Posts Tagged Sanctions
WHO WILL DONALD TRUMP HAND-OFF THE MOST DANGEROUS PROBLEM CONFRONTING THE WORLD TODAY? NORTH KOREA! WILL IT BE R. C. McMASTER, OR STEVE BANNON?
North Korea’s nuclear arms have advanced beyond the primitive state. Supreme Leader Kim Jong-Un now has real nukes, and he is in the process of improving the range and accuracy of his missiles, while continuing to miniaturize the warheads to extend the range. And then, he will be ready to build an arsenal!
China does not want to place anymore political pressure on its failed neighbor; because, that would cause millions of destitute North Koreans to stream across its border, and Beijing would then have to care for the refugees. Additionally, an invasion would also set-up a potentially disastrous confrontation with the United States.
In a webcast discussion, between Robert Litwak, Vice President at the Wilson Center, and one of the world’s foremost authorities on North Korea, and NY Times National Security Correspondent David Sanger, the topic was “Preventing North Korea’s Nuclear Break-Out.” The proximity of U. S. Forces, both in South Korea and nearby Japan, along with our allies, turns a potential confrontation with China into a powder keg.
Mr. Litwak suggested, during the discussion, that the likely options—all bad ones—are: “bomb, negotiate, or acquiesce… “ Bombing, which would usually be followed by a ground attack, would merely anger China, and would draw them into the war. Beijing certainly doesn’t want the U. S. Military just across their border, nor would we want theirs! That would leave two intolerable situations: facing an unlimited Chinese force, virtually in their backyard; or going nuclear. Either way, we would not want to see that scenario play out!
Acquiescence is also a terrible option. North Korea’s Supreme Leader, 33 year-old Kim Jong-Un runs a dynastic dictatorship and, judging by the living conditions that his people must endure, he seems to care little about them.
So, if we merely allow Mr. Kim to maintain the status quo, he will surely begin considering his next move—going even more bellicose. The North Korean “Leader” is unstable, and cannot be trusted. And don’t count on regime change; because, Kim has already eliminated the prior military leaders, and replaced them with his generals.
This leaves us with the only one acceptable option: to negotiate some sort of Iran-like Nuclear Agreement—along with, say, South Korea, Japan, China and Russia. Similar to the Iran Deal, North Korea must be required to: dismantle its nuclear program and ship, say 95% of the plutonium and centrifuges out of the country, perhaps to China, before the negotiations even begin.
There must be a slight easing of restrictions initially, mostly for humanitarian purposes, and the IAEA must be able to make unannounced inspections. The negotiating team, and perhaps others, must provide North Korea with increasingly necessary supplies. The DMZ, between North and South Korea, should be widened, from two and a-half. to 20 miles. At least, that will eliminate offensive broadcasts and sniper fire, back and forth, between the two korean armies.
The one immediate question that comes to mind is: would Donald Trump agree to an Agreement similar to the one that President Obama, and five other nations, entered into with Iran? So far, Trump has appeared to be intent on eliminating anything that Obama had accomplished. Yesterday, Secretary of State Rex Tellerson said that the U. S. might consider a pre-emptive attack on Pyongyang, rather than a retaliatory attack. That concerns me!
I believe that National Security Advisor, R. C. McMaster, and Secretary of Defense, James Mattis, might agree to the merits of a Nuclear Agreement, similar to the one with Iran. Secretary Tellerson, however, the former CEO of Exxon-Mobil, is a veritable novice when it comes to National Security. So far, Donald Trump has been more willing to hand-off the most important problems to the loyalists among his Regime Staff. Steve Bannon? OMG!
The Russian Economy is in a shambles. Too much of its budget has historically been used to upgrade its military technology, to the detriment of the needs of the Russian People. The Energy Sector accounts for 47.5% of its Economic Production, and it has failed to diversify much of the rest beyond banking and commodities.
The economic sanctions, which were increased by the West in early 2014, after Russia annexed Crimea and began encouraging civil war in Eastern Ukraine, have surely hurt its trade activities. Slumping oil and gas prices during that period, by 35% and 22%, respectively, reduced the Russian access to Dollars. At the same time, the 87% decline of the Ruble, versus the Dollar, has made many imports cost-prohibitive.
Besides the inflation that the weak Ruble has caused, and the scarcity of consumer goods, unemployment has risen, wages have decreased, and there seems to be no relief in sight for the average Russian worker. Russians still make family outings to the malls, which were built during the oil boom; however, many stores are closed, and the shelves are quite empty in those that remain. It’s just something to do during those long Russian winters.
A friendly American President, who seems less inclined to cooperate with an apparently splintering European Union, might cause the sanctions to be eased—either nation by nation, or across-the-board. There has been talk about several European nations initiating more active trade with Russia. Such improved trade options might ease the Russian economy into a somewhat better situation.
Donald Trump, along with many of his Cabinet nominees, seems to be advocates of fossil fuels, and they claim that man-made climate change is a hoax. So far, Mr. Trump has not shown any interest in the Paris Accord. This scenario seems to suggest a reduced interest in alternative energy sources and, thus, an increased demand for gas, oil and coal.
Apparent Secretary of State-Designate Rex Tillerson, CEO of Exxon-Mobil, would certainly be Donald Trump’s go-to guy, with regard to Russia. His so-called personal relationship with Vladimir Putin has been a symbiotic one: Rex was selling and Vlad needed to buy! When the sanctions were increased in 2014, the transfer of vital technology, from Exxon-Mobil to Russia’s Rosneft Oil Company, was blocked. Such a transfer under a Trump Administration, might become more likely, and it would give Exxon-Mobil access to a sector in Russia’s Arctic Region.
We’ll never know, for sure, if Russia helped Donald Trump win the Election; but, Vladimir Putin surely needs Donald’s and Exxon-Mobil’s help now! Trust me!
The International Atomic Energy Agency, which reports jointly to the United Nations General Assembly and to the Security Council, has declared that Iran had conformed to the requirements under last June’s Joint Nuclear Arms Agreement. Accordingly, the economic sanctions against it have been lifted. That means that Iran is now able to buy imports and sell its exports on the global markets, and also to access its country’s frozen financial assets.
While Iran was under the sanctions, its economy went substantially downhill. The nation could not access the global marketplace, and with its financial assets frozen, it did not have the dollars or other “hard” currencies with which to trade. Now, don’t expect the Iranian economy to turn-around overnight? But, keep in mind that it has been preparing for this, with the heads of many Western nations, and a coterie of business leaders, having traveled to Tehran before the ink was even dry on the Agreement.
Politically speaking, the American Republican Party seemed to have teamed-up with the Middle Eastern “Odd Couple”—Israel and Saudi Arabia—as each of them had promised that Iran would use the access to those financial assets to build a nuclear bomb. There are two problems, however, in that scenario: the Iranian government needs to use most of those funds to jump-start its economy, lest it risks another “Green Revolution”, as in 2009; and the “break-out period” required to build a nuclear bomb, is now twelve months, as compared to two-to-three months, before the Agreement.
Recently, the price of oil on the global markets had fallen below $30 per barrel (for WTI, with Brent just slightly higher). As Iran adds its oil to the global export marketplace, the price should continue to remain low for some time to come. Also, since many of the nations that rely heavily on petrodollars are autocracies, that will surely have an impact as to what extent they might continue to suppress their citizens.
Various elements outside of Iran differ as to who will win the internal political conflict, between the hardliners—the Supreme Leader Ali Hosseini Khamenei, the clerics and the Military—as compared to the more moderate faction, led by President Hassan Rouhani and Foreign Minister Mohammad Javad Zarif. I believe that they might be using the carrot-and-stick approach, with the hardliners taking a firm stance for domestic consumption, and the moderates acting more rationally on the world stage.
Lastly, keep in mind that much of the Iranian hierarchy is quite elderly, while Iran is a country of mostly younger, highly educated people who seem to prefer a more liberal, secular lifestyle. So, the real question might be: how much longer the old guard can hold-out?
Last year, Chinese President Xi Jinping and Russian President Vladimir Putin met several times and engaged in trade negotiations that appeared to be beneficial for both countries. China was awash in U. S. Dollars and lacked gas, oil and other basic commodities. Russia, on the other hand, desperately needed hard currency and has an economy that is primarily based on gas and oil revenue, as well as some from basic commodities.
In May, Xi was the only A-List head of state to attend Putin’s parade in Moscow, which marked the 70th anniversary of the end of World War II in Europe. Putin, in return, was the only high-level guest at Xi’s parade, in Beijing, last week, to mark the end of the War with Japan. Neither country staged a solemn remembrance affair, as has been the usual theme in most Western countries. Both Beijing and Moscow rolled out the high-stepping military troops and row after row of the latest military hardware–maybe with a hidden agenda to create some nationalism. Perhaps that’s why the various Western nations that participated in World War II merely sent lower-level representatives.
It had been anticipated that when the two leaders met in Beijing that they would formally sign the various trade agreements, which had only been agreed to last year. But, a lot has happened since then. Presidents Xi and Putin, who generally appear to have a mutual admiration for each other, seemed to be somewhat distant. During the past year, the global economy has just not been cooperative for either country.
China, still has not diversified its economy sufficiently beyond the export sector and, thus, it has been significantly effected by the worldwide slow-down. Accordingly, its appetite for natural resources has diminished, and so has it supply of dollars.
And Russia’s economy has been substantially effected by the reduced sale of gas and oil to Europe, due to the economic sanctions imposed after it annexed Crimea last year. Additionally, its energy-dependent economy, has been further disrupted by the fact that prices on the global markets have dropped by more than 50% over the past year.
Therefore, the trade negotiations have been pushed even further off into the future. China would want the price of gas and oil to be cut substantially, given the weakness in global demand. In fact, Beijing currently appears unable to even project what its future energy needs might be. Moscow, for its part, although it needs dollars badly, it surely doesn’t want to jump at fire-sale prices for its commodities–if there even was an offer on the table. So perhaps they’ll just have to wait until next year.
The two linked stories in this blog post show the effects of the double-whammy of economic sanctions and the sharp decline in global oil prices on Russia. While oil, the nation’s primary export, has dropped in value by roughly 50% just since last June, inflation has skyrocketed due to the shortage of many necessary goods due to the sanctions. The articles focus on regional shopping malls in the Moscow area between the beginning of 2013 and this April.
After massive protests against Russian President Vladimir Putin’s administration just a few years ago, he awarded the Russian people with ownership of their homes. So, with a flat 13% income tax rate, no mortgage or rent, and socialized health care, Russians had a considerable amount of “disposable’ (spendable) income, and spend they did!
Regional shopping malls had first been introduced into Russia in 2000 and by the time that the first article was written, Russians were spending 60% of their after-tax income on retail products, including food. Swedes, the second-highest in Europe, spend 40% on retail purchases and, for comparison, Germans spend only 28%.
The people naturally found indoor shopping malls a great venue during the harsh Russian winters–with their multiplex cinemas, bowling alleys, ice skating rinks, indoor playgrounds and, of course, shops and restaurants. In the Metro Moscow area alone, there are 82 malls with a combined 34 million square feet of space. That shopping experience was noted in the earlier linked NY Times article: http://www.nytimes.com/2013/01/02/business/global/with-a-mall-boom-in-russia-property-investors-go-shopping.html.
With the rapid decline of spendable income and shortages on many items over the past year, many older Russians have been reminded of the shopping experience during the former Soviet Era. In 2013, the average monthly take-home pay in Moscow peaked at $1,700 (in dollar terms); however, when adjusted for inflation, it is projected to average only $900 this year. The second linked article, also from the NY Times, shows how shopping in Russian malls is today: http://www.nytimes.com/2015/04/10/business/international/in-moscow-economic-sanctions-rattle-malls.html.
Little by little, the Russian people are hearing rumblings of their nation’s agitation in Eastern Ukraine–sending weapons and supplies and, of course, some Russian soldiers. Vladimir Putin controls the media and he continues to deny any involvement whatsoever, other than the annexation of Crimea. That was probably expected in order to maintain control of the Navy’s only warm water port at Sebastopol. But, so far, roughly 1,000 Russian soldiers have keen killed under mysterious circumstances, and there have been protest marches against the war, not only in Moscow, but in other cities as well. Isn’t it odd that Russia annexed Crimea so quickly, but then it stopped there?
All of the international intrigue is beyond the comprehension of the average Russian. That’s why the shopping mall comparison is so revealing between the two articles. Wages have declined, retail items are scarce, inflation is high and the Russian Treasury is rapidly depleting its foreign currency reserves. Although shopping malls might be an American invention, the fact that in Russia today, they have changed from bustling centers of capitalism to virtual ghost towns is quite illustrative of the impact of of the sanctions, as well as the rapid decline in global oil prices. The malls truly reflect the pain that the Russian people are now feeling
America and the European Union had been considering instituting economic sanctions again Russia following its Annexation of Crimea; however, Europe was not fully on-board. If the U.S. had enacted them alone, or perhaps with just a few European Allies, that would have merely shifted trade with Russia to the rest of Europe. After the pro-Russian Separatists in Eastern Ukraine shot down Malaysia Airlines Flight MH17 last year, with many Europeans aboard, however, there was a total change of heart among the Allies as all partners quickly agreed to institute the sanctions.
The European Nations, as a group, have been the major trading partner of Russia, both as a client and as a supplier. Putin has been claiming all along that the sanctions would hurt Europe more than they do Russia; however, Moscow has much less in the way of trade alternatives. The increased sanctions–mostly financial and technology–seem to have further increased the pressure on Russia’s economy, which had been dysfunctional even before its aggression into Ukraine had begun.
Putin does boast occasionally about the Eurasian Economic Union, which was only formed in 2013. With the addition of Armenia this past January 2, Russia is also joined by Belarus and Kazakhstan. As a group, the EEU has a total population of only 169.2 Million and a GDP of $2.21 Trillion, of which Russia represents 86%. Similar statistics for Europe are 507.42 Million population and $18.40 Trillion GDP and, for the U.S., 316.13 Million and $16.80 Trillion, respectively. So Vladdie, who’s kidding who?
Ukraine had long been considered the “Breadbasket”–mostly for corn and wheat–for much of both Europe and the former Soviet footprint. It had been second in global agricultural exports after the U.S. Agribusiness made-up 24% of Ukraine’s total export volume and five percent of its GDP. Of the two Ukrainian seaports that were the key shipping points for agricultural products, Odessa is still functioning; however, the more important one, in Sebastopol, Crimea, is inaccessible due to the Annexation. Thus, the grain export shortage has caused pricing pain in Europe, as well.
A key factor in the equation is that there is not one marketable currency within the EEU. That means that the four member nations are as much in search of Dollars, Euros, Pounds, etc. as they are in finding the necessary imports. An article in The Diplomat, a current-affairs magazine, based in Tokyo, which covers the Asia-Pacific region, is linked as follows: http://thediplomat.com/2015/01/eurasian-economic-union-dead-on-arrival/.
Within the EEU, Russia seems to act like it is still calling all the shots; however, the other members stress that they, indeed, are now equal partners. Some might wonder to what extent Russia truly wants the trade group to even survive. However, the member nations still must respect Russia’s might!
Several of the squabbles that Russia has instigated within the EEU are: customs disagreements it has with Belarus; it wants its trade partners to abide by its own trade sanctions against the West (which would reduce their own trade); and it wants its trade partners to trade in local currencies, rather than marketable ones. The Diplomat article suggests that the Eurasian Economic Union, which was touted by Russian media as a new “Giant”, had come into being in a near-stillborn state. Others say: Dead on Arrival?
Russian President Putin recently announced Sanctions against the European Union and the United States whereby Russia would not import Food from those Nations. Instead, Moscow will arrange to replace that Food through imports from Turkey, Latin America and former Soviet Socialist Republics. Well, I guess that you can say whatever you wish when you control the Media which will be advising the Russian People why its food stores will have even less and less agricultural necessities to purchase.
In prior years, Ukraine was known as the Breadbasket of the Soviet Union. So, if we assume that Ukraine, the E.U. and, to a lesser extent, the U.S. are no longer primary suppliers of Russia’s edible needs, the amount available for Russian tables will diminish and the cost will skyrocket. Thus, the already high rate of Inflation in Russia could skyrocket. That will further impede the Russian Economy. Wine and a French warship, however, were left off the Sanctions List.
If Turkey still has any hope of joining the E.U., after taking a sharp turn toward Islamic Fundamentalism over the past several years, it’s abiding by the E.U. Sanctions on Russia will be watched very closely. Agricultural products from Latin America (perhaps most notably Argentina and Brazil) would have longer shipping times and costs. Also, there just aren’t too many of the former Soviet Socialist Republics that remain loyal to Russia. So, Vladimir Putin is mostly talking to his own People, but not realistically.
The Russian Army has recently re-deployed a Force of some 20,000 soldiers away from its boarder with Eastern Ukraine. Also, it is becoming apparent that the Pro-Russia Militia, which has been fighting for independence in Eastern Ukraine, has lost all hope of Russia coming to its aid. So, two points come to mind: perhaps the Economic Sanctions on Russia are finally getting Moscow’s attention, causing it to leave the border; and, the Separatists might now realize that fighting for Independence is one thing; but, actually Governing is something else. Perhaps that’s not something that they are prepared to do. Stay tuned!