Debt Rattle Jul 29 2014: There’s A War Going On Already In Europe

By The Automatic Earth

Arthur Rothstein Elm Street, Theater Row, Dallas Jan 1942

I don’t think it’s ever a good sign, no matter how funny it may look, when the US state Department makes one think of Monty Python. But it does. With a Silly Claims instead of Silly Walks department. Would these people really sit around a big table in the evening and brainstorm about what anti-Russia statement to feed to the press the next morning? What else could possibly be going on here? I mean, just look at this bit from the New York Times:

US Says Russia Tested Cruise Missile, Violating Treaty

The United States has concluded that Russia violated a landmark arms control treaty by testing a prohibited ground-launched cruise missile, according to senior American officials, a finding that was conveyed by President Obama to President Vladimir V. Putin of Russia in a letter on Monday. It is the most serious allegation of an arms control treaty violation that the Obama administration has leveled against Russia [..]

At the heart of the issue is the 1987 treaty that bans American and Russian ground-launched ballistic or cruise missiles capable of flying 300 to 3,400 miles. That accord, which was signed by President Ronald Reagan and Mikhail S. Gorbachev, the Soviet leader, helped seal the end of the Cold War and has been regarded as a cornerstone of American-Russian arms control efforts.

Russia first began testing the cruise missiles as early as 2008, according to American officials, and the Obama administration concluded by the end of 2011 that they were a compliance concern. In May 2013, Rose Gottemoeller, the State Department’s senior arms control official, first raised the possibility of a violation with Russian officials. The New York Times reported in January that American officials had informed the NATO allies that Russia had tested a ground-launched cruise missile [..]

If we are to believe the NYT, Russia started testing the system 6 years ago, it then took the US at least 3 years to ‘conclude’ it was ‘a compliance concern’, another 18 months or so to ‘raise the possibility of a violation with Russian officials’, 8 more months after that to inform NATO – and have the NYT write it up – and another half year on top of that for Obama to write a letter to ‘President Vladimir V. Putin of Russia’ (excellent choice of title, love the extra V.) and feed the press.

Whereas we can all agree that timing is everything, how many of you recognize that any and every single day over the past 6 years and change would have been better to go public with this than today? In all the papers, we can read that ‘Senior American officials’ stress that this is ‘a serious violation’.

Look, we know you’re trying to make Russia look bad. We get it. But we also know that if this would have been such a serious violation, you would have spoken out a long time ago. We therefore have no other choice but to file this under ‘whatever’. And wait with glee for what you come up with tomorrow.

By the way, while reading up on this, I happenstanced upon something else in the field of nuclear treaties. And since you guys insisted on putting us in Python mood, here goes. This is from the Santa Barbara Independent:

Feds Looks to Quash Nuclear Treaty Lawsuit

Federal attorneys have made their first big move to dismiss a lawsuit that alleges the United States, along with eight other countries, has violated a 46-year-old treaty to dismantle its nuclear arsenal. The lawsuit was filed in April — in U.S. Federal Court as well as in the International Court of Justice in The Hague – by the tiny Pacific nation of the Marshall Islands, which the U.S. bombarded with nuclear weapons tested between 1946 and 1958. Marshall Islands officials maintain that radioactive fallout from the tests sickened citizens and rendered some territories unlivable.

“Our people have suffered the catastrophic and irreparable damage of these weapons,” said Marshall Islands Foreign Minister Tony de Brum in May, “and we vow to fight so that no one else on Earth will ever again experience these atrocities.” The Treaty on the Non-Proliferation of Nuclear Weapons (NPT) was signed in 1968 and mandates that the United States, Russia, United Kingdom, France, China, Israel, India, Pakistan, and North Korea “pursue negotiations in good faith” to end the nuclear arms race “at an early date and to work toward worldwide nuclear disarmament.”

Attorneys for the Marshall Islands argue that the countries have instead increased and modernized their nukes over the decades. [..] In the fed’s Motion to Dismiss, the government claims the lawsuit should be thrown out because of procedural and jurisdictional issues. “The U.S.… does not argue that the U.S. is in compliance with its NPT disarmament obligations,” the NAPF explained in a prepared statement. “Instead, it argues in a variety of ways that its non-compliance with these obligations is, essentially, justifiable, and not subject to the court’s jurisdiction.”

That doesn’t exactly make that claim against Russia look better, does it? Anything else? Alright then, moving on. The Financial Times has a particularly spicy rendering of the Yukos lawsuit story in which Russia was ordered to pay $50 billion in damages:

‘Yukos Is Insignificant, There Is A War Coming In Europe’

Beleaguered shareholders of Yukos could scarcely have imagined when they launched arbitration in 2005 they would one day be awarded $50bn in damages – nor that the ruling would be released into the febrile atmosphere that exists between Russia and the west today.

Just six months ago, say legal experts, Russia still seemed interested in being part of international “clubs” like the Organisation for Economic Co-operation and Development, the group of mainly rich countries. As the Ukraine crisis worsens, protecting its international reputation no longer seems a priority. “If one were to be quite cynical, I think the reputational consequences for Russia [of not paying] will be very limited indeed, because they have already been through a lot of things,” said Loukas Mistelis, director of the School of International Arbitration at Queen Mary University of London. “I think they would be prepared to take quite a bit of risk.” [..]

… if Russian state businesses find themselves hit both by western sanctions and attempts to seize assets by Yukos shareholders, relations between the Kremlin and the west could sour further. One person close to Mr Putin said the Yukos ruling was insignificant in light of the bigger geopolitical stand-off over Ukraine.

“There is a war coming in Europe,” he said. “Do you really think this matters?”

I don’t know. I catch myself thinking at times that there’s already a war going on in Europe. It could certainly expand and accelerate a lot further, but the sanctions the US and EU intend to slam on Russia sure look like economic warfare to me. As do the innuendo, the lack of evidence, the constant stream of smear stories leaked through fuzzy channels, it all fits the picture.

The Yukos case is already causing people to wake up from various stages of slumber. BP reported ‘great’ profits today, largely from their interest in Russian oil giant Rosneft (got to love the irony), but it also said the sanctions that are being prepared could hurt its shares, because it has a 19% stake in Rosneft.

What it didn’t say out loud, but what is certainly an added threat, is that the parties who won the case can now go sue BP to get their $50 billion. Because of the same 19% stake. And given that many of the stakeholders of the other 81% will be hard to go after, BP could face a bit of a problem.

But something tells me that’s still not Beyond Petroleum’s biggest worry: the deals with Rosneft gave it the prospect of actual recognized fossil fuel reserves, something BP, like all western oil behemoths, has far too little of. Exxon, too, has Rosneft deals, as does Norway’s Statoil, both for Arctic drilling projects. Shell, though Sakhalin developement(s), may well be the largest foreign investor in Russia.

At some point Big Oil will need to write down reserves; at some point their shares will fall for real. That sanctions originating in western anti-Putin sentiments may accelerate the process is something that, I’m not even sorry to say it, amuses me.

To get some perspective on the whole story, here are a few principle ideas it is based on. The west – US and EU – tries to squeeze Russia, and Rosneft. The west also – so far – seems to think this would surprise Putin and hurt his plans. Many people for instance claim that he will lose popularity at home if his economy takes a southbound turn.

Me, I’m not so sure. I think Putin must have seen all of this coming from a long time and a long distance away. The US keeps trying to pull him into proxy wars, but he’s not biting (which is why they turn to unsubstantiated claims).

Russian speaking Ukrainians are getting killed by the dozen with western support, and he must detest that. But sending in his troops would be just what the west wants, and it would lead to far more bloodshed. As long as he and his people officially stay on sovereign Russian soil, he’s OK.

As for economic sanctions, Russia is not that vulnerable. While the US tries to break the bond between Russia and Europe, Russia can try the same for the bond between US and EU. What’s more, Putin knows the ‘leadership’ in Brussels is not overly competent, and dreams away in grand visions of power, of an equal partnership with their American friends. Vladimir V. knows the US has no intention of granting Brussels any such power.

The sanctions will eventually lead to either a break between US and EU -because European business interests get hurt too much -, or – more likely for now – it will lead to $200 a barrel oil, huge increases in EU heating costs and a sharp dip in the euro that will make that $200 a lot more still.

Putin’s fine either way. Sell 50% less to Europe at 100% higher prices, why not? Let’s see EU member Slovakia send Russian gas back to Ukraine – or however that reverse flow is supposed to work -. Putin can simply cut overall gas delivery to Europe by 25%, and 50% if they try it again. There’s no love lost between Putin and Europe in the aftermath of the crash and the things that have been said about him.

And I think Vladimir must know how the US feels about this. Washington sees the advantages of making Europe their bitch, pardon my French. With half of the old world in the cold come winter, the US can greatly enhance its influence there. The Americans think that with their domestic shale wealth – they’re wrong, but they think it -, $200 a barrel oil in international markets would suit them just fine for a while.

As I said last week, we have entered the next phase in the energy equals power battle, and we entered it for good. This should be evident from looking at the sanctions and the Yukos case, and the fall-out this will have on western oil companies. You can be a big wig in Brussels and feel nice about yourself negotiating punishments for Vladimir V. Putin, but that doesn’t mean you’re ready to play with the big boys. And from here on in, it’s a big boys game only.

Note: Holland announced today that 195 of the 298 people who died in the MH17 crash had the Dutch nationality; some had dual citizenship. The one person they added to the list was a 2-year old girl. Isn’t that just the saddest thing on the planet? And then the US and EU have the audacity to play a propaganda war over that, blaming people for killing that little girl without any proof? Also, finally, 12 days after the crash, the Dutch government is calling on Ukraine to stop the fighting on the crash site and let forensic experts do their job. President Poroshenko has promised for while that they would. But nothing changed. There are still dozens of bodies and body parts decomposing in the fields. Best remember who your friends are. Same question again: who’s commanding that army?

But hey, stock markets are up … What more can we ask for?

TLB recommends you visit The Automatic Earth for more great articles and pertinent information.

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