Russia And U.S. Economic War Raging

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As tensions between Russia and the United States expand, it is increasingly clear that an economic war is being waged between the two superpowers. This is certainly not the first time that the United States and Russia have been on opposite sides of such a conflict, with the Cold War essentially being defined by two completely separate economic systems.

Russia and U.S. energy battle

The economic battle that is currently taking shape will have global ramifications for many years to come. Energy is certainly playing a major role in this economic battle, with Moscow seeking to counteract the desire of Washington and Brussels to divide Russia from Europe. The Russian government unquestionably has massive power owing to the amount of energy exportation that it is involved in, and a lack of cooperation in this regard would certainly be damaging to numerous Western companies and countries alike.

European nations in particular are hugely reliant on Russian oil and gas in order to function. Ironically, the United States’ major ally the United Kingdom derives most of its oil importations from Norway. But mainland Europe is particularly dependent on Russian exports, and it would become extremely vulnerable should the Russian government decide to alter its energy policy.

Additionally, a huge amount of economic and energy machinations are taking place under the surface. While the Western media has tended to focus on conflict in the Ukraine, Moscow has been assiduously moving its pieces into place under the radar. The Russian energy giant Gazprom has entered into critical deals with a variety of Western energy companies, which has completely undermined the efforts of Western governments to isolate Russian economically.

Russia energy deals multiply

Gazprom has clearly been making a concerted effort in recent years to be more visible in the Western marketplace. European fans of soccer in particular will recognize the brand, as it is a prominent sponsor of the Champions League tournament.

At the same time that Russian companies are establishing these important links, Russian-sponsored gas pipelines in the North and South of Europe significantly complicate the geopolitical picture. These important economic assets ensure that it is extremely difficult to alienate and isolate Russia from the existing European marketplace, and it provides the Russian government with a huge amount of political and economic power.

The tension between the United States and Russia is emblematic of a wider geopolitical chess game between the BRICS nations and the traditional Anglo-American world order which has dominated the planet over several decades. The BRICS have demanded a greater representation in global economic institutions such as the World Bank and International Monetary Fund, and have even threatened to set up their own central bank as a response to US and British isolationism.

Another aspect to this economic war is the dollar’s status as world reserve currency. This has provided the United States economy with a huge advantage throughout the 20th century, but there have been suggestions in some quarters that this may end at some point. And these suggestions have not been limited to pundits. The current head of the International Monetary Fund, Christine Lagarde, has in fact stated explicitly that the United States’ “exorbitant privilege” would come to an end in the foreseeable future.

Russia accumulates gold rabidly

Perhaps anticipating this eventuality, there has been significant evidence that both Russia and China are preparing for a future in which the dollar is no longer the reserve currency. The BRICS nations have been rampantly investing in gold in particular. This perhaps goes against the economic consensus among Western economists, but it anticipates a time when the mountain of debt in the West has unravelled. At a time when many fiat currencies are incredibly vulnerable and devaluing, the Swiss franc became pegged to the Euro in April, 2011, ending what HSBC described as “the last safe haven”.

The suggestion is that Russia is hoping to introduce gold-backed reserve currency into the world economic mechanism, and that the opportunity to do this could come as the dollar loses its existing status and encounters trading difficulties. And this has not merely been a suggestion, but also something grounded in explicit statements.

In March, 2009, the UK newspaper The Daily Telegraph reported on Arkady Dvorkevich, the Russian Kremlin’s chief economic adviser, commenting that Russia would like to see a return to a gold-backed currency. The Telegraph noted that “the world’s fiat paper currencies have lacked any external anchor ever since (Nixon abandoned the gold standard). It is widely argued that the financial excesses and extreme debt leverage of the last quarter century would have been impossible – or less likely – under the discipline of gold”.

Vast Russian infrastructure projects

Regardless of the legitimacy of this particular plan, Russia is clearly waging a very significant energy war at present. A recent agreement between Gazprom, which is now the top gas producer in the world, and Royal Dutch Shell, to build two new gas pipelines to Germany will come to define the economic relationship between Russia and the European Union in the medium-term. Effectively, Russia has become a central cog in the German economy, and critical to Germany’s industrial base.

It is also obvious that such an economic agreement will have a significant global impact. There is already an existing project related to oil and gas development in Sakhalin Island, Russia, that is essentially a Gazprom and Shell collaboration. This project only reached its full capacity last year, and the strong economic position of Gazprom, coupled with the important economic agreement it has entered into, will allow for the expansion of this arrangement.

As Russia moves to establish an energy position of significant strength, the imminent construction of the Altai Pipeline will solidify Russian and Chinese energy cooperation. The project has ultimately been described as a full-blown energy alliance, and it will supply in the region of 35 billion m³ of Russian gas from Western Siberia to China.

The United States and its economic entities have been accused of deliberately driving down the oil and gold price in order to harm Russia and China. But this has resulted in a covert economic assault from Russia, the consequences of which will continue to unfold as this conflict inevitably expands both publicly, rhetorically and strategically.

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