Sunday, July 27, 2014

Eurasian Economic Union as a global catalyst, by Ioannis Michaletos

Note to readers: From time to time R.I.M.S.E. presents articles of a wider and strategic interest of security affairs not solemny related to the main theme of "Southeastern European radical Islam".

In order to portray and enlighten around the wider geopolitical trends that eventually reflect on every aspect of the contemporary regional security sphere. 

In a December 2012 article the theme of the so-called "Eurasian Union" was touched upon, based on the trends ahead and the importance of Ukraine as a main factor and point of interest. (Link: 

Nowadays it looks almost certain from an analytic prospective that the initiatives over the past five years of the Russian diplomacy towards engaging and forming the Union, has led to a backlash from American interests that eventually found their personification into the battlefield of Eastern Ukraine.

The aspects of the Eurasian Economic Union seem to emerge more often in a solemn former -USSR geopolitical spectrum; nevertheless the consequences are "Eurasian" in nature and global in essence. First of all the Union is since 29th of May 2014 an official geopolitical sphere, due to the formal signing of it by the heads of state of Russia, Belarus, and Kazakhstan. Concurrently it looks positive, according to all political announcements and media reports, that Armenia, Kyrgyzstan and quite possibly Tajikistan will soon be included. A week before on the 21st of May 2014, a 30 year old agreement for the supply of China of Russian natural gas worth around 400 billion Dollars was signed upon, along with another 50 bilateral deals. Thus at a first glance it looks like the plan is going ahead speedily, despite or because of the Ukrainian crisis. The annexation of the vitally geostrategic Crimea Peninsula by Russia on the 18th of March 2013 is another key point into understanding the ramifications of the Eurasian Union.  

The combined assets of the three original members plus three incoming ones can be break down as follows: Combined GDP in PPP terms and real purchase power of around 4.2 trillion USD, by bearing in mind that due to the socio-economic context in these countries a percentage of a "parallel economy" runs to the figure of 50% of the acknowledged and numbered one. The existence of powerful and all-pervasive organized criminal structures in combination of a tradition for under the counter transactions and unregulated markets permits the omission of perhaps a couple of trillion worth of Dollars of GDP. Moreover by taking into account the assets held by these states such as proven and highly prospective reserves of oil, gas, commodities, and others, we reach more than 60 trillion Dollars equivalent of assets with little public or private debt exposure. In that sense and in theory the Eurasian Economic Union stands out to be as one of the richest unions in the planet and on relative good level with NAFTA, EU and the Chinese state.   

In terms of population , the combined numbers gives us around 194 million of permanent residents and in those around 10 million immigrants should be included with a total active working force of  around 105 million people and in global terms 6th in line. In military and security terms the vast majority of the Union's strength lies in the Russian forces which constitute the second in the world in fire power and projection. In terms of monetary investment there are various definitions and estimations. If we take into account that the standing armies examined are mostly conscript based and able to use the whole of public infrastructure and private one at whim, then an assessment would be that the combined defense budget in adjustment terms in around 150 billion Dollars per year, a little below China and 3rd in global terms (Note: In comparison with professional armies such as US one). 

For all the above reasons, the establishment of the Eurasian Union constitutes a major historical point and one that should be closely examined in all levels and must be correlated with all peripheral anomalies in the wider Eurasian region, Ukraine crisis non withstanding. 

The relationship with China and the Union is of outmost importance for examining what lies ahead in terms of the global balance of power. The initial deal that was mentioned above that stipulates around the export annually of 38 bcm of gas from Russia to China, is also coupled with ongoing talks between the two countries to establish yet another gas export route stretching from Western Siberian fields to Western China with similar amounts of gas -whereas the already signed deal is from Eastern Siberian reserves to the North-Eastern industrial Chinese zone. 

The above is confirmed by the fact that China plans to import around 63 billion cubic meters in 2014, which is 19% more than the previous year, almost half of that coming via LNG fleets and the rest from central Asia states via pipelines. By 2020 its total domestic demand is calculated to reach 420 billion cubic meters, which means that 250 billion cubic meters up to 300 bcm should be imported depending on the growth of the local production. Should these predictions streaming from think tanks and corporations alike, come into fruition, there are no capable supplies of securing Chinese needs, unless all Central Asian states production is sourced to China along with a new pipeline system bringing Russian gas, plus additional LNG shipments from virtually across the whole planet. 

The above can in theory mean that by the early to mid-2020's Russia could export around 80 bcm of gas into China in long-term contracting, which is 60% of what it exports currently to EU countries. That alters the leverage and balance of powers between Moscow vis-a-vis Brussels. Furthermore the planning of certain LNG projects that mostly aim to the Chinese and Asian markets can add by 2025-2030 between 25 to 65 bcm yearly as Russian exports that in terms of the examined Union will boost its overall geo-economic reach. Similar analogies could be made of the oil sector. In 2013 according to the CNPC Research Institute of Economics and Technology, China increased its exports of refined oil products by 17.5% with an additional 30% increase expected for 2014, reaching a total of 313 million tons for the whole year. 

Crude oil demand is expected to reach 518 million tons in 2014 which is around 11 million barrels a day and natural gas consumption will reach 186 billion cubic meters, up 11% from 2013, according to China National Petroleum Corporation. Crude oil imports will increase by around 7% reaching 300 million tons and almost 60% of the total consumption is met by imports, a trend that will continue well into the future due to the stabilization of the domestic Chinese oil production and it’s mid to long term drop, whilst its demand continues to grow.

It is of interest to note that Beijing in order to proceed into coherent business plans and control accelerating import expenses, it proceeds into long-term contracting with countries such as Russia, which in mid-2013 agreed to supply China over the next 20 years with crude oil priced at 355 billion Dollars. Russian companies and most importantly Rosneft will receive the capital in the next decade, thus enabling them to proceed into massive investments for their own reserves and boost their finance position, while China will be able to acquire newly sourced oil and conduct energy policy based on known oil prices despite the ups and downs in the world energy index on daily. Similar deals have been signed lately with Kazakhstan, Venezuela, Turkmenistan, Uzbekistan, and Burma, Angola, Mozambique and others, worth more than 100 billion Dollars.

Judging from the above an "energy entente" is being formed conclusively between the newly formed Eurasian Union and China, which is coupled with massive railway projects linking mainland China with EU markets via Eurasian Union, along with continuous expansion of pipeline links across this massive region and out of reach of the strong point of potential Union adversaries such as US with its primal Navy prowess. The addition of a neutral to friendly India and the somewhat inclusion of the Shiite factor in the Middle East, centered around Iran, further completes the picture, along with the trial to form the so-called BRICS as a parallel structure to the traditional global financial instruments of IMF, World Bank and others with the crucial assistance of the main Latin American states, such as Brazil, Venezuela and Argentina.  

By taking into account and from a strategic point of view the consequences of the formation of the Eurasian Union, it is becoming crystal clear that such massive and long-term change of balances in the world cannot be left out without significant tremors that spine through the entire system of international relations. Wars, conflicts and intense diplomatic brinkmanship come as a result whilst the race for resources reaches a climax. Regarding the latter it should be stressed that a trend of great importance is the emergence of powerful National Oil Companies (NOC) which according to the World Bank, accounted for 75% global oil production and controlled 90% of proven oil reserves already in 2010. Some of the world's biggest conventional oil and gas reserves are to be found in their proprietary either in Russia with notable examples of Gazprom, Rosneft, in Saudi Arabia (Aramco), Venezuela (PVDSA), Algeria (Sonatrach), Iran (NIOC) and others. In essence "Western" energy multinationals due to political reasons mostly, are effectively excluded from vast and low cost production and eventually consumers in the EU and USA have to pay larger amounts in their monthly bill year by year.

The world in the 19th century was characterized by the "coal age" and in the 20th by the oil one. The present century will have competing sources composed by oil, gas, coal and renewables coming about with a heavy price due to introduction of the largest number of humans in the planet into the consumer age, requiring great efforts to sustain such a global community, not least in environmental terms. The above certainly constitutes a great challenge for almost all societies in the world for decades to come.

The international community thus seems ripe for another global war that will result into a stabilization of the system into new parameters and into the wishes of those actually winning the war. On the other hand the existence of nuclear weaponry and the maturation of international politics to the extent of being horrified of a massive and global bloodbath diminish that risk. In any case the coming generation will be certainly characterized by its intensity and upturns along with insecurity for a significant number of the global populous.