Tuesday 25 March 2014

Russian Sanctions: Until China is onboard what's the point?

Just killing some time on a layover in Seattle (enroute to the Philippines for some vacation time) and this article on Bloomberg caught my eye.

It brings up a point that needs to be reconciled in order to effectively sanction Russia. Namely, the Chinese response.

The article makes a few key points that don't appear to be fully considered in the wider discussion.

Regarding the push to authorize export crude oil from the US in order to put pressure on Putin:
The U.S., even after the shale boom, must import 40 percent of its crude oil, 10.6 million barrels a day that leaves the country vulnerable to global markets.
Regarding China's past flurry of oil deals with Russia:
China already has agreed to buy more than $350 billion of Russian crude in coming years from the government of President Vladimir Putin. The ties are likely to deepen as the U.S. and Europe levy sanctions against Russia as punishment for the invasion of Ukraine.
Quoting Nicholas Redman from IISS:
“For Russia, there was an idea that Europe was something close by and it worked and it was desirable to emulate,” Redman said. “Over the years, on multiple fronts the attractions of the European model fell. It’s almost a civilizational choice the Russians have made to turn away from Europe, to stress their Eurasian rather than their European identity.”
So the obvious points: What oil is the US going to export (ie. why would Putin concern himself with the exports of the largest (more or less) importer int he world)? How steep of a discount would Putin have to entice a significant Asian demand shift? Would China risk their current rash of deals (and future supply) to enforce western sanctions? Can Putin sell the politics of a short term price discount for export diversity in the long run?

To me these questions seem to put Putin back in the driver seat. I always considered Germany and China as the two key participants to give sanctions any chance. While it seems like Merkel and the Germans are at least vocally supportive (I'm skeptical on their willingness to actually go through with them) the Chinese are noticeably staying out of this.

Another element to consider is if the west proceeds with sanctions against Russia with the knowledge that China will not back them, how this impacts future sanction participation by China and similarly developing countries.

I assume Iran is watching this round of sanction talk closely. If China balks here, will India participate in the next round of Iranian sanctions should they renege on whatever nuclear agreement gets put fourth? You have to assume the liklihood is significantly reduced. Of course if India balks on those sanctions, what do you think the reaction from China will be?

I might be looking at that all wrong. And perhaps all of this is getting hashed out behind closed doors. But significant economic sanctions still seem like a bluff to me.

That being said, Putin putting boots on the ground and actually occupying Crimea throughout this ordeal was also a surprise. So what the hell do I know?

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