By Valery Kulikov, New Eastern Outlook, 8/24/22

The fact that the escalation of the Ukrainian conflict is happening not just with the direct suggestion of the United States and other NATO allies, but also with direct encouragement from Washington, is now openly spoken by many politicians and observers.

As Sergey Ryabkov, Deputy Foreign Minister of the Russian Federation, stated on the air of the Rossiya-1 TV channel on August 20, Russia is not at all trying to get the United States to take a direct part in the armed conflict in Ukraine, but so far all Washington’s actions are leading to just such a result. . According to him, Moscow seeks to avoid a situation in which the United States becomes a party to the conflict by counteracting the Russian special military operation to denazify Ukraine. “The United States disputes this, but the facts speak for themselves, no matter how much they deny or deny that they are not involved in any decisions on the use of weapons, this is all refuted by life, refuted by statements, including statements by the Ukrainian side, to which we pay attention,” S. Ryabkov emphasized.

The fact that the influence of the United States on official Kyiv has reached such proportions that Washington is increasingly becoming a party to the conflict in Ukraine was also pointed out on August 13 by the director of the North America Department of the Russian Foreign Ministry, Alexander Darchiev: “The degree of Washington’s influence on Kyiv exceeds all conceivable boundaries. In addition to large-scale military and financial assistance, as well as moral support for the Zelensky regime, the Americans are increasingly becoming a direct party to the conflict.” Darchiev noted that Ukrainian officials themselves are “blabbering” about this state of affairs. “In particular, General Vadim Skibitsky, Deputy Head of the Main Intelligence Directorate of the Ministry of Defense of Ukraine, recently stated that before striking HIMARS MLRS, the Ukrainian military consults with their curators from the United States,” he explained.

The German publication Merkur recently drew attention to NATO’s attempt to distance itself from the conflict in Ukraine, officially limiting the Alliance’s support to financial assistance and arms supplies. However, as the publication pointed out, although the Alliance and the United States are trying to emphasize that they are not direct parties to the conflict, a recent investigation showed that a network of Western special forces operates on Ukrainian territory not only from the United States, but also from other NATO countries, such as Britain, France, Canada and Lithuania. They are engaged in reconnaissance, preparation of weapons and training of Ukrainian soldiers.
A certain part of the intelligence is coordinated from Kyiv by the CIA officers, who are also present in some cities of Western Ukraine.

Air Force Magazine also speaks about the direct participation of the United States in the Ukrainian conflict , citing the words of the commander of the US Space Forces, General John Raymond, who admitted that American commercial satellites support the armed forces of Ukraine. In particular, they provide high-speed Internet access, allowing the troops to keep in touch with the command, and help expand Ukraine’s capabilities on the battlefield. 

Official representatives of the current Kyiv regime do not hesitate to talk about close coordination with Washington of their actions. Thus, on August 18, Ukrainian Defense Minister Oleksiy Reznikov announced that there was an agreement between Kyiv and the United States that American weapons would not be used to strike Russian territory, but “there are no such restrictions in Crimea, Donbass and other territories not controlled by Kyiv.” A definite confirmation of such concerted actions by the United States and Ukraine in the armed conflict with Russia can also be the refusal on August 9 of White House press secretary Karine Jean-Pierre to answer a question from media representatives about how the United States views the idea of ​​possible Kyiv strikes on Crimea using American weapons. .

The United States in Ukraine has clearly felt a taste for a proxy war: with their weapons, but with the wrong hands, they began to pump “square” mercenaries from different parts of the world, in particular Afghan mercenaries. And this was recently confirmed by the special representative of the President of the Russian Federation for Afghanistan, Zamir Kabulov, who pointed out that Afghan mercenaries appeared on the side of the Armed Forces of Ukraine in Ukraine. Basically, these are former Afghan army fighters who left the country after the Taliban came to power (representatives of the Afghan formation banned in the Russian Federation), who were trained by American instructors. As the Taliban approached Kabul, they were promised US citizenship, which they never received.

True, the United States now does not hide the fact that they can openly intervene in the Ukrainian conflict. This version of the development of events in Ukraine was reported, in particular, by John Mearsheimer, professor of political science at the University of Chicago, in his article “Playing with Fire in Ukraine” for the American edition of  Foreign Affairs . This, for example, can happen if the Russian army wins a major victory or if the conflict does not end within a year. And then Washington can bring in ground troops to help Ukraine. At the same time, the general conclusion from the publication is that the United States will directly intervene in the conflict in Ukraine in any case, with the exception of the defeat and surrender of Russia.

As stated by the Mexican newspaper El UniversalAmerican philosopher, historian and linguist Noam Chomsky, the United States, supporting Kyiv and building an anti-Russian coalition of Western countries, started an unthinkable game, trying to weaken Russia’s position in the political arena as much as possible. Chomsky is confident that Washington, intensifying the situation in the world to the limit, wants to take away from Moscow the opportunity to resolve the Ukrainian crisis through diplomacy. And such a decision, according to the American historian, NATO made during the summit at the Ramstein airbase in Germany and based on the declared position of the United States. Which, in fact, boils down to the fact that Moscow needs to be weakened more than the Treaty of Versailles in 1919 weakened Germany, to undermine Russia’s forces even more seriously – so that she could not negotiate, engage in diplomacy. At the same time, Noam Chomsky noted the injustice of such an attitude towards the Ukrainian conflict, pointing out how what is happening in Ukraine is presented in the media, recalling the American methods of imposing their own order in Iraq, Syria or Libya. As for Washington’s long-standing desire to draw Kyiv into the North Atlantic Alliance to the detriment of Russia’s interests, and despite Moscow’s constant protests and warnings from experienced American politicians, Chomsky called it an outright provocation.

Another prominent American politician, former congresswoman, Iraq War veteran Tulsi Gabbard, who replaced host Tucker Carlson on Fox News on August 11, said that the real goal of US President Joe Biden in the escalation of the Ukrainian crisis is to lead Russia to a coup. As T. Gabbard emphasized, the United States, under the leadership of Biden, is trying to escalate the situation in Russia, including through a proxy conflict, if economic pressure does not work.

On August 19, US President Joe Biden signed a memorandum on the allocation of a new $ 775 million military aid package to the Kiev regime. At the same time, US Secretary of State Anthony Blinken announced that the total amount of military assistance to Kiev provided by the United States since the outbreak of hostilities in Ukraine exceeded $ 10 billion In this regard, the Spanish publication  El Debato rightly noted that the increasing involvement of the United States in the events in Ukraine and the decisions they make in connection with the situation there can lead to the loss of billions of dollars by Washington, just as in the case of the withdrawal of American troops from Afghanistan.

Valery Kulikov, expert political scientist, specially for the New Eastern Outlook online magazine.

By Ben Aris, Intellinews, 8/24/22

We are looking at a very uncomfortable winter. The West has underestimated the size of the challenge that is fighting an economic war with Russia and the pain that he can inflict on our economies.

The amount of gas in Europe’s storage tanks is bang on average for this time of year and will reach the 80% full deadline on August 31 according to our calculations – a full month before the October 1 deadline the European Commission set at the start of the war. Yet gas prices are well over ten-times higher than normal.

Inflation in the UK just hit 10% for the first time in three decades and some banks are forecasting it will go as high as 18%. The rest of Europe is a hair’s breadth away from reaching double digits. The IFO index that measures confidence in Europe has plunged, as did the last European PMI manufacturing index which dropped like a stone to 44, S&P reported this week.

Germany says it is 6-8 weeks away from moving up to the last step on the EU energy crisis warning scale of “emergency” that will trigger rationing and energy surcharges in Germany are projected to be €1,000 per household. In the UK they could be an extraordinary GBP5,000.

As I have said earlier, now the kinetic war in Ukraine has slowed to a stalemate. The economic war with Russia is only just starting to get underway.

How is it possible to do this? There is plenty of gas in the system. Economies were bouncing back after the pandemic and both Russia and Ukraine are on course to have bumper harvests. Russia is going set an all-time new high for wheat this year of around 95mn tonnes, up some 15mn tonnes from normal. Ukraine of course will bring in less than normal thanks to the war, but it still has 20mn tonnes in silos from last year and will still bring in another 20mn tonnes from that that can be gathered. But it’s Russia’s key role in all these sectors, and more, that gives Putin the power to affect the prices so drastically. And that is his most powerful weapon.

Mind games

Putin is playing mind games with the West that are designed to drive up costs, inflation and speculation that wound the West at its most vulnerable point – in the pocket.

Gazprom just announced it will turn off Nord Stream 1 gas flows completely for three days at the end of this month and gas prices soared on the news to the point where Germany says they are approaching an “unsustainable” level when it will declare an emergency, even though there is sufficient gas in the system.

LNG prices are also close to “unsustainable” levels thanks to the EU’s mad scramble to fill the tanks ahead of winter where the cost becomes so high it makes more sense to turn half the economy off than pay as you lose less money.

Just over a year ago bne IntelliNews did a piece saying that Russia’s reliance on imported precision tools was its sanctions soft underbelly long before it became a thing, but now that machinery has been comprehensively sanctioned it has doomed Russia’s economy to stagnation. However, what is becoming increasingly apparent is that our financial system is our soft underbelly.

Our system is set up to run well in normal times. There is very little wiggle room built in as redundancy is not profitable. There is risk management and hedging of course, but these measures are designed to counter the regular swings and bumps of the economic cycle. But they are not designed to deal with the “black swan” events of really big and more likely than you’d expect tail end risks as Nassim Nicholas Taleb has so eloquently described. That includes Russian President Vladimir Putin losing the plot and starting a full scale war in Europe and then weaponizing every commodity he has got to inflict as much pain on us as we are trying to inflict on him with our “massive package” of sanctions.

Car parts are delivered just in time and the stock for the supermarket shelves is kept at an average needed to just make sure there is enough to meet demand during the regular Monday-Sunday cycle, with a bit more at Christmas. When we get into a crisis with really big swings this system rapidly breaks down.

For example, at the start of the war there was a run on flour and cooking oil here in Berlin and the shelves emptied. But the supermarkets said there was no shortage, it’s just their supply chain collapsed when the demand became abnormally high. Think of it as a “baking bank run”. Banks only keep enough cash on account to meet “normal” withdrawal demands and if everyone asks for their cash at once they collapse.

This set-up pervades most of our system: banks, cars, supermarkets. It’s even now spreading into our grocery consumption where we are being encouraged to forego the weekly shopping run to Sainsbury’s and order our food from a “hyperfast delivery service” that will arrive in 15 minutes.

It’s the essence of the “profit maximising” mentality that our market system is based on; the pursuit of “efficiency”, which is grounded in statistics based on when things are “normal.”

The same is going on with gas. The tanks were 77% full yesterday, smack in the middle of deliveries over the last five years. There is plenty of gas. There is no shortage. But that hasn’t stopped the prices jumping to over $3,000 per thousand cubic metres last week – twenty times the average rate. Why? It’s simply because demand is abnormally high, but changes to the way markets are run that introduced a lot of financial speculators that have never seen a barrel of oil or a bushel of wheat has also had a major effect.

 “The disconnect between perception and reality became apparent in 2006, when food prices began to rise despite increasing global supply. Excited by booming emerging markets, financial investors took advantage of the Commodity Futures Modernization Act (2000), which removed the Franklin D. Roosevelt–era regulations that had restricted outside speculation,” Rupert Russell the author of Price Wars: How the Commodities Markets Made Our Chaotic World said in a recent blog. “The sober markets of the 1980s and 1990s were dominated by the physical traders of commodities, be they farmers, food processors, oil refineries, or jet airlines, who bet according to their firsthand knowledge and not on the latest headline.”

But that demand is not from consumers of gas, but financial investors. The volume of money in the capital markets vastly exceeds the value of gas being traded or consumed so that is what is pushing prices up, not a shortage.

Famines are not caused by a shortage of food, at least not at first. They are caused by the cost of food rising above the level that poor people can afford and that is the fault of the financial speculators. And it has already happened.

Soaring food and fuel prices has already pushed 71mn of the world’s most vulnerable people into extreme poverty. High prices haven’t triggered another Arab Spring, but it has already caused protests in Argentina, Chile, Cyprus, Greece, Guinea, Ghana, Ecuador, Indonesia, Iran, Kenya, Lebanon, Palestine, Peru, Sudan, Tunisia and Albania. Sri Lanka is the most extreme case where an actual shortage of fuel led to the government being toppled and the president fleeing the country. In Africa half a dozen counties have already turned to the International Monetary Fund (IMF) for help as they can no longer afford to run their counties. In the US I keep reading that the coming recession makes Joe Biden unelectable in the next race and the Democrats will be hammered in the mid-terms this year.

The effect of financial speculation was clearly evident in the price of wheat futures in Chicago over the last few months. When the talk of a “global food crisis” started US retail investors ploughed $4.5bn into commodities in a single week. When the story changed to “global recession” in June they left just as abruptly. Prices of wheat have been on a rollercoaster ride until suddenly normality was restored by the Istanbul grain deal on July 22 when prices returned to earth and finally reflected the bumper harvest forecasts.

Putin’s war has not created a Malthusian nightmare of too little food and fuel for too many people. There was plenty of wheat available, but the threat of a shortage that was then amplified by the traders. Russian and Ukrainian exports are 30% of the traded grain but only 0.9% of total production. Moreover, this year is going to see a record crop for Russia (see the piece in our data section). It was the anticipation of a food crisis that drove up prices and as soon as the Istanbul deal was done the prices collapsed and are now below pre-war levels.

That is the problem: as soon Putin drives the mere expectation of things moving outside the bounds of “normal” then the speculators jump in and amplify those fears so the market swings radically off to one side. Too much rootless money is chasing these commodities and Putin’s ability to mess with supplies and distribution at the margin can screw with everyone’s head. It is his most powerful weapon against us.

Gas and wheat have been in the firing line so far, but Putin has the means to knock multiple markets out of kilter and introduce abnormal conditions. When the war started the London Metal Exchange (LME) had to shut down nickel trading for a week after prices skyrocketed to insane levels merely on the possibility that Nornickel would be sanctioned. (It wasn’t.)

Gazprom’s three-day shutdown of NS1 is part of this same mind game. It makes almost no difference to the amount of gas arriving in Europe that week, but it instantly pushed prices up 20-fold after the announcement. And Putin is already hinting at new games. Kazakhstan reported this week that its oil exports via the CPC pipeline have been slowed due to “technical” problems, which analysts have taken as a threat to President Kassym-Jomart Tokayev to behave and support Russia.

We have walloped the Russian economy with the tech sanctions, but Putin is walloping us back by simply knocking the markets out of the narrow “normal” band they are used to working in.

The counter is of course to return the markets to normal mode. How do you do that? Counterintuitive (and unpleasant) as it sounds, that means you need to trade with Russia and make things predictable again. That doesn’t mean you can’t sanction Russia, or reduce the amount of gas, oil or fertiliser you buy to squeeze the Russian budget. But it has to be done slowly and carefully to bring maximum effect. So far all the sanctions have managed to do is allow Russia to make more money than it has ever made before and the side effect is to enhance the power of Putin’s best weapons.

Again, counterintuitive as it sounds, doing things like banning all Russia’s oil exports to Europe in December and February will just make things worse as it makes the markets even more abnormal than they already are. It works as a sanctions strategy only if you can switch to an alternative source of oil at more or less the same price and without supply bottlenecks – which of course you can’t do. For something like gas there is no choice to resume normal trade but reduce it as much as you can and then take the time to build all those solar panels to replace it. Only then will our tech sanctions really start to work. And Russia can’t escape the stagnation those sanctions doom it to.

If we don’t do this we have to ask how long can the UK survive with inflation at 18%? How will the rest of Europe’s population react when their economies sink into stagflation and people start to lose their jobs or get pulled below the poverty lines thanks to unaffordable gas and grocery bills. We have to acknowledge Putin’s power to disrupt the markets and we are helpless to prevent that. If we do go down that road, then we need to put the European economies on a war footing and prepare the population for Battle of Britain type hardships.