Russia Grinds Out Wins In Europe

Another important dispatch from The Greanville Post. Be sure to share it widely.

  • Europe is finally coming to its senses five years after the coup in Kiev started what is now the new Cold War between Russia and the West.
Crossposted with The Duran

[dropcap]T[/dropcap]he first part of Russia’s win comes from Italian leader Matteo Salvini. Speaking for the under-represented in European politics, Salvini declared this week, “I continue to believe that we don’t need sanctions. The issue of their removal unites all decent people.“

Salvini is tackling, head-on, the European political establishment in this week’s European parliamentary elections. And his raising the issue of lifting sanctions on Russia imposed over the reunification with Crimea is a massive attack on them.

It means that Salvini is looking at using the extension of sanctions as a bargaining chip this summer. He is threatening to veto any extension with words this strong on the eve of an election.

The second victory for Russia, however, is far more significant. The Council of Europe has finally agreed to restore Russia’s voting rights after suspending them over the unification with Crimea.

This was a major bone of contention between Europe and Russia, who suspended their budget payments to the CoE in 2017. The deadline for dealing with their non-payment was coming up next month.

At that point PACE — Parliamentary Authority of the Council of Europe — would have to vote to kick Russia out completely or allow them back in. And that was a bridge too far.

They chose the latter and that sets the stage for a major realignment of the status quo in Europe with respect to Russia.

2019 was always going to be the year in which all of this political pressure and virtue signaling from Europe over their failure to take Ukraine would end.

There were simply too many issues coming to a head this year that this policy would continue beyond this point.

  • European Parliamentary elections in May would bring a different blend of voices to the EU
  • Nordstream 2 would be completed
  • The gas transit contract between Ukraine’s Naftogaz and Gazprom would end.
  • The Council of Europe would have to kick Russia out.
  • Ukrainian elections would bring change to Kiev
  • Power of Siberia 1 pipeline would be complete to China
  • Turkstream would be complete to Turkey
  • New power plants in Crimea would come on line

The Russians, under Putin and Lavrov, executed a perfect war of attrition against Europe and waited for events to come to them. They knew there was rising opposition to the sanctions.

They knew Angela Merkel’s political power was waning and that rising figures like Viktor Orban, Salvini and Marine Le Pen in France would change the landscape eventually.

They also knew that keeping the dialogue frank but respectful and not rising to any of the contrived and adolescent provocations by Europe’s and Ukraine’s leadership would put them in the best position to normalize relations.

It’s a testament to the Russian leadership’s ability to think the entire game board to see the Council of Europe as the means to break the deadlock. Simply by withholding their dues to the body they eventually forced the moment to its crisis exactly when it would be to their best advantage.

And this move undercuts Merkel who has been trying to salvage Ukraine’s position tying sanctions relief to a new gas transit contract. This was nothing but grandstanding on her part to try and keep Trump happy. But she washed her hands of this ages ago.

And now she needs a way to save face to get out of this mess. Because Germany’s economy, along with the rest of Europe’s, is imploding. She needs Russia’s markets and it’s now time to decide where the future lies.

Going back to 2014, the coup in Kiev was meant to be the crowning move of U.S. anti-Russian maneuvering. A color revolution meant to rip both Ukraine and it’s primacy in gas deliveries to Europe and the Black Sea from Russia.

It had the backing of Europe who was looking at a quick accession of Ukraine into the EU where it would have control over gas prices in its talks with Gazprom. NATO could put missiles on Russia’s western border.

Those plans quickly fell through as two republics broke away, a bloody civil war began and Crimea wasn’t added to NATO’s control. Vladimir Putin and Russia immediately went into attrition mode, which left the EU and the U.S. looking silly as Ukraine imploded and billions flushed into Kiev with little hope of a return.

Germany quickly realized with the defense of Crimea by Russia that Ukraine gas transit control would be tied up for years and quickly negotiated Nordstream 2 with Gazprom to secure its energy future. Angela Merkel committed Germany to this by ending its reliance on nuclear energy and negotiated the Minsk accords to freeze the conflict diplomatically.

Minsk II was an agreement which could never be implemented because of U.S. control over the Poroshenko government. Merkel knew this. It was designed explicitly to allow everyone involved a way to blame the other guy for not complying.

Unfortunately, the people of the Donbass have had to suffer years of bombing by an irrational Ukraine with the backing of the U.S. It cost Putin a lot of political capital over these past few years not overtly helping the Donbass to break completely free of Kiev.

Merkel also has an opportunity in Nordstream 2 to consolidate control of gas distribution throughout eastern Europe which could be used to secure political concessions from Visegrads who have become increasingly recalcitrant.

With the final permit for the Nordstream 2 pipeline still tied up with Danish regulators, obviously bowing to U.S. political pressure, there still remains small hope that that operation in Ukraine will not wind up in complete and abject failure for U.S. foreign policy wonks.

Since Nordstream 2 follows the exact same path as the existing Nordstream pipeline, this shouldn’t be an issue. But it is. And now the U.S. Senate is mulling legislation to sanction people and companies involved in the final stages of construction.

The goal is to hurt Gazprom by delaying the opening of Nordstream 2 and keep open the vain hope that that will give Ukraine leverage to negotiate a new gas transit deal through Ukraine later in the year.

It’s also adds more poison pills to the ones that Poroshenko left behind on his way out the door — Kerch Strait incident, breaking the Treaty of Friendship.

It’s all so childish and destructive, honestly. Now the latest bit is Poroshenko’s coalition partner just pulled out of the government.

Since there’s no government now, President-elect Zelensky can’t dissolve parliament and call for new elections now. He’ll have to wait for the regularly-scheduled ones in October.

This will keep the existing parliament in power and Zelensky a figurehead until then.

But, back to the matter at hand. The incentives are all in line for Nordstream 2 to get that final permit. U.S. control over the situation in Ukraine is fraying badly, regardless of the delaying tactics.

Because to delay any further puts Ukraine behind the eight ball as Russia has cut off coal and oil exports as well as now forbids the reselling of its gas back to Ukraine. So, this winter will be horrific if Naftogaz doesn’t come to the table or sanctions aren’t lifted which would allow Putin to lift his energy embargo.

And this is why we’ll see this supposed Gordian knot of problems trying to tie this situation up for years actually resolve itself quite quickly over the next few months.

The accession of the Council of Europe to let Russia back into the fold is your key to the whole thing. This is a major concession to Russia. Putin and Gazprom have been more than willing to open up new gas transit talks with Ukraine who have been unwilling under Poroshenko to do so.

The Trump administration still wants guaranteed market access for U.S. LNG sources. Hence the cynical moves to delay a permit which should be a rubber stamp.

Gazprom can afford to wait a few months for the opening of Nordstream 2. They have both Turkstream and Power of Siberia 1 set to begin operations by the end of the year to cover any delay.

Moreover, fiscal year 2018 was a banner one for Gazprom and 2019 looks to be similar with these pipelines coming on line. The company surprised the market recently announcing a massive raise to its annual dividend, 60% higher than the original board recommendation.

The stock popped more than 20% on the news as the yield pushed out to nearly 9%. This was a clear signal to both U.S. and European investors that the company wasn’t scared of the risks associated with a delay in Nordstream 2.

At some point one has to realize that a particular policy has failed and cut a deal. The Council of Europe bowed to internal pressure as five years of rising Euroskepticism and stagnating exports to a formerly strong market for most of Europe, especially mighty Germany, finally pushed them to end the grandstanding.

It’s too bad psychopaths like John Bolton never understand this.

This is the necessary first step to defying the U.S. over sanctions this summer when they come up again. And, what’s the point, anyway? Blocking one pipeline only to empower two others is just idiotic.

Gazprom turned east to China because of the cancellation of SouthStream and the putsch in Kiev. Then it negotiated a replacement known as Turkstream. Ukraine is destroyed and Turkey is defying the U.S. on every major policy decision in the region while looking to Russia to help correct its balance of trade, defense and energy security.

At every turn Russia under Putin has outmaneuvered the U.S. in Europe over Ukraine. It was a step too far in our quest to bottle her up.

This essay is part of our special series


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  TOM LUONGO I am a former research chemist by trade and an Austrian Economist by study and a market analyst by choice. For the past four years I have been a Senior Financial Editor with Newsmax Media publishing my thoughts on where markets, central banks, gold and geopolitics meet and explode. 

I am now the publisher of Gold, Goats n' Guns, a monthly newsletter offered through Patreon. 

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