June 27th, 2014
in Op Ed
by LEAP/Europe 2020, Leap2020.eu
Last month our team anticipated that the Ukrainian crisis would provide the conditions for a jolt . Due to lack of space and because this jolt is much more evident in the rest of the world, we tried to identify the reasons for this jolt to only from a European perspective. But this month we are going to take a closer look at the consequences of the phenomenal acceleration of all the “world afterwards ” structural trends which have long been at work.
After nearly 6 years of blocking the normal development of systemic transition, a blocking caused by a flood of dollars leading to a renewed artificial global addiction to the US dollar, history is now taking its course. It isn’t as if during these six years nothing has happened. On the one hand, the US has failed to relaunch its economy (a process now made visible by the -1% US growth made public at the end of May) and the actual situation for Americans has only got worse (private debt , pensions, cities,…); and on the other, the emerging nations have used – and contributed to creating – this “pause” to prepare themselves for the ultimate and inevitably painful stages of completing the crisis which we are now approaching.
The Ukrainian crisis and the characteristic aggression against the legitimate interests of one of the major players in the emerging multipolar world, Russia, as well as the US’ attempted annexation of Europe, have blown the whistle for the end of the game. The whole world has thus realized that the US was on its last legs, henceforth dangerous and that it had become urgent to move on.
Moreover, some no longer have a choice, beginning with the Russians who are forced to lay the foundations of a vast global geopolitical reconfiguration by signing the famous gas supply agreement with China , this new energy supply route which changes everything and to which we will come back later.
We are going to examine the drivers and characteristics of this major reconfiguration on three regions: Asia, the Middle East and Europe, and finally propose avenues for reflection on the need to think about the interregional relations of tomorrow.
ASIA – WHAT THE RUSSIAN-CHINESE GAS DEAL CHANGES
But for now let’s take a closer look at the consequences of the Russian-Chinese gas deal.
First of all this deal, which envisages the start-up of a gas pipeline from 2018, makes Russian gas extremely competitive throughout the whole of Asia which until now has depended on liquid gas supplies by sea (LNG), whose transport costs drive prices upwards. It’s hardly surprising that, henceforth, Japan will ignore diplomatic reticence and get closer to the Russians and Chinese in the hope of getting a small extension of the pipeline to its own territory.
Since Fukushima and the shutting down of all its nuclear reactors, Japan has seen its trade balance fall into the red due to energy imports. Cheaper gas would obviously be welcome.
For the whole of Asia the arrival of a direct Russian-Chinese gas pipeline allows the negotiation of prices downwards with other suppliers (Canada, Qatar). But with natural gas prices being indexed to those of oil, the only two possibilities of creating room for manoeuvre are by reducing transport costs or bringing in shale gas. On the first point, the likely reductions probably won’t be enough to undercut Russian gas prices without putting the whole sector in crisis ; as regards the second point, first, the shale gas mirage has begun to vanish and, second, it’s only exportable within the framework of a free trade agreement.
These last two points explain the hyperactivity seen in British Columbia for some time: acceleration of shale gas drilling and the scheduling of 10 LNG terminals, in the knowledge that since March 2012 Canada has been negotiating a free trade agreement with Japan which seemed about to be concluded last March, like the one which has just been signed with South Korea (just by chance).
But de facto, just as Japan is dragging its heels signing the TPP with the US, grains of sand seem to have slipped into the workings of Canadian-Japanese negotiations. The fact is that, despite all the Canadian efforts to overtake the Russian-Chinese gas pipeline, the fastest oil company (Petronas) won’t be ready to supply Japan before 2019, a year after the Russians.
Another consequence will be Canada’s strategic alliance with China, whose huge energy needs leave room for other suppliers on the basis of competitive prices. Because, in any event, China and the emerging nations have just won an important battle in the gas price war. Prices charged in Europe and the US have nothing in common with those charged to emerging nations (for example Qatar sells LNG at $3 to the US and $12 to India ).
In reality, the emerging nations are probably paying for the West’s energy and the pressure that they can now exert on the suppliers is bad news for Western energy prices.
As we see, the Russian-Chinese gas deal serves a rationale of regional realignment. The Sino-Japanese dispute will find common ground for resolution thanks to this good value bonanza, irresistible to all players in the region. Therefore, the gas pipeline currently serves as the regional integration of a wider Asia, focused around three major areas: Russia, India and China, whose positive-sum combination left experts skeptical a year ago
India, by its reaction to an Indian diplomat’s arrest and body search in Washington by the US authorities , had already marked its emancipation from US and Western tutelage. And Narendra Modi’s election as Prime Minister has just sealed the end of India’s Anglo-Saxon era and the country is bravely entering the Asian era . The principal feature of Modi’s foreign policy is putting India on an equal footing with the other major powers of China, Russia and the US and turning India into a regional power .
It’s true that with a population of 1.3 billion and growth of nearly 5%, India is right to want to be counted in concert with the major powers. As regards energy, its present (number three oil importer after the US and China) and future energy needs are huge and Modi’s priority is energy independence which he is targeting in the setting of major investments in solar energy. Nevertheless, the Russian gas pipeline interests it of course, so Russia is currently preparing a deal with India for supplying its gas en route to China . In addition, good relations between Modi and Abe because of their ideological proximity (nationalist), is a new goad likely to bring Japan closer to Asian dynamics.
As we see in the article cited in the preceding footnote, South Korea and Japan are the next on the Russian gas deal list, two countries which aren’t neutral in the US’ “Asian pivot” strategic reasoning, pivots which risk losing a great deal of their motivation opposing China in the setting of such a tightening of trans-Asiatic links around the Russian gas bonanza.
As regards South Korea, it’s a clever tactic. It won’t be connected to the “Silk Route” gas pipeline (passing through India and China) but to a pipeline through North Korea starting at the Russian offshore gas fields in the Sakhalin Islands. Combined with a rail project following a similar route, that will open up North Korea and lay the foundations for a reunification of the two Koreas from the North and not the South, following an Asian rather than a Western reasoning.
In this new configuration, the last pawns of the US’ Asian pivot strategy, such as the Philippines or Vietnam, won’t delay in supporting this tightening, finally respectable, of a wider multipolar Asian region and soul guarantor of independence (in any case no longer under US tutelage) for its small and medium-sized members who will have every interest in pursuing their sub-regional alliances to guarantee the preservation of their sovereignty even more than ever at the heart of this yet to be organized super entity.
Regarding Vietnam, it seems it currently finds itself on the “pro Western” side of the fracture line that the US pivot strategy is trying to establish between pro-Western and pro-Chinese Asian countries due to a maritime dispute over the Paracel Islands. It’s certain that all these maritime territorial disputes must be resolved; but for this to be sustainable it must be done in a regional sense. In the meantime, we can’t rid ourselves of the idea that the Vietnamese’s main memory of Americans is a flood of napalm. In contrast to this it’s interesting to note that the Vietnamese ambassadors to the EU and Belgium are Russian speakers! And, culturally, the Vietnamese are still closer to the Chinese than the Americans… Brother enemies of course, but how long is it since China has behaved as a peaceful and economically attractive regional power?
As for the Philippines, we have recently learnt that they signed an agreement for military protection with the US . When looked at closer, in reality they are not allowing any foreign military base to be re-established on their territory because it’s simply unconstitutional . The US will therefore only have the option of using the Philippines bases if the country is aggressed and for the purposes of training Philippine military personnel and, in any case, at the government’s specific request. Moreover, the US got this slight advantage in exchange for helping to end the Moros rebellion. Philippine military reinforcement, stabilizing the country… and if it were the Filipinos that used the US and not vice-versa?
Three giga-powers at the heart of a Greater Asia, two pro-Western powers falling into the category of small and medium-sized Asian powers organized into sub-regions, all fed on the Russian gas teet… Asian integration has now launched at full speed.
 GEAB N°85 of 15 March 2014.
 Referring to Franck Biancheri's phrase in his book« The World Crisis-The Path to the World Afterwards », Éditions Anticipolis, 2009.
 Source : Wall Street Journal, 29/05/2014.
 Source : CNBC, 05/06/2014.
 Source : Centre Daily, 14/06/2014.
 Source : Reuters, 05/06/2014.
 See our analyses published in the last three issues of the GEAB (N°83, 84, 85).
 Of course, they will probably be the winners in this change; nevertheless, it's rising tensions with the West which has led them to finalise an agreement which was long under negotiation, accepting the prices imposed by the Chinese.
 Source : New York Times, 21/05/2014.
 Source : Bloomberg, 06/06/2014.
 Source : Herald Sun, 07/06/2014.
 Source : News.com.au , 10/06/2014.
 We have often pointed out that depending on the G20 host country, whether situated in the zone of US influence or not, the nature of the results of the negotiations varied.
 Source : Reuters, 07/06/2014.
 Source : Financial Post, 21/05/2014.
 Source : The Australian, 11/06/2014.
 Source : The Guardian , 22/05/2014.
 Source : Yahoo Finance, 12/06/2014.
 Source : Prime Minister of Canada, 25/03/2014.
 Source : MaPresse, 12/03/2014.
 Source : Japan Times, 22/04/2014.
 Source : DNAIndia, 03/06/2014.
 Source : CNN, 10/01/2014.
 Source : Huffington Post, 30/05/2014.
 Source : Business Green , 22/05/2014.
 Source : IBTimes, 19/05/2014.
 Source : Wikipedia.
 Source : The Free Press, 06/06/2014.
 Japan, Korea, Vietnam…
 Source : FoxNews , 27/04/2014.
 The Filipinos succeeded in ridding themselves of the US military presence after the collapse of the Soviet empire, not for it to be re-established now absent any serious threat. And Europe should ask itself how a small Asian country like the Philippines has achieved something that it hasn't: regain military control of its territory…
 Source : Rappler, 10/05/2014.
Layout of the full article:
1. TOWARDS A REGIONAL REALIGNMENT
2. ASIA – WHAT THE RUSSIAN-CHINESE GAS DEAL CHANGES
3. THE MIDDLE EAST – WHAT ASSAD’S VICTORY IN SYRIA CHANGES
4. UNITED STATES – WHAT THE YUANIZATION OF WORLD TRADE WILL CHANGE
5. EUROPE – WHAT THE WEAKENING OF THE MAJOR COUNTRIES (FRANCE, THE UNITED KINGDOM) WILL CHANGE
6. REGIONAL INTEGRATION – METHODOLOGICAL DEVELOPMENT
7. FREE-TRADE IN QUESTION – RETHINKING TRANS-REGIONAL RELATIONS
This public announcement contains section 2.