Putin Bypasses US Sanctions, Signs Mega Energy and Defense Deals with China
Jeffrey C. Borneman | October 14, 2014
"During a three day visit to Moscow that ended Tuesday, Chinese Premier Li Keqiang signed 38 new deals with Russia, including a big expansion in Russian gas sales to China, reports the Christian Science Monitor (CSM).
The US sanctions barring Russia from the world's capital markets has caused it great economic damage by destabilizing Energy prices and Russia's currency, causing massive Inflation for goods and services for the average Russian citizen.
With Brent (oil) trading at about $85 bbl, Russia is receiving $20 bbl below what it admits is break even for its budget. The IMF and IEA project lesser DEMAND for Energy for the balance of 2014 and revised downward world DEMAND for all of 2015. Putin did what any Energy salesman would do: Go to the most hungry buyer and recommit to supply larger quantities for an extended period for a guaranteed income.
The CSM also reported, "Russian President Vladimir Putin sealed a huge $400 billion gas contract with China in May (here), but the fresh deal would reportedly double (emphasis mine) that. Moscow also reportedly agreed to sell some of its most advanced weaponry to Beijing."
Investors will note that Defense sales are never far behind Energy sales. China is expected to sign the long-awaited contract to import 24 Sukhoi Su-35 fourth-generation fighters from Russia, as well as purchase advanced Saturn AL-41s engines to power the fighters.
But that's not all ... The capital market sanctions (trading cash) will also be addressed with China's Export-Import Bank agreeing to provide extensive credit lines to buy Chinese products. The most "politically charged deal" of the group is a $24 billion yuan-ruble currency swap between their central banks, "which will be used to finance bilateral trade using local currencies rather than US dollars."
Of course the key phrase there is "bilateral trade using local currencies rather than US dollars."
China is apparently not interested in the West's squabble over Ukraine, but chooses to focus on climbing the ladder of the world stage. It certainly doesn't want to militarily provoke the US at this point as it remains in the Speed Chess mode of building its War machine. But China is eagerly leveraging the Russian sanctions for its own benefit.
Investors note: Energy prices cannot stay down for long (even with lessening DEMAND, see here). Unlike Reagan who, in 1986 assisted in the collapse of the Soviet Empire by driving down Energy prices, the doubling of the Russian/China Energy deal will show the sanctions are both ineffective and counter-productive.
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