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19 May, 2014 06:05

US uses mercenaries to carry out covert operations in Ukraine – investment specialist Jack Worthington

The drama in Ukraine is far from the finale – as the country stands on the brink of civil war, Russia and the West are stirring up the rhetoric. But while politicians blame each other, money still plays a key role in worldly affairs. What will the Ukrainian crisis mean for the world’s finances? Won’t the US-proposed sanctions be the last straw for the already weakened world economy? To find this out, Sophie is joined by investment banker and financial advisor Jack Worthington on SophieCo.

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Sophie Shevardnadze:Jack Worthington is with us, investment banker and financial advisor. Welcome to the program, great to have you today. I’m going to start from the latest: the White House is preparing a new round of sanctions against Russia. Now, Moscow says those already imposed are having very little effect. Do you think the US is failing in isolating Russia?

Jack Worthington: I think that they are failing in isolating Russia because not many people are going to go along with these types of sanctions: the Europeans have too much to lose. Too high stakes for Europe, they’ve got their own internal red line that I believe they’ve drawn. I don’t think they are prepared to cross it, I believe it poses an existential threat to the eurozone – so the US doesn’t have much skin in this game, therefore they are going to be more bellicose and more militaristic in these sanctions.

SS:But still, all these talks of sanctions are kind of scaring people away – how much do you believe Russia’s economy will suffer from all the turmoil? Will investments grind to a halt?

JW: Oh, I don’t think so, not in my experience, not given my experience working all over the world since 1997. I don’t think these sanctions are going to have much effect, especially when Russia has the friends that they do. I think they’ve got this gas contract coming up with China, they are very close with China. I don’t believe it’s going to negatively impact in a significant way. Again, I don’t believe Europe is going to follow the US in these sanctions for certain key reasons. They are going to have their own internal red line on the turf, and I don’t think they are going to cross it.

SS:But do you think that it’s only Europe that could suffer economically from isolating Russia? What kind of damage might isolating Russia cost to the US economy, if any?

JW: Well I think this: I think that the US runs the risk of alienating China. You’ve got to consider the broader picture: who are Russia’s friends? The US, through some of its activities over the past decade, has isolated itself, and this does not add to the US at all; this is something that negatively affects the US into the future. I think it’s a foolish move for the US to pursue this line of aggression towards Russia. I think it’s going to backfire, that’s my own personal opinion.

SS:Now, you’ve written in your blog that the US and the EU are morally obliged to financially support Ukraine if unrest continues in the east. Now should that include direct support of Kiev’s military operations in the east?

JW: No, no. I was talking about long-term. I’m saying that I believe that this was basically a US-orchestrated attempt to destabilize Vladimir Putin personally, by organizing this coup, by orchestrating this thing. You’ve got a moral obligation to stay involved, and again, after the chaos, after everything, after the dust settles, you’ve got to be in there, and, I think, clearly, you’ve got to be financially supporting the new regime, whatever it may be. You’ve got a vested interest now in supporting a successful Ukraine, and that’s going to be very difficult given the previous experience that country has had, as we know, especially, if it’s a divided country. And you’re talking only about the west. The west have the less economically prosperous part of Ukraine; if that is the remnant that they are going to have to support, I think it’s going to be exceedingly difficult, and I believe that is at the heart of some of this bellicose rhetoric we hear coming out from US and Germany.

SS: I don’t know if you’ve heard, but there are reports from German press recently of mercenaries from the company formerly known as Blackwater in Ukraine – what is it? A result of Western investment? What do you think?

JW: Well, no, I’ve heard that rumor as well. I think that’s a likely scenario – I mean it’s not something that we know for certain, but that’s its intent – this is a secret kind of covert operation, the US has used these kinds of tactics in other areas of the world, so it makes no surprise that they are doing this in Ukraine.

SS:You know, all journalists that are right now in eastern Ukraine, whether they are Western journalists or Russian journalists say the same thing, that the situation has and is getting out of hand. Suppose eastern Ukraine breaks away – what kind of reactions should be expected from the US and the EU?

JW: Again, I think you need to follow the money here. In my perspective you need to follow the money, and the EU. Germany in particular has its hands full with the failing economies of southern Europe. The eurozone is still at risk, so if you bring in a failing Ukraine, let’s say you bring western Ukraine, the remnant of this country is the western side of Ukraine, you’re talking about a perpetually failed state that you’re going to support financially ad infinitum. So again, I think it’s important to follow the money. You know, this is not turning out the way, I think, the US intended it to, and people are trying to put humpy-dumpy back again the best way that we can – I think it’s a monetary issue, I think Germany doesn’t want another Greece on its hands.

SS:You said a month ago that the US created this problem in Ukraine and needs to stop it – do you still believe there is a way to stop it? Could the US ever really have stopped it, actually?

JW: Well, I think we are talking about egos at this point. I think we’re talking about issues other than practical – issues that are difficult to resolve. I think Russia has made some good proposals. I think the idea of a neutral Ukraine, one that’s not aligned with NATO, where it is politically balanced – I think that makes a lot of sense for both Russia and the US. I think the US ought to understand that. I believe that if a similar situation happened on the US borders – let’s say, Mexico, for example – I don’t think that the US would sit back and take it lightly if there was a hostile enemy on their border. I think Americans should understand that, and I think they do, so I do see a way out of this crisis, but it’s going to take clear heads.

SS: I want to talk a little bit about how the Western press is actually portraying the events in eastern Ukraine, for example a massacre in the Trade Unions building in Odessa, where dozens of people were just burned to death, hasn’t really drawn much condemnation from the West. Why is that? I mean, I’m just thinking if the same thing would have happened in Kiev, that would have been all over the news…

JW: Absolutely. I think it’s a tragedy. I think we’re dealing with a propaganda war as well. So, you’re talking about the covert war with Academy, or Blackwater, whoever, and I do believe that there is a significant propaganda war that’s going on right now. Clearly, absolutely, I see it. I have to review the press from a dozen countries every day to get a true indication of what is going on in our world, and I’m disappointed, and I think propaganda, as we see, backfires eventually, I think the citizens of the former Soviet Union would understand that concept: when the propaganda you are getting from the mainstream media doesn’t...with the reality, which you see on the street, then I think it backfires eventually, and it is disappointing, Sophie.

SS: I want to talk about something else that’s been in the news for the past few days. I don’t know if you heard that, but the US vice president’s son, Hunter Biden, has been appointed a leading position in a Ukrainian gas company – I mean talking about following the money, is that a coincidence?

JW: This is the way it works. I hate to be so cynical, but what is our vice president’s son doing involved with such a high-profile gas situation in Ukraine, given the situation with Germany – some of those issues Germany is dealing with, Gazprom, et cetera – I think it’s bad idea, it’s unfortunate, but it happens.

SS:But, in general, is it big business or the politicians that hold sway over American policy on Ukraine?

JW: You know, typically, we’ve been a more moderate country, in my opinion, that we are today. You know, that’s one of the problems that we’re seeing playing out in Ukraine right now. In the US we don’t have that many economic ties with Russia, so we don’t have the breaks on war, like, let’s say, Germany would – you know, Germany is much more divided on this issue, I think the public opinion in Germany is pretty much evenly split, 50/50, Russia foe or friend. They are the breaks, they are the de-facto breaks on this, let’s call it, military activity – you can’t call it anything else. The US doesn’t have those same kind of breaks, so unfortunately, I think, economic integration between the US and Russia in the future is very important. I believe that trade and globalization are important for that key issue.

SS:Just from the latest news about Visa and MasterCard, it’s on the news today that actually, by the research conducted by Morgan Stanley, it would cost Visa and MasterCard more to stay in Russia than to leave Russia. Now, I know that they are partially implicated in some of the sanctions that are already put in place against some banks in Russia. What do you think, do you think Visa and MasterCard will fight their way to stay in Russia or they will just give up?

JW: Look, as far as Visa and MasterCard leaving Russia permanently, on a permanent basis, because of this temporary political situation – I can give you my perspective, as being involved in corporate strategic planning…at the corporate level we don’t really think that way, we think longer term about the markets that we enter. I mean, we’ve entered some of the world’s most volatile markets in my past, and we don’t think about temporary dips and swings in politics and sanctions and issues like this, so I don’t believe that any organization that has a long-term intention, a strategic intent to be in Russia will make a long term decision based upon what I believe is a temporary setback.

SS:Now, the IMF has reported zero growth in Ukraine’s GDP for the last 20 years – now, surely, the crisis was investable. Aren’t you overestimating Washington’s influence?

JW: Overestimating Washington’s influence in…?

SS:In the whole Ukrainian turmoil.

JW: ...In creating the economic...?

SS:Yeah, yeah.

JW: No, I don’t believe, considering the economic situation, I don’t believe that that was their primary intent, I believe that when they went in Ukraine, it was politically motivated. I don’t think they were considering the long-term ramifications, and I certainly don’t think that they anticipated the industrially productive east breaking up the way that it has – it seems to me like there was a fundamental lack of understanding about the basic nature of Ukraine, how you have the West and the East that are profoundly different, it’s a very divided nation. To me this was an investable outcome of that kind of event, for that kind of activity. But, I believe it was more politically motivated than financially, to begin with.

SS:You have lived in Ukraine, you’ve worked in Kiev, you’re familiar with the system – how do you think its economy can be saved at this point?

JW: I think its economy can be saved by having a unified Ukraine. You know, one issue, Sophie, that I take issue with, is the characterization of the people in eastern Ukraine as always being pro-Russian, okay? They are always characterized as being pro-Russian, but that’s not necessarily the case. These people are favorable to Russia, but it doesn’t mean that they are pro-Russian. I think they are favorable to the united Ukraine. I believe that the best way out for Ukraine at this stage is to have a united Ukraine, where you have the industrially productive east and the agriculturally productive west, combined in one entity, moving forward. I think that’s in the best interests of Russia, I think it is best interests of the US, so I do see a way out, absolutely, it makes all the sense in the world.

SS: Well, the problem is, the Ukrainian government is saying that they are going to stop subsidies for the country’s industrial production. See? What are they hoping for? Are they hoping for investors?

JW: They are hoping for a US bailout ad infinitum, for their perpetually failed state. I mean, we do know that the western half of Ukraine is an economically destitute region, we do know that, and I’m sure they are looking for the long-term US-government support, if not European support. It’s a long-term problem, I mean the division of Ukraine is a long-term problem for the EU and the US, and the EU is in no position right now, given the state of the eurozone, it’s in no position to take on that responsibility, and frankly, neither is the US, and I think, if you follow the money – I think that’s at the heart of this issue, and the solution in my viewpoint is to have a united Ukraine, as Russia has proposed.

SS:But do you think an American bailout is a tangible realistic option?

JW: Well they are doing some of that right now – I believe they’ve committed a billion, there’s been certain money already flowing to this new putsch government in Kiev, so I do believe they are going to do it again, I believe that they’re morally obligated to do so.

SS:Let’s talk about the IMF a little bit, which a lot of people actually associate with the West and America as well – if Ukraine is to accept an IMF financial recovery plan, it would mean severe cuts across the board. Was the revolution worth that?

JW: Yes. Yes, I mean that’s a cocktail for political and social instability – that is a dangerous cocktail. You know, I think if we could roll back the clock and go back to the initial proposals of Russia, I think those would have worked for the Ukrainian people. At this stage we do know, I mean, I was in the Asian economic crisis, I was deeply involved in that, as it was unfolding, and through it. And these IMF austerity plans are severe, right? Nobody gets a free lunch, and I can see what’s coming for Ukraine, it’s not pleasant, there would be further political instability and social instability. It’s not an easy solution.

SS:So you’re saying that these new measures could bring out new Maidan?

JW: Absolutely, that’s what I see coming in the future. Again, I don’t think the US intended this. I don’t think that when they originally went in, I think it was a political decision, I don’t think they’ve considered all the ramifications of their actions, I don’t think they understood the country of Ukraine, or the outcome, I don’t think they understood that.

SS:Now, another thing you’ve said is that increasing US-Russia ties could help with this standoff over Ukraine. But, seeing how the economic ties between the two countries have been weak to begin with, is it really possible to just increase economic ties because of politics? I mean, could politics really push economies to work together?

JW: It’s a long-term process, you know. We don’t share a border with Russia, I mean it’s easy - Europe, Germany in particular has long-term cultural ties with Russia. I don’t think a lot of Americans know that even at the height of the Cold War, the tensest moments of the Cold War, Russia was supplying energy products to Germany. They are always a reliable supplier. We don’t have this long term context, but I do believe that these types of contacts, not only are they financially beneficial for both countries, but they also are the breaks on the military activity, bellicose actions, confrontation – so I think trade, globalization, plays a great role in world peace and stability.

SS:Now, the relations between America and Russia at this point are pretty bad – how much more damage can those relations take right now?

JW: I think this: how do I say it? I believe it, that we’ve still got a lot of old “Cold Warriors” within the governments of both Russia and the US, Western Europe, and these are people who’ve built their careers, their core competencies are all built around, careers centered around, for example in America, centered around understanding the foe, the Soviet Union, and these people are just like you and I - they need to feed their families, and one of the key things that we know about the consulting business or being an employee, is that you identify the problem, or, more cynically, you create a problem, that you are the solution for. So, you’ve got a lot of these undercurrents, I believe in, let’s call it a deep state, in the US – eventually, they’ll move on, they’ll retire, they’ll die off, whatever…We’ll get the same in Russia, we’ll get the same in Western Europe, and we just move forward. I believe it’s a longer term process. The fall of the Berlin Wall was a discreet event – but the act of actually coming together as nations is a longer term process.

SS:Now, you keep bringing Germany up all along, and how Germany has closer ties with Russia and it has lot to lose – you also said that you were shocked that the German government “took the US bait” and allowed this situation in Ukraine to go this far…But what was the bait exactly?

JW: Well, we don’t know that, we don’t know precisely what that bait is, Sophie. We don’t see everything. There’s been some type of arm twisting that has gotten this far to the table, this close to their red line. I don’t quite understand what that is, but I do believe and I think that there is that red line, okay, that they’ve had drawn internally in the sand. America knows that they’ve got that red line; this is not a red line drawn by Russia, this is a red line drawn by the EU, by Germany in particular, that they won’t cross. And, as they get closer to this red line, they are going to up the rhetoric, it’s going to get louder and louder until, you know, they can go no further.

SS:So you think they haven’t reached the red line yet, you think there could be tougher sanctions from the EU towards Russia at this point, or not?

JW: Level three sanctions, I think, are that red line. I don’t think that the Europeans are willing to go across that red line, because you’ve got too much at stake. My goodness, I think that, if you fear that Russia’s going to cut you off from gas, you’ve got to go back in history and understand that Russia, even at the height of the Cold War, even at the very height, at most tense moments of the Cold War, was always a reliable supplier to Germany, so you can eliminate that for your fear, and if you are Germany and these ideas are floating around about re-diversifying your gas supplies, if you’re doing it in a punitive way towards Russia, then you’re basically shooting yourself in the foot, because you’ve got to re-source that gas, you’ve got to go, let’s say, to Qataris, get them to ship LNG to Rotterdam, you’ve got to re-gas, you’ve got to store, you’ve got to transport through pipes...I guarantee, the deliver price of that gas to Germany is going to be a heck of a lot higher than US$400 for a thousand cubic meters, that they get from Russia.

SS:So you’re saying American influence over Europe stops at level three sanctions? Am I right?

JW: I believe so, yes, absolutely, because it threatens the viability of the eurozone, Sophie. Anything that threats the German economy, threatens the ability of Germans to be lender of last resort, and the eurozone still has fundamental problems. There are problems coming ahead for the eurozone, and Germany needs to be able to step to play as a glue to keep it together.

SS: You know, Jack, then there are also the BRICS nations that demonstrated support of Russia. For example, China above all is calling for enhanced relations with Moscow – is that something that the West should be worried about?

JW: Absolutely. Not worried about, but aware of. Now, Sophie, in the Western mainstream media, we didn’t receive that information; I thought that was profoundly important information, after Sergey Lavrov’s visit in Beijing, the declaration…I mean, I had to find this on a Chinese media news site – these highly positive statements, both for Russia, the Russian-Chinese relationship and the mutual relationship between the leaders of Russia and China. I think it's profoundly important information, I believe the US is isolating itself from the economic future of the world, the BRICS. Which BRIC relationship do we have a good, solid, ongoing relationship with right now? None! Brazil? No. Russia? No! India? No. China? No – so I think we’re backing ourselves into a dangerous corner; we’re isolating ourselves from the future, the acknowledged economic future of the world. That’s one reason that...have come out so strongly at this point.

SS:Alright, Jack, thank you very much for this great interview. It’s been great talking to you. We were talking to Jack Worthington, prominent US financial advisor – talking about what’s in store for Ukraine and who would the sanctions benefit or not? This is it for this edition of SophieCo, we will see you next time.