Wishcasting on the Russian economy
Taiwan is on the front page again as US House of Representatives Speaker Nancy Pelosi appears set on visiting the island. The PRC appears to be concerned that Pelosi’s visit will normalize visits from other Western officials, particularly those in front-line NATO states that resent Beijing’s rhetorical support for Moscow.
Pelosi’s visit follows reports that the Biden administration is concerned about the next 18 months vis-à-vis Taiwan and the PRC.
It seems very likely that many folks are concerned about contingencies surrounding the ROC’s January 2024 presidential election (which The Report wrote about in June), as the election is about 18 months away.
Wishcasting is dangerous
You may have read about the “Business Retreats and Sanctions Are Crippling the Russian Economy” paper published by five individuals associated with the Yale School of Management. Folks, this paper is riddled with basic, glaring errors. I’m going to very reluctantly link to the original paper, which was published here, so that readers can follow along.
The authors claim more than once that the Power of Siberia (PoS) is “fully financed by China” and costs $45 billion USD (# 15 on the slide deck, which can be found here).
While the terms of the Power of Siberia (PoS) aren’t public, the overwhelming analyst consensus is that the PoS isn’t fully financed by China. Indeed, most observers concluded that Beijing’s level of financing for the pipeline sorely disappointed Moscow. If the pipeline was “fully financed” by China, why didn’t Moscow begin constructing the pipeline well before 2014? And if Beijing did indeed fully finance the pipeline, Western security services would have likely released that information already.
Furthermore, the PoS’s cost is generally believed to be about $55 billion USD (while cost overruns are extremely probable). Still, let’s be charitable and assume that the authors updated these calculations with newer exchange rates, or something.
Astonishingly, Foreign Policy decided to run a piece that leverages the paper. In, “Actually, the Russian Economy Is Imploding” (which I’m going to very reluctantly link to here) the authors write: “This margin pressure is felt keenly by Russia, as it remains a relatively high-cost producer relative to the other major oil producers, with some of the highest break-evens of any producing country.”
As evidence to support its view that Russia is a high-cost oil producer, the authors’ Foreign Policy piece links to a Moscow Times article that cites a single study paid for by Saudi Aramco ahead of its IPO.
Let’s be clear: nearly every single person in the oil industry – including the Saudis, incidentally – believes that Russian oil is one of the lowest-cost crudes. Russia’s full break-even prices are thought to generally range from $30-40/barrel, while some of the best Russian fields are thought to have operating costs in the single digits. Rystad Energy – a very well-respected energy consultancy – estimates that the variable cost of production for Russian oil runs at $5.67 per barrel. While Russia’s lifting costs may rise over time (and its production volumes could tumble) as it loses access to Western financial and human capital, the country is currently one of the world’s lowest cost producers.
I have no idea if the paper’s other arguments are valid or not, as I stopped reading after seeing these glaring errors. It’s possible that the Russian economy might be on the verge of collapse (or not), but this paper and the related piece in Foreign Policy don’t offer credible insights. Both pieces should be ignored. As ever, please be careful when reading from sources that tell you what you want to hear.
Finally, Mark Galeotti’s recent article in The Times is worth considering, particularly his assessment of Putin’s goals: “Putin has been quite open about what he wants: to stay in office as long as he chooses and for Russia to be acknowledged as a great power. Yet his notion of quite what this means and what he is willing to do to achieve his goals has changed over time, and we now seem to be seeing the final, most dangerous phase of his descent into rogue state tyrant.”
If Galeotti is near the mark – and I believe he is – then Putin is quite willing to endure extraordinary economic costs, so long as they do not threaten his regime/personal security or his interpretation of what it means to be a great power. Like Chavez, Maduro, Assad, Lukashenko, or other dictators, Putin appears very willing to torch his country’s economy so long as his bottom line is secure.
Are sanctions worth implementing? Yes, in my personal opinion, as they will degrade the Kremlin’s malign capacity, demonstrate solidarity with Ukraine, accelerate Europe’s energy transition, and etc. Are they going to alter Putin’s calculus? Perhaps not. Moscow has already snuffed out “non-systemic” domestic opposition, while ubiquitous information technology surveillance has knee-capped protests and coups by making coordination problems dramatically more complex, perhaps insurmountably so.
We are most likely in for a long struggle with what Galeotti terms Putinism-Patrushevism, regardless of what happens to the Russian economy.
Table of Contents:
2. The War in Ukraine and its impact on Taiwan
3. China-Russia Political Interactions
4. China-Russia Economic Interactions
5. RIC (Russia-India-China)
The Biden administration has grown increasingly anxious this summer about China’s statements and actions regarding Taiwan, with some officials fearing that Chinese leaders might try to move against the self-governing island over the next year and a half — perhaps by trying to cut off access to all or part of the Taiwan Strait, through which U.S. naval ships regularly pass.
Comment: Several commentators have wondered why the administration is concerned about the next 18 months vis-à-vis Taiwan and the PRC. It seems very likely that many folks are concerned about contingencies surrounding the ROC’s January 2024 presidential election (which The Report wrote about in June)
At the same time, longstanding U.S. “strategic ambiguity” has given way to strategic confusion. President Biden’s misstatements on Taiwan are undermining the carefully devised policy that has kept the peace for decades. He has repeatedly said that the United States has a commitment to defend Taiwan. Last November, Mr. Biden remarked that Taiwan is “independent.” U.S.-Taiwan official exchanges, military cooperation and U.S. warship transits of the Taiwan Strait that were once kept under wraps are being made public.
A single spark could ignite this combustible situation into a crisis that escalates to military conflict. Nancy Pelosi’s visit to Taiwan could provide it.
The November 26 midterm races are the DPP’s to lose.
2) The War in Ukraine and its impact on Taiwan
Ukraine is burning through guided artillery rockets to great effect, but even with tens of thousands stockpiled, the U.S. could find its supply under pressure.
Comment: Very thoughtful and well-researched article. Western policymakers are hopefully keeping an eye on weapons inventory levels with a potential Taiwan contingency in mind.
But while the introduction of Western weaponry and the uptick of targeted attacks point to growing momentum on the Ukrainian side, how capable are Kyiv's forces of launching an offensive to retake and hold territory from Russia that it has occupied since the early days of its invasion?
To find out more, RFE/RL spoke with Chris Dougherty, a former U.S. defense official and fellow at the Center for a New American Security, a Washington-based think tank.
The CIA and MI6 say 15,000 Russians have died. Estimating such things involves a lot of guesswork
3) China-Russia Political Interactions
The United States' quest for the dominance of world oceans and the expansion of NATO are the main threats to Russia's national maritime security, according to the new Russian naval doctrine adopted Sunday.
Russian President Vladimir Putin signed the Executive Order on Approving the Naval Doctrine of the Russian Federation and the Executive Order on Approving the Russian Navy Regulations earlier in the day before the central part of the Main Naval Parade.
The 55-page doctrine said the main challenges and threats to Russia's national security and sustainable development are "the strategic course of the U.S. towards domination in the world oceans and its global influence on international processes."
The expansion of NATO's military infrastructure to the Russian borders and the growing number of the bloc's drills in areas adjacent to the country's waters are also listed as major threats to Russia's national security.
China is resolute in safeguarding its national sovereignty and will never allow any room for "Taiwan independence" forces in whatever form, senior envoys said.
"The one-China principle is the basic principle for China to establish and develop diplomatic ties with other countries. So it must always be observed," Zheng Zeguang, China's ambassador to the United Kingdom, said on Saturday.
"At present, the biggest threat to peace and stability in the Taiwan Straits comes from the obdurate secessionist activities of the 'Taiwan independence' forces and the connivance and support of external forces," Zheng said in a video message celebrating the 95th anniversary of the founding of the People's Liberation Army.
Geng said that at a time when the international community is in dire need of unity and cooperation to overcome difficulties together, "it is extremely irresponsible and dangerous to cling to the Cold War mentality and bloc politics".
"We must not let the crisis of Ukraine kick off a new Cold War. [Bolded by The Report] We must not repeat the mistakes of history. We must not let humanity experience once again the unbearable scourge of war," he said.
Comment: The PRC is likely concerned that Speaker Pelosi’s trip to Taiwan will normalize other visits from Western figures, especially politicians in eastern European states. Beijing’s rhetorical support for Moscow may have gravely damaged its standing among front-line NATO states.
Chinese authorities will take effective power measures if Speaker of the US House of Representatives Nancy Pelosi visits Taiwan, Chinese Foreign Ministry Spokesman Zhao Lijian said on Monday.
"If Pelosi visits Taiwan, this will be a gross interference in China’s domestic policy <…> and will lead to very serious consequences," he stressed at a briefing. "The Chinese People’s Liberation Army won’t sit back and do nothing," he added.
Taiwan has been governed by its local administration since 1949 when the remaining Kuomintang forces led by Chiang Kai-shek (1887-1975) fled to the island after suffering a defeat in China’s civil war. Since then, Taiwan has preserved the flag and some other symbols of the Republic of China that had existed in mainland China before the Communists came to power. Beijing regards the island as one of its provinces and this position is supported by most countries, including Russia.
4) China-Russia Economic Interactions
Recently, China's first China-Europe train line ushered in new good news - the number of trains exceeded 10,000! Against the background of the spread of the new crown pneumonia epidemic, the turbulent international situation and sluggish global supply chains, this news is heartening. As an important cooperation link for the joint construction of the "Belt and Road", the China-Europe freight train has developed vigorously and has become a "stabilizer" and "acceleration valve" for smooth China-EU trade.
The China Railway Express originates from China and belongs to the world. China has repeatedly declared to the world that the pace of China's reform will not be stagnant, and that the door to opening up will only open wider and wider. Since the beginning of this year, China-Europe freight trains have continued to expand new routes, injecting new impetus into the high-quality joint construction of the "Belt and Road". In the future, with the roaring engine of the China-Europe freight train, China-EU trade will continue to maintain a good momentum of development, write more new chapters of win-win cooperation, and inject more certainty and positive energy into the world economy.
Comment: This article may be directed at Russia, not Europe. Beijing may be warning Moscow not to impede EU-China rail linkages later in the year.
The future of the CR-929 project appears increasingly uncertain as China looks to freeze Russia out of a share of the profits from its domestic market
The Chinese side is also considering bringing in Western aviation companies as it looks to improve relations amid the ongoing war in Ukraine
China's C919 passenger jet completes all the test flights
The first cargo ship carrying grain from Ukraine would anchor off Istanbul in the early hours of Wednesday Aug. 3 for a joint inspection as part of the Black Sea Grain Initiative, the Turkish Defense Ministry announced Monday.
The ministry said in a written message that the vessel will not enter any port and the inspections will be carried out at the anchorage point on the sea.
A team of the Joint Coordination Center composed of representatives from Russia, Ukraine, the United Nations and Türkiye will board the ship for inspection at 8 a.m. local time (0500 GMT) on Wednesday.
Russia and Ukraine separately signed a deal in Istanbul on Friday with Trkiye and the UN to resume grain shipments from Ukrainian ports to international markets via the Black Sea.
The deal, officially called "the Black Sea Grain Initiative," was first signed by Russian Defense Minister Sergei Shoigu with his Turkish counterpart, Hulusi Akar, and UN Secretary-General Antonio Guterres, and later by Ukrainian Infrastructure Minister Oleksandr Kubrakov with the other two sides.
The long-awaited deal was welcome news for the international community as a food crisis has already been plaguing countries heavily dependent on grain imports from Ukraine and Russia. Officials worldwide have voiced hope for an early and full implementation of the deal to ease the global grain shortage.
Ukraine and Russia are breadbaskets of the world, producing almost one-third of its wheat and barley and half of its sunflower oil. Russia is also a top global exporter of fertilizers and the raw materials for its production, Guterres' press office said in a note to correspondents.
The world’s most vulnerable consumers need Ukraine’s grain to get moving again. The Kremlin, however, prefers to keep the world on edge.
Putin’s invasion of Ukraine is contributing to higher energy and food prices, increasing the probability of a Belt and Road Initiative debt crisis in commodity-importing countries.
Comment: China is paying a steep price for Putin’s invasion of Ukraine. Elevated food and energy prices are not only pressuring BRI recipients but also weighing on China’s domestic economy.
The electrolyzer, obscure for decades, sees its sales soar. Here’s how the technology works.
Comment: Green hydrogen is in its infancy but could reshape the Sino-Russia economic relationship over the next decade.
5) RIC (Russia-India-China)
India will ground all its Soviet-era Russian fighter jets, the MiG-21, by 2025, following the death of two officers in a crash, the latest in a series of casualties involving the single-engine jet's failure, a newspaper reported on Saturday.
The China-Russia Report is an independent, nonpartisan newsletter covering political, economic, and security affairs within and between China and Russia. All articles, comments, op-eds, etc represent only the personal opinion of the author(s) and do not necessarily represent the position(s) of The China-Russia Report.