US assistant secretary of state for European and Eurasian affairs: 'Americans are prepared to die for Latvia, Estonia and Lithuania,'

The Interpreter: 19. November 2014
By Paul Goble 

Victoria, Nuland, US assistant secretary of state for European and Eurasian affairs, with Latvian Foreign Minister Edgars Rinkēvičs, November 20, 2014, in Riga.

When the Ukrainian crisis began, some commentators in the West suggested that NATO would not in the end fight to defend the Baltic countries even though the latter are full members of NATO by asking “who is prepared to die for Narva?” But now a senior US State Department has given a clear and unequivocal answer: Western countries are.

The developments in Crimea have roused fears that a similar scenario could occur in Narva, Estonia.

During a visit to Latvia this week, Victoria Nuland, US assistant secretary of state for European and Eurasian affairs, said that “when NATO and the US as part of NATO took new members into the alliance, this means that we are ready to participate in the defense of the security of these countries, and this means that we are ready to give our lives for the security of these countries.”

That is why there are young American soldiers in Latvia now, she continued, suggesting that there should be “absolute clarity” that if someone attacks Latvia, we will be here to help defend Latvia” because “no one has the right to shoot at Latvia because no one has the right to shoot at the territory of NATO.”

NATO Secretary General Jens Stoltenberg (4th from R) and Latvian Defence Minister Raimonds Vejonis (5th form R) pose with US, Norweigan and Latvian soldiers during his visit at Adazi Military training base in Latvia on Nov. 21. 

In other comments, Nuland said that the sanctions the West had imposed on Russia were having an effect, “unfortunately” on the Russian people as well as the regime. But she said that the reason for that lies “in the actions of the Russian government” and not in the ill intentions of the West. If Russia lives up to its commitments on Ukraine, the West will lift the sanctions.

The assistant secretary added that “not only Americans but all people who consider themselves part of the North Atlantic space, including the European Union, are extremely disappointed by Russian actions which have undermined the territorial integrity of Ukraine,” actions that have continued “even after the signing of the Minsk accords.”

Russia has continued to send “arms and fighters to Ukraine,” Nuland said, and now “Russia must make a choice” about what kind of a future it will have.

NATO: Russia's airspace maneuvers threaten civilian flights

Bloomberg: 24. November 2014
By Corina Ruhe and James G. Neuger

The Russian su-27 fighter jet photographed next to a Swedish passenger plane.

Russia’s stepped-up fighter-jet maneuvers on the fringes of NATO airspace pose a threat to commercial air traffic, the alliance said.

“They’re not turning on the transponders, they are not filing their flight plans and they’re not communicating with civilian air traffic control,” North Atlantic Treaty Organization Secretary General Jens Stoltenberg told reporters in The Hague today. “That poses a risk on civilian air traffic.”

NATO warplanes have intercepted more than 100 Russian fighters over the Baltic Sea this year, more than three times last year’s total. Russia has coupled the midair missions with more military drills on its home territory amid tensions with the U.S. and European countries over Ukraine.

Su-27 fighter being intercepted by several NATO planes in June as part of NATO's ongoing mission to police Baltic airspace.

Stoltenberg declined to say whether Russian warplanes have been involved in near-misses with passenger jets. Speaking to lawmakers from NATO countries earlier today, he called on Russia to show more “transparency, more predictability” with its military exercises.

Air travelers became victims of the Ukraine crisis in July when a Malaysian Airline System Bhd. flight was shot down over eastern Ukraine, killing 298 including more than 190 Dutch citizens. The U.S. and European governments blamed Ukrainian separatists using Russian anti-aircraft guns.

STORY: Putin's War Games Are Setting Off Alarms Worldwide

Finland feeling vulnerable amid Russian provocations

The Washington Post: 24. November 2014
By Griff Witte

Finland steps up air defense following airspace incursions by Russian planes

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HELSINKI — Wedged hard against Russia’s northwestern border, peaceable Finland has long gone out of its way to avoid prodding the nuclear-armed bear next door.

But now the bear is provoking Finland, repeatedly guiding military planes into Finnish airspace and deploying submarines and helicopters to chase after Finnish research vessels in international waters.

The incidents are part of a pattern of aggressive Russian behavior that has radiated across Europe but that has been especially unnerving for countries such as Finland that live outside the protective bubble of NATO.

As Russian-backed separatists have eviscerated another non-NATO neighbor this year — Ukraine — Finnish leaders have watched with growing alarm. They are increasingly questioning whether the nonaligned path they navigated through the Cold War can keep them safe as Europe heads toward another period of dangerous standoffs between West and East.

Map of incidents involving Russian and NATO forces VIEW GRAPHIC 

“We have a long history with Russia — not that peaceful all the time. So everything the Russians are doing, surely the Finns notice and think very carefully about what that might mean,” Finnish President Sauli Niinisto said in an interview at his coastal residence in this capital city, just a two-hour drive from the Russian border.

In the case of the recent air incursions, he said, the message was clear: “They were testing how we’d react.”

Niinisto said Finland’s ­response — scrambling American-made F-18 Hornet fighter jets to intercept the Russian planes — was strong enough to ward off further Russian aggression.

But the palpable anxiety in this country that many in the West consider a model of progressive and stable democratic governance reflects how unsettled Europe has become since Russia’s annexation of Crimea in March.

Many in Helsinki are convinced that Russia will not remain deterred for long and say Finland needs to fundamentally rethink elements of its security policy that have been bedrock principles for decades.

“People used to think European Union membership was enough to protect us,” said Tarja Cronberg, a former member of the Finnish and European parliaments. “But now that’s being questioned.”

Finnish Prime Minister Alexander Stubb has argued that the country needs to join NATO, and a growing share of the public seems to agree, although the ­issue remains hugely sensitive here.

Finnish Prime Minister Alexander Stubb

Even Finns who favor membership in the alliance acknowledge that joining would be a gamble, with Russia threatening to disrupt the peace and prosperity this country has long enjoyed if Finland makes a sudden lurch toward the West.

“It’s going in a terrifying direction,” said Elisabeth Rehn, a former Finnish defense minister who favors NATO membership. “It’s only been 100 years since we gained our independence from Russia. Crimea was a part of Russia, too. Will they try to take back what belonged to them 100 years ago?”

Rehn said she doubts Russia would go that far but said the fear of Russian military aggression is real.

“We don’t have a normal relationship with Russia,” said Rehn, who as a child watched boys from her village come home in coffins after battling Soviet troops in World War II. “We all like the Russians. They sing the same melancholic songs that we do. But we are afraid of their leadership.”

Finland and Sweden stopped being neutral years ago but they are still out of NATO structure.

Finland is hardly the only one. Next door in Sweden, the country’s armed forces mounted their largest operation since the Cold War last month to hunt for a suspected Russian submarine. Swedish defense chiefs may have viewed the hunt as a chance to compensate for a conspicuous lapse last year, when Russian warplanes simulated an air assault on Stockholm and the Swedish military failed to react.

Like Finland, Sweden has remained outside NATO even as other Baltic nations — including Estonia, Latvia and Lithuania — have joined.

But NATO membership has not protected those countries from Russian probing, which has extended in recent months across Europe, as far afield as Portugal.

A report issued this month by the European Leadership Network, a London-based think tank, documented nearly 40 incidents that together “add up to a highly disturbing picture of violations of national airspace, emergency scrambles, narrowly avoided midair collisions, close encounters at sea, simulated attack runs, and other dangerous actions happening on a regular basis over a very wide geographical area.”

The report concluded that Russia was not trying to provoke a conflict but that the behavior “could prove catastrophic” because of the risk of unintended escalation.

Russian officials have brushed off the significance of the breaches. Speaking in Washington this month, Sergey Kislyak, the Russian ambassador to the United States, said they were the result of an increase in military training flights.

Such explanations are viewed with extreme skepticism here in Finland, where the country’s airspace was violated in August three times in one week. The breaches came just days before Finland forged greater cooperation with NATO at the alliance’s summit in Wales, and leaders here say they were a clear signal from Moscow that Finland dare not go any further.

Finland, a nation of 5 million people, has an 800-mile border with Russia, which has a population nearly 30 times as large. Moscow would undoubtedly consider NATO membership a direct challenge in territory that was marked as neutral space during the Cold War. A Kremlin adviser said earlier this year that if Finland and Sweden join NATO, it could lead to World War III.

Finland already has taken substantial steps toward the West, joining with fellow European Union members in imposing sanctions on Russia for its aggression in Ukraine. But Finland also has upped its trade ties with Russia and leans heavily on its eastern neighbor for oil and gas.

Finnish Foreign Minister Erkki Tuomioja said in an interview that Russia benefits from its relations with Finland and has no incentive to start a war.

“From a Russian point of view, it’s the most stable and least problematic frontier they have, and I believe they want to keep it that way as long as they have no reason to believe that the Finnish territory would be used for hostile action,” Tuomioja said.

The Dutch MBTs will gradually replace the Leopard 2A4 tanks operating with the Finnish Army

Still, Finland is taking few chances, boosting defense spending and border patrols while tightening relations with Sweden. “Our thinking has always been that if Russia comes here, it might mean the end of us, but it would cost Russia so much they would think twice,” said Hanna Smith, a Russia scholar at the University of Helsinki.

Niinisto suggested that logic still stands, pointing to the ­country’s quarter-million-strong armed forces, which are supported through conscription, and noting that “250,000 men is something you have to at least take notice of.”

But he also doesn’t rule out calling in reinforcements — and considers the NATO option necessary to retain to keep Russia at bay.

“I’m not against NATO. I see that as a possibility,” said Niinisto, who regularly talks to senior Russian leaders, including President Vladimir Putin. “It has to be an open choice, and that is important, because it is also part of our balance.”

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Griff Witte is The Post’s London bureau chief. He previously served as the paper’s deputy foreign editor and as the bureau chief in Kabul, Islamabad and Jerusalem.

Karla Adam in London and Karen DeYoung in Washington contributed to this report.

(Related: Finland’s leaders see peril in standoff between Russia and the West)

Russia is losing up to $140 billion per year from western sanctions and oil price fall

Agence France-Presse: 24. November 2014


4-year low in oil prices "is hurting Russian economy more than US & EU sanctions"

Russia is set to lose about $40 billion (32 billion euros) per year due to Western sanctions over the Ukraine conflict, Finance Minister Anton Siluanov said Monday.

"We are losing around $40 billion per year due to geopolitical sanctions and we are losing some $90 to $100 billion per year due to oil prices falling 30 percent," Siluanov said in a speech at an economic forum in Moscow, quoted by RIA Novosti news agency.

Sanctions imposed by the European Union and the US on Russia's economy, which is largely dependent on exports of raw materials, block its access to international capital markets and also to technology.

Russia's Foreign Minister Sergei Lavrov on Saturday accused the West of attempting to achieve "regime change" in Russia through sanctions that aim to destroy the economy and rouse public protests.

President Vladimir Putin suggested Sunday Nov 23. that Russia could experience "catastrophic consequences" from sanctions, the falling oil price and the plunging ruble, while arguing that these would have knock-on effects for other countries.

"The modern world is interdependent. It's far from guaranteed that sanctions, the steep fall in oil prices, and the loss of value of the national currency will lead to negative results or catastrophic consequences only for us," Putin warned in an interview with TASS news agency.

Putin denied he had financial links to the Russian officials and businessmen from his inner circle who were targeted by Western sanctions blacklists.

He said to impose sanctions on those individuals in an attempt to get to him was an approach based on a "false premise."

Putin suggested that falling oil prices were due to "targeted steps by our partners on the world energy market."

Energy minister Alexander Novak said Friday that Russia was considering cutting its oil production in a bid to revive prices, as the falling price of crude along with sanctions over Ukraine have led to the ruble plunging in value. 

A major producer of crude oil, Russia is not a member of the OPEC oil producers cartel, which is to discuss later in the week whether to cut output.

Russia gets about half of its revenues from oil profits. Its budget for next year, passed by the lower house of parliament on Friday, is based on an oil price of $96 per barrel.

Bloomberg Businessweek: 24. November 2014

Moscow rentals sink on sanctions, ruble fall

By Natasha Doff 

A Russian ruble coin is pictured in front of the Kremlin in in central Moscow, on Nov. 6.

Timur Pankov was effectively living rent-free in Paris nine months ago, because the cost of his apartment was covered by the income from his Moscow property.

Russia’s incursion into Ukraine has made the arrangement a lot less attractive.

The ruble has slumped by 12 percent against the euro since March 1, when President Vladimir Putin asked parliament for the right to send Russian forces abroad after troops took control of administration buildings in Crimea. Since then, the rent Pankov can charge for his Moscow place has tumbled about 20 percent. He now receives the equivalent of 970 euros ($1,200) a month from the property while paying 1,400 euros for his two-bedroom apartment in the Parisian suburb of Boulogne-Billancourt.

“I’m losing money,” said Pankov. “Previously, I was able to cover my expenses with the money that I got from Moscow. Now it isn’t possible.”

A struggling property market is one more sign of Russia’s economic pain as the U.S. and the European Union punish individuals and businesses connected to President Vladimir Putin with sanctions and asset freezes. The world’s largest energy exporter has also had to contend with a 30 percent slide in the price of crude oil since June, leaving it on the brink of recession.

Demand for apartments to rent in the Russian capital has dwindled because European and U.S. companies have pulled workers out of the country in response to sanctions, according to George Sheremsky, an independent real estate broker in Moscow. Property agents are renting about a third as many flats per month as they were last year, he said.

Leaving town

The U.K.’s New Look Retail Group Ltd. and Finnish department store Stockmann Oyj Apb (STCBV) have reduced operations in Russia this year, while law firm Allen & Overy LLP, which has offices in 32 countries, scaled back its Moscow practice this month.

Foreigners account for 66 percent of high-end property in Moscow, where demand has dropped 10 percent in the first nine months of this year, according to Intermark Savills, the Russian partner of property brokerage Savills Plc. (SVS) Rents will fall by about the same amount by the end of the year, the brokerage said in a report.

Moscow is the world’s eighth-most expensive city to rent an apartment after London, Monaco, New York, Hong Kong, Bermuda, Tokyo and Paris, according to Global Property Guide. It costs an average $5,158 per month for a 120 square-meter flat (1,300 square feet) in Russia’s capital, compared with $5,317 in France’s first city and $11,089 in the U.K.’s.

Soviet collapse

The government gave most of the nation’s state-owned apartments to their residents after the collapse of the Soviet Union in 1991. A mortgage law came into force in 1998, helping more Russians become owners of their apartments. About 85 percent of the country’s 62 million registered flats were in private hands by the end of 2012, the most recent data available at the Mortgage Agency.

Rent gains have been moderated by increases in supply as builders completed projects in recent years, said Elena Kogteva, a spokeswoman for real estate broker Miel Group.

“The economic downturn is a recent thing and people don’t feel the impact of it yet,” she said by phone from Moscow. “There have been many completed construction projects so new flats have entered the rental market, which has caused prices to fall.”

Russians’ real wages fell in August and September, the first declines since November 2009, according to the Federal Statistics Service.

‘Absurd situation’

Russia’s economy will sink into a recession next year if the price of oil slumps to $60 a barrel and the U.S. and its allies tighten sanctions, Finance Minister Anton Siluanov said Nov. 18. Brent crude traded at $80.04 last week.

Ukraine, the European Union and the U.S. accuse Russian President Vladimir Putin of supporting the separatists. Russia denies involvement.

“Many European companies which had projects in Moscow have been cutting jobs because of the sanctions,” Sheremsky said by phone on Nov. 19. “It’s an absurd situation where politics has affected the Russian rental market. Companies and individuals are losing money because they are bearing the brunt of the standoff.”

Back in Paris, the ruble’s decline has forced Pankov to reconsider his investment options. His plan to acquire French real estate has been put on hold for now.

VIDEO: Russia: Sanctions Hurting, Bank Moves to Defend Ruble

East-West meets Far North

The New York Times:  20. November 2014

Kirkenes, Norway.

KIRKENES, Norway — According to the worldview of the Russian president, Vladimir V. Putin, the town of Kirkenes, Norway, is an illusion. To Mr. Putin, there is only east and west, two separate spheres split by a straight north-south line through Europe. But the place does actually exist: in Finnmark, Norway’s northernmost county, just a few miles away from the Russian border and farther east than Sweden, Finland and the Baltic countries.

In geopolitical terms, one can see incredible things here. Huge fishing vessels with Cyrillic nameplates unload tons of king crab and cod at Kirkenes harbor, destined for the European market. Farther down the road, at the shopping mall — labeled in Cyrillic — Russian families from across the border come to purchase yogurt, cheese, winter coats and perfumes. We are talking about, please note, NATO territory.

This isn’t just a result of a natural, free local economy; after the breakdown of the Soviet Union, people in the Arctic built an astonishingly well-functioning, cross-border neighborhood here. Fishing takes place on the basis of a bilateral quota system. Thanks to a regional trade deal, Russian customers bound for Kirkenes don’t need visas. As a result, more than half of the buyers in Kirkenes’s supermarkets, salespersons say, are Russians, boosting the economy of this 10,000-person town several times over. The latest and most promising common endeavor involves talks over the mutual exploitation of the oil and gas fields in the Barents Sea.

It’s no wonder, then, that the Norwegians above the Arctic Circle are particularly nervous about the prospect of a new Cold War. Is there no way out? they ask. Many here argue that Mr. Putin is never going to give back Crimea to Ukraine anyway — so why should we maintain sanctions that will not only cripple Russia’s economy, but ours, too? It’s a question that has already started to travel farther south across Europe.

In an office overlooking the snowy hills surrounding Kirkenes Fjord, Arve Henriksen fears that the work of decades is at stake — all because of a quarrel in a faraway country. The 47-year-old self-made man started his career in 1991 with a simple but rewarding idea: delivering ice cream to neighboring Russian towns. Today, Mr. Henriksen owns a shipping agency that provides equipment and management for all kind of vessels calling at Kirkenes.

Russian trawlers are some of Mr. Henriksen’s best clients. So why does foreign policy have to destroy such a fantastic local success story? he asked. “We will be hit,” he said, nodding toward one of the town’s newly built piers. Recently, oil and drilling companies have become one of Mr. Henriksen’s biggest partners, but high-tech parts for this industry are now prohibited as exports, according to the European sanctions regime. “You know,” he said, “so many politicians have come up here and applauded this very special region. But they don’t take into consideration what their big politics mean for us.”

The bigger question is: If the local people in this region can cooperate, who is responsible for the idea that Russia and Europe can’t create win-win situations in other border regions, like Ukraine, Georgia or Moldova?

The journey from Kirkenes to the Russian port city of Murmansk takes three hours, but politically, the distance feels like three decades. Once the traveler leaves the “Lilyhammer” land of colored wooden houses, crossing the border checkpoint to the east, he finds himself in one of the world’s biggest nuclear gun rooms. The Kola Peninsula is home to the most important units of Russia’s Northern Fleet, among them nuclear submarines and Tupolev strategic bombers. It is a vast landscape of frozen lakes, hoarfrosted birches and a massive double fence, topped with barbed wire and modern surveillance cameras, running along the demarcation line for miles. The towns we pass en route are mostly army barracks — or look like them. Soldiers with fur hats trot down the streets in companies.

It was from this spot of land, NATO reported, that six long-range bombers took off in the past weeks to fly along the Norwegian coast and on toward Portugal. Tensions soared; NATO jets scrambled.

Ah, that’s nothing to worry about, said Olga Buch over a hot cup of tea in her office in Murmansk. The “geopolitical situation,” she believes, is only temporary. Ms. Buch needs to remain optimistic, for job reasons. She is director general of Murmanshelf, an association aimed at enhancing the exploration of oil and gas fields in the Barents Sea, an endeavor for which Moscow needs partners. Russia has the resources, the Norwegians have the know-how.

Ms. Buch says there is no way the sanctions the European Union has imposed against Russia — or Moscow’s countermeasures — will hurt the trust of and cooperation with their Norwegian neighbors. But that seems like wishful thinking. I also tried to meet political representatives from Mr. Putin’s United Russia party, but they declined to be interviewed.

One Western businessman in Murmansk told me that what really worried him was how Mr. Putin’s new efforts at self-assertion appear to have trickled down to many citizens here. Politics can change people, he warned, and said there clearly was a growing anti-Western climate. He said it would take the pen stroke of just one bureaucrat with a neo-nationalistic mind-set to chase him and his company out of the country.

The hard truth for the people of Finnmark is that the future of their little wonderland does not lie in the hands of European politicians; it is up to Mr. Putin. The West will not and should not back down from the sanctions as long as Mr. Putin violates international law. The reason both sides suffer is that the Kremlin pursues a you-lose-I-win-philosophy instead of enhancing win-win situations, whether in Kiev or Kirkenes.

Perhaps the Russian president should come and see this friendly place. After my visit I recalled the famous words of Ernst Reuter, one of the first mayors of postwar Berlin. In 1948, as the Soviets tightened their blockade around the city, he urged the world: “Schaut auf diese Stadt!” — “Look at this city!” Before you plan your next step, Mr. Putin, look to Kirkenes.

-------------------------------------------------

Jochen Bittner is the political editor of Die Zeit.

Ukraine Today:  24. November 2014
Norway freezes cooperation with Russia over Kremlin intervention in Ukraine

Norway cuts Russia ties.

Saudi oil policy uncertainty unleashes the conspiracy theorists

Reuters: 19. November 2014
By Dmitry Zhdannikov and Alex Lawler

Oil derricks like this one outside of Williston, North Dakota, are part of a shale oil boom that has helped put the United States on track to overtake Saudi Arabia as the world's leading oil producer.

LONDON, Nov 18 (Reuters) - If Saudi Oil Minister Ali al Naimi wants to stop conspiracy theories spreading before a crucial OPEC meeting next week, it's too late.

Naimi's intervention last week after a two-month silence failed to address a question energy markets want answered: is the OPEC leader no longer willing to defend oil prices which have dived by a third to their lowest since 2010, and is it pursuing new commercial or even geopolitical goals?

Saudi Oil Minister Ali al-Naimi.

Despite Naimi's insistance that Riyadh wants stable markets, diplomatic and market sources say Saudi officials told recent private briefings that the kingdom can live for some time with current, or even lower, levels.

Reading Saudi oil policies has long been like Kremlinology - understanding the politics of that other secretive power, Russia. The next OPEC meeting on Nov. 27 is taking this art to a new, higher level.

A number of explanations have been offered to fill the information vacuum on Riyadh's intentions and they aren't all from the usual conspiracy theorists in Russia and Iran, which are at loggerheads with the kingdom.

Oil market watchers are divided on the outcome of the meeting in Vienna. Predictions range from a large OPEC production cut to revive prices through a small cut to none at all.

Even those who have known Naimi for decades are puzzled. "For the first time, I really do not know what is likely to happen at the meeting. It is not clear," said a long-serving senior OPEC delegate.

When Naimi finally spoke on Nov. 12, he said Riyadh's desire for stable markets had not changed. "Saudi oil policy... have been subject a great deal of wild and inaccurate conjecture in recent weeks. We do not seek to politicise oil ... For us it's a question of supply and demand, it's purely business," he said.

According to four market and diplomatic sources, who asked not to be named, Saudi officials briefed OPEC watchers privately in New York and Riyadh in September and October.

Nasser al-Dossary, Saudi Arabia's national representative to OPEC, Naimi's deputy Prince Abdulaziz bin Salman and the kingdom's OPEC governor Mohammed Al-Madhi attended at least one of these meeting to give the message that, with its large currency reserves, the Saudi kingdom was prepared to withstand oil prices as low as $70-$80 per barrel for up to a year!

Benchmark Brent crude oil slipped to $79 on Tuesday.

Most members of the cartel apart from Saudi Arabia need much higher prices to balance their budgets but ironically are unable or unwilling to reduce their output to counter a global glut caused by slowing economic growth in China and Europe, just as U.S. oil production booms.

SEEING OFF SHALE OIL

Should the Saudis tell fellow OPEC members, badly suffering from the oil price collapse, that they will not cut output, debate will intensify on what prompted the policy shift.

One possibility is Riyadh wants to see off U.S. shale oil, which is believed to need much higher prices than conventional production to remain competitive. "They are after U.S. shale," said one participant in the meetings with Saudi officials.

However, the source added that the Saudis might also regard low prices as an opportunity to put even more pressure on Iran and Russia for supporting Syrian President Bashar al-Assad, an arch-enemy of Riyadh, in the country's civil war.

Several Saudi oil sources have denied over the past month that geopolitics are now driving the policy, but they have failed to stifle theories that Riyadh and Washington are working together to hold down prices.

"What is the reason for the United States and some U.S. allies wanting to drive down the price of oil? To harm Russia," Nicolas Maduro, president of fellow OPEC member Venezuela, said last month.

Masoud Mirkazemi, an Iranian lawmaker and former oil minister, said Riyadh was helping the G20 group of major economies. "Saudi Arabia, which intends to manage OPEC, serves the interests of the G20 group," he said.

US President Barack Obama (R), Saudi king Abdullah

"GLOBAL OIL WAR"?

In Russia, the idea of a Saudi-U.S. plot against Moscow has become common currency as the economy struggles under the effects of low oil prices and Western sanctions imposed over its annexation of Crimea and support for rebels in eastern Ukraine.

Leonid Fedun, a co-owner of private oil firm Lukoil, cited President Barack Obama's visit to Riyadh in March. "Obama travelled to meet the king of Saudi Arabia just after the Crimea events to push him to these actions (to lower the oil price)," Fedun, whose firm has large U.S. assets, said last month.

Russia and Iran routinely allege U.S. plots against their economies, but the conspiracy theories are spreading.

"Is it just my imagination or is there a global oil war underway pitting the United States and Saudi Arabia on one side against Russia and Iran on the other?" New York Times columnist Thomas Friedman, wrote last month.

U.S. Secretary of State John Kerry sidestepped the issue after a trip to Saudi Arabia in September. Asked if past discussions with Riyadh had touched on Russia's need for oil above $100 to balance its budget, he smiled and said: "They (Saudis) are very, very well aware of their ability to have an impact on global oil prices."

National Geographic News: 12. November 2012

U.S. to overtake Saudi Arabia, Russia as World's top energy producer

By Thomas K. Grose in London

Picture of oil derricks at South Belridge oil field in Kern County, California

In an indication of how "fracking" is reshaping the global energy picture, the International Energy Agency in 2012 projected that the United States will overtake Saudi Arabia as the world's largest oil producer by 2017.

And within just three years, the United States will unseat Russia as the largest producer of natural gas.

Both results would have been unthinkable even a few short years ago, but the future geography of supply has shifted dramatically due to what IEA calls America's "energy renaissance." The revival can be credited to controversial technologies such as hydraulic fracturing of shale and deepwater production that have enabled the industry to tap into abundant, unconventional sources of natural gas and oil. As a result, new energy frontiers have opened in Pennsylvania and North Dakota. (Related: " Natural Gas Stirs Hope and Fear in Pennsylvania")

The bottom line for the United States is fulfillment of a goal that eluded seven presidents over nearly four decades: energy independence. The U.S., which imports 20 percent of its total energy now, will become largely self-sufficient by 2035, concluded the IEA's annual World Energy Outlook, often viewed as the bible of the industry. Add in Canada, which has its own unconventional production boom in Alberta's oil sands, and the continent is set to be a net oil exporter by 2030. (Related Quiz: "What You Don't Know About World Energy")

"North America is at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world," said Maria van der Hoeven, executive director of the IEA, a Paris-based organization charged with maintaining global energy security.h

It all has happened so swiftly that world governments have not yet adjusted to the new realities, observers say.

Francis O'Sullivan, executive director of the energy sustainability challenge program at the Massachusetts Institute of Technology, says he doubts if Washington policymakers have yet "fully factored in the implications of the recent, quite dramatic, developments in the unconventional oil space, and what this might mean in terms of larger domestic oil resources, and the potential for greater energy security." (Related Interactive: Breaking Fuel From Rock)

Catching Saudi Arabia

U.S. imports of oil are on track to fall from 10 million to 4 million barrels per day, Fatih Birol, IEA's chief economist and the main author of the report, told a London news conference. However, he added, increased domestic production, including biofuel, accounts for only 55 percent of the huge reduction in imported oil. The other 45 percent is due to increasing federal fuel efficiency standards for cars and trucks.

According to IEA, by 2020, America's oil production will reach 11.1 million barrels per day, up from 8.1 million in 2011. Saudi Arabia's production, meanwhile, will decline from 11.1 million to 10.6 million barrels per day. By 2025, IEA projects, U.S. production will slip back to 10.9 million barrels per day, but Saudi Arabia's will have increased to only 10.8 million barrels per day.

The picture on natural gas is even more dramatic. By 2015, the U.S. should be producing 679 billion cubic meters (bcm) of natural gas, up from 604 bcm in 2010. That will be enough to edge out Russia, where production will increase too, but is projected to reach only 675 bcm in three years. By 2020, the spread between the two nations will widen, with U.S. production of 747 bcm, well ahead of Russia's forecast 704 bcm. The U.S. should become a net gas exporter by 2020, the report adds.

No country an island

"The global energy landscape is changing rapidly, recasting the roles of countries and fuels," van der Hoeven said. What is happening in North America will certainly affect other countries worldwide, she added. "No country is an energy island."

That means the resurgence of American petroleum production won't make U.S. consumers any more immune to the often stomach-churning price swings of the international oil market. "Oil is more or less fully fungible," says MIT's O'Sullivan. And U.S. output will be poured into the global market, where demand elsewhere grows apace.

Indeed, as America's need for imported oil declines, Asia is rapidly taking up the slack. The report estimates that by 2035, fully 90 percent of Middle East oil exports will head for Asia. That's a shift that will require Asian countries to put more resources toward keeping strategic shipping routes of oil secure. "There is a major new trade axis building between the Middle East and Asia," Birol said.

Indeed, Iraq alone will see its exports to Asia jump from 50 percent of output to 80 percent. (Related: "Iraq Poised to Lead World Oil Supply Growth, but Obstacles Loom") The IEA reiterated its forecast last month that Iraq's production of oil would jump from 3 million to 8 million barrels per day by 2035, helping the war-torn country leapfrog over Russia to become the world's second largest exporter of oil, after Saudi Arabia.

Another effect of the altered energy landscape is a large variance in natural gas prices. A few years ago, global prices of natural gas varied little from region to region. But natural gas prices in Europe are now five times higher than in the United States, and Asia's are eight times greater. However, van der Hoeven said, as more gas becomes available for global export, prices outside the U.S. should go down, too.

Demand still growing

The overall demand for energy worldwide should grow by a third between now and 2035, the report said, from 12,380 million tons of oil equivalent (Mtoe) in 2010 to 16,730 Mtoe in 2035, an increase driven by the rise in living standards in China, India, and the Middle East. The share of demand for energy in the developing world will jump from 55 percent in 2010 to 65 percent in 2035, powered by China, which will see its demand for energy increase by 60 percent over that period. (Related: "Pictures: A Rare Look Inside China's Energy Machine")

Demand for energy in the developed countries that make up the Organization for Economic Co-operation and Development (OECD) will essentially be flat, IEA projects. Use of coal and oil to meet that demand should drop to just 42 percent from 57 percent today.

The IEA chided world governments for failing to do enough to improve energy efficiency, saying that two-thirds of the economic potential to improve efficiency is not being realized. If those efficiencies were tapped, it said, total energy demand between now and 2035 could be halved, without any decline in living standards.

Globally, demand for fossil fuels will continue to grow in absolute terms through 2035, but together their total share of the energy mix should drop from 81 percent to 75 percent. Worldwide demand for oil is forecast to grow to 99.7 million barrels per day in 2035, up from 87.4 million last year, with China alone accounting for half that amount.

By 2035, the IEA said, the price of oil is expected to be $125 per barrel in inflation-adjusted terms, though the nominal price is enough to induce sticker shock in 2012: $215.

Global natural gas demand should increase by 50 percent to 5 trillion cubic meters (tcm) in 2035. Within OECD countries, gas is overtaking coal as the fuel of choice for generating electricity. In the U.S., for instance, the amount of electricity generated by coal has fallen from 50 percent to 32 percent in just a few years. Although use of coal will continue to fall in the U.S., Europe, and Japan, overall demand for coal should still grow by 21 percent through 2035, because of increasing use in China and India.

Although some OECD countries, particularly Germany and Japan, are cutting back on nuclear power in the wake of the 2011 accident at Japan's Fukushima Daiichi nuclear plant, nuclear power is still expected to account for 12 percent of global electricity generation by 2035, thanks to increased use of nuclear power in China, Korea, and Russia.

Electricity generation from renewables should grow from 20 percent in 2010 to 31 percent by 2035, IEA projects. Within OECD countries, most of that growth comes from increased wind-energy production, while in non-OECD countries, hydropower is the main source of clean energy. Growth in demand for renewables, including biofuels, is still largely driven by government subsidies, the report said. Last year, those subsidies totaled $88 billion, a 24 percent increase from 2010.

Overall demand for electricity will skyrocket by more than 70 percent by 2035, reaching 32,000 terawatt-hours (TWh), with almost all that increase coming from non-OECD countries, with China and India alone accounting for half. Prices for electricity overall should increase 15 percent by 2035, but some regions will pay much more than others. In the U.S., for instance, average household electricity prices in 2035 should be about 14 cents per kilowatt-hour (kWh), while the price in Europe will average closer to 25 cents per kWh. That big difference in the cost of electricity will likely give American industry a competitive advantage over European rivals, Birol said.

Amid its forecast for rising energy demand and production, the report, unsurprisingly, does not paint an optimistic picture of efforts to contain greenhouse gas emissions. IEA projects that energy-related carbon dioxide emissions will rise from an estimated 31.2 gigatonnes (Gt) last year to 37 Gt in 2035, which could cause a long-term average temperature increase of 3.6 degrees Celsius.

In a nonbinding accord signed in 2009 in Copenhagen, nations agreed to the scientific view of limiting temperature rise to 2 degrees Celsius, but efforts to forge a global agreement to cut fossil-fuel emissions have been unsuccessful.

Putin's big mistake

Bloomberg News: 19. November 2014
By Marc Champion


Kyiv's Maidan square monument during opposition protest against Yanukovich regime. 

Is Russian President Vladimir Putin losing Ukraine by stoking a war to keep it?

As a new military campaign appears to be getting under way in eastern Ukraine, that’s an important question. To answer it, Putin could do worse than to stop by for tea at the Makarov household in Mariupol, the region’s main port and industrial center -- now threatened with attack.

Alexander Makarov is an ethnic Russian, proud that he can trace his family’s roots to 16th century Russian chronicles. At the start of the crisis in Ukraine, he, like many people in this city, was hostile to the revolution in Kiev. He argued repeatedly about it with his daughter, Katerina, with whom he shares an apartment. He hung a Russian flag on his bedroom wall and she put a Ukrainian one on hers. (Katrina's confused seven-year old daughter asked what kind should go on her wall.)

It used to irritate Makarov, a 62-year-old radio engineer, that whenever he needed to write officially to his boss in Donetsk -- also a native Russian speaker -- he had to do so in Ukrainian. And even though 80 percent of the team he worked with at Mariupol Airport’s control tower were Russian speakers, all technical documents, including those with safety implications, had to be written in Ukrainian, too.

It angered Makarov still more when the so-called Maidan protesters in Kiev seemed willing to risk Ukraine’s ties with Russia over a trade deal with the European Union. Most of his friends and family live across the Russian border, just 30 miles away. He even accepted Russia’s decision to take Crimea, because “it was never truly Ukrainian.”

But Makarov's view changed when Putin started sending troops into eastern Ukraine. The death toll quickly doubled and today stands above 4,000. In August, Russian units crossed the border to march on Mariupol, stopping only when Putin and Ukrainian President Petro Poroshenko signed a cease-fire agreement. The city staged its first pro-Ukraine rallies. Most of Makarov’s team at work changed their minds too, he says.

Ukrainians hold national flags during their demonstration in support of the Single Ukraine in Mariupol, Ukraine, 23 April 2014. 

Standoff in Ukraine

Makarov trusts Ukrainian TV news reports no more than Russia’s, but he can see that Mariupol faces no risk of being ethnically cleansed by fascists, as Putin claimed this week. What's threatening are the Russian-provided artillery and tanks that last summer shredded the air-traffic control tower at Donetsk’s new airport. Just a year ago Makarov proudly helped install state-of-the-art equipment in that tower, part of a multi-million-dollar effort to bring Ukraine’s air-traffic system into the 21st century.

The leader of the pro-Russia separatists in Donetsk recently marked Mariupol as one of his top targets in a promised new offensive. Sightings of Russian armor and troops rolling into the Donbass area have given credence to that threat. Mariupol is not just the region’s main port and industrial center, it also sits in the middle of a potential land corridor connecting Russia with Crimea.

Yet levelling this city of 500,000 would alienate Ukraine from Russia in ways that even spectacular corruption and economic failure on the part of future Ukrainian governments couldn’t reverse. So I asked Makarov if he thought Putin had made a strategic mistake by fuelling the war in Ukraine.

“A mistake is when you forget to put on the tea,” he said caustically. “He has done what should never have been done.”

Merkel Is playing long ball with Putin

Bloomberg News: 19. November 2014
By Leonid Bershidsky

German Chancellor Angela Merkel listens to the debate about the Ukrainian crisis at the parliament Bundestag in Berlin.

I wrote a post yesterday that said the contemptuous treatment of President Vladimir Putin at the Group of 20 meeting was juvenile and counterproductive. I knew I would get a reaction. I have received dozens of e-mails stating that Putin got what he deserved and decrying what the writers saw as my support for appeasement. There also have been messages from people who agreed with me for the wrong reasons: These correspondents see Putin as leading a righteous fight against U.S. imperialism.

As a Russian who, thanks to Putin's policies, can't imagine a future in Russia, I take these e-mails to heart. I would like Putin's regime to fall and be replaced with a liberal, pro-European government that would put Russia on a convergence path with the European Union. I don't condone Putin's actions in Ukraine, starting with the annexation of Crimea and continuing with his support for separatist goons in Donetsk and Luhansk.

Still, baiting Putin isn't the right thing to do.

And that's what German Chancellor Angela Merkel, who had the longest meeting with the Russian president at the G-20, thinks, too.

Yesterday, Merkel gave a lecture in Sydney, laying out a detailed vision of the Western strategy for dealing with Putin. Merkel has a unique perspective: She spent more than half her life in communist East Germany, a country controlled by Putin's colleagues from the KGB and the Soviet ruling elite. She sees Putin's attack on Ukraine as a return to Soviet-style strongman tactics.

Her proposed strategy stems from her experience:

We know that even small conflicts may have big complications very quickly, so we drew the conclusion from the past that this conflict cannot be resolved by military means because that would lead us into a military conflict with Russia, which would almost certainly not be of a limited geographical nature. On the other hand, that we cannot solve it militarily doesn't mean we can't solve it at all. So what sorts of instruments do we have at our disposal? Well, we have economic strength. We are called on to accept some disadvantages, but I do think economic power is one of our fortes as Western nations and I think we should use this, though not as an end in itself. The question is, how long do we wait for this to take effect? It's my personal experience from the history of the German Democratic Republic is that one should not lose hope too quickly. For 40 years we heard radio broadcasts about the imminent collapse of the GDR, and after 40 years, when everyone had lost hope, it happened. 

In other words, Merkel hopes Western economic pressure will eventually force the Putin regime to back down and could even destroy it, as was the case for the Soviet Union. That's why the chancellor is a firm believer in sanctions, and that's why Russian Prime Minister Dmitry Medvedev and Foreign Minister Sergei Lavrov are wrong to believe the economic restrictions against Russia won't last.

Taking the long view allows Western leaders to feel free to insult Putin: It's politically popular and in 40 years other presidents and prime ministers will reap the fruit of victory, anyway. But that's not Merkel's way. She is willing to talk with Putin for hours. Her attitude shows she has absorbed the lessons of German history. In her lecture, she said World War I erupted because of a "lack of communication among the elites of almost all European states." 

Merkel's expectations are rooted in history. Yet the world, and Russia, have changed since the fall of the Soviet Union. The Russian economy is no longer saddled with central planning or weighed down by a nuclear arms race. The price of oil is unlikely to fall to $10 a barrel ($22 in today's dollars), as it did in 1986. In fact, it could rebound next year. Besides, the current Western sanctions are in no way as isolating as those imposed on the Soviet Union. The world is bigger now, and large developing nations such as China, India and Brazil are still willing to work with Putin. 

Under these conditions, the famed ability of Russians to put up with hardship for the sake of questionable ideals may allow Putin to hold out for a very long time. That would be bad news for most Ukrainians and for Russians who believe Putin is taking their country in the wrong direction. They shouldn't have to wait 40 years.

Merkel's determination to dig in for the long haul means Western leaders don't have a quick solution to the Ukraine crisis. That makes baiting Putin especially counterproductive: There may be a bigger crisis to resolve down the road, and solutions will be as limited as they are now. That's why Merkel is maintaining a respectful, if tense, dialogue with the aggressor, looking for an opening to achieve something that will work faster than economic pressure. 

That is true leadership. Jibes and jeers are just cheap politicking.

Ruble drops 1st time in 3 days before Fed minutes as oil falls

Bloomberg: 19. November 2014
By Ksenia Galouchko

Pedestrians walk under a board listing foreign currency rates against the Russian ruble outside an exchange office in central Moscow on Nov. 10.

The ruble weakened for the first time in three days as oil retreated and investors curbed wagers on riskier emerging-market currencies on speculation over the timing of U.S. interest-rate increases.

The ruble slid 0.4 percent to 47.0660 against the dollar at 11:35 p.m. in Moscow. Two-year government-bond yields were unchanged at 9.96 percent before an auction today of 5 billion rubles ($106 million) of May 2016 notes, the Finance Ministry’s smallest sale in 14 months.

Brent crude traded at $78.20 per barrel, near the lowest price in four years on concern OPEC will resist production cuts. Russiareceives about half of its budget revenue from oil and natural gas sales. Investors are waiting for minutes from the Federal Reserve’s October meeting, when it ended its bond buying program as traders speculate the U.S. economy is strong enough for policy makers to consider raising interest rates.

“The market is expecting the Fed to raise rates,” Andrey Mishko, a foreign-exchange trader at National Standard Bank in Moscow, said in e-mailed comments. “The problems in the Russian economy and geopolitics haven’t gone away so in order to compensate for the low oil price, the ruble has to weaken.”

Crude’s decline into a bear market has exacerbated U.S. and European Union sanctions over Russia’s role in the Ukraine crisis, which shut companies out of debt markets and drove a shortage of foreign currency. A day after Russia and Ukraine clashed over how to move toward a new cease-fire agreement, Russia’s foreign minister Sergei Lavrov said the U.S. and the European Union had repeatedly “torpedoed” peace efforts.

Reserve Drain

The ruble has lost 30 percent this year, the most after Ukraine’s hryvnia among currencies tracked by Bloomberg worldwide, as its volatility relative to other currencies reached a nine-year high.

Last week the Bank of Russia abandoned its predictable rules-based interventions, which have drained its reserves by $90 billion since the beginning of the year to $421 billion. The central bank said it reserves the right to intervene without warning if it sees a threat to financial stability.

“It’s too early to say whether the ruble has found its balance,” Alexander Myulberger, head of foreign-exchange trading at BCS Financial Group in Moscow, said by phone. “It’s good that the central bank no longer intervenes and spends the reserves.”

The U.S. currency is up at least 5.8 percent against all Group of 10 peers since the end of June amid speculation the American economy is strong enough for Fed policy makers to consider raising benchmark interest rates. The minutes for release today are from the U.S. central bank’s Oct. 28-29 meeting.