Vladimir Putin's pointless conflict with Europe leaves it a vassal of China
Russian president Vladimir Putin has been obsessed with an imaginary threat from an ageing, pacifist Europe in slow decline, while throwing his country at the feet of a greater threat - China
8:34PM BST 06 Aug 2014
The world faces a moment of maximum danger in Ukraine. Vladimir Putin has perhaps 72 hours to decide whether to launch a full invasion of the Donbass, or accept defeat and let the Ukrainian military crush his proxy forces.
Nato officials say Russia has massed 20,000 troops in battle-readiness near the border, backed by Spetsnaz commandos, tanks and aircraft. Vehicles have been marked with peace-keeper labels already. Nato sees every sign that the Kremlin intends to disguise an attack as a "humanitarian mission".
This is more serious than the Russian invasion of Afghanistan in 1980. That was a "colonial war". The Soviet Union was a careful, status quo power in its final decades. It held captive nations but did not overrun new borders in Europe. Mr Putin is expansionist, and far less predictable. He is, in any case, captive to the chauvinist fever that he has so successfully stoked.
He has been clear from the outset that he will deploy any means necessary to bring Ukraine back into Russia's orbit. Only war can now achieve this, since all else has failed, and since he has turned a friendly Ukraine into an enemy by his actions. The awful implications of this are at last starting to hit the markets.
"People thought that Russia was just playing a game of brinkmanship,and that pragmatism would prevail in the end. There is real fear now that this will spin out of control. Nothing cannot be excluded at this point, even a cut-off in oil and gas," said Chris Weafer, from Macro Advisory in Moscow.
Mr Putin has failed equally to drive a wedge between America and Europe, or to paralyse the EU by playing off one country against another. Germany has not cut a special deal, though its 6,000 companies in Russia are on the frontline. It has gone beyond the EU measures, blocking a €100m export of combat training kit by Rheinmetall.
President Barack Obama's slow, methodical escalation suits the complicated chemistry of Europe, the region that will pay the economic price. There would have been a trans-Atlantic crisis if the hotheads in Washington had prevailed.
Mr Putin now faces draconian sanctions from the US, EU, Japan, Canada and Australia together. He can strike back by asymmetric means - perhaps a cyberattack - but tit-for-tat retaliation can achieve nothing. There is no equivalence. Russia's economy is no bigger than California's. This is an economic showdown between a $40 trillion power structure, and a $2 trillion producer of raw materials that has hollowed out its industrial core.
The new arsenal of sanctions refined by a cell at the US Treasury - already used with crisp effect against nine countries - is nothing like the blunt toolkit of the 1980s or 1990s. Nor can Russia retreat into Soviet autarky. It is locked into global finance. The International Energy Agency says Russia needs to invest $100bn a year for two decades just to stop its oil and gas output declining.
Russian companies and state bodies owe $610bn in foreign currencies. They must repay $84bn by the end of the year, and $10bn a month thereafter. There is no immediate crisis. Russian companies have $130bn of cash holdings. The central bank has promised to deploy its $470bn of foreign reserves as second line of defence. Russia can muddle through for a while, depending on the pace of capital flight. At best it is slow suffocation.
European officials calculate that Mr Putin will not dare to cut off energy supplies, since to do so would bring the Russian state to its knees within months. But even if he tried - as a shock tactic - it would not achieve much. Oil can be obtained anywhere.
Europe's gas inventories have risen to 81pc of capacity, up from 46pc in March. Britain is at 94pc. There is a sudden glut of liquefied natural gas in Asia that has caused prices to fall from more than $20 per million BTU earlier this year to $10.50. The LNG is being diverted to Europe, landing in Britain at just $6.50.
Japan has just given the go-ahead for two nuclear reactors to restart in October, with seven likely by the end of the year. Koreans are also firing up closed nuclear reactors. All this frees up LNG.
Whether this is fruit of a co-ordinated strategy, the net effect is that inventories and spare LNG could cover a Russian cut-off for a long time, probably through the winter with rationing. Areas of eastern Europe have no pipeline supply from the West, but "regas" ships could plug some gaps in an emergency. The gas weapon is not what it seems.
Pieties aside, the two countries are rivals in central Asia, where China is systematically building pipelines that break Russia's stranglehold. China has large territorial claims on Far Eastern Russia, land seized from the Qing Dynasty in the 19th century.
Even if Mr Putin's strategy of a Euro-Asia alliance with China succeeds, it will reduce Russia to a vassal state of China, a supplier of commodities with a development model that dooms it to backwardness. "It is a dangerous illusion. We are witnessing the funeral of Russia,” said Aleksandr Kokh, a former top Kremlin official.
Mr Putin is stuck in a Cold War timewarp, deaf to the shifts in world power. He has been obsessed with an imaginary threat from an ageing, pacifist Europe in slow decline, turning manageable differences into needless conflict.
Mr Putin has misjudged everything. He has decisive force only on the east Europe's battlefield. Ukraine is not a member of Nato, and has no Article V protection. The West has already stated that it will not deploy forces if it is invaded. Novorossiya is his for the taking. It is his last lethal card.