The New Polarization


The world is moving into a new set of polarities.

The U.S. and E.U. are even more closely aligning themselves against Russia, and Russia is moving closer to China. Two of the most inscrutable UN Security Council Members are giving each other a bear hug.

Russia has no other choice however. It has to move East, and in China it finds a big importer of oil and gas. Gas is Russia’s most important export. And, China has an insatiable need for energy. They both signed a USD 400B deal spread over 30 years. Last week, both countries signed a further slew of agreements, enhancing their trade and economic cooperation.

The cause of all this activity is the raft of economic sanctions imposed by the U.S., E.U. and other Western countries on Russia as a result of its invasion of Eastern Ukraine. While Russia has consistently denied its participation in the rebel-led campaigns against the Ukrainian Army, it is almost impossible to ignore its involvement. Russia’s annexation of Crimea from Ukraine by force is a huge setback to its relations with the West.

On the other hand, the imposition of economic sanctions as a political tool against Russia has not worked out well for the Western interests. With huge Western investments in Russia, and a high dependency (for the E.U. countries) on Russian oil & gas exports, retaliation on economic front may not be a sustainable option. There is no military option in this conflict, as the West knows well. Despite the deterioration of the Russian military might, Russia still holds rather big nuclear keys which would deter any military adventure by the West. Now that the Republicans control both the House of Representatives and the Senate in the U.S., we hear cries by the aggressive Republicans to supply lethal arms and ammunition to Ukraine, which can then be used against the Russian-speaking rebels in Eastern Ukraine and the Russian Army if it formally invades Ukraine. Such a decision by the U.S. to supply arms could prove fatal to Kiev’s government. Also, any further movement of Ukraine towards NATO could again be very detrimental. The situation which could then emerge will not be unlike what happened in the Cuban invasion back in the early Sixties.

On the other hand, China is getting aggressive in the South China Sea, and against Japan, and is looking for a supporting anchor from elsewhere. And that could be Russia. So, the conclusion could be a political and sovereign support to China in return for trade and economic support to Russia. Looks rather neat and good, right ?

No.

Russia and China never worked together well, they have had significant differences in the past despite both being Communist countries, there are big cultural disparities, and China will act like a big brother to a rather small Russian economic might. Russia could get easily slighted. Its singular dependence on China for trade could be painful, given that China will extract a big deal on almost every deal on the table.

And my suspicion is that the Russian people prefer the West and the Western goods to the emerging Chinese influence and Chinese goods. Their cultural affinity is closer to the West. Western fashion, culture, gooda and services have had a huge impact on Russia over the past couple of decades. President Putin would find it hard to turn that tide towards China.

It will be interesting to see how the geo-political scene take shape over the next few months. A victory for the West is NOT a given. A survival for the Russian economy is also NOT a given.

Cheers,

Vijay Srinivasan
9th November 2014

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