Published in the
Orange County Register on May 17, 2014. To access the original article,
click here.
Russian
President Vladimir Putin is engaging in a shadow dance – maskirovka – to prove
to the world he is not behind the May 11 separatist referendum in eastern
Ukraine.
He
has called on his allies in Donetsk and Luhansk to cancel the vote, and he
endorsed the May 25 presidential election as a “step in the right direction.”
He also claims Russian troops have withdrawn from the border. Pro-Moscow
separatists ignored the president’s words and the Pentagon has seen no evidence
of a withdrawal.
The
referendum will, no doubt, show voters supporting independence. This result
will be a lie. The majority of people in the East, as shown from the first vote
for independence in 1991 to a Pew Research Poll taken in April, have
consistently supported remaining in a unified Ukraine.
The
U.S. has threatened additional sanctions if the referendum is held. Canada and
Japan have already joined the United States and the European Union in
leveraging sanctions against Russia for its actions in Ukraine. These measures,
targeting individuals and companies instead of the Russian population as a
whole, appear to be a tepid response to recent events.
However,
the threat of additional sanctions is having an effect on the international
financial community.
The
rating company Standard and Poor’s has downgraded Russian sovereign debt from
BBB to BBB-, one step above junk status. As a result, Western banks are
refusing to refinance Russian debt. Moscow has had to cancel some bond auctions
for lack of buyers. The Russian 10-year bond yield stands at 9.7 percent,
higher than Eurobond yields from such troubled countries as Greece and
Portugal.
Citigroup
has reduced its exposure by 9 percent, JP Morgan has reduced its exposure by 13
percent, and Bank of America has reduced its exposure by 22 percent. Capital
flight from Russia in the first quarter of 2014 was over $63 billion,
approximately the same amount as left the country in all of 2013.
The
actions of the financial community by itself may not be enough. In his keynote
address to the Baltic American Freedom League’s annual dinner on Saturday, U.S.
Congressman Ed Royce, R-Fullerton, noted the way to make Moscow pay for its
behavior is through energy policy. Royce noted that 52 percent of the
government of Russia’s annual budget comes from hydrocarbon revenues. “If you
want to hurt Moscow,” he said, “drive down the price of energy.”
Royce
proposed exporting liquefied natural gas, also known as LNG, from the United
States to Europe.
This
would reduce Europe’s dependency on Russia for its gas and oil, increase the
depressed prices in the United States, and decrease the price for gas in
Europe. In addition to the congressman’s suggestions, there are a number of
other steps the world community could take.
The
European Union can stand fast in opposing the construction of the Gazprom-owned
and operated South Stream pipeline. This energy conduit is designed to send 63
billion cubic meters per year of natural gas to Europe. The pipeline will not
increase the total amount of Russian gas delivered, however, as its sole
purpose is to bypass the pipeline through Ukraine. This will allow Russia to squeeze Ukraine whenever Moscow desires, while keeping Europe “hooked” on
Russian energy.
At
the same time, the EU can support the Southern Energy Corridor, designed to
bring non-Russian natural gas to Europe. Kazakhstan could increase its flow of
oil to Europe through the underutilized Baku-Tblisi-Ceyhan pipeline.
Poland,
Hungary and Slovakia can reverse the flow of natural gas in the pipelines
transiting those countries, to provide Ukraine with non-Russian gas at prices
at least $100 per thousand cubic meters less than what Russia is charging that
country.
Middle
Eastern energy production should be maximized. This requires a number of
political advances. If peace were restored in the Libyan Civil War, harmony
brought to the warring factions of Iraq, approvals granted to the Kurdish
regional government to export its product, Iranian production brought back into
the international mix and the gas deposits of the Eastern Mediterranean
exploited, the quantity of oil and gas would increase markedly and Moscow’s
revenues would decline precipitously.
James J. Coyle,
Ph.D., is the Director of Global Education at Chapman University, and the Executive
Director of the Caspian Research Institute, an online think tank.
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