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Some headlines and quotes that tell an unfamiliar story.

* ZeroHedge: Putin Hints At New Russia-Saudi Axis: “No Reason To Spoil Saudi Ties Over Khashoggi Killing (Oct 18)

Russian President Vladimir Putin finally weighed in on the disappearance (and purportedly brutal slaying) of Saudi dissident Jamal Khashoggi during a speech in Sochi on Thursday. His verdict? Russia doesn’t have enough information about the incident to justify spoiling their relationship with Saudi Arabia (and, by extension, the rest of OPEC, which has mostly backed Saudi Arabia during the burgeoning diplomatic crisis), according to Reuters.

Putin’s take is hardly surprising: Russia’s work with OPEC, which created a new Russia-Saudi axis to help manage global oil production and push up prices, has helped revive the Russian economy (while angering President Trump). Of course, Russia would be overjoyed to step in to any void left by the US if lawmakers force a rupture in the US-Saudi relationship, as evidenced by the recent agreement to sell Russian S-400 missiles to the Saudis.

* Angered By Saudi Plan to Purchase Russian S-400, Trump Admin Exploiting Khashoggi Disappearance to Force Saudis to “Buy American”

* OilPrice.net: Is Saudi Arabia About To Enter The Arctic Gas Game? (Oct 18)

Aramco is “seriously” studying investing in the planned Arctic LNG plant, Saudi Energy Minister Khalid Al-Falih told reporters in Riyadh on February 14 at a joint briefing with his Russian counterpart. Saudi King Salman is keen to strengthen energy ties between the two nations following their oil-cuts collaboration that helped drive crude’s recovery, according to Al-Falih.

* Turki Aldakhil, editor of Al Arabiya, Saudi’s RT: US sanctions on Riyadh would mean Washington is stabbing itself (Oct 14)

Imposing any type of sanctions on Saudi Arabia by the West will cause the kingdom to resort to other options, US President Donald Trump had said a few days ago, and that Russia and China are ready to fulfill Riyadh’s military needs among others. No one can deny that repercussions of these sanctions will include a Russian military base in Tabuk, northwest of Saudi Arabia, in the heated four corners of Syria, Israel, Lebanon and Iraq.

At a time where Hamas and Hezbollah have turned from enemies into friends, getting this close to Russia will lead to a closeness to Iran and maybe even a reconciliation with it.

* Saudi Arabia’s MBS calls Russia, China, Japan, and France “best friends” at “Davos in the Desert” investor conference (Oct 26)

MBS has opened a meeting with Russian, Chinese, Japanese and French businessmen who attended an economic forum in Riyadh despite the Khashoggi murder scandal, with the words: “Now we know who our best friends are, and who our best enemies are.”

The remarks were quoted to Russia’s Ria Novosti news agency by Mikhail Piotrovsky, director of the State Hermitage Museum, who witnessed the meeting.

* RT: Saudi Arabia to invest in Russian-Chinese wealth fund

Riyadh is planning to provide major investments into the Russian Direct Investment Fund (RDIF) with the fund expected to be renamed, according to the head of RDIF, Kirill Dmitriev.
“In the near future, we will announce that Saudi Arabia is investing in RCIF and the fund will be renamed as the Russian-Chinese-Saudi Fund,” Dmitriev said at the Future Investment Initiative (FII), Saudi Arabia’s international investment forum. …

The fund reportedly invests at least 70 percent of its capital in Russia and member countries of the Commonwealth of Independent States, and up to 30 percent – in China.

Some longer analyses:

* Melkulangara Bhadrakumar:

When Russian President Vladimir Putin’s legacy is recorded in his country’s history, the breakthrough in the relations with Saudi Arabia will stand out as a personal achievement. Prompted by a gloomy backdrop of precipitous crash in oil prices to $20-30 per barrel in 2014 (compared to $100 just three years ago), Russia began tentative outreach to Saudi Arabia as to how to retrieve a seemingly hopeless situation that sharply reduced the income of the two energy superpowers from their oil exports.

Meanwhile, the Russian-Saudi axis took the nature of an institutional forum known as OPEC+, which is expected to have a full-fledged secretariat soon alongside the OPEC secretariat in Vienna, to be headed by Russia. The two countries began by tentatively marking production level for oil producing countries at a six-month interval, but the Russian-Saudi axis has since acquired such traction already that they are contemplating a long-term, open-ended agreement to continuously, permanently finesse the supply and demand for oil to keep the prices stable and provide underpinning for growth of the world economy.

The Putin-MBS personal equation played a big part in al this. MBS has been a frequent visitor to Moscow and his last visit for the opening ceremony of the FIFA World Cup 2018 was the occasion when he met Putin and the Saudi and Russian thinking veered round to search for a framework for the long-term coordination in the oil market. …

Without doubt, the TASS interview with Al-Falih has been timed to remind the international community that it will be catastrophic to isolate Saudi Arabia over the Khashoggi affair. (Incidentally, RDIF issued a statement on October 20 welcoming the “decisive actions” taken by the Saudi authorities on the Khashoggi case and pointedly affirming support for the Crown Prince’s flagship project known as Vision 2030.) The signals from Moscow so far have scrupulously avoided any criticism or censuring of Saudi Arabia, unlike the US and European countries. …

Reports have appeared that preparations are under way for a visit by Putin to Saudi Arabia. All in all, what emerges is that Russia is standing up to be counted as a friend when Saudi Arabia needs it most. Surely, the Russian support provides much “strategic depth” to the Saudi regime at this juncture when it faces an existential crisis – especially MBS.

* Alexander Mercouris (2014):

Whilst Saudi Arabia and Russia have taken opposing sides in the Syrian conflict, they are allies in Egypt — a far more important country to Saudi Arabia than Syria is — where both Russia and Saudi Arabia are strong supporters of the military government of General Sisi. Both also share similar perspectives on the threat posed by the Islamic State. Moreover, personal relations between President Putin of Russia and King Abdullah of Saudi Arabia are known to be very good, whilst personal relations between King Abdullah of Saudi Arabia and President Obama of the US are said to be rather bad. Saudi Arabia has no obvious reason for wanting to weaken Russia and it is very unlikely to say the least that the Saudis would agree to harm themselves by waging an economic war against Russia simply because Obama and the US wanted them to.

Well, you get the idea.

Russia’s relations with Saudi Arabia are pretty good. They have been good for longer than expected. And they’ll be improve commensurately with the strength of the Western response over Khashoggi.

Russia will benefit from this far more than Saudi Arabia does. It also has zero obligations to Khashoggi or the factions he’s associated with (neoliberalism.txt, Muslim Brotherhood).

Consequently, it has absolutely zero incentives to join the Western campaign against the Saudis.

I am actually pretty skeptical about Saudi Arabia’s long-term prospects (see Saudi Arabia: The IPhone vs. the Ikhwan from a year ago), and the Khashoggi affair has just reinforced that impression.

However, there is no reason not to profit while the going is good, and evidently the people around Trump are of a similar mindset – even if they have to make some symbolic concessions to neoliberalism.txt, which was cool with the slaughter of thousands of Yemenis but has finally been triggered into outrage as soon as one of its own members was fell under the knife.

 
• Category: Economics • Tags: Assassinations, Russia, Saudi Arabia 
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  1. No one can deny that repercussions of these sanctions will include a Russian military base in Tabuk, northwest of Saudi Arabia

    I don’t see what the point of such a base would be, except providing an opportunity for jihadis to kill Russian servicemen. Are there even any signs that Russia would be interested in such a base?

    • Agree: melanf
  2. I remain unconvinced: KSA is not going to invest money in Russia to reward *silence*. KSA is not going to suspend its American contracts. There is no geopolitical realignment in the offing.

    If we’re going to talk about fallout from Khashoggi case, then the maximum that could be achieved is MbS will be replaced by a less nuttier figure. This will improve stability in the Middle East and it is something that all sensible people should support.

    • Replies: @Raphael
    , @Mitleser
  3. Cyrano says:

    I don’t know if it’s possible to commit hara-kiri with one of them swords that the sheiks use for dancing purposes, but if US alienates SA over the Khashoggi affair, that’s exactly what US will effectively do – commit suicide.

    US abandoned the gold standard in the early 70’s, only to replace it few years later with the black gold standard – the oil of SA. That was back in those prehistoric times when it was still OK to use racially charged adjectives such as black gold – in these enlightened times it would most likely be called African-American gold.

    Anyhow, back to the topic, the US economy is in large part dependent on the dollar being a global currency, and nothing provides better support for the dollar in this role than using it as a primary currency in the oil trade. One has to remember that Saddam Hussein and Muammar Gaddafi paid with their lives because they were starting to get ideas about selling oil for something other than the dollar.

    I don’t see US ditching SA anytime soon. After all this is the same country (US) that allowed SA to get away with at least genetically participating in the World Trade Center bombing and choosing instead to retaliate against the mountains of Afghanistan, rather than raising objections about the nationality of the WTC attackers.

    • Replies: @Beckow
  4. Interesting quotes. I think this Khashoggi drama is, if anything, more of a symptom of changing geopolitical undercurrents. It is certainly not the driving cause of changing geopolitical relations, which are always driven by changes in power; or rather by changes in the perception of power . Perceived changes in political will and power are bound to induce realligments in the lesser, i.e. economically and/or militarily dependent, powers.

    In general, US power is perceived to be on decline. It is clear that the US can only achieve initial military success but is unable to impose its political will after that; which would be necessary to make its expeditionary wars economically sustainable. Although it still holds sway over the world oceans, this is going to be contested in the near future. At the same time the US is loosing interest in the Middle East thanks to its oil boom and faces now the challenge to contain China, to be able to focus on regenerating its industrial potential.

    Russia on the other hand has demonstrated repeatedly that its military is part of an effective political instrumentarium (think of Chechnia, Georgia, and Syria). It is abundant in natural ressources, especially energy, and in all basic necessities, so it can pursue an independet foreign policy that it can underwrite militarilly and economically (think in use value not exchange value).

    It is also bound to catch up industrially. It has the human potential and a quite impressive educational system to transform this potential into valuable human capital (that is, if it inherited even only half of the Soviet educational system). Also, improvements in IT are leveling off (Moores Law is breaking down), so it is only a matter of time, when the major powers will have qualitatively the same productive capacities in this area.

    Russias weak point is its political system. It needs to ensure political and social stability, and incentives for industrial growth, which the current European and American economic modells clearly cannot deliver as is demonstrated by the still festering Euro Crisis and the deindustrialization of the US (China is only part of the problem, it is really systemic). Going down this path leads only to a corrupt, repressive oligarchy in power.

  5. Raphael says:
    @Felix Keverich

    What an amateur take. Thankfully, there are filters to prevent people as strategically short-sighted and rigid as you from ever working in diplomacy or foreign policy.

  6. @Raphael

    If we are going to talk about the Russian diplomacy and filters, these guys ran a cocaine smuggling operation from their embassy in Argentina. I think Russian diplomacy could benefit from some of my “rigidity”.

    • LOL: Anatoly Karlin
    • Replies: @Raphael
  7. @Frederic Bastiat

    The US is far richer and much more economically powerful than its competitors and its economy is vigorously surging ahead while China stagnates thanks to its debt load. Russia has a one-horse economy that is about as large as the Benelux region while having five times the population. Outside of corrupt basket-cases like Greece and Italy the rest of Europe is doing fine.

  8. @Ali Choudhury

    Is this supposed to be a troll post? The rate at which China is “stagnating” is faster, than the rate at which US is “surging”. And Russia is (by European standards) “doing fine”: 1.7% growth in 1H 2018.

  9. Mitleser says:
    @Felix Keverich

    Depends on what you mean with “less nuttier figure”.
    MbS is preferable to other aggressive Saudis who are closer to the American establishment.

  10. @Raphael

    Felix Keverich is one of our better commenters and a staple of this blog.

    I don’t always agree with him, but you need to step off.

  11. @Felix Keverich

    America’s economic growth rate at present is notable given how rich we are already.

    China’s growth deceleration is likewise notable.

    I usually leave China bear issues to Polish Perspective, but since he’s not around I’ll drop some links in the open thread.

    Note that China bearishness is, for me at least, a TEMPORARY perspective. I ultimately agree with Karlin’s thesis.

  12. Raphael says:
    @Felix Keverich

    I’m not talking about people with the mindset of petty crooks infiltrating the MFA – that’s a discipline problem, not one arising from an absence of strategic rigidity. Instead I take issue with your suggestions (here and in the other Khashoggi thread) that Russia should be so strategically rigid as to effectively handicap itself from seizing these kinds of black swan opportunities.

    When saturation coverage of the affair in the Western press suggests that the US Deep State wants Khashoggi gone, likely in order to be replaced an equally inbred but more pliant sibling/cousin of his, the last thing Russia should do is to virtue signal, or concern itself with ‘stability’ or what ‘sensible’ people would think, or be afraid of looking ‘pathetic and craven’. Instead, it should be looking to play the field and pit different Saudi factions against each other by using formal and informal diplomacy, arms sales, agreements to coordinate oil production, etc., all with a view to undermining the equivalent maneuvering done by the US Deep State. And all this can be done without a grand ‘geopolitical realignment’, because there is such thing as short-term tactical gain, steady accumulation of which keeps one’s options open, exerts pressure on enemies, and can often snowball into long-term gain.

    • Replies: @Felix Keverich
  13. @Felix Keverich

    Well, Europe is already rich. Russia not so much and should at least be trying to match Polish growth rates – Polish GDP rose by 5.2% in H1 and this in a country with no energy resources to export. Long-term China will be a genuine global superpower. Before then there will be a good decade or two where growth will be nowhere near as strong due to the catastrophic debt built up. The US will remain dominant for at least that period.

    https://www.bloomberg.com/quicktake/chinas-debt-bomb

    • Replies: @Dmitry
  14. @Raphael

    The way I see it, publicly naming MbS as a murderer does not imperil our ability to do any of these things. Russia can “play the field” all it wants, you just need to understand that at the end of the day KSA will remain a US client regime, and it’s up to US to ultimately decide exactly what form Khashoggi fallout is going to take. US will not allow Russia to extract any material benefits from this situation. Best we can hope for is that MbS goes.

  15. @Ali Choudhury

    I do not remember any major foreign policy success the US has had in the last decade. I mean outside its backyard. Any suggestion?

    Even the Euro-poodles are barking up against the US on its Iran and Russia policy. North Stream II is being build. Still, no SWIFT sanctions against Iran.

    Europes economic problems are another topic. But European economists from left to right agree that the situation is not sustainable. Italy and Greece were always corrupt and they were competitive on the world markets before the Euro (thanks to their own currencies). The Euro is a zero sum game. Germany gains only at the expense of the south. As soon as they try to force their austerity on Italy, it will be over.

    • Replies: @Ali Choudhury
  16. Beckow says:
    @Cyrano

    …US economy is in large part dependent on the dollar being a global currency

    That is a key point: US living standards are derived from the rest of the world agreeing to use US issued money as its trading and reserve currency. Any significant messing around with sanctions and currency restrictions can fatally undermine the status of the dollar.

    SA’s oil helps, but so does Japan/Asia/EU willingness to park their surpluses in dollars. That’s is what gives dollar its value, and that value in turn allows US to live better than they would as a normal country. Russia’s strategy is to slowly undermine trust in the eternal dollar. With some significant help from the clueless US officials (starting with the nitwit Obama), they have been making some progress. It took decades and a unique historical event (WWII) to anoint the dollar as the holy medium of exchange and store of value. It might take decades to undermine it, but at this point Russia seems committed to it. Even very mild moves by SA toward Russia are part of this strategy.

    A weaker player in an unstable system can always undermine the stronger player by gently prodding him to destabilise the rules. What West doesn’t get is that by not taking their own rules seriously they are playing into Russia’s strategy. By the time they realize what is going on it might be too late.

    • Replies: @Cyrano
    , @Thorfinnsson
  17. Dmitry says:
    @Ali Choudhury

    Poland is part of the EU now, and will converge with EU general economic levels. Moreover, it was not part of the Soviet Union, and its economy structure and geopolitical situation, all probably quite different.

    It’s not a comparable economic or political situation to Russia, and economies are very uncoupled.

    Russia’s economic situation, is to be compared more closely with non-EU countries, oil-exporting countries, which are part of the post-Soviet space. This is Kazakhstan and Azerbaijan. The general economic parameters (GDP per capita and growth levels) for Kazakhstan and Russia, are almost the same now, and Azerbaijan is falling behind.

    • Replies: @Ali Choudhury
  18. @Frederic Bastiat

    Greece is highly corrupt, tax evasion and bribery are baked into economic life there. After they joined the euro in 2001 by lying about their economic performance, they raised public sector salaries by 90% over the next ten years. Thst wss thanks to bankers assuming it was as safe to lend to them as any other European country. Now they cry over the austerity that was a self-created disaster. By rights they shoukd have been thrown out of the euro and left to fend for themselves. Other than shipping and tourism I doubt they were competitive at anything.

    Italy had four recessions between 2000 and 2010 and an annual growth rate of 0.25%, up there with Haiti and Zimbabwe. That is not because of the euro but because the domestic economy is riddled with regulations designed to protect special interests. Up until last year it was illegal for an Italian pharmacist to own more than one pharmacy. Unless a bonfire is made of those of all of those backward socialistic measures the country will continue to slowly circle around the plughole.

    In the last ten years the US has mostly avoided committing major foreign policy errors like engaging in costly shooting wars. The economy continues to fire on all cylinders. All they need to do is continue as they are.

    • Replies: @Frederic Bastiat
  19. @Frederic Bastiat

    Russia on the other hand has demonstrated repeatedly that its military is part of an effective political instrumentarium (think of Chechnia, Georgia, and Syria).

    The real Frederic Bastiat would never have written this turgid rubbish. Choose another name and don’t defile an interesting political econonmist.
    Effective political instrumentarium !!!! It would be even worse in German – it would be one word !

  20. @Dmitry

    Kazakhastan is 63% Kazakh. Azerbaijan is 92% Azeri, Russia is 81% ethnic Russian and Poland is 97% Polish . Makes more sense to compare Russia to another large historically Christian, Slavic former communist country no? Russia’s industrial base was probably in much better shape than Poland’s at the end of WW2 so it was probably starting from a healthier position although that’s just a guess on my part.

    • Replies: @Dmitry
  21. Cyrano says:
    @Beckow

    I am no economist and I have no idea how the international financial system functions, but I just remember what president Sarkozy said at the “successful” conclusion of the campaign to bring “democracy” to Libya. Sarkozy said (about Gaddafi): He was trying to destroy the international financial system, and we couldn’t allow him to do that. All that drivel about Gaddafi being tyrant and bringing democracy was nonsense. The motives were clearly something else (they always are). What is also clear from Sarkozy remarks is that not only US is dependent on the dollar being a global currency, but the entire rotten west is. That’s why they back the US in every adventure, because if the US dollar collapses, so does the whole western financial system.

    • Replies: @Thorfinnsson
    , @inertial
  22. @Beckow

    This is nonsense.

    The US is a vast continental economy and is much less trade dependent than most other major economies.

    Trade is only one quarter of US gross domestic product, compared to about three-fifths for the world as a whole.

    A weaker Dollar will (eventually) cause imports to decline and exports to rise, which is in any case a current policy objective of the current administration.

    • Replies: @Beckow
  23. @Cyrano

    The alleged rationale was Libya attempting to replace the Central African Franc with a gold-backed Dinar as well as oil interests for French firms.

    But really, Sarko just wanted to feel like a big shot and was easily talked into it by the idiot Bernard Henri Levy.

    The international financial system doesn’t need the Dollar. It’s simply convenient.

  24. inertial says:
    @Cyrano

    It’s far more likely that Quadduffy was killed because he was in a position to destroy Sarko’s own financial system.

  25. @Ali Choudhury

    Like I said, without the Euro they could have easily regained competitiveness by devaluing their currencies. This is how they have done it in the past. Now they have only austerity and wage depression as an option. It will not work in Italy. Also, Spain has a higher unemployment rate than Italy at about 15%. The Euro Crisis is all about productivity, wages and prices. German productivity growth surged ahead of its wage growth (it was a political decision), thats how they gained competitiveness ahead of the South, which did the exact opposite. It creates problems, if you do this within a currency area.
    But we will see how this business cycle will end for the Euro. I fear, it will not be pretty.

    Re the US: Power is demonstrated by actions. The US is lately having problems to enforce its political will in the foreign policy arena. It surely looks like a decline in power.

    • Replies: @Ali Choudhury
  26. @Frederic Bastiat

    I agree, the euro has been a big drag on those economies, but it cannot be blamed for the major issues they face, Nobody asked Greece to accumulate a debt mountain, Spain’s economy has managed to grow by 50% since 1997 compared to 10% in Italy, Spaniards now are richer than Italians in PPP terms which few would have predicted in the 1990s. The euro was an idiotic idea that really should only have been adopted by Germany and the Benelux countries, But it doesn’t look like there is much of a constituency for trying to exit it.

  27. Dmitry says:
    @Ali Choudhury

    Economic situations are analogous.

    With Poland, there is no analogy. Poland has completely different situation economically and geopolitically. What is the main benefit and challenge to Poland’s position? Challenge is outflow of working population to wealthy parts of the EU. Benefits – economic integration with wealthy neighbours like German, free-trade bloc and EU investment.

  28. Beckow says:
    @Thorfinnsson

    Having dollar with a de facto ‘like gold‘ status is very beneficial to US. It allows for creation of an essentially virtual payment system to buy stuff from around the world, divvy up small sums (also created from thin air) to allies, and over-consume outside of US borders.

    Yes, US would – or will – do a lot better than most other geographies if the global dollar-based trade collapses. You are right about the extremely resource-rich basis for this – that’s how the dollar status originated in the 1945-55 period. But the distribution would shift to producers inside US and away from the current elite of globalist beneficiaries. That is desirable, but it will be extremely volatile and bumpy. It might not be worth it for most people.

  29. Mitleser says:

    Probably not an assassination.

    Their agents hastened his death (manslaughter), possibly murdered him (premeditation); they certainly disposed of his corpse (class-3 felony). As they made their escape, their aircraft was intercepted in the air over the first country, but the ruler of that country allowed the aircraft to fly on safely. Almost everything subsequently announced by officials of each of the three countries, or leaked by them to their media; also, almost everything announced by employers and spokesmen for the dead man, is incomplete, misleading, fabricated, disinformation, or or bald-faced lies.

    Saudi and Egyptian sources say they are sure the Saudi consulate in Istanbul was not bugged, as the Turks claim. Technical experts believe the report of audio evidence relayed by Khashoggi’s telephone to his Turkish companion outside to be false. Arab sources dismiss the claim that Khashoggi, who had been negotiating for some time with Mohammed’s brother Prince Khalid bin Salman, the Saudi Ambassador to the US, needed to go to the Istanbul consulate for papers related to a purported divorce.

    The Arab sources believe that Khashoggi thought he was negotiating – exactly what the sources don’t know – and that the October 2 meeting became violent when Khashoggi refused to return to Saudi Arabia. These sources believe rendition of Khashoggi had been planned by the Saudis — forced if Khashoggi resisted — but not assassination. The Turkish-source media reporting of the cutting-up of Khashoggi’s body is not believed by the Arabs.

    The Arab sources, as well as Russian sources, are equally dubious about the US intelligence version of the case as they are towards the British version, and Israeli leaks. This Turkish press report reveals much higher level Turkish involvement in the case as it was unfolding on October 2, than has been reported in the non-Turkish press; there has been no independent corroboration. “It is understood that at one point, the plane carrying a part of the Saudi team was stopped in the skies above Nallihan (a rural district in the Ankara Province) and ordered into a holding pattern, before being allowed to continue its way. If the plane had been forced to land, and its passengers put under questioning, a great deal of now unknown information would have been obtained.”

    http://johnhelmer.net/the-russian-interest-in-the-khashoggi-case/

    Would explain why it looks so incompetent yet the perpetrators managed to get out of Turkey.
    They did not intend to murder him in Turkey, “just” abduct him.

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