Russia-China deal: Even energy pivots East
Patrick L Young is CEO of niche crowdfunding platform HanzaTrade and an advisor to fund managers throughout the world. Born in Ireland, he is an active investor in the “New Europe” amongst other emerging markets and is an active Co Founder of grassroots startup group "Mission ToRun." Home Page: http://patricklyoung.net Twitter: @FrontierFinance
Bubbles share a core attitude of mind: complete incapacity to recognize that the real world may not correspond to your immediate surroundings. Thus investors become absorbed by manias from tulip bulbs to the South Sea, the internet et al, and fail to realize that ‘asset’ values have fundamentally decoupled from reality.
Likewise the trappings of government, those lovely limousines, endless fawning staff and a general lack of exposure to, well, normal people as opposed to sycophants, challenges the ability to readily appreciate the real world. Thus from the gilded techno-splendor of Air Force One/Two, the US government ‘led’ (for want of a better term) by Messrs. Obama and Biden, have of course lost touch after a lengthy spell in Washington has erased their ability to see beyond the DC bubble.
Similarly, the Brussels EU bubble is an interesting place to spend a bit of time, but it’s no long-term substitute for real life.
In political bubbles groupthink prevails. Few folk on the greasy pole of advocacy demonstrate the strength of character to challenge that wondrous oxymoron ‘the prevailing wisdom’. The concentration of like-minded linear thinkers in the governing clique only exacerbates the turn towards remarkably one-sided ‘solutions’.
Increasing sanction threats heaped upon Russia demonstrate the clear failure of current Western governments to appreciate even basic economics. (Hardly surprising given their misguided bank bailout, funny money QE and euro folly). Moreover, it is not difficult to spot that the US and EU are a declining share of the world economy.
Globalization favors the brave, not the reactionary EU, which is regulating its way to being the next Argentina - a fashionable but faded apology for commercial success destroyed by government intervention. Nevertheless, the US remains an incredible powerhouse, the world’s biggest economic superpower by a long way, despite the failings of the Obama era. However, even the mega-power of the US economy is only 18 percent of the world economy - and China is rising fast at 15 percent, with huge momentum.
The tragic legacy of Obama is to have seen the USA flatline while China grew over 50 percent between 2008 and 2013. The EU declined in relative and absolute terms - quelle surprise! (Before the Warsaw Pact collapse invigorated the rise of the East, the US was almost a third of the world economy in 1985).
Magnificent success stories like South Korea are helping drive the world economy eastwards and now India has a reformist government focused on growth, its possibilities remain simply incredible under Narendra Modi. Few Eastern nations see the total solution to their future trade as lying with the US or EU - why limit yourself in a world with over 200 sovereign nations?
Meanwhile the Western world at best pays lip service to the concept of Asia rising, but remains in denial about the realpolitik of a much more multipolar 21st-century world.
Thus Gazprom has negotiated a deal which is equivalent to roughly 20 percent of its gas sales to Europe. At a single stroke it neatly rebalances the business and its risk to knee-jerk Western sanctions. The US might seek to replace Russia’s westerly flow, but the risk of seriously damaging the Russian economy has nevertheless been hugely diminished.
In total the deal is expected to encompass some 38 billion cubic meters of gas flowing through a new pipeline to China for 30 years with a price tag of $400 billion.
Price was a key negotiating issue: China wanted to drive a hard bargain with Russia exposed to Western sanctions while Gazprom knew China must reduce its dependency on coal to alleviate the often stifling smog in its major cities. Meanwhile, China’s smaller current gas suppliers in the region levy lower prices than Russia has traditionally received through its various agreements based on a template dealing with EU states.
Placed in perspective, while a massive deal it is only expected to be around 10 percent of Chinese demand by 2020 (according to Nomura). That means there is much more scope for Russia to increase its supply in due course. Russia’s pivot to the growing markets of the east is in full swing.
The West may yet rue the day it sent its politicians to address the crowds of the Maidan.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.