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The Future of European Energy Without Russian Gas in Five Charts

The recent damage to the Nord Stream pipelines is yet another twist in the saga of Europe’s energy crisis. Accusations of sabotage flowing freely between Russia and the West stand in stark contrast to the stunted supply of natural gas.

While neither pipeline is actively transporting gas to the continent, the ruptures add to an increasingly tense stand-off, even within Europe as policymakers mull how precisely to intervene to alleviate the pressures of high gas prices and prepare for a winter without Russian gas.

Here are five charts from BloombergNEF on Europe’s path ahead.

1. No Russia, no problem?

Russia has squeezed its supply of gas to Europe in recent months, with flows via the key Nord Stream 1 pipeline having been halted since the end of August. Amid the prospect of the Kremlin turning off the taps completely, Europe is faced with the question of whether it will have enough gas to make it through the upcoming winter.

Contrary to widely held fears of an impending shortage, it looks like the region will be able to withstand a Russian gas cut-off, if – and it’s a big if – elevated prices drive sufficient demand destruction and also enable it to attract a high proportion of spot liquefied natural gas flows.

Under BNEF’s base case, total gas demand in the “Europe Perimeter” – Northwest Europe, Italy and Austria – is forecast to be around 17% lower this winter than the 2016-2020 average, if the weather is in line with the 10-year norm. With this level of demand curtailment and assuming no Russian gas arrives in Western Europe from October 1, storage in the Perimeter would end winter with more than enough breathing room at 37 billion cubic meters, or a healthy 49% full.

Even in a worst-case scenario, in which there is no piped Russian gas and low demand destruction, BNEF estimates Europe would still have enough gas to endure the coldest winter of the last 30 years without depleting its inventories.

Looking further ahead, the region could be well-positioned for winter 2023-24 as well. BNEF’s base case sees the Perimeter almost completely refilling its gas storage next summer to 94% full by November 1 – above the European Union’s 90% target.

On top of reduced demand, this outlook rests on Europe continuing to outcompete Asia to secure adequate spot LNG. While Europe has benefited from buyers in Asia being deterred by high prices, the tussle for cargoes could intensify if Asia sees a colder-than-normal winter or hotter-than-usual summer. Europe is set to become more reliant on the spot LNG market as more than 8 million metric tons worth of contracts expire in 2023, increasing its pull on flexible supply.

2. Demand destruction is key

Demand destruction is essential to Europe making it through the winter without Russian gas. However, there is considerable uncertainty over just how much demand will be eroded – such high and sustained gas prices have never been seen before, and at the same time, policymakers are exploring ways to both curtail demand and shield consumers from high prices.

The projected 17% reduction in gas consumption this winter under BNEF’s base case is slightly higher than the 15% cut targeted by the EU as part of its “Save Gas for a Safe Winter” plan. The drop is mostly attributable to residential and commercial users.

Residential consumers account for approximately 40% of winter gas demand in the Europe Perimeter and small changes to their behavior could have a sizable impact on the region’s gas balance.

“Reducing heating temperatures by 1 degree Celsius could save around 6% of this demand,” says Stefan Ulrich, a European gas analyst at BNEF. “In fact, households could likely turn down their heating by even more given that average EU thermostats are set at more than 22 degrees Celsius, some 3 degrees Celsius above the now-recommended level for public buildings.”

As well as wearing an extra layer or two, reducing the amount of time that heating is switched on during the day and optimizing efficiency could also save significant amounts of energy.

“All in all, reasonable actions taken by households and commercial buildings could reduce total Perimeter gas demand by up to 10%, but possibly even more,” says Ulrich.

3. The long-term plan to ditch Russian gas

Looking beyond the pressures of the upcoming winter, the European Commission has laid out how the bloc can end its dependence on Russian fossil fuels in the longer term in the form of the REPowerEU plan.

Building upon the Fit for 55 package, the new strategy envisages the EU more than halving its gas consumption across this decade and diversifying its supply via biomethane, LNG and other pipeline flows. The aim is to be weaned off Russian gas by 2027.

The ambitious gas-use cuts hinge on scaling wind and solar power, with REPowerEU increasing the bloc’s 2030 target for the share of renewables in the energy mix from 40% to 45%.

This feeds into wider measures to lower the gas consumption of buildings through heat pumps and improved energy efficiency, accelerate the production and deployment of green hydrogen, and delay the phase-out of coal and nuclear power plants.

Germany has already revived 8.8 gigawatts of coal and lignite capacity to reduce the need for gas-fired power generation, and Italy has brought 2.3GW of coal back online. In the short term, the return of coal is expected to boost emissions from Europe’s power sector both this year and the next, which would make three consecutive annual increases.

4. Renewables ramp-up needs more support

The EU Commission estimates that 780 gigawatts (GW) of solar and 510GW of wind power needs to be installed across the region in 2030 to meet the objectives of REPowerEU. However, while renewables build in the EU is expected to grow, spurred on by the energy crisis, BNEF currently forecasts only 343GW of solar and 625GW of wind capacity will be deployed by the end of the decade.

Making up that solar shortfall will require countries to accelerate their plans relative to previously set targets.

“Fortunately, this shouldn’t be too difficult,” says Jenny Chase, head of solar at BNEF. “From January to August 2022, China exported over 60GW of modules to Europe, presumably on orders from buyers. We expect only about 41GW to be actually built this year due to bottlenecks in labor and other components, but the interest is there.”

Chase points out that governments need to “work to debottleneck planning, permitting and grid connection processes to make more large solar projects feasible at suitable sites.”

It’s a similar story for wind. “Long offshore wind development timelines make it difficult to boost capacity quickly, while accelerating onshore build will require streamlined permitting,” says Oliver Metcalfe, head of wind at BNEF. “Governments are looking at ways to speed up these processes, but progress has so far been elusive.”

5. High power prices to linger

As Europe continues to rely on gas to generate electricity, high gas prices have translated to record power prices and the peak may be some way off yet.

Taking Germany as an example, BNEF doesn’t see the average wholesale power price maxing out until 2023 – at €275 per megawatt-hour ($270/MWh), from around €209/MWh in 2022. As well as high gas prices, upward momentum is anticipated from tight coal supply and lower electricity imports due to an ongoing shortfall in hydro and French nuclear output.

The good news is that German power prices are forecast to fall to €70/MWh by the end of the decade thanks to the rapid deployment of wind and solar, and an expected rebalancing of the gas market. The decline is even faster and further when accounting for the country’s new “Easter Package”, which seeks to frontload the build-out of renewables this decade.

Still, in the long term, power prices are projected to rise through to 2050, hitting around €90/MWh, due to the saturation of intermittent renewables, reliance on gas plants for dispatchable capacity, and increased power demand from the electrification of transport and heating.


Source : BloombergNEF

Russia Plans to Use Digital Rouble in Settlements with China, Says Lawmaker

After launching a digital rouble early next year, Russia plans to use the currency in mutual settlements with China as it seeks to reduce Washington’s global financial hegemony, a senior Russian lawmaker said on Monday.

Russia, like many countries, has been developing digital money over the last couple of years to modernise its financial system, speed up payments and head off the threat of cryptocurrencies like bitcoin gaining influence.

The central bank is already conducting digital rouble tests with banks at a time when sanctions against Moscow over its actions in Ukraine have slashed Russia’s access to large swathes of global financial market infrastructure.

With that in mind, Russia is on the hunt for alternative means of carrying out transactions, said Anatoly Aksakov, head of the financial committee in Russia’s lower house of parliament, in an interview with Russia’s parliamentary newspaper.

“The topic of digital financial assets, the digital rouble and cryptocurrencies is currently intensifying in society, as Western countries are imposing sanctions and creating problems for bank transfers, including in international settlements,” Aksakov said. He added that the digital direction is key because financial flows can bypass systems controlled by unfriendly countries.

The central bank and government have been at loggerheads all year over cryptocurrency regulation. Aksakov said he hoped legislation would emerge this year.

He added the next step for the digital rouble would be to launch it for mutual settlements with China, which has already tested its digital yuan.

“If we launch this, then other countries will begin to actively use it going forward, and America’s control over the global financial system will effectively end,” said Aksakov.

As Western nations have shunned Russia, cooperation with Beijing has become increasingly important for Moscow. The two nations have increased trade with one another and Russian companies have started issuing debt in yuan.

Some central bank experts have also suggested the new technologies mean countries would be able to deal more directly with each other, making them less dependent on Western-dominated payment channels such as the SWIFT system, to which many Russian banks have lost access due to sanctions.


Source : Reuters

Charts: China Imports of Oil and LNG from Russia

China Exports to Russia Boom Anew in Return to Near Pre-War High

Chinese exports to Russia are back near levels seen before the Kremlin’s invasion of Ukraine, propelling a rebound in trade that’s helped cool off a historic rally in the ruble.

Russia bought $6.7 billion of goods in July from China, an increase of more than a third from the previous month and up by more than an annual 20%. By contrast, its imports from Russia — which surged in March-May — rose only slightly last month after a drop in June, according to data from China’s customs authority.

Chinese goods are filling the niche left by the exodus of western brands after the war with Ukraine prompted sweeping financial and trade sanctions against Russia.

The isolation has catapulted products such as vehicles manufactured by the likes of Great Wall Motor Co. and Geely Automobile Holdings Ltd. to the ranks of Russia’s best-selling cars, with their market share more than doubling from last year.

The revival of demand for Chinese exports is playing out in the currency market. Trading volumes in the yuan-ruble pair increased to the highest ever last month as local demand for the Chinese currency surged.

With Russian consumer spending on the mend, the influx of foreign goods is taking some pressure off the ruble by reviving demand for hard currencies. In July, the ruble was the worst performer in emerging markets with a loss of 13% against the dollar.

Surging prices for Russia’s commodity products, in combination with the collapse of imports, had contributed to a surplus of foreign exchange that powered the ruble.

Still, growth in sales from Russia into China has started to lag behind. Following Russia’s diversion of crude to Asia from European customers, oil shipments to China have come down from their post-invasion peak.


Source : BNN Bloomberg

Chart: China Imports of Russian Energy Up 72% YoY in June 2022

Source : China Custom

Infographic: Who’s Still Buying Fossil Fuels From Russia?

See large image . . . . . .

Source : Visual Capitalist

Infographic: U.S. and Russia’s Biggest Arms Trading Partners

See large image . . . . . .

Source : Visual Capitalist

Russia Moving Closer to a Gold Standard – Official

Russian experts are working on a project to create a two-loop monetary and financial system in the country, Secretary of the Security Council Nikolay Patrushev said on Tuesday, in an interview with Rossiyskaya Gazeta.

He explained that the project involves the provision of the Russian currency with both gold and a range of goods representing a currency value. As a result, the ruble exchange rate would correspond to its real purchasing power parity, he said.

To ensure the sovereignty of any national financial system, it is necessary that its means of payment have intrinsic value and price stability, and is not tied to the dollar, Patrushev said.

Another important condition for Russian economic security is the restructuring of its economy based on modern technologies, he added.

“We are not against a market economy … but … the West allows other countries to be its partner only when it is beneficial for it,” Patrushev stressed, noting that Russia’s development should be based on its internal potential.

On March 25, the Bank of Russia announced a fixed price for buying gold with rubles. It set a price of 5,000 rubles ($59 at the time) for a gram of gold.

The security secretary also stressed that Washington was trying to solve its problems at the expense of the rest of the world, thereby creating a “human-induced global crisis.” And its European allies would be the first to suffer from those actions, Patrushev said.

While the White House is discussing a possible default by Russia, the situation is such that “it’s time for them to declare their own default,” Patrushev said, pointing out that the US’ external debt has exceeded $30 trillion.


Source : RT


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Gold-backed ruble could be a game-changer (INTERVIEW) . . . . .

The Bear Breaks Down: Andrei Soldatov on Russia’s Self-Destruction

Jonathan Tepperman wrote . . . . . . . . .

About 20 years ago, Andrei Soldatov, a Russian newspaper reporter, co-founded a website called Agentura.ru devoted to monitoring the activities of Russia’s security services. The experience turned him into one of the world’s leading experts on Russia’s secretive intelligence and military agencies. In Moscow’s eyes, it also turned him into a dangerous man. In 2012, a new Russian law expanded the definition of treason to include the sharing of any information the FSB (the successor to the KGB) deemed harmful to Russia’s national interests. The noose tightened further in 2020, when another law made it effectively illegal to write anything at all about the security services—a change that “basically cancelled our profession,” Soldatov says. But the last straw came later that same year, when the Russian government cancelled the media license for Soldatov’s website, citing the death of its editor—the very job Soldatov held at the time. Taking the hint, he and his partner Irina Borogan fled for London. Today he’s a fellow at The Center for European Policy analysis, the co-author (with Borogan) of several books, including The Compatriots: The Brutal and Chaotic History of Russia’s Exiles, Émigrés, and Agents Abroad, and one of the most authoritative voices on Vladimir Putin’s coercive apparatus. We spoke by phone on Thursday about Russian intelligence before and after the Ukraine war began, how to indentify Putin’s goals, and why the Russian state seems to be disintegrating around him.

Octavian Report: Given all of the restrictions Russia has imposed on the media and on independent organizations, how is it still possible to report on the Kremlin and the security services? The government seems like a black box.

Andrei Soldatov: Publicly, people are not willing to express their opinions. So it’s become a big problem to find someone still in Moscow who will go on the record. At the same time, however, more people are actually coming to me and my colleagues, because there is a feeling of desperation, especially among Russian bureaucrats—including in the security services. And if they trust you, they are quite eager to share their feelings, because the climate in Moscow is not good.

And this is new. In 2014, during and after the invasion of Crimea, I spoke to many people inside the government, and you could feel that most, or maybe even all of them, were on the same page as Putin. They believed that he had done the right thing in a really efficient way and with no bloodshed. So there was no distance between Putin and these people. Now it feels completely different. Lots of people in the financial sector, in the security services, and even in the army believe that something should have been done about Ukraine. People were ready for something like the occupation of the Donbass, or maybe some airstrikes in imitation of NATO’s 1999 bombing of Belgrade. Instead of that, we got this mess. My sources in the government think that Putin’s full-scale invasion was a horrible mistake.

OR: Does that mean that if the war continues to go badly and becomes an Afghanistan-style quagmire, say, that the unhappiness in the security and intelligence services could become so extreme that they either force Putin to change policy or remove him from power?

Soldatov: I’m a bit skeptical of that. Or at least, I’m skeptical that they could do it on their own. Why? For several reasons. One is that while we’ve had a heavily militarized society for decades, if not centuries, the history of military coups d’état here is surprisingly short. The last time the army tried it was the Decembrist revolt in 1825, and that failed miserably. There was another failed coup in 1991, but that was mostly led by the KGB.

The second problem is the military does not have a tradition of building underground organizations within the ranks, like in Turkey or Egypt. We’ve never had a Young Officers movement here. And, of course, the FSB has penetrated the military to a huge degree.

OR: But the FSB is also becoming unhappy with Ukraine, isn’t it?

Soldatov: Yes, but I’m also skeptical that the FSB could organize something. The 1991 coup didn’t fail because of the bravery of Muscovites—and they were brave, I was 15 years old and I was there. It didn’t fail because of Boris Yeltsin. It failed because there was a huge level of mistrust between the KGB’s generals and its midlevel officers, and that mistrust is still there. Generals in the Russian security services fail to build patronage networks by distributing money and things like that, so the midlevel officers don’t trust them. They respect the position, but not the person.

One final point: in the 1990s, you had competing political forces in the country. You had opposition parties. You had oligarchs. You had very strong regional centers of powers, such as the mayor of Moscow. All of them were competing, so if a group of generals became unhappy with the president, they could rush to this group or that group for political support. That’s not the case anymore. There is no political force left in the country except for Vladimir Putin. The political opposition is either dead, in jail, or in exile. The oligarchs are extremely dependent on Putin and on the military-industrial complex. The regional governors are really scared, because a number of them have been thrown in prison.

At the same time, I cannot say that things are absolutely hopeless, because Russia is a huge country, and due to the sanctions, the regions are going to have more and more problems. Moscow is already very nervous about the regions. All this talk about the nationalization of industry—it’s about politics, not the economy. In many regions, you have these big enterprises, and if they stop their operations, it would mean huge layoffs, and a lot of people would go out on the streets, which would create a big political problem. Now the government is trying to find a way to deal with that. So if you had this combination of factors—if, say, problems in the regions became worse and worse, and they could connect with some major new political force, then maybe the military or the FSB might do something.

OR: Let’s go back to the beginning. How do you explain the massive intelligence and policy failures that led Putin to start this war? Do you think that Russia’s intelligence agencies shared his fantasies about Ukraine?

Soldatov: Russia’s intelligence agencies might not be extremely competent, but they’re not that stupid. Of course they understood that nobody wants to join a new Soviet Union or any of that. What they believed then is that Ukraine is a dysfunctional state, with dysfunctional government institutions, so if you attack it, it will collapse.

They also had a view that Zelensky was a human being who cares about people’s lives. So what they expected to happen is that Putin would attack Ukraine with airstrikes, and all those Russian troops massed on Ukraine’s borders would convince Zelensky not to counterattack. They believed that they could bluff him and use the army not as a real force that would actually go into Ukraine, but as a deterrent to prevent Zelensky from launching a counterattack. And they thought that that decision, to not counterattack, would then ruin Zelensky politically.

What actually happened, however, is that Putin did something completely different. He decided to attack with ground forces immediately, and that left the Ukrainians with no choice but to say, “We need to fight now.” So it was a terrible miscalculation, but not because of the intelligence. It was because of Putin himself.

OR: What are the big takeaways for you from the way the war has gone so far? Has it revealed, for example, big structural problems in Russia’s military, intelligence, and policymaking bodies?

Soldatov: Yes and no. These days everybody is talking about how bad Russia’s army is. I would be a bit more cautious, because what we’re seeing is a huge degree of political interference. Militarily speaking, many things we are doing in Ukraine don’t make any sense. One is using the national guard. It doesn’t make any sense militarily, but it makes some sense politically. Because politically speaking, if you’re sending in your national guard, it means that it’s not a military operation, it’s a policing operation. So you are just dealing with thugs and drug addicts and so on.

The other problem is that the chain of command being used in Ukraine is very different from Putin’s previous wars. In every other war Putin conducted, you had a joint group of forces led by a commander whose name was known. So the public would know who was ultimately in charge of the operation on the battlefield. We had this knowledge in the second Chechen war, in Georgia, in Syria, everywhere. But not here. Here, we only have Minister of Defense Sergei Shoigu and the chief of the general staff. So we don’t know who’s in charge of the situation in Ukraine. We don’t even know where the headquarters of this joint group of forces is, or how many forces are involved. Nobody knows. This creates confusion, and it’s bad for the military because they don’t understand what is going on. So you can blame the military, but the problem is really with the Kremlin, because it decided how to design this whole thing. It’s absolutely astonishing. The only way I can explain its decisions is by pointing to the fact that Putin is way more emotional about Ukraine than he is about any other region.

OR: A lot of people are saying that his age and isolation have also affected his judgment. Do you agree?

Soldatov: To some extent, yes. And he’s become obsessed with history, which is something old politicians do. But I think he’s been obsessed with Ukraine for a very long time.

OR: What do you make of the recent American claims that Putin is being misinformed by his aides about the progress of the war?

Soldatov: I think it’s true. First thing, it was absolutely clear that Putin was not privy to information about the [widespread use of Russian] conscripts. He was quite astonished when he learned. So we know that the military was hiding something from him from the start. The second thing is much more important, however. We know what his initial war plan was, right? It involved airstrikes combined with sending vehicle columns deep into Ukraine. Now, this plan crashed immediately, as soon as it faced reality on the battleground. But Russia’s tactics didn’t change for more than a month, which is absolutely astonishing. They kept sending these columns deep into Ukrainian territory for weeks and weeks and weeks. And you would only do that if your leader was still convinced that the initial plan was absolutely fine.

OR: Why isn’t he getting good information from the battlefield? Is it because the security services are too frightened to tell him the truth?

Soldatov: I think so. There’s huge confusion inside the Russian government. To start with, the military has a longstanding habit of hiding information from Russia’s top leader. In the past, the FSB has helped fill in the gaps. But the problem is that Putin started this war by attacking his security services. He held a horrible meeting with his security council, where he publicly humiliated his chief of foreign intelligence. Two weeks later, he placed two guys from the FSB under house arrest. A few weeks later, the deputy head of the national guard, a former security services guy, was forced to resign and is now probably under some sort of criminal investigation. What all this ignores is that you cannot fix your intelligence problems with repression.

OR: Speaking of intelligence, why was U.S. intelligence prior to the war so good? How did Washington learn so much about Moscow’s plans?

Soldatov: To begin with, I think the United States had succeeded quite well in penetrating the Russian government. The other thing is that the Russian security services have always been famous for producing the biggest numbers of defectors. So I think the United States probably got some good sources. Maybe they still have some people in place.

OR: Say a little bit more about why Russia’s military performance has been so bad.

Soldatov: Well, there are things that are still not clear for me. Because some units of the Russian army, like the spetsnaz[special forces], are really good, very competent, and very well trained. So why they’ve performed so badly is a really good question. I think it has had something to do with morale. And the problems started before the war. Last year, there was a horrible story reported by the Russian media that in a spetsnaz brigade in Siberia, a commander had raped his soldiers as a form of punishment. That is absolutely unprecedented, because spetsnaz forces tend not only to be Russia’s most professional soldiers, but they don’t have hierarchical problems, because they fight in small groups where you need to trust everyone who’s with you. In the spetsnaz, it doesn’t matter whether you are lieutenant or a captain or just a soldier, you’re all in it together and do the same things. So it looks like something has broken down in the Russian military. That might help explain the really bad performance. And again, all the problems with bad planning and the chain of command were also a big factor.

Back in 2014, the Russians outperformed the Ukrainians by a long distance. For some reason, they’re not doing that now. There are so many mysteries. I’ll give you another example: why hasn’t a big cyberattack happened? It would make perfect sense, because it could produce panicked crowds of people jamming the roads and making it difficult for the Ukrainian military to move around. But that chance was missed completely. Disinformation operations have also not been good. They didn’t have lots of stories prepared for this war. This is very different from what we saw just eight years ago. I do not have an explanation, but it looks like several elements just went completely wrong.

OR: What you’re saying suggests massive disarray within the Russian state, the military, the political apparatus, and the intelligence services, as though everything is breaking down.

Soldatov: That’s my impression.

OR: Do you believe the reports that Russia is now shifting its military strategy and aims in Ukraine toward consolidating control over the east and abandoning the center and the west?

Soldatov: My fear is that they’re just playing for time. I think that when you have a guy in the Kremlin who is being absolutely delusional about the real situation in Ukraine, you can’t speak in terms of a coherent foreign policy. Let’s say he does secure the Donbass, this chunk of land that nobody wanted. He might even make it a part of Russia. So what? It’s never had the symbolic value for Russians that Crimea has. It’s not a big win. And the price is all these sanctions and all these problems with the rest of the world.

OR: So you’re saying that one shouldn’t talk about Russia shifting its strategy because there is no strategy? That Putin is just making things up as he goes along?

Soldatov: Yes. Because strategically speaking, I don’t quite understand his end game. Maybe you have some ideas, but I don’t get it.

OR: Is it possible that his maximalist objectives were just a smoke screen, and that his real objective has always been to establish a land bridge between Crimea and Russia proper and to permanently destabilize Ukraine—to turn a fairly successful, Western-leaning, increasingly liberal democracy into a failed kleptocratic state?

Soldatov: Maybe, but I have a problem with this argument. Because let’s say you want to destabilize Ukraine, or you want to create a land bridge between Crimea and Donbass. That could all be achieved with air strikes. You could do what the Israelis did to Lebanon in 2006, which is to bomb the infrastructure of the country into the ground. Just bomb all its bridges, all its railroads, everything. And if you did that, a lot of countries, especially in Europe, would say nothing about it. Remember that before the war, the French said, “Well, air strikes are bad, but they don’t qualify as a real invasion.” Only after the tanks started rolling into Ukraine did people in Europe say, “Okay, this is a real thing.” So why invite all these horrible sanctions on yourself when you always had the option to use your formidable aviation, which completely outmatched Ukraine’s? I don’t get it.

OR: How, then, do you see the war ending?

Soldatov: Putin’s usual way out of trouble is to escalate even more. I think that people in Moldova and in the Baltics should be extremely, extremely nervous right now. I think it’s absolutely possible that he might start something there, just like he did with the Donbass as a way out of Crimea.


Source : The Octvian Report

Why China Stands Firmly with Russia — for Now

Tom Nagorski wrote . . . . . . . . .

Former Australian Prime Minister Kevin Rudd has known China as a student, scholar and head of state. When it comes to China’s “limitless partnership” with Putin’s Russia, he thinks he knows where the red lines are.

The conventional wisdom is that when it comes to the war in Ukraine, China is walking a tightrope, a balancing act between its partnership with Russia and a concern that it not rupture completely its relationship with the West. To date, however, China has refused to criticize Russian President Vladimir Putin, amplified various Russian falsehoods about Ukraine and placed blame for the war at the feet of the U.S. and its NATO allies.

Few people outside China know the country and the thinking of its leaders better than Asia Society President Kevin Rudd. Rudd was a student of China and the Mandarin language before entering politics in his native Australia. He served as Australia’s foreign minister and twice as prime minister. Rudd became president and CEO of Asia Society in January 2021 and has been president of the Asia Society Policy Institute since January 2015. His latest book is “The Avoidable War: The Dangers of a Catastrophic Conflict Between the US and Xi Jinping’s China.”

Rudd spoke with Grid about that “avoidable war,” about the U.S.-China relationship, and about the current war in Ukraine and the extent to which Putin will be able to count on continued full-throated support from Beijing.

This interview has been edited for length and clarity.


Grid: Lately, it looks like China is all in, in terms of support for Putin’s war. What’s going on there?

Kevin Rudd: Well, first, Vladimir Putin and Xi Jinping have developed a relationship at the personal level, which is quite deep and quite influential. But then at the structural level, the nature of the China-Russia relationship means that the underlying Chinese interests point definitively in the direction of Moscow. They want a benign relationship with the Russians because of the length and history of the Russian-Chinese border. They want to be able to dedicate all their strategic energies to their principal global and regional strategic adversary, the United States, rather than having to divert some of those resources — military or otherwise — to handling the Russian question, which they had to at various other times in their history. And thirdly, Russia is a handy strategic partner to divert the United States to other regional conflicts, either in Syria or in North Africa or most recently in Ukraine.

So, I think people need to not have a romantic view about where China’s national interest actually stands on this, and where the personal interest on the part of Xi Jinping stands in terms of his desire to preserve his relationship with Vladimir Putin.

G: There’s one way to do what you just described — which is to abstain from votes, or not call it an invasion or a war, but the Chinese have gone further. Pushing the Russian false bioweapons lab story, for example, or the fact that China is giving directives to educators to teach that NATO and the EU are to blame for the war. I’m wondering, need it be that overt, for them to pursue those interests?

KR: The Chinese propaganda system usually has two gears: forward and back. It’s pretty difficult to nuance the propaganda, in terms of what you put out and what you allow to be put out. And there’s a reason for that — simply the scale of the system: 1.4 billion people, and then 5 million-plus working in the propaganda apparatus. So this idea of nuance in the state newsroom doesn’t quite exist.

Secondly, the national interest questions are as I described — so when the system locks on to defending Xi Jinping’s position on both Putin personally and Russia generically, it locks on. The only variation on this theme I’ve seen is a recent decision after Putin began to run into a military stalemate on the ground in Ukraine, when the Chinese propaganda apparatus began to allow more spontaneous social media comment from Chinese citizens that was more sympathetic to Ukraine. But I think that’s basically to present an impression to international audiences that this is a more neutral Chinese position. When I look at the core decisions of the Chinese state and what they say and what they do, I see evidence of about an 85-to-15 split, splitting very much in Moscow’s favor.

G: Well, since you’re doing the fractions, a different question: How much of this would you say is the strategic interest in a partnership with Russia, and how much a strategic interest in just bashing the United States and the West whenever possible?

KR: Well, the two sets of interests fold into each other. Since Moscow’s first invasion of Ukraine in 2014, Russia has increasingly found that its only reliable long-term economic partner, and political and eventually strategic partner was China. So for those reasons, Beijing saw a huge emerging political and strategic opportunity with an isolated Russia. They grabbed it with both hands.

And now, as reflected in the Russia-China joint declaration of the 4th of February, which proclaims a limitless strategic cooperation in the future, you see the blueprint for a level of Russia-China strategic condominium which didn’t exist after the first Russian invasion of Ukraine, and serves both Russia’s interests and China’s interests — in particular China’s interests in rolling back against the United States, regionally and globally.

G: Given what’s happened in Ukraine, do you think there’s been any regret since the Feb. 4 agreement on the part of the Chinese?

KR: Let’s look at the tea leaves in China’s official commentary on Russia and Ukraine over the last month. When we look, for example, at the reported content of Xi Jinping’s engagement with Europeans — [French President Emmanuel] Macron and Olaf Scholz, the German chancellor, and others — it’s plain if you read between the lines that there is some degree on the part of the Chinese of buyer’s remorse. But I wouldn’t overstate it. The Chinese know that because they’ve locked in so hard behind the Russians, there has been reputational damage in Europe and reputational damage in the rest of the world. Look, for example, at the strong votes in support of Ukraine in the U.N. General Assembly, with 143 nation-states, a large slice of whom came from developing countries. So for those reasons there’s a perception of reputational damage.

But the ultimate realist Chinese position is this: The Europeans will do as they’ve always done in the past, and that is suffer strategic amnesia in the future, and European outrage over Ukraine will last essentially until the next year’s Eurovision Song Contest. And then they will get back to business, trade and investment, and everything gets driven by the gravitational force of the Chinese economy. That’s the deep Chinese view, the skeptical view of European strategic solidity.

It’s up to the Europeans of course to prove them wrong.

G: Do you think there’s anything the Russians may do that would change the Chinese calculus?

KR: I think there are two things. If Putin was mad enough to cross the weapons of mass destruction threshold, and to threaten or actually use chemical weapons, or to threaten or use nuclear weapons, this, in my judgment, will be a bridge too far for the Chinese. China has had to engage in all sorts of twisting and turning ideologically and theologically, almost, to justify its current position in de facto support of Russia’s violation of Ukraine’s political sovereignty and territorial integrity, which violates article two of the U.N. charter, and to justify that within the framework of China’s 70-year long embrace of the five principles of peaceful coexistence framed by Zhou Enlai back in 1954, which includes respecting the political sovereignty and territorial integrity of other states. So there’s been a whole lot of, shall I say, diplomatic contortionism in order to render that position as being consistent.

I would imagine beneath the surface, if there is one level of conversation occurring between the Chinese Central Military Commission and their Russian counterparts right now, it’s simply saying: Comrades, we’re with you, but don’t do the WMD thing.

Second thing is, if the Russians find themselves in absolute military stalemate or the war starts to go decisively against them militarily, then fasten your seat belts for a one-minute-to-midnight ceasefire diplomatic offensive by the Chinese, who turn adversity into opportunity in order to demonstrate to the Europeans that our friends in Beijing have always had peace and moderation in their hearts. And so to partly salvage reputational damage suffered so far, they would be tempted to do that. But we would be incorrect, I think, to assume that they are likely to assume a substantive mediating role as opposed to a cosmetic one.

G: Other than getting abstentions and good rhetoric from China, what else do Putin and the Russians get from this relationship with China right now?

KR: Excellent question. A few things. One is China politically and diplomatically is able to help gather reasonable support in the Security Council and in other parts of the world in support of the Russian position. And there’s a very interesting case study here: Why did the United Arab Emirates, for example, join the Chinese in abstaining on the Russian resolution? Partly that’s to do with Russian equities in the Middle East. Partly it’s to do with China’s relationship with the Emirates and the Saudis, who also abstained in the General Assembly vote. So it’s not trivial to say that China is capable of leveraging international support for the Russian position and against this increasingly harsh and near-universal financial sanctions regime against Beijing.

The second level of support is to maximize trade, particularly in commodities — oil and gas and wheat, and to buy as much Russian product as you can, a) because it’s good for China, b) because the Chinese could agree to pay up front before deliveries are made and c) that actually helps the Russian net financial position. And none of that is prohibited by the existing financial sanctions regime.

But when you get to the meat of the sandwich of stepping around the financial sanctions of the use of the dollar-denominated financial clearinghouse system and the decision to put Russia outside of that, the decision to freeze Russia’s foreign exchange reserves held in third countries and the sanctions against individual Russian institutions — there’s no evidence that China has violated any of those. And China legitimately fears attracting secondary financial sanctions against itself, because the Chinese remain dependent on the U.S. dollar-denominated and dollar-controlled global financial system. That may not be the case by the time we get to the end of the 2020s. But it is the case now. So China has been very keen not to attract that incoming set of problems.

G: So let’s get to “avoidable wars” — since that’s the title and subject of your latest book, and one issue in particular: Taiwan. How do you think the conflict in Ukraine is being seen, first, in Taipei? Does this war change minds or behavior in Taiwan itself?

KR: It’s a really important consideration because the Taiwanese have not always acted in their own resilient national self-interest. So the observation, I think, that will be foremost from Taiwan is this: that Ukraine has maximized its support as a democracy in the world by the resilience of its asymmetrical warfare against the Russian invading force.

And that goes to the actual design of the Taiwanese defense force, its size and its ability to wage asymmetric warfare, as opposed to deploying its funds into capital assets on the high seas, on the water between the two sides of the Taiwan Straits. So there’s a question of both the quantum and the quality of the Taiwanese military acquisitions and the structure of its defense force, which, I think, will be seen very clearly by those in Taipei as underscoring the decisions they began to take about two years ago that changed the composition of their force, and to increase their overall long-term defense outlays.

I think the second is along these lines: At the end of the day, the message being pumped out to Taiwan, Hong Kong and others in the Chinese-language speaking world is not that we Chinese are terribly sorry for supporting the Russians. The message being put out by the Chinese propaganda apparatus in Asia is: Guess what, guys — the Americans didn’t militarily intervene to defend Ukraine. And that is a message explicitly targeted on a Taiwanese audience. So Taiwan will have noted that Ukraine was not a treaty ally of the United States because it was outside of NATO. The Taiwanese do have the Taiwan Relations Act, but it’s not a mutual defense assistance pact at the end of the day.

So this will, I think, cause them to conclude that in the future, if they found themselves standing alone, and leaving aside what the United States eventually did, by way of direct military intervention, their ability to hold on and prevent an effective blitzkrieg within Taiwan itself is fundamental to them garnering enough international support around their cause, as has happened with Zelenskyy and Ukraine. I think they’re probably the two significant takeaways from this.

G: Same question in Beijing. Do you think there’s anything in Ukraine that has surprised the leadership there?

KR: I think, knowing something about the way the Chinese construct their Taiwan policy, they’re on their own railway tracks and timetable of what they want to do with Taiwan, as determined by two factors.

First, have an overwhelming balance of military power in the Taiwan Straits. At present, they’ve got a favorable balance, but not a decisively favorable balance from the PLA [People’s Liberation Army] perspective, and they need more time to make that decisive. The Chinese do not want to have a risky adventure militarily across the Taiwan Straits, because if they did not prevail in such a conflict decisively, if they had an untidy conflict like we now see with the Russians, let alone were stopped by a combined American-Taiwanese force, it would be terminal for Xi Jinping.

But the Chinese have been working on building this overwhelming military balance of power in their advantage for a long time, probably since at least 2015.

The second is to render themselves invulnerable, or only partially susceptible, to a new range of financial sanctions against them arising from such an invasion. At present, they’re highly vulnerable on this because of their dependency on the SWIFT system, their dependency on the U.S. dollar-denominated financial system, and that’s going to continue until such time as the Chinese decide to float the Chinese currency, open their capital accounts, and make it a big globally traded currency so that they become invulnerable either to manipulation by a single speculative financial house, or from a nation-state doing as the Americans have done with Venezuela, Iran and now the Russian Federation. So that’s why I think the timetable comes much later.

But if there’s one sobering thing emerging from what we’ve seen so far it would be this: The Russians told us that they could knock over this country next door to them through a land attack within a week. That hasn’t worked. When you look at the dimensions of the amphibious challenge across the Taiwan Straits, that would make a Chinese invasion force arguably bigger than the D-Day landings, and more complex because that’s the English Channel and this is open ocean, which creates its own logistical difficulties. I think the boys running the PLA will be disappearing back into their bunkers for a while to take out their slide rules to work out how difficult this could actually be.

G: Can you say a few words about the U.S.-China relationship? Do you think it’s at a low historical ebb? And are there any glimmers of hope? Any patches of common ground?

KR: Well, if we were to apply the slide rule again to the state of the U.S.-China relationship measured against a stability index, as of the end of the Trump administration, and compared it with where we are now, I would argue it is somewhat more stable. Because back then — not that long ago, January of 2021, either side of the Jan. 6 uprising in Washington — if you’re in Beijing wondering what on earth the Trump administration would do next on Taiwan, on trade, on Huawei or anything else, this was massively unpredictable given the nature of the Trump administration and different signals being sent in different directions all the time.

But with the Biden team, it’s more stable. They have a more stable and predictable framework. It’s still hard-edged, it’s still strategic competition, though the administration perhaps doesn’t use that term every day of the week as the Trump administration did. But if you look at its essence, that’s what it is. So far what the United States has been doing from a Chinese perspective has been relatively predictable, even if it has been adversarial.

And secondly, despite everything that’s happened in the last 12 months in the U.S.-China relationship, and despite what’s now emerged with Ukraine, you’ve had in the space of 12 months, two virtual summits of some length between the two leaders. And this at least preserves a line of central communication at the presidential level. And by the time we got to the last year of the Trump administration, we were down to [U.S. Trade Representative] Bob Lighthizer as the only guy capable of talking to his Chinese counterparts. Against those measures, it’s more stable than it was.

The argument of my book, which is about avoidable war, and avoiding such a war through managed strategic competition and a framework to identify the strategic red lines between them, to allow nonlethal competition between the U.S. and China while still carving out space for strategic cooperation in areas like climate change, I think all that’s possible. It’s difficult given a hawkish Congress in the United States, and difficult also given the number of hawks who inhabit the halls of power in Beijing as well. But I don’t see it in the interests of either country to proceed down a path in the absence of such a mechanism, which would run the risk of blowing each other’s heads off if you have crises, escalation, conflict or war.


Source : GRID