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The US and the EU have attempted to increase the pressure on Russia by adding some more names to their lists of individuals sanctioned. As has been the case all along, the EU is showing somewhat less enthusiasm for the project that the US, but is at least trying to give the appearance of cooperation. American economic pundits are dutifully predicting the imminent collapse of the Russian economy.

Meanwhile, Russia is turning its attentions elsewhere.

Russia and Iran Reported in Talks on Energy Deal Worth Billions

The Obama administration’s strategy of punishing Russia with economic sanctions over the Ukraine crisis encountered a new complication on Monday with word that the Russians are negotiating an $8 billion to $10 billion energy deal with Iran, another country ostracized by American-led sanctions, which partly depend on Moscow’s cooperation to be effective.

The Russia-Iran energy deal, reported by the Iranian state news media, is the second significant economic collaboration under negotiation between the two countries that could undercut the efficacy of the sanctions on Iran. Those sanctions are widely credited with successfully pressuring the Iranians in the current talks over their disputed nuclear program.

Russia has already been a thorn in the side of the US and EU efforts to back Iran into a corner. As a next door neighbor with Iran it has had ongoing trade in energy resources and arms. Last month Russia raised the possibility that it could take "retaliatory measures" to block progress in the negotiations with Iran as a counter measure to the sanctions being imposed over Ukraine. It then looked as though they were backing off from that threat. However, an expansion of the economic relationship between Russia and Iran would strengthen the position of both countries in dealing with the west.

China has also been a reluctant participant in imposing sanctions on Iran.

Iranian Sanctions: China Delicately Balances Trade With Iran While Ongoing Negotiations In Geneva Cause Rift With West And Israel

By some accounts, Iran is the third-largest supplier of crude oil to China after Saudi Arabia and Russia, providing 10 percent to 12 percent of total annual Chinese consumption. But Iran’s major role in China’s energy policy is only part of puzzle in China’s decision-making process in this case.

“The trade relation between China and Iran has been a very delicate balancing act for China,” said Michal Meidan, an expert on Asia for the Eurasia Group, a political and economic risk consultancy. “China views Iran as a long-term partner, but not at the expense of compromising relations with the U.S.”

Under the sanctions, China managed to import less crude oil and more fuel oil, in addition to allowing Iran to keep payments for oil it exports to China deposited in yuan in Chinese accounts, then using the funds to purchase food and consumer products from Chinese companies. About $100 billion of Iran’s money is frozen in foreign banks, and some of these funds would be freed up, if the West decides to ease sanctions against Tehran.

It is the politics of negotiating with Iran that grabs the headlines, but what may be of greater long term consequence is the shifting of economic relationships to a greater Asian focus. Russia and China are also engaged in negotiations to expand their already extensive trade relationships. Russia and Iran have energy resources to sell. China has a very large demand for energy. Not only do these arrangements represent direct trade that bypasses the western centered global economy, but they are also bypassing the role of the US dollar as the international reserve currency.

The Prelude to the End of the American Era

If the sanctions are imposed, for whatever reason (Russian invasion or not), they will force the creation of a second economic, non-dollar bloc.  Russia is not Iran, and China is not going to cut off Russia to please the West, rather the contrary.  The creation of a real non dollar bloc which can make almost anything people want, and which has access to essentially all key resources from oil to rare minerals, metals and food is an existential threat to the hegemony of the West and its allies like Japan and Korea.
Russia is already planning how to survive economic sanctions: how to sell its goods in rubles.  People will buy, Russia is too big a producer to ignore.  If Europe doesn’t want the growth which comes from using Russian gas and oil, well, China and others will be  happy to take it.

And once a second bloc is created, it will no longer be possible to pull stunts like breaking Iran with sanctions: the Chinese/Russian bloc will have a veto.

This is basically why Vladimir Putin is not Saddam Hussein. He holds far more cards in his hand than the autocrat of some small country that can be isolated militarily and economically. Much of this story is about long term economic trends such as the rise of China to become the world's second largest economy. The Chinese are not given to impulsive moves and their leaders do not operate with Putin's bravura style. However, it is clear that they are making a steady push to gain the power and influence that they feel their economic position entitles them to. Those gains will inevitably come at the expense of US global hegemony.

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Comment Preferences

  •  The IMF bankers (6+ / 0-)

    hates these deals, where oil trades for bartered goods or local currency credits.  It takes the transaction outside the foreign exchange markets, and artificially distorts commodity futures trading.

  •  This introduces some risk for Iran (3+ / 0-)
    Recommended by:
    GoGoGoEverton, Richard Lyon, FG

    Who I think would like to normalize its relationship with the West and has something to lose if discussions with Russia backfire.

    So I'm sure they will try to dangle a carrot to Obama through back channels offering an opportunity to strike a deal to spite Putin.

    After all, if the West really wants Iran to mothball the reactors built by Russians and drive a wedge between them, what is in offer?

    Sounds like an interesting scenario for negotiation.

    No one is coming to save us, the future is in our hands.

    by koNko on Tue Apr 29, 2014 at 09:10:18 AM PDT

  •  I would expect this sort of thing to happen. (0+ / 0-)

    And am not bothered by other countries working things out themselves.

    China is in an interesting spot, as while I'm sure they would love to unseat the United States as the primary economic figure in the world, they will create new rivals for themselves in the process by supporting Russia and Iran.

    While you dream of Utopia, we're here on Earth, getting things done.

    by GoGoGoEverton on Tue Apr 29, 2014 at 09:14:06 AM PDT

    •  China has no pretensions of rivaling the US (2+ / 0-)
      Recommended by:
      Richard Lyon, Involuntary Exile

      Economically or militarily.

      I realize this idea appeals to some popular sentiments in the West (and China), but the Chinese leadership does not see things that way, rather, striving to be a regional power then a global one, something US politicians including Obama consistently misread, even as they complain China is not "pulling it's weight" as a global leader.

      But if you actually listen to what Chinese have to say, and also do some simple math to estimate Chinese per capita income at the point Chinese GDP surpasses the US (which could but not certainly will happen within the next 20 years), you will begin to understand China has enough domestic problems to keep it busy for decades to come, and that is how Chinese tend to see it, some of our loud-mouthed Rightists notwithstanding.

      Perhaps this interview with Chinese Ambassador to the USA CUI Tian-kai, just as he assumed office, can provide a little flavor. Warning - he tends to be more soft spoken and articulate than Max Baucus.

      No one is coming to save us, the future is in our hands.

      by koNko on Tue Apr 29, 2014 at 10:02:39 AM PDT

      [ Parent ]

      •  They sure do have a lot of interests (2+ / 0-)
        Recommended by:
        Wolf10, koNko

        in Africa and South America for a 'regional' power, no?

        While you dream of Utopia, we're here on Earth, getting things done.

        by GoGoGoEverton on Tue Apr 29, 2014 at 10:08:25 AM PDT

        [ Parent ]

        •  All countries have interests (3+ / 0-)

          Even the most poor and powerless.

          When China trades with Brazil is it somehow challenging or threatening the United States, and in what way?  Or does it require Brazil to surrender sovereignty to China because goods, services or money changes hands? Is this a zero sum game?

          If China were building military bases in Brazil with arms pointed at the US I might understand your suggestion, but China has zero foreign military bases in the world while the US has well over 700 (or even 1000 by some counts) so we ought to consider a few facts to inform our opinions. And that fact informs my opinion when I say China has no military pretensions to compete with the USA as a global power; it is not remotely on our radar, contrary to some popular belief.

          I do suggest you read the interview I linked - I promise it won't harm you. Mr CUI actually tends to understate, if anything, but I think he does a good job elaborating China's intentions, so might I suggest you consider what a Chinese person has to say about that?

          No one is coming to save us, the future is in our hands.

          by koNko on Tue Apr 29, 2014 at 10:34:39 AM PDT

          [ Parent ]

          •  Slow down there, pahdna. (0+ / 0-)
            When China trades with Brazil is it somehow challenging or threatening the United States, and in what way.
            I never said nor implied that in either comment. You're not on Redstate, where any comment on a country that's not ours is followed by 'and we should probably bomb them.'
            And that fact informs my opinion when I say China has no military pretensions to compete with the USA as a global power; it is not remotely on our radar, contrary to some popular belief.
            Who said anything about militaries? The diary is about economics.

            While you dream of Utopia, we're here on Earth, getting things done.

            by GoGoGoEverton on Tue Apr 29, 2014 at 11:05:33 AM PDT

            [ Parent ]

            •  Then can you state your point clearly? (1+ / 0-)
              Recommended by:
              Richard Lyon

              What exactly was your point in mentioning that China trades beyond it's immediate neighbors?

              Verses, say, Switzerland, which does the same but has a higher export/GDP ratio? Does Neacafe make it a global power?

              No one is coming to save us, the future is in our hands.

              by koNko on Tue Apr 29, 2014 at 04:56:32 PM PDT

              [ Parent ]

  •  News the US can use: The Pahlavis aren't (6+ / 0-)

    getting back in power, get over it.

    Russia has already been a thorn in the side of the US and EU efforts to back Iran into a corner.

    That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

    by enhydra lutris on Tue Apr 29, 2014 at 09:53:44 AM PDT

  •  Surprise, surprise. (2+ / 0-)
    Recommended by:
    Richard Lyon, Lepanto

    I've been trying to disabuse the financially ignorant about the efficacy of sanctions for weeks. Russia now has two huge energy deals in the works, the one with Iran and the one with China. We are staring at the beginning of the end of the petrodollar. If Brazil and India join the party, the dollar will be toast as the world's reserve currency, and our economy with it. And whose fault will it be?

    Moral: Don't go poking a bear with a stick unless you intend to kill him with a very large gun. Here endeth the lesson.

  •  A Russia-Iran-China triangle (1+ / 0-)
    Recommended by:
    Richard Lyon

    especially in close association with Brics
    really could spell disaster for the US$'s hegemony...

    but we did get Vicky's Yats in, so I suppose that makes up for it

    We're shocked by a naked nipple, but not by naked aggression.

    by Lepanto on Tue Apr 29, 2014 at 03:19:34 PM PDT

  •  Russia and China have a veto regardless (0+ / 0-)

    Imposing sanctions on Russia changes nothing.  In any event even the three of them together are a relatively small "second bloc" that won't seriously challenge the regular global economy.  Yes, it will reduce the effectiveness of sanctions against Russia and Iran, making it easier for both to flaut international law.  However, Russia tried the alternate bloc strategy once before when it was considerably stronger.   It didn't work very well.  This certainly won't be unseating the US soon

    Still the concerns over this alignment shouldn't prevent the US from taking steps to keep nuclear weapons from Spreading in Iran or to block Russia's imperial ambitions. Sometimes we ought to simply do the right thing

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