be running out.

But while May shares a good size of the blame for the mess that the Conservative Party are in, it’s not all her fault by any means and none of those problems will go away if May is replaced or changes tack to win over her internal opponents in the European Research Group.

Ireland has a veto over the end state and only an indefinite and legally binding backstop for the island of Ireland will do if any deal is to be signed off. It’s true to say that no deal also means a hard border on the island of Ireland, but it’s also true that it will always been in the political interests of whoever is in office in Ireland for a hard border to be imposed as a result of no deal rather than for the Irish government to acquiesce in the creation of one through a EU-UK treaty.

The DUP can bring the Conservative government to an early end so they, too, have a de facto veto over any deal that creates barriers between Northern Ireland and the United Kingdom. But the only UK-wide solution – for the backstop to encompass the whole of the United Kingdom – is nothing doing with pro-Brexit Conservative MPs who don’t want an indefinite backstop. It’s also politically tricky with many EU member states, who don’t want the default outcome of the talks to be a UK-wide backstop, which many regard as a threat to the sanctity of single market. (The only reason why it is acceptable on the Irish border is because Ireland is still a member state and because the Irish border was both the location and the cause of political violence within living memory.)

Added to that, the Conservative parliamentary party seems to be undergoing a similar psychological journey to the one that Steve van Riel described during the 2015 Labour leadership election: that groups of any kind tend to reach a more extreme position the longer an issue is debated. Brexiteers who spent 20 years saying they wanted a Norway style deal now talk of Norway as a betrayal. Leavers who cheerily talked about making Northern Ireland into its own customs area before Brexit now talk of the backstop as a constitutional betrayal. And Conservative Remainers who only reluctantly backed an In vote to avoid the political upheaval of negotiating Brexit, or the loss of David Cameron, now call for a referendum re-run and privately flirt with the idea of a new party.

Some of that is May’s fault, yes. But none of it is going to go away if she does and all of it makes the prospect of reaching a Brexit deal considerably less likely.

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Saudi Crown Prince Spoke To Khashoggi By Phone Moments Before He Was Killed: Report

The shifting Saudi narrative of the killing has been met with scepticism and condemnation from the international community.

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Via Zerohedge


In the latest bombshell report involving the Khashoggi murder, Saudi Crown Prince Mohammed bin Salman reportedly spoke on the phone with journalist Jamal Khashoggi moments before he was murdered in the Saudi consulate in Istanbul. Turkish pro-government daily Yeni Safak disclosed the new alleged details of the case in a report on Sunday, contradicting claims by Saudi authorities that Prince Mohammed played no part in Khashoggi’s murder.

“Khashoggi was detained by the Saudi team inside the consulate building. Then Prince Mohammed contacted Khashoggi by phone and tried to convince him to return to Riyadh,” the report said.

“Khashoggi refused Prince Mohammed’s offer out of fear he would be arrested and killed if he returned. The assassination team then killed Khashoggi after the conversation ended,” it added.

While the report is so far unconfirmed, the New Arab reports that so far Turkish pro-government media have been receiving a steady stream of leaks many of which turned out to be accurate, including pictures of the hit team as they entered Turkey and reports of audio recordings of the murder said to be in the possession of Turkish authorities.

Meanwhile, the Saudi version of events has been changing significantly over the past two weeks with authorities conceded Saturday that Khashoggi, the Washington Post columnist and a Riyadh critic, was killed inside the kingdom’s Istanbul diplomatic compound following a “brawl”. The admission came after a fortnight of denials with the insistence that the journalist left the consulate alive, starting on October 5, when Crown Prince MBS told Bloomberg that Khashoggi was not inside the consulate and “we are ready to welcome the Turkish government to go and search our premises”.

On Saturday, the kingdom announced it had fired five top officials and arrested 18 others in an investigation into the killing – a move that has widely been viewed as an attempt to cover up the crown prince’s role in the murder.

The shifting Saudi narrative of the killing has been met with scepticism and condemnation from the international community, and has left the U.S. and other allies struggling for a response on Sunday. As Bloomberg reports, France demanded more information, Germany put arms sales to Riyadh on hold and the Trump administration stressed the vital importance of the kingdom and its economy to the U.S.

In Sunday radio and TV interviews, Dominic Raab, the U.K. politician in charge of negotiating Britain’s exit from the European Union, described the latest Saudi account as not credible; French Finance Minister Bruno Le Maire called for “the truth’’; and Germany’s Foreign Minister Heiko Maas said his government would approve no arms sales so long as the investigation was ongoing.

Earlier on Sunday, Saudi Foreign Minister Adel al-Jubeir acknowledged a cover-up attempt. The dramatic reversal, after Saudi officials had previously said the columnist left the building alive, has only complicated the issue for allies.

Saudi Arabia’s al-Jubeir told Fox News on Sunday that the journalist’s death was an “aberration.”

“There obviously was a tremendous mistake made and what compounded the mistake was the attempt to cover up,” he said, promising that “those responsible will be punished for it.”

More importantly, he said that Prince Mohammed had no knowledge of the events, although if the Turkish report is confirmed, it will be yet another major flaw with the official narrative.

Several senior members of US President Donald Trump’s Republican Party said they believed Prince Mohammed was linked to the killing, and one called for a “collective” Western response if a link is proved. In an interview with The Washington Post, President Trump, too, said the Saudi narrative had been marked by “deception and lies.’’ Yet he also defended Crown Prince Mohammed bin Salman as a “strong person,’’ and said there was no proof of his involvement in Khashoggi’s death. Some members of Congress have questioned his willingness to exonerate the prince.

“Obviously there’s been deception and there’s been lies,” Trump said on the shifting accounts offered by Riyadh.

On Sunday, Turkish President Recep Tayyip Erdogan promised to disclose details about the case at a meeting of his AK Party’s parliamentary faction on Tuesday, Haberturk newspaper reported.

Meanwhile, as Western firms and high-ranked officials scramble to avoid any Saudi involvement, Russia is more than happy to step in and fill the power vacuum void left by the US. As a result, Russian businesses are flocking to attend the investment forum in Saudi Arabia, as Western counterparts pull out.

Russian President Vladimir Putin has had considerable success boosting Moscow’s influence in the Middle East at U.S. expense, by standing by regimes that fall afoul of the West, including in Syria and Iran. Last week Putin signed a strategic and partnership agreement with Egypt’s President Abdel-Fattah El-Sisi, backed by $25 billion in loans to build nuclear reactors. Until El-Sisi came to power, Egypt had been closely allied to the U.S.

Meanwhile, all eyes are fixed squarely on the Crown Prince whose position of power is looking increasingly perilous. Congressional leaders on Sunday dismissed the story proffered earlier by the Saudis, with Republican Senators Lindsey Graham of South Carolina and Bob Corker of Tennessee saying they believed the crown prince was likely involved in Khashoggi’s death.

Lawmakers said they believe the U.S. must impose sanctions on Saudi Arabia or take other action if the crown prince is shown to have been involved. Speaking on NBC’s “Meet the Press,” Senator Dick Durbin of Illinois, the chamber’s No. 2 Democrat, said the Saudi ambassador to the U.S. should be formally expelled until a third-party investigation is done. He said the U.S. should call on its allies to do the same.

“Unless the Saudi kingdom understands that civilized countries around the world are going to reject this conduct and make sure that they pay a price for it, they’ll continue doing it,”’ Durbin said.

The obvious question is what happens and how the Saudi royal family will respond if it is pushed too far, and whether the worst case scenario, a sharp cut in oil exports, could be on the table if MBS feels like he has little to lose from escalating the situation beyond a point of no return.

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The Biggest Winners In The Mediterranean Energy War

Energy companies are flocking to the Mediterranean after oil and gas discoveries in the territorial waters of Israel, Cyprus, and Egypt.

The Duran

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Authored by Vanand Meliksetian via Oilprice.com:


Former Vice-President of the United States Dick Cheney once said: “the good lord didn’t see fit to put oil and gas only where there are democratically elected states… Occasionally we have to operate in places where, all considered, one would not normally choose to go. But we go where the business is.” Europe is surrounded by states with abundant energy resources, but supply from these countries is not always as reliable. Russia, for example, is regularly accused of using energy as a weapon. However, major discoveries of gas in the Eastern Mediterranean could mitigate dependence on Russian gas.

The discovery of a gas field named Tamar near the coast of Israel in 2009 set off a wave of investments in the energy sector. After 9 years, companies are flocking to the region after other discoveries in the territorial waters of Israel, Cyprus, and Egypt. Ever larger finds in the Mediterranean Sea’s Levant Basin such as the Leviathan gas field in 2010 and Zohr in 2015, have the potential to transform the strategic importance of the region.

Turkey’s energy hub ambitions

Few states in the world are geographically so well positioned as Turkey. The country controls Russia’s only warm water port in the Black Sea and serves as a bridge between east and west. Therefore, during the Cold War Ankara was an indispensable member of NATO. More recently, Turkey has the ambition to become an energy hub for Middle Eastern and Caspian energy. Ankara has had mixed successes in attracting investors and maintaining political stability.

After Israel’s significant discoveries, a U.S. backed initiative presented Turkey as an energy hub. Although a land pipeline is the cheapest option to transport gas from the Mediterranean to Europe, political developments have stalled construction. President Erdogan’s escalating public denunciations of Israel have made Jerusalem look for other options. Furthermore, relations with Europe have also been damaged which would be dependent on Turkey as a transit country.

Egypt as the regional gas hub

Egypt’s has the third largest gas reserves in Africa. Therefore, its export-oriented LNG industry came on-stream in 2004 but was shut mid-2013 due to a lack of resources. The growth of the domestic market demanded ever larger volumes, which went at the expense of exports. Instead, Egypt started importing LNG. However, the discovery of the massive Zohr gas field, the largest in the Eastern Mediterranean, has turned around the situation. Egypt imported its last shipment of LNG in September 2018.

Although relations between Egypt and Israel are far from normal, privately held companies have been able to strike a deal. Starting from the first quarter of 2019, in 10 years 64 bcm worth $10 billion will be delivered. The agreement has stirred controversy in Egypt, which until recently was exporting to Israel. However, with this deal, Cairo comes closer in becoming an energy hub.

The recent signing of another agreement, this time with Nicosia to develop a subsea pipeline from Cyprus’ Aphrodite gas field, has been another important step. Cypriot gas will be pumped 400 miles (645 kilometers) to the south to Egypt’s LNG facilities. Difficult relations with Nicosia’s northern neighbors make a pipeline to the north highly unlikely.

Cairo has been able to act pragmatically concerning its relations with its neighbors such as Israel while taking advantage of the limited amount of options for exporting gas. The obvious winner in this context has been Egypt and its LNG industry. Its chances of becoming the regional energy hub instead of Turkey have significantly increased.

Turkey’s hope for luck

All littoral states of the Eastern Mediterranean struck ‘gold’ in the shape of natural gas except for Turkey. Ankara strongly opposes the exploitation of the gas resources in the exclusive economic zone of the Republic of Cyprus without a sharing agreement with Northern Cyprus’ Turkish inhabitants. The Turkish Navy prevented ships from Italy’s Eni from performing exploratory drilling off the coast of the Republic of Cyprus.

In search of its own luck, Ankara has set up a project to start looking for gas in the EEZ of the Turkish Republic of Northern Cyprus (TRNC), which is only recognized by Turkey. Kudret Özersay, TRNC deputy prime minister and minister of foreign affairs, proclaimed the desire to turn the TRNC into an energy and electricity hub. However, it seems unlikely that investors will be willing to participate due to political and legal reasons.

The legal situation of the TRNC is an impediment to any major decision involving a longtime commitment worth billions. From an international point of view, the region is de jure part of the Republic of Cyprus, despite holding no control over the region. The TRNC holds no seat in the WTO.

Large investments require solid legal and political support for companies to earn back their investments. The current economic situation of Turkey makes it dependent on foreign money. However, stringent due diligence rules could impede some international banks in lending the necessary funds.

The Eastern Mediterranean Sea basin promises great rewards, but the risks are also high. With Turkey potentially being the only country that doesn’t profit from the gas bonanza, Ankara has acted aggressively to get what it regards as its fair share. However, it faces a united front from the other littoral states of the Eastern Mediterranean. Therefore, it is highly unlikely that Turkey will be able to profit in the same way as Cyprus, Egypt or Israel.

By Vanand Meliksetian for Oilprice.com

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