The US and European Union (EU) attempt to subordinate Russia continues. In this context the collapse in world oil prices is being used to try to bring Russia to its knees; it may also accelerate the descent into war. Russia is largely dependent on oil and gas exports. Oil sold at $115 a barrel in June 2014 but on 26 January 2015 it was selling at under $50 a barrel, a fall of over 55%. As oil prices dropped so the Russian rouble has fallen by 42% against the US dollar. Russian President Putin reacted: ‘We all see the lowering of oil prices. There’s a lot of talk about what’s causing it. Could it be an agreement between the US and Saudi Arabia to punish Iran and affect the economies of Russia and Venezuela? It could.’ Trevor Rayne reports.
Sanctions are an economic weapon deployed by the US and EU against Russia since June 2014 in response to Crimea leaving Ukraine to join the Russian Federation. With his systematic demonisation in the western media and a NATO military build-up along Russia’s borders, Putin suspects the US attempt to achieve global hegemony is reaching a decisive moment and that Russia is the target.
The US seeks to weaken Russia’s central state and fragment Russia. Putin said that the US and EU intend to ‘run a Yugoslavia scenario in Russia’. Before Christmas, the US and EU increased sanctions on Russia and said that sanctions would not be lifted until Russia hands Crimea to Ukraine and stops supporting forces resisting the Ukrainian state in south east Ukraine. In his January 2015 State of the Union message US President Obama boasted of the sanctions’ success, ‘Well, today, it is America that stands strong and united with our allies, while Russia is isolated, with its economy in tatters.’ The message is clear: yield or we will break you.
Larry Elliot, The Guardian’s economic editor, wrote on 9 November that the US Secretary of State had met with the late Saudi King Abdullah in September 2014 when, allegedly, they agreed that Saudi Arabia would sell oil below its market price to force prices down. Saudi Arabia is the world’s biggest oil supplier. Whether there was a conspiracy or not, any move to drive oil prices down could not work without conditions tending towards depressed commodity prices. ‘Commodities recorded their biggest annual loss [in 2014] since the financial crisis in 2008’ (Financial Times 8 January 2015). Iron ore prices have nearly halved in 2014 and copper has dropped by almost a fifth. China announced its official growth rate for 2014 as 7.4%, the lowest since sanctions were imposed on China after Tiananmen Square in 1989. China’s slowing growth rate reduces demand for commodities. The International Monetary Fund (IMF) has cut its forecast for global economic growth for 2015 and 2016 from 3.8% to 3.5% and its forecast for China is for growth slowing to 6.3% by 2016. Commodity prices are likely to fall further as demand decreases.*
With oil prices falling, the Russian economy shrank by 0.5% in November 2014. Following the Saudi lead the Organisation of Petroleum Exporting Countries (Opec) decided not to cut oil supplies but to maintain them at 30 million barrels per day. Speculative selling of the rouble followed; it fell nearly 20% against the dollar on 16 December and on 17 December was down by over 50% since the start of 2014. Any fall in the rouble makes Russian company debt obligations more difficult to meet and pushes up import prices. The Russian central bank raised its key interest rate from 10.5% to 17% to try to avoid the rouble’s collapse. Over 18/19 December there was a run on Russian banks as customers withdrew cash. Central financial authorities forced the Trust Bank to merge with Russia’s largest private bank, Otkritie, after bailing it out. The government forced state-owned exporters to convert their dollar earnings into roubles.
Russia spent $75bn of its foreign reserves defending the rouble. The Russian central bank said that expected net capital flows abroad in 2015 would double to $134bn. President Putin warned speculators, ‘We know who these people are, and we have the means to rein them in. It’s time to use these instruments.’ If the Russian government wants to stop the speculators it will have to turn on Russia’s banks and the oligarchs.
Oil and gas account for 70% of Russia’s exports, 52% of government revenues and 16% of gross domestic product (GDP). It is reckoned that oil needs to be over $100 a barrel for the Russian government to balance its budget. Since 2000, when Putin became president, GDP has grown six-fold and real disposable income has grown seven-fold; this growth has been driven by energy sales. The biggest oil company, Rosneft, is majority state owned, as is, since 2005, the biggest gas company, Gazprom. Putin’s government slowed down the asset stripping and corruption that was wrecking Russia. However, today 110 wealthy individuals own 35% of all financial assets held by Russian households; Forbes magazine describes Moscow as the billionaire capital of the world. These capitalists are tied to the imperialist financial system. Any attempt by the Russian state to impose capital controls, to end debt repayments, to seize foreign-owned assets in retaliation against sanctions will anger the oligarchs. By dint of their wealth these oligarchs wield considerable influence within Russia. Russia’s central bank and treasury are run by capitalists who cringe at the idea of capital restrictions.
Russia and China
‘US strategy for global hegemony requires it to prevent any regional or global rival from emerging. The Russian state’s territorial reach, its nuclear weapons stockpile (the biggest in the world) and its fuel supplies to Europe make it a potential rival to the US in central Asia and Europe. Russia allied with China would pose a long term strategic challenge to US global domination’ (FRFI 239 June/July 2014). The imperialist strategy is to enfeeble Russia economically and to encourage opposition to the government among different social classes and regional populations. A weakened or fragmented Russia would give the US ‘pivot to Asia’ greater effectiveness in containing China.
At its summit in Wales in September 2014, NATO agreed to increase military exercises in Eastern Europe and to establish a ‘spearhead’ rapid reaction force. During 2014 NATO increased the number of warplanes patrolling Russian frontiers five-fold and has increased the number of warships deployed in the Baltic Sea and Black Sea. US troops are to be stationed in Ukraine in March 2015 ‘to assist Ukraine in strengthening its law enforcement capabilities, conduct internal defence and maintain the rule of law’. In January the US commander of forces in Europe told US soldiers that he expects Russia to be able to conduct simultaneous military operations in the Baltic states and the Caucasus within two to three years; this was US preparation for conflict. President Putin has noted the developments: ‘No matter what our Western counterparts tell us, we can see what’s going on. NATO is blatantly building up its forces in Eastern Europe, including the Black Sea and the Baltic Sea. Its operational and combat training activities are gaining in scale.’
The initial geographical-strategic aim of the US and EU is to gain control of territory from the Black Sea to the Caucasus; this territory includes Ukraine, Moldova, Georgia, Armenia and Azerbaijan. Ukraine’s government was overthrown by a fascist coup in February 2014. Ukraine’s parliament voted in December 2014 to end Ukraine’s neutral non-aligned status and its government seeks NATO membership. In 2011 former Russian President Medvedev said that Russia’s 2008 incursion into Georgia had prevented any further NATO enlargement into the former Soviet republics. However, Georgian Prime Minister Ivanishvili has stated that his goal is a NATO Membership Action Plan. In 2014 NATO’s Secretary General said that building Georgia’s military capabilities and training its armed forces was possible. Turkey opposes Armenia’s NATO membership but Armenian soldiers have served alongside NATO in Kosovo and with the International Security Assistance Force in Afghanistan. There are pro-NATO membership groups in Armenia. Azerbaijan is officially neutral but has not ruled out joining NATO. Azerbaijan and Georgia share borders with Russia. Armenia and Azerbaijan border Iran. Moldova seeks membership of the EU and has sent troops on United Nations’ missions to Liberia, Sudan, Côte d’Ivoire and Georgia. In late 2014 Moldova received military supplies from the US.
On 1 December 2014 Russia said it was abandoning its South Stream project to pipe gas under the Black Sea to eastern and central Europe via Bulgaria, thereby avoiding pipelines across Ukraine. The EU had directed Bulgaria to block the project. Russia said it would transport gas across Turkey instead. These regional manoeuvres are not likely to end at the borders of Russia; as Putin said of Russia’s southern republics Chechnya, Dagestan and Ossetia, which border Georgia and Azerbaijan, ‘In the 1990s [western countries] openly supported separatists and terrorists in our country’.
30% of Russia’s energy exports go to Europe; however, since January 2014 30% have also gone to Asia. In the past year Russia has signed two gas supply deals with China, together worth $725bn. Russia and China have mounted joint military exercises and in 2014 Russia said it would sell China its advanced S-400 air defence missile system. This will strengthen China’s position regarding Taiwan and disputes with Japan over the Diaoyu/Senkaku islands in the East China Sea. Given the hostility directed at it by the EU, led by the British government, Russia is seeking to strengthen its alliance with China; by cementing an alliance across Central Asia and into Europe that is beyond its control the US ruling class views this as a threat.
On some measures China’s economy is now bigger than that of the US. As its economy grows so we would expect the radius of China’s influence to expand. A train carrying 82 containers left a town south of Shanghai on 18 November 2014 and arrived in Madrid on 9 December. China plans to build a New Silk Road to be completed by 2025; it will be a freight railway from China to Spain via Kazakhstan, Russia, Belarus, Poland, Germany and France. The rail journey time from Beijing to Moscow will be cut from six and a half days to 33 hours. Despite its continuing presence in Afghanistan the US position in Central Asia has been undermined with US troops leaving bases in Uzbekistan (2005) and Kyrgyzstan (2014). Last year the Shanghai Cooperation Council (SCC) approved India, Pakistan, Iran and Mongolia for membership and Turkey is considering applying. The SCC is led by China and Russia and includes Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. Iran’s main oil customer is China. In autumn 2014 Chinese warships made their first ever visit to Iran and the two countries conducted joint military exercises. However, US military spending is over three and a half times that of China and seven times that of Russia. The US has over a thousand military bases around the world. The US ruling class is compelled to use its military superiority to defend its globally dominant position, which a Russia-China alliance challenges.
The British government is the most committed backer of the US in Europe, supporting every call for increased sanctions and sending troops to manoeuvres along Russia’s borders. The German ruling class is predominantly with the US; this alliance encourages US bellicosity and spells danger for the world. However, if Russo-Chinese cooperation yields fruit in Central Asia we can expect the German bourgeoisie will seek to join in the pickings. The US is determined that this will not happen.
*For an analysis of the world economic downturn see David Yaffe, ‘Red warning lights for global economy’, FRFI 242 December 2014/January 2015.
Fight Racism! Fight Imperialism! 243 February/March 2015
