Reparation loan discussions continue…unsuccessfully
Ukraine, backed by the potentially seized assets of Russia that are currently blocked in Euroclear. The last time I wrote on geopolitics here, I noted that, whenever faced with a choice to pressure Russia or not…the EU always took the wrong road.
Now it’s the turn of the ECB to block things.
It seems that nothing has changed in the Berlaymont. The latest plan was to use Euros 140 bn in blocked funds at Euroclear to back a loan to Ukraine for the latter to buy American arms – something for everyone it seemed (except Russia, which would face a strengthened Ukraine bolstered by Euros 140 bn of US weaponry). There are of course ways to advance this cause: more countries could join in, or more institutions other than Euroclear could join the process. But it seems that the participants in the Euroclear approach want to use their numbers and the volume of loans to show that Europe is united behind Ukraine.
However, in my view this is exactly what this approach does not show. It seems clear to me that Ukraine must win its war to defeat the Russian invasion, to fail in that endeavour would leave Europe demoralized and defeated – not something we as European citizens want.
Still a possibility…but only a possibility
I see that there are suggestions – I hesitate to call them proposals as that would give them too much weight – that further institutions could be brought into the structure over time, that the equivalent of a “bad bank” might get created to hold the assets, that a freeze was more effective than a seizure because the former allowed for the possibility of the offending nation being allowed to return to the market once it had returned to the fold, an asset seizure seemed more final, the bad bank option could also mean that Belgium, nervous about being on the financial front line, was not necessarily on the hook for any adverse consequences as the assets could be held elsewhere.
Quite the opposite from what was expected and far from other institutions joining the team seeking a way to fund Ukraine and utilize the Russian funds, it now seems that the European Central Bank has refused to step in and backstop the deal, saying that it is outside their mandate.
No change on the frozen funds front
So far, there is little change on the frozen funds issue. Europe simply cannot get its act together to challenge Russia – legal concerns were no impediment to Russia illegally invading Ukraine – but they absolutely are proving to be barriers to fighting Russia through funding Ukraine from the blocked funds.
One has to wonder when history is written how the concerns of some bureaucrats overrode the concept of “a Europe whole and free”.
The earlier Alaska summit was a failure, a history lecture from Putin failed to land well
The Trump-Putin Alaska summit was, for want of a clear description, a failure. In October Putin and Trump met in Alaska with Trump clearly expecting to sign a deal. Instead Putin turned Trump down and instead gave the US president a history lesson (at least one seen from the Russian side). The summit ended in what I would call “disagreement and disappointment” and while there were plans to hold a follow-up summit in Budapest, that meeting has never materialised, with Trump noting that Russia’s maximalist demands were behind the failure. Russia still wants parts of Ukraine that it does not control, limits on the size of Ukraine’s armed forces, no NATO membership ever etc, all of which Ukraine opposes and will not accede to.
There also appears to have been some disagreement within the US side, with talk of Putin being more flexible on territorial issues. That was a misconception it seemed, with less senior people on both sides being more flexible – none of them the principals. Certainly, Trump has stayed conspicuously silent on putting sanctions on Russia saying that it would adversely affect the relationship with Russia (which must be under a degree of strain given the ongoing war – if the relationship with Russia exists at all.) In that vein Russian foreign minister Sergei Lavrov has been consistently hardline on these issues…but lately seems to have disappeared from sight in the last few weeks, with suggestions that he has fallen out of favour with Putin.
Yet another “new peace plan”…
A new peace plan (the “28 point plan”) did emerge in late November from a meeting of US and Russian officials, although the initial readout suggested that it heavily favoured Russia rather than Ukraine. Predictably the Russian side – and some on the US side – were big supporters of it.
It involved significant Ukrainian concessions, including ceding the industrialised eastern Donbas region to Russia (despite Russia not occupying a lot of the territory that it would be gifted) as well as strict limits on the size of Ukraine’s armed forces, effectively cutting them in half, no membership of NATO for Ukraine, Ukraine abandoning the use of particular weaponry and the ending of US military assistance to Ukraine. That, many observers noted, seemed to be a plan written by the Kremlin and would involve a “capitulation” by Ukraine.
…too one-sided to be realistic
Understandably President Zelenskyy has been unhappy about the proposal – and the pressure put on him to accept it – noting that it involved either a loss of dignity for Ukraine or a loss of US support for the country. Zelenskyy also noted that, while he felt Ukraine should engage with the plan, it was hard to support too many elements of it. In reality the plan had been drafted by aides to President Trump and President Putin with little or no Ukrainian involvement or approval. Unalloyed Ukrainian approval was therefore unlikely to be forthcoming.
Washington’s position in the immediate aftermath of the release of the plan was unclear. President Trump said that it was not America’s final offer, Marco Rubio went backwards and forward on the US position while Trump continued to blame Ukraine (for being invaded by Russia we can only assume) – although one absolutely correct comment by Trump was that European countries continue to buy oil from Russia.
The “28 point plan” became a 19 point plan in short order but left the most contentious issues to be finalized between the presidents (good luck with that is all I could say). The next step seems to be that the revised proposals will be briefed to Moscow and Kiev and then taken to the Russian side, which will be the acid test. I still get the sense that President Putin has not stepped away from his maximalist approach to the conflict and that this will not happen for some time while he still believed that he can win at the negotiating table if not on the battlefield.
Not long after these announcements, Putin’s own statement from Moscow made clear that he still maintained the Russian position on land, troops, military assistance and security guarantees. Trump’s response was to highlight that he had ended eight wars in nine months and this would be his ninth success. I think it’s possible to see some of the motivation pushing Ukraine towards a one-sided peace.
US sanctions on Russian oil and gas have begun to have an impact on Russia.
In October, the US did finally place sanctions on Russian oil, leading to an increase in the price of oil itself but signalling that the pressure from the United States was not all one way (and focused on Ukraine). Sanctions were imposed on Russian oil companies, like LUKoil and Rosneft, putting more pressure on Russia. In the past moves like this had been avoided in case it led to higher oil prices – which it did but meant that the US was finally putting some pressure on the Russian economy because of the war.
Subsequently, LUKoil sold its international assets to the Swiss trading company Gunvor, a move then blocked by Washington, leaving Rosneft as the most likely future buyer of the LUKoil assets with a potentially unattractive valuation on offer.
Where there has been some progress is that the Indian refining company Reliance has ceased to buy Russian crude oil for fear of breaching US sanctions which have been imposed. India, once a minor player in the Russian oil export business, had become the largest buyer of Russian seaborne crude as other countries closed off their purchased in the face of US pressure. New Delhi is seeking to have the sanctions eased so that it can increase purchases of other energy, such as LPG but for now they know the score.
One person with a strong opinion on what to do is Volodymyr Zelenskyy, the President of Ukraine. He is remarkably tolerant of his “partner” Donald Trump and how he behaves – frequently advising Ukraine to give in on the grounds that Russia holds all the cards – some of Trump’s interventions have been on live television, an unedifying spectacle. Trump’s friends and acolytes have had to make only modest efforts to generate support for Trump, Zelenskyy has had a much harder time getting Trump’s public backing for his positions – including Ukraine’s unwillingness to surrender territory that it has lost Ukrainian lives defending.
In the most recent round of meetings between the US and Russia, President Putin dismissed European efforts to reach a deal, noting that they had no peace agenda.
Man-to-man
Taking a step to one side for a moment, one other person with a strong opinion is China’s President Xi Jinping, who has not faltered when faced with Trump’s bombast, instead keeping his eye on the economy and economic growth irrespective of whatever Trump talks about.
The FT’s Gideon Rachman cited Donald Trump as saying that people in Xi’s entourage were “very scared” – perhaps something that Trump himself aspires to experience. In my view, Putin talks big, as does Trump, while Xi is suitably taciturn. Trump and Xi have the resources and finance to talk big very effectively – I’m not sure that Putin is in the same league (he is also not as free to travel as are his big league counterparts because of the war). Yes Russia has nuclear weapons but so do the United States and China – perhaps then we should describe Russia more accurately as “Russia only has nuclear weapons” to get the attention of world powers while the US and China bring more to any table they choose to sit at. The US on the other hand faces domestic challenges – including that Trump’s popularity is declining as his presidency goes on, as evidenced by recent election results in the US. China has survived the pandemic – not something that can be said about all of Xi’s citizens – and has emerged stronger than before I would suggest.
With Christmas approaching and on a somewhat lighter tone, for those interested in geopolitics I offer a couple of book ideas written by people I know:
- Perfect Storm by Thane Gustafson. I may have been the top-ranked emerging markets oil & gas analyst for nine years but Thane is I think the best observer of Russia over the same period and his latest book looks at where it all went wrong with Vladimir Putin in great detail.
- Autocrats vs Democrats by Michael McFaul. Michael was Obama’s adviser on Russia and then the US Ambassador to Moscow. An excellent account of the broader conflict between liberal democracies and not-so-liberal autocratic regimes around the world drawing on his experience of working on the front line of international relations.
- China & Russia by Philip Snow. For a much longer perspective on the China-Russia relationship, “Four centuries of Conflict and Concord” looks at the longer historical narrative surrounding these two unlikely bedfellows. Philip lives, as I do, In Hong Kong and so has a ringside seat watching the ongoing development of the People’s Republic.
