How Russia Expedited Syria"s Victory

Via Oriental Review,

On Monday, Vladimir Putin unexpectedly interrupted his journey to Egypt, stopping off at Russia’s Hmeymim airbase in Syria and announcing the windup of Russia’s most successful military campaign abroad.

Thousands of combat sorties have been flown, tens of thousands of terrorists and their infrastructure have been destroyed, and hundreds of Syrian cities and towns have been liberated. We have previously published accounts of how Russian pilots, special ops, marines, doctors, and diplomats spent two years helping the lawful president of Syria, Bashar al-Assad, hold his country together and rid it of terrorists.

Russia enters the conflict

By the fall of 2015, the war in Syria had already dragged on for four long years. The mass anti-government demonstrations that began in March 2011 had quickly escalated into skirmishes with the military. And terrorist factions immediately “hijacked” these popular protests. Soon, the leading role in the battle against the ruling regime was being played by extremists from the Islamic State, Jabhat Al Nusra, Al-Qaeda, and many factions within what has been called the “moderate opposition” – mainly in the Free Syrian Army that has been so championed by the West.

From the very beginning, Russia provided diplomatic support to Syria. Back in the spring of 2011, Vitaly Churkin, the late Permanent Representative of the Russian Federation to the UN, vetoed the draft Security Council resolutions being proposed by some Western and Arab countries that were anti-Syrian in nature.

In addition, Russia backed the government of Bashar al-Assad by supplying arms, military equipment, and ammunition, in addition to training officers and providing military advisers.

But as the terrorist organizations and forces of the “moderate opposition” continued to make territorial gains, it became clear that this support was not enough. The Syrian Arab Army was running out of steam. Huge losses, shortages of the most essential materials, plus low morale forced those soldiers loyal to Assad to cede more and more territory, retreating as far as the coastal province of Latakia and the city of Damascus. By September 2015, it looked like Syria’s leader had only a few weeks left in power.

Areas of control in Syria in September 2015

So that month, at the request of President Bashar al-Assad, Russia’s Federation Council approved Vladimir Putin’s decision to move Russian troops into Syria. On Sept. 30, a Russian military operation began in that country.

The composition of the Russian air fleet

The composition of the air fleet often changed in accordance with the tasks assigned to it. Based on the data at hand, at various times it included:

• Up to ten multi-role Su-35S fighter jets


• Up to four Su-27SMs


• From 12-16 two-seater Su-30SM fighter jets


• Up to 12 Su-34 fighter-bombers


• Up to 30 Su-24M front-line bombers


• Up to 12 Su-25SM close-support aircraft


• Up to 15 multipurpose Mi-8 helicopters in various modifications


• Up to 15 Mi-24 and Mi-35 attack helicopters


• Up to five Ka-52 attack helicopters

Strikes were even launched against the terrorists’ base camps from inside the Russian Federation.

• Six supersonic Tu-160 missile carriers


• Five Tu-95MS strategic bombers


• From 12-14 Tu-22M3 long-range bombers-missile carriers

The A-50 early warning and control aircraft, the Tu-214R, and the Il-20M1 radio reconnaissance plane coordinated air operations, carried out reconnaissance missions, and pinpointed targets for the strike formations.

Russian forces in Syria

Air and naval activities

Russian aviation really ran the show in Syria. Militant training camps, command posts, weapons and ammunition depots, oil fields, and convoys of gasoline tankers found themselves decimated by massive attacks launched from the Hmeymim airbase, the staging bases for air strikes, and the Admiral Kuznetsov aircraft carrier. Bombers, close-support aircraft, and fighter planes, taking advantage of their total mastery of the air, managed to destroy more than 100,000 different terrorist facilities. The first wave of the massive air strikes against IS came at the end of 2015. That was when Russian planes pulverized a buried IS command post, underground bunkers, and warehouses in the province of Hama.

During their high-profile mission to “seek and destroy” gasoline tankers, Su-34 fighter-bombers managed to sniff out approximately 500 tanker trucks carrying petroleum products, plus dozens of oil refineries, grinding them into the sand. That was a punch to the gut of the IS war chest, as its main source of income was the illegal sale of black gold.

In late 2015, the Syrian desert was rattled by the most powerful blow yet – strategic Tu-160 bombers, Tu-95MSs, and long-range Tu-22M3s dropped more than three dozen missiles and a multitude of bombs, destroying the command posts of IS detachments in the Idlib and Aleppo provinces, as well as training camps for suicide bombers. In the summer of 2016, long-range Tu-22M3 bombers took off from Hamadan Airbase in Iran and blew out their bomb bays over militant targets in Aleppo, Deir ez-Zor, and Idlib. Regular air sorties supported the Syrian operation from beginning to end.

In addition to aircraft, Russia also put its combat ships, submarines, and coastal missile systems to effective use in Syria. Some types of weapons got their first test under battle conditions. In November 2016, to be exact, the Russian military employed its Bastion coastal-defense missile systems to spectacularly obliterate a large warehouse belonging to the militants with the help of its Onyx anti-ship missiles.

In October 2015, the Russian Navy was responsible for a widely reported cruise-missile attack from the Caspian Sea that annihilated militant positions with an unprecedented show of strength. The Dagestan, a missile-armed frigate, and the Grad Sviyazhsk and Veliky Ustyug small missile patrol ships released an enormous swarm of Kalibr cruise missiles that flew over several countries to blow up more than a dozen targets in militant-controlled territory. In June 2017, the Russian Navy’s Admiral Essen and Admiral Grigorovich frigates, as well as its Krasnodar submarine, used Kalibr cruise missiles to inflict a powerful blow from the Mediterranean Sea against terrorist command posts and ammunition depots in Hama province.

The capture of Aleppo marked the final turning point for the government forces in Syria, after which it was possible to withdraw about half of the air formations from the Hmeymim airbase in May 2017 and send them home.

The makings of victory

Russian aircraft were able to administer continuous, nonstop strikes against targets belonging to terrorist groups in Syria. From the onset of the military operation until September 2017, over 30,000 sorties were flown and about 92,000 attacks on terrorists were carried out.

Russian planes bashed terrorists with the active support of the most elite force in the Russian military, the soldiers from the Special Operations Forces, who conducted reconnaissance missions, corrected the moves of aircraft and artillery, trained Syrian soldiers and officers, conducted raids deep into enemy territory, set up countless ambushes along the routes of terrorist convoys, and neutralized the leaders of outlaw gangs. The ships and airplanes of the Syrian Express had an important role to play, supplying weapons, armored vehicles, and ammunition to the embattled country. Russian doctors were responsible for true acts of heroism, treating the civilians and servicemen who had suffered injuries in the war.

And a huge role in the resolution of the Syrian crisis was played by the Russian diplomats who set in motion the negotiations in Astana. Those made it possible to establish the de-escalation zones in Syria that are still operating effectively today.

Syrian peace talks in Astana

But of course it was the Syrian people who won the real victory – the Russian military just helped to remind them that the enemy can be defeated even if it enjoys the unconditional support of the West.

What comes next

It was revealed in late November that the Russian forces currently stationed at the Hmeymim airbase near Latakia and the naval base in Tartus would remain there. Their presence will clear the path for Russia to fend off any threat in the Eastern Mediterranean and to thus ensure the strategic parity that guarantees long-term peace in this volatile region. While the Syrian peace process is under its way the situation in the country and around is very fragile. The key game players and war profiteers are still on the ground and they are not to leave the Syrian territory. So the primary goal is to prevent anybody from the “defeated party” to undermine the talks and to secure desperately needed reconstruction programs, renovation and stabilization of normal social, economic and political life in Syria.

From The Caucasus To The Balkans, China"s Silk Roads Are Rising

Authored by Pepe Escobar via The Asia Times,

With its focus on Central Asia and Eastern Europe, the Belt and Road Initiative can be seen as fulfilling a strategy of challenging the West that can be traced back to Mao...

The 19th Chinese Communist Party Congress made it clear that the New Silk Roads – aka, the Belt and Road Initiative (BRI) – launched by President Xi Jinping just four years ago, provides the concept around which all Chinese foreign policy is to revolve for the foreseeable future. Up until the symbolic 100th anniversary of the People’s Republic of China, in 2049, in fact.

Virtually every nook and cranny of the Chinese administration is invested in making the BRI Grand Strategy a success: economic actors, financial players, state-owned enterprises (SOEs), the private sector, the diplomatic machine, think tanks, and – of course – the media, are all on board.

It’s under this long-term framework that sundry BRI projects should be examined. And their reach, let’s be clear, involves most of Eurasia – including everything from the Central Asian steppes to the Caucasus and the Western Balkans.

Representatives of no fewer than 50 nations are currently gathered in Tbilisi, Georgia, for yet another BRI-related summit. The BRI masterplan details six major economic “corridors,” and one of these is the Central Asia-West Asia Economic Corridor. That’s where Georgia fits in, alongside neighboring Azerbaijan: both are vying to position themselves as the key Caucasus transit hub between Western China and the European Union.

On the first day of the summit, Georgia’s Prime Minister Giorgi Kvirikashvili extolled the drive to “strengthen the economic and civilizational ties between Europe and Asia.” In practice, that translates into a push to build an economic free zone, in accordance with the memorandum of understanding signed by the Chinese and Georgian economic ministers.

Add in the recently inaugurated Baku-Tblisi-Kars railway and a new deep-sea port to be built in Anaklia, in the Black Sea, with Chinese investment, and we have Georgia as a key logistical hub in China-EU connectivity. It helps that, thanks to the Baku-Tblisi-Ceyhan (BTC) gas pipeline out of the Caspian Sea, Georgia has already been positioned for years as an energy transportation hub.

Crucially, Georgia has signed free trade agreements with both the EU and China, with the latter coming into effect at the start of 2018. It is also maneuvering itself to profit from the interconnection of BRI with the Russian-led Eurasia Economic Union (EAEU). Beijing and Moscow formally signed the BRI/EAEU partnership in June last year – although it will take time for that to translate into actual trade and economic cooperation projects, possibly starting in the Russian Far East.

Mao revisited

The action in the Caucasus was mirrored in Europe earlier in the week as Chinese Premier Li Keqiang and Hungary’s Prime Minister Viktor Orban opened the sixth “16+1” summit, involving China and 16 Central and Eastern European nations, in Budapest.

“16+1” is yet another of those trademark Chinese diplomatic “away wins.” Some of these nations are part of the EU, some part of NATO, some neither.

From Beijing’s point of view, what matters is the relentless BRI infrastructure and connectivity drive. Beijing may have invested as much as US$8 billion so far in Central and Eastern Europe.

China is having a ball in the Western Balkans – especially in Serbia, in Montenegro, and in Bosnia and Herzegovina, where EU financial muscle is absent. China has invested in multiple connectivity and energy projects in Serbia – including the much-debated Belgrade-Budapest high-speed rail link. Construction of the Serbian stretch started this week, with 85% of the total cost (roughly€2.4 billion) coming from the Export-Import Bank of China.

The European Commission (EC) in Brussels predictably objected – claiming the tender process might not have complied with EU rules.

The strategic trade importance of Belgrade-Budapest cannot be overestimated. Think container fleets of Chinese merchandise arriving in Piraeus in Greece – a key hub of the so-called Maritime Silk Road – and then being shipped to the EU via Serbia.

In the midst of this frenzy of connectivity, it’s easy to overlook a significant historical point: that it was all anticipated by Mao Zedong.

Scholar Chen Gang has stressed how most BRI-participating nations are not as developed, economically, as China. And they are “not just limited to the Eurasian continent, but will eventually cover all the ‘middle zone’ and ‘third world’ put forward by Mao in his ‘Three Worlds Theory.’”

Flashback to 1974. That’s when Mao described the world as being divided between superpowers (the US and USSR); intermediate powers (Japan, Europe, Canada); and exploited nations in Africa, Latin America and Asia, which Mao praised as constituting the forces against First World hegemony. Mao placed China in the third world – as Deng Xiaoping told the UN.

What’s fascinating is how Chen Gang interprets BRI not only as a sequel to China’s historical ties with the Third World, but also as opening a “new era of China’s Third World strategy.” He correctly states that US and EU elites worry that BRI will bring about “the erosion of their global influence and overseas interests.”

Chen Gang’s analysis touches on what, by now, is obvious: “The international game around BRI has just begun.” And it goes almost without saying that Beijing’s BRI-driven foreign policy strategy, by turbo-charging China’s cooperation with the ‘Global South,’ is leaving the US, at best, marginalized.

How Turkey, Iran, Russia, And India Are Playing The New Silk Roads

Authored by Pepe Escobar via The Asia Times,

A pacified Syria is key to the economic integration of Eurasia through energy and transportation connections...

Vladimir Putin, Recep Tayyip Erdogan and Hassan Rouhani will hold a summit this Wednesday in Sochi to discuss Syria. Russia, Turkey and Iran are the three power players at the Astana negotiations – where multiple cease-fires, as hard to implement as they are, at least evolve, slowly but surely, towards the ultimate target – a political settlement.

A stable Syria is crucial to all parties involved in Eurasia integration. As Asia Times reported, China has made it clear that a pacified Syria will eventually become a hub of the New Silk Roads, known as the Belt and Road Initiative (BRI) – building on the previous business bonanza of legions of small traders commuting between Yiwu and the Levant.

Away from intractable war and peace issues, it’s even more enlightening to observe how Turkey, Iran and Russia are playing their overlapping versions of Eurasia economic integration and/or BRI-related business.

Much has to do with the energy/transportation connectivity between railway networks – and, further on the down the road, high-speed rail – and what I have described, since the early 2000s, as Pipelineistan.

The Baku-Tblisi-Ceyhan (BTC) pipeline, a deal brokered in person in Baku by the late Dr Zbigniew “Grand Chessboard” Brzezinski, was a major energy/geopolitical coup by the Clinton administration, laying out an umbilical steel cord between Azerbaijan, Georgia and Turkey.

Now comes the Baku-Tblisi-Kars (BTK) railway – inaugurated with great fanfare by Erdogan alongside Azerbaijani President Ilham Aliyev and Georgian Prime Minister Giorgi Kvirikashvili, but also crucially Kazakh Prime Minister Bakhytzhan Sagintayev and Uzbek Prime Minister Abdulla Aripov. After all, this is about the integration of the Caucasus with Central Asia.

Erdogan actually went further: BTK is “an important chain in the New Silk Road, which aims to connect Asia, Africa, and Europe.” The new transportation corridor is configured as an important Eurasian hub linking not only the Caucasus with Central Asia but also, in the Big Picture, the EU with Western China.

BTK is just the beginning, considering the long-term strategy of Chinese-built high-speed rail from Xinjiang across Central Asia all the way to Iran, Turkey, and of course, the dream destination: the EU. Erdogan can clearly see how Turkey is strategically positioned to profit from it.

Of course, BTK is not a panacea. Other connectivity points between Iran and Turkey will spring up, and other key BRI interconnectors will pick up speed in the next few years, such as the Eurasian Land Bridge across the revamped Trans-Siberian and an icy version of the Maritime Silk Road: the Northern Sea Route across the Arctic.

What’s particularly interesting in the BTK case is the Pipelineistan interconnection with the Trans-Anatolian Gas Pipeline (TANAP), bringing natural gas from the massive Azeri gas field Shah Deniz-2 to Turkey and eventually the EU.

Turkish analyst Cemil Ertem stresses, “just like TANAP, the BTK Railway not only connects three countries, but also is one of the main trade and transport routes in Asia and Europe, and particularly Kazakhstan and Turkmenistan ports. It connects Central Asia to Turkey with the Marmaray project in Istanbul and via the Caspian region. Along with the Southern Gas Corridor, which constitutes TANAP’s backbone, it will also connect ports on the South China Sea to Europe via Turkey.”

It’s no wonder BTK has been met with ecstatic reception across Turkey – or, should we say, what used to be known as Asia Minor. It does spell out, graphically, Ankara’s pivoting to the East (as in increasing trade with China) as well as a new step in the extremely complex strategic interdependence between Ankara and Moscow; the Central Asian “stans”, after all, fall into Russia’s historical sphere of influence.

Add to it the (pending) Russian sale of the S-400 missile defense system to Ankara, and the Russian and Chinese interest in having Turkey as a full member of the Shanghai Cooperation Organization (SCO).

From IPI to IP and then II

Now compare the BTK coup with one of Pipelineistan’s trademark cliff-hanging soap operas; the IPI (Iran-Pakistan-India), previously dubbed “the peace pipeline”.

IPI originally was supposed to link southeastern Iran with northern India across Balochistan, via the Pakistani port of Gwadar (now a key hub of the China-Pakistan Economic Corridor, CPEC). The Bush and Obama administrations did everything to prevent IPI from ever being built, betting instead on the rival TAPI (Turkmenistan-Afghanistan-Pakistan-India) – which would actually traverse a war zone east of Herat, Afghanistan.

TAPI might eventually be built – even with the Taliban being denied their cut (that was exactly the contention 20 years ago with the first Clinton administration: transit rights). Lately, Russia stepped up its game, with Gazprom seducing India into becoming a partner in TAPI’s construction.

But then came the recent announcement by Russian Energy Minister Aleksandr Novak: Moscow and Tehran will sign a memorandum of understanding to build a 1,200km gas pipeline from Iran to India; call it II. And Gazprom, in parallel, will invest in unexplored Iranian gas fields along the route.

Apart from the fact of a major win for Gazprom – expanding its reach towards South Asia – the clincher is the project won’t be the original IPI (actually IP), where Iran already built the stretch up to the border and offered help for Islamabad to build its own stretch; a move that would be plagued by US sanctions. The Gazprom project will be an underwater pipeline from the Persian Gulf to the Indian Ocean.

From New Delhi’s point of view, this is the ultimate win-win. TAPI remains a nightmarish proposition, and India needs all the gas it can get, fast. Assuming the new Trump administration “Indo-Pacific” rhetoric holds, New Delhi is confident it won’t be slapped with sanctions because it’s doing business with both Iran and Russia.

And then there was another key development coming out of Putin’s recent visit to Tehran: the idea – straight out of BRI – of building a rail link between St. Petersburg (on the Baltic) and Chabahar port close to the Persian Gulf. Chabahar happens to be the key hub of India’s answer to BRI: a maritime trade link to Afghanistan and Central Asia bypassing Pakistan, and connected to the North-South Transport Corridor (INSTC), of which Iran, India and Russia are key members alongside Caucasus and Central Asian nations.

You don’t need a weatherman to see which way the wind blows across Eurasia; integration, all the way.

The Hidden Motives Of The Chinese Silk Road

Authored by YaleGlobal Online via OilPrice.com,

China’s Belt and Road Forum, hosted with great fanfare, signals the priority of this flagship connectivity initiative while also underlining its credentials as the new “shaper” of global trends and norms. Exhorting all countries to participate, Chinese President Xi Jinping suggested that “what we hope to create is a big family of harmonious co-existence.”

But India, an emerging economy that shares a contested border with China, worries about containment and new pathways for aggression from Pakistan. Other nations wonder if hegemonistic designs are hidden behind the rationality of connectivity and trade. The policy initiative aims to enhance China’s centrality in the global economic unilateral approach in how the project is conceived and implemented so far belies the rhetoric of multilateralism emanating from Beijing.

Taking inspiration from the ancient Silk Road trading route, China’s One Belt One Road initiative, or OBOR, hopes to link more than 65 countries, encompassing up to 40 percent of global GDP. Xi’s signature foreign paradigm – linking China to Asia, Europe and Africa via an ambitious network of ports, roads, rail and other infrastructure projects. Beginning in China"s Fujian province, the projected Maritime Silk Route passes through the Malacca Strait to the Indian Ocean, moving along the Red Sea and the Mediterranean, ending in Venice.

The scale and scope of OBOR is huge, with at least $1 trillion in investments. At the Shanghai summit, Xi announced an additional $124 billion in funding for OBOR, including $8.7 billion in assistance to developing countries. China, desperate to deflect criticism that OBOR is primarily an instrument for Chinese expansionism, managed to convince heads of 29 states and governments to participate in the summit, including Turkish President Recep Tayyip Erdo?an, Italian Prime Minister Paolo Gentiloni, Russian President Vladimir Putin and United Nations chief Antonio Guterres. Most western leaders sent representatives.

The West views this as a Chinese bilateral project being touted a multilateral venture. The outgoing president of the EU Chamber of Commerce in China complains that the OBOR has “been hijacked by Chinese companies, which have used it as an excuse to evade capital controls, smuggling money out of the country by disguising it as international investments and partnerships.”

The rest of the world is more receptive. Lavishing praise on China for the OBOR initiative while targeting the U.S., Putin warned at the summit that “protectionism is becoming the new normal,” adding that the “ideas of openness and free trade are increasingly often being rejected (even) by those who until very recently expounded them.”

South Asia also welcomes OBOR, and most of India’s neighbors attended.

India refused to participate, maintaining opposition to China"s investment in the China-Pakistan Economic Corridor, or CPEC, which passes through Pakistan-occupied Kashmir. India, boycotting the event, announced in an official statement: “No country can accept a project that ignores its core concerns on sovereignty and territorial integrity.” Indian Foreign Secretary S Jaishankar articulated this position at the 2017 Raisina Dialogue: “China is very sensitive about its sovereignty. The economic corridor passes through an illegal territory, an area that we call Pak-occupied Kashmir. You can imagine India’s reaction at the fact that such a project has been initiated without consulting us.” Prime Minister Narendra Modi reinforced this point, asserting that “connectivity in itself cannot override or undermine the sovereignty of other nations.”

New Silk Roads: China, with about 60 other nations, pursue ambitious plans to connect three continents with infrastructure investments (Source: The Economist)

The advantages for India of joining China’s multibillion dollar OBOR initiative are apparent, and the economic logic is compelling. With bilateral trade of $70.08 billion in 2016, China remains India’s largest trading partner. Last year also saw record Chinese investments into India reaching close to $1 billion. Compared to this, China’s economic ties with Pakistan remain underwhelming with bilateral trade volume reaching $13.77 last year.

Yet against the backdrop of deteriorating Sino-Indian ties, India cannot feasibly join the OBOR project without challenging the very foundations of its foreign policy. The $55 billion CPEC would link China’s Muslim-dominated Xinjiang Province to the Gwadar deep-sea port in Pakistan. Despite the rhetoric, Beijing’s priority in pumping huge sums into a highly volatile Pakistani territory is not to provide economic relief for Pakistan’s struggling economy or to promote regional economic cooperation.

The development may not subdue restive Muslims in either country. The challenges are huge as underscored by the related militarization. Pakistan has deployed more than 15,000 troops to protect the CPEC, and is raising a naval contingent for protection of Gwadar; China will also station part of its growing naval forces at Gwadar. Concerns are already being expressed that Pakistan could become a Chinese colony once the corridor is operationalized. For the Chinese, security in the province of Balochistan is the biggest concern. Economic conditions in Balochistan remain dire with over two-thirds of its inhabitants living in poverty, and local opposition to the project is mounting by the day. Baloch separatists, especially those from the Baloch Liberation Army, are reported to have abducted and killed foreigners, particularly the Chinese. Such turmoil could have regional consequences.

The long-term strategic consequences of OBOR for India could also allow China to consolidate its presence in the Indian Ocean at India’s expense. Indian critics contend that China may use its economic power to increase its geopolitical leverage and, in doing so, intensify security concerns for India. CPEC gives China a foothold in the western Indian Ocean with the Gwadar port, located near the strategic Strait of Hormuz, where Chinese warships and a submarine have surfaced. Access here allows China greater potential to control maritime trade in that part of the world – a vulnerable point for India, which sources more than 60 percent of its oil supplies from the Middle East. What’s more, if CPEC does resolve China’s “Malacca dilemma” – its over-reliance on the Malacca Straits for the transport of its energy resources – this gives Asia’s largest economy greater operational space to pursue unilateral interests in maritime matters to the detriment of freedom of navigation and trade-energy security of several states in the Indian Ocean region, including India.

More generally, the Maritime Silk Road reinforces New Delhi’s concerns about encirclement. Beijing’s port development projects in the Indian Ocean open the possibility of dual-use facilities, complicating India’s security calculus.

India has its own set of connectivity initiatives such as Myanmar’s Kaladan project, the Chabahar port project with Iran, as well as the north-south corridor with Russia which could be potentially leveraged. The proposed 7200-kilometer International North South Transportation Corridor is a ship, rail and road transportation system connecting the Indian Ocean and Persian Gulf to the Caspian Sea via Iran to Russia and North Europe. The Indian and Japanese governments are working on a “vision document” for developing an Asia-Africa Growth Corridor largely meant to propel growth and investment in Africa, in part a response to China’s ever-growing presence on the continent.

The Belt and Road Initiative is a highly ambitious undertaking in line with China’s aspirations to emerge as the central economic power at a time when the United States makes plans to step back from global affairs. Its success depends on China’s ability to move beyond the bilateral framework and allowing a truly multilateral vision for the project to evolve. Otherwise, China can expect to contend with opposition from more countries than India.

Damaging The Deep State: Trump, Russia, And China

Submitted by Alasdair Macleod via GoldMoney.com,

Even before he takes office, President-elect Trump is turning the world upside down.

It has become clear his attitude towards Russia and China is very different from that of his predecessors. Amazingly, he is already wresting power from the deep state, causing it great resentment, which under Obama, Clinton and the Bushes, ran geopolitical policy. From January, barring accidents the world will not be the same, the establishment up-ended.

This short article builds on information available to date and speculates how America’s relations with Russia and China are likely to evolve, and the implications for NATO and Europe. It attempts to cut through the disinformation and noise (from all sides) to assess how Trump will change super-power relations.

Russia

President-elect Trump has signalled his respect for President Putin as a leader, and Putin, who has been careful to not comment on the US presidential election, has indicated his respect for Trump. Furthermore, Trump, who admittedly said lots of contradictory statements to get elected, clearly wishes to reduce America’s funding commitment to NATO and to reduce American involvement in the Middle East. These objectives will obviously find favour with Putin, and could form the basis of a relationship reset between Russia and the West.

The American deep state was responsible for moving missiles within range of Moscow, under cover of targeting Tehran, in this year’s escalation of a new cold war. It follows the covert destabilisation by the US of Ukraine over the last decade and American backing for various terrorist groups in Syria, following Syria’s refusal to permit pipelines from the Gulf to cross her territory five years ago. Since the fall of the USSR, NATO has moved its eastern border to within 300 miles of Moscow. Elements in the CIA, working to their own agenda, are still trying to demonise Russia without any evidence, as the Washington Post story about Russian intervention in the election demonstrates.

The Trump team dismissed this attempt to blacken the Russians as disinformation, from the same sources that came up with the fiction of Saddam Hussain’s weapons of mass destruction. The timing of accusations over Russian involvement probably has much to do with influencing the electoral college’s votes, a last stand against Trump’s election, in which case the intervention is politically outrageous. But this is a side-show, and doubtless Trump will deal appropriately with those involved when he is in office.

Rather like super-tankers that need seven miles to stop, regional powers are also finding it hard to adjust to these new realities, but adjust they surely will. European governments and NATO members will have had background briefings, but the normal channels for this, the CIA, the US Military advisers and American diplomats are not on Trump’s page, so confusion still reigns. But one thing is becoming clear: Trump will not be diverted from a general policy of détente and de-escalation of military presence in both Europe and the Middle East.

The process of détente is reasonably predictable. A summit with Russia to agree strategic arms limitations (called SALT3 perhaps?) is a proven path to follow. It should be a step-by-step process scheduled over five or ten years, with pre-agreed conditions designed to satisfy concerns in the Baltic States and Poland that Russia might attempt border-creep. For their part the Russians must agree Ukraine’s independence (excepting the Crimea, Donetsk and Luhansk, which should be formally ceded to Russia). Ukraine and Belorussia will be independent buffer states between Russia and the European Union. Under a SALT3 both NATO and Russia will agree to a phased withdraw of all military hardware other than limited ground troops and their associated equipment.

In the Middle East, America will concede that Syria remains in the Russian sphere of influence, and will withdraw all support for rebel organisations. This is no more than reality. China, doubtless, will help in the physical reconstruction of Syria in due course. Agreement will be sought as to the means of destroying Daesh. Beyond that, a reduced American presence in the region will continue to ensure security for Israel and the Gulf states. Already, the British have announced they will step up their presence in the region, which should also contribute to regional stability.

Iran should be persuaded by Russia to take a more constructive approach to peace with Sunni states, such as Saudi Arabia, and towards Israel. This could be difficult, but should be possible, given Iran has become considerably more moderate since the days of Ahmadinejad, particularly if the right tone from America is forthcoming. Iran’s days of hiding from western sanctions behind Russia will be over, and should be replaced with an emphasis on trade. And Saudi Arabia can no longer afford to wage wars, such as that in the Yemen, contributing to a less belligerent outcome.

All this is practical, possible and predictable. Behind the change in geopolitical reality for the Middle East is the fact that Peak Oil is being pushed further into the future. Not only are large new oil fields still being discovered (such as the Kashagan Field in the north of the Caspian Sea), but modern technology is bringing other forms of ecologically-friendly energy supplies on stream and higher prices will unlock shale oil supplies. The strategic importance of the Middle East has therefore declined, particularly since insignificant quantities of oil from the region go to America. And with that decline goes less need for geostrategic intervention by the US.

For the first time since the Six Day War in 1967 there is a realistic possibility of stability in the area, assuming the super-powers take a constructive approach to détente, and are willing to jointly police the region.

Regional implications of détente with Russia

The benefits of regional peace to the Middle East will, hopefully, materialise. Turkey is important, and will need to be considered as well. The coup attempt earlier this year, which was likely supported if not actually instigated by the US, has resulted in Erdogan tightening his grip on all opposition to his rule. However, Erdogan may have become Russia’s puppet, because the Russians appear to have tipped him off ahead of the coup and ensured its failure. If this is indeed the case, not only does he owe his power to Russia, but Russia can take it away. Under Russian influence, we can expect Turkey to continue to lean away from her impractical and unrealistic hopes of joining the EU, and instead pursue her more recent ambitions for membership of the Shanghai Cooperation Organisation. That would offer Turkey the best long-term future.

With Turkey’s future direction appearing to be decided, far more important is the effect of a reset with Russia on Europe and the European Union. As NATO members, European nations have gone along with Russian sanctions, which have been detrimental particularly to Germany’s economy. Their removal will give Germany a new long-term trade market of considerable potential, reducing her dependence on trade with other EU states, particularly France, Spain and Italy. The possibility of a new Hanseatic League, about which I wrote last March, is now on the cardsⁱ. I was very surprised that it hadn’t been considered by the British Government and discussed with the Germans as a Plan B in the event of a vote for Brexit. However, the prospect of détente with Russia leads to a new Hanseatic League now becoming a realistic possibility.

Briefly, the trade route to Russia, both by sea through the Baltic and overland by rail and road, offers enormous trading potential for Germany, Britain, Holland, and Scandinavia. To this we can add Poland, Czech Republic, Slovakia, Austria, Hungary, and to a lesser extent, Romania, Bulgaria and Serbia. Furthermore, a northern trade route will link into China’s One Belt One Road project, further enhancing its importance. In short, the long-term future of France, Spain, Italy and Greece will be challenged by the rehabilitation of Russian trade, and potentially become one of relative isolation. An overriding reason why Russia will become so important is because of her partnership with China in the Shanghai Cooperation Organisation. Russia is, with sub-Saharan Africa, the source of natural resources for China’s planned industrialisation of all Asia. And as a resource-rich country, Russia will benefit from the continuing rise in raw material and energy prices. Détente with America and NATO will improve her economic outlook considerably, but she needs European commercial technologies and manufacturing techniques to help rebuild her own middle class’s wealth.

The underlying reasons a SALT3 will work for Russia are all there, and Trump is likely to take the view that Western Europe should not be his responsibility. There is little US trade with Russia, so trade negotiations for America are not in this mix, simplifying matters considerably. The trade bun-fight will be mainly confined to negotiations with China.

We can be sure that there will be a summit between President Xi and President Trump early next year, because Henry Kissinger, who is trusted by the Chinese, and despite his great age has been sent by Trump to arrange it. Reports in the press that Kissinger’s visit last week was just to calm things down after Trump’s telephone call with the Taiwanese leader are wide of the mark. Trump is simply establishing his negotiating position from the outset.

Trump is of the opinion that businessmen, not diplomats, should control trade negotiations. While diplomats might view this approach as naïve, the fact is Trump will be setting the agenda. Consequently, he is likely to be dismissive of past agreements, and impatient with the snail’s pace common in diplomatic trade negotiations. He will most likely wish to handle trade negotiations with China himself.

In order that trade negotiations progress without misunderstandings he has nominated Iowa Governor Terry Branstad for the post of Ambassador to China. Branstad has known President Xi through previous visits, and should be an effective communications channel. That’s the soft part of the deal. The hard part is Trump’s rhetoric, and his willingness to talk to Taiwan, which has established his opening gambit. His objective will be to get China to stop manufacturing copies of American goods, hacking into commercial websites to steal trade and technological secrets, and abusing intellectual property. It is likely China will agree to tighten up on this behaviour, in which case a new trade agreement can be reached.

While diplomats might find Trump’s style damaging to their careful construction of trade relations over time, there is little doubt his approach has merit. Success with China, even if it is limited in scope, is likely to be the outcome. It could alter not only the way trade agreements with China are set in the future, but could override the whole WTO process for other international trade relationships as well. And here again, we see the EU with its antiquated and obstructive approach to trade being most challenged.

At the end of the day, Trump’s language is one the Chinese will understand, and in return for backing off over Taiwan, they are likely to concede America’s beef over intellectual property abuses, hacking and commercial espionage. China’s focus is moving away from that sort of business anyway, towards higher-level services and improved infrastructure for its rapidly-growing middle classes, and she plans to spread the benefits of her industrialisation throughout Asia.

Furthermore, there are likely to be echoes from Trump’s big-bang on trade. Removing diplomats from the act of setting the trade agenda, disconnects trade from geopolitical considerations generally, allowing Japan, for instance, to join the Asian Infrastructure Investment Bank. It is even conceivable that the US itself might apply to join it at a future date, in which case, you heard it here first.

Trump’s trade negotiations with China, if successful, could have far-reaching effects. They could, of course, go badly wrong, but the Chinese are realists and will almost certainly adapt to the new reality. It is in their interests to strike a deal with Trump, swiftly giving him concessions that established diplomatic practice would be unlikely to yield.

Political and economic consequences for America

In the first half of 2017, Trump is likely to achieve both détente with Russia and a new, better trade deal with China. If so, his pre-election stance, that the American establishment was failing the people, will have been amply proven. Trump will likely be riding high in the opinion polls.

However, you cannot demolish the status quo without consequences. While much good will be achieved if Trump’s approach to Russia and China succeeds, the EU will be undermined both politically and financially. The European Union is already threatening to break up following Brexit, and Trump’s détente with Russia could give Germany a realistic opportunity to cast off from the European Project. The financial cost of a European break-up will be a difficult pill for Germany to swallow, and renewed trade links with Britain and Russia is her best shot at recovery. The future for the euro, whatever happens, is being challenged, more so if Germany decides to replace it with a new Deutschemark. If Germany replaces the euro, the Eurozone’s banking system and currency will be increasingly vulnerable to collapse. And if the Eurozone has a banking crisis, it will inevitably infect the global banking system, undermining America’s banks as well.

If we make the optimistic assumption that somehow the Eurozone and its currency manage to stagger on, there is a further problem for America. Industrial raw material prices have been rising strongly throughout 2016, measured in dollars, despite the dollar’s strength against other currencies. Trump’s stated ambition, to cause US infrastructure investment to rise significantly, coincides with China’s thirteenth five-year plan for building new Silk Roads and associated projects. Consequently, both America and China will be aggressively bidding against each other for raw materials in 2017.

Price rises in raw materials and energy will become a major factor driving the rate of price inflation sharply higher on America’s Main Street. Yet the ability of the Fed to raise interest rates in their traditional attempts to limit price inflation will be checked by the height of the nominal rate that will trigger widespread debt liquidation. Debt, as the cliché goes, is the gorilla in the room.

Trump’s basic problem is that he understands business, but not necessarily economics. He obviously thinks that trade deficits arise from unfair trade practices. It’s a common mistake, but they don’t. They arise from unfunded government spending and the expansion of bank credit. His fundamental belief, that fair terms of trade will make America great again is therefore badly flawed.

It is also difficult to see where he stands on monetary policy, if at all. In business, he has personally benefited from the expansion of bank credit, but does he understand the eventual price consequences of unlimited expansion of bank credit? Very few businessmen do, in which case we can only hope he will be well advised.

Past US presidents, from Herbert Hoover onwards, have been generally poorly advised on basic economic theory, thinking the state is well equipped to fix things that go wrong. The evidence for this error is found in the unremitting accumulation of public sector debt since the Wall Street Crash in 1929, confirmed when Roosevelt devalued the dollar against gold in 1934, and reconfirmed when Nixon temporarily abandoned all gold convertibility in 1971. That Trump might be better advised must remain a pipe-dream, unless contradicted by events.

Therefore, my broad expectations for 2017, the first year of the Trump presidency, is success in foreign and trade policy will be offset by rising price inflation and falling asset prices as interest rates rise (see my article dated 1st December, Credit cycles and gold), terminating in a credit-crunch from higher nominal interest rates. Good on the geopolitics, bad on the economy.