Below are a few different articles and sources regarding the BRICS Summit taking place from 8/22 to 8/24. – Natylie

BRICS summit aims to challenge Western hegemony

The BRICS summit will attempt to create a new play in the world order amongst the members of the Global South that can challenge the Western hegemony

By Ben Aris, Intellinews, 8/21/23

On the eve of the BRICS summit, which got underway in South Africa on Tuesday (August 22), Russian Foreign Minister Sergey Lavrov wrote in an article for the local magazine Ubuntu that the meeting would begin the process of expansion of the bloc in order to create “a just world”.

Many outsiders have scoffed at the idea of the BRICS bloc (Brazil, Russia, India, China and South Africa) becoming a potent political force in the world as its member countries have little in common, other than they are big and underdeveloped.

Jim O’Neill, the legendary Goldman Sachs analyst who coined the term in 2001, called the idea of a political bloc “ridiculous” in a recent interview with the Financial Times. BRIC as a political entity was founded in 2006 in an inaugural summit in Russia’s Yekaterinburg. O’Neill pointed out that his original criteria for being a “BRIC” included being a big country, have a big GDP and have a lot of people.

By this measure, he says that South Africa, which joined in 2010, should never have qualified, as it is dwarfed by its peers, but an expanded BRICS would make more sense if the Kingdom of Saudi Arabia (KSA) is included.

However, the one thing that does unite all the countries is they are developing fast and feel that the emerging world is under-represented in the global architecture, which remains dominated by the developed world, led by the United States.

In other words, they agree with Russian President Vladimir Putin’s complaints about the “unipolar” world run by Washington and want a “multipolar” world where they have their proper say in how the world is run, given the EMs now collectively are richer than the West (in PPP terms) and have more people.

The salient point here is that increasingly the EMs are not “emerging” anymore. Countries such as Russia and China have already emerged, albeit with a lot of work left to do before they can be called “mature”.

In this context, this BRICS summit is extremely important as its members are just starting to work on how they will cooperate to counter the West. And “counter” is what they are going to do as the West has made it clear it is not willing to “cooperate”; the West feels it’s entitled to rule the world rather than embrace the new world on equal terms.

Several things point to these rising tensions. US Secretary of State Antony Blinken’s first policy speech naming Russia a “threat” and China a “rival”. French President Emmanuel Macron’s attempt to mediate in Ukraine, by suggesting not that the European Union embrace East and West but emerge as a “third superpower” – in other words, the EU joins the US as a co-hegemon.

What Putin has been arguing for (rhetorically at least) is a truly global community of cooperation and mutually beneficial trade and investment that is governed by something like the UN. The political models are also very different, which is another source of tension. Russia and China have rejected the so-called Washington consensus, where individual freedoms lie as a foundation, and are pushing a Moscow consensus alternative which emphasises the state over the individual, among other things.

However, Putin is the only one that has crystallised this rivalry to the point where he was prepared to go to war with the West and break off relations completely. Putin assumes that he can build a future by doing business with the non-aligned countries of the world. And while there is plenty of business to be done in the Global South, he has also reduced Russia’s growth potential as a result of sanctions and many economists believe the Russian economy will stagnate in the long-term as a result.

Building blocs

The desire of the emerging Global South to have a seat at the world’s top table and Russia’s clash with the West have catalysed some frenetic global diplomacy as Western and Russian diplomats are travelling the world trying to shore up support.

China is playing a major role in promoting the BRICS, as bne IntelliNews reported. Although it is Russia that is in direct conflict with the West, China openly challenged the US role as leader of the world with a three-day trip to Moscow in March, when Beijing openly backed Russia in its conflict with the West. China also released a 12-point peace plan for Ukraine on the anniversary of the start of the war, seeking to position itself as an impartial mediator in the dispute.

Together with Russia, China is actively promoting the idea of a BRICS bloc that can be extended to a BRICS+ group that can stand up to the existing US-led Western hegemony.

Africa has become an important part of this way and is relevant in a way that it was never before, as bne IntelliNews described in a deep dive titled “Russia in Africa”.

The confrontational nature of what the BRICS summit is intended to achieve has also been highlighted by the fact that both France and the US, amongst other Western powers, applied for accreditation to attend the BRICS summit and were refused.

Against that South Africa bent over backwards to allow Putin to attend in person, but an International Criminal Court (ICC) warrant for his arrest for kidnapping children from Ukraine meant that Pretoria would have been forced to arrest him if he did attend. In the end, he will join by video link.

None of the other countries in the Global South are prepared to follow Russia into open conflict with the West and would prefer to maintain their good relations with the West. South African President Cyril Ramaphosa was explicit the day before the summit started, saying Pretoria “will not choose sides in a fractured world.”

The Global South agrees with Putin that the West needs to be challenged but at the same time they concede they are still behind the West on many counts, so they want to continue to cooperate. The upshot is at the BRICS summit the Global South members need to work out how they can better work together to improve their collective bargaining position in future negotiations, as well as to make the basic decision on what sort of organisation BRICS wants to be: a trade club or a political challenger to the existing world order.

It’s not for nothing that the main debate at the meeting will be on who else to let in and what are the criteria for admitting new members.

On August 21, Nelson Kgwete, a spokesman for the agency, told TASS that leaders from over 40 countries would take part in the BRICS summit from August 22-24 and a decision may be made to expand this club from its original five members. Some 23 countries have submitted official applications for joining BRICS, according to the South African foreign ministry.

Who gets in and what the criteria will be to judge applicants remains the main item on the summit’s agenda. There is currently no consensus on how to admit new members, nor even what sort of organisation they are trying to build.

The frontrunners for membership are Argentina, Saudi Arabia and Indonesia. Iran’s application is also making headway, Iran’s deputy foreign minister for economic diplomacy, Mehdi Safari, said on August 1.

Iran is suffering from the same pariah status as Russia and even if it doesn’t become a full member of the BRICS, Tehran will continue to actively expand its relations with the group which have already begun, Iranian Foreign Minister Hossein Amir Abdollahian said on August 8.

Algeria is currently doubling its efforts to join the BRICS group of emerging markets as the North African country’s President Abdelmadjid Tebboune pushed for the move during a four-day visit to China in July. Morocco formally submitted an application to join in August, and Brazilian President Luiz Inácio Lula da Silva has been championing membership for Venezuela, another victim of US sanctions.

Yaroslav Lisovolik, a well-known Russian analyst and founder of BRICS + Analytics, says that the inclusion of Indonesia and the KSA are the most compelling, as of all the candidate regions of the Global South, only the Middle East and Southeast Asia are not represented in the BRICS core group.

Ramaphosa said on the eve of the summit that his country supports the expansion of the alliance. “An expanded BRICS will represent a diverse group of countries with different political systems that share a common desire for a more balanced world order,” he said. According to Ramaphosa, “the value of BRICS goes beyond the interests of its current members.”

But Ramaphosa added a common caveat, saying that his country “will not be embroiled in rivalry between world powers”, and adding that South Africa remains committed to a policy of non-alignment.

While all the BRICS members are open to expanding the group, very basic questions on how to go about this remain unanswered. India and China, in particular, have very different visions of what the bloc should look like.

The key question is: should BRICS be a club that protects only the economic interests of developing countries, or should it become a real political force that openly challenges the West?

China, which has openly supported BRICS expansion, along with Russia, wants the bloc to be political and to challenge the West directly. India, like South Africa, prefers the first option of mutual respect and improved commerce, and will work to avoid conflict with the West. Brazil has real qualms about an expansion, arguing that adding too many members would dilute the power and authority of the group.

Amongst the ideas being discussed include strengthening economic cooperation through the New Development Bank (NDB), TASS sources reported: countries admitted to membership of the development bank will be able to participate in various formats of the BRICS group without formally joining the group. Another concept involves the direct acceptance of new countries as permanent members of the association based on sponsorship by existing members.

And even if the political model is not adopted, the economic argument is compelling in its own right. In 2023 the BRICS countries will provide a greater contribution to global economic growth than the G7 countries – 32.1% versus 29.9%, reports Bloomberg. According to forecasts, by 2040 the BRICS countries will account for half of world industrial production – twice as much as the G7 countries. The global centre of gravity is already moving inexorably eastwards.

BRICS currency

The process of building an alternative to the Western hegemony amongst the members of the Global South is right at the start and it will face many practical problems. None highlights the challenges better than the problem of setting up an alternative currency to the dollar for international trade.

Russia and China want to de-dollarise their economies and have already gone a long way towards switching their mutual trade to national currencies. But the BRICS members have called for a new “BRICS currency” to be introduced similar to the euro.

The idea is popular with many countries, particularly those that have found themselves under US sanctions. Russia and China are already settling increasing amounts of their mutual trade in their own currencies. And the Iranian government has backed the creation of a gold-backed currency to compete with the US dollar, IRNA reported on July 9.

One of the unintended consequences of the SWIFT sanctions that were imposed only days after Russia’s invasion of Ukraine in February is the rest of the world has been unsettled by the realisation that the US can arbitrarily freeze their international reserves as so many countries have invested these reserves in US treasury bills that were considered to be the safest investment in the world. That is no longer true, and while the dollar remains the dominate currency for settling international trade deals, its share in sovereign international reserves has already started to fall.

However, the issue of introducing a single currency is not on the agenda of the upcoming summit. As bne IntelliNews reported, introducing a BRICS currency still faces many major hurdles and won’t appear anytime soon. What will happen at the summit is that many BRICS+ countries will agree in principle to the more active use of national currencies in trade settlements among themselves.

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Putin’s BRICS Speech

https://youtu.be/SnK9rq-LUl4?si=frK9F9Ws0RurKzJt

Link here. Written transcript here.

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Putin’s Speech At The BRICS Business Forum Was Fair & Balanced

By Andrew Korybko, Substack, 8/23/23

President Putin delivered a fair and balanced speech at the BRICS Business Forum on Tuesday that can be read in full at the official Kremlin website here. It defied the Mainstream Media’s expectations by only mildly criticizing the West but not haranguing it, while some multipolar supporters might have been dissatisfied with his moderate vision of the alternative economic-financial system that BRICS is building, which avoided the hype that many have pushed. The present piece will elaborate on this and more.

The Russian leader’s criticisms of the West concerned its irresponsible fiscal policies during the pandemic, illegal sanctions, and other unilateral violations of “norms and rules that not so long ago seemed immutable.” As for his observations about the emerging order, he focused mostly on BRICS’ growing use of national currencies in intra-organizational trade and investments, its role in facilitating the Global South’s development, and Russia’s two new logistics corridors across Eurasia.

Before going any further, some clarifications are in order regarding the impressive statistics about BRICS that President Putin shared in his speech, which are republished below for the reader’s convenience:

“The figures speak for themselves. Over the last decade, mutual investments among the BRICS countries have increased six-fold. Their overall investments in global economy have doubled, and their total exports have reached 20 percent of the world exports.

As for Russia, the trade volume with our BRICS partners has increased by 40.5 percent, reaching a record of over 230 billion US dollars. In the first half of this year, it grew by 35.6 percent compared with the same period in 2022 and constituted 134.7 billion US dollars.

I would also like to point out that the share of the BRICS countries, with their population totaling more than three billion people, now accounts for nearly 26 percent of the global GDP; our five countries are ahead of the G7 in terms of purchasing power parity (the forecast for 2023 is 31.5 percent against 30 percent).

The objective and irreversible process of the de-dollarization of our economic ties is gaining pace. We are working to fine-tune effective mechanisms for mutual settlements and monetary and financial control. As a result, the share of US dollar in export and import operations within BRICS is declining: last year it stood at only 28.7 percent.”

All of this is true, but left unsaid is that it’s largely attributable to China’s outsized economic-financial role in each of the other four BRICS economies.

The six-fold increase in mutual investments among the BRICS countries and their doubling of global investments isn’t due to Brazil, Russia, India, or South Africa. Rather, it’s the direct result of China’s Belt & Road Initiative (BRI) investments in BRICS (except India) and the rest of the world in the decade since this series of global megaprojects was unveiled in 2013. The same can be said about de-dollarization, which is mostly driven by the growing use of the yuan in bilateral trade with China.  

To be sure, the ruble is also being used more frequently nowadays in the 18 months since the start of Russia’s special operation and the West’s imposition of sanctions, as is the rupee when it comes to India’s unprecedented imports of its decades-long strategic partner’s newly discounted energy. Nevertheless, this recent trend alone doesn’t suffice for explaining the impressive de-dollarization statistic that President Putin referenced in his speech.

The reader should also bear in mind that BRICS’ 20% share of global exports, more than three billion people, 26% of global GDP, and high purchasing power parity is largely due to China and to a lesser extent India, which is now the world’s fifth-largest economy and the fast-growing major one worldwide. If China was removed from these calculations, not to mention India as well, then BRICS’ statistics would be a lot less impressive.

These clarifications aren’t to suggest that BRICS is dominated by China nor that it’s doomed to fail in its noble goal of gradually reforming the global financial system, but simply to point out the leading role that the People’s Republic has thus far played in leading the aforesaid process. The other members and the rest of the Global South are eager to do more since they have a shared interest in equally shaping the emerging Multipolar World Order at this unique historical moment.

Unipolarity has indisputably ended after the West failed to coerce the Global South into complying with its demands to sanction Russia and arm Ukraine, but multipolarity has yet to fully form. It’s in the midst of this global systemic transition that BRICS is holding its 15^th summit, hence why many have such high expectations about this event, some of which are unrealistic and were clarified by Russian officials here and here. President Putin’s speech shed more light on how Russia envisages everything unfolding.

From the Kremlin’s perspective, it’s imperative to expand logistics cooperation with China and India via the Northern Sea Route and the North-South Transport Corridor (NSTC) respectively since these three Great Powers’ RIC format serves as the de facto core of BRICS. The latter initiative is especially significant since President Putin also foresees it “providing opportunities to increase cargo transportation between Eurasian and African countries.”

On that topic, the Russian leader also reaffirmed that his country will remain a reliable provider of agricultural products, fertilizer, and energy to Africa, with this of course being facilitated by the NSTC and future logistics projects on that continent itself. Altogether, President Putin’s approach to BRICS can be summarized as prioritizing logistics cooperation with the group’s RIC core, diversifying Russia’s commodities-driven role in Africa’s development, and supporting more de-dollarized South-South trade.

The last part is where BRICS as a whole can help the most if its other members begin scaling their multidimensional engagement with the Global South (primarily Africa) in parallel with giving these same countries a greater say in the emerging financial system by formalizing the group’s relations with them. India and Russia are leading efforts to gently diversify from BRICS’ present Sino-centricity in all respects while Russian geo-economic guru Yaroslav Lissovolik’s BRICS+ concept satisfies the second objective.

All told, President Putin’s fair and balanced speech at the BRICS Business Forum went a long way towards correcting the slew of false perceptions that many have of this group and Russia’s vision of its future. He essentially conceptualizes it as RIC+ in the sense that Russia, India, and China are coordinating their efforts to accelerate financial multipolarity processes with a view towards creating an inclusive South-South integration platform. It’ll take time to complete, but everything’s moving in the right direction.

By John Michael Greer, UnHerd, 8/14/23

Do you remember the Imperial Stormtroopers from the Star Wars movies, lurching around in their white plastic armour? When Obi-Wan Kenobi in the original movie said that no one else was as precise as Imperial Stormtroopers, he was clearly making a joke that Luke Skywalker was too wet behind the ears to catch. The one thing those movies make plain about Imperial Stormtroopers is that they couldn’t hit the broad side of a Death Star even if they were standing the length of one womp-rat away from it. Their job is to fill the air with blaster fire and miss. They do that job very effectively.

Anyone who knows anything about actual firefights involving professional soldiers will know that this isn’t what happens. (First-timers in combat, sure, but Stormtroopers are supposed to be competent.) In other words, Stormtroopers aren’t there to do anything useful. They’re there to provide the illusion of deadly peril so that the fake heroics of the protagonists look a little less unconvincing to movie audiences.

There’s a reason for this kind of absurdity, of course. Popular entertainment in Western industrial nations today is as thickly larded with moral posturing of this sort as anything Victorian parents inflicted on their children. In most popular genres, the basic premise is that the Good People always win, and the Bad People always lose.

That colossus of the modern imagination, J.R.R. Tolkien, has some responsibility for all this. In his programmatic essay “On Fairy-Stories”, he discussed one of the central plot schemes of fairy tales, which he called “eucatastrophe”: in plainer English, a sudden improbable turn for the better that saves the day when all is lost. As you’d expect from a devout conservative Christian like Tolkien, this theme is ultimately religious in nature — he described the resurrection of Jesus as the ultimate eucatastrophe — and it provided the frame for his two gargantuan fairy tales, The Hobbit and The Lord of the Rings.

To give him due credit, Tolkien went out of his way to make his eucatastrophes as plausible as he could. Most of the ninth-rate Tolkien imitators whose fetid output bathes the brains of today’s mass-media consumers stopped worrying about such petty concerns a long time ago. It doesn’t matter how much stronger and smarter and better armed the Bad People are; they have to lose because they’re the Bad People. Nor does it matter how idiotic the plan the Good People decide on, the Bad People are required to make the mistakes that will enable it to succeed. When the chips are down, you know that Harry Potter will always manage to drop the One Ring from his X-wing into the cooling port of Mount Doom.

This sort of silliness makes for dreary storytelling, but I’m convinced that it can also cause serious cognitive disabilities. Children who are raised on a steady diet of this kind of schlock are apt to end up thinking that this is how the world works. If they get out into the real world and bloody their noses a few times, they generally learn better, but if they live in a society that doesn’t let them fail, they may well reach adulthood without ever encountering that salutary lesson. Instead, they are seduced by Stormtrooper Syndrome: the conviction that no matter what, you’ll inevitably win because you think you’re morally superior to your enemies.

There’s no shortage of examples of Stormtrooper Syndrome these days, but I’m going to focus on the most important of the lot, the one that bids fair to transform the world’s political and economic landscape in the years immediately ahead. Yes, we need to talk about Ukraine. Now, this emphatically does not mean that we need to talk about who gets to claim the roles of Good People and Bad People. The unwelcome truth is that the outcome of this war does not depend on which side is morally better than the other. In the real world, in terms of military victory and defeat, who’s right and who’s wrong don’t matter once the cannon start to roar.

The roots of the Russo-Ukrainian war go back a very long time, but for present purposes we can begin in 2014 — when a coup overthrew Ukraine’s pro-Russian government and replaced it with a pro-Nato one. With the new regime in place, and following the Russian military incursion into eastern Ukraine, the US and its allies began funding a build-up that gave Ukraine the second-largest army in Europe. That army was armed and trained with an eye toward a massive shift in military affairs that was then underway.

In 2006, the Israelis launched one of their periodic incursions into Lebanon. To the surprise of many, the Hezbollah militia dealt the Israelis a bloody nose and forced them to withdraw with their main goals unachieved. The Israelis, like every other modern army at that time, used the tactics that had been pioneered by the Wehrmacht in 1939 and 1940, and perfected by Soviet and US militaries in the years immediately following: massive assaults by tanks and mobile infantry supported by air superiority, driving deep into enemy territory to get behind the defenders’ lines.

What Hezbollah demonstrated is that those tactics had passed their sell-by date. Having built a network of underground shelters and urban strongholds, they lay low while the Israeli vanguard moved past, then popped up and started clobbering Israeli units with sudden ambushes using state-of-the-art weapons. A decade later, the Ukrainian military imitated these tactics, building a massive network of defensive works just west of the Russian-held areas of the Donbas.

These defences were useful when the full-scale invasion came, denying Russia a swift victory and tying them into a gruelling stalemate. As strategies go, this was fairly good, but it had two serious weak points. The first was that it needed to be twinned with an economic sanctions package from the West that would succeed in breaking Russia’s domestic economy and forcing them to withdraw. The second was that it assumed the Russians would stick to pre-2006 military doctrine no matter how badly things went. That’s where Stormtrooper Syndrome first showed up. The decision-makers in Washington, Brussels, and Kyiv had convinced themselves that those weak points didn’t matter because the Ukrainians were the Good People and the Russians were the Bad People.

Then, last February, war broke out. At first, events seemed to play into the West’s hands. The Russians launched a classic Blitzkrieg operation, driving deep into Ukrainian territory, only to find that the Ukrainians fell back on prepared defences and urban strongholds. Some Russian units suffered embarrassing defeats; others found themselves overextended in hostile territory and retreated. Meanwhile, the US and the EU slapped sanctions on the Russian economy.

But that’s when the plan ran straight off the rails. The first difficulty was that most of the world’s nations didn’t cooperate with the sanctions. Some, such as Iran and China, that are hostile to the US saw the situation as an opportunity to extend a middle finger to their enemies. Others, such as India and Brazil that are non-aligned powers, saw the situation as a chance to demonstrate their independence. Still other nations wanted Russian oil and grain and weren’t willing to forgo them, so they acted in accordance with their interests rather than ours.

Yet there was another difficulty with the sanctions’ efficacy. Do you remember all those big corporations that loudly announced that they were leaving the Russian market? They couldn’t take their outlets and infrastructure with them, and so the Russians simply rebranded those and kept going. A soft-drink bottling company partially owned by Coca-Cola, for example, now produces something called Dobry-Cola in Russia. It tastes very similar to Coca-Cola, and it’s in a very slightly different red can. The crucial point is that the profits from sales of Dobry-Cola and similar products and services aren’t flowing out to stockholders in the US, they’re staying in Russia, where they’ve given a timely boost to the Russian economy. This presumably wasn’t what US and Nato elites had in mind.

But the worst news for Nato came from the battlefields. What happened there has an odd personal dimension for me. Some years ago I wrote an essay, “Asymmetric tactical shock: a first reconnaissance”, about what happens when an army becomes too dependent on complex technologies and its enemies figure out how to monkey-wrench those. The example I used came from the end of the Bronze Age, but the lesson applies more broadly: the monkey-wrenched army faces total disaster unless it does something most people these days can’t even conceive of doing. My essay circulated quietly among people interested in such things, and I have no reason to think that anybody in the Russian General Staff pays the least attention to obscure American fringe intellectuals like me. Yet the fact remains that when the Ukrainians monkey-wrenched the Russian version of Blitzkrieg, the Russians did exactly what I suggested an army in that situation should do: they fell back on an older form of warfare that wasn’t vulnerable to the monkey-wrenching tactics.

This is why the Russians abandoned their deep thrusts into Ukrainian territory, retreated from vulnerable areas around Kharkiv and Kherson, launched a mass-mobilisation of troops and a major expansion of their already large munitions industry, and got to work building entrenched defensive lines to guard the territory they had seized. Meanwhile, the Russian government strengthened ties with Iran and North Korea — two nations that have large munitions industries autonomous from Western technology and capital.

That is to say, since the new Ukrainian tactics made it impossible for the Russians to refight the Second World War, the Russians switched to First World War tactics. The defensive lines and urban strongholds on which the Ukrainians relied to defeat Russian tank columns didn’t provide anything like the same defence against massed Russian artillery bombardment. While the Russian Army was retooling for the new (or rather old) mode of war, mercenary units — Wagner PMC most famously, but there were others — took over the brunt of the fighting, tested out First World War tactics against entrenched Ukrainian forces in Bakhmut, and won.

This put Ukraine and its Nato backers into a very difficult position. In First World War-style combat, the winner is the side with the largest munitions industry and the biggest pool of recruits to draw on. Russia has a huge advantage on both counts. First, Nato countries no longer have a political consensus supporting mass military conscription, while Russia does. Second, while the US and its allies dismantled most of their munitions factories at the end of the Cold War, Russia did not, and it also has those good friends in Tehran and Pyongyang. All these give the Russians an edge the Nato nations can’t match in the near term.

This wasn’t a message that Nato was willing to hear. To a very real extent, it was a message they weren’t capable of hearing. It’s been 70 years — since the end of the Korean War — since the United States and its allies last fought a land war against a major power. The entire Nato officer corps got its training and experience in an era when they had overwhelming superiority over their enemies, and they have no idea how to fight without it. (Even then — Afghanistan comes to mind — they aren’t too good at winning.) That’s when Stormtrooper Syndrome really came into play, because it never occurred to Nato that Ukraine could lose — defined as they were as the war’s Good People.

And so the elites in Washington, Brussels, and Kyiv convinced themselves that the Russians couldn’t possibly ramp up their munitions industry to a pitch that would permit them to carry on trench warfare for years at a time. (Remember all those confident reports that insisted the Russians were about to run out of shells and rockets?) They told themselves that the Russians were using mercenaries because their army was too demoralised and brittle to stand up to the rigours of combat. They drew up plans for a grand Ukrainian offensive to turn the tide of the war, and funnelled more arms to Ukraine..

The counteroffensive began on 4 June. Two months on, it is clear that it has failed. A successful assault against fortified positions in modern war requires a three-to-one advantage in soldiers on that region of the battlefield, a large advantage in artillery, and air superiority. Ukraine has none of these things, and somehow or other no eucatastrophe showed up to save the day.

The Russo-Ukraine war isn’t over yet, and the fortunes of war may yet favour the Ukrainian side — though this looks very improbable just now. Meanwhile, history is not waiting around for the details to be settled. Towards the end of last month, the heads of state of 40 African nations gathered in St. Petersburg to sign agreements giving Russia a leading position in the economic and military affairs of the world’s second largest continent, while Russia’s defence minister was in North Korea negotiating further arms deals. It seems the Russians know better than to wait for miracles to save them from the consequences of their own actions.

None of this is to say that the mess in Ukraine is the only way that Stormtrooper Syndrome has shaped recent history; it’s just the most obvious example right now. It was because of Stormtrooper Syndrome, for instance, that so many people suffered nervous breakdowns when Donald Trump won the presidency in 2016, their reaction amounting to: “He’s a Bad Person, he’s not supposed to win!”. Afterwards, the same factor also kept them from wondering why so many disillusioned voters were willing to settle for Trump, of all people, as an alternative. Nor, to be fair, is Stormtrooper Syndrome in short supply on the Right, where shrill moral dualism is far more common than thoughtful discussion about how to deal constructively with the cascading crises overwhelming America today.

Really, it’s hard to name anything in contemporary Western life that hasn’t been twisted bizarrely out of shape by the efforts of our privileged classes to pretend to be the heroes of their own Star Wars sequels. Yet the lesson being whispered by the winds from Ukraine is that nobody and nothing else is required to play along. That lesson may end up costing a great many people bitterly in the not too distant future.

Link here.

By Ben Aris, Intellinews, 8/4/23

Everyone got very excited when the budget numbers for December and January came out and showed huge deficits. New oil sanctions came into effect in both those months and were hailed as a big success, reducing the Kremlin’s income and that this was what sanctions were supposed to do to help end the war soonest.

It hasn’t worked. Revenues did fall heavily in January as Western companies cancelled their Russian oil products orders ahead of the February 5 oil product sanctions. But federal budget revenues surged in June to post a surplus of RUB815bn ($8.6bn) that shaves a trillion rubles off the deficit year to date and puts the overall deficit back under the Ministry of Finance (MinFin) target of 2% of GDP. (chart)

As Chris Weafer and Christof Ruehl, two of the very best experts on Russian oil, told bne IntelliNews in an podcast on oil (worth watching again), the January results were a one off and they expected revenues to pick up again in the rest of the year. Russian Finance Minister Anton Siluanov has said the same thing and is sticking to his forecast for a modest 2% of GDP deficit at the end of the year.

The budget debate is all about numbers so let me give you a brief roundup of the main numbers you need to know.

A 2% of GDP deficit is equivalent to RUB2.9 trillion.

The government already blew past that in the middle of March when the federal budget deficit hit its full year target after the first ten days of March.

There was then a big debate at the end of the first quarter on what the end of year number would actually be with analysts predicting everything from RUB3.3 trillion (Alexander Isakov, head of Russia and CIS macroeconomics at Bloomberg) to RUB12 trillion (Kyiv School of Economics).

More recently Siluanov has become a little more pessimistic and said the deficit could be 2.5% of GDP, or RUB3.6 trillion.

Note that as Russia has some RUB6.8 trillion in the liquid part of the National Welfare Fund (NWF) it can afford to cover the deficit for at least two years just from its rainy-day fund, and that is before it taps the RUB17 trillion of liquidity in the banking sector or simply raises taxes. In an extreme it can also tap the international reserves of $580bn or print money, like the National Bank of Ukraine (NBU) has been doing.

These deficit numbers are all cumulative results, adding up each month’s budget receipts to get the total year to date deficit numbers. However, drilling into the month-on-month numbers a different picture begins to emerge.

The chart shows there was a big fall in January but in the subsequent months the monthly deficit rapidly began to contract (although April was an exception). By May the budget was back in profit, albeit with a tiny RUB13bn surplus for that month.

The big change is that in June the revenues jumped to RUB815bn.

Adding all that up, the budget deficit passed its full year target to top RUB3.3 trillion in May, but since then rising revenues have shaved about RUB1 trillion off the cumulative deficit, bring it back down to RUB2.5 trillion – ie it is now less than 2% of GDP.

And the June revenues of RUB815bn are very big. To put that into context, in good years with high oil prices the budget can make as much as RUB1 trillion in a month (and lose that much in bad months in bad years) but in 2021, the last “normal” year, the budget earned an average of RUB250bn a month and in 2022 the average monthly income was around RUB400bn a month.

So why did revenues jump in June? And will that continue?

The core of Weafer and Ruehl’s argument is that the sanctions did not stop Russia selling oil, just forced it to be sold somewhere else.

Pre-war most of Russia’s oil was sold in Europe. It takes about a week to sail a tanker from the Russian oil ports in the Gulf of Finland to Rotterdam in the Netherlands where the oil goes into the EU’s pipeline system. However, as you must know, now all Russia’s oil goes to Asia instead – mostly China and India. That journey takes about two months.

In January Russia’s oil distribution route was abruptly changed. Revenues stopped as there were no sales after tankers switched from Rotterdam to Asia and it took two months for them to get there before they could unload and get paid. Then they have to steam all the way home again – another two months – before they can pick up more oil and start the journey back.

But once this first cycle has been completed the constant conveyor belt of tankers in Russia’s “ghost fleet” making this round trip means that the oil exports will start to flow again like before. Individual tankers might take a lot longer to get to their destinations (and it costs more) but the overall flow of exported oil volumes becomes the same as before, provided there are enough tankers to carry it, which there are.

And that is exactly what the budget results show us. Revenues collapsed in January as all the tankers set off for Asia, but four months later, when the loop was established, suddenly oil revenues jumped up again as the new customers’ money came pouring in. Moreover, note that last week the discount on Urals to Brent shrank to its lowest level since the war started of about $10, still high compared to the $2 norm pre-war. That is because China and India are paying market rates, minus a bit more than usual for transport.

In other words, Russia has successfully switched its oil trade from Europe to Asia and it now has a smoothly functioning market that can’t be sanctioned and will earn very similar revenues to those it was earning before sanctions. And it did this in only four months – just like Siluanov predicted.

The bottom line is that the oil sanctions have not permanently reduced or capped the Kremlin’s income (other than reducing it a bit thanks to higher transport costs). All sanctions have done is introduce a massive distortion into the business.

What will happen to the budget over the rest of the year? Hard to say as a lot goes into this calculation and it depends heavily on what happens to the price of oil, but with the new OPEC voluntary production cuts prices are likely to stay at the current $85 per barrel and could even go higher.

If oil rises to $100, as the Kingdom of Saudi Arabia (KSA) wants, then the sanctions become more problematic for Russia. Another big hole in the regime is the fact that half of the oil export volumes are being carried by Greek tankers, an EU member, that can do this as technically the oil on board costs less than $60 a barrel and so is not sanctioned at all.

But there is a game to be played here as it depends on where you add in the cost of things like transport and services like insurance. Normally these are added at the start of the journey, where the sanctions cap price is assessed, but you can add them at the end too, where they are not part of the sanctions oil price cap price. As Russia now has its own fleet and insurance companies it can, and is, vigorously playing this game.

This is possible as the gap between the cost of a barrel and the cost of a barrel plus services is still narrow. If the price cap were reduced to say $35, as many have called for, that would create a new headache for the Kremlin, but it is clear that the West is extremely reluctant to strictly enforce the oil price cap sanctions as it fears a self-defeating spike in oil prices more than it wants to punish Russia.

Last thing to say is that June’s RUB815bn of revenues is high as it is due to the first revolution of the new oil transport loop. However, if revenues fall back to the 2022 average of RUB400bn per month Russia will have no deficit at all and even the 2021 level of RUB250bn per month means a deficit on the order of 1% of GDP. At this point it’s looking more likely that the Siluanov will manage to hold the deficit to 2% in total than not, and that the Kremlin will have all the money it wants to spend on the war. The oil sanctions have not worked.

John McCain rolls over in his grave.

RT.com, 8/4/23

Russia was among the world’s five largest economies and the largest in Europe in terms of purchasing power parity (PPP) as of the end of 2022, despite Western sanctions, the latest World Economics report has revealed.

According to estimates based on official country data published by the World Bank and the IMF, Russia’s gross domestic product was $5.51 trillion in PPP terms at the end of last year. The figure is 38% larger than the official estimate of $3.993 trillion, the report noted.

It also showed that the Russian economy was ahead of Germany’s when measured in purchasing-power parity, with the latter’s GDP at $5 trillion.

China topped the list as the world’s biggest economy ($31 trillion), followed by the US, India, and Japan. The top 10 also included Indonesia, Brazil, and Türkiye.

The IMF and World Bank both recently raised their forecasts for the Russian economy, saying GDP would continue to grow despite sanctions, underpinned by strong trade and industrial production, as well as higher-than-expected energy revenues.

According to the World Bank, Russia’s growth is expected to turn positive in 2024, but will remain modest at 1.2%.

The Russian government has maintained a positive outlook for the economy. Prime Minister Mikhail Mishustin has predicted that, by 2024, the Russian economy will be able to overtake developed countries in terms of growth.

Note: the folks over at Russia Matters have taken issue with the main claim in this article. See here.