The East-West and Putin’s Choice

Spearhead Analysis – 16.01.2017

By Hira A. Shafi
Research Analyst, Spearhead Research

Amongst the several uncertainties that the year has dawned with. A crucial one remains – The outcome of Trumps inclination towards Russia. Some say this “Nixon going to China” like move falls in the bigger framework of the policy for Chinese containment.

The Pendulum Swings:

The Russo-Sino ideological disputes are long gone and several other core issues have also been dealt with. It appears that while the separation from the Soviet Union by most states was to decentralise power, it was not aimed at total isolation or disowning states. Apart, from the Baltic states – which are now under NATO’s guardianship – most of the other newly independent states sought to re-emerge under an ‘EU-like’ structure for security and economic development. Though for most part, the ride has been pretty bumpy.

However, the threats of militancy in the Central Asian region – (which according to Russian definition includes: Kazakhstan, Kyrgyzstan,Tajikistan, Uzbekistan and Turkmenistan) – led to the creation of SCO in June 2001, and by 2007 the CSTO and SCO countries were more or less integrated in terms of their security vision. This also helped in creating the Russian-Chinese nexus. Further, The US led Afghan invasion appears to have strengthened that idea and encouraged several former Soviet states to join in.

Since the collapse of the Soviet Union, the idea had surfaced to keep the region economically integrated. Although, Kazakhstan in the wake of the break-up saw an influx of several western companies in the areas of mining and exploration, the close cultural, social, and linguistic ties and the massive immigrant population in Russia from the neighbouring states (which helps these economies due to inward remittances) caused several to seek an economic alliance with Russia.

After several initial baby steps and nearly two decades down the line, the Eurasian Economic Union came into force on Jan 01, 2015. The union includes: Russia, Kazakhstan, Kyrgyzstan, Belarus and Armenia.

The idea also aims at creating a single energy market with a unified strategy to eliminate inter-regional competition and increase exports on a collective basis. It has been recorded that since the initiation, trade in natural gas, oil and other raw materials has risen sharply. And the major markets for this region are still in Europe. It is said that most existing structures connecting Russia/Central Asia to Europe are in need of improvement and this mega-vision requires mega infrastructural development, which entails considerable funding. Russia has vowed to raise up to one trillion Roubles by 2020 to invest in improving its end of the infrastructure, mainly the Trans-Siberian Railway which carries 30% of its exports into Europe.

China too had announced its own mega economic vision in 2013. The intricate-spider web-like OBOR (One Belt One Road) initiative. Amongst the many offshoots by land or sea are four key routes, which include:

  1. Russian Far East & China all the way to Europe
  2. China-Central Asia-Russia to Europe(North Belt)
  3. China-Central Asia-West Asia-Persian Gulf and Mediterranean( Central Belt)
  4. And China-Southeast Asia-South Asia (South Belt).

Since the fall of the Soviet Union, it has been speculated that both Russia and China aimed at establishing their sphere of influence in the Central Asian region – because of their resources and location. The Chinese for years engaged in enhancing bilateral ties with the countries in the backdrop of EEU formation. Even though, OBOR is well integrated with Russia, several voices in Moscow raised concerns over the routes impact on Central Asia. Interestingly, since the early contacts between the Russians and Chinese, the Central Asian region has on various occasions served as a point of dispute.

It appears that once again a blowback was underestimated. The Crimea Sanctions – which pretty much wrapped up several concerns.

Apart from the long list of individuals who faced the wrath- the backbones of the Russian economy were also targeted: the Rostec Group(arms tech, chemicals, electronics-etc), subsidiaries of Gazprom, Transoil( logistic company for oil & gas trade) , Stroytransgaz( oil and gas related construction-involved in Middle East, China and Central Asia), Aquanika( water company), and various banks.

It pushed russia to diversify away from its biggest trade partners in Europe, and in 2015 – the anxieties surrounding the Central Asian region also saw a rest when Xi and Putin agreed on linking the SREB and EEU together and China agreed on engaging in dialogue with Central Asia via EEU instead of bilateral ties.

It is also noteworthy that there is a thin yet fine line that prevents a brawl between Russia and China and also makes them somewhat of natural allies -atleast in the foreseeable future because:

1. There are differences in their product base  2. There are differences in their demand/needs.

Further, The suspicion in regards to Central Asia does not stem from competition over selling the same product to a common market- it stemmed from the Chinese actively seeking to diversify their supply lines and the Russian desiring to maintain a prominent market share of their oil and gas and ensuring that the region remains stable as it serves as a key route for their exports.

It is stated that nearly 70% of Chinese energy demands have to cross the unpredictable Malacca Straits- in case a dispute erupts in the region, China could be in big trouble.

According to BP’s data : it is also predicted that by 2035 China would account for 25% of the world’s energy consumption, its oil imports would rise by 76% and gas dependence by 42%.

Russia and Central Asia are fully capable of catering to these needs and China is capable of financing mega projects. Russia has already become China’s number 1 supplier.

Further, According to some reports- the Chinese alone are less welcomed in the Central Asian regions as compared to Chinese under the Russian Umbrella. So Russia’s presence also brings about an element of socio-political stability in these projects.

The Post Sanction period saw the birth of mega multi billion dollar deals linking the two countries and Central Asian region. Such as the: Power of Serbia pipeline, the Yamal project—exploration and development of Yamal peninsula which is said to contain approx. 290 million tonnes in oil reserves and 160 trillion cubic meters of gas– ( prior to the sanctions ExxonMobil, ConocoPhillips were also two of the several listed partners) and several other development projects.

Though, there are some reports regarding minor payment disputes in relation to certain projects; some also say that China has become Russia’s ‘loan shark’ and appears to be gaining the best out of these deals.

But, minor disputations in managing such mega projects is normal- further, such developments are rarely a one man show and require collaborative efforts in research, design, implementation etc. So there is plenty of space for all respective countries to benefit and divide specialisations- which already appears to be happening. And the strong interdependence stemming from the use of each other’s’ geography to reach respective markets and growing energy demands would also help in maintaining a balance.

The Chinese-Russian zone appears to be collaborating on pushing out in all directions- Russia with its own energy products and china with its own goods and services. In their discourse this is not an offence but a defence strategy , so the choke of a single point doesn’t become the reason for their demise.

However , the arms industry is where a competition could surface but it has been noted that Russia- perhaps due to its struggling economic conditions is not so stern on terms of use ; several collaborative arms ties already exist between the two- and again- the research and design sector could provide space for sharing specialisations.

So no one appears to be too eager to claim the ultimate title of superiority. Instead there appears to be a ‘’power sharing” on the horizon. But though the two have openly claimed their disdain for monogamy- many believe that those around them may not be “psychologically” ready for these diversities.

While a focus on the central regions appears to have created some fruitful results- it may now be the time to pay attention to the sensitive south belt.

In terms of energy- India is also a promising market and so is Pakistan. Collaborative works in energy and defence between India and Russia are on going. Pakistan and China have their own relation. The four could collaborate on several big areas. The point of contention maybe the consumer goods which both India and China are keen on pushing out and their bilateral trade issues- which may require further diversification and new agreed upon rules in order to avoid conflict of interests.

And as for the pending border skirmishes among India-Pakistan and China- the visions of big money quickly resolved key Russo-Sino border disputes; a similar approach may work in this case too. But , “psychologically” the subcontinent region would have to prepare itself for positive changes.

The Rapprochement:

The endless voices claiming Trump to be Russia’s man in Washington may be a little off. He appears to very much be America’s man in Washington— An American who may have picked up on a strategic error and desires some form of rapprochement and a modified approach. Because, China or Russia alone may not be such a concern as as the ‘Russo-Sino Nexus’.

The Sanctions perhaps did more harm than good; because formerly– the money and development vaccum which was quickly filled up by the Chinese–was a western domain- several US and European giants involved in mega projects such as Sakhalin-1, Yamal, Arctic exploration witnessed hiccups and halts of operations.The dilemma of ‘trade or land’ appears to be brewing in Europe as well.

The lashing out on NATO, little love filled messages to Russia, making Rix Tillerson( who strongly opposed these sanctions)-as the new secretary of state may be adding up to a low key apology.

In the words of Winston Churchill: “I cannot forecast to you the action of Russia. It is a riddle wrapped in a mystery inside an enigma; but perhaps there is a key. That key is Russian national interest.”

But presently, it appears that Russia has found useful and maybe more reliable replacements in several areas and Putin’s ‘Pivot to Asia’ has been rather successful. So what could be offered in compliance to their national interest at this point? Recreate the Soviet Union??

And what would Russia demand in turn for accepting this unique alliance offer?— probably everything and nothing. Their similar approaches on heavy industries and local potential energy resources- may once again cause the pendulum to swing even if a temporary new nexus is created.

Several voices in the US are demanding to ‘buy Russia out’— but the world appears to have changed a lot and impacts of such adventurism may either lead to self destruction or disrupting the world order as we know it.

Perhaps- at this point the best bet is to accept changing realities and focus on collectively working on ideals held dearly i.e: innovation, productivity, fair competitive markets, peace and stability…. Russia may not be as grandiose as it once was but Putin matters a lot — Boney M’s- Rasputin best describes Putin’s current apparent standing and maybe even possible outcomes.. Further, with comingl elections – sanity would most likely be chosen over any adventurism.

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