No Plan? No Strategy? No Problem! Syria and Trump’s Russia Policy

Michael Kofman is an Analyst at CNA Corporation and a Fellow at the Wilson Center’s Kennan Institute:

….Past American attempts at coercive diplomacy with Russia have typically lacked actual coercion, and a theory of how to gain leverage over Moscow. It will be rather startling if 59 cruise missiles turn out to be the answer to this problem. Thankfully, the previous administration tested a lot of theories that didn’t work, from empty threats at the United Nations, to disproven assumptions on what influences Russian behavior, to narratives about quagmires. It would be best for Trump’s White House not to set us on this journey, mounted on that very same broken wheel (or one just as broken in a different way).

In a contest of wills, Trump needs a plan to establish coercive credibility rather than hoping to scare the Russians with expensive fireworks. The number one mistake previous administrations made with Moscow is that, rather than deal with the Russia that is, they all imagined a Russia that suited them more, and then tried to have relations with that imaginary country.

The reality is, this administration’s only current leverage with Russia is the notion inside the Kremlin that a cooperative agenda with the United States is still possible. That’s a dubious proposition which offers the U.S. some advantages. Russia still hopes that there are carrots the United States might offer, or at the least it could get respite in the current confrontation and consolidate gains. If the administration is able to drag out this perception, rather than demonstrating that the White House is rapidly reverting to classical archetypes that Moscow anticipates, then there is an opportunity to obtain concessions.

Given that a cooperative agenda between the United States and Russia is well-nigh impossible, where does that leave us?

Source: No Plan? No Strategy? No Problem! Syria and Why Trump’s Russia Policy Is Off to a Rough Start

The Road to a Free Europe Goes Through Moscow | POLITICO

From James Kirchick, author of The End of Europe: Dictators, Demagogues and the Coming Dark Age:

….The West wants peace and Russia wants victory. These desires are incompatible. Those who cherish liberal democracy and wish to see it endure must accept the fact that a Russian regime is once against trying to debilitate and subvert the free world. While Russia today may not be as conventionally strong an adversary as it was during the Cold War, the threat it poses is more diffuse. Russia is as much an enemy as it was a generation ago, and we need to adopt a more hardheaded, adversarial footing and mentality to defeat it. In a globalized world where the cancerous influences of Russian money and disinformation can more easily corrupt us than when an Iron Curtain divided Europe, and where the ideological terrain is more confusing than the Cold War’s rigid bipolarity, containing Russia presents different challenges than it did a generation ago, not the least of which is maintaining Western unity against a more ambiguous adversary skilled at fighting asymmetrically. We must steel ourselves once again for a generational, ideological struggle in defense of liberal values and open societies and avoid self-inflicted wounds. Never during the Cold War, for instance, was there such a traumatic break within the Western political alliance as Britain’s departure from the European Union—nor, for that matter, did an overtly pro-Russian leader ever capture the presidency of the United States.

Source: The Road to a Free Europe Goes Through Moscow – POLITICO Magazine

How to survive the next four years

Donald Trump

We are entering a time of uncertainty.

Donald Trump started his presidency with a continuation of the confrontational approach that he exhibited throughout his campaign, with scant regard to unifying the country and governing from the middle. Instead he has signed off on two controversial oil pipelines that, while they would create jobs, have met fierce opposition and are likely to polarize the nation even further.

Subtlety is not Trump’s strong point. Expect a far more abrasive style than the Obama years.

Trump also signed off on constructing a wall along the border with Mexico. Again, this will create jobs and slow illegal immigration — two of his key campaign promises — while harming relations with the Southern neighbor.

Another key target is the trade deficit. The US has not run a trade surplus since 1975. Expect major revision of current trade agreements like NAFTA, which could further damage relations with Mexico, and a slew of actions against trading partners such as China and Japan who have used their foreign reserves in the past to maintain a trade surplus with the US. Floating exchange rates are meant to balance the flow of imports and exports on current account, minimizing trade surpluses/deficits over time. But this can be subverted by accumulating excessive foreign reserves to suppress appreciation of your home currency. Retaliation to US punitive actions is likely and could harm international trade if not carefully managed.

Apart from wars, Trump and chief strategist Steve Bannon also seem intent on provoking a war with the media, baiting the press in a recent New York Times interview:

Bannon delivered a broadside at the press…. saying, “The media should be embarrassed and humiliated and keep its mouth shut and just listen for a while.” Bannon also said, “I want you to quote me on this. The media here is the opposition party. They don’t understand this country. They still do not understand why Donald Trump is the president of the United States…..”

Trump and Bannon’s strategy may be to provoke retaliation by the media. One-sided reporting would discredit the press as an objective source of criticism of the new presidency.

On top of the Trump turmoil in the US, we have Brexit which threatens to disrupt trade between the UK and European Union. If not managed carefully, this could lead to copycat actions from other EU member states.

Increasingly aggressive steps by China and Russia are another destabilizing factor — with the two nations asserting their global power against weaker neighbors. Iran is another offender, attempting to establish a crescent of influence in the Middle East against fierce opposition by Saudi Arabia, Turkey and their Sunni partners. Also, North Korea is expanding its nuclear arsenal.

We live in dangerous times.

But these may also be times of opportunity. Trump has made some solid appointments to his team who could exert a positive influence on the global outlook. And confrontation may resolve some long-festering sores on both the economic and geo-political fronts.

How are we to know? Where can we get an unbiased view of economic prospects if confrontation is high, uncertainty a given — the new President issuing random tweets in the night as the mood takes him — and a distracted media?

There are two reliable sources of information: prices and earnings. Stock prices reflect market sentiment, the waves of human emotion that dominate short- and medium-term market behavior. And earnings will either confirm or refute market sentiment in the longer term.

As Benjamin Graham wrote:

“In the short term the stock market behaves like a voting machine, but in the long term it acts like a weighing machine”.

In the short-term, stock prices may deviate from true value as future earnings and growth prospects are often unclear. But prices will adjust closer to true value as more information becomes available and views of earnings and prospects narrow over time.

We are bound to experience periods of intense volatility over the next four years as hopes and fears rise and fall. These periods represent both a threat and an opportunity. A threat if you have invested on hopes and expectations rather than on solid performance. And an opportunity if intense volatility causes prices to fall below true value.

It will pay to keep a close watch on technical signals on the major indexes. As well as earnings growth in relation to index performance.

Also, keep a close eye on long-term indicators of market risk such as the Treasury yield curve and corporate bond spreads. These often forewarn of coming reactions and will be reviewed on a regular basis in future newsletters.

Obama’s Wrong: The New Cold War’s Only Just Begun | The Daily Beast

Michael Weiss writes: “From propaganda to missile deployments, Russian leader Vladimir Putin is testing Obama’s resolve—while claiming to be America’s victim”…..

Putin has demanded, as the price for restoring at least the first frozen accord, that Washington end all sanctions against Russian officials; pay reparations for any losses sustained from those sanctions as well as retaliatory ones imposed by Russia against U.S. entities; cancel the Magnitsky Act, a landmark human rights law passed in 2012 aimed at penalizing corrupt and murderous Russian officials; reduce NATO personnel forces to levels they were as of 2000; and essentially rewrite the original radioactive disposal deal so America bears the brunt of the responsibility for it.

In response to what was, even by Putin’s standards, a risible attempt at extortion, the Russian opposition’s Leonid Volkov wrote on Facebook: “He should have asked for Alaska back, eternal youth, Elon Musk and a ticket to Disneyland.”

….what a turn for Obama, who has spent the last eight years insisting that the “Cold War is over” only to spend the eve of his departure witnessing its renascence.

The response should be to talk softly and continue polishing that big stick.

Source: Barack Obama’s Wrong: The New Cold War’s Only Just Begun – The Daily Beast

Why Putin will fail | UPI.com

From Harlan Ullman:

Frozen conflicts are not in Russia’s long-term interest. Of course, while the short-term aim of preventing Georgia and Ukraine from joining NATO because of contested borders is working, the long-term economic damage done to Russia will prove politically destructive. Putin certainly is riding a political tiger. However, he has no clear exit strategy for safely dismounting this dangerous beast. That is a fundamental predicament….

What should the United States do? First, common sense and not confrontation is the best means to exploit Putin’s political weaknesses. By threatening Russia, his public will rally around Putin. This does not mean granting concessions. It means being smart not petulant. It also means shifting NATO’s strategy to local defense based on a “porcupine” posture with emphasis on Stinger-like anti-air and Javelin anti-vehicle missiles all reinforced by alliance capabilities to blunt Russian cyber, propaganda, intimidation and other non-conventional forms of war.

Second, the United States needs to dial back on belligerent rhetoric. By all means plan for “full spectrum war.” But do not use a PR bullhorn to announce what is being done. Teddy Roosevelt applies — speak softly but carry a big stick….

Source: Why Russian President Vladimir Putin will fail – UPI.com

WWI: The biggest mistake in modern history | Niall Ferguson

Niall Ferguson argues that Britain’s decision to intervene in 1914 turned the conflict between Germany and Russia from a continental war into a global war.

Ferguson argues that the consequences of that decision by Britain in 1914 lasted 75 years, until collapse of the Soviet Union in 1989. With the benefit of hindsight, and the resurgence of Russia, I would say we still live with those consequences today.

Goldman Cuts 2017 Oil Price Forecast Due To Slower Market Rebalancing | Zero Hedge

Goldman Sachs has cut its long-term crude oil forecasts:

The inflection phase of the oil market continues to deliver its share of surprises, with low prices driving disruptions in Nigeria, higher output in Iran and better demand. With each of these shifts significant in magnitude, the oil market has gone from nearing storage saturation to being in deficit much earlier than we expected and we are pulling forward our price forecast, with 2Q/2H16 WTI now $45/bbl and $50/bbl. However, we expect that the return of some of these outages as well as higher Iran and Iraq production will more than offset lingering issues in Nigeria and our higher demand forecast. As a result, we now forecast a more gradual decline in inventories in 2H than previously and a return into surplus in 1Q17, with low-cost production continuing to grow in the New Oil Order. This leads us to lower our 2017 forecast with prices in 1Q17 at $45/bbl and only reaching $60/bbl by 4Q2017.

But these forecasts are premised on a Chinese recovery:

Stronger vehicle sales, activity and a bigger harvest are leading us to raise our Indian and Russia demand forecasts for the year. And while we are reducing our US and EU forecasts on the combination of weaker activity and higher prices than previously assumed, we are raising our China demand forecasts to reflect the expected support from the recent transient stimulus. Net, our 2016 oil demand growth forecast is now 1.4 mb/d, up from 1.2 mb/d previously. Our bias for strong demand growth since October 2014 leaves us seeing risks to this forecast as skewed to the upside although lesser fuel and crude burn for power generation in Brazil, Japan and likely Saudi are large headwinds this year.

While production growth continues to surprise:

…..This expectation for a return into surplus in 1Q17 is not dependent on a sharp price recovery beyond the $45-$55/bbl trading range that we now expect in 2016. First, it reflects our view that low-cost producers will continue to drive production growth in the New Oil Order – with growth driven by Saudi Arabia, Kuwait, Iran, the UAE and Russia. Second, non-OPEC producers had mostly budgeted such price levels and there remains a pipeline of already sanctioned non-OPEC projects. In fact, we see risks to our production forecasts as skewed to the upside as we remain conservative on Saudi’s ineluctable ramp up and Iran’s recovery.

We expect continued growth in low-cost producer output
Saudi Arabia, Kuwait, UAE, Iraq, Iran (crude) and Russia (oil) production (kb/d)

Tyler Durden has a more bearish view:

While there is much more in the full note, the bottom line is simple: near-term disruptions have led to a premature bounce in the price of oil, however as millions more in oil barrels come online (and as Chinese demand fades contrary to what Goldman believes), the next leg in oil will not be higher, but flat or lower, in what increasingly is shaping up to be a rerun of the summer of 2015.

Source: Goldman Cuts 2017 Oil Price Forecast Due To Slower Market Rebalancing | Zero Hedge

McCain: Putin’s diplomacy part of military strategy

Jamie McIntyre on Russian actions in Syria:

……Last month at the prestigious Munich Conference on Security Policy, [Senate Armed Services Chairman Sen. John McCain] blasted the “cessation of hostilities” agreement hammered out between Moscow and Washington, as simply playing into Putin’s hands.

“It is no accident that Mr. Putin has agreed on a cessation of hostilities when he did. We have seen this movie before in Ukraine: Russia presses its advantage militarily, creates new facts on the ground, uses the denial and delivery of humanitarian aid as a bargaining chip, negotiates an agreement to lock in the spoils of war, and then chooses when to resume fighting. This is diplomacy in the service of military aggression,” McCain said.

Source: Source: U.S. ‘surprised’ by Russia pullout from Syria | Washington Examiner

The Man Who Got Russia Right | Foreign Policy

Susan Glasser on George Kennan, author of the famous Long Telegram that formed American policy during the Cold War:

….Based in Moscow a few years later, Kennan saw the historical contradictions that undermined the foundation of the Soviet regime — while at the same time giving it a veneer of power. Russians were “used to extreme cold and extreme heat, prolonged sloth and sudden feats of energy, exaggerated cruelty and exaggerated kindness, ostentatious wealth and dismal squalor, violent xenophobia and uncontrollable yearning for contact with the foreign world, vast power and the most abject slavery, simultaneous love and hate for the same objects.” Looking for an insight into the forces competing for political supremacy in Russia today, you could do far worse than Kennan’s observations.

Today we would call that bi-polar.

……”The strength of the Kremlin lies largely in the fact that it knows how to wait,” Kennan wrote. “But the strength of the Russian people lies in the fact that they know how to wait longer.”

Source: The Man Who Got Russia Right | Foreign Policy

A New Cold War? Russia’s Confrontation with the West

Michael A. McFaul, Stanford University professor of political science; director and senior fellow, Freeman Spogli Institute for International Studies; Peter and Helen Bing Senior Fellow, Hoover Institution; Stanford University, former ambassador to Russia (2012 – 2014).

Colin’s Comment:
Here is what I see as the big picture:

  • The current confrontation is more about the actors than about long-term strategy or geopolitical conflict
  • Russia is part of Europe, culturally and economically, and its destiny lies in the West
  • A strong Russia is in the West’s interest — a weak Russia invites encroachment from China in the East
  • The West has to build a strong deterrent to aggression from the current regime
  • While leaving the door open to long-term participation in European democratic structures, scientific cooperation and trade.

“Putin is not some evil genius from a James Bond movie, he’s the despotic leader of a failing state under immense fiscal strain.”

~ David Llewellyn-Smith from Macrobusiness, commenting on the arrangement between Saudi Arabia and Russia to freeze crude oil output.

Putin: Despotic leader of a failing state….

Russia’s protesting truckers | Euromaidan Press

Vladimir Putin’s worst nightmare — a trucker-Maidan.

Dmytro Homon writes:

First, the protest is spontaneous and is not coordinated from a single center. For that reason, the police have been unable to shut it down because other drivers immediately take the place of the ones detained.

Second, the protestors are not the usual “fifth column” opposition by intellectuals. These are, for the most part, Putin’s voters — tough guys who in elections vote for stability…….

Third, all Russians clearly understand the complaints of the truck drivers. They boil down to the fact that greedy authorities are trying to take the shirt off the back of simple workers…..

For these reasons the usual methods of Russian propaganda are not very effective. The postings of the Olgino trolls (professional commentators from the “troll factory” in the Olgino district of St. Petersburg — Ed.) that these protests are organized by the opposition look ridiculous. Attempts by mass media to ignore the truckers completely are equally ineffective because they have become a major topic in social networks……

Meanwhile, more and more trucks have been arriving to Moscow. What will happen next is a question with no answer yet. In fact, even the truckers themselves do not know what to do after the blockade.

If the Russian authorities use brute force, this risks repeating the fate of Yanukovych. Putin, however, has nowhere to flee from the Kremlin. Well, perhaps to Syria…..

Read more at Russia’s protesting truckers and Putin | Euromaidan Press

Airport Donetsk: There are no victors in war

A surprisingly even-handed documentary of the battle for Donetsk Airport. The overwhelming hardship and sacrifice endured by both sides merely underlines this stark message:

There are no victors in this conflict. Only victims.

The war should not have happened. It was instigated by a cynical politician 1000 kilometers away (in Moscow) to stoke nationalist fervor and shore up dwindling public support. His callous disregard for the sacrifice of Russian and Ukrainian lives, and the economic hardship endured by his fellow citizens — a price he considers worth paying to extend his presidency — highlights what the world faces.

He considers the West weak and vacillating. The sooner we face down this threat, the safer our world will be. These words from William Shakespeare (King John, Act 5, Scene 1) still apply today:

Be great in act, as you have been in thought;
Let not the world see fear and sad distrust
Govern the motion of a kingly eye:
Be stirring as the time; be fire with fire;
Threaten the threatener and outface the brow
Of bragging horror: so shall inferior eyes,
That borrow their behaviors from the great,
Grow great by your example and put on
The dauntless spirit of resolution.
….What, shall they seek the lion in his den,
And fright him there? and make him tremble there?
O, let it not be said: forage, and run
To meet displeasure farther from the doors,
And grapple with him ere he comes so nigh.

Do the BRICS still matter?

From Marcus Degaut at CSIS:

BRICS text

The group consists of two emerging industrial economies (China & India) and three commodity exporters (Brazil, Russia, South Africa). Their interests are bound to diverge, especially when slowing Chinese growth drives commodity prices lower.

Read more at CSIS: Do the BRICS still matter?

Putin’s Crimean gamble: Russia, Ukraine, and the new Cold War

 

From the Brookings Institute:

Since the time of Catherine the Great, Crimea has been a global tinderbox. Most recently, the world was stunned when the forces of Russian President Vladimir Putin invaded and seized Crimea in March 2014. In the months since, Putin’s actions in Crimea, eastern Ukraine and, more recently, in Syria have provoked a sharp deterioration in East-West relations. Basic questions have been raised about Putin’s provocative policies, his motivations, and the future of U.S.-Russian relations—and whether the world has now entered a new Cold War.

On October 26, the Foreign Policy program at Brookings hosted Nonresident Senior Fellow Marvin Kalb for the launch of his new book, “Imperial Gamble: Putin, Ukraine, and the New Cold War” (Brookings Institution Press, 2015). In “Imperial Gamble,” Kalb examines Putin’s actions in Ukraine, the impact on East-West relations, and how the future of the post-Cold War world hangs on the controversial decisions of one reckless autocrat, Vladimir Putin.

Joining the discussion were Thomas Friedman, The New York Times columnist, and Nina Khrushcheva, professor of international relations at The New School. Brookings President Strobe Talbott provided introductory remarks, and Martin Indyk, Brookings executive vice president, moderated the discussion.

Crude testing support

Crude futures (Light Crude December 2015 – CLZ2015) are testing support at $44.50 per barrel. Follow-through below $44.00 would signal another test of primary support at $40. Supply continues to exceed demand with the Saudis and Russians cranking up production and cutting prices to secure key markets in the US and China. Breach of $40 would offer a (long-term) target of $30*. Recovery above $50 per barrel is most unlikely unless there is a serious disruption to supply.

WTI Light Crude December 2015 Futures

* Target calculation: 40 – ( 50 – 40 ) = 30

Oil market showdown: can Russia outlast the Saudis?

Dalan McEndree writing in Oilprice.com :

While the sharp decline in crude prices has saved crude consuming nations hundreds of billions of dollars, the loss in revenues has caused crude exporting countries intense economic and financial pain. Their suffering has led some to call for a change in strategy to “balance” the market and boost prices. Venezuela, an OPEC member, has even proposed an emergency summit meeting.

In practice, the call for a change is a call for Saudi Arabia and Russia, the two dominant global crude exporters, which each daily export over seven-plus mmbbls (including condensates and NGLs) and which each see the other as the key to any “balancing” moves, to bear the brunt of any production cuts…….

Despite the intense pain they are suffering in the low price Crudedome, both the Russian and Saudi governments profess for public consumption that they are committed to their volume and market share policies.

This observer believes the two countries cannot long withstand the pain they have brought upon themselves — and this article only scratches the surface of the negative impact of low crude prices on their economies. They have, in effect, turned no pain no gain into intense pain no gain and set in motion the possibility neither will exit the low price Crudedome under its own power.

Read more at Oil market showdown: can Russia outlast the Saudis? | Oilprice.com

Containment 2.0 [podcast]

Always interesting to listen to James Sherr of Chatham House discuss global geo-politics.

http://www.rferl.org/audio/27310324.html

Can the West contain a Russia that is determined to upend the international order — but which at the same time is deeply integrated into the global economy?

The latest Power Vertical Podcast tackles these questions with guests James Sherr, an associate fellow with — and former head of — Chatham House’s Russia and Eurasia program, and Daniel Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and author of the books Theories Of International Politics And Zombies and the recently published The System Worked: How The World Stopped Another Great Depression.