Ambassador Bhadrakumar on the sanctions:
The US economy performs better than most European economies largely due to the effect of Quantitative Easing lowering the value of the $ compared with the Euro. Damage to the European economies as a result of sanctions would lower the value of the Euro and so directly, loss of export to Europe, and indirectly by increased export by Europe reducing US export to other countries.Putin smiles at a German visitor
President Vladimir Putin opened his hand just a wee bit while US President Barack Obama was still in Europe warning of “consequences” in the nature of more sanctions against Russia unless it ‘deescalated’ in Ukraine. Putin received the CEO of Siemens Joe Kaesar on Wednesday.
The Kremlin readout has a picture of Putin wearing a slightly amused look, as he heard Kaesar saying, “Siemens will continue its work to localize production here and help build up industry in Russia.”
Kaesar also said he just had a meeting with the head of Russia’s energy leviathan Gazprom and they “agreed to continue the long-term cooperation between Siemens and Gazprom.”
This friendly exchange took place on a day Obama spoke about the prospects for US energy exports helping Europe to reduce its heavy dependence on Russian supplies.
The meeting between Putin and Kaesar underscores that any attempt by the US to force Russia to back down via the sanctions route critically depends on Germany’s cooperation.
The US has very little trade going with Russia — just 1 percent of its total trade — and has no dependence on Russian energy supplies.
On the contrary, Germany’s trade with Russia, which stood at $107 billion last year, accounts for a hefty 3 percent of its total foreign trade. And Germany also meets one-third of its oil and gas needs from Russia.
Der Spiegel had an insightful report recently on the German-Russian economic nexus. Six thousand German companies operate in Russia which have invested over $25 billion. In an economic war with Russia leading to disruption in energy supplies, upwards of 300000 jobs could be at risk in Germany.
Unsurprisingly, two-thirds of Germans reject sanctions against Russia relating to the Crimean crisis. These are sobering facts on the ground (here).
Of course, it is unthinkable that Russia will cut off energy exports to Europe, which account for something like half of its annual income. On the other hand, it remains to be seen how far realistic are the expectations that the US and Canada can replace Russia in Europe’s energy market in a conceivable future.
The noted author and academic and expert on the geopolitics of energy security Michael Klare calls it “petro-machismo”. He lucidly explains that the notion is misplaced that American foreign policy could have a “fresh burst of geopolitical vigor” thanks to the leeway available through the US’ shale gas and Canada’s bitumen sands.
Professor Klare estimates that the former US national security advisor Tom Donilon had fallen for this vacuous notion of the US’s ‘energy independence’ and apparently got Obama to embrace it as well, but it actually jars on the president’s own public “discourse on new collaborative modes of international behavior”. (here).
Such being the ground realities, despite the brave face Obama put on it, the US faces a really uphill task in motivating the European allies — especially, ‘Old Europeans’ like the Germans — to take to the barricades.
Equally, it is also inconceivable that Russia is in a mood to escalate the crisis and resort to more “land grabs”, as the cold warriors in the US estimate.
Russia cannot remain unscathed by Obama’s ’smart sanctions’. In an estimate on Wednesday, the World Bank painted a grim picture of the Russian economy, which is already under weather, further suffering if the Crimea crisis deepens. It says that in a worst-case scenario Russia’s GDP may shrink by 1.8 percent this year. (here).
There are other worrying signs too — investors have pulled out as much as $70 billion from Russia’s economy in the few weeks since the Crimea crisis began and the head of Russia’s state-owned Sberbank, German Graf, has been quoted as saying, “If capital outflows reach $100 billion, the economic growth will likely hit zero.”
All in all, therefore, the spectre of hard times ahead could only incentivize thoughtful leaders in both Europe and Russia to ‘deescalate’ the crisis — despite, arguably, the US’s unspoken interest in a “permanent low intensity rivalry” with Russia developing in the heart of Europe, which would cement the US’s transatlantic leadership and give new verve to the NATO.
Putin seems to be acutely conscious of the need to ‘deescalate’ as well, as his meeting with the Siemens CEO Joe Kaesar in the Kremlin amidst the distant sound of war drums seems to suggest.