U.S. Escalates Sanctions War on Russia, Frustrated Russians Debate How to Fight Back

What Do the Americans Want from Russia -- Short of Total Capitulation?

Evgeny Satanovsky, head of Russia’s Middle East Institute: There will be a reduction in American pressure on us after the Americans suffer a humiliating defeat, like the detente between the US and USSR following the Vietnam War.

Notwithstanding the deep state allowing Trump’s peacemaking talks with North Korea’s Kim Jong Un, it seems Bloomberg is wrong regarding both sides of Cold War 2 — the neocons in Trump’s own cabinet appear hellbent on sabotaging any thaw in U.S.-Russia relations. We are likely to see more chemical or other false flag events in Syria and possibly in Ukraine to derail Putin visiting the White House and the discussed reciprocal Trump presidential trip to Moscow. On the other side of the coin, while Russia’s largest aluminum conglomerate Rusal has been hammered by the sector and company specific sanctions imposed earlier this month, there is little evidence the Kremlin is ready to give in to what the Americans want.

Furthermore, even as Russian commentators like Yevgeny Satanovsky dismiss Trump as increasingly irrelevant and/or neutered by the U.S./UK deep state, there is no consensus in Moscow about what Washington really wants — short of total capitulation abroad followed by plundering of Russia's rich natural resources and talent base (as in the early to mid-1990s). Some former Israeli intelligence/military men or those with connections to Israel say the Trump White House wants Russia to dump its alliance with Iran in Syria, and there is indeed some evidence to support this theory, dating back to then recently retired Gen. Michael Flynn’s controversial visit to Moscow before becoming a Trump campaign aide and (briefly) U.S. national security adviser. Other commentators like New Eastern Outlook/Sputnik’s Andrew Korybko say Washington wants Moscow to dump its anti-dollar alliance with Beijing. But since that is even less likely to happen than an Russian-Iranian split over Israel (even with the coming Hezbollah-Israel war certain to test Tehran-Moscow ties), the Russians are digging in for a long economic siege. The debate over what it will take to win the economic war forced upon the Russians is airing on Sunday night talk shows and in newspapers watched and read across the country. Some of these clips have been translated and subtitled by the translators behind Vesti News. Others are summarized at sites like Vineyard of the Saker and Russia Insight.

The understanding that outlasting Washington's aggression will require de-oligarchization and ending the Russian corporate sector’s reliance on (post)Western capital markets/payment systems like SWIFT is clear enough. So too, is the absolute necessity to 'de-dollarize or die' that V the Guerrilla Economist and myself have been preaching since 2014, for any non-U.S. company or government that has ears to hear. The implementation of these projects, and the irrevocable attachment of Russia and 'the commanding heights' of her economy to China, will not be without pain or push back from the notorious bureaucrats, the oligarchs, and Russia's tiny but noisy band of pro-Western liberals.

To face these challenges Putin, well aware of his mortality and the threats against his life behind the scenes, knows he will have to prepare more than a successor as president. Putin will also need to shape an entire cadre of younger GenX and Millennial leaders (GenZ or those approaching age 18 have never known any preeminent national leader but Putin) for Russia -- above all in the entrepreneurial and technology fields.

While Russia's military has modernized to a degree inconceivable in the Nineties, surpassing the vaunted Americans in electronic warfare and missiles, access to capital and entrepreneurship remain weak in the Russian Federation. The country also faces the demographic headwinds of a shrinking ethnic Russian labor force due to the post-Soviet birth rate collapse suffered during the Nineties. Immigration of Russian speaking skilled laborers and IT staff from an economically imploding Ukraine can only do so much to address this distressing demographic reality. Moscow will need to consider opening the doors to more Chinese, Indian and perhaps, educated Syrian immigration to fill in the gaps, particularly in cities of Siberia and the Russian Far East.

To understand what must be done by Putin or the new 'Politburo' that stands behind him, we need to first look at the aspects of the Russian economy that are actually working well, especially the turn toward China and the resurgence of agriculture. These are described by my Swiss born White Russian Floridian friend The Saker as Russia "turning away from the West to the East (to China and the dynamic markets of Asia) and looking to the North (her Arctic and pastoral lands) and South (the Muslim world and Africa)".

As the Russian Analyst wrote in a post about the Orthodox Saint Prince Alexander Nevsky, Russia made its civilizational choice 900 years ago that paying tribute to the Khans of the East was preferable to surrender and losing her identity, or her very soul to the aggressive, Papists and Teutonic Knights West. The next few decisive years of the 21st century with China eclipsing the USA as the last superpower are likely to echo that choice. But in order to follow through on that choice, the Russians are likely to get more Chinese in their governance if not in their national culture to endure the depredations of the Americans followed by a global economic collapse and reset. The world famous patience and willingness of Russians to endure suffering will be sorely tested. The task of the Russian leadership is to give them a non-Soviet, non-sectarian but sufficiently inspiring vision to endure -- and to present visible milestones along the way.

The Scorecard: What Putin and Co Have Managed to Accomplish in the Face of U.S./UK Economic Pressure is Tremendous, But More Severe Sanctions Are Coming

According to John Helmer, an Australian citizen who is now the longest serving (post)Western journalist in Moscow, President Vladimir Putin has formed a 'STAVKA' to deal with the pressing demands Cold War 2 and Russia's ongoing rearmament are placing on the economy:

"...even before the US Treasury announced its newest sanctions against Russian individuals and their companies for “malign activity around the globe”, that President-elect Vladimir Putin was preparing a successor cabinet of ministers on the principle that they would be organized as a headquarters staff for fighting a war on all fronts, without the option of negotiating terms with the enemy."

"The impact of the US sanctions, along with the campaign of the British Government in the Skripal affair, and the Syrian front action escalating since the weekend, have reinforced what had already been decided in the Kremlin.  The new government is to be a war cabinet. In Russian parlance, a Stavka."

Undeniable progress has been made since the ruble hit a low amidst a concerted attack on it in mid-December 2014. Russia has twice in the last three years surpassed the U.S. as the number one wheat exporter on the planet. Oil prices have been steadily creeping upward, perhaps in part due to a deal negotiated between Moscow and OPEC, with the Saudis representing the other leading oil producers who found that Russia could endure cheaper crude for much longer then they could. The domestic SWIFT alternative payments systems SPFS is up and running, and in use by sanctioned arms manufacturer Rostec, with Rosneft and Gazprombank also using the platform. China's CIPS system is also available for large scale corporate transactions outside of Russia. The Power of Siberia mega-gas pipeline to China is set for completion by late 2019, while the Kerch strait bridge to 'annexed' Crimea is being finished ahead of schedule later this spring.

Barring a serious U.S.-engineered breach with Berlin and Ankara, either or likely both of the Nordstream 2 or the Turkstream pipelines to Europe will be operational sometime in 2021, bypassing Ukraine and denying the U.S.-propped up Kiev government lucrative transit revenue. The Kiev government may be able to survive this shortfall but not without becoming a heavier burden on its U.S. and EU patrons. Due to the loyalty it imposes on the German deep state, Washington stands a chance of perhaps delaying or blocking Nordstream. But the Anglo-Americans waning influence in Turkey almost certainly will hinder their ability to sabotage Turkstream -- or even prevent Iranian gas from being added to the Turkish energy transit mix.

Continued Economic Pain for Russians and Sanctions Pressures Will Test Putin Consensus

Despite all these achievements, which the Russian people acknowledged by re-electing Putin to an unprecedented third and final term in office this March, the economy and wages have stagnated. In several sectors and especially those subject to inflation in pricing imported goods and medicines, Russians have seen their purchasing power sharply decline since 2013-14. Such wage cuts in both real and in many cases nominal terms have not been compensated for with cheaper, high quality domestic food, or the steadying of a previously overheated housing sector.

Entrepreneurs remain starved for cheap credit while the oligarch owned combines, struggling with both announced and stealth sanctions, receive ruble bailouts from Russia's Central Bank. While Elvira Nabiullina's Volcker-esque policies have tamed inflation, they have done nothing to relieve the chronic capital shortages and high interest rates to borrow that Russians face. For the Kremlin, the problem of resentment between the pittances ordinary Russians receive from the State versus the bailouts oligarchs like Rusal's Oleg Deripaska demand in order to prevent mass layoffs in their Siberian company towns persists. And of course, this is by design.

If Washington's Cold War 2 planners could never achieve a successful Maidan in Moscow, because Russia's tamed oligarchs were far too weak to topple Putin (in contrast with the Ukrainian oligarchy that overthrew President Viktor Yanukovych in a U.S. organized coup), they still hope to fuel unrest across Russia. In March, a suspicious fire set at a shopping mall in Kemerovo which killed dozens including many children had some hallmarks of an event intended to spark mass protests beyond Siberia, due to genuine grief and outrage over the corruption that enabled the tragedy.

Putin responded by flying to Kemerovo, condemning corruption in fire safety inspections, vowing a full investigation of the conflagration, and the longtime Kemerovo mayor whose underlings likely received bribes from the mall owner resigned. But the incident underscored the physical as well as metaphorical kindling for the flames of discontent in Russia, even if many of those opposed to Putin are more radically anti-Western and opposed to policies favorable to non-Russian ethnic minorities than he will ever be. Putin is, far from the paranoid xenophobe that his enemies caricature him as, a German speaking Teutonophile who gets along well with Russian Jews and seeks business-like relations with Israel.

The Limits on Moscow's Ability to Immediately Hit Back, and a Lamented Lack of Imagination in Stimulating the Russian Economy or Providing Affordable Credit to the People

The Kemerovo fire, which has all the hallmarks of an authentic but criminally planned scenario, illustrates the vulnerability of Russia through corruption to foreign attack. Even if said attacks will never be acknowledged by either side, they are real and the Russian security services know it. The more pressing problem than getting city and regional bureaucrats to stop demanding and receiving bribes from businesses for clean fire safety inspections is the oligarchy. Namely, those 100 or fewer individuals to whom so many Soviet era mineral and industrial assets were sold on the cheap. Putin tamed them in his first term in office through the arrest and imprisonment of the criminal Mikhail Khodorkovsky, but as Z. Brzezinski smirked at the time (and the Russian Analyst is paraphrasing here rather than offering a precise quote), "If your oligarchs, their yachts, their money and their children are in London rather than Russia, are they still yours, or ours?"

With Oleg Deripaska in particular spending large sums of money on lobbyists to obtain a U.S. visa only to be sanctioned by name and corporate listings over Moscow's globally 'malign activities', Washington's determination to squeeze the oligarchs as a form of pressure on the overall economy is evident. Since the Sergei and Yulia Skripal poisoning that the British have blamed on Russia, there have also been rumblings about seizures or sudden sanctions levied against Russian wealth in 'Londongrad'. The State Duma has responded to the Anglo-Americans by introducing legislation intended to inflict pain on specific American sectors reliant on Russian materials or technology, primarily aerospace. Boeing uses titanium to build its 787 Dreamliners, a Russian titanium embargo would devastate VSMPO-Avisma, while perhaps setting back the Boeing orders by months until the manufacturer could find alternative stocks or middlemen. Not surprisingly the Russian Trade Minister Denis Manturov overruled the angry Duma deputies -- for now. 

A similar dynamic is apparent when it comes to Russia halting rocket engine shipments to the U.S. In that scenario, NASA and the Pentagon would be delayed in satellite launches by several months, but highly skilled Russian rocket engineers and builders would be furloughed for months -- making talent poaching offers from the heavily subsidized SpaceX or even Chinese competitors highly attractive. Not surprisingly, these facts have emboldened Washington's sanctions advocates into believing that Moscow needs Washington far more than the U.S. needs Russia, and the Russians cannot effectively punch back in the economic realm. Therefore the neocons will keep on pushing -- until Moscow finds a way to demonstrate it can impose pain on the American economy, beyond beating out the Americans for lucrative arms or nuclear power plant contracts in markets where the Cold War rivals go head to head like India.

A Snapshot of the Russian Debate Over How to Fight Back and Revive their Economy

Not surprisingly, many Russian commentators on television are expressing their frustration that the Kremlin is not hitting back hard enough, or finding any creative ways to do so. In this clip from a talk show on Vesti, the show host complains that Moscow still has tens of billions parked in U.S. Treasuries. Why he asks his guests from the State Duma, can't that entire total be converted to gold or other currencies, as the Russian Central Bank has already been doing? Why does the Kremlin keep own any national debt of the enemy that openly speaks of squeezing Russia from economic processes? The Duma deputy from the Communist Party of the Russian Federation (KPRF) Yuri Afonin, goes on to unfavorably contrast Russia's economic development enslaved to 'Western securities' to 'Communist' China's, which he says wisely invests greater resources into its infrastructure. Yury Vyacheslavovich does not even have time to mention in two minutes of remarks the absurdity of Russia continuing to hold debt of a country whose leadership openly seeks to discourage if not outright ban allies from buying Russian sovereign debt.

The economist Nikita A. Krichevsky, responds by pointing out the Russian government in the better times of 2006-2007 missed opportunities to invest in national projects (a critique the Russian Analyst is very familiar with), and could start in the present economic crunch by offering Russians mortgage relief at cheaper, refinanced rates as a simple and quick stimulus to the economy. Krichevsky blames lazy but well compensated Russian bureaucrats (as Russian Analyst readers are noticing, everyone loves to hate the chinovniki and has since Tsarist times) and the concurs that the Washington consensus promoting ideology inherited from the 'Gaidar-Chubais' dominated Nineties is to blame, along with the departments that promote it at Moscow State University and especially, the Moscow Higher School of Economics, for whom a post-Western dominated (read: after the U.S. dollar and euro collapse) future for Russia is  unthinkable. The Americans and their king dollar are always going to be on top, because it was so when the educations and attitudes of these thinkers were formed in the perestroika and Yeltsin years.

On a more optimistic (from Moscow's perspective) note, the economist Maxim Schein says that other countries are dumping American Treasury debt by the tens of billions every quarter, because they all understand interest rates must rise due to the growth in the American national debt. This means that if Russia dumps its U.S. debt holdings it will be doing what others are doing, and not taking an exceptional loss. Krichevsky responds by asking why the ruble dollar exchange rate cannot be fixed, the way China has managed its dollar-yuan peg within certain parameters. The host grunts something about market economy in reply. But the Americans clearly aren't playing by their own supposed market economic rules or legal niceties in seeking to destroy not just specific oligarchs for being Kremlin connected but entire sectors of the Russian economy such as metallurgy. Furthermore, 'market economy' dogmas might not apply to a company like Rusal that's already effectively embargoed from Western financing, owned by Russian state funded banks and which, as a producer of a strategic metal in aluminum, has military value in the current second Cold War which has prompted Russia's rapid rearmament.

The choice, according to the gloomy prognostications of individuals like Branko Milanovic, who believe Russia joining no anti-dollar bloc is possible much less preferable, is capitulation or autarky. But since autarky in the 21st century in a country like Russia, whose authorities cannot even competently ban the app Telegram is impossible, supposedly Moscow will have to find some face saving way to surrender to the Americans. Or so this narrative goes, ignoring the enormous liabilities the United States is aggressively lashing out to relieve, both economic and cultural, of which Putin and those advising him as well as China's Xi are well aware. Ultimately, time is not on the Americans side, the disagreement in Russia is over how to get through the period of maximum economic pressure rather than over whether Washington can sustain it for decades as it did during the last Cold War.

The Rossiya show hostess concludes this clip by saying RIA Novosti sources citing the Kremlin are reporting a Trump-Putin meeting planned for prior to November. But placing hopes on Trump, as many guests like Yevgeny Satanovsky speaking on the same network's shows have already declared, is foolish. Russia must become more like its big powerful and apparently, much more respected by the Americans neighbor China, in order to push the arrogant Yankees back and prevail.