Backfired! by Michael Hudson + Hudson: China and Russia Trade Deals Due To Sanctions

Updated: Dec. 14, 2014

by Michael Hudson
Writer, Dandelion Salad
December 12, 2014

U.S. New Cold War policy has backfired – and created its worst nightmare

1. The world’s geopolitics, major trade patterns and military alliances have changed radically in the past month. Russia has re-oriented its gas and oil trade, and also its trade in military technology, away from Europe toward Eurasia.

The result is the opposite of America’s hope for the past half-century of dividing and conquering Eurasia: setting Russia against China, isolating Iran, and preventing India, the Near East and other Asian countries from joining together to create an alternative to the U.S. dollar area. American sanctions and New Cold War policy has driven these Asian countries together in association with the Shanghai Cooperation Organization as an alternative to NATO, and in the BRICS moves to avoid dealing with the dollar area, the IMF and World Bank austerity programs.

Regarding Europe, America’s insistence that it join the New Cold War by imposing sanctions on Russia and blocking Russian gas and oil exports has aggravated the Eurozone’s economic austerity, making it even more of a Dead Zone. This week a group of Germany’s leading politicians, diplomats and cultural celebrities wrote an open letter to Angela Merkel protesting her pro-U.S. anti-Russian policy. By overplaying its hand, the United States is in danger of driving Europe out of the U.S. economic orbit.

Turkey already is moving out of the U.S.-European orbit, by turning to Russia for its energy needs. Iran also has moved into an alliance with Russia. Instead of the Obama administration’s neocons dividing and conquering as they had planned, they are isolating America from Europe and Asia. Yet there has been almost no recognition of this in the U.S. press, despite its front-page discussion throughout Europe and Asia. Instead of breaking up the BRICS, the dollar area is coming undone.

This week, President Putin is going to India to negotiate a gas and arms deal. Last week he was in Turkey diverting what was to be the South Stream pipeline away from southern Europe to Turkey. And Turkey is becoming an associate of the Shanghai Cooperation Organization integrating the BRICS in a defensive alliance against the United States, now that it is obvious that it has no chance of joining the EU.

A few months earlier, Russia announced the largest oil and gas trade and pipeline investment ever, with China – along with a transfer of missile defense technology.

2. There has been almost no discussion of this vast geopolitical realignment in the U.S. media, largely because it represents a defeat for the New Cold War policy pushed by the neocons over the past year, ever since Russia convinced President Obama not to go to war in Syria, which had been a neocon military aim.

Their response was to isolate Russia and economically attack its trade and hence balance-of-payments strength: its gas and oil trade with Europe. Last February, U.S. diplomats engineered a Pinochet-style coup d’état in Ukraine, and used this as a lever to reverse Europe’s buildup of trade with Russia.

The aim was to punish Russia’s economy – and in the process to press for a regime change against Putin, putting in place a more pro-U.S., neoliberal Yeltsin-style regime by causing a financial crisis.

The assumption underlying this policy was that since the Soviet Union was dissolved in 1991, Russia was turning toward Europe to re-integrate its economy and society. And Europe for its part sought to make Russia its main energy supplier – of oil as well as gas, through new pipelines being built to circumvent Ukraine. Northstream ran via the North Sea to northern Europe. Southstream was to be built via Bulgaria and Serbia to southern Europe – mainly Italy and Austria.

Germany for its part looked to Russia as an export market, to earn the rubles to pay for Russian gas and oil. Other European countries stepped up their agricultural trade with Russia, and France agreed to build the enormous Mistral aircraft carrier. In short, the ending of the Cold War promised to bring a much closer economic and hence political integration of Russia with Europe – cemented largely by a gas pipeline network.

3. U.S. Cold Warriors have tried to disrupt this trade. The plan was to isolate Russia and lock Europe into the U.S. economy. The dream was to export U.S. shale gas to Europe, squeezing out Russia and thereby hurting its balance of payments.

This was always a pipedream. But what U.S. heavy-handed military confrontation with Russia really has done is to drive a political wedge between the United States and Europe. Last week, Putin gave a speech saying he found little point in negotiating with European politicians, because they simply followed U.S. orders via NATO and by U.S. pressure on German politicians, French politicians and other European politicians.

In following U.S. New Cold War confrontation, Europe has been acting against its own economic interests. Its neoliberal Third Energy law has effectively blocked Russia from having any economic gain in selling more gas to Europe.

4. Rentier pipeline politics

The U.S. neoliberal plan has been to insist on non-Russian control of the pipelines that would carry Russian gas and oil to Europe. The idea is to use this pipeline as a tollbooth to siphon off the revenue that Russia had hoped to receive from Europe.

Here’s the best way to understand what has occurred. Imagine that the United States had a law that owners of buildings could not also own the elevators in them. This would mean that the owners of the Empire State Building, for instance, could not own their elevators. Some other investors could buy the elevators, and then tell the building’s renters or other occupants that they would have to pay a fee each time they rode up to the 40th floor, the 50th floor, the 60th floor, and so forth.

The result would be that instead of the landlord receiving the rental value of the Empire State Building, the elevator owner could demand the lion’s share. Without access, the building would be a walk-up and its rents would fall – unless renters paid the elevator tollbooth.

This is what would happen with an oil pipeline owned by parties hostile to Russia. It is to avoid this that Gazprom insisted on building its own pipeline, under Russian control, to prevent rent-extracting investors. When Europe sought to block this by pretending that “free markets” meant separating pipeline ownership from the gas suppliers, it was trying to carve out a rent-extraction opportunity to siphon off Russian gas revenue.

The European Commission earlier had pressed an anti-Gazprom policy last year, in the process of imposing its austerity program on Greece. It insisted that Greece pay the IMF for having bailed out foreign bondholders by selling off assets in the public domain. The largest asset was Greece’s oil rights in the Aegean and its commercial oil-related infrastructure. When Gazprom was the largest bidder, Europe blocked the sale. The result has been to impose even deeper austerity on Greece, polarizing that nation’s politics in an increasingly anti-EU and anti-IMF stance – and hence, anti-US Cold War politics.

5. What is occurring is a radical shift in U.S.-European diplomacy – in a way that according to textbook theory is inherently unstable and unworkable.

Europe has inverted the major textbook premises of how national diplomacy is conducted. Instead of basing this diplomacy on economic and commercial interests, it is subordinating these interests to U.S. control. And as for Europe’s membership in NATO, instead of viewing military policy as an arm of foreign diplomacy, it is subordinating economic diplomacy, trade patterns, gas and oil supplies, export markets for industry and agriculture all to serve NATO’s military ends.

The objective no longer is military security as originally was the logic for NATO. Europe’s economic realignment against Russia threatens to bring military conflict directly into the continent as a result of the proxy war in Ukraine.

It has been said that nations do not have friends or enemies, only national interests. Most of these are economic. But today in Europe, German Chancellor Merkel seems to be ignoring German and other European economic interests. Still obsessed with her hatred of the East German Communist regime, she sees in Russia only an enemy, not an economic market and supplier of raw materials and customer for German manufactures and technology. Likewise, her political love for the United States deems it Europe’s natural friend, without taking into account how its New Cold War policy toward Europe – “Let’s you and Russia fight” – undercuts European continental interests and exacerbates its austerity.

The United States for its part has adopted von Clausewitz’s statement that war is an extension of foreign policy by other means in a very limited form: war seems to be the only lever that the United States is using in its foreign policy these days. And lacking an ability to mount a ground invasion, its only real threat is to tear economies apart by aerial bombing, as it has done to Iraq, Afghanistan, Libra and now Syria – and is doing by backing a proxy war in Ukraine.

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. His book summarizing his economic theories, The Bubble and Beyond, is now available. His latest book is Finance Capitalism and Its Discontents. He can be reached via his website,


President Putin Pledges to Increase Trade with China and Asia to Rebuke Sanctions

TheRealNews on Nov 13, 2014

400 billion dollar 40 year oil and gas deal between China and Russia is a response to the new cold war pressure and sanctions on Russia says Michael Hudson, Distinguished Research Professor of Economics at the University of Missouri, Kansas City.



Updated: Dec. 14, 2014

Russia Rejects South Steam Pipeline Through Europe

TheRealNews on Dec 14, 2014

Hudson Report: Europe effort to join the US in isolating Russia has backfired, it makes no sense build an oil and gas pipeline for Russian exports that would be owned and leased to them by US and Europe


from the archives:

Noam Chomsky: The Official Mission of NATO Became to Control the Global Energy System; To Control the World

Losing Credibility: The IMF’s New Cold War Loan to Ukraine by Michael Hudson

Bruce Gagnon and Rick Rozoff: US Plans ‘First Strike’ On Russia + Full Story of Nazi Attack on Odessa + Welcome to Nulandistan

19 thoughts on “Backfired! by Michael Hudson + Hudson: China and Russia Trade Deals Due To Sanctions

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  7. It seems all of the Commonwealth nations are having the same problem: Following in the footsteps of the maniacal UnUnited States. No typo, folks! The red & the blue states are real, but the distinct differences between them are decreasing as ignorance of the issues and general apathy of the public is on the rise.

    Prof. Hudson is usually right on the mark with his astute analysis pertaining to the economic melodrama on the world stage and how the political actions and alliances of various nations are changing, as a result of American dictatorial power around the world.

    NATO is nothing more than military gangsters doing the dirty work for Western capitalists and the Masters of the Universe, aka the “international bankers.”

    NATO can be likened to what the FBI used to call “Murder Incorporated,” which were professional killers used by the national crime syndicate or Mafia, in the good ol’ USA. Or, NATO is like Hitler’s private army, the Waffen SS, who sometimes fought alongside the Regular Germany Army, but normally on their own.

    Citizens of Greece, Ireland, and Spain are fed up with the bankster imposed “austerity” measures that the spineless and corrupt political bosses (I can’t say “leaders” because they aren’t) have done to their standard of living and are united in changing the system towards a more egalitarian one. It’s spreading throughout Europe with new political parties forming and promoting sustainable living principals, employee-owned companies, and a new awareness of the fragile state of the Planet.

    It remains to be seen on whether or not the current trend of the merciless plundering of Mother Nature can be reversed and a vigorous “back to nature’ movement permeates the consciousness of Planet Earth’s inhabitants, and also the abolition of the capitalist system with it’s insatiable desire for more and an end to what is called “war.” Working people killing other working people for the sake of the wealthy and the politicians who do their bidding.

      • Hear, hear!

        I agree with Lo, with Chomsky and the far more intelligent and comprehensive analytic consensus of those who can think for themselves…this capitalist system is inherently corrupt, inefficient, unfair, ruthless, unrepresentative, fanatical and fundamentally flawed ~ because it is so far removed from “natural law” & and the notion of self-determination.

        It is bonded servitude, In fact I think it is far closer to theological Calvinism than many people realize. In other words it is a dogmatic “religious doctrine.”

        It seems to me we should not conflate technology (applied science) with this crass neolib economic “theology.” We need smart and sophisticated tech but we don’t want it to be controlled and peddled by “pious” oligopoly-capital interests.

        The same applies in trumps to agribusiness, that in my opinion altogether falls into the same dissonant dogmatic trap set by these limited pragmatic assumptions based on ideologically driven, overly obsessive and poorly reasoned premises…

        …anyone can be a “shareholder” (that golden carrot) without active participation or social engagement, but to be a “stakeholder” you have to be involved in a community of intent, ie wield your own motivational stick and stand accountable.

        This is the crucial difference in my opinion.

  8. This Eurasian turn of events is just staggering ~ the implications are devastating for both the EU and US, as the NATO gyre spins off its demented axis….Cameron sold the UK out, buying into the shale myth and now we see how clever Putin has been, leaving Obama gasping.

    Putin seems to have achieved what evaded M Gorbachev’s grasp, a new Eurasion super-alliance. The US/Canada/Australia know-it-alls are screwed. The debt-dollar looks enormously fragile.

    This is really catastrophic energy news for “developed” N Europe, all except for Germany, that is approaching total reliance on renewable energy technologies. Russia is actually also offering an alternative Turkish hub to compensate for the S Stream into central and eastern Europe.

    The UK deserves everything it gets, or fails to get, for the arrogance and conceit of our old Etonian square-headed twits have displayed.

    As the Irish say, fekkin eejits…

  9. Here in Australia we were informed that as a result of export of gas we now have to pay a increase of price of gas for the domestic market, since being informed some months ago the future cost of gas to be expected, now we have fuel and gas costs returning to a all time low, yet the consumer has to now to pay the increased cost of gas, I am now writing on micro economics, how is this situation resolved? is the capitalistic system all a scam? why is not micro economics the same as macro economics?
    As capitalism develops and the technology, it is noted a curious situation emerges, as Soloman Trujullo developed Telstra, to a more efficient machine organization, although a foreigner, I thought no one in Australia capable? as Trujullo with his smirk departed with his 33 million dollars for his services to the Australian public of many sacked employees, as I waited this week on the end on the phone line for 53 minutes of piped music the courtesy of Telstra, before a operator came on line, the so called efficiency of time? for who? the public are treated like a underclass, by those who rule, reflecting a macabre and sinister attitude now so pervasive that we must all know the elite are the dark blotch now is menacing all that are still able to think.

    • Don, yes, capitalism is a scam. The corporations always make money and if they lose, the tax payers bail them out. It’s Socialism for the rich but not for us.

      I’m sorry to hear about this in Australia.

    • It’s totally crazy Don!

      So far as I can figure, Australia, like Canada, has been completely appropriated by corporate interests.

      Tony Abbot is some kind of 2 dimensional “yesbot” cut-out ~ without any metaphysical depth or intelligent vision. His idea of an economic policy is ruthless, cut-throat theft and indigenous genocide.

      Frankly, anyone who is prepared to further disenfranchise and betray Aboriginal communities, & sacrifice the Great Barrier Reef for a Chinese “business opportunity” deserves to be marooned on an isolated rock as far away as possible, with a sack of coal for rations.

      I like your comment about micro/macro economics…only it just goes to show what a dysfunctional chasm exists in the toxic brains of these alien imbeciles…

      • Thanks David, yes Abbott is ruthless I do not want to say it , is a tyrannical dark shadow, in his wandering overseas, he advertised, we are open for business, meaning hey corporations come and ransack Australia’s natural resources, more than any other country, Australia is inflicted with ownership by overseas interests, the zero rate of interest given by some countries makes Australia a sitting duck you can borrow millions of yen or American dollars ship it to Australia and get 2.5% 3.00 % I have heard that some Australian individuals who know the ropes, individuals borrow Japanese money and get 6% or much higher returns here, we are told to work harder? hard work prevents the ability to work out how the game works.

        • It’s a terrible dilemma Don ~ they preach morality and practice corruption ~ so, many are resigned to join them if they can’t beat ’em…they conform…one of the deep seated reflexes in countries like Canada and Oz, is the sense of colonial deference to “authority” ie “our” almighty God.

          I think it still exists to a great extent in the US too, so I believe the best cure is to acknowledge, remembering and regenerating indigenous cultures, and that means reanimating their sacred landscapes that have been so horrendously degraded…and abused.

          Possibly the most effective weapon is truly original Art, but I don’t just mean pretty pictures…after all, a whole environment can be interpreted symbolically.

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