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