USA, Russia and Sanctions: The Real Situation

Yesterday someone commented on my post about the threat of the Ukrsine dispute turning into economic warfare, that the USA would be immune to economic fallout from any trade war because the world trades in US dollars. Now knowing what I do about the dross printed and broadcast by US mainstream media, I could not criticise anybody for clinging to this piece of propaganda, but in reality the situation has been changing for some years.

So when you read reports that Russia is ready to hit back with counter sanctions against the EU and US should they try to use economic measures to force the Kremlin’s hand on the Ukraine issue, be afraid. Since the start of the Iraq war, the economic landscape has changed enormously. The USA is no nearly as dominant as it was, due to the actions of the last two US administrations Uncle Sam has little goodwill to trade with. China has already recealed plans to replace the US$ with a new reserve currency and simlar plans have been discussed in G20 sessions because of fears about the systemic weakness of the US economy.

The President and Scooby Doo villain Secretary Of State Kerry are not in a strong enough position to indulge in sabre rattling.

“We hope that there will only be targeted political sanctions, and not a broad package affecting economic trade, “Our sanctions will be, of course, similar, ” Deputy Economic Development Minister Aleksey Likhachev the Russian Economic Ministry has said .

One way Russia will use to protects its economy from sanctions is by shifting settlements of bilateral trades to other currencies. China and Iran have already taken the lead in this, following a move by the late Saddam Hussein which I blogged on some years ago (How Saddam May Yet Win The War ) The old tyrant was merely giving the finger to bill Clinton’s White House but he established a precedent that others noted.

America’s vulnerability to attacks on the dollar is summed up in this comment made by Aleksey Ulyukaev, the Minister of Economic Development said in an interview with the Vesti 24 TV channel.

“We need to increase trade volume conducted in national currencies. Why, in relation to China, India, Turkey and other countries, should we be negotiating in dollars? Why should we do that? We should sign deals in national currencies- this applies to energy, oil, gas, and everything else,”

The Duma, Russia’s parliament, is drafting legislation to allow Moscow to freeze assets of Western companies and individuals in the event sanctions are imposed following the Crimea referendum vote on March 16.

#Such a law would give The Kremlin “opportunities to defend our sovereignty from threats,” according to its author, Andrey Klishas, as quoted by RIA Novosti on March 5.

With Russia and China already dumping dollar reserves and US Treasury bonds this could easily spell trouble if Obama and Kerry are not careful. The US Congress has already denounced Russia’s actions in Ukraine. Last Tuesday, congress approved a resolution that urges The White House to “to work with our European allies and other countries to impose visa, financial, trade and other sanctions on senior Russian Federation officials, majority state-owned banks and commercial organizations, and other state agencies, as appropriate.”

Earlier this week the European Union threatened to impose further sanctions on Russia starting on March 17, after the referendum in Crimea takes place on Sunday. Speaking to the German parliament, Chancellor Angela Merkel hinted sanctions would be needed if Russia “continues its efforts to annex crimea or bring down the EU supported rebel government of Ukraine. Merkel warned that if Russia does not back down the result would be to change the European Union’s relationship with its neighbour. She is right of course, Germant depends on Russian gas, if Putin turns off the tap it would quickly cripple the German economy.

The real clincher in determining how the Ukraine confrontation will play out is China. Seemingly far removed from this dispute, China would appear to have little to gain from involving itself in a dispute between the western powers and Russia. China’s ambassador to Germany Shi Mingde, has warned however of the global economic affect sanctions against Russia could hold. Mingde said the geo-political tiff between Russia and the West could “spiral” into chaos (by whih he probably means a shooting war or an economic crisis to make 2008 look like a short term cashflow problem).
President Putin and the Russian foreign ministry have both said sanctions against Russia could backfire, and spill over into the global economy and Moscow’s Foreign Minister Sergey Lavrov denounced any “hasty and ill-considered” sanctions as being likely to cause “mutual damage”.

Iran-style sanctions on Russian trade appear impossible because the EU would be much more exposed than the US and as Putin has warned, the American economy would be massively exposed should Russia decide to dump the dollar reserves it has built during years of exporting gas and oil.
The European Union nations import around a third of their gas and many other natural resources from Russia, and several nations are completely dependent on Russian gas. The US and Russia trade very little so it is difficult to see what harmful effect US sactions could have (but since when did Barack hussein Obama, the ego on legs, think through such foreign policy subtleties), but Russia is Europe’s biggest customer, and the $13 trillion EU economy would de devastated if trade with Russia was halted overnight.

So to summarise, collapse of the dollar, crippling of the EU economy and global financial chaos and the presentation to China of an enormous opportunity; does anyone still think the US has no need to fear the consequences of economic conflict with Russia? On the other hand, Russia is not truly a democracy, The Kremlin will simply tell citizens any hardships they face are due to the evil western nations and anyone who questios that had best get their affairs in order. Simples.

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