Russian Rubicon: Impending Checkmate of the West

RUSSIAN RUBICON Copyright © 2006 by W. Joseph Stroupe All rights reserved First edition ISBN-13: 978-0-9789068-0-1 ISB...

Author: W. Joseph Stroupe

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RUSSIAN RUBICON

Copyright © 2006 by W. Joseph Stroupe All rights reserved First edition ISBN-13: 978-0-9789068-0-1 ISBN-10: 0-9789068-0-2

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(eBook) (eBook)

RUSSIAN RUBICON

This book is dedicated to those with: The desire to know, The ability to see, The courage to accept

The truth

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RUSSIAN RUBICON

PREFACE .................................................................................................................................................... 6 PART I: UNIPOLARITY, MULTIPOLARITY OR BIPOLARITY REVISITED ?................ 11 CHAPTER I: UNIPOLARITY TURNS INTO A PASSING ANOMALY ............................................... 12 Dawn of the 20th Century a Fundamental Turning Point................................................................................ 16 Unipolarity Throughout the Pages of History Past.......................................................................................... 17 Industrial Revolution Undermines the Foundations of Empire ....................................................................... 18 Review ............................................................................................................................................................ 21

CHAPTER II: CLAY-LIKE IDEOLOGIES ARISE TO UNDERMINE UNIPOLARITY ...................... 23 Introduction and Review ................................................................................................................................. 23 The “Clay” Arises ........................................................................................................................................... 25 The Role of International Organizations and Institutions................................................................................ 28 The Powerful Role of Christendom's Religious Organizations ....................................................................... 30 Sectional Conclusion....................................................................................................................................... 35

CHAPTER III: INEVITABLE CASTING OF DEVELOPMENTS TOWARD BIPOLARITY ............... 37 Introduction..................................................................................................................................................... 37 The Amalgam Kingdom Faces External Challengers...................................................................................... 39 Two Hot-War Challenges from Iron-Like Germany ....................................................................................... 40 The Roots of the Cold War Challenge from Iron-Like Russia ........................................................................ 41 Russia’s 2nd Challenge to the Amalgam Kingdom.......................................................................................... 43 Learning to Build Power Blocs Instead of Building Empires?........................................................................ 47 The Amalgam Kingdom’s Fatal Step Backward In Time ............................................................................... 51 Overall Conclusion and Forecast .................................................................................................................... 53

CHAPTER IV: IMPENDING BIPOLARITY AND RUSSIAN-AMERICAN RIVALRY ........................ 56 Introduction and Background.......................................................................................................................... 56 Deep Incursions by the Amalgam Kingdom ................................................................................................... 61 Russian Pushback Against American Incursions ............................................................................................ 61 The Post-9/11 Strategy of the Metallic Kingdoms .......................................................................................... 62 The "New" Strategy of the Amalgam Kingdom.............................................................................................. 65 Which Side will Prevail in the Neo Cold War Rivalry? .................................................................................. 66 Iron Exhibits Some Flexibility, But Remains Iron .......................................................................................... 67 The Lessons of Georgia's Rose Revolution..................................................................................................... 69 The Lessons of Ukraine's Orange Revolution ................................................................................................. 71 This Is Not 1989-1991! ................................................................................................................................... 73 Economic Warfare by the Amalgam Kingdom Can Only Backfire ................................................................ 75 Summary and Forecast.................................................................................................................................... 76 The Shift Toward Asymmetrical Bipolar Complexity .................................................................................... 78

PART II: THE IMPENDING SHIFT TO BIPOLARITY ........................................................... 85 CHAPTER V: SOVIET COLLAPSE – SOWING THE SEEDS OF THE SHIFT TO BIPOLARITY .... 86 Tectonic Shifts Setting the Stage for Follow-On Events................................................................................. 87 Gulf War I....................................................................................................................................................... 88 Awesome Display of High-Tech Weaponry ................................................................................................... 90 Component Parts of the Cold War Refusing to Die ........................................................................................ 92 Philosophical Redefinitions in the Approach to Power................................................................................... 95 Asymmetrical Levers to Power ....................................................................................................................... 98 The Proven Success of the Asymmetric Philosophy ..................................................................................... 100 Reacquisition of Global Influence: Formulation of Russia's Strategy........................................................... 102 The Strategy Proves Itself in the Iraq Crisis.................................................................................................. 104 Which Side Possesses A Coherent Strategy? ................................................................................................ 107 Sowing the Seeds of Future Tectonic Shifts.................................................................................................. 110

CHAPTER VI: RUSSIA AND ITS PARTNERS SEIZE THE GLOBAL INITIATIVE ......................... 116 The East Seizes the Global Economic Initiative ........................................................................................... 121 The U.S. Complicit In Its Own Decline ........................................................................................................ 125

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RUSSIAN RUBICON Clever Two-Track Diplomacy of America’s Rivals...................................................................................... 125 The Strategy in Motion to Counterbalance the US........................................................................................ 129

CHAPTER VII: THE SECURITY COUNCIL AS A SPOILER OF UNIPOLARITY .......................... 132 The Iraq Crisis – Tuning the Multilateral Model........................................................................................... 133 Westphalia v. Unilateral Preemptive War ..................................................................................................... 136 Acceleration Toward Bipolarity.................................................................................................................... 138

CHAPTER VIII: ‘AXIS OF EVIL’ PROXIES EMPLOYED AGAINST UNIPOLARITY ................... 145 “Evil Axis” Member Iran: The Latest Nexus of East -West Rivalry............................................................. 149 Global Complexity, Ambiguity Equate to Instability.................................................................................... 150 At the Vortexes - Bigger Powers, Bigger Forces at Play............................................................................... 151 Shiite Iran in the Ascendancy........................................................................................................................ 153 Iran Also Realizing Its Wider Geopolitical Goals......................................................................................... 158 America, the "Decaying Power" ................................................................................................................... 160 What Happens if the US Strikes Iran?........................................................................................................... 163 North Korea’s Bid to Marginalize the US in SE Asia ................................................................................... 165 Japan Increasingly Succumbing to Russia-China.......................................................................................... 166 ‘Axis of Evil’ Proxies: Damaging the US Global Image............................................................................... 168

CHAPTER IX: THE OMINOUS ECONOMIC DECLINE OF THE US............................................ 173 Evidence the Dollar Endgame Nears............................................................................................................. 174 The Invincible Enemy: Mounting Debt......................................................................................................... 174 Rising Interest Rates: The Self-Destruct Lever............................................................................................. 177 The Fed: Little Choice but to Pull the Lever ................................................................................................. 178 Nearing the Collapse of the Asset-Based Model........................................................................................... 182 Economic Repercussions Now Settling In .................................................................................................... 188 A Review of Unfolding Events of the Past Five Years ................................................................................. 189 Black Gold’s Profound Effects Not Diluted After All .................................................................................. 189 Fed’s Self-Made Catch-22 Comes Back to Haunt It ..................................................................................... 190 Rising Interest Rates only Briefly Bolster Dollar.......................................................................................... 192 Incremental Global Diversification out of the Dollar.................................................................................... 193 US-Dominated Order Coming Unglued........................................................................................................ 195 New Implications of the Impending US Economic Downturn...................................................................... 196 A Different Kind of Downturn Knocks at the Door ...................................................................................... 197 The Fed Deals the Trump Card to Energy Prices.......................................................................................... 199 Energy Rules Supreme in the US Economy – Thank the Fed ....................................................................... 201 US Rivals are Watching and They Have a Backup Plan ............................................................................... 203 Ongoing Dilution of the Old US-Centric Order ............................................................................................ 203 The Global Economic Compass Increasingly Points East............................................................................. 204

PART III: CHECKMATE BY THE MULTIFARIOUS EAST – HOW? ................................ 208 CHAPTER X: IT’S THE STRATEGIC RESOURCES, STUPID! ...................................................... 209 Seven Years of Economic and Geopolitical Insight ...................................................................................... 210 Lessons Learned............................................................................................................................................ 215

CHAPTER XI: RUSSIA HAS CROSSED THE RUBICON................................................................ 220 The Rise of the Resources-Based Corporate State ........................................................................................ 224 Russia’s Chosen G-8 Theme Provides Important Clues................................................................................ 229 Russia Already Shaping the Trend Toward a New Model ............................................................................ 245 Russian Plans for Ruble-Based Resource Bourses........................................................................................ 261 The Form and the Global Leverage of RUBICON........................................................................................ 270 Graphical Illustrations................................................................................................................................... 279

CHAPTER XII: ADVANCE ECONOMIC AND FINANCIAL MEASURES ...................................... 281 The Economies of the East Boost Independence from the US ...................................................................... 282 East Asia Achieving Greater Leverage over the US ..................................................................................... 285 Increasing Immunization against a Dollar Collapse...................................................................................... 287 Central Bankers have a Prudent Strategy ...................................................................................................... 287 Replacing Dollar Pegs with Pegs to a Basket of Currencies ......................................................................... 291

CHAPTER XIII: THE OMINOUS FORECAST ................................................................................ 298 ABOUT THE AUTHOR................................................................................................................. 314

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RUSSIAN RUBICON

Since the collapse of the Soviet Union in 1991 Russia’s geopolitical importance and its potential for a full reacquisition of genuine global power and influence have been habitually and severely discounted. The world’s leaders and experts have confidently, or rather smugly, tended to confine their analysis of Russia and Russian potential to the merely superficial and the shortsighted. Since 1991 Russia has, of course, endured an entire array of social, political, economic and military problems that are well known and documented and that at times seemed to have brought the Russian Federation to the verge of collapse itself. As a consequence, over the past decade and a half the above-mentioned leaders and experts generally have arrived at the absurd conclusion that Russia would be, for the foreseeable future, either a non-player or else a player of minor consequence. Inordinate attention was, and still is focused upon the rise of China, with Russia being seen as comparatively irrelevant. China’s rise is certainly a development of profound importance, yet the rise of Russia is even more important than that of China, as we shall see. Only recently, in the past few months since Russia temporarily cut off gas supplies to Ukraine in January 2006, have the awareness and understanding of Russia’s key position, its global importance and its true potential for full reacquisition of global power begun to be seen by the world’s leaders and experts. As none other than Winston Churchill stated in 1939, “[Russia] is a riddle, wrapped in a mystery, inside an enigma”. Yes, Russia and Russian strategies can be difficult to describe, let alone understand. However, Winston Churchill never made the strategic blunder of underestimating Russia’s key importance to the world order. The grievance expressed here regarding the absurd attitudes and conclusions on the part of the worlds’ leaders and experts with regard to Russia are centered more on the scant attention and respect Russia still receives and less on the precise conclusions that are reached. If Russia were simply given the attention and respect it truly deserves in any analysis of geopolitics and global economics then the attitudes and conclusions regarding it would quickly move from the absurd to the reasonable.

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RUSSIAN RUBICON While of late the world at large has finally begun to ‘sit up and pay attention’ to Russian importance and Russian potential, such attention is being paid entirely too late to do anything about Russia’s meteoric rise and its increasingly anti-Western orientation and stance. Furthermore, at this very late date leaders and experts still do not fully ‘get it’ with respect to core Russian strategies and the genuine aims of its leaders with respect to where they are taking Russia on the world stage. Additionally, they do not yet appreciate how mightily and quickly Russia is able to shape to its advantage unfolding developments, nor do US leaders yet fully appreciate how Russia’s comparatively smaller potencies are already being skillfully and successfully directed against strategic Western vulnerabilities in a brilliant and opportunistic strategy of asymmetrical geopolitical struggle designed to actually divorce the US from its current singular position atop the unipolar world order. The American Giant, like any giant, has an Achilles Heel. If the tendon resting there just below the surface is sliced, then the whole Giant comes tumbling to the ground. If the knife blade is held irreversibly to that tendon in a credible threat to slice it, then the Giant can even be constrained and directed by relatively smaller powers. ‘Giants’, and those closely associated with them, tend to make the grave mistake of thinking they are exceptions to the above rule and trusting that their strength is both undefeatable and perpetual. Even in the face of its many setbacks on the world stage, the American Giant is still grossly over-confident, over-playing his own strengths and failing to recognize and appreciate the altogether dangerous potencies of Russia and its strategic partners. Russia’s increasingly anti-Western orientation and stance? Yes, Russia, like any other power, is to be judged on its policies and actions, not on its often soothing and disarming public proclamations. On the ground as it were, where it really counts, Russia has for some time now (especially since the 2003 US invasion of Iraq) worked very smart to cut directly across US strategic interests around the globe, but especially in regions of strategic importance with respect to energy resources. Russian pushback has been both determined and effective against US and European incursions into its traditional sphere of influence via NATO and EU enlargement, “colored” revolutions and proliferation of US military bases throughout the post-Soviet space. Additionally, Russia has tightened and deepened its clandestine and open cooperation with ‘axis of evil’ members North Korea,

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RUSSIAN RUBICON Syria and Iran. It has also reached out to key powers in the Middle East and the Americas that have traditionally been close to the US but who have more recently shifted their geopolitical alignment to be more in tune with the East. Saudi Arabia, Kuwait, Lebanon and its indigenous factions, South Korea, and key oil producing states in Latin America are but a few noteworthy examples. Russia greatly facilitates and accelerates the geopolitical realignment of such key powers away from the US and toward the East by various means, including the concluding of ever greater numbers of strategic agreements in the spheres of the economy, security, energy and weapons sales. Mounting Russian strategic resourcesbased influence around the globe, coupled with serial US strategic blunders and loss of global influence, are insidious forces that combine to incrementally, yet rapidly and fundamentally change the global political landscape, from its once unquestioned UScentric orientation to a new orientation focused on the rising East. This is a well established global trend of gargantuan importance for the geopolitical order. Yet, by and large the West still appears to be quite anesthetized as to the extent of its advancement and the shear weight of its global implications. The recent gas crisis between Russia and Ukraine aptly illustrates the problem especially in the West with respect to its chronic failure to fully appreciate beforehand the potency of Russian leverage and the brilliance of asymmetrical Russian strategy. In the period of 1999 to 2005 the US and Europe clearly believed they could infringe with impunity upon vital Russian strategic interests virtually anywhere and everywhere they pleased. They mercilessly pounded traditional Russian ally Serbia for 78 days from the air, then like ingrates took advantage of the UN-brokered solution arranged by Russia while simultaneously back-stabbing Russia on the previously agreed upon territorial and command-and-control arrangements for Russian peacekeepers in Serbia-Kosovo. They subsequently enlarged NATO and the EU right up to Russia’s back doorstep over its strident objections and warnings. Even while Russia made what certainly appears to have been a genuine strategic opening to the West in the aftermath of 9/11 by opening up Central Asia for Western military bases and cooperating in Afghanistan to destroy the Taliban regime, the US and Europe continued to infringe seriously upon legitimate Russian interests virtually everywhere as they instigated “colored” revolutions and

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RUSSIAN RUBICON otherwise sought not only to keep Russia down, but to carve away at its influence in its own backyard. Beyond that, even Russia’s own Federation was becoming ever more seriously threatened by the US and Europe and their strategy of spreading “democratic” revolution throughout the post-Soviet space. Why did the US and Europe embolden themselves to act in such a way? Primarily because they utterly failed to respect and appreciate Russia’s profound geopolitical importance and its potential for reacquisition of full-blown global influence. They massively underestimated Russia, and they still do up to today. As Mr. Putin stated at the recent G-8 news conference, Russian leaders have watched all such activities warily, and they did not fail to see what was happening, including in Ukraine and Georgia. During the entire period from 1999 to 2005, what was Russia doing? It was attempting to genuinely open to the West, but at the same time it was adroitly hedging its bets, not only refusing to let go of its hard-won energy export assets in the form of its alliances with key Central Asian states and its oil and gas pipeline network, but also working to extend those alliances and that network. Most such Russian efforts in the energy sphere were either missed or their significance was acutely underplayed by the West, that is, until December/January 2005/2006. Suddenly, when Russia exercised a little of the muscle of its gas monopoly over both Ukraine and by extension Europe at large, the West was shocked into the full realization that Russia already holds the trump card over all of Europe, and that it is a trump card that cannot be dispensed with anytime soon despite Europe’s loud proclamations about diversifying its energy sources. After largely absorbing multiple and serious Western provocations for more than six years, Russia pushed back. It had drawn a red line in Ukraine. But here are the salient points that must now be recognized:

Russian strategy and its meaningful advancement on the ground aimed at achieving success of its strategy was already in place significantly before Russia cut off the gas to Ukraine. Russia has worked very adroitly to strategically position itself such that its goals are virtually assured. The same is true for the wider Russian goals that extend far beyond Europe to encompass the rising East and even the US itself. Crucial advancement of such strategies on the ground has

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RUSSIAN RUBICON already been set in place and Russia is already actively positioning itself for assured success. The general failure of the West to see and appreciate the importance and implications of such moves takes nothing away from their potency. In fact, Western denial and ignorance has become a veil behind which Russia can accomplish even greater advancement of its strategies.

When such brilliant and insidious Russian strategies are combined with Western denial, ignorance and serial blunders such as Iraq and the strategic alienation of Russia to mention but two, then the West gravely risks handing the entire game to the East, made up of Russia and its strategic partners. This book is about how Russia’s truly brilliant and opportunistic asymmetrical strategy, expertly plied against the vulnerabilities of the West, is combining with the strategic blunders of the US to hand the Great Game to Russia and the to East. The book discusses in detail all these factors and their implications. It demonstrates precisely how Russia and the rising East are constructing an energy-based checkmate of the entire West and how that checkmate will be exercised in the event Russia and its partners are pushed too far, as Russia recently was in Ukraine. Underestimate Russia at your own risk!

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RUSSIAN RUBICON

The fabric of the international geopolitical system constitutes the domain or the medium in which the nations of the globe conduct their political, economic and military business. As such, it includes both domestic and international factors, considerations and forces. Included are religious and political ideologies, cultures and practices, social and legal norms, technologies related to transportation and communication, accepted financial and economic principles and values, weapons technologies and many other such factors. For millenniums of time from the reign of ancient Egypt as the first world power about 2300 BC until after the establishment of the British Empire by 1763 AD, the fabric of the international geopolitical system endured no swift or fundamental, massive alteration. The fabric changed only modestly and very slowly during those past millenniums. Compared to the colossal and speedy fundamental changes that have occurred since the dawning of the 20th century, those occurring throughout the millenniums prior were only incremental in nature and transpired virtually at the speed of frozen molasses. Part I of this book examines the makeup of the fabric and the pattern of world orders it was and is now able to sustain, from the ancient past until today. The examination includes an analysis of the gigantic changes that began to occur near the dawning of the 20th century and the commanding impact they continue to have right up until today as respects what configuration of world order can now be sustained. What is the future of the US-dominated unipolar order that was born in 1991 with the collapse of the Soviet Union? Many recognize the current unipolar order is in transition, but in transition to what? Will a “multi-polar” order take its place? Or will the fabric dictate a return to rough bipolarity? What influence has the fabric on such developments, how does it exert such influence, and precisely where is our world headed?

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED?

CHAPTER I: UNIPOLARITY TURNS INTO A PASSING ANOMALY

Ü How does the fabric of the international system govern geopolitical developments? Ü How was the fabric altered near the dawning of the 20th century? Ü How did its alteration undermine the ability of the international system to sustain unipolarity?

From ancient times past the fabric of the international system supported well a unipolar configuration for the world order wherein one power held inordinate dominance over all other, lesser powers. Unipolarity thus held sway for thousands of years as one power after another took up the coveted position of dominance over the known world. In their turns the empires of Egypt, Assyria, Babylon, Medo-Persia, Greece, Rome and Britain each held that coveted position. However, in the lead-up to the dawn of the 20th century certain new and powerful forces appeared on the scene that wrought changes in the very fabric of the millenniumsold international system. Those changes impacted directly on the ability of the fabric to support for any significant period a unipolar configuration for the world order where one empire holds unquestioned dominance over all other powers. By the dawn of the 20th century unipolarity had fully given way to the bipolar rivalry between Britain-America on one hand and the Germanic Empire on the other, and the altered fabric down to this day continues to exert a powerful effect on the global order, undermining the current USdominated unipolar order in a push toward a roughly bipolar configuration. Interestingly, while the US has itself briefly presided over the unipolar world order that was born with the demise of the Soviet Union in 1991, there are powerful indications that such unipolarity is merely an aberration that cannot be sustained. Based on the examination conducted here of the fundamental makeup of the altered fabric of the international system, profound geopolitical change is imminent.

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Chapter I: Unipolarity Turns into a Passing Anomaly This chapter details the forces that have altered the fabric of the international system, how that fabric was irreversibly altered and what it means for the current global order. As a convenient vehicle or analogy to vividly present in an

The use and application here of the

illustrative way these matters of

geopolitical

profound importance to us in this

Nebuchadnezzar I of ancient Babylon are

modern day, a famous ancient

purely secular in nature and merely for

geopolitical analogy, attributed to

illustrative purposes. The vivid imagery

King Nebuchadnezzar I of Babylon

within his analogy of the pure metallic

who reigned in the 7th century BC,

kingdoms and the conspicuous amalgam

is

employed.

This

ancient

geopolitical analogy has fascinated many historians and geopolitical analysts over the centuries and, despite its ancient origins, contains

analogy

of

King

kingdom provide a convenient vehicle with which to portray the important concepts analyzed here with respect to unipolarity, multi-polarity and bipolarity

some important geopolitical insights that are strikingly analogous to the composition of the fabric of the international system right up until today. In this analysis our interest in and treatment of the ancient Babylonian analogy is purely from a secular, geopolitical frame of reference and with the desire to employ the vivid imagery of the analogy to illustrate abstract concepts which can be difficult to explain without such a vehicle.

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The geopolitical analogy follows:

King Nebuchadnezzar I of ancient Babylon reportedly had a dream. An immense image or statue of a fearsome king towered hundreds of cubits above the head of King Nebuchadnezzar. Its head was made of glistening gold, its breast and arms of bright silver, its belly and thighs of burnished copper and its legs were made of iron. Notably, its feet were made of iron swirled with moist (soft) clay, but the iron and the clay did not truly mix together. In this famous geopolitical analogy, the third world power Babylon (Egypt the 1st world power and Assyria the 2nd world power are not pictured in the analogy) was represented by the head of gold. After Babylon, the silver dual kingdom of Medo-Persia (4th world power) dominated the world. Next came the copper kingdom of Greece (5th world power), followed by the iron dual kingdom of Rome with its western and eastern empires (6th world power). Finally, an amalgam kingdom (7th world power) made partly of iron and partly of soft clay descended from iron-like Rome as feet extend from legs. It too is a dual kingdom, pictured by the two feet. The unprecedented amalgamated makeup of this kingdom fittingly represents fundamental changes and striking, brand-new developments in the millenniums-old geopolitical system.

Throughout the following chapters in this section I will repeatedly draw upon the various features of Nebuchadnezzar's geopolitical analogy in an illustrative way in order to convey a coherent graphical picture of the concepts discussed here. I am confident the reader will thereby be enabled to firmly grasp how all the factors and developments presented here combine to form a coherent geopolitical picture of great importance, revealing perhaps for the first time certain fundamental aspects of the international system which combine to powerfully govern ongoing developments in our modern day. The author

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Chapter I: Unipolarity Turns into a Passing Anomaly

The Famous Geopolitical Analogy of King Nebuchadnezzar I And the Succession of World Powers

Seq

Identity

Configuration of the World Order

1

Egypt

Unipolar

Not Pictured

2300 to 760 B.C.

2

Assyria

Unipolar

Not Pictured

760 to 632 B.C.

3

Babylon

Unipolar

Head of Gold

632 to 537 B.C.

4

MedoPersia

Unipolar

Breast, Arms of Silver

537 to 331 B.C.

5

Greece

Unipolar

Belly, Thighs of Copper

331 to 30 B.C.

6

Rome

Unipolar

Legs of Iron

AngloAmerica

7

The Amalgam Kingdom

Unipolar to c. 1900 Bipolar from 1914-1991 Unipolar 1991 to 2003

Appearance in the Analogy

Feet partly of Iron and partly of Soft Clay

Reverting to Bipolar

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Period

30 B.C. to 1763 AD

1763 AD to the present


Dawn of the 20th Century a Fundamental Turning Point

In the period leading into World War I, when the three major developments of great impact were occurring, namely (1) the industrial revolution, (2) the notable coalescing of the two new and mutually-exclusive ideologies of American-style democratic capitalism and communism, and (3) the disintegration of the remaining European colonial empires, were all occurring at roughly the same time, the very fabric of the international geopolitical system was undergoing unprecedented change as a result. Those unprecedented and fundamental changes still powerfully affect events unfolding in this very year, 2006. As we shall see, it is inescapable that major developments coalescing now, including developments at the U.N. and in AmericanRussian relations, will be forcefully governed by the very makeup of that altered fabric of the international geopolitical system. Both world wars, the Cold War and the nowobservable renewed geopolitical rivalry between America and Russia are all manifestations of deeper, much stronger forces at work in the international system only since the dawning of the 20th century. Understanding those forces, the changes they have wrought in the fabric of the international system and how current developments are governed by them is crucial to understanding properly how the geopolitical world really works presently, and precisely where it is heading, and when. A frequent mistake made in analysis of our geopolitical system is to confine one's investigation to a very narrow window of history occurring late in the 20th century, perhaps only since WWII or since the end of the Cold War in 1991. This is much like trying to determine what time it is by looking at a clock that shows only the seconds. Likewise, it is not possible to properly understand the international system and the powerful forces at work within that system, let alone how those forces exercise potent influence upon current developments, when one's investigation is confined to a narrow window of recent history. Hence, it is first necessary to provide here a brief over-view of the history and of the fundamental structure of the international system itself, which has now endured for nearly five millenniums.

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Chapter I: Unipolarity Turns into a Passing Anomaly

Unipolarity Throughout the Pages of History Past

Throughout history prior to the 20th century, how was power distributed among the various players? Very interestingly, starting with the 1st world power, Egypt, which arose in the 3rd millennium BC, and continuing until the lead-up to the 20th century under the reign of the British Empire, and except during the relatively brief geopolitical transition periods leading from the reign of one world power to the next, an inordinate amount of supremacy was vested in one empire at a time which held a position of virtually unquestioned dominance, with much less power being distributed among its subordinates. In essence, what had existed for all those centuries of history past was a unipolar world order, dominated by one world power at a time, starting with Egypt and continuing well into the reign of the British Empire c. 1900 AD. Thus, history records a long succession of powers that each in their turn ((1) Egypt, (2) Assyria, (3) Babylon the head of gold, (4) Medo-Persia the breast and arms of silver, (5) Greece the belly and thighs of copper, (6) Rome the legs of iron and (7) Britain/America the feet of iron mixed with soft clay) inherited the position of dominance in the millenniums-old unipolar world order, which really endured all the way from the days of Egypt circa 2300 BC until the years just prior to WWI in 1914 AD. In that long-lasting unipolar era, inordinate power was vested in the one world power of the day, and to become the new dominant power it was necessary either to conquer the current one or, as in the case of Britain succeeding Rome as world power, to conquer all the lively remnants of the previous world power. Hence, the period of c. 2300 BC to c. 1900 AD was the Age of Empire, the era of complete domination by successive "metallic" empires, as depicted in Nebuchadnezzar's analogy of the metallic statue. Significant metallic fragments or remnants of those empires remain to this very day. Iraq is the predominant remnant of Babylon, Iran is what remains of Persia, Greece still exists, while Italy, Germany, France and Spain are the predominant remnants of the western Roman Empire, and Russia and parts of eastern

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? Europe eventually (by c. 988 AD) stepped into the position of descendants of the Byzantine (eastern) Roman Empire. While it is certainly true that during the Age of Empire there were lesser powers that challenged the world power of the day, those challengers possessed much less power than did the dominant empire and therefore provided for little balance across the international system. A unipolar world order is inherently unbalanced as respects the distribution of power. But in the Age of Empire (c. 2300 BC to 1900 AD), when the entire known world consisted mostly of Europe, the Middle East, Central Asia and North Africa, and when geopolitical forces and developments moved like cold molasses as compared to the speed with which they had begun to move since shortly before WWI, seven successive empires each in their turn could sit atop the unipolar world order for extended periods of time, even for centuries on end. But all that was due for fundamental change as the international system neared the 20th century.

Industrial Revolution Undermines the Foundations of Empire

The industrial revolution fundamentally changed matters as respects the prospects for empire and any continuation of the unipolar world order that had lasted nearly five millenniums. On the surface, one might be inclined to conclude that the industrial revolution might provide for even greater consolidation of power by Britain, the dominant empire circa 1900, due to the prospect of achieving a pronounced technological superiority in weaponry, transportation and communication, and the achievement of unprecedented economic strength possible only as a result of industrialization. However, for several important reasons, that is not how matters worked out for the British Empire. Rather than serving to consolidate Britain's grip on global domination, the industrial revolution provided the means for rivals and subjugates of the Empire to mount unprecedented challenges to British domination. Hence, the Revolution became, not a technological vehicle for power-consolidation, but rather the great equalizer, whereby lesser powers could actually cut deeply into Britain's ability even to maintain the extent of its existing empire, let alone extend its boundaries.

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Chapter I: Unipolarity Turns into a Passing Anomaly Advances in communication played a major role in this, as opposition forces within the Empire showed a greatly enhanced ability to organize and consolidate their efforts to roll back British domination. The power of certain freedom-inspiring ideologies like democracy and communism was thereby terrifically enhanced, to London's chagrin, by technological advances in communication, transportation and in the weaponry used to support such anti-colonialist "freedom fighters". Additionally, thanks to advances in both travel and communication, the abuses of the British in the extension and maintenance of the Empire were much more quickly and widely publicized, leading to the pronounced and fervent rise of anti-British sentiment and of opposition to continued British domination. Whereas during the Age of Empire "public opinion" meant nothing and empires did not even consider it, thanks to the industrial revolution,

Oil, previously unimportant, became the key resource thanks to the leadership of the amalgam kingdom

"public opinion" became a powerful

in

the

industrial

revolution.

force which the British Empire could not

Ironically, that very resource has

dismiss, and which progressively worked

now become the key ingredient in an

to undermine its control over crucial

unfolding economic checkmate of the

parts of its empire. Thanks in very large

same amalgam kingdom.

part to the industrial revolution, London had its hands full just trying to prevent the Empire from disintegrating. Notably, not only the British Empire itself, but also the very concept of traditional empire and the millenniums-old unipolar Age of Empire itself were fundamentally in very deep trouble by the time the 20th century had arrived. But those troubles only massively mounted as the year 1914 neared. A significant metallic remnant of the Western Roman Empire, the Germanic Empire, which deeply resented British global dominance, had been taking full advantage of the industrial revolution to establish itself as an industrial giant. As 1914 approached it became evident there would occur a global conflict between two blocs over the issue of global domination. Britain gathered to herself the French, Italy, Russia, Japan and the U.S., while Germany united with Austria-Hungary, the Ottoman Empire and Bulgaria.

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? When the war finally arrived in August of 1914 everyone thought a decisive winner would emerge quickly. However, the assumption of a quick British/Allied victory was faulted. In the 20th century, empires are not the long-lived bulwarks they appear to be, nor are their lesser metallic challengers the mere 'flash in the pan' they appear to be. Even though Britain and her allies did eventually win the war with a humiliating defeat of the Germanic Empire, the British Empire never recovered. The war drained the life itself out of the British Empire, paving the way for two significant developments - the reemergence of the metallic German challenger and the significant rise to dominance of the American side of the Anglo-American 7th world power. In both of these developments the industrial revolution played a major role, because both the Germanic challenger and the American side of the Anglo-American 7th world power strenuously employed industrialization and technology toward their respective goals of achieving (or maintaining) global dominance. But here is the salient point to remember, that demonstrates the fact that the very fundamental structure of the international system had undergone marked change - both circa the time of WWI and then again circa WWII it is clear the system no longer supported the existence and continuance of one inordinately dominant power. The system was no longer permitting the vesting of inordinate supremacy in one power while simultaneously denying significant power to the other players on the geopolitical chessboard. Instead, the fundamental structure of the system and the forces inherent within it moved toward a more even distribution of power - in fact, it moved toward a rough balance of power between two major players. The empire-driven unipolar world order that had lasted nearly five millenniums was no more. It was replaced by the bipolar world order consisting of the amalgam kingdom (US-Britain) on one side and its metallic equalizers (authoritarian “metallic” remnants of the Roman Empire) on the other. Since the dawning of the 20th century the altered fabric of the international system scorned the inherent imbalance of the old unipolar configuration. In harmony with that fact, the amalgam kingdom has seen a series of powerful metallic challengers arise which counterbalanced its own global power. We will see how this has been true, how it is still true today, and will be true in our near

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Chapter I: Unipolarity Turns into a Passing Anomaly future. But, aside from the industrial revolution, there are other powerful factors driving the fundamental changes and the forces within the system away from its old unipolar configuration toward the ability to support only a roughly bipolar configuration. What are those other powerful factors? The answers will be taken up in the next chapter.

Review

In the foregoing chapter we were introduced to ancient King Nebuchadnezzar's geopolitical analogy of the march of world powers depicted by the immense statue of a king that was composed of various metals. We noted that the feet were an amalgamated mixture of iron and moist clay, signifying fundamental alterations in the international system beginning near the dawn of the 20th century when the 7th world power had already arisen. We saw that the longstanding unipolar configuration of the world order which had dominated for millenniums (during the Age of Empire) gave way to the bipolar configuration and ongoing geopolitical rivalry between the amalgamated 7th world power (US-Britain) on one side and the sequential arising of metallic remnants of the 6th world power, the Roman Empire, on the other side. Finally, we identified one of the unprecedented forces that helped bring about the fundamental alterations in the fabric of the international system, namely, the Industrial Revolution. But there were other powerful factors and forces which acted in concert with the Industrial Revolution and wrought fundamental change, change that powerfully affects global developments to this very day. What are they?

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Summary of the Main Points Ü The so-called fabric of the international system is as real as is the system itself. Without that fabric no geopolitical developments could take place at all. That fabric, or the fundamental medium in which the nations conduct their economic, political, ideological and military business, permits or sustains certain developments while preventing or undermining others. Ü Near the dawning of the 20th century that fabric began to be altered in a colossal manner by the industrial revolution and by other immensely important factors. Ü The spread of technology throughout the fabric resulting from the industrial revolution undercut the ability of the British Empire to maintain the unipolar world order, which broke down into a bipolar configuration with the breakup of the British Empire.

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Chapter II: Clay-Like Ideologies Arise to Undermine Unipolarity

CHAPTER II: CLAY-LIKE IDEOLOGIES ARISE TO UNDERMINE UNIPOLARITY

Ü What do the iron and the soft clay each symbolize and how do they relate to the amalgam kingdom, Anglo-America? Ü What are the specific ideologies and developments that constitute the soft clay? Ü How does the clay undermine unipolarity?

Introduction and Review

The statue in the ancient geopolitical analogy is, in fact, remarkably analogous to geopolitical developments transitioning from the Age of Empire when a mostly unipolar world order obtained, to the 20th century when empires fractured and disintegrated, to be replaced by a fierce bipolar rivalry between two geopolitical blocs. In that millenniumslong pre-20th-century unipolar era one power at a time dominated without significant rivals to offset or balance its power. However, starting near the dawning of the 20th century, very significant rivals to the one dominant power began to appear, one at a time, and the longstanding empiredriven unipolar world order gave way, with violent fits of upheaval (World Wars I & II), to a bipolar world order, in which two predominant powers have each sought to establish their own respective power blocs. That new bipolar geopolitical phenomenon arose in the lead-up to the 20th century, persists until today, and carries immense significance for us. The predominant feature of the great statue was its feet of iron mixed with moist (soft) clay, picturing a 7th world power eventually descending from Rome (the 6th world power pictured by the legs of iron) just as feet eventually extend from legs. The ancient geopolitical analogy describes here an amalgam kingdom rather than another pure metallic one as those that previously existed, up to and including Rome itself. The 7th world power pictured by the lower legs of iron that transition into feet of Page 23 of 319

PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? iron mixed with clay would therefore be partly strong and partly weak, since iron and clay may indeed be swirled together in close proximity to each other, but they certainly do not mix, do not adhere to each other to form a hard alloy. This is certainly problematic for the amalgam 7th world power, but does not by itself result in the fracture or collapse of the kingdom, according to the analogy. Britannia was a distant Roman colony, and America started out as the thirteen colonies of Britain. By 1763 AD the British had subjugated or defeated the liveliest seafaring remnants of the Roman Empire to become the 7th world power. Thus, early on, Britain was very much iron-like in composition, similar to its Roman predecessor, and is rather nicely pictured by the lower portion of the legs made of iron in the ancient analogy.

The Iron and Clay in the Amalgam Kingdom of Anglo-America

IRON

“Hard” traditionalist conservatives who favor a strong central government, a strong role for religion, traditional moral and social values and who tend to be unyielding like iron to the demands of the common man.

CLAY

“Squishy” liberals who favor a much weaker central government, full separation between church and state, activism at the grass roots level, popular moral and social values and who tend to be yielding like clay to the demands of the common man.

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Chapter II: Clay-Like Ideologies Arise to Undermine Unipolarity

Clay-Like Ideologies and Developments

Industrial Revolution American-Style Liberal Democracy Socialism

Creation of the

Spread of technology undermined the ability of Britain to maintain empire A powerful “Clay-Like” ideology that undermined authoritarian “Iron-Like” monarchy A “Clay-Like” ideology that further undermined authoritarian “Iron-Like” monarchy Gave voice and credibility to liberation movements and undermined traditional iron-like colonial

League of Nations

Creation of the

empires Continued

giving

much

greater

voice

and

credibility to liberation movements and further

United Nations Belated but Fervent Promotion of Democratic

undermined traditional iron-like colonial empires Created much more “clay” and resulted in the achievement of a rough 50-50 split between conservatives (iron) and liberals (clay) within the

Ideals by Christendom’s Religious Organizations

Amalgam Kingdom and in democracies around the world

The “Clay” Arises However, things began to change as respects the composition of the 7th kingdom when the thirteen American colonies soon tired of harsh Anglo domination. Those colonies drew very strongly upon ancient Greek democratic ideologies and concepts when making their Declaration of Independence from Britain. The pure iron of traditional monarchy was disdained and rejected in favor of a powerfully compelling ideology of

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? "government of the people, by the people, for the people", very deeply rooted in Greek culture, philosophy and ideology. Thus, the unyielding iron-like conservative traditionalists who favored the authoritarian rule of the monarchy with the State Church inseparably intertwined were suddenly confronted by a new ideological phenomenon, one which ostensibly placed the ruling elite at the mercy of the common person, elevated the needs and rights of the individual, and strongly disdained too close an interaction between Church and State. It was like moist clay in that it was quickly able to conform and mold itself to the rights and needs of the individual rather than being hard and unyielding as was authoritarian iron. This was a frighteningly liberal ideology which threatened the absolute control and domination enjoyed by the iron-like British monarchy. War resulted between Britain and the thirteen colonies as the iron attempted, unsuccessfully, to subjugate the moist clay of the thirteen colonies back underneath the Anglo iron. In the face of that humiliating defeat

and

the

subsequent

unprecedented success, in all spheres of consideration, of the new American-

The new American liberal democratic “clay” presented a direct challenge to the British authoritarian “iron” of the

style democracy, the clay-like influence

traditional

monarchy

spread throughout the British part of the

holding

Anglo-American 7th world power,

unipolar order circa 1776 AD

global

which

dominance

was in

a

effectively changing what was early on a pure iron kingdom into an amalgam kingdom of iron mixed with moist clay, clearly observable in the lead-up to WWI. Britain's iron-like monarchy, once all-powerful, gradually gave way to the new clay-like American ideology rooted in Greek culture. Britain became a two-party system circa 1900 with the birth of its liberal Labor Party. Directly as a result of such clay-like influence, the once absolute power of the Anglican Church steadily waned as the progressively empowered common people learned to push for limits on the Church's power and reach. And even in America, which constituted the beginning of the clay within the amalgam kingdom of the 7th world power, a two-party system developed firmly by the 1890's, although the roots of its twoparty system certainly can be traced back much farther. But in both the British and the

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Chapter II: Clay-Like Ideologies Arise to Undermine Unipolarity American parts of the dual 7th kingdom, iron-like conservatives and clay-like liberals were clearly manifested as the 20th century opened. The iron-like conservatives believed in a strong national government and powerful religious influence in government while the clay-like liberals favored labor unions and other grass-roots type movements in opposition to strong national governments and deep religious influence. Socially and morally the conservatives were unyielding like iron, preferring to hold to traditional values, while the liberals were "squishy" like moist clay, yielding to new ideas and forces on such issues. Notably, these two types, though certainly swirled closely together in the makeup of the 7th kingdom (US-Britain), do not mix, do not form any alloy - in fact, they are as incompatible with each other as are iron and moist clay. Consequently, the amalgam kingdom of iron and clay is characterized by an internal severe incompatibility and unresolved struggle between its component parts, resulting in a very problematic situation for the kingdom, yet not resulting in the fracture or breakup of the kingdom itself. Why not? Because the appeal of, and devotion to the uniquely American experiment by Americans themselves, no matter their political stripe, still overpowers the incompatibility of the component parts of the kingdom. The same is true for the British side. Interestingly, in the ancient analogy the amalgam kingdom is portrayed as having roughly equal parts of iron and clay, and true to the analogy, America and Britain are each split right down the middle between conservatives and liberals. This was forcefully demonstrated in the U.S. presidential elections of 2000. Also very interestingly, in the ancient geopolitical analogy, the feet of iron and clay neither fracture nor disintegrate because of the amalgam of two incompatible components. Somehow, they continue to hold together. In all the geopolitical history of the international system this amalgam composition was an entirely new phenomenon for a world power, and it persists until this very day. Though the amalgam nature of the 7th world power, US-Britain, does not result in the collapse of the kingdom, it most certainly does undermine that kingdom’s ability to sustain unipolar world domination, as the pure metallic kingdoms of the past were able to

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? do for centuries. That fact has important implications down to this very day, as we shall see. The Role of International Organizations and Institutions

The League of Nations was really the dream child of Woodrow Wilson, and in the aftermath of WWI the child was delivered. By 1919 the League of Nations had, under U.S. and British sponsorship, gone into operation, in spite of fierce opposition in the U.S. Senate. The League, though hopelessly inadequate to fulfill its purpose of preventing another world war, did have a powerful effect in another arena. Its international forum gave powerful voice and global notoriety to the comparatively smaller powers that were still laboring under the domination of the European colonial empires, most notably the British Empire itself. As such the bringing to life of the League gave international voice and mounting credibility to all the dissenting forces that were against the concept of traditional colonial empire. The League served as an energetic catalyst with which to spread the liberal claylike ideologies of democracy and socialism, and served to give these greatly added international legitimacy. In concert with the new technologies of rapid transportation and communication, as well as weapons development, which all resulted directly from the Industrial Revolution, the League of Nations greatly hastened the breakup of the British Empire, as well as the rest of the European empires. One by one former colonies struck out on a course of independence, employing the new liberal clay-like ideologies, and this entire process was pointedly accelerated and facilitated by the League, unintentionally for the most part. But much more than the breakup of empires was occurring, aided by the League of Nations. The fundamental principles of traditional empire and the unipolar configuration of the world order were being irreversibly discredited and destroyed. The League was an effective instrumentality inadvertently used to spread the ideological awareness of the immorality of, the completely unacceptable nature of, colonial domination. Greatly aided by the League of Nations, "empire" became a very dirty and intolerable word - the concept itself was increasingly seen internationally as illegitimate

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Chapter II: Clay-Like Ideologies Arise to Undermine Unipolarity and ill-advised, undertaken only by the most radical and lawless regimes out of a motive of pure selfishness. The amalgam kingdom, in powerfully promoting the creation of the League of Nations, and imagining it could control the League and use it for its own geopolitical interests, showed itself to be shortsighted in its thinking. It had inadvertently given great impetus to the fundamental forces driving the international system irreversibly away from the unipolar configuration of complete dominance by one empire (namely, itself). In the aftermath of the Second World War the successor to the League of Nations, namely the United Nations, was created. That effort was significantly aided by a powerful metallic remnant of the Byzantine (Eastern) Roman Empire, namely Russia, which served as the core of the Soviet Union. In the sixty-one years of operation of the U.N. a large number of satellite organizations, collectively forming the United Nations System, have been formed. These oversee everything from humanitarian issues to international courts and justice to human rights to elections to health issues and much, much more. Those instrumentalities of the U.N. have served to expose the abuses and injustices inherent in the concept and application of empire, thus progressively weakening the dominance of existing empires over their subjugates. As membership in the U.N. swelled after WWII and smaller states were given

The League of Nations and the

international representation and increased

United Nations gave global voice

legitimacy, the British and other European

and legitimacy to anti-colonialist

empires collapsed in ruins. Even the

ideologies and movements and

apparently invincible Soviet Empire failed

thereby significantly undermined

to stand, crashing around itself in the period

the colonial empires, and with them

of 1989-1991. The United Nations helped

unipolarity itself

give legs, as it were, to the clay-like ideologies of democracy and socialism, which were employed by smaller powers in their drive for independence from the empires which dominated them. The amalgam kingdom directed and used the liberal clay-like ideology of democracy to weaken geopolitically its metallic rival the Soviet Union, and the Soviets used the socialist-communist ideology to do the same to the amalgam kingdom.

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? Significant amounts of "clay" were thus arising to weaken the grip of iron-like empires over their subjugates, thereby powerfully discrediting the very concept of empire, forever destroying the ability of the international system to support and sustain the unipolar configuration which relies upon the selfsame concept of empire.

The Powerful Role of Christendom's Religious Organizations

Notably, the great religious organizations of Christendom have played an important role in promoting the arising of the ideological "clay" and in enhancing its influence within the amalgam kingdom of the 7th world power, and far beyond. It is interesting that throughout the many centuries of the Age of Empire when, one-by-one, authoritarian metallic kingdoms dominated the unipolar world order, religion always played a very crucial role in reinforcing the strength of the metallic kingdoms - not weakening them by aiding the arising of anything like clay, that is, dissenting ideologies that work against the idea and principle of empire. The intimate and inseparable alliance between government and religion was most notable in the Babylonian 3rd world power, represented by the head of gold in Nebuchadnezzar's geopolitical analogy. Along these lines, note this quote from The Sumerians (Oxford; 1929), C. Leonard Woolley, p. 129: "Church and State [in ancient Babylon] were so inextricably mingled that while the State has to be regarded as a theocracy the Church must in part at least be judged as a political institution and the state religion as a political instrument." The metallic kingdoms that followed Babylon were very similar in makeup with respect to the role of religion in government. In fact the successive development of religion and religious organizations and institutions, and the intimate church-state unions that followed, were tremendously influenced by Babylon itself. The religious beliefs and culture of Babylon were powerfully compelling and seductive, succeeding in influencing the minds of both peoples and their religious and political leaders. Religion of Babylonia and Assyria (Boston; 1898), Morris Jastrow, Jr., pp. 699, 700 notes: "In the ancient world ... Egypt, Persia and Greece felt the influence of the Babylonian religion. ... In Persia, the Mithra cult reveals the unmistakable influence of

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Chapter II: Clay-Like Ideologies Arise to Undermine Unipolarity Babylonian conceptions; and if it be recalled what a degree of importance the mysteries connected with this cult acquired among the Romans, another link will be added connecting the ramifications of ancient culture with the civilization of the Euphrates Valley. The strong admixture of Semitic elements both in early Greek mythology and in Grecian cults is now so generally admitted by scholars as to require no further comment. These Semitic elements are to a large extent more specifically Babylonian." Babylon (the Sumerian Valley) is widely regarded by scholars, not only as the cradle of civilization, but also as the cradle of religion itself. Throughout the Age of Empire political rulers considered indispensable an intimate alliance with the officially recognized state religion. In a purely pragmatic sense, such intimate alliances with popular religion served the state well, greatly facilitating the State's absolute control over its subjects. Consequently, the later world powers, the Medo-Persians, the Greeks, the Romans and Britain (before the clay arose) all had officially recognized religious organizations intimately intertwined with the State. And history records many of the greatest abuses of power resulting from such alliances. Why? For the simple reason that all through history religion, so closely intertwined with the State, served to make the metal of the metallic kingdoms even harder and less yielding, for religion acted as Chief Propagandist and Facilitator of the policies of the State, no matter what those policies were. Clay-like ideologies (amounting to dissent) were disdained and despised by the powerful religious organizations because such ideologies threatened to limit, or even take away, the great power enjoyed by both State and Church in unholy alliance. Conveniently, any such clay-like ideologies were branded as “heresy” and a threat to the national security. Consequently, religion acted as a hardening agent in behalf of the metals that made up the authoritarian empires during the Age of Empire. As such, religion was found to be enormously useful to those empires. One might have a tendency here to except Christendom's religious organizations, to give these a pass, as it were. However, history will not permit giving her such a pass. Christendom was born in the 4th century AD during the rein of the 6th world power made of pure iron, the legs of iron in Nebuchadnezzar's geopolitical analogy, when

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? Constantine, emperor of Rome, made the nominal Christianity of his day the state religion. Did Christendom live down the horrible and bloody track record of the intolerance and the abuses of power of her "pagan" religious predecessors? Did she embark upon a course of dissent against the state in favor of human rights, freedom and democracy? Did she show herself to be mostly unaffected by the Babylonian religious culture and doctrine which justified and encouraged an unholy and bloody alliance with the State? No, she certainly did not. In fact, in her relations with the Roman State and later with the British State she displayed herself to be the most fervent fighter against the arising of any "clay" that might weaken the iron grip of those empires. In fact, as a whole, Christendom's great religious organizations only very belatedly (in the aftermath of WWII) 'got on board' the democracy, freedom and human rights bandwagon of promoting clay-like ideologies. But when she did do so, the effects were very powerful. True, the Protestant Reformation began in the 16th century, and this was ostensibly a protesting of the inordinate power of the pope and a disdaining of his close alliance with the State. However, the Reformation did not produce or facilitate the arising of significant amounts of clay until much later when the thirteen American colonies promoted, not atheism or agnosticism, but rather mostly the protestant form of Christendom's religion in helping to give spiritual justification for the Declaration of Independence. By that time sections of the protestant branch of Christendom were powerfully facilitating the clay. Under those forms of religion the concept of an intimate alliance between Church and State was weakened (with the bitter experiences under the Roman Church-State and British Church-State systems as justifications for the new thinking and course) and finally became unhinged. A mostly Protestant part of the amalgam AngloAmerican 7th world power was developing here in America, with large amounts of clay already present. But the older, more authoritarian Catholic and Anglican branches were still holding fast to the traditional concepts of metallic empires and intimate alliances between Church and State. It was not until after WWII that the Roman Catholic branch and the remaining pro-empire sections of the protestant branch began to get fully on-board with

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Chapter II: Clay-Like Ideologies Arise to Undermine Unipolarity respect to democracy, freedom and human rights. This occurred only as those great religious organizations finally discerned that the Age of Empire was over - that it was no longer possible to enhance and ensure their own geopolitical power by a close alliance with the dominant empire of the day. Empires were crashing in ruins, and those religious organizations could no longer afford to hitch their own fortunes to colonial powers which had seen their geopolitical day. Their hierarchies discerned that their geopolitical fortunes lay elsewhere. In the aftermath of WWII the new

clay-like

ideologies

and

the

Christendom’s Protestant branch did

democratic states that promoted them

not

were on the geopolitical ascendancy,

“clay” in a major way until circa

while the metallic dictatorships were on

1776, and its Catholic branch did not

the

do so globally until after WWII – but

wane.

This

was

previously

promote

liberal

democratic

unforeseen and very unpleasant from the

Christendom’s

viewpoint

promoting “clay” has been major

of

the

great

religious

influence

in

organizations that were accustomed to having their own way, without respect to what the "common people" wanted, and that always had their power and security guaranteed by the dictatorial State. Even after WWII, where it was still geopolitically beneficial, Christendom continued to pursue very close alliances with the State in various places in Europe, Asia and Central and South America. However, the arising of authoritarian communist states in Russia, China and elsewhere, in which all religion was completely suppressed and even annihilated, limited Christendom's options to few or none in those parts of the globe. But on the whole Christendom saw "the handwriting on the wall" after WWII and began to get out in front of the clay-like ideologies to promote these in an effort to derive geopolitical power in an entirely new way than it had traditionally done during the Age of Empire. It was Christendom's new approach to acquiring and ensuring geopolitical power that gave huge impetus to the arising of new "clay". The disintegration of the traditional (authoritarian) colonial empires and the corresponding spread of clay-like democratic forms of government in the aftermath of WWII presented a challenge to the great religious organizations of Christendom. Without

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? the authoritarian empires to ensure both their security and their geopolitical power, by what means could those goals be achieved? Christendom's religious organizations moved, very belatedly, to attempt to seize the moral and ideological high ground by setting themselves up as the "conscience" of the State, seeking to make 'pangs of conscience' felt by the State by means of moral, social, religious and political influence over the electorate, the common man. Hence, what was once disdained and even detested by authoritarian Christendom, namely the clay-like ideologies dissenting against the iron grip of traditional empires, instead became powerful geopolitical tools in the very skillful hands of religious leaders, tools employed to influence powerful governments from the bottom up, through the electorate. This was far different than the traditional role of religion during the Age of Empire when there was no electorate and when the common person was indoctrinated and coerced, with the help of the state religion, from the top down to ensure the continued geopolitical power of both the State and the Church in intimate alliance with each other. Thus, Christendom's traditional religions were generally very late in accepting the clay-like democratic / socialistic ideologies which focused on the individual rather than on the empire, but when their hierarchies did finally accept and employ them for their own geopolitical ends, then terrific impetus was given, in various ways, to the arising of the "clay" within and without the amalgam kingdom. Against the backdrop of recent history of the last several centuries and the two world wars of the previous century, and notwithstanding the obvious religious sincerity of the flocks, Christendom's relatively recent (mostly since WWII) and fervent advocacy of human rights, democracy and freedom (the "clay") is really seen for what it mostly is - a shrewd geopolitical maneuver by the hierarchy. She has very adroitly positioned herself to capitalize geopolitically on the presence and influence of the "clay" - and governments and international institutions dare not ignore or discount her from-the-bottom-up influence. She is a powerful force to be reckoned with, one that can bring down kingdoms and establish them. She produces, and controls, influential "clay" even in this technological, increasingly secular world. Anyone who doubts that fact should ask the former Soviets about her influence.

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Chapter II: Clay-Like Ideologies Arise to Undermine Unipolarity Interestingly, Christendom herself has come to be an amalgam of iron-like conservatives and clay-like liberals. To this day the most fervent religious conservatives disdain the concept of separation of Church and State, while religious liberals fervently espouse the concept. Consequently, in brief review, the intimacy between the State and religion continued all the way down until the "clay" began to appear within the 7th world power, the amalgam kingdom, starting with Britain and the thirteen American colonies and intensifying as the 20th century neared. The issue of separation of Church and State, which arose circa 1776 when the thirteen colonies declared independence, really was a brand new issue, unprecedented in the extent to which the principle was defined in the American constitution and carried out in practice. The issue is still, to this very day, a very hot one, as the iron and clay refuse to mix, to be reconciled into one harmonious alloy. The Protestant portion of Christendom's religion got started early producing "clay", greatly assisting in the creation of the Protestant Anglo-American 7th world power. The more authoritarian Catholic and Anglican portions got started much later, after WWII, in producing and wielding the "clay".

Sectional Conclusion

By the time of the dawn of the 20th century unprecedented, fundamental changes of immense importance were occurring in the very fabric of the international system. Those changes exerted irreversible influence upon the longstanding unipolar configuration of the international system, forever and completely undermining the very concept of empire. These developments weakened the dominant power, the amalgam kingdom, the 7th world power of Britain and America. Progressively that kingdom came to be made of iron mixed with clay rather than the pure iron that Britain was initially composed of circa the 18th century. New democratic ideologies, the Industrial Revolution, international organizations and religion all played powerful roles in producing and spreading these changes within the fabric of the international system. In the context of recent and current global developments and against the backdrop of the fundamental changes that have occurred in

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? the fabric of the international system since the dawn of the 20th century, the unipolar configuration of the current U.S.-dominated world order can be only a temporary phenomenon at best. These new developments occurring since the dawning of the 20th century have immensely powerful influence, really a governing influence, over current and future international events and trends. Understanding how this is true is absolutely crucial to understanding the deeper meaning of current events and how matters will play out in the near future. Further developments within the international system during the 20th and 21st centuries bear out the truth of that analysis and point, unmistakably, to the only eventuality the elemental structure of the international system will permit and facilitate – an impending shift to bipolarity. The next chapter will discuss such matters in enlightening detail.

Summary of the Main Points Ü The iron in Nebuchadnezzar’s geopolitical analogy represents traditional conservatives who favor a strong central government and are generally unyielding on socio-political issues and traditional values. The clay represents modern liberals who favor a much weaker central government and who take up the cause and interests of the common man rather than those of the central government and who adapt or mold to changing issues and values. Anglo-America, the amalgam kingdom, is the first and foremost global power to become thus amalgamated with roughly 50% iron and 50% clay. Ü The clay is made up of liberal democracy and socialism, includes international organizations like the League of Nations and the UN, and also includes the religions of Christendom. Ü All such clay has weakened Anglo-America just as clay swirled with iron would exhibit inherent weakness. Anglo-American power and influence does not rise to the level to allow the actual creation and maintenance of empire. Furthermore, the clay has spread globally by now and effectively prevents the establishment of any global empire, thus gravely undermining unipolarity.

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Chapter III: The Inevitable Casting of Events Toward Bipolarity

CHAPTER III: INEVITABLE CASTING OF DEVELOPMENTS TOWARD BIPOLARITY

Ü Aside from the challenge to its global power presented by its amalgamated makeup of conservative iron swirled with liberal clay, the amalgam kingdom has faced what external challengers? Ü How have such challengers undermined unipolarity in favor of bipolarity? Ü How have Anglo-America and Russia swapped geopolitical ideologies since the 1991 collapse of the Soviet Union?

Introduction In the previous chapter we learned the details of how the arising of the clay-like ideologies of democracy and socialism, eventually greatly aided by international religious and political organizations, has weakened the amalgam kingdom of the Anglo-American 7th world power, undermining its ability to achieve empire and to thereby establish a lasting unipolar world order under its own domination. In this chapter, we will discuss what external challengers to its world domination the amalgam kingdom has faced and how it has been forced to deal with these. We will also discuss the changed fundamental nature of the international system since the time c. the dawn of the 20th century and its implications for American-Russian relations today and for the configuration of the current world order. As we shall see, how the amalgam kingdom is currently choosing to face the latest challenge to its global dominance flies in the face of the geopolitical lessons and realities of recent history since the dawn of the 20th century and is rapidly bringing the global position and standing of the amalgam kingdom into irreversible jeopardy. This also has enormous implications for the fundamental configuration of the world order, undermining its current temporary (since 1991) unipolar configuration and

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? rapidly causing a reversion to the roughly bipolar form dictated by the changed (since the dawn of the 20th century) structure of the international system.

Metallic Remnants of the Roman Empire And their Sequential Challenges to the Amalgam Kingdom (The Roman Empire Dies a Hard Death) Identity

Remnant of:

Period

Development

Germanic Empire (Kaiser Wilhelm)

Western Roman Empire

c. 1900 1918

WWI

Nazi Germany (Adolph Hitler)

Western Roman Empire

c. 1933 1945

WWII

Soviet Union (Russian Core)

Eastern (Byzantine) Roman Empire

c. 1945 1991

Cold War

Russia and its Metallic (Authoritarian) Partners

Eastern (Byzantine) Roman Empire

c. 2003 Present

Neo Cold War

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The Amalgam Kingdom Faces External Challengers

Reverting back to the bigger picture, the important point to remember here is that two fundamental, unprecedented and enormously important developments within the international system converged at roughly the same time near the dawn of the 20th century. First, the dominant power had fully taken on an amalgam composition which both weakened and limited it with respect to its ability to achieve and maintain global empire in the style of its six pure-metallic predecessors, and thus the longstanding unipolar configuration of the international system could no longer be supported. Second, as we will discuss below, metallic (non-amalgamated) remnants of the previous Roman Empire serially arose to significantly challenge the global dominance of the 7th world power. Those two developments created the fundamental changes, forces and the altered foundation in the system for a new bipolar configuration, and that has not changed up until today, in spite of the fact that the international system has briefly reverted to a unipolar configuration since 1991. That reversion to unipolar is already giving way to the dominant forces pushing toward a roughly bipolar configuration. The multipolar world order spoken of frequently since 1991 is really turning out to be a bipolar configuration, when viewed from a bit of a distance. How so? The answers to why the altered international system will only support a roughly bipolar configuration, not a unipolar or a

Metallic (authoritarian) remnants of the Roman Empire continue to mount serial challenges to the amalgam kingdom’s

true multipolar one, lie in an

global dominance, resulting in a rough

examination of recent history of the

bipolarity for the world order as each in

challenges that lesser powers have

its turn counterbalances the US

mounted against the amalgam kingdom (US-Britain) since the dawn of the 20th century. We'll examine the recent history of those challenges and see that the altered international system has powerfully governed the configuration of the world order since it was altered,

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? driving developments into the sphere of bipolarity. Then we will take a closer look at current developments and see how it is true that the current world order is still being powerfully driven away from unipolarity, toward bipolarity. And we'll look at how this affects American-Russian relations now and in the very near future.

Two Hot-War Challenges from Iron-Like Germany

Very interestingly, the secondary powers that have arisen one at a time in the 20th century to significantly challenge and to offset the power of the dominant supremacy of the Anglo-American dual world power are all remnants of the Roman Empire, and thus they can be seen as metallic kingdoms made of iron, figuratively speaking. The Germanic Empire of pre-1914 rose to make such a bid and finally, in WWI, that successor to the Holy Roman Empire challenged the amalgam kingdom, the 7th world power, for global domination. Defeated but not yet whipped, Germany, along with its Axis allies, formed a bloc seeking again to seize global domination from the amalgam kingdom. Hitler's Third Reich was finally defeated in WWII, but not before creating unprecedented global upheaval. Thus, the iron-like Germanic remnants of the Roman Empire made two significant challenges to the amalgam 7th world power. With the resounding defeat of the Axis powers in 1945, one would normally conclude that the world order would default back to a unipolar configuration, with the amalgam Anglo-American 7th world power at the center. However, this could not be, due directly to fundamental changes in the geopolitical fabric dating back to the turn of the century, circa WWI. And true to that view of matters, another power which was also a metallic remnant of the Roman Empire stepped up to challenge the 7th world power immediately after the end of WWII. Russia was an indirect descendent, not of the Western Roman Empire as was Germany, but of its Eastern Byzantine Empire. In the aftermath of WWII the Soviet Union came to be fully formed, consolidated, as a bloc in opposition to the 7th world power. The new geopolitical phenomenon of a bipolar world order continued to manifest itself because the elemental forces in the changed fabric of the international system

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Chapter III: The Inevitable Casting of Events Toward Bipolarity producing that new configuration were very much alive and well. Hence began the Cold War rivalry between two power blocs, as distinguished from the hot war rivalry between two power blocs witnessed from 1914 until 1945.

The Roots of the Cold War Challenge from Iron-Like Russia

Russia, which eventually became the core of the Soviet Empire, was, by virtue of its budding military alliance with Constantinople and its conversion in 988 AD to the Orthodox religion of the Byzantine (eastern) Roman Empire, an indirect descendent of the iron-like Roman Empire. Additionally, with the Bolshevik revolution of 1917 Russia had long since thrown off the terrible and oppressive domination of the Czarist-Orthodox monarchy in favor of something new, which masqueraded as an ideology liberating its people from cruel oppression, but which in reality continued to pay homage to Russia's longstanding eastern Orthodox culture of metallic authoritarianism. As such, communism was merely a whitewash on the iron-like composition of Soviet dictatorship. The iron-like Roman Empire did not die a complete death after all. Its life continued in the person of Germanic and Russian pure-metallic fragments, which arose to challenge the domination of the amalgam kingdom of the US and Britain. Consequently, the 7th world power was being challenged yet again soon after WWII by the Russian metallic remnant of the eastern Roman Empire. The Anglo-American 7th world power had become predominantly the American world power, as the British Empire continued to disintegrate in the aftermath of two world wars, from which the Empire never recovered. It used to be said that the sun never set on the British Empire, but especially in the era since WWI the sun was setting on the British Empire. America was the cultural and ideological progeny of Greece, entirely enamored with the western democratic ideologies of the ethnic Greeks, as contrasted with the Hellenistic peoples who reverted to much-less-democratic authoritarian ideologies. It is easy here to see how and why the two powers (the Anglo-American and the Russian) became ideological rivals, thrust into a cold war over the issue of world domination. Their very fundamental natures were at odds, like iron and clay.

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? The challenge of the metallic Russian kingdom was only temporarily rolled back in 1991 when the Soviet Union collapsed. Since then, the unipolar world order has made a brief reprise, much as the bipolar world order which arose circa 1914 receded, temporarily, into the background, until the 1930s with the re-emergence of Germany. In view of the bigger geopolitical picture which includes the fundamental and unprecedented forces at work in the international system since the turn of the 20th century, one must be careful not to make faulty assumptions about Russia, as many did about defeated Germany after WWI. After that war, it was all too easy to assume the Germanic challenge to the 7th world power was over for good. However, such easy assumptions proved to be entirely wrong as the metallic German kingdom rose again in the 1930's to vie with the 7th world power for global domination. Likewise, since 1991 it has been

all

too

easy

to

make

assumptions about Russia's apparent lack of ability to mount a serious

Anglo-America, the amalgam kingdom, faced two hot war challenges from metallic Germany, the direct descendant

challenge to the Anglo-American 7th

of the Western Roman Empire. The

world power. But those making such

amalgam kingdom has also faced two

assumptions

cold

fail

utterly

to

war

challenges

from

metallic

understand, let alone take into proper

Russia, the indirect descendant of the

account, the fact that new geopolitical

Eastern Roman Empire, because a Neo

forces

Cold War is already starting up between

and

unprecedented

fundamental changes in the fabric of the

international

system

Anglo-America and Russia

have

effectively cast the international system of the 20th and 21st centuries into a bipolar configuration. Only temporarily can the configuration revert to a unipolar mode, as it has briefly done in the period of 1919 to 1933 and again from 1991 until the early spring of 2003, when the U.S. ran into unexpected and unprecedented and determined opposition to its global aims, which opposition was really spearheaded by the metallic Russian kingdom, acting in concert with other metallic remnants of the Roman Empire, notably including Germany and France (ancient Gall), with a rapidly rising and iron-like Chinese kingdom also joining in.

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Russia’s 2nd Challenge to the Amalgam Kingdom

Reaching all the way back to 1999 and before, but certainly only since after it took up the position of the last superpower with the collapse of the Soviet Union in 1991, the U.S. has progressively created an international environment which is conducive to the arising of non-pro-U.S. and even anti-U.S. geopolitics. In 1999 the heavy-handed U.S. herding of NATO into a 78-day bombing campaign over Serbia prompted widespread charges that in the aftermath of the collapse of the bipolar world order of the two superpowers in favor of the unipolar world order of the last superpower, the U.S. had become, not the Gentle Giant benignly overseeing the international good, but rather a self-absorbed and insensitive bully, dangerously pursuing its own interests with little concern for the legitimate interests of other nations, and significantly threatening international peace and security. Hence, the calls for a new, more stable and equitable “multipolar” world order in which inordinate power is not to be centered in Washington began to be heard much more loudly and widely soon after 1999. The proclaiming and recommending of that multipolar geopolitical vision, the calls for which have only intensified since then, was as a direct result of the international environment the U.S. was creating and is still creating. The U.S. imagined that the Almighty Deity had perhaps chosen it to play the roles of Last Superpower and Global Cop. However, even if that were somehow true, the U.S. has failed utterly to conduct itself in a fashion that recommends its particular brand of leadership to the world at large. It hasn’t adorned the idea and the vision of a U.S.-led unipolar global order, but has instead, by its attitude, policies and conduct, poisoned the international order with significant and justifiable fear, apprehension and resentment over the instability and inequitableness resulting from its global dominance. The U.S. has mostly played false to its continued claims of being the world’s most beneficent hegemony. Hence, it is no surprise that Mr. Bush enjoys virtually no goodwill nor any enthusiastic applause when he speaks to world leaders at the U.N. The U.S. is now more disdained and isolated internationally than at any time in the past. What is the nature of

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? the geopolitics that thrives in such an environment, and what has already been the effect of such geopolitics upon the global position of the last superpower, the amalgam kingdom? The nature of the geopolitics that began to thrive since the Serbia air campaign in 1999 and that has only proliferated since then is the geopolitics of a non-pro-U.S. and even of an anti-U.S. nature. Non-pro-U.S. geopolitics is that undertaken with significantly diminished recognition of, and heightened insensitivity to, U.S. goals and interests. Whereas before geopolitics were largely undertaken (willingly or unwillingly) with a profound recognition of and a deep sensitivity to U.S. interests, now that is much less the case. This carries with it enormous geopolitical significance both for the amalgam kingdom and for the very configuration of the world order itself. That unipolar configuration is being weakened and undermined on a fundamental level as a new center of power progressively fills the vacuum left by the rapid contraction of U.S. power and influence on the world stage. Previously, the gap between America's image of invincibility and its real power was not large enough to cause concern on the American side, or to provide significant opportunity on the opposing or offsetting side. However, in the last few years the gap between America's image of power and the reality of America's power has become a chasm, providing immensely important opportunity for its rivals to fill the chasm with a collective creation of their own, designed not merely to offset or counterbalance American power, but actually designed to displace it from the geopolitical center of the international system and oblige the amalgam kingdom to orbit (that new creation) instead of being orbited. A word must be said at this point about the fundamental nature of the international system itself. It has become quite fashionable to say that the geopolitical rivalry between the U.S. on one side and Russia on the other ended in 1991 with the collapse of the Soviet Union. The naive proponents of such a shallow and idealistic view of American-Russian relations attempt to prop up their ‘house of cards’ analysis by pointing out that the bitter ideological rivalry that so characterized the Cold War between the two dissolved by 1991 when communism was pronounced dead. Further, they even go so far as to assert that the fundamental interests of America and Russia coincide quite

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Chapter III: The Inevitable Casting of Events Toward Bipolarity closely now, as contrasted with the time during the Cold War. Why is such analysis faulted? Because it is confined to viewing only an artificially brief window of history and as such it fails utterly to take into account the inescapable fact that both the ideological rivalry and the Cold War itself were merely relatively brief manifestations of something much deeper and longer lasting between two rival powers (the amalgam kingdom of the 7th world power on one hand and the metallic remnants of the Roman Empire, which has refused to die a complete death, on the other), which have fundamentally divergent interests and goals. As such, the rivalry between the two mutually exclusive ideologies of capitalist democracy and Soviet communism was merely an ideological vehicle for the expression of the deeper incompatibility between the two rivals, and the two ideologies served merely as effective tools for encroaching upon the geographic and geopolitical territory of one’s opponent, each side using its ideological tool of choice in an effort to win the Game. The U.S. wielded its ideological tools most effectively, and it won Round I (the Cold War itself) of the Game. There now has arrived Round II, if anyone wants to open his eyes in order

WWI

to see it. It isn’t Round II merely of the

1945), the Cold War (1945-1991) and

Cold War. The Cold War was merely

the Neo Cold War (2003-Present) are

Round I of something deeper and longer

all manifestations of one principal

lasting than was the Cold War. It is

dynamic, namely the fundamental

Round II of the fundamental geopolitical

bipolar geopolitical rivalry between

rivalry between two sides, each of which

the amalgam kingdom and metallic

strives for unquestioned global control. Hence it is manifesting itself, not as a second cold war, but rather as something older that, for the most part, cannot die as the Cold War did.

(1914-1918),

WWII

(1939-

great-power remnants of the Roman Empire. The altered fabric of the international

system

casts

developments toward bipolarity

The amalgam kingdom faced two violent, hot wars (WWI and WWII) with the pure-metallic Germanic remnant of the Roman Empire. It then immediately faced a new Round I with the pure-metallic Russian remnant of the eastern Roman Empire, leading to

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? a nearly 5-decades-long cold war. These three fundamental geopolitical conflicts spanned from 1914 until 1991, and set a firm and immensely significant geopolitical pattern we can learn from, if we're willing to. Notably, since the dawn of the 20th century when fundamental changes occurred in the international system, changes which destroyed its former longstanding capability to support a unipolar world order with a pure metallic kingdom as its dominant power, a long line of metallic great power challengers, iron-like remnants of the Roman Empire, has arisen to offset the global dominance of the amalgam kingdom, thereby creating a roughly bipolar configuration for the world order. The fundamentally altered fabric of the international system can only support either (1) a simple, balanced bipolar (as from 1945 to 1991), or else (2) a more complex lopsided bipolar (as is now forming), configuration because its ability to support a unipolar configuration has now (since the dawn of the 20th century) been quite lost. The serial metallic challenges to the sole global dominance of the amalgam kingdom will continue until a roughly bipolar configuration is achieved. Even if those metallic remnants must finally act in an unprecedented way (in the past, the metallic remnants of the Roman Empire generally fought against each other), in collective fashion, to finally achieve their geopolitical goals, then that is what they will do. Here is where Russia enters into the picture in our day. The metallic Germanic remnant of the Roman Empire made two hot-war challenges to the dominance of the amalgam kingdom, and metallic Russia, as the core of the Soviet Union, made a cold-war challenge in the aftermath of WWII. However, the amalgam kingdom is now facing a new Round II with Russia. Russia is asserting itself once again in opposition to the Anglo-American 7th world power. It carefully avoids direct confrontation of a violent nature between itself and the amalgam kingdom, but it effectively opposes the 7th world power on a wide range of important global issues. The "surprise" organizing of the socalled anti-war bloc to oppose the U.S. on Iraq is only one notable example of metallic Russia's bid to challenge U.S. global dominance. In concert with its rapidly growing list of strategic allies and partners, Russia is currently forming a new Eurasian center of power unequaled in history. Very interestingly, it does include to varying degrees and in varying ways the Persian (Iran),

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Chapter III: The Inevitable Casting of Events Toward Bipolarity the Babylonian (Iraq), Germanic, French and Russian remnants of the previous metallic kingdoms. It also includes metallic (authoritarian) China, the resource-rich authoritarian regimes of Central Asia, Latin America, the Middle East and Africa. Developments are proving that the global dominance of the amalgam kingdom is "soft", that it can be effectively challenged, and eventually even rolled back. As such, the current unipolar configuration of the world order is also quite "soft", and is rapidly giving way to a roughly bipolar configuration where a complex confederation of Eurasian powers acts collectively to offset U.S. power. More about this follows below in this chapter. But the fabric of the international order will no longer support global empire, unipolarity. And the continued presence of powerful metallic remnants of the Roman Empire, which mount challenges to the dominance of the amalgam kingdom, casts the configuration of the world order into rough bipolarity. Why? Because among all the metallic remnants, one always rises to the ascendancy to act as the core around which the others are attracted into varying orbits, forming a geopolitical power bloc or pole. This occurred with the Germanic remnant of the Western Roman Empire, it occurred with the Soviet Union (Russian remnant of the Eastern Roman Empire acting as core), and it is already occurring again with Russia as the core of the rising multifarious East, now forming as a new geopolitical power bloc or pole. Russia’s geopolitical rise has attracted metallic (authoritarian) China into a full strategic partnership, so that the Russia-China axis proceeds on to attract many other key powers into orbit around that Sino-Russian core. As long as metallic kingdoms exist and thrive they will tend to align together as rivals to counterbalance the amalgam kingdom, and bipolarity (not true multi-polarity) is the inevitable result.

Learning to Build Power Blocs Instead of Building Empires?

In the face of the fundamental alterations that have taken place within the international system, which effectively have placed the concept of global empire, and along with it the unipolar configuration of the world order, on the trash heap of history, powers have been obliged to build geopolitical power blocs as a means to exercise global

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? influence, in the context of Empire's complete loss of credentials. In the aftermath of WWI, the Anglo side of the amalgam kingdom, which had maintained an empire for nearly two hundred years, found itself irreversibly sapped of strength, its ability to maintain empire fundamentally undermined. The American side of the amalgam kingdom, disdaining monarchy and other forms of authoritarianism in favor of Americanstyle liberal democracy, proved to be of limited help in the continued maintenance of the British Empire. In fact, it aided the breakup in various ways, as discussed in the previous chapters. WWI also propelled the U.S. forward as by far the greatest power ever to arise on the planet - yet, it was not an empire, nor could it achieve empire in

The amalgam kingdom and metallic Russia have exchanged ideologies since 1991 – the amalgam kingdom

the face of the potent new forces

has

unilaterally

pushed

toward

unleashed since c. 1914 as detailed

achieving empire and Russia has

above - in fact, it acted resolutely

worked with partners to construct a

against its own interests in that regard by

geopolitical power bloc made up of

propagating the principles of democracy,

mutually-beneficial alliances and ties

individual human rights and freedom and by taking the lead in the industrial revolution and in the creation of the League of Nations and later the United Nations. The American side, and finally the Anglo side, in the face of 20th century developments, embarked together upon a new course of building global alliances in the economic, diplomatic and military spheres. American leadership in this venture resulted in the creation of a geopolitical power bloc 'dominated' by the amalgam kingdom and encompassing much of Europe and Asia. This was not an empire nor was it an attempt at empire. Rather, it was a successful effort by the amalgam kingdom to order around itself, mostly by diplomatic and economic means, a network of willing and cooperative lesser powers through which the amalgam kingdom could extend its global influence. However, it had to make many compromises and agree to many limitations upon its power so as to keep its carefully crafted network of alliances together, to keep the power bloc from disintegrating. The efforts to build such power blocs only further

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Chapter III: The Inevitable Casting of Events Toward Bipolarity intensified in the aftermath of WWII. While the iron-like, copper-like, silver-like and gold-like predecessors of the amalgam kingdom would have laughed at such relative weakness and compromise, under the altered structure of the international system that was the best that the amalgam kingdom could achieve. Glorious pure-metallic Empire in the tradition of its predecessors, under a unipolar world order, was no longer possible. Great powers are now obliged to make alliances through which to exercise power in a complex arrangement of deals and compromises aimed at the establishment of power blocs. Such power blocs built upon willing alliances have progressively become geopolitically fashionable as the only viable alternatives to empires. Against this backdrop the recent history of Russia is interesting indeed. Very late, only since the collapse of the Soviet Union in 1991, has Russia learned the lessons of the un-wisdom of attempting, in the altered international system of the 20th & 21st centuries, to build empires. Russia, as the de facto metallic descendant of the eastern (Byzantine) Roman Empire, has a long history and culture of authoritarianism. This has been very difficult for Russia to get beyond. However, evidence strongly indicates Russia has gotten past its authoritarian/imperialist history, if only in the sphere of its external relations with other powers inside and outside its traditional sphere of influence. Interestingly, while Russia moves further in the direction of its traditional authoritarian roots at home with respect to its own form and nature of government, it is moving in exactly the opposite direction that it historically has moved in with respect to its neighbors. It isn't attempting to recreate the Soviet Empire. It doesn't threaten its neighbors with military intervention - rather, it seeks to avoid military conflict at almost any cost. We must not be naive here, though. Russia regrets, very deeply, its loss of empire in 1991. It wants to be a major, if not the major, player on the world stage. It is fervently engaged in the process of reacquisition of global power. However, what is very different now is the manner in which Russia seeks the attainment of global power, and how it intends to maintain and extend that power. It doesn't envision the reacquisition of empire for itself. Instead, it is acting (belatedly, yes) in full and intelligent harmony with the truths regarding the fundamental alterations that have occurred within the international system since the dawning of the 20th century - precisely as laid out and detailed in this book. Hence, we are witnessing the development of 'thinking' Russia - a

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? Russia which carefully and strategically considers its ways and goals in the light of the full range of geopolitical and global economic realities, trends and developments. For example, in its ongoing negotiations with the EU for a true strategic partnership, Russia is finding a great deal of assertiveness and self-confidence for itself. This is disturbing to outsiders, who prefer to keep Russia down, and to harness it like a treasured bull. However, Russia will not assume that place in today's geopolitical world. It has now refused to negotiate with EU officials except on its own terms - but its terms are not unreasonable or belligerent. Russia is forcing the EU and all others to wake up to a realization of its true and indispensable importance and role in today's complex, energyneedy world. It insists on the kind of strategic partnership with the EU and/or its key members which fully recognizes these facts, and which accords Russia the respect and influence it deserves. 'Thinking' Russia neither threatens its valued neighbors nor underestimates its own

‘Thinking’

Russia

power, influence and importance, to become a

matched against ‘unreasoning’

mere doormat for others to continue to

Anglo-America in a Neo Cold

trample upon. Russia has set about the

War

geopolitically noble and enlightened task of

consequences for the world order

rivalry

of

is

now

immense

creating around itself a geopolitical power bloc of truly unprecedented structure, proportions and influence. More on this later in this book - but, purely from a pragmatic geopolitical standpoint, Russia's efforts and strategy along these lines are truly a wonder to behold, and constitute an object lesson in how to turn a position of great geopolitical weakness (resulting from the collapse in 1991) into one of immense strength, influence, respectability and outright global power - all without military adventure and threats, and without direct military confrontation with the amalgam kingdom. History will record Russia's current rise, as the center or core of a new Eastern multifarious global center of power, as nothing short of 'miraculous'.

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The Amalgam Kingdom’s Fatal Step Backward In Time

In direct contrast to the arising of 'thinking' Russia, since 1991 we have also witnessed the arising of certain neo-conservative, powerful iron-like forces at the top levels of American and British leadership, in effect, an 'unreasoning' Anglo-America. In the aftermath of its Cold War victory, the amalgam kingdom has entirely misinterpreted the true meaning of the global developments that began in the transition period of 19891991, when the current unipolar world order was born. It sees the unipolar world order, not as it really is, as a merely temporary aberration which is fundamentally unsupported by the very fabric of the altered (since the dawn of the 20th century) international system, but rather as a new creation, perhaps even at God's hands, in which the amalgam kingdom is 'destined' to rule a new, born-again (pardon the pun) unipolar age - a Pax Americana, if you will, in the traditions of its pure-metallic predecessors. Such an interpretation of developments flies in the face of all the relevant geopolitical and global economic facts since the dawn of the 20th century, as detailed in this book. However, the amalgam kingdom has become seduced by its own power. As such, it now believes fully in the very image of invincibility which it previously knew and understood was mostly an image. In the throes of fervent nationalism and the unreasoning brand of patriotism, married to religious fundamentalism and virtually apocalyptic adventurism, it no longer understands the difference between image and reality - nor does it even want to understand. Notwithstanding the apparent moderation of such fervent and radical goals in the face of the mounting Afghanistan and Iraq quagmires and the intractable North Korean and Iranian crises, the top leadership in America has not in any way rejected such fervent, zealous, even fanatical goals. This is intensely interesting, if also equally disturbing and even frightening - it is as if the amalgam kingdom, recognizing within itself its own inherent weaknesses and vulnerabilities which derive directly from its own amalgam makeup of conservative iron and liberal clay swirled together but refusing to truly mix, thinks it has found a means to transcend, or perhaps more correctly to override, those internal divisions in favor of the pursuit of unrestrained power - empire. What are the means to override the internal

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? divisions? They are the very same means employed by all the ancient pure metallic predecessors of the amalgam kingdom. They are the same means used to greatly harden the pure metals of governance over the people throughout the millenniums of the unipolar Age of Empire. It is the age-old formula of religion intimately intertwined with government and the hand-in-hand embarking upon ostensibly God-ordained empire-like goals and missions. How so? Remember that in the 2004 re-election of Mr. Bush religion played a very powerful role, and the fundamentalist brand was at the fore. Nothing has the power to 'harden' government's grip over the people like religion can, if it is used to indoctrinate and propagandize the minds of pliable persons the way it certainly has been used in America since 9/11. Carefully intertwined with unreasoning patriotism, religion is an extremely potent force directing the hearts and minds of the electorate. The results of the recent election left the clay-like liberals disoriented, wondering what went wrong. Advisors to the democrats such as Mr. Clinton recommend that liberals no longer be 'afraid' to espouse fervent religious beliefs. We must remember that the iron-like conservatives and the clay-like liberals are locked tightly in an ongoing contest for power within the American system of government. Both sides crave power. There is little if any indication that the democrats will embark upon a course exposing the 'unholy' alliance currently forming between religion and government in America. No, rather, as democrats lick their wounds, they will try to figure out ways to exploit the current religion-inclined American culture to their advantage in an effort to recover power within the three branches of government. For failing to adroitly do so, they have been ejected from power positions in all three branches. Religion and religious fervor mixed with politics and patriotism will rapidly become the key to a return to power for the 'clay'. However, in the process, as intimacy between government and religion grows to levels that would surely outrage and shock the founding fathers who crafted the constitution, the amalgam kingdom will become ever more the 'unreasoning' AngloAmerica. The internal divide between conservative iron and liberal clay is being overridden, it is true. But that is occurring at terrific expense, at the sacrifice of wisdom, understanding, tolerance and individual freedoms.

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Chapter III: The Inevitable Casting of Events Toward Bipolarity Flying directly in the face of all understanding and wisdom, and devoid of even a basic knowledge of the fundamentally altered structure of the international system or of the rudiments of recent history, especially since 9/11 the leadership of the amalgam kingdom has embarked upon a fatal step backward in time, seeking virtual empire and the establishment and maintenance of the current unipolar world order after the pattern of its metallic predecessors during the Age of Empire. It has disdained and smashed its treasured network of global alliances and the power bloc they supported, in favor of the attempted establishment of a de facto American empire. How foolish! How incredibly ignorant of the lessons of recent history! How impractical and shockingly arrogant! It cannot succeed. Nothing in the fundamental structure of the international system will permit it to succeed. But even in the amalgam kingdom's push for de facto American empire, we see the forces inherent within that international system driving irresistibly toward bipolarity, away from unipolarity. The amalgam kingdom has very pointedly over-reached on a global scale, rapidly paving the way for the arising of a new center of power and the imminent arrival of a roughly bipolar new world order. This will be one in which the amalgam kingdom and a few remaining, relatively minor allies will constitute one pole, while a new Eastern power center made up of an array of significant powers and with Russia at its core, will constitute the other pole. In the geopolitical gap between these two poles will be the United Nations Security Council, serving both as a focusing instrument for the global influence of the Eastern pole, and as a collective instrument with which to express on a global scale the predominant will of the entire Council. Such will be to the detriment of the global power and influence of the amalgam kingdom in various ways.

Overall Conclusion and Forecast

The geopolitical analogy of king Nebuchadnezzar I of ancient Babylon depicted with amazing clarity the march of subsequent world powers all the way down to the current Anglo-American 7th world power. His analogy even depicted the unprecedented amalgam makeup of the Anglo-American 7th world power, as a mixture of iron-like conservatives intermingled with clay-like liberals. The arising of ideologies like

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? democracy and socialism was depicted by the clay. Even though the iron-like conservatives and the clay-like liberals are swirled closely together to make up the amalgam kingdom, they do not really mix. This unprecedented amalgam makeup of the 7th world power has been helped to come about by other factors as well, like the Industrial Revolution, the activity of Christendom's religious organizations and the presence of international organizations and institutions like the League of Nations and the United Nations. The amalgam makeup of the 7th world power, along with all the other factors detailed in this book, wrought unprecedented fundamental changes within the very fabric of the international system, starting near the dawn of the 20th century. The principle and concept of empire, in the tradition of the predecessors of the 7th world power, has been fundamentally demolished by these changes. Along with the concept of empire, the ability of the international system to support a unipolar configuration has also been relegated to the trash heap of history. The net result is that the international system will now support only a roughly bipolar configuration. With the line of metallic remnants of the iron-like Roman Empire that have arisen to challenge the amalgam kingdom since circa 1914 until now, the bipolar configuration has been in evidence for most of the last 100 years. The current unipolar configuration is both unsustainable and temporary. The amalgam kingdom has been challenged twice by the metallic Germanic remnant of the Roman Empire, once by the metallic Russian remnant as the core of the Soviet Union, and now faces the second challenge by metallic Russia, which is positioning itself at the core of a new and unprecedented collective, multifarious Eastern center of power. The world order is therefore even now reverting to a roughly bipolar configuration as the only one possible within its fundamentally altered fabric. As such, America and Russia have fundamentally divergent interests and over the next few years relations between the two will rapidly and progressively take on the characteristics of a fierce geopolitical rivalry for global dominance. The collective Eastern center of power that is arising will succeed in displacing the amalgam kingdom from its current position of global dominance. It will accomplish this first by diplomatic and economic means by the formation of multi-layered strategic alliances between its members in the spheres of economics, energy and security. The U.S. will be excluded

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Chapter III: The Inevitable Casting of Events Toward Bipolarity from these developments in large measure. Finally, a military conflict is very likely to arise eventually between the two power blocs in which the amalgam kingdom, already suffering from over-reach and international isolation, will attempt to reassert its global dominance, and it will fail. The Eastern center of power will become the dominant of two global poles, with the U.N.S.C. occupying the geopolitical gap between the two poles and attempting, precariously, to prevent another collision between them.

Summary of the Main Points Ü The amalgam kingdom has faced two world war challenges from Germany, a metallic remnant of the Western Roman Empire, one cold war challenge from Russia (core of the Soviet Union), a metallic remnant of the Eastern Roman Empire, and now a second challenge from Russia is arising as the Neo Cold War presents itself. Ü Added to its inherent weakness due to its amalgamated makeup such external challenges helped to ensure that Anglo-America could not and can not sustain a global empire or a US-led unipolar world order. Ü In the aftermath of its 1991 collapse ‘thinking’ Russia gave up on empire and resorted to constructing a geopolitical power bloc made up of mutually beneficial alliances. On the other hand ‘unreasoning’ America, suffering from ‘winner’s disease’, misinterpreted its cold war victory in 1991 and embarked upon the delusional and futile quest for virtual global empire, squandering its carefully built network of alliances and coalitions. Thus, Russia and the US have swapped geopolitical philosophies since 1991.

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CHAPTER IV: IMPENDING BIPOLARITY AND RUSSIANAMERICAN RIVALRY

Ü Notwithstanding the pretense of a US-Russia “partnership”, what evidence proves the two powers are fierce rivals and that a Neo Cold War has already arisen between them? Ü What is the strategy of the amalgam kingdom? Ü What is the Russian strategy? Ü Which side will win the Neo Cold War? Ü What is Asymm·Plexity and how does it accurately describe the configuration of the new world order that is impending?

Introduction and Background

In chapters 1-3 the famous ancient geopolitical analogy of the Amalgam Kingdom, which is composed of a mixture of iron and moist clay, was used in an illustrative way to depict the makeup of the modern Anglo-American world power and to draw attention to certain important unprecedented fundamental changes introduced into the international system near the dawn of the 20th century. It was shown in those previous chapters how the strange makeup of the Anglo-American world power and the fundamentally changed international system work together to powerfully govern American-Russian relations down to this very day. As predicted in those analyses, relations between the two great powers are rapidly taking on a decidedly adversarial character, and this carries enormous implications for the immediate future in the geopolitical, global economic, diplomatic, energy and military spheres. To provide background and a basis for the analysis that follows, a brief summary is presented here from the previous chapters:

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Chapter IV: Impending Bipolarity and Russian-American Rivalry King Nebuchadnezzar I of ancient Babylon (in the 7th and 6th centuries B.C.) reportedly had a dream. An immense image or statue of a fearsome king towered hundreds of cubits above the head of King Nebuchadnezzar. Its head was made of glistening gold, its breast and arms were of bright silver, its belly and thighs were of burnished copper and its legs were made of iron. Notably, its feet were made of iron mixed with moist (soft) clay. In this famous geopolitical analogy, the third world power Babylon (Egypt the 1st world power and Assyria the 2nd world power are not pictured in the analogy) was represented by the head of gold. After Babylon, the silver dual kingdom of Medo-Persia (the 4th world power) dominated the world. Next came the copper kingdom of Greece (the 5th world power), followed by the iron dual kingdom of Rome with its western and eastern empires (the 6th world power). Finally, an amalgam kingdom (the 7th world power) made partly of iron and partly of soft clay descended from iron-like Rome as feet naturally extend from legs. It too is a dual kingdom, pictured by the two feet. The amalgamated makeup of this kingdom signaled fundamental changes and striking, brand-new developments in the millenniums-old geopolitical system. So goes the now-famous geopolitical analogy attributed to ancient King Nebuchadnezzar I, king of Babylon in the 7th and 6th centuries BC, depicting the march of world powers, providing a fitting illustrative vehicle with which to portray the subject at hand. Note carefully that, in the ancient analogy, all the kingdoms prior to the amalgamated Anglo-American world power were pure metallic in nature. Metal is durable and comparatively unyielding, and the ancient kingdoms serving as world powers from Egypt to Rome were 'metallic' in nature. Each in its turn attained global empire, with all other kingdoms in clear subjection. This was the unipolar Age of Empire, from about 2,300 B.C. to the mid-18th century when the British Empire was forming. The international system fully supported that unipolar configuration of successive world powers, and some of those metallic powers dominated the known world for many centuries on end. However, as the dawning of the 20th century neared, all that was about to change. How so? Britain (Britannia) was a distant Roman colony, but by 1763 A.D. it had humiliated and subjugated all the lively remnants of the iron-like Roman Empire to become the 7th world power. Like Rome, depicted as the legs of iron in the analogy,

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? Britain too was made of iron, like the feet that extend from iron legs. However, something new made its appearance almost immediately after Britain attained global empire. Certain 'impurities' were set to infect the pure metallic makeup of the 7th world power. Britain's thirteen American colonies had tired of oppressive domination by the British Monarchy allied too intimately with the Church of England. New democratic ideologies which disdained iron-like monarchy and placed the emphasis on the common person, and which had their roots in ancient Greek thought and culture, took firm hold on the thirteen colonies, which declared their independence from Britain and set up a new "government of the people by the people" with checks and balances designed to prevent iron-like authoritarian rule and which made definite provisions for keeping religious organizations at arm's length, preventing too close an alliance between Church and State. The "clay" of Nebuchadnezzar's analogy was born! It steadily and thoroughly "infected" the iron-like kingdom of Britain, weakening its grip on empire. By the dawn of the 20th century both the American and the Anglo side of the 7th world power had become

an

amalgamated

composition

of

unyielding

iron-like

traditionalists

(conservatives) who favored a strong central government, traditional social and moral values, and a close interaction with religion, versus the clay-like liberals, who favored a weaker central government and who believed in spinning out to the people that centralized power by means of labor unions and grass-roots organizations and institutions set up to challenge central authority. The liberals were easily molded to conform to changing moral and social values as they drew their primary support from the people themselves. Thus, they were like moist clay, "squishy", in effect. And they disdained too close a cooperation between the State and traditional religious organizations. The 7th world power was in trouble as respects empire, being weakened from within by the "clay". This was a brand new development within the international system. Additional important developments converging near the dawn of the 20th century also powerfully undermined the very concept of empire. The Industrial Revolution enhanced the power and ability of colonies to achieve independence from their empiredominators by putting effective military weapons into the hands of insurgents. The advancements in communications and travel brought by the Industrial Revolution were put to very effective use in throwing off the domination of empires. Additionally,

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Chapter IV: Impending Bipolarity and Russian-American Rivalry international organizations and institutions like the League of Nations and the United Nations gave legitimacy and voice to the liberation-oriented causes of the oppressed. So did the involvement of Christendom's religious organizations, which served very powerfully to justify and promote liberation causes. In effect, these other unprecedented developments placed great power and influence into the hands of those who made up the liberal "clay" within the Anglo-American 7th world power and the British Empire at large. By the time the 20th century got well underway, empires were crashing in ruins. The fundamental altered makeup of the international system no longer supported empire in the traditional sense, like that enjoyed by the metallic predecessors of the AngloAmerican world power. The whole concept of empire has been demolished, relegated to the trash bin of history. Along with it, the concept of a unipolar world order has also been fully undermined. Since the dawn of the 20th century that unipolar configuration has given way to a roughly bipolar one, because the unipolar configuration is unsupportable by the altered fabric of the international system. How has the truth of that principle been observed and demonstrated during the last 100 years? Throughout the 20th century the weakened (due to its own makeup of iron mixed with clay) Amalgam Kingdom, the Anglo-American 7th world power, has had to face a succession of metallic remnants of the Roman Empire that have challenged it for world dominance. The Roman Empire dies a hard death. The Germanic Empire was the primary iron-like fragment of the Western Roman Empire, and it challenged the Amalgam Kingdom for world domination in two world wars. In both cases, power blocs formed around the two great powers of Germany and Britain-America, and those two competing power blocs formed a roughly bipolar configuration for the world order. In the aftermath of WWII the primary metallic remnant of the Eastern (Byzantine) Roman Empire, Russia, mounted its first challenge to the Amalgam Kingdom for world domination. Again two competing power blocs formed, producing a bipolar world order, that of the two superpowers. When the Soviet Empire collapsed in 1991 the world order transitioned, only temporarily, to a unipolar configuration. However, Russia is again mounting a challenge (much like Germany, its [Russia’s] second challenge) to the Amalgam Kingdom for world domination. And we are currently seeing the formation, once again, of two competing power blocs, one centered on the Amalgam Kingdom and

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? the other centered on Russia, and thus we are also witnessing a reversion to a roughly bipolar configuration of the world order. The altered fabric of the international system will not support a unipolar configuration because it will not support the existence of a global empire to oversee and dominate the world order, and therefore it is reverting back to a bipolar configuration. The context of fundamental geopolitical rivalry between two competing blocs as established here, in which a neo Cold War has already begun, sets the background for the discussion that follows. The old Cold War was fierce

Few have recognized the elemental truths

ideological war between capitalism

concerning the unrelenting fundamental

and communism, two mutually-

rivalry between the US and Russia, or its

exclusive

However,

incarnation in the form of a Neo Cold

behind the thick cover of that

War, until very recently. Finally, the

ideological war, a fundamental

majority who used to view developments

competition for global control of

only

characterized

strategic

by

ideologies.

resources

the

was

being

played out, and each side merely

superficially

is

beginning

to

recognize the existence and profound implications of Russian-American rivalry

employed its chosen ideology with the aim of extending its control over such resources. Now, in the Neo Cold War rivalry that is heating up, the ideological rivalry between clay-like liberal democracy and ironlike authoritarian "managed democracy" has replaced the rivalry between capitalism and communism. However, the current rivalry between these two "democratic" ideologies only thinly veils the ongoing competition for global control of strategic resources. That competition for control of resources is the fundamental driving force hiding behind the thin facade of the war between liberal democracy and authoritarian "managed democracy" - the clay and the iron, respectively.

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Chapter IV: Impending Bipolarity and Russian-American Rivalry

Deep Incursions by the Amalgam Kingdom

In the aftermath of 9/11 the U.S. saw and exploited the opportunity to extend its global reach and to try to consolidate its control over strategically important oil-rich regions around the globe. It made significant inroads into Central Asia, establishing socalled "temporary" military bases in the region supposedly to be used in the "war on terror". It pushed to expand NATO right up to Russia's doorstep. It made inroads into the Caspian region and the Caucasus by means of crude oil export pipeline agreements and projects designed to cut off Russia's growing monopoly in that sphere. The BTC pipeline is the most prominent of these. The U.S. gave direct and indirect support to anti-Russian forces and political groups in Chechnya and Georgia, seeking to carve away from Russian influence vital strategic territories. Further, it unilaterally withdrew from the ABM treaty and made other unilateral moves designed to free its hand to pursue U.S. interests around the globe. It sidelined the U.N.S.C. to invade Iraq and signaled that it would apply its pre-emptive war doctrine wherever and whenever it saw fit. While all these developments were occurring, the U.S. paid little genuine attention to Russia's diplomatic advances seeking the establishment of a mutually beneficial strategic partnership between itself and the U.S., except to take unfair advantage of such diplomatic openings. The Amalgam Kingdom was really seeking to firmly establish itself as a global empire in direct contradiction both to its assurances to the contrary and to the lessons of recent history since the dawn of the 20th century.

Russian Pushback Against American Incursions

Metallic Russia began to push back against the wide array of U.S. incursions into its traditional sphere of influence. It stood at the center of opposition to the invasion of Iraq, and was instrumental in holding together the so-called "anti-war bloc" consisting of other metallic kingdoms, resulting in unprecedented international isolation of the U.S. The Kremlin has moved to shore up its flagging relations with the authoritarian Central Asian regimes by concluding important agreements with them in the spheres of energy,

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? economics, diplomacy and security. It has deepened its cooperation with such key powers as Iran, Syria, Turkey, China, India, Saudi Arabia, Venezuela, the Koreas and others. It has stiffened against EU and NATO expansion, demanding respect and a coming to terms with Russia's legitimate interests and concerns. It has moved to reconsolidate its control of domestic energy resources and industry, pushing out western influence gained by means of the oligarchs. It has also moved to extend and consolidate its de facto monopoly of oil and gas throughout the Eurasian super continent. And in response to the unilateral U.S. withdrawal from the ABM treaty, Russia has developed and is deploying missile shield defeating strategic missiles which can be fitted with maneuverable reentry vehicles that travel and maneuver at speeds approaching Mach 10, 7,000 miles per hour. It also threatens to begin invoicing its ever more crucial oil and gas exports in euros or rubles rather than in dollars, effectively placing at risk the current international currency, the U.S. dollar. Metallic Russia and its metallic strategic partners are demonstrating the truth that in the altered (since the dawn of the 20th century) international system, no single power will be permitted to achieve global empire, to preside over a unipolar world order.

The Post-9/11 Strategy of the Metallic Kingdoms

In the last 100 years since the dawn of the 20th century, when fundamental changes in the fabric of the international system completely undermined the concept of empire, great powers have been obliged to form power blocs instead of empires. The metallic remnants of the Western and Eastern Roman Empire have become very adept at the creation and management of such blocs. Germany, as the primary metallic remnant of Rome's western Empire, gathered to itself other metallic regimes of an authoritarian nature like itself, and twice threatened by force to take world domination away from the Amalgam Kingdom. Germany’s gathering to itself of other, like-minded metallic kingdoms or regimes in the formation of powerful blocs was a frightening thing for the Amalgam Kingdom to behold. The primary metallic remnant of Rome's eastern Empire (Russia) has already, during the Cold War, mounted its first challenge to the Amalgam

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Chapter IV: Impending Bipolarity and Russian-American Rivalry Kingdom over the issue of world domination. It created around itself a powerful bloc of metallic authoritarian regimes we called the Soviet Empire, proliferating such pro-Soviet regimes around the globe, even in Central and South America. While that bid for world domination failed when the Soviet Empire collapsed in the period of 1989-1991, metallic Russia is currently building around itself a new power bloc of like-minded metallic kingdoms, or regimes, in a new (second) bid to challenge the Amalgam Kingdom for world dominance. Russia is not rebuilding its lost empire, but it is busily constructing a new geopolitical power bloc - something much more pragmatic than empire, which the

The

metallic

(authoritarian)

kingdoms of Russia and China work to support, proliferate and

fabric of the altered international system

consolidate into an alliance other

simply will not support. Russia gives crucial

anti-American,

military-technical support to China to aid its

metallic regimes around the globe

resource-rich

geopolitical rise on the world scene. It also provides energy security and diplomatic assistance to China to aid its rise and firm up its membership in Russia's new power bloc. China's rise is steadily displacing American influence and power in Southeast Asia and beyond, as China also cooperates with metallic anti-American regimes in strategically important regions like the Middle East, Central Asia and Latin America. Russia has gathered to itself as strategic partners other metallic kingdoms and sympathetic democratic governments such as resource-rich Iran, resource-rich Venezuela, North Korea, Syria, Germany, France, Spain, the oil-rich authoritarian regimes of Central Asia, strategically important Belarus and Ukraine, and a number of others. It is greatly deepening its strategic cooperation with India in all spheres. It is working hard and successfully to construct such ties with Turkey, Saudi Arabia, Indonesia, oil-rich and mineral-rich African states like Sudan, South Africa, Algeria and others, all in a clear strategy to construct a very formidable power bloc. In virtually every relationship that Russia cultivates, energy (crude oil and gas) and/or strategic minerals play the central role in one way or another. That constitutes Russia's primary lever to power, and it is very skillfully working that lever to serve its own interests and goals.

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? The Amalgam Kingdom has warily observed such developments and has been forced to bear the geopolitical and economic harm inflicted by severe international isolation directly resulting from the refusal of Russia's new bloc to bow to American interests in Iraq and elsewhere. The U.S. has seen inroads into its influence and power in strategically important regions like the Middle East, Central Asia and Southeast Asia as the metallic kingdoms Russia is gathering around itself grow in strength and challenge U.S. dominance and influence. Russia sells to its partners weapon systems specifically designed to greatly increase the cost to America of its military operations against its foes. As an example, Russia and Venezuela have recently agreed on purchases of advanced Russian fighter aircraft and air-defense systems that will pose a real problem for the U.S. military should it decide to try to force a "regime change" in resource-rich Venezuela. Russia assists many others of its allies in such ways in an insidious strategy to cut short the real-world ability of the Amalgam Kingdom to conduct successful military campaigns against its foes, and thus preventing it from further consolidating its grip on global power and dominance. In fact, Russia's strategy is even loosening that grip as the costs of U.S. military operations pointedly increase and the chances for "success" of such operations pointedly decrease. The Great Game between the Amalgam Kingdom and the Metallic Kingdoms (with Russia at the center) for control of strategic energy resources is rapidly intensifying. The stakes are enormous - global domination in the economic, diplomatic and military spheres - for whichever side controls those strategic resources will also see its control extend across all those named spheres as a result. Russia's new power bloc is growing, taking on truly global dimensions, and becoming ever more determined to resist, and even frustrate, U.S. global interests and goals. Its strategy of proliferating anti-American "iron-like" regimes in strategically important regions of the globe to push back the reach and effectiveness of American power and influence is having notable success. What strategy is being pursued by the Amalgam Kingdom to frustrate the aim of its rivals, the Metallic Kingdoms?

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The "New" Strategy of the Amalgam Kingdom

Faced with a widening array of hostile metallic regimes forming a competing power bloc with Russia at its center, the Amalgam Kingdom has arrived at an apparently ingenious strategy designed to disrupt the organization and strength of the rival bloc. Remember that in Nebuchadnezzar's ancient analogy the Amalgam Kingdom is composed of iron swirled with moist clay, and that the two do not mix. The iron-like conservatives disdain the clay-like liberals, and vice versa. This has a pronounced weakening effect upon the Amalgam Kingdom, as roughly half its people wish to go in one direction while the other half wish to go in the exact opposite direction. What if the metallic rivals of the Amalgam Kingdom could be made to endure such divisive and weakening internal conflicts between "iron" and "clay"? Might the "iron" of those metallic rivals begin to weaken and crumble? Might Russia's power bloc currently under construction disintegrate as a result? "Democratization" is both the ideology and the instrumentality energetically in use by

The amalgam kingdom works to

the Amalgam Kingdom with the aim of

pollute

polluting its rival metallic kingdoms with clay-

(authoritarian) regimes around

like 'impurities', so as to weaken them, disrupt

the globe with “clay”, liberal

their anti-American determination and break

democracy,

up the rapidly growing unity of Russia's

weaken

geopolitical power bloc. Within the realm of

causing “regime change”

the

in

and

metallic

an

effort

collapse

to

them,

the metallic kingdoms that are set in geopolitical rivalry with the Amalgam Kingdom, there already exists a measure of liberal "clay". Additionally, the Amalgam Kingdom is actively working to create more clay out of iron, so to speak, by the spread of its liberal democratization ideology. It is attempting to incite all such "clay" to activism in opposition to the "iron" of those regimes. The Rose Revolution in Georgia is a noteworthy example of the effectiveness of the strategy of the Amalgam Kingdom. The liberal "clay" took to the streets en masse to demand a pro-western, pro-democracy "regime change", with noteworthy results. The

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? strategy was being worked in Ukraine’s Orange Revolution in an effort to produce another pro-western "regime change". It was seen as likely incite to activism the liberal "clay" in many other regions where Russia enjoys strong support from iron-like regimes, such as in Central Asia where yet another “colored” revolution (the so-called tulip revolution) was instigated in Kyrgyzstan and another was attempted in Uzbekistan, and in China. It might even pose a significant risk to Russia itself, threatening to reactivate democratic passions inside Russian borders. The threat of the possible success of that strategy is very real indeed, yet its success is by no means assured.

Which Side will Prevail in the Neo Cold War Rivalry?

In effect, America's new strategy of "regime change" by "democratization" is really just a new implementation of an older strategy that was used against the Soviet Union in the period of 1980 to 1991, and which effectively hastened its collapse. Back then, the Amalgam Kingdom infused into, and massively incited, liberal "clay" within the iron-like realm of the Soviet Union to cause its destabilization and collapse. The effective strategy is now being employed again against Russia and its iron-like allies with the hope of preventing any further geopolitical rise for Russia, and to scupper the growing formation of the Russo-centric power bloc described above. In essence then, we are now seeing a renewed implementation of the Reagan Doctrine against Russia and its geopolitical power bloc. This fact is not lost on the Kremlin and the regimes friendly to it. While the strategy of "regime change" by "democratization" may at first seem ingenious and compelling, a closer examination reveals some deep problems with the strategy, ones which threaten to render it largely ineffective against Russia and its new geopolitical bloc. How so? The strategy relies upon very significant, even massive grass roots support from the liberal "clay" within the borders of any targeted regime, in order to have any chance of successfully instigating a regime change. Along these lines, the strategy seeks to tap into the deep well of bitter economic and political discontent and an over-riding desire to be freed from oppression as the key and necessary indigenous forces that will guarantee

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Chapter IV: Impending Bipolarity and Russian-American Rivalry its success. We saw the strategy successfully tap into that well in the case of the collapse of the Soviet Union, and we're currently witnessing a very significant tentative success along those lines in Georgia and in western Ukraine. The existence of those indigenous forces, "in spades ", so to speak, is an absolute requirement for the ultimate success of the strategy.

Iron Exhibits Some Flexibility, But Remains Iron

However, today in Russia itself, as well as in Central Asia, the Middle East and elsewhere, while such indigenous forces do exist, they do not exist nearly "in spades ", as required. Many of these states are flush with oil revenues that enable them to take sufficient care of their people so as to at least dampen the cry for a better life, economically-speaking. This is quite a different situation than that which obtained in the region in the period of 1989-1991. Many such regimes now employ varying degrees of the socialistic/authoritarian "managed democracy", which seeks to provide for the economic needs of its people while granting only a measure of freedom, but emphasizing state-managed economic security, sociopolitical stability and the continuance of the regime. There are a number of cases of such socialistic "managed democracy" in which economic growth is comparable to, and even far exceeds that of the western democracies. China, for example, as the foremost case, adopted such "managed democracy" in the aftermath of the collapse of the Soviet Union. In doing so it was able to liberalize only to an extent, only where it did not endanger the iron-like regime, while at the same time providing for economic growth and thus helping to ensure the continuance of the regime. As such, by its ability to rapidly adapt to changing circumstances, while at the same time using its military, police and security forces to strictly limit how far protesters were allowed to go, China avoided the Soviet eventuality (collapse) and is therefore a fitting model for the metallic regimes currently being targeted by the Amalgam Kingdom. By combining a measure of economic flexibility and benefits, the guarantee of domestic stability, limited freedoms and the credible threat of force such regimes can retain their hold on power, at least in the short to medium term. Additionally, when

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? coupled with the other counter-forces as discussed below, the ability of such regimes to follow the China model works effectively against the American strategy of liberal democratization, tending to strictly limit its impact. In fact, so-called "managed democracy" can be seen as an unprecedented but limited 'flexibility of iron' designed to diminish somewhat the yearnings and rumblings for full liberalism and freedom, thus facilitating the continued dominance of the iron-like regimes. As such, "managed democracy" draws upon certain advantages inherent in liberal democracy and capitalism without embracing other features that might weaken the regime's grip on power. At the same time it conveniently holds tightly to certain tenets of communism and totalitarianism. Nevertheless, in a pragmatic sense, it is succeeding, at least in the short term, in diluting the disruptive effects of the genuine liberal "clay" the Amalgam Kingdom is introducing into the realm of the metallic kingdoms. In essence then, when the Amalgam Kingdom won the ideological war, defeating communism in 1991, the authoritarian metallic regimes did not crumble in ruins, and neither did they fully embrace American-style democracy. Instead, they have used the harsh experience to learn how to 'make iron exhibit limited flexibility', so to speak, so as to be able to bend and adjust to changing ideological and economic circumstances, and even to thrive, while continuing to stay in power. It is in this sense that China now serves as an ideal model for the other metallic regimes. Consequently, rather than weakening and crumbling because they are being targeted from the inside by the Amalgam Kingdom, the authoritarian metallic regimes are much more likely to combine a significant measure of flexibility, economic benefits derived from their wealth of strategic resources, along with brute force and thus retain their hold on power. The Amalgam Kingdom is finding that instigating successful pro-West "regime changes" is not so easy a task after all. Additionally, it is finding out that promoting democratic ideologies and principles, including free and open elections, does not assure the rise of a US-friendly government. In fact, it often results in the precise opposite as anti-American political forces hijack the democratic process and use it as a lever to power. That phenomenon has been seen across the Middle East where the US strategy to reorder the political landscape has massively backfired, helping such factions as Hamas and Hezbollah to make significant political advances.

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The Lessons of Georgia's Rose Revolution

In the case of the 2003 Rose Revolution in Georgia we saw demonstrated the pointed vulnerability of economically impoverished states to the Amalgam Kingdom's strategy of "regime change" by liberal "democratization". Georgia is economically very weak, having been plagued for more than a decade by costly, bloody secessionist movements, with the more economically viable regions being the ones seeking autonomy. That left Georgia-proper isolated economically and impoverished as compared to the separatist regions. As the "democratization" strategy was pursued by the Amalgam Kingdom, the wealthier separatist regions’ peoples were far less interested in taking to the streets to demand a pro-western "regime change" than was the economically weak capital, T'bilisi. There, President Eduard Shevardnadze had already lost most of his support, primarily due to the unfavorable economic condition of the center, along with his inability to solve Georgia's territorial disputes. The pro-western, liberal Mikhail Saakashvilli was seen in the capital as Georgia's new hope in the quest for economic and territorial vitality. Mass demonstrations in the streets demanding the resignation of Mr. Shevardnadze, paralyzing the nation's center, greatly increased instability and the risk of Page 69 of 319

PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? a new bloody civil war. Faced with such a threat, the Kremlin stepped in to engineer the departure of Mr. Shevardnadze, bringing the crisis to a peaceful conclusion, facilitating Mr. Saakashvilli's rise to power. Then, in May of 2004, a new crisis with one of the autonomous regions (Adjaria), instigated by Mr. Saakashvilli, and coming very close to civil war, again precipitated a Kremlin intervention to usher from power Adjaria's leader, Mr. Aslan Abashidze, who fled to Russia. The Georgian capital had thus consolidated its grip on one of Georgia's autonomous regions. It is currently attempting to do likewise to Georgia's other proRussian autonomous regions, threatening to cut short Russia's influence in the strategic region. The Amalgam Kingdom has 'injected' into, and incited to activism, the liberal "clay" in Georgia in a bid to roll back Russian influence and control in a region crucial to the export of crude oil and gas. While the problems thus created for Russia are not minor, still the fact is that Georgia's economy is under the ultimate control of Moscow by virtue of the fact that it is now, and will continue to be for the foreseeable future, almost completely dependent upon Russian gas. Hence, Russia holds the trump card in Georgia namely, energy. This illustrates the fact that although the "democratization" strategy of the Amalgam Kingdom does carry a powerful punch, in the post-Soviet period it rarely constitutes a true knock-out punch to the metallic regimes against which it is directed. It therefore has certain meaningful limitations and the strategy can be defeated by the metallic Kingdoms. This fact becomes more apparent in an examination of the Ukraine situation.

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The Lessons of Ukraine's Orange Revolution

In the case of the ongoing Ukraine domestic political situation and crisis, the interaction between liberal "clay" and authoritarian "iron" is even more interesting, and meaningful. Through funding of various pro-democracy NGOs in Ukraine the Amalgam Kingdom succeeded, in effect, in sponsoring the liberal clay-like Viktor Yushchenko, the pro-western candidate, as a viable alternative to the authoritarian iron-like Viktor Yanukovych, the pro-Russian candidate. When its chosen candidate lost the election, the Amalgam Kingdom wasted no time and effort inciting the liberal "clay" to action in an Orange Revolution in the streets of Kiev, the capital. If it couldn't get what it wanted ("regime change") at the polls, it was willing to get it on the streets, albeit through "peaceful" protests as it did in Georgia's Rose Revolution the year before. Imagine the reaction Russia would have gotten in the 2000 U.S. presidential election crisis if it had condemned Mr. Bush's "win" as "fraudulent" and incited Gore supporters to take to the streets of Washington and other cities to shut down the government until a revote was agreed to. Do you think indignant howls of "foreign interference" would have been widely heard? Of course! But in the ideological rivalry (clay vs. iron) aimed at achieving control of strategic resources, principle is held hostage to the ultimate ends being pursued - this is true on both sides of the Game. Interestingly, the pro-western candidate derives most of his

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? support from the poorer rural west and north, while the pro-Russian candidate is strongly supported in the wealthier industrialized east and south. It is therefore noteworthy that the "democratization" strategy succeeded mostly in the poorer regions, completely failing to garner true nationwide support. This fact is very problematic for the "democratization" strategy and for the Amalgam Kingdom, because in spite of the pro-West Mr. Yushchenko’s win in the Dec. 26th revote, he achieved nothing approaching a nationwide consensus and mandate, and the wealthy eastern and southern regions have been calling all the important political shots. Those pro-Russian regions do not actually have to separate from the pro-western regions - all they have to do is use their influence in parliament (which was strengthened in contrast to a weakened presidency as a result of recent reforms) or even take to the streets to block any movement of the nation away from a pro-Russia stance, with the credible threat of embarking on a course of greater autonomy. They recently did just that in protesting Ukraine’s planned participation in NATO exercises and they succeeded in forcing the withdrawal of US and NATO equipment and forces from Ukraine. In a severely politically polarized Ukraine such as the Amalgam Kingdom has now succeeded in producing, the pro-Russian iron-like eastern and southern regions are much more politically and economically viable than are the pro-western clay-like poorer rural regions. As one analyst recently stated, the U.S. shortsightedly went after the wrong half of Ukraine! Hence, the Amalgam Kingdom cannot succeed, in reality, in its attempt at "regime change" in Ukraine. At most it can be held responsible for bringing the nation to the brink of economic chaos and perhaps even civil war, if the crisis is not soon resolved peacefully. Showing the precarious nature of the US/European strategy of instigating “colored” revolutions within Russia’s sphere, the pro-West orange coalition has been severely tarnished, unable to reverse Ukraine’s economic misfortunes because of its own perpetual political infighting. Finally, the orange coalition has collapsed upon itself and a pro-Russian coalition headed by none other than Viktor Yanukovych has arisen in its place. Notwithstanding the current bitter political crisis that arose over such momentous events, this is a clear signal of an impending reconsolidation of Russia’s influence within strategically important Ukraine. Of course, ultimately Russia has control of the direction of Ukraine by virtue of its control of oil and gas exports transiting the

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Chapter IV: Impending Bipolarity and Russian-American Rivalry country. If need be Russia can use that leverage, as it did recently, to bring the country to heel and to make Europe itself choose between interference in Russia's sphere and the resultant loss of its own economic viability on the one hand, or respect for Russia’s interests and economic security on the other. Russia holds the trump card here also. But recent statements of the new pro-Russian Prime Minister, Viktor Yanukovych, are deeply significant. After a one-day meeting between Ukraine’s energy minister and top officials of Russia’s Gazprom, Mr. Yanukovych proclaimed that Ukraine must take part in the development of oil and gas fields in Russia, Central Asia, Libya and the Persian Gulf. Mr. Yanukovych also stated that Ukraine will accept without complaint or fight the new gas prices determined upon it by Gazprom early in the year 2006. And Russia and Ukraine have achieved a new deal on gas prices for the remainder of 2006 and for 2007. Ukraine is set to join the Russia-centric Common Economic Space (which could shortly become an all-ruble zone) and to cooperate with Russia in the energy field. Obviously, Ukraine is now moving closer to alignment with Russia in the field of energy, becoming an asset to Russia in its quest to extend its global energy influence, knowing full well its economic fortunes and energy security lie with Russia.

This Is Not 1989-1991!

Consequently, on the ground the "regime change" by liberal "democratization" strategy is very imperfect, because various counter forces do exist which tend powerfully to negate the effects of the inciting to activism of whatever liberal "clay" is present in a "metallic" nation. Fervent nationalism, fervent anti-Americanism, national pride and the desire for greatness on the world stage, along with a deep sense of previous injury of the national pride, combine to relegate whatever true liberal "clay" exists in a metallic nation to the status of the unpatriotic, ostracized and distrusted minority. This is certainly true in Russia, Central Asia, China and most of the Middle East and Latin America. In addition to those counter-forces, there now exists a great disillusionment with American-style liberal democracy as applied in the “colored” revolutions and a stark realization of its inability to provide "magic" solutions to the complex social and

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? economic problems that exist in many nations. This has entirely displaced the "rose colored" idealism that existed in 1991 when American-style democracy and capitalism were seen almost as a magic solution. That did not turn out to be the case in most of the realm of the former Soviet Union. Consequently, persons living under authoritarian regimes are not now as easily "fooled" by, or blindly trusting of, American-style liberal democracy as were the freedom-seeking peoples circa 1991. Because America has largely failed to win over the minds and hearts of the world's peoples, and has even instigated an unprecedented level of global anti-Americanism and isolation by its actions since 9/11, it is now finding that its "democratization" strategy is mostly disdained and largely ineffectual as applied to the authoritarian metallic regimes around the world. This is true in spite of the apparent, but short term success it has seen in Georgia and Ukraine. In fact, the squeezing of all the juice out of the Orange Revolution, coupled with the instability and economic harm caused there, has pointedly discredited the strategy of regime change by democratization. Another powerful argument against the pragmatism of the Amalgam Kingdom's strategy of "regime

change"

"democratization"

by is

liberal that

it

The model

enormously of

flourishing

authoritarian

Chinese “managed

democracy” is having a profound impact on global developments as similar iron-

pointedly instigates both instability

like

and economic crisis wherever it is

consolidate their grip on power. Such

tried. Both Georgia and Ukraine,

“metallic” regimes share a philosophical

for example, came very near a

and

descent into civil war directly as a

American alignment. The fact that the

result of the strategy. That very

vast majority of all strategic global

undesirable eventuality was only avoided in Georgia because of Russia's

intervention

on

two

separate occasions. And both the Georgian and Ukrainian economies

regimes

proliferate,

geopolitical

kinship

thrive

and

and

anti-

resources has already come under the control of such regimes is a profoundly ominous development for the amalgam kingdom and for the West in general

are still suffering a great deal, pointedly drawing attention to the fact that even when

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Chapter IV: Impending Bipolarity and Russian-American Rivalry "democratization" is embraced, it results in no near-term meaningful economic benefits in fact, the precise opposite is true. A related fact requires the Amalgam Kingdom to tread very carefully as it employs "democratization" aimed at "regime change". What is that? It just so happens that almost without exception the iron-like regimes being targeted by the Amalgam Kingdom hold its very lifeblood, the lifeblood of its own industrialized economy, in their very hands. The iron-like regimes of Russia, Central Asia, the Middle East and Latin America play crucial roles as respects crude oil and gas. Therefore, if the Amalgam Kingdom should happen to instigate undue instability by means of its strategy of "democratization", it itself would turn out to be the biggest loser, seeing the already tight global crude oil supply situation worsen further, resulting in even higher prices and greater economic repercussions to itself. This fact places powerful restraint upon how vigorously the Amalgam Kingdom can pursue its strategy against the metallic kingdoms.

Economic Warfare by the Amalgam Kingdom Can Only Backfire

Washington may consider using the declining dollar to wage economic war on its geopolitical adversaries. However, its ability to inflict upon Russia such economic harm by means of a weaker dollar is quite limited. Russia's central bank has already achieved diversification out of the dollar with its share of dollar-denominated assets down to 50%, and it does not suffer the export woes arising from a weaker dollar that Europe does. Russia's key exports, strategic energy and mineral resources, and weapons sales, are largely immunized against any economic warfare conducted by the Amalgam Kingdom. Russia is the key player here - only it can lead its Eurasian strategic partners out of the economic harm that might be inflicted by the Amalgam Kingdom by declining its dollar, doing so at a time and manner of its own choice, leading its partners to an exit from the dollar toward other currencies as those preferred for international transactions. Russia is progressively being pulled firmly into the center of European and Asian attention and economic hope. The geopolitical windfall resulting to Russia will be dramatic, enabling it to act as true center to finally pull together a fully formed Alliance of the East.

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? Interestingly, efforts of the Amalgam Kingdom to scupper the formation of such an alliance are actually pulling Russia more firmly into the geopolitical and economic center, thereby empowering Russia with the influence necessary to make just such an alliance coalesce. Washington's economic warfare strategy will massively backfire, causing the real center of global economic and geopolitical power to be shifted from Washington to Eurasia as the desirability of the US dollar and of US global economic dominance continues to fade.

Summary and Forecast

The Amalgam Kingdom (U.S./Britain), weakened by the internal division between conservative iron and liberal clay, and arriving at a time when the fabric of the international system has been altered and is no longer able to support a global empire to dominate a unipolar world order, is desperately attempting either to create a global empire for itself anyway, or at a minimum to so weaken all its metallic rivals that it retains de facto global dominance by default, preserving the current unipolar world order. The most important "metallic" remnants of Rome's Western and Eastern Empires, primarily Germany and Russia, along with a number of other remnants of the Roman Empire (which dies a hard death) have, over the last 100 years, mounted repeated challenges to the Amalgam Kingdom for global dominance, resulting in two world wars (with Germany at the center of geopolitical opposition to the Amalgam Kingdom) and also two cold wars (with Russia at the center of geopolitical opposition to the Amalgam Kingdom), the latter of which has only recently begun and which is called here the Neo Cold War. Russia is forming around itself a new power bloc consisting of many "metallic" regimes in opposition to U.S. global dominance, thus mounting its second challenge to the Amalgam Kingdom. Interestingly, that bloc also contains all the lively remnants of the iron-like Roman Empire, including Germany itself to some significant degree, along with a number of other significant powers like China and India. The repeated challenges to the Amalgam Kingdom have fueled the formation of successive power blocs opposed to U.S./British global dominance, casting the global

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Chapter IV: Impending Bipolarity and Russian-American Rivalry order predominantly into a roughly bipolar configuration - those allied with the Amalgam Kingdom and those allied with its chief metallic opposer (the Germanic Kingdom leading up to 1914, Nazi Germany of the 1930's and 1940's, Russia in the post-WWII period, and Russia in the post-9/11 period) at any given point in time. In each of the four periods noted in the previous statement, namely, circa 1914 (WWI), circa 1939 (WWII), 19451991 (the Cold War), and 9/11/2001 to the present (the neo Cold War), global realignment of states occurred along only the two predominant lines, bringing about a roughly bipolar world order - the only configuration the altered (since the dawn of the 20th century) fabric of the international system will support. The Neo Cold War is characterized by the ideological rivalry between liberal democracy (like clay) and authoritarian "managed democracy" (like iron). This ideological war gives only translucent cover to the real core cause of the rivalry between the two sides, namely, the quest for global control of strategic resources. The Metallic Kingdoms in collective fashion seek to consolidate global control of such resources, checkmating both the U.S. economy and with it U.S. global dominance. The Amalgam Kingdom seeks to disrupt the efforts of the Metallic Kingdoms by means of its strategy of "regime changes" by liberal "democratization", and by waging global economic war by declining the dollar, attempting to break up the unity of its rivals. In the midst of such hoped-for disunity it intends to take global control of strategic resources for itself. While the strategy of the Amalgam Kingdom certainly carries with it a potent punch, able to cause significant harm to its metallic rivals, still the counter forces and counter strategies of the Metallic Kingdoms carry an even greater force. Especially is this true as the Metallic Kingdoms continue to act in concert with each other, refusing to allow the tactics of the U.S. to break up their unity of purpose. The pointed instability and economic harm resulting from the activities of the U.S. in the Middle East, Eastern Europe (Ukraine), Central Asia, the Caucasus, and elsewhere, along with the fact that the dollar is weakening and U.S. economic power and stability are already deeply in question, will progressively cause greater insensitivity, and even opposition, to U.S. interests and goals. The greater powers within the EU will tire of destabilizing U.S. interference such as that evident in Ukraine. This will be patterned after what is already

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? occurring in the Middle East, Central Asia, Southeast Asia and Latin America with respect to realignment of states in outright opposition to U.S. goals and interests. Europe will have to fully realize, perhaps even painfully in the midst of crisis, that its future lies much more with Russia and Asia, and much less with the U.S. In case it has not yet been fully discerned by you the reader, the Amalgam Kingdom has already fully lost its once-envied position of global leadership and "soft power" dominance, resulting in unprecedented global isolation. Largely, it has squandered those treasures by its own actions and policies. As such, it cannot prevail in the Neo Cold War now heating up. It now faces a further string of deeply significant and painful losses on the world stage. As these losses present themselves on the near horizon, the Amalgam Kingdom will fight with all its energy to turn them aside, but will not prove successful, thus signifying pointedly increased global instability in the very near future.

The Shift Toward Asymmetrical Bipolar Complexity

“Multi-polarity” has increasingly been trumpeted by Russia, China and many others since the mid-1990’s as the most desirable and equitable configuration for the world order. Multi-polarity is seen across much of the globe as the most attractive replacement for US-dominated unipolarity. Does it really matter? Are unipolarity and the US-centric world order really at risk? Indeed, yes. The fundamental configuration of the world order is rapidly undergoing transformation as US power and influence continue their progressive dilution in all spheres and those of rival centers or poles such as Russia and China are becoming ever more concentrated, thanks in no small measure to their advancing control over strategic energy resources. Control over strategic resources has become the primary lever to increased global influence for those powers either rich in such resources or closely allied with those who are. Hence, in the insidious and perceptible rebalancing of global power, moving from inordinate concentration in one pole (the US) to distribution among rival poles (Russia,

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Chapter IV: Impending Bipolarity and Russian-American Rivalry China and others) we are witnessing the arising of a new world order. However, what will its true configuration turn out to be? Fundamentally, multi-polarity simply means multiple poles, or centers of power, distributed widely and more equitably across the globe, with no single pole inordinately dominating the others. However, does the term “multi-polarity” accurately describe the configuration of the new world order that is now arising? Or is its real configuration developing into something quite different than mere generic “multi-polarity”? The concept of multi-polarity does not properly take into consideration a recent and ongoing development of fundamentally enormous significance – the re-division of most of the world order into two camps, East and West, with control over strategic energy resources as the primary dividing line between the two camps. Even the so-called Non-Aligned Movement (NAM) consisting of 116 developing nations, most of the world’s authoritarian governments and two-thirds of UN membership, generally takes stances independent of, or even against, the US pole, thus most often in de facto alliance with East rather than West. Notably, NAM has come down on Iran’s side in the ongoing nuclear dispute, reaffirming Iran’s right to domestic enrichment activities, to the pointed chagrin of the US. Significantly, a large portion of the member nations of NAM possess great deposits of strategic energy and mineral resources of very high value. Thus, polarity

simple

allows

multi-

for

fundamentally

the

erroneous

assumption that all the poles or

Centers of power (“poles”) are not truly discrete, nor do they become evenly distributed across the entire international

centers of power are discrete, that

system. Rather, lesser poles tend to align

each pole is virtually isolated

with or even to orbit greater ones, causing

from the gravitational effects of

power to coalesce principally around the

other poles. In the real world such

two foremost poles, Anglo-America and

is certainly not the case.

Russia-China, thereby causing a reversion

Any pole or center of power that achieves a noteworthy

to bipolarity. “Multi-polarity” is both a misnomer and a delusion

degree of power and influence

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? tends to pull or attract other centers of power toward itself – especially those in proximity to it, whether geographically or geopolitically speaking. Furthermore, that rising pole tends to draw additional power from the poles that begin to lean inward, as it were, toward it, thus fueling an accelerated rise of the more prominent pole. The result is a new center of power that is complex in nature, with many lesser poles in array around one or two greater poles in the core of the newly arising center of power. A prime example of the above is the Russia-China axis that is rapidly attracting into array around itself many lesser but significant poles. Another example is the USBritish pole that also still retains, to varying degrees, some lesser poles in array around itself. As noted above, these two poles (Russia-China and America-Britain) each possess a gravitational pull of such force that no other on the globe can lay claim to, and the dividing line between the two poles has become control over strategic energy resources. Consequently, the new configuration of the arising world order is fundamentally bi-polar in nature. Just two rival primary poles increasingly dictate, by their gravitational influence, developments across the globe. Stated another way, major global developments increasingly fit into the framework of the competition and rivalry between the two primary poles. Generic multi-polarity ultimately fails to describe properly these real-world phenomena, those of a global reversion to bi-polarity along with the inherent complexity found within each pole, especially the new pole arising in the East. But that is not all with respect to the failings of the multi-polar model in describing accurately where the world order is actually heading. Multi-polarity insinuates that no single pole is inordinately dominant over the others. But contrary to that insinuation, the bi-polar configuration that is even now arising will definitely facilitate a meaningful degree of control by one pole, the one now arising in the East. Yet, the configuration will still correctly be described as bi-polar (not unipolar) because the pole in the West, though it is even now moving into a situation where a significant measure of control by the East is inevitable, will not be absolutely dominated in all spheres, nor will it be made to utterly collapse as did the Soviet Union.

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Chapter IV: Impending Bipolarity and Russian-American Rivalry How will the West fall under the significant control of the East? By means of consolidation of its control over global energy the East will take a significant measure of political, economic and even military independence away from the West, including the US itself, which has become hopelessly dependent upon foreign sources of energy and minerals. In fact, the process of Eastern consolidation over global energy resources and the resultant Western loss of independence is already underway and it is accelerating. The Russia-China axis is busily constructing a global oil and gas axis that includes most of the vital exporting states around the globe. Both Russia and China are spreading their wings (or tentacles as the case may be) far and wide to encompass key oil and gas exporting states, ushering the world’s important producers into cooperative agreements that expand far beyond energy-related matters to include the military sphere as well. Venezuela and Algeria are only two recent examples. A clear global strategy is evident, one that is compelling and brilliant. It is also unstoppable by the West. And While it is here called an axis of global producers, there is much more involved in discerning the real structure of what Russia is constructing, and that additional insight is revealed later in this book. In the military and energy spheres, the uniting of Russia’s technical expertise and strategic resources with China’s enormous financing and manpower capabilities, and the extension world-wide of their joint influence to gather into orbit about themselves the key global exporters of minerals, oil and gas, is a development of enormous consequence for the current world order. That axis, when soon completed, will form a global energy monopoly whose strings are virtually pulled from Moscow and Beijing. Increasingly, key members of the axis speak about dispensing with the US dollar in their international energy transactions. The eventual consolidation of the new global energy axis will result in loss to the West in various important ways, and in a grand reversal, will place multifarious East in ascendancy over West. Russia and China, the foremost promoters of what they have called the multipolar world order, insist that such is not aimed at any single power such as the US. However, that is mere indirection on their part as they work smart and energetically to construct the foundation, namely global control of strategic resources, that facilitates the

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PART I: UNIPOLARITY? MULTIPOLARITY? OR BIPOLARITY REVISITED? rise of their new world order, an order aimed directly at undermining the US global position. Additionally, they now know full well that what is arising will not be merely “multi-polar” in nature, that is, an even distribution of power centers across the globe. Instead, they fully realize their potential to achieve an energy-based checkmate of the West by means of the global energy axis they are now constructing. Consequently, the move toward global equilibrium (from unipolar to “multipolar”) will overshoot the mark of equilibrium and hand an energy-based checkmate to the now rising multifarious pole of the East. Along the path toward this eventuality there will undoubtedly be more oil wars such as the one waged in Iraq in 2003, and ideological “wars” such as the Orange Revolution of 2004, but the West cannot prevent the eventuality described here being realized, most likely within only a very few years at most, gauging by the rapidity at which developments are proceeding. Hence, the bipolar world order now arising will not, in fact, be balanced or symmetrical, with both poles roughly canceling each other out. Instead, it will be

Asymm·Plexity is the concept of lopsided bipolarity, where one side can checkmate (but not collapse or

asymmetrical, with the East in ascendancy

destroy) the other side and where

over the West. From the preceding

one pole (the East) is multifarious

fundamental analysis of the geopolitical

or complex in its makeup

system we can now construct a new and more accurate term to describe where the world order is actually heading: Asymmetrical Bipolar Complexity refers to the uneven bipolar world order that is now arising, one in which especially the East pole is complex in nature, consisting of many lesser poles in array around the core that consists of the Russia-China axis. To coin a new word, the phrase is shortened to Asymm·Plexity, dropping the “bipolar” part for the reason that in its most fundamental sense the word “asymmetrical” already strongly insinuates two parts (bi-polar) of unequal size or power. Multi-polarity fails to meet the requirement of accurately describing where the world order is actually heading.

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Chapter IV: Impending Bipolarity and Russian-American Rivalry Asymm·Plexity (or asymmetrical bi-polar complexity) does accurately describe the new lopsided bi-polar world order that is now arising. The concept of Asymmetrical Bi-Polar Complexity, or Asymm·Plexity will be discussed in much greater detail in the rest of this book. A wealth of additional evidence will be brought to bear on the subject to establish beyond any reasonable doubt that the term does accurately describe the nature of the new world order that is now looming.

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Summary of the Main Points Ü Though America and Russia find agreement on some issues, they are certainly not geopolitical partners. The US presides over the unipolar order and will do all that is necessary to try to keep it that way, including undermining the rise of Russia by carving away at its control over strategic resources in the post-Soviet space. Russia is intent on undermining US global dominance and is extending its control over strategic resources to such an extent that the West is seriously threatened. Such fundamental differences cannot be papered-over by “partnership” rhetoric. Ü To attempt to undermine metallic Russia’s rise the amalgam kingdom pollutes Russia and the other metallic regimes with liberal democratic clay, hoping for a “regime change” from anti-American iron to proAmerican clay. Georgia and Ukraine are notable examples. Ü To undermine US-led unipolarity metallic Russia facilitates the prop up and the proliferation of other anti-American metallic regimes in key regions rich in strategic resources, thereby constructing the elements of a total economic encirclement of the West. Ü The Anglo-US strategy is faulted in that the metallic regimes will be

able, due to their mounting wealth from oil and gas exports, to sufficiently pacify their peoples to thereby blunt the effectiveness of “colored revolutions”, which bring terrible economic costs to those who embrace them. The maxim, “It’s the economy, stupid!” trumps all else. Russia’s strategy, on the other hand, is already succeeding as the West comes progressively and rapidly under the shadow of energy dependency upon Russia and its partners. Ü Asymm·Plexity is the concept of lopsided bipolarity, where one side can checkmate (but not collapse or destroy) the other side and where one pole (the East) is multifarious or complex in its makeup

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RUSSIAN RUBICON

In Part I we saw that the altered fabric of the international system forcefully casts global developments into the sphere of rough bipolarity and that unipolarity has become merely a temporary, short-lived aberration enjoyed by the US since 1991. The current unipolar order has already moved deep into transition since the Iraq invasion of 2003, with lopsided bipolarity being the impending eventuality when the transition is soon completed. Part II of this book examines the 1991 birth of the fleeting unipolar world order, the strategic blunders made by the US in attempting to maintain and extend its global dominance, the reactions to US hegemony, and the strategies of US rivals attempting to undermine that hegemony. Also examined in this section is the ominous and immensely important strategic economic decline of the US and how it is creating key opportunities for US rivals in their quest to scupper US-led unipolarity. The contents of Part II provide the background, context and proof that the current unipolar order truly is in fundamental transition and that lopsided bipolarity will be the resulting configuration of the world order when the transition is completed.

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PART II: THE IMPENDING SHIFT TO BIPOLARITY

CHAPTER V: SOVIET COLLAPSE – SOWING THE SEEDS OF THE SHIFT TO BIPOLARITY

Ü How did the 1991 collapse of the bipolar order of the two superpowers simultaneously sow the seeds of an eventual tectonic shift back to bipolarity? Ü Did the arms race come to an end with the end of the cold war in 1991? Explain. Ü How did the Russian philosophy of global power, how to attain it and how to maintain it, evolve after 1991? Ü How did Russia prove the great worth of its new philosophy on global power in the Iraq crisis of 2003?

Conventional wisdom and the frequent proclamations by world leaders (“The Cold War is dead!”) endeavor to reassure us the Cold War is long over, long dead. The clear implication is once such a monstrous thing dies, it cannot live again. For a fact, the Cold War was won by the last superpower in 1991 with the collapse of the Soviet Empire. Consequently, at that time the formal Cold War between the two great centers of power did end. While that is indisputable, it cannot be denied that certain aspects or component parts of the Cold War have refused to die, because those components proved to have a life of their own, independent of the end of the formal Cold War in 1991. Additionally, the rough geopolitical balance of power that existed during the Cold War gave way to an immensely destabilizing imbalance of power since 1991, when the one remaining superpower was left as the dominant feature in the international system. What new, unforeseen and powerful forces may have been unleashed as a result, and how might they play into the possible reviving of a Neo Cold War? In one famous scene of the movie “Terminator II” the terrifying assassinator is melted down and blasted into mercury-like droplets which are spattered over a wide area of pavement. Initially this appeared to be the complete and welcome end of the morph-

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Chapter V: Soviet Collapse – Sowing the Seeds of the Shift to Bipolarity able assassinator. But then dread revisited our heroes as they watched each of the spattered droplets begin to reassemble themselves into the living terminator. That monster proved to be much more resilient than our heroes had ever imagined. Why? Because its component parts refused to die, each one having a life of its own. Even more frightening and ironic, the meltdown itself unleashed those unforeseen forces which incited the component parts to reassemble themselves. The passing of the Cold War in 1991 may appear to have been complete and final. But was it really? Are the component parts of the Cold War reassembling themselves? Did the meltdown actually set free unforeseen forces that ensured the formal Cold War would revive? Is it reviving now? And reminiscent of the assassinator in “Terminator II”, is it perhaps morphing into a different, but still deadly, form?

Tectonic Shifts Setting the Stage for Follow-On Events

When the formal Cold War ended with the collapse of the Soviet Union in 1991, conventional wisdom said the dangerous, economically debilitating arms race was over. A “peace dividend” was hoped for. At the time, such conventional wisdom and idealistic hopes appeared completely justified. But the “peace dividend” never really materialized – why not? Soon it was realized that the end of the formal Cold War was not simultaneously the end of all threats to national security and to peace. In fact, with the passing of the Soviet

The

temporary

end

of

the

bipolar order in 1991 released powerful forces that have both

Union, new threats were unleashed upon our

undermined

world as much of the domain of the former

energetically cast developments

superpower

back toward bipolarity

began

to

descend

into

unipolarity

and

ethnic/religious-inspired chaos and violent rivalry. Civil wars broke out in Yugoslavia and elsewhere as formerly oppressed ethnic groups aspired to national independence. As these ethnic/religious-inspired crises threatened to explode into full regional wars, it was quickly realized that no “peace dividend” would be forthcoming. The post-Cold-War world was quickly seen to be an extremely dangerous and disorderly place. The last

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PART II: THE IMPENDING SHIFT TO BIPOLARITY remaining superpower seemed ill-prepared for the “dividends” and global responsibilities of its Cold War victory. The prime debate, not only within the last superpower itself, but also around the world at large, focused on the issue of whether or not the U.S. should step into the role of GloboCop.

Gulf War I

In addition to those developments, very near the end of the Soviet Union in August of 1990, Saddam Hussein invaded Kuwait over a dispute between the two parties having to do with oil rights and drilling. As a client state of the Soviet Union Saddam had previously been kept on a fairly tight leash by the Kremlin. But in 1990 the Kremlin leadership had its hands full with the momentous developments taking place within their own immediate realm. The Soviets seemed completely unprepared to deal with the new crisis in the Persian Gulf. Soon it became clear to the world at large that they were unable to play any significant role whatsoever. During the Cold War the terrifying and very real prospect of a direct superpower confrontation, perhaps employing deadly weapons of mass destruction, tended to place a heavy damper on regional tensions, thus preventing them from exploding into hot wars in which the two superpowers might become directly engaged. During that period, the hot wars that did flare up tended to be very carefully managed and limited by the two superpowers through the tightly-controlled use of proxies in order that such a terrifying direct superpower confrontation should not occur. Against this backdrop, Saddam probably believed he could invade Kuwait without the U.S. responding by massive mobilization of its military to force him back onto his own territory. The prospect of a direct confrontation with the Soviet Union in the Persian Gulf would surely prevent the U.S. from mounting that nature of response. But if Saddam believed that, he was dead wrong. Our geopolitical system was undergoing massive tectonic plate shifts in the period of 1989 (when the Berlin Wall came down) to 1991. Events with enormous, unprecedented impact were occurring so fast that it was difficult, if not impossible, to make sense of the world anymore. But in the period of weeks directly after Saddam's

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Chapter V: Soviet Collapse – Sowing the Seeds of the Shift to Bipolarity invasion of Kuwait in August 1990 it became clear to the U.S. that the Soviets were unable to be the restraining factor Saddam thought they would be. The old rules of the formal Cold War were being rewritten, because a totally new era was opening up. Trusted and well-known convention and assumption simply didn't apply anymore. In the emergent power void produced by a shrinking Soviet Empire, what would the U.S. superpower do? How would it respond to the new crisis in the oil-rich Persian Gulf, which area was characterized by earlier American presidents as “our exposed jugular”? The U.S. did what would have been both unthinkable and impossible during the Cold War. It sought and obtained a U.N. mandate and put together a truly international coalition, placing massive military assets and might into a protective buffer zone between Saudi Arabia and occupied Kuwait. This was Operation Desert Shield. In effect, the other superpower was already ‘missing in action', and could do nothing to stop the international effort. Through the U.N., Saddam was given an ultimatum: Withdraw your forces back into Iraq immediately or face forcible eviction. In the event that Saddam ignored the ultimatum, Operation Desert Shield was set to become Operation Desert Storm, with fullfledged international and U.N. backing. Saddam was incredulous as he observed his former sponsor and patron, the Soviet Union, doing nothing tangible to restrain the actions of the other superpower. His Cold War thinking was already out-of-date, obsolete. Very foolishly, he failed to properly appraise the new world order that had been rapidly thrust upon the international system. Our system was already entering the post -Cold-War period. When Operation Desert Shield was converted to Operation Desert Storm on January 18, 1991 what followed immediately was unforeseen and unimaginable by all but a handful of American military and government leaders. The importance and impact of those events reach far beyond the boundaries of the last superpower to influence the very makeup of the geopolitical system itself. Why? Because the very seeds of a Neo Cold War were being sown simultaneously with the actions of the U.S. effort to put a “period” at the end of the Cold War “sentence” in 1991. Yes, by bringing the formal Cold War to an abrupt and “final” end, the last superpower was at one and the same time releasing powerful forces that ensured the formal Cold War's eventual revival in a new form. How so?

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Awesome Display of High-Tech Weaponry

In the years leading up to Gulf War I U.S. military/technical strategists had envisioned and planned for various high-tech dramatic war-fighting enhancements made possible by advanced technologies. It wasn't just a matter of making bigger bombs and greater quantities of bombs. Rather, it was now imperative to make “smarter” bombs and delivery systems. New technologies nicely facilitated this new path in the Cold War arms race. Enormous sums of money were being spent by the U.S. on the development and production of “smart weapons”. President Reagan's “Star Wars” initiative had galvanized the thinking within the military-industrial complex of the U.S. toward the development of high-tech weaponry. All branches of the armed forces were getting the benefits of these efforts, but the Air Force was favored with most of the benefits. When Gulf War I was fought in 1991, enough of these “smart weapons” had already been deployed so that they could be put on display to the world, as it were. As we now know, the Soviets were strapped for cash, and could ill-afford to embark upon their own massive development and build-up of such weapons. The U.S. could not actually afford the massive expenditures incurred during the last decade of the Cold War Arms Race either (and was actually forced to solicit enormous funds from Saudi Arabia and others in order to pay for Gulf War I), and by spending the funds anyway, sowed the seeds of the downfall of its own unequaled financial power and independence, eventually becoming grossly dependent upon foreign money inflows, as we shall see later. This is why, in this analysis, considerable time is being spent on the actions of the U.S. superpower circa 1991 when the Cold War ended. Immensely important seeds were wittingly or unwittingly being sown at that time which, when finally coming to fruition, produce geopolitical effects of enormous weight and which cannot be avoided. As we shall see, all those seeds are now coming to full fruition a decade and a half after they were sown. Gulf War I very effectively advertised to the world at large the new generation of “smart weapons”, even though a very small percentage of the bombs used in that war were of the “smart” variety. Still, the world looked on awestruck at the whole package of

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Chapter V: Soviet Collapse – Sowing the Seeds of the Shift to Bipolarity what the U.S. superpower was able to accomplish, not only militarily, but also diplomatically in putting together the international coalition under the auspices of the U.N. to evict Saddam from Kuwait. Had a New World Order been born? It certainly seemed that way, and that very term came into widespread use to describe a new world order in which the last superpower, the one that emerged victorious from the Cold War, would exercise benign dominion over the international system, in multilateral concert with all other respectable and lesser powers and in close cooperation with the U.N. as the image and expression of that new international order. The fact that the coalition, headed by the U.S., restrained itself from going all the way to Baghdad, but rather sought only to accomplish its U.N.-mandated mission of evicting Iraqi forces from Kuwait, tended to validate the idea of a benign but strong Pax Americana expressed and exercised in concert with the U.N. In fact, in President George Bush's first state of the union speech after the end of the Cold War, he alluded to such a new world order. On January 28, 1992 President Bush said: “I mean to speak tonight of big things, of big changes and the promises they hold, and of some big problems and how together we can solve them and move our country forward as the undisputed leader of the age. [Italics added] We gather tonight at a dramatic and deeply promising time in our history, and in the history of man on earth. For in the past 12 months, the world has known changes of almost Biblical proportions. And even now, months after the failed coup that doomed a failed system, I am not sure we have absorbed the full impact, the full import of what happened. But communism died this year.” “There are still threats. But the long, drawn-out dread is over. ” [Italics added] “Much good can come from the prudent use of power. And much good can come of this: a world once divided into 2 armed camps now recognizes one sole and preeminent power-- the United States of America. And they regard this with no dread. For the world trusts us with power--and the world is right. They trust us to be fair and restrained; they trust us to be on the side of decency. They trust us to do what's right. ” [Italics added] After outlining various reductions in military spending, President Bush continued:

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PART II: THE IMPENDING SHIFT TO BIPOLARITY “I want you to know that for half a century, American presidents have longed to make such decisions and say such words. But even in the midst of celebration we must keep caution as a friend. For the world is still a dangerous place. Only the dead have seen the end of conflict. And though yesterday's challenges are behind us, tomorrow's are being born. ” [Italics added] As we shall see, it was the very post-Cold War actions of the victorious superpower which actually aided, and even caused, the birth of future challenges. Then the president made a plea for full funding of the expensive Strategic Defense Initiative (SDI), known as “Star Wars”, even though the U.S. economy was in deep recession at the time. Hence, in reality, whatever cuts would be made in defense spending would not be allowed to negatively impact the ongoing development and production of advanced weaponry. The President sent a clear signal to the world at large: The U.S. would retain and even solidify its new position of unquestioned, dominant global power. Thus were the first seeds sown for the future revival of a Neo Cold War.

Component Parts of the Cold War Refusing to Die

Conventional wisdom of the time said that the Russians were so overwhelmed with their own problems that they paid little or no attention to these unprecedented geopolitical developments, or if they did pay attention, they were powerless to do anything about them. This so-called “wisdom” has turned out to be entirely false. How so? While it is certainly true that the Soviets could do little or nothing to halt the U.S.led coalition which evicted Saddam's forces from Kuwait, they were in fact doing much more than was realized by the West at the time. They carefully observed the stunning high-tech military prowess on display during Gulf War I, and they very carefully analyzed the U.S. military machine and new doctrine of massive but precision application of air power. They identified both the strengths and weaknesses of U.S. military power, and they took definite steps to design ways to counteract U.S. power by asymmetric (“lopsided”) means, directing their strengths against U.S. weaknesses. Evidence strongly

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Chapter V: Soviet Collapse – Sowing the Seeds of the Shift to Bipolarity indicates this analysis eventually ran the full range, all the way from technical analysis of weaponry to logistical military considerations on up to political and diplomatic ones regarding coalition-building and coalition maintenance. We now know that as a result of that comprehensive analysis, and in spite of all the severe troubles the Russians have endured since the collapse of the Soviet Union, a wide array of sophisticated and powerful asymmetrical weapons systems were developed and deployed. In asymmetrical warfare theory, the weaker opponent targets the vulnerabilities of the stronger opponent. In defensive applications, the weaker opponent either prevents an attack by threatening to disable and destroy military systems worth many billions and trillions of dollars using asymmetrical systems costing only a few millions of dollars, or in the event of an actual attack, those more costly systems are actually disabled or destroyed by the weaker opponent's retaliatory measures. In offensive applications, the more costly systems are attacked and disabled before they can be mobilized for a campaign. Russia's new asymmetrical weapons systems developed, perfected and deployed since Gulf War I can be employed in either a defensive or an offensive stance. The Russians found the means to develop and deploy the only supersonic airlaunched, land-attack, and anti-ship cruise missiles in the world. NATO has described

Until recently the West grossly and Russia’s

unwisely colossal

discounted geopolitical

these nuclear-capable weapons as the most

importance. At this very late

dangerous missiles in existence because no

date the West can do little or

effective defense against them exists to this

nothing to halt Russia’s rise

day. Russia's land-attack “Yakhont” and anti-ship “Sunburn” cruise missiles are effectively hardened against ECM (Electronic Counter Measures), which means they have a very high probability of finding their targets no matter what countermeasures are employed, and they literally fly much faster than a high-powered rifle bullet – roughly 2,800 feet per second. Some versions of the missile exist which are evidently true “fire and forget” weapons, requiring no targeting assistance once they leave their launch tubes. They employ passive-only targeting and lock-on procedures after their initial launch and subsequent bearing-establishing process, which means they are extremely difficult to

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PART II: THE IMPENDING SHIFT TO BIPOLARITY detect as they home in on their targets. In their final approach to a U.S. aircraft carrier battle group for example, they will skim close to the surface of the water and, once they are detected by radar, will allow defenders a very narrow window of opportunity to shoot them down. Entire U.S. aircraft carrier battle groups are literally sitting ducks in the face of such weaponry. Realizing this, China has purchased several destroyers outfitted with “Sunburns” and other Russian super-sonic attack missiles so as to prevent U.S. aircraft carriers from nearing the Taiwan Strait as they did in the 1996 China-Taiwan crisis. Interestingly, the U.S. has no supersonic cruise missiles of any kind deployed anywhere in the world. Russia has developed and deployed a number of other asymmetrical weapons systems also directed against the weaknesses inherent in U.S. military might. These include laser-guided anti-tank weapons with armor-defeating warheads able to “kill” even the advanced M1-Abrams tank (these scored a number of “kills” against U.S. Abrams tanks in Gulf War II and against many Israeli tanks in the 2006 Israeli-Lebanese war), non-nuclear EMP weapons designed to “fry” the sensitive electronics contained within advanced U.S. weaponry, "supersonic" nuclear-capable torpedoes which are much too fast to be effectively evaded and which can close in on and “kill” naval vessels. Russia has also built the S-300 air defense system, which can manage scores of targets (aircraft as well as incoming missiles) at the same time and register multiple “kills” at once. An even more sophisticated S-400 system is currently being developed. Additionally, in the nuclear sphere Russia has successfully developed and is actively deploying new strategic missiles that can effectively defeat America’s new ABM system. The nuclear warheads on Russia’s new Topol-M and Bulava strategic missiles are fitted into hyper-sonic maneuverable reentry vehicles that rapidly change direction and altitude on their way to their targets, thus “dodging” any missile defenses. In addition, the ascent phase of the missiles themselves has been radically shortened, making the possibility of shooting down the missiles before they reach space very remote. These systems cost only a fraction of what the US is spending on its ABM systems. Not to be forgotten here are Russia's new breed of cheaper, faster, more maneuverable and ultra-quiet (therefore very difficult to detect) diesel-electric

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Chapter V: Soviet Collapse – Sowing the Seeds of the Shift to Bipolarity submarines, also outfitted with deadly asymmetrical weapons. The Project 636 Kilo-class and Project 677 Lada-class submarines are very respectable platforms indeed. They may be able to detect other submarines and ships at a distance of up to four times that at which they can be detected. All these systems have been specifically designed to cut across America's ability to carry out military aggression against the one who possesses such systems. This would be accomplished by preventing the naval platforms from coming within striking range of a target, and also by preventing air assets from nearing their targets. As one top Russian military official said recently, “No air war like those launched against Iraq will ever be launched against the Russian Federation.” It is truly remarkable the wide array of lethal and sophisticated asymmetrical weapons systems Russia has developed and deployed since the collapse of the Soviet Union in 1991. Those mentioned here are just a few of the more important ones. It must be very carefully noted that the ongoing arms race described here is quite different than that carried on during the formal Cold War. Like the morph-able assassinator in the movie “Terminator II”, the arms race did not die at all, but rather has morphed into a form which may have appeared less deadly, but which is nonetheless extremely lethal. During the formal Cold War, both sides spent enormous sums of money developing and deploying extremely costly weapons systems and platforms (both conventional and nuclear) which were designed with WWII-type conflicts in mind. Each side believed it would require such massive firepower in case of an open conflict between the two superpowers.

Philosophical Redefinitions in the Approach to Power

But since 1991 things have changed dramatically, but not in the ways most analysts would have us believe. The morphing of the arms race into that apparently much less threatening form has deceived many of the “experts”. After all, isn't that the real purpose of morphing into a “benign” form – to deceive so as to gain an important advantage? Since 1991 the U.S. side has continued to expend the enormous sums of money for very costly weapons systems which are crucial to the U.S. global projection of power. These include aircraft carrier battle groups and fighter planes and long-range

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PART II: THE IMPENDING SHIFT TO BIPOLARITY bombers and every form of “smart weapon” employing satellite constellations for guidance to the target. Russia, on the other hand, has spent comparatively miniscule amounts on arms. And this is where the deception comes in. The “experts” very confidently cite the very lopsided numbers of dollars spent on both sides (even though no one in the West really knows how much Russia has spent on arms development because this is a tightly-guarded secret), and declare that Russia is militarily “inconsequential”, and that therefore the Cold War Esq. Arms Race is over. Nothing could be further from the truth! Russia's philosophy regarding global power and influence, that is, how power is gathered, how power is exercised, and how power is maintained, has dramatically changed in the post-Cold War period. Because the new geopolitical position Russia has been forced to occupy since 1991 is indeed one not of her own choosing, and because Russia has thereby obviously been forced to abandon the old but easily recognizable Cold War concepts regarding global power and influence, as to how it is gathered, exercised, and maintained, virtually all the “experts” have severely but unjustifiably discounted her geopolitical importance and potential influence. The U.S. is clearly stuck in the cold war philosophies of the past, frozen in time as respects its view of how power is gathered, exercised, and maintained. It possesses the very narrow and unrealistic view that only military might equals real power, and has consequently severely discounted the importance of the diplomatic and economic forms of influence. Its harsh experiences in Iraq are relentlessly discrediting that narrow view, however. Russia, on the other hand, has come fully to the realization that real power, real influence, derives, not from a nation's ability to single-handedly smash any of its adversaries at will, but rather from that nation's ability to serve as the core around which to surround itself with allies that complement its own strengths, by the forming of deep strategic alliances in the energy, economic, diplomatic, security and military spheres. Thus Russia's emphasis is much less on offensive military power - military power projection - and much more on diplomacy and the forming of meaningful strategic economic and diplomatic alliances. Russia has therefore significantly "grown up", matured, whereas the U.S. has let its formerly unquestioned economic and military power "go to its head", and it still has a great deal of maturing ahead of itself.

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Chapter V: Soviet Collapse – Sowing the Seeds of the Shift to Bipolarity With respect to the military sphere, the old adage “When you're handed lemons, then make lemonade” applies here with regard to post-Cold War Russia. Russia's concerted efforts to repeatedly make very potent “lemonade” on an unprecedented scale and to use such to take global power and influence to her have gone mostly unnoticed. With regard to the arms race then, Russia's relatively inexpensive but deadly “lemonade", in the form of a wide array of asymmetrical weapons systems and platforms, will very effectively limit U.S. ability to project military power in various places in the event of a crisis. Since Russia engages in proliferation of such asymmetrical weapons, the cutting short of the American military arm is already evident in places such as the Taiwan Strait, where no admiral will dare place an aircraft carrier battle group as the U.S. did during the 1996 crisis. So while the U.S. continues to spend astronomical amounts of money it does not have for very costly but also very vulnerable weapons systems, Russia spends tiny amounts by comparison to defeat America's military in the event a crisis arises. Yet, just because the amount spent is not enormous on both sides as it was during the formal Cold War, does not mean the arms race is over, and does not mean the current, morphed arms race is not every bit as dangerous as it was before 1991. In any military conflict between the U.S. and Russia, or between the U.S. and any nation that has obtained sufficient asymmetrical weapons systems from Russia (such as China), either the U.S. military will be severely hampered because of the inability to place crucial weapons platforms close enough to the conflict, or if those platforms are placed into harm's way then they will be at significant risk of being lost. It is a very lopsided arms race only if it is measured in terms of the sums of money spent on each side. But if measured in terms of efficiency and effectiveness and lethality, it is not nearly so lopsided. The nuclear arms race has not ended either, contrary to what most “experts” predicted, and contrary to what most of them still say today. Russia has kept pace with every move the U.S. has made with regard to nuclear weapons. Notwithstanding statements and proclamations to the contrary, both sides know the ongoing importance and necessity of strategic nuclear deterrence. In proof of this, and despite various treaties and agreements claiming to limit and even decrease such arms, neither side has been willing to do so in real terms. And both sides have drastically altered their doctrine and

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PART II: THE IMPENDING SHIFT TO BIPOLARITY stance as regards the use of nuclear weapons, lowering the threshold for their use considerably. Additionally, with the recent tests of Russia's new maneuverable reentry vehicle atop a strategic ballistic missile in response to America's building of a new missile shield, we have yet another tangible example of how Russia has kept pace with nuclear developments on the opposing side. Interestingly, in this arena too of the arms race, Russia generally spends much less on asymmetrical “equalizers” while the U.S. spends comparatively much more on large and complex systems. The trends and strategies of both sides regarding the arms race are unmistakable. Russia’s president Putin is on record in this year 2006 that his country will not engage in an arms race in the style of that carried on during the old Cold War. Instead, Russia will enhance its military power by asymmetrical means, working smart while the US continues to spend itself deeper into debt much as the old Soviet Union did.

Asymmetrical Levers to Power

What has happened is that Russia has been forced by circumstances to ‘play it much smarter' than she did before, and much smarter than the U.S. side has been playing it since 1991. In the U.S. concept of global power projection, the projection of military force has really become the key component. This is in spite of the idealistic promises made in former President Bush's 1992 State of the Union Address which foresaw a prime role for American diplomacy in creating, solidifying, and maintaining a global and benign Pax Americana. The progressive militarization of American foreign policy since it found itself as the only superpower left is now uncontestable. The American philosophy of global power and influence is now not only inseparably intertwined with military prowess, but is dominated by America's ability to project military power globally. In fact, since becoming “the only superpower left”, America has also become virulently expansionist in a number of ways and the global projection of its military power is central in this. Thus, the U.S. military has progressively taken a much more offensive stance since 1991. It has become the key instrument with which the U.S. seeks to gather international power and influence to itself. The military has also progressively become the key instrument with which the U.S. seeks to exercise its global power, and also the

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Chapter V: Soviet Collapse – Sowing the Seeds of the Shift to Bipolarity key instrument used to maintain such power. This has been to the very notable neglect of other, more effective instruments in the gathering, exercising and maintenance of power, such as diplomatic instruments, economic instruments and others. On the other hand, Russia's philosophy

of

global

power

and

Russia’s presence as a great power

influence has radically changed, as noted

and

as

the

core

above. No longer does she subscribe to

geopolitical

the old Cold War philosophy of military

guarantees an imminent global shift

power projection. In her position, she is

from unipolarity to bipolarity

pole

of

the

rising

of

the

East

unable to do so. Rather, as regards military power, she uses the development, deployment and proliferation of asymmetrical weapons in a doctrine of containment and even a pruning-back of U.S. military power. Consequently, the Russian military has of necessity taken a much more defensive stance since 1991. The Russians do not, therefore, rely upon their military as the key instrument with which to gather international power and influence to themselves. And they do not rely upon their military as the key instrument with which to exercise such power, or to maintain such power. But Russia does seek to gather international power and influence to herself, and her key instruments in this are asymmetrical (military, diplomatic, economic and energy-related) and therefore also exploitive of U.S. weaknesses and vulnerabilities. She very adroitly employs such instruments in a grand strategy to take sufficient power to her that the U.S. Giant can be counterbalanced, and even eventually brought to heel. What are those instruments and what is her grand strategy? In addition to the containment strategy employing development, deployment and proliferation of asymmetrical military weapons, asymmetrical diplomatic, political and economic strategies are also being employed by the Russians. These asymmetric strategies clearly have been specifically designed to exploit the weaknesses and vulnerabilities of the last superpower, and to prevent, and even roll back, total U.S. global dominance. If the U.S. is very proud of its proven military prowess, Russia is very proud of its growing diplomatic, political, energy and economic prowess which, ironically, is progressively, insidiously by attrition, winning the Great Game over global power and influence. How so?

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The Proven Success of the Asymmetric Philosophy

Gulf War II and its aftermath provides an immensely enlightening case study of how military, diplomatic, political, energy and economic power and influence interact, and how Russia very effectively makes “lemonade” from the “lemons” handed her, progressively realizing the goals of her grand strategy. Though Iraq of March 18, 2003 was a third-rate military power at best, still no one can reasonably diminish the awe-inspiring military prowess of the U.S. in making such short work of Saddam's military. In looking at both the larger picture and the smaller details, however, immensely important insight comes to light. On the military front, a number of the most advanced tanks and other armored vehicles in the world were easily “killed” by Saddam's forces. Two versions of the Russian-made Kornet anti-tank missile were evidently used to score those “kills”. The most advanced was a laser-guided version. However, many “kills” against armored vehicles were registered by “old-fashioned” Russian-made rocket-propelled grenades. The warhead design of these so-called “old-fashioned” weapons is very ingenious. They are designed such that a molten “squirt” of metal pierces the heavy armor and wreaks havoc inside the vehicle compartment. This demonstrated the extreme value of Russianmade asymmetrical weapons in real-time war operations. Equally valuable were the Russian-made shoulder-fired anti-aircraft missiles which downed or damaged a number of U.S. aircraft since the war “ended” in April, 2003. Reports indicate sales of these and other such items have surged because of their proven effectiveness in Gulf War II. The facts prove that Russia's strategy employing such asymmetrical weapons must be taken very seriously by U.S. war planners. This is true because the Iraqis generally possessed only the most rudimentary of such asymmetrical weapons and had very poor training in their use (and were commanded by truly inept military leaders and by Saddam, a proven dunce as a military strategist), yet in spite of that were able to score costly “kills” against U.S. forces. However, what happened on the political and diplomatic fronts before and after Gulf War II is even more enlightening. The U.S. made little, if any, room for genuine

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Chapter V: Soviet Collapse – Sowing the Seeds of the Shift to Bipolarity diplomatic processes and solutions in the lead-up to the war. The prime focus was on marshalling the military forces in the area and preparing for the invasion. The U.S. preempted most diplomatic activity by declaring “If you're not with us, you're against us” and “If we have to, we'll go it alone in Iraq”. While the U.S. did work to put together a “coalition of the willing”, this fell far short, by comparison, to the truly international coalition it assembled in 1990-1991 in the lead-up to Gulf War I. Thus, diplomatic and political instruments were mostly sidelined in favor of the key instrument, the military, in the pre-war period. The U.S. was attempting to gather international power and influence to itself based primarily on its ability to project its military power into almost any area of the globe it wished. It believed the political, diplomatic and economic components of such power were lesser, but would flow in behind the military component. It believed this, if for no other reason, than it assumed that all other players on the geopolitical chessboard would have little or no choice but to follow the American lead. That assumption turned out to be grossly mistaken. How so? In spite of their very considerable fears over breaking ranks with the last superpower, a number of regional powers did so anyway in the lead-up to the war. And they formed what came to be called the “anti-war bloc”, which has continued to stand united in firm opposition to the last superpower as regards Iraq. While France and Germany often became the most vocal members of the new anti-war bloc, there is very credible evidence that it was really Russia's strategy and influence that brought the bloc into being and has kept its unity from fragmenting to this day as regards the US invasion and occupation of Iraq. Long before Gulf War II Russia was instrumental, along with her partner China, in developing the principle and the strategy for a “multi-polar world in which one superpower does not dictate to the rest of the world”. This was on the heels of a previous crisis in which the last superpower also sidelined international diplomacy and the international organizations devoted to it and placed prime importance on its unquestioned ability to project its military power almost anywhere in the world.

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Reacquisition of Global Influence: Formulation of Russia's Strategy

On March 24, 1999 NATO began what turned out to be a 78-day bombing campaign of Serbia. In the lead-up to that war, the U.S. knew it could not get U.N. backing. Hence, it pushed past the U.N., completely sidelining that organization, and succeeded in galvanizing NATO for the mission. There was a joke at the time, and it went like this: On March 23, 1999 Madeline Albright donned a very short, tight miniskirt and spike high heels and strutted up to the podium at the NATO minister's meeting and asked, “Well, gentlemen, what's it gonna be, love or war?” Of course, the decision came out, “We'll take war!” This joke illustrates that, at the time, the rest of NATO had very little choice but to follow the American lead. But it is very instructive to look back at how that crisis was actually resolved and the important role Russia played. After 78 days of bombing, Milosevic showed no signs of backing down, and considerable fears were brewing of a bloody ground invasion to take him out of power. In reality, the U.S. and NATO evidently had assumed he would capitulate after only a few days of bombing. As the days wore on, clear fractures were becoming evident between the U.S. and the rest of NATO. The “bill of goods” sold to NATO by the U.S. leadership was seen as unrealistic and, in hindsight, just plain erroneous. The political pressure to find a non-military solution was becoming overwhelming. It was at this point that Russia stepped in to help resolve the crisis. How she did so set an important precedent that played out in the Iraq crisis of 2003. Russia insisted that the U.S. come back to the U.N. and negotiate a settlement there. Most of the rest of NATO put pressure on the U.S. to do so. In the U.N.-brokered solution that soon followed, Milosevic was replaced by a new elected leader and was handed over to the UN World Court for trial. NATO withdrew its forces and the U.N. set up formal peacekeeping forces for Serbia and Kosovo. The U.S. was given significant face-saving devices in that settlement, but the truth is that it was left with significantly less influence than it desired in a strategic (due to oil and gas pipeline routes) region. If it

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Chapter V: Soviet Collapse – Sowing the Seeds of the Shift to Bipolarity were not for Russian influence in bringing the crisis to a diplomatic settlement via the U.N., the crisis might very well have escalated to become a regional war. This was everyone's fear, and Russia had no interest in seeing large numbers of U.S. troops in the region. However, Russia felt she was double-crossed by the U.S. and NATO. As part of the settlement Russia was to be permitted to police her designated section of Kosovo independent of NATO. Russia objected to being seen and treated as a NATO subjugate. In the outworking of the agreement, Russia was denied her request, after graciously arranging face-saving devices for the American and NATO side. When NATO forces prepared to enter that province on June 12, 1999, much to their surprise they discovered the Russians had gotten there first. A contingent of 200 Russian troops was already heading toward the Pristina Airport in order to occupy and secure it by themselves, ahead of NATO Supreme Commander General Wesley Clark. When Clark heard of the Russian troops dashing toward the airport, he ordered NATO forces to block their approach. General Sir Mike Jackson, the British commander, refused Clark's order, retorting "I'm not going to start the Third World War for you." The Russian contingent took the airport without opposition, and thus completely spoiled General Clark's plans to hold a victory celebration there. The planned celebration was never allowed to take place. The Russian leadership, in unilaterally ordering their troops to take Pristina Airport, risked a very serious military confrontation with NATO. However, they evidently felt it was worth the risk to send the message that Russia cannot and will not allow itself to be pushed too far. Had General Jackson followed his orders, we might have had a very serious crisis. It was on the heels of that crisis that Russian President Yeltsin and Chinese President Zemin issued their joint statement recommending the “multi-polar world order” (which had been detailed by the two presidents two full years earlier in a proclamation to the U.N. in 1997) in which no one nation would be permitted to dictate to the rest of the world, and in which the U.N. would play the central and dominant role in resolving crises. From that time on such statements and proclamations became very frequent. The Kosovo crisis gave great impetus to Russia and China to make efforts to bring about the multi-polar world order. When we look closely at developments surrounding Gulf War II,

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PART II: THE IMPENDING SHIFT TO BIPOLARITY we can discern that a grand strategy exists, with the specific goal of bringing to birth what they call the multi-polar new world order. Additionally, the foremost credit for the strategy must clearly go to Russia, which has played the prime role in formulating and promoting it. What exactly is the strategy? Just as Russian military strategists and weapons designers formulated a successful strategy of counterbalancing U.S. military might by asymmetrical means, Russian (1) diplomatic, (2) economic and (3) political strategists have formulated successful strategies for counterbalancing U.S. global dominance by exploiting U.S. vulnerabilities and weaknesses on those three fronts, doing so by asymmetrical means.

The Strategy Proves Itself in the Iraq Crisis

In the recent Iraq crisis, while the U.S. was attempting to put together its “coalition of the willing”, Russia was at the same time using her diplomatic and political influence to assemble the anti-war bloc in direct opposition to the U.S. superpower. Russia chose to center her efforts firmly within the U.N. Security Council as the chosen instrument with which to oppose the U.S. on Iraq. The Yeltsin-Zemin Doctrine of the multi-polar new world order was at the crux of Russia's political and diplomatic arguments opposing the U.S. on Iraq. Russia argued the unipolar world order of the last superpower was inherently unstable and therefore extremely dangerous, that it flouted international law and the interests of lesser powers, and robbed lesser states of their deserved influence in world affairs. She found that message resonated deeply in many capitals around the world. She also argued that the U.N. itself had made a pitiful and ignominious track record for itself as a mere lapdog of the U.S., unable to stand up to U.S. bullying. She argued it was time, for the sake of international peace and security, for the U.N. to begin to show some backbone. The U.S. was making a similar argument in the lead-up to the Iraq invasion, lamenting that the U.N. had no backbone, no teeth, and was in imminent danger of going the way of its predecessor, the League of Nations. But the intent behind the U.S. argument was to prod the U.N. to forcefully carry out the wishes of the U.S. Additionally, the U.S. continued to hold over the head of the U.N. the unpleasant prospect that it would

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Chapter V: Soviet Collapse – Sowing the Seeds of the Shift to Bipolarity push past and completely sideline that international organization, as it did in the 1999 Kosovo crisis, if it decided it had to do so. The real intent behind the Russian argument was to prod the U.N. to finally stand up to the U.S. and engender some real international respect for itself by asserting its independence from the U.S. and its agenda. As such, the two opposing arguments were completely incompatible, even though they tended, on the surface, to sound very similar. The Americans desired a powerful and formidable U.N. only if it strictly performed American (imperialist) will, and the Russians and others on the opposing side desired a powerful and formidable U.N. as long as it strictly performed their own (multilateralist) will. Their two wills and two geopolitical visions (unipolar vs. “multi-polar” world) were (and are) completely incompatible. It is not surprising that the last superpower should, since 1991, progressively come to adhere to unilateralist doctrine and disdain the doctrine of multilateralism and the international organizations which are supposedly based upon that collective geopolitical view of the international system. For giving in to multilateralism and to the collective will of international organizations threatens to exercise restraint over the last superpower, forcing it to modify its behavior, and tries to place limits on its global reach. This is not compatible with the efforts of the last superpower to solidify its position of global dominance by rushing to fill the power vacuum left by the collapse of the other superpower in 1991. It is also not surprising that the former superpower (Russia) should, since 1991, progressively adhere to the doctrine of multilateralism and disdain the doctrine of unilateralism applied by the last superpower, and seek to find diplomatic and political means of placing limits on the global reach of the last superpower, especially by means of gathering support for her side of the issue within international organizations like the U.N. As a comparatively weak power, it is in her interests (and those of her likewise comparatively weak partners) to find effective ways to counterbalance, and even roll back if possible, the global dominance of the last superpower. It becomes important here to clearly identify cause and effect. In 1992 in President Bush's first State of the Union Address after the collapse of the Soviet Empire, ostensibly, the U.S. was charting a course toward a benign Pax Americana wherein no respectable but lesser powers would feel threatened by U.S. global dominance. But what

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PART II: THE IMPENDING SHIFT TO BIPOLARITY course did the U.S. take in actuality? A dispassionate analysis drives one to the only reasonable conclusion that Mr. Bush's vision of a benign America has turned out to be quite hollow. Today, the U.S. has an international reputation as a “bully”, a reputation which it has earned for the most part. Progressively then, in response to U.S. unilateralism and the progressive militarization of U.S. foreign policy, Russia found herself in the position of insecurity and weakness in the face of American expansionism. Hence, she developed asymmetrical strategies (military, diplomatic and energy-based) to deal with the situation she found herself thrust into. She looked for “equalizers”, and has found and exploited them very effectively. In physics, there is a principle that for every action, there is an opposite and equal reaction. In geopolitics, that principle also holds true. Hence the U.S., by rushing to occupy the crater left by the collapse of the Soviet Union, has merely thrust the large residual boulders up the sides of the crater to clear the way for itself, only to have them roll back on its own head. This policy has been shortsighted and unrealistic at best. For, in time, another old adage plays out, “Whatever you do to me that doesn't actually kill me, just makes me stronger!” The American-designed economic plan implemented after 1991, ostensibly intended to help Russia develop a capitalistic and democratic society, instead helped to create the conditions under which the oligarchs could rise to grab control of Russia's industry and resources, resulting in massive capital flight and deep, severe economic damage. Among many Russians, there is even the sense that perhaps the Americandesigned economic plan was intended to definitely finish off whatever remained of Russia after the collapse of the Soviet Empire. Among the facts which Russians point out to substantiate their suspicions is that most of the oligarchs are very closely intertwined with American big business and even have very close political connections in Washington D.C. and London. Whether that was actually the intent of the economic plan or not, for many Russians perception became reality, and the U.S. has done very little to disabuse Russian minds of such suspicions. In fact, to the contrary, the U.S. has tended to take actions to confirm Russian suspicions. And the fierce movement of the Kremlin against the oligarchs, in an effort to regain Russian control of industry and resources, demonstrates again the geopolitical principle of action and equal and opposite reaction.

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Chapter V: Soviet Collapse – Sowing the Seeds of the Shift to Bipolarity

Which Side Possesses A Coherent Strategy?

Consequently, in the lead-up to the Iraq invasion, a battle of wills, and much more importantly, of geopolitical philosophy, began to heat up, and by February 24, 2003 it became white-hot. On that date the U.S., after failing to get sufficient support for its draft resolution specifically authorizing war, scrapped all attempts to bring it to a vote at the UN. On that same morning Russia and her anti-war bloc partners Germany, France, China and Belgium had put forth a draft proposal in direct opposition to the U.S. draft. Russia, France and China had each threatened to veto the U.S. draft resolution if it did come to a vote. France, taking great encouragement from Russia's firm position, was extremely vocal in her threat to torpedo the U.S. resolution. In effect, the U.S. draft was D.O.A. However, did the members of the new anti-war bloc, centered firmly within the U.N. Security Council, actually believe they could prevent the last superpower from invading Iraq? It is very doubtful they engaged in such wishful, idealistic thinking. If the U.S. was really determined to invade, who on earth could really stop it? The clear answer has to be “No one!” Then what was the real aim of Russia and her anti-war partners? To isolate and weaken the U.S. internationally, so as to prevent the formation of any truly international coalition like the one formed in the lead-up to Gulf War I. Russia discerned that such international isolation would have serious logistical, diplomatic, and economic repercussions for the U.S. It would make the invasion and occupation very much more costly for the U.S., and consequently much less likely to succeed in the long term. Russia has been proved exactly right, in spite of the fact that the military invasion itself was remarkably successful. The aftermath of the invasion has proved extremely costly, as Russia and her anti-war partners predicted. Consequently, Russia's strategy consisted of helping to enormously increase the cost to the U.S. of pushing past the U.N. The issue was and is much bigger than the Iraq invasion and occupation, however. The issue is geopolitical, concerning the fundamental structure of the international system in the post-Cold War era, since 1991. The issue is a unipolar vs. a “multi-polar” world order. Unilateralism vs. multilateralism fits intimately and inseparably into this Great

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PART II: THE IMPENDING SHIFT TO BIPOLARITY Issue. The Iraq crisis was only the latest incarnate expression of this Great Issue, which has been burning ever hotter since 1991. Recognition of this fact is crucial in order to understand the real meaning of geopolitical events and trends, and to see where the international system is heading. Hence, if they failed to prevent the U.S. from pushing aside the U.N. and invading Iraq, all was not lost, from their perspective. They had farsighted, strategic vision on their side, whereas the U.S. was looking at matters only tactically, barely past its own nose, as it were. Russia and her partners warned repeatedly and explicitly, before the war, that invasion and occupation was very likely to bring the U.S. painful chaos and severe problems in Iraq. Russia undoubtedly remembered the clear precedent set during and after the Kosovo crisis, when the U.S. and NATO had ignored the U.N. and began the illadvised bombing of Serbia, but was soon obliged to come back to the U.N. to extricate itself from an impending quagmire. The lessons of that recent history (only four years prior to 2003) were clearly completely lost on the U.S. administration But they were definitely not lost on Russia and her partners. As it turned out, their strategic vision has been mostly validated. In the aftermath of the invasion, how has Russia conducted herself with regard to the Great Issue of the unipolar vs. “multi-polar” world order? She has been instrumental in preventing any fracture of the new anti-war bloc, with regard to its opposition to the U.S. in Iraq. She has continued to employ asymmetric diplomatic and political “weapons” (inside and outside the U.N. and its Security Council) to bring the last superpower to heel, as it were. This has been an amazing, and immensely important accomplishment. Russia and her partners have been able to maintain the international isolation of the last superpower over Iraq for nearly a full four years now. U.S. efforts to get international troops and money for Iraq have grossly failed. And after severely marginalizing and derisively criticizing the U.N., the U.S. had been forced to come crawling back to the U.N. for help in an effort to stabilize the country politically and to try to head off a still-looming civil war. Hence, the coherent strategy of employing asymmetrical diplomatic, political and economic instruments, centered firmly within the U.N. Security Council, can actually be traced back to the Kosovo crisis. The Yeltsin-Zemin Doctrine of a multi-polar world

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Chapter V: Soviet Collapse – Sowing the Seeds of the Shift to Bipolarity order had been formally presented to the U.N. in May, 1997, a full two years before the Kosovo crisis. Very insightfully, it warned of the dangers of unilateral military action on the part of the last superpower. It recommended strengthening the U.N. and handling crises diplomatically, by means of the U.N. When the Kosovo crisis arose two years later, the Yeltsin-Zemin Doctrine became the script for Russia's actions in bringing the parties to the U.N. for a resolution of the crisis. As a result, the precedent was set – unilateral military action and pushing aside the U.N. will backfire on the party taking such action. Russia successfully codified that precedent and the way the crisis was finally resolved tended to validate the doctrine of multilateralism and thereby also the idea of a “multipolar” world order. However, the doctrine of unilateralism tended to be discredited, along with the idea of a unipolar world order of the last superpower. The fact is, though, that relatively few of the players on the geopolitical chessboard were listening and paying attention, and least of all, it seems, the U.S. However, that fact did not undermine the importance or the durability of the precedent that had been set and codified by Russia and its partners. This fact has been painfully demonstrated in the Iraq crisis of 2003-2006, wherein the U.S. and its partners ignored and flouted that precedent, to their own significant harm. The issue is not really who was right and who was wrong. It is ultimately what structure of geopolitical system should be created, one that is unipolar or one that is “multi-polar”. The U.N.'s credibility and relevance, after suffering almost irreparable harm in 2003, have since been significantly validated. This has come about specifically because the credibility and stature of the last superpower has been severely damaged in the Iraq crisis, and that last superpower has come back to the U.N. to resolve matters, just as it had to in 1999 during the Kosovo crisis. Enormously important precedents are thus being set here. These are precedents that will be extremely hard to ignore in the future, or, if they are ignored as the Kosovo precedent was, will bring very painful loss of credibility and global influence to the one who disdains them as a result. Such a precedent, like a wall built in front of a deep abyss, can certainly be jumped over, even by a superpower, but such willful ignorance always has a very heavy price, as the aftermath of the Iraq invasion proves.

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Sowing the Seeds of Future Tectonic Shifts

Progressively, since the collapse of the Soviet Empire in 1991, American administrations have pursued an increasingly muscular (many would say muscle-headed) approach to foreign policy and geopolitics. American power is certainly impressive, even unequaled and unprecedented. But there is one important aspect of that muscular approach which is not impressive – it is seriously lacking in intellect and ingenuity. It is not the “smart” approach. It therefore tends to be very short-sighted, merely tactical, lacking true strategic thought. And when it is viewed in the light of the truly strategic, resourceful and clever approach which has been taken by Russia, one then fears for the eventual outcome of the rivalry between the US and Russia. The

Iraq

crisis

is

again

an

important illustration of these facts. The

US hegemony since 1991, exercised

overly-muscular and thick approach of the

arrogantly and with insensitivity,

U.S. to that crisis, and its overplaying its

provided the motive for Russia and

hand with respect to the U.N. and its anti-

its

war members in asserting “we can go it

unipolarity. US imperialist over-

alone if need be”, has now, in the aftermath of the invasion, left the U.S. in a very weak negotiating position with respect to the U.N. and its anti-war bloc. When one must negotiate, it is vitally important

first,

in

preparation

for

partners

to

undermine

reach in Iraq since 2003 provided the key opportunity to undermine unipolarity.

But

Global

energy

developments since 2004 provided the real means to do so.

negotiations, to employ insightful diplomacy to achieve a position of strength, so that when negotiations finally begin, one is negotiating from a clear position of strength. The Bush administration, in the lead-up to the invasion of Iraq, showed it had no grasp whatever of these principles, which are “Diplomacy 101”. Rather, the administration acted as if, due to the overwhelming power of the U.S., it didn't need to negotiate, and merely engaged itself at the U.N. as a mostly inconsequential formality. Here is where it appears the U.S. seriously overplayed its hand. By either imagining that the U.S. was

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Chapter V: Soviet Collapse – Sowing the Seeds of the Shift to Bipolarity almost literally omnipotent, or perhaps realizing it surely wasn't and employing a foolish “bluff” by “making bets” it could not possibly keep by itself, the U.S. has, in the end, made itself increasingly subject to the very organization it disdained and pushed aside before the war. In diplomacy as well as in cards, overplaying one's hand can easily lead to forfeiting the game. The U.S. is dangerously close to a political and diplomatic forfeiture in Iraq, which would likely negate the benefits of its awesome military victory there. It is already forfeiting on a much wider, global scale as it watches helplessly the rallying together of its rivals in opposing US policies and goals in virtually every sphere of endeavor. This geopolitical environment has grown directly out of US imperialist over-reach in Iraq in 2003. There is yet another important aspect of this matter that must be detailed here. In poker as well as in diplomacy (geopolitics), image and respect are extremely important influence-enhancers. If one has been able to maintain an image of virtual invincibility because of past successes, then one's power to influence the other players and to cause them to bend, or even to fold, is not only intact, but also greatly enhanced. What has happened to America's international image and respect since the formal Cold War ended, and especially since 9/11/2001, has further weakened its hand in international affairs. At the time of the collapse of the Soviet Empire, America had an image of virtual invincibility. International respect for her was probably at an all-time high. Everyone wanted to be like America. Everyone believed America was a giant that could not have its will frustrated. Everyone was afraid to stand up to or otherwise oppose her. But this has changed radically, even though there is still some measure of trepidation on the part of any who dare to oppose her. But she is being opposed nonetheless, and the lesser powers are learning they can do so and actually profit in the process. The shroud of invincibility that formerly enwrapped the last superpower has been shown to be largely a ruse. How has this come about? And what seeds of future tectonic plate shifts have thereby been sown? The previous, almost complete confidence in America's unquestioned economic power has given way to deep international concerns about the credibility and solidity of American corporations. Recent corporate scandals like the Enron collapse have sent shockwaves of concern throughout the international economic system. And the

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PART II: THE IMPENDING SHIFT TO BIPOLARITY skyrocketing American debt and dubious economic policy coming out of Washington combine to seriously erode international confidence, not only in the currency of the last superpower, but in the very American economy itself. Increasingly, that economy is seen as an enormous bubble that might actually burst. The American economy is tremendously dependent upon foreign, and especially Asian, cash inflows. If foreigners who up until now have been willing to finance America's debt ever decide the risk is unacceptable, or if they become nervous about the decline of the dollar in view of the fact that their enormous reserves are partly held in the form of dollars, then the bubble will deflate very rapidly, and the much-feared day of accounting will have arrived. The seeds of the present American economic dependence upon foreign cash inflows were sown during the Reagan years, when America spent money it did not have and went from being the biggest creditor nation to being the biggest debtor nation. The terrifically expensive Cold War arms race played a very significant role in this unholy transformation. Not only has America not recovered from that unholy transformation, but the deleterious economic characteristics adopted since the 1980's are now being irrevocably cast in stone. This is resulting in an insidious weakening, an elemental decay of American economic power, while at the same time providing opportunity and fertile soil for exploitation of those weaknesses by lesser powers. America's economic decline is helping, along with other important components, to sow the seeds of massive tectonic plate shifts. The true vulnerability of America to terrorist attacks was demonstrated to the entire world on 9/11/2001. An attacker, comparatively the size of a flea, was able to strike devastatingly right at the very heart of America's economic supremacy. America's oft-touted protective geographic isolation was stripped away on that day. And since then, America's porous borders and inept government security agencies were shown up as woefully inadequate. Who could have realized beforehand the American Giant was so vulnerable? His virtually invincible image began very significantly not to stand up to reality. Since then, the pointed vulnerabilities and fragility of the whole range of American technical infrastructure, from the electrical grid to the security of supposedly “secure” information computer servers, to the national mail system have all been made painfully manifest. Inherent in the advertising and validation of such vulnerabilities is the severe tarnishing of America's image and reputation, which leads to a growing reluctance

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Chapter V: Soviet Collapse – Sowing the Seeds of the Shift to Bipolarity of international parties to place their full trust in America's political / economic systems – they realize they must act prudently in their own interests and hedge their bets, so to speak. All of this weakens the last superpower and prompts consideration of certain possibilities related to the formation and strengthening of other poles of power in the geopolitical system. The very real weaknesses and limitations of the U.S. military have been shown up by the current Iraq situation. The initial military victory was astounding to say the least. However, in the aftermath of the invasion, the U.S. has been grossly unable to secure the country. Asymmetric warfare against the coalition even succeeded in bringing such pressure to bear on the U.S. that it was forced to cede considerable leadership to the U.N. in the transition to Iraqi sovereignty. This, in spite of the killing of Saddam's sons and the capture of Saddam himself. This entire crisis, along with the one in Afghanistan, has demonstrated the very real limitations of the U.S. military, which is over-deployed and over-worked and stretched very thin. In general, America has been shown to be unable to “go it mostly alone” as it claimed, and obviously believed it could, before the war. On the military and diplomatic fronts, America has been significantly out-maneuvered by very crafty and resourceful opponents. Combined with America's notable failures to amply reward and respect its friends and partners and the resulting growing international reluctance to be a deep strategic partner with America, she has in return been weakened and her image has been severely tarnished. The vital influence-enhancers of image and respectability have been largely stripped away from the last superpower, and even at times simply discarded by recent US administrations themselves. As a consequence, America finds that, absent threats of military intervention, it is mostly unable to influence the world at large to take up its agenda. And with America's military stretched thin as it is currently, threats of military intervention are increasingly losing their credibility. All these factors spell increased weakness and vulnerability for the last superpower, and provide opportunities for rival powers to increase their own influence by leveraging their strengths against America's weaknesses. Because American economic, military, political and diplomatic power is showing such vulnerabilities and weaknesses, the global system is entering a period of immense flux and instability, and extreme danger. Any transition from the unipolar world

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PART II: THE IMPENDING SHIFT TO BIPOLARITY of the last superpower to the “multi-polar” new world order will be incredibly dangerous and violent. The facts on the ground establish that such a transition period is indeed underway at the present time. America will have to fight very hard, but also very smart, to halt the transition and to reverse it. Ironically, the more it applies ill-advised military force to the problem, the more it creates problems for itself and the more it accelerates the world deeper into the transition. At the same time, as it tries its apprentice hand (very belatedly) at the long neglected diplomatic levers, it does so from a profound position of weakness and finds that it is the party forced into compromise while its comparatively expert rivals mostly stand their ground. As respects its once-glorious and powerful position of global power and influence, the US is finding that it has already been tipped past center, as it were, and it is frantically struggling to reverse its ever accelerating decline.

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Chapter V: Soviet Collapse – Sowing the Seeds of the Shift to Bipolarity

Summary of the Main Points Ü The collapse of the Soviet Union in 1991 unleashed upon the global order the forces associated with US hegemony, which sowed the seeds of Russia’s current rise in concert with its strategic partners. The US did not become the ‘gentle and fair global hegemon’ that former president Bush promised it would become in 1992. Instead, it became an inordinately militarized international bully, prompting the rise of rival centers of power, most notably Russia-China. Ü The arms race did not come to an end with the end of the cold war in 1991. Instead, it morphed into a new and even more dangerous form as Russia concentrated on the development of asymmetrical systems designed to neutralize the huge and unwieldy US systems. Additionally, the proliferation of nuclear technology accelerated after 1991, making for a much more dangerous global situation that that which obtained before 1991. Ü Russia, in its new geopolitically weakened state after 1991, reassessed its philosophies respecting global power. It moved away from concentration primarily on military (hard power) strategies to giving primacy to collective diplomatic and economic (soft power) considerations and strategies. Ü In the Iraq crisis of 2003 Russia proved the worth of its new soft

power philosophies and strategies by successfully leading the movement to isolate the US and keep it isolated, thereby forcing the US to continue to bear alone the entire colossal burden of the Iraq invasion and occupation, and paving the way for Russia and its partners to capitalize on US misfortunes.

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CHAPTER VI: RUSSIA AND ITS PARTNERS SEIZE THE GLOBAL INITIATIVE

Ü How have Russia and its partners capitalized on US over-reach in Iraq? Ü How have America’s rivals seized the global economic initiative? Ü How is Russia constructing the elements of a total economic encirclement of the West?

While it is certainly true that since 1991 the U.S. has held a position of unquestioned sole global dominance, it is also true that that position was neither attained, nor held onto until recently, for the reason that the U.S. is virtually omnipotent, as many used to imagine. Such persons deceived themselves into thinking that America's military might was (and some say still is) virtually impossible to resist or to vanquish. They also have imagined America's economic might, for all practical purposes, to be indestructible, due to its being so firmly rooted in the globally-preeminent American capitalist / democratic ideologies and in America's unequaled technological prowess, and also due to the fact that the inherent monetary wealth of America is supposedly so far in advance of any others. These persons imagined that, because of America's supposedly inherent ideological-military-economic virtual omnipotence, America also possesses virtual diplomatic, political and moral omnipotence and indestructibility. In their view, American ideas and ideologies, and its moral, economic and military strengths are so powerful, so pervasive and so irresistible that, for the foreseeable future, America cannot be displaced from its position of global dominance. Until the Iraq crisis, that was mostly the image America bore to the world at large. But things have changed – drastically – since 2003. How so? The real nature and extent of American power, of its influence and of the degree of permanence of its global

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Chapter VI: Russia and its Partners Seize the Global Initiative dominance has come to light, primarily due to the Iraq crisis. American administrations circa 1991 and prior knew and understood the real nature of America's power and its inherent limitations, but since 1991, when America took up a position of unquestioned global dominance, the last two administrations (those of Bill Clinton and G.W. Bush) seemed to have forgotten (or perhaps never clearly understood) these matters. They mistakenly concluded that the indisputable fact of American global dominance proved America's virtual omnipotence as well - that America's global dominance proceeds from its being virtually omnipotent in every sphere - ideological, moral, economic, military, political and diplomatic. However, it does not proceed from virtual omnipotence. America is not nearly omnipotent. The Iraq crisis is proving, and has proved, that fact, in all spheres of American power and influence. America's former image of virtual omnipotence and irresistibility has therefore been shattered by the Iraq crisis. The extreme hubris proceeding from Washington, inherent in the last two administrations, is proving to be completely misplaced, and entirely inappropriate. Why? Because American power, influence and its global dominance proceeded, not from its supposed virtual omnipotence, but rather from something we could call its omnibeneficence. Traditionally it sought, very successfully, to position itself at the center of regional and global developments in a fashion in which its associates and allies saw it as an indispensable and desirable senior partner. It developed, cultivated and nurtured a global network of strategic alliances based upon mutual economic, diplomatic and security interests. It tended to listen to its associates and allies, it tended to act within mutually agree-upon parameters, it tended to be very careful not to over-reach its own power and it was very careful not to do anything to loosen or to weaken its crucial network of regional and global alliances. Modestly, it realized that without that network of alliances it would be left to resort to an impractical and costly, muscular Soviet-style push for colonial empire in an attempt to marshal the world along the lines of its own interests. If it were truly virtually omnipotent, such an approach could "work". But U.S. leaders used to know and understand the limitations of American power, and they therefore avoided the foolish, delusional path of empire.

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PART II: THE IMPENDING SHIFT TO BIPOLARITY Today's leaders do not understand the nature and limits of American power. When the Cold War

In its dealings with the

was won, self-delusion about the real nature and

world America has cast

extent of American power became all too easy. In the

aside

decade-long celebration of its Cold War victory

philosophy

(1991-2001), America lost its former pragmatic

beneficence to pursue the

modesty in favor of pugnacious arrogance and an

delusional goal of virtual

accompanying gross over-estimation of its own

omnipotence

its

traditional of

omni-

abilities and power. All throughout the Clinton administration America's foreign policy increasingly took on those negative qualities. The American bullying of European NATO and the resulting 78-day NATO "humanitarian bombing" of Serbia was only the most notable example among many of such short-sighted American policies and actions. Crucial strategic alliances were left to wither, or worse, were actively being disdained and even sabotaged because America had forgotten how crucial such allies were to its exercise of global influence and dominance. In Serbia America had over-reached its own true power, and when president Milosovic refused to bow, Russia had to step in to broker a settlement under the auspices of the very same United Nations America had earlier spurned and sidelined in its foolish push for war. Thus, an extremely costly American ground invasion was averted. America should have learned the lesson of the real limits of its own power from that unpleasant experience – but it did not learn because its arrogance, what Mr. Gorbachev has recently referred to as ‘winner’s disease’, had become too deeply ingrained. When the current Bush administration took office, America's short-sighted squandering of its crucial network of global alliances only intensified, and by the time March of 2003 had arrived, it found an entirely new global situation had congealed, to its complete and utter shock. It was unable to put together a truly international coalition for action in Iraq. It's so-called "coalition of the willing" amounted to a ragtag group of geopolitically and militarily minor players for the most part. Not even NATO would give its support to the U.S. In line with its gross lack of pragmatic modesty and its shocking ignorance of the true nature, extent and inherent limits of American power, Washington pushed past NATO, the U.N. and the world at large to invade and occupy Iraq. It has grossly over-reached its

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Chapter VI: Russia and its Partners Seize the Global Initiative own true power in the process, and has painfully demonstrated the truth that America is not nearly omnipotent - something evidently most of the world knew, but which America itself failed to know. Does it finally know it now? America appears very slow indeed to learn the real truth about itself, about its limitations, about its crucial need for its allies. And now that all the myths about America's virtual omnipotence are being shattered, at least outside America they are being shattered, the resulting geopolitical upheaval is powerfully feeding a global process of realignment, in which the principle of a continued close alignment with the U.S. is sustaining severe damage. America's strategic alliances around the globe are in very serious trouble - primarily due both to its own actions and also to its negligence. The current administration has barely begun to make a meaningful turnaround in that process. As such, America is really behind the 8-ball with respect to holding onto its position of global dominance. It must have the acquiescence and cooperation of most of the rest of the world in order to retain its position - it cannot retain it by force alone. If it loses sufficiently that acquiescence, cooperation and goodwill on the part of the world at large, it will fall from its position of global leadership and dominance. And it is already rapidly losing those assets which enable it to dominate. That is the real truth about American power and global dominance - the real truth the rest of the world now knows, but which America either still doesn't know or is unwilling to accept. However, Russia and its growing array of strategic

partners

thoroughly,

and

do they

understand are

these

making

matters

significant

While America has been suffering

debilitating

geopolitical advantage out of ongoing developments.

repercussions

They have a vision and a strategy with which to achieve

from its Iraq invasion

it. Their vision is of what they call a “multi-polar”

Russia and China have

world order. Their strategy to achieve it is to act

seized

collectively to create a global network of mutually-

initiative to reorder the

beneficial strategic alliances and ties in the economic, diplomatic, energy and security spheres of cooperation.

resulting

the

global-economic

global

and

geopolitical worlds

The global network currently under construction is not one which has America at its center. Rather, Russia is at its dead center and the Russia-

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PART II: THE IMPENDING SHIFT TO BIPOLARITY China axis occupies its ‘magnetic’ center. However, it is not a Russia which seeks to dominate in the Soviet-style imperialism, or in the post-Cold War style of de facto American imperialism. Rather, very significantly, it is a Russia which modestly and pragmatically seeks to play the lead role by means of a true and meaningful multilateralism among its partners, by making itself beneficent as a key partner to all its associates in all spheres of cooperation. It and its strategic partners are therefore collectively seeking to accomplish what America is failing to accomplish. While America's strategic alliances are progressively loosening and deteriorating for want of attention and due to outright disdain, the strategic interests and alliances between Russia, Asia, key powers in Europe, the Middle East, Africa and the Americas are deepening and progressively coming to fruition. This is occurring directly as a result of meaningful and enormous initiative on the part primarily of Russia and China. These geopolitical players have extraordinarily seized the global initiative as the U.S. has dropped such in favor of a self-centered, short-sighted and ill-advised invasion of Iraq. With American and British leaders evidently remaining much more interested in continuing to justify their foolish actions in invading and occupying Iraq than to take back the global initiative, nothing appears on the horizon to derail the realization of the so-called “multi-polar” vision of Russia and her strategic partners and associates. As the current global trend of lessening acquiescence to and cooperation with America continues, and even accelerates, more regional and global players will realign in ever closer cooperation with the confederation of rising powers noted above. As America progressively loses the deep and meaningful cooperation of its associates and allies, it will find its ability to influence and dominate regional and global trends and events cut short. It will progressively lose its position of leadership, which relies upon the acquiescence and cooperation of others. We are already seeing this happen around the globe. Very significantly, it is happening in spite of America's great economic wealth and influence. America has already lost its ability to lead in the Middle East - and this in spite of (or more accurately because of) its push into Iraq and the massive presence of its military there. This is precisely opposite of what Washington expected and envisioned as a result of its invasion. This is further proof Washington doesn't understand the true nature and extent of America's power - and it therefore squanders and misuses it.

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Chapter VI: Russia and its Partners Seize the Global Initiative However, Russia and its strategic partners continue to extend their influence across the globe as the contraction of American influence creates a vacuum which they can fill. America is very rapidly losing its ability to influence and to lead in Southeast Asia, as the Koreas, China and Russia progressively take regional initiatives which minimize both American involvement and American interests. Indonesia is putting into place oil-route security measures which intentionally leave American forces and cooperation out of the picture. Even Australia is deepening its economic and security cooperation with its Asian partners, to the chagrin of Washington. U.S. leadership and influence is waning in Central Asia, where the oil-rich states are progressively turning to Russia and China, and in the Middle East where both Russia and China are expanding their sway. These are but a few examples of how the global tide has turned against the unipolar world order, toward the so-called “multi-polar” one.

The East Seizes the Global Economic Initiative

A careful examination of precisely how the U.S. derives power, from what fundamental resource that power truly springs from, is very enlightening in view of the subject at hand. “It's the economy, stupid!” The essence of U.S. global power is its economic wealth. On the ground, every other form of its power is a derivative of that wealth either directly or indirectly. Traditionally, America has been able to irresistibly influence all the other players on the geopolitical chessboard because it has led the global economy, and historically it could therefore greatly reward or severely punish in ways and to an extent no one else could. This fact endowed the U.S. with tremendous political and diplomatic capital. It could develop and deploy the most awesome and effective military machine in the world, enabling the projection of its power around the globe – all because it could “afford” it economically while no other nation could. The standard of living and the freedoms enjoyed by its people give the U.S. tremendous social and cultural influence across the globe – all rooted in its economic prosperity. Would liberal American culture enjoy the appeal and powerful influence it still does around the world if America was, not

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PART II: THE IMPENDING SHIFT TO BIPOLARITY economically prosperous, but as poor as a third world country? Of course not! In every way U.S. power derives from its economic capital. Even the enemy terrorists realize the truth of this. Hence, they attacked the very symbolic heart of America's economic power on 9/11 in an effort to damage the real source of American power. If that true source of power is ever spoiled significantly, or if the U.S. economy could be throttled by an outside force, then the last superpower will see a decline in the potency of all its derivative forms of power and influence. As a matter of fact, the evidence strongly indicates that decline is already happening. How so? It has been correctly noted that oil is the very lifeblood of the industrialized economy. Completely opposite of popular assumptions circa the late 1990's and up until only recently, during this latest period in which global oil prices have rebounded and are strategically soaring, the U.S. economic engine is still exceptionally vulnerable to strategic oil price shocks. In the last thirty-three years since the Arab oil embargo of 1973/1974, every global oil price “shock” has been followed closely by a U.S. economic recession. The link between the two is indisputable. What applies to the U.S. economic engine also applies to the global economy as well. However, U.S. economic vulnerability to the global price of oil is now significantly greater as compared to the vulnerability of most other economies. How is that true? The U.S. is transferring its economic wealth and the power that goes with it to other nations because of its enormous public and private debt and its huge trade imbalances. The U.S. is frighteningly dependent upon foreign cash inflows to finance its deficits and imbalances. This increasingly places the very solvency of the U.S. economy in foreign hands. The U.S. currently runs a current account deficit of more than 6% of its GDP, a record high, which cannot be maintained indefinitely. Crude oil imports account for a sizeable portion of this current account deficit, and it becomes increasingly significant as the global price of oil elevates. An orderly decline of the dollar by more than 40% would be required to help shrink the dangerous current account deficit. However, such a decline presents a range of other problems which are considerable in their impact and risk. As the dollar declines, oil producers, who currently price their exports in terms of dollars, seek to hedge against the curtailing of their real profits resulting directly from the

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Chapter VI: Russia and its Partners Seize the Global Initiative dollar decline. As a result, the markets inflate the price (in dollars) of oil to hedge against a weaker dollar, and that puts increasing upward pressure on the U.S. current account deficit, which puts further downward pressure on the value and strength of the dollar. A vicious cycle has already ensued. If this cycle continues the likely effect is an eventual not-so-orderly decline in the value of the dollar. This can have catastrophic impact upon the U.S. economy and upon the global economy as well. In fact, the only reason the decline of the dollar has not been catastrophic already is the fact that foreign investors, most notably from Asia, have continued to buy enormous sums of dollar-denominated assets. However, the entire situation for the U.S. economy is increasingly unstable and risk is mounting. The fact is that there currently exist so many imbalances, many firmly centered in the U.S. economy, but extending outward to affect the global economy, that no one can say with any authority precisely what all the risks are, or what the future holds with much accuracy. However, one thing which is certain is that because so many deep structural weaknesses and considerable risks exist, the U.S. economy no longer commands the global respect and confidence it once did. In fact, doubts about the stability and permanence of U.S. wealth are deep and wide. The dollar is stuck in a condition of strategic weakness over concerns about the structural integrity of the U.S. economy. The rest of the economies of the world are increasingly concerned about having their economic security hitched so permanently and intimately to the U.S. economy alone. “The neighbors are beginning to talk” about the need to pursue a course of increasing economic independence from the U.S. What they are saying and doing about it is evidence the formerly unquestioned economic power and earned global trust of the U.S. is in serious decline. As everyone knows, economies operate on trust as a foundation. The U.S. foundation is already seriously damaged, as evidenced by global nervousness and even fear of a serious, or even catastrophic, U.S. dollar decline. The U.S. is doing very little, if anything, to reassure the world and calm the jitters. In fact, it is continuing to spend itself into indebtedness “oblivion”, spending on hugely expensive domestic programs, on an ever-increasing military budget and on incredibly expensive military invasions and nation-building. All the while, deep tax cuts have also been enacted. How much longer

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PART II: THE IMPENDING SHIFT TO BIPOLARITY can the economic charade continue, while America refuses to make needed reforms and to take other required actions to strengthen, rather than weaken, its own economic potency? A massive transference of wealth outside US borders is the net effect of the economic deficits, imbalances and weaknesses that have become ever more deeply rooted within the very structure of the US economy over the past two decades since the US went from being the greatest creditor nation to becoming the greatest debtor nation. By using the phrase “transference of wealth”, what is meant is not merely dollars, though colossal sums of dollars are in fact being transferred outside US borders. But “wealth” includes much more than dollars. It also includes (1) jobs, (2) technical expertise, know-how and leadership, (3) dominance in key markets and fields of research and endeavor, (4) financial expertise, leadership and dominance, (5) copyright and patent protection and security, and many other such forms of “wealth”. Thus, “wealth” is defined not only as pure monetary assets, but more importantly, the assets and means required for a foreign country to create enormous wealth for itself. All this is being transferred from the US to its economic and geopolitical rivals and competitors at a blinding pace. Never before could such rivals and competitors

leverage

US

economic

and

Tools for wealth transference

political weakness to their own significant

High Energy Prices

advantage for the simple reason that such

Cheap Exported Goods

weakness fundamentally did not exist. But it does exist now in spades, and those rivals have

which Russia-China exploits

taken the initiative to efficiently leverage US weakness to their own enormous advantage. Consequently, over merely the last relative few years a complete change of the global economic landscape has been brought about. The heretofore global economic leader suffers from deep indebtedness, deficits, imbalances, slowing growth and attendant weaknesses while the emerging economies (especially those rich in strategic resources) benefit from near zero indebtedness, huge budget surpluses, healthy economic growth and all the geopolitical power that results. Consequently, the vast majority of the trillions of dollars currently held in central bank forex reserves are held by the so-called emerging economies of Asia, Russia, the Middle East and Latin America. The global-economic and

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Chapter VI: Russia and its Partners Seize the Global Initiative geopolitical centers of those rising, powerful economies exist in the East, while the former center of true global economic leadership and strength, Washington, watches the ongoing process with despair. The East has become the global center of wealth in all its forms, while the West has become the global center of indebtedness. Global leverage is now centered in the East as a result.

The U.S. Complicit In Its Own Decline

The U.S. is helping to create severe problems for itself by actually participating in the transfer of its massive wealth oversees through domestic political disunity and weakness, and at the same time by pursuing a militarized foreign policy which alienates it from traditional friends and allies and which creates an atmosphere of distrust of its real intentions and its underlying motives. The U.S. is therefore helping to marshal opposition to itself, helping to consolidate such opposition, and continuing to give impetus to collective moves on the part of its “friends” and rivals alike designed to limit U.S. power and intensify their own. Simultaneously, it is miserably failing to get its own economic and political house in order so as to recover its own domestic might and thereby put a halt to the transference of its wealth to the East. In essence, the U.S. is unwittingly causing the accelerated creation of a “multi-polar” world, where American global dominance is no longer desired, no longer accepted as inevitable. Now, the U.S. is finding that it no longer possesses the influence among the global community of nations that it once had, influence that is absolutely vital to maintaining its position of global dominance.

Clever Two-Track Diplomacy of America’s Rivals

Both Russia and China play a very clever two-track diplomatic game with the West in general and with the US in particular. Both see good relations with the West as fundamentally important and neither wants those relations to deteriorate into confrontation, whether diplomatic, economic or even military in nature. Confrontation

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PART II: THE IMPENDING SHIFT TO BIPOLARITY with the West would be very costly and both Russia and China seek to avoid paying such overheads. However, neither Russia nor China will avoid confrontation with the West at any cost. Their individual and joint self-confidence and assertiveness is well known and documented. There are real and defined limits to what they will do or cease doing and what they will permit on the part of the West, in the interests of avoiding confrontation. Both have definite red lines in the various spheres of endeavor beyond which the West will not be allowed to pass. However, in their relations with the West they predominantly trumpet, not those red lines, but rather the areas of agreement, in order that relations are not needlessly derailed. Yet, simultaneously they work without great public fanfare to cut across what they obviously see as US imperialist goals at nearly every turn, while generally doing so without the bitter and contentious debate and accusations that characterized the old cold war. Both at the UN and in their one-on-one deliberations and negotiations with the world’s powers they are successfully advancing the agenda of undermining inordinate US global dominance in every sphere, in region after region, promoting and facilitating the achievement of what they call the “multi-polar” new world order. They have successfully aided the incremental undermining of US influence in the crucial regions of Southeast Asia, South Asia, Central Asia, the Middle East, Latin America, Canada, Europe and Africa. They have also done so at the UN and they have simultaneously and incrementally facilitated the powerful rising economic “magnetism” of the East, thereby compelling the global economic “compass needle” to point ever more directly eastward, at notable expense to the traditional US position of global economic leadership and dominance. In fact, the activities and achievements (as contrasted with the often-benign words) of both Russia and China have come at considerable diplomatic, economic and geopolitical expense to the US in particular and to the West in general. This is the twotrack game the two partners are successfully engaged in. Therefore, when various experts declare that Russia and/or China consider good relations with the West vitally important and will avoid confrontation, it is necessary to place such declarations in the proper context of the two-track game they are playing. Both Russia and China realize that now is not the time to engage in pointed confrontation

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Chapter VI: Russia and its Partners Seize the Global Initiative with the West. Now is the time to continue the “good” relations that facilitate the ongoing massive transfer of wealth and influence from West to East. At such a time as a serious global issue (or an array of such issues) may arise, such as that over Iraq in 2003, then the two partners will use their mounting global influence to take a stand in direct opposition to the US. And their global influence has mounted dramatically since 2003 in three key ways. First, China fully realizes it increasingly holds an economic trump card over the US currency and economy. Should push come to shove in its relations with the US it could credibly threaten to crash the US currency by any number of measures, such as by dumping some of the dollar-denominated portion of its massive forex reserves. China’s central bank has moved far down the path of rebalancing its reserves to prepare for a dollar crash. It has increased its dollar (US Treasury bond) position very little over the past two years while its total forex reserves continue to mount dramatically, thus rebalancing and diversifying out of the dollar without actually selling dollars. Both in its capitalizing on its inexpensive exports and the resulting wealth transfer from West to East and in its rebalancing of its reserves China is strategically positioning itself to withstand a confrontation with the West. That constitutes the essence of the strategy of the two-track game. US global dominance is incrementally undermined while simultaneously China’s global influence is bolstered, and preparations are set in place to withstand a possible future confrontation. Second, Russia’s mounting importance as the key global player in strategic energy developments has dramatically bolstered its global influence. It has cleverly positioned itself to capitalize on such developments. Such influence will come in handy, to say the least, in any possible future confrontation with the West over global or regional issues like that of Iraq in 2003. Additionally, Russia’s economy is virtually independent of the US and its central bank has already fully accomplished the diversification of its reserves out of the dollar, such that its reserves are no longer inordinately held in dollars. Third, the rising global influence of both Russia and China give the pair almost irresistible influence on the world stage in nearly every sphere. In their policies and in their geopolitical alignment a growing majority of all the other key global players are increasingly influenced by Russia and China.

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PART II: THE IMPENDING SHIFT TO BIPOLARITY By the shear geopolitical weight of Russia and China and in their mounting ability to attract other key powers into closer alignment with themselves the global landscape has changed monumentally over merely the past three years since Iraq was invaded. Their two-track game, which facilitates “good” relations with the West while simultaneously undermining its global dominance and fueling their own rise, is the diplomatic cover for the crucial strategic positioning of themselves to achieve that eventuality. Does this mean that Russia and China have possessed a detailed and scripted advance plan, that they have hatched a grand conspiracy as it were? Mr. Putin is obviously very intelligent and would probably have no difficulty in beating his Western counterparts in the game of chess. And China’s leaders are notoriously patient, deliberate and cunning in the achievement of their goals and aims. However, no one could have pre-scripted and pre-planned the key developments and their crucial timing that we have seen unfold in that last several years, developments that are resulting in the meteoric rise of both Russia and China. Both partners have possessed and have repeatedly proclaimed their over-arching concept and philosophy of what they call the “multi-polar” world order, however. Its realization would obviously require US global dominance to be undermined in virtually all spheres. But neither Russia, nor China, nor the two in unison, could accomplish such a feat absent an entire array of global developments that would have to occur at virtually the same time and that would be absolutely required in order to pave the way for the geopolitical changes necessary to facilitate the arising of a “multi-polar” world order. The US would have to massively over-reach militarily, economically and diplomatically and become set into international isolation and a steep decline while simultaneously global energy developments would have to occur that would usher Russia closer to the key global position as respects strategic resources. A number of other related developments had to occur at virtually the same time as these two major ones. It simply isn’t possible that such things could somehow be “arranged” in advance to occur almost simultaneously. However, where both Russia and China deserve credit is in their careful assessment of the global situation and in their visionary determination of the likely course of future events, in their clever coordination of their respective positions, in their adroitly

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Chapter VI: Russia and its Partners Seize the Global Initiative positioning themselves in preparation to capitalize on certain developments, and their early recognition of watershed events and their tangibly and expertly employing of “soft power” to capitalize on sometimes unexpected developments shortly after they arise. The two have definitely exhibited a profound awareness of, and operational skill in handling the various levers to global power. For such expertise and cleverness they certainly deserve profound credit, especially as contrasted with the gross lack of such intellectual and pragmatic assets evident in Washington these days.

The Strategy in Motion to Counterbalance the US

While all the aforementioned trends and problems continue apace, certain key players on the geopolitical chessboard are assembling the component parts of an economic “checkmate” of the U.S. by progressively extending control over the global availability and price of oil and gas. At the center of those efforts is Russia, which is working very diligently to extend and solidify its control over global oil and gas production and transport. Already Russia is the world's second-largest oil exporter behind Saudi Arabia, with whom she has signed a wide-ranging cooperation agreement on crude oil production. With Saudi Arabia's de facto control over all of OPEC by virtue of its being OPEC’s swing producer and its fervent “look east” policies and Russia's growing monopoly over oil and gas production in most of Europe and Asia, the two are already effectively sitting atop global oil production. Russia is also making moves to bring Japan under the shadow of its dependence. Rather than building a proposed oil pipeline to northeast China, Russia has decided to build one to the Pacific coast to serve Japan. This is a wise strategic move on Russia's part. Thus she already has China increasingly in the shadow of dependency upon her strategic resources, and now, she seeks to bring Japan under the same shadow of energy dependency. Japan has very little choice but to seek oil where it may be acquired (Russia), since it must import about 90% of its oil and since the Middle East is becoming ever more unstable. In a set of carefully orchestrated strategic moves, Russia is also significantly extending its already considerable control over world gas production, engineering a

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PART II: THE IMPENDING SHIFT TO BIPOLARITY monopoly over that energy resource in addition to its currently growing crude oil monopoly. Iran has huge known deposits of gas, and Russia has entered into strategic cooperation agreements with her to explore, produce, and bring to market that resource. Russia and Iran account for at least 49% of the world's known gas reserves. Further, Russia and China have recently signed a strategic agreement with Saudi Arabia for the exploration, production and marketing of its likewise huge deposits of gas. Other Arab oil and gas states will no doubt soon follow suit, as gas-rich Algeria is clearly doing. The loss of U.S. influence in the resources-rich regions of the globe is becoming painfully evident in various ways, not the least of which is diminishing US access to those very resources. Globally, gas is playing an ever-more-important role as oil becomes more expensive and harder to obtain. If we stand back at a distance and observe these energy-resource developments, we can see a distinct and undisputable pattern emerging. It is a pattern of economic encirclement of the U.S. by means of a mounting oil / gas monopoly. A monopoly over the very lifeblood of industrialized nations, namely oil and gas, is at the same time an effective throttle on the economic wealth and stability of a nation, even of a superpower. Often, when this subject is brought up, the reader tends to think only in terms of the “oil weapon”, where by means of an embargo oil is severely curtailed in an effort to crash the target economy. However, what Russia is engineering for itself is much more sophisticated than that. It is presently more of a tool than it is a weapon. It is a tool that is being used to conduct the massive transfer of wealth, and with it power and influence, from one geopolitical “pole” to another. It is also a tool being used to exploit pre-existing weaknesses in the U.S. economy, for the purpose of producing increased instability in that economy and in its currency. It is therefore a lever to power for the one wielding it. Though it certainly has the potential for being used as a weapon in the not too distant future, its current adroit use by Russia and its partners as a wealth and power transference tool is very effective indeed. Much more insight into the strategy of Russia and its partners in employing strategic energy resources to assemble an economic checkmate of the West is presented later in this book.

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Chapter VI: Russia and its Partners Seize the Global Initiative

Summary of the Main Points Ü America squandered and otherwise sidelined much of its crucial network of alliances and relationships to push into Iraq in 2003, and it has suffered massive over-reach ever since. Russia and China have seized upon the opportunity to strengthen, tighten and expand strategic cooperation between themselves and a growing array of global partners in all spheres of endeavor. Russia-China successfully presents itself as a viable alternative center of power to the US, encouraging realignment of states so that they adopt a stance more in line with the interests and goals of Russia-China. The expanding constellation of powers with Russia-China at its core is based upon shared interests and mutually beneficial alliances. Ü China seized the global economic initiative by positioning itself to capitalize on globalization, excelling in exporting inexpensive goods and accumulating (transferring from the West) tremendous economic wealth and capital as a result. Such wealth includes not only its huge currency reserves but also much more in the way of technical and market expertise and dominance, financing expertise and leadership, jobs, etc. Russia seized the global economic initiative by positioning itself to capitalize on global energy developments, extending and hardening its oil and gas export monopoly and moving ever closer to the position of key global power as respects energy. It also has engaged in a massive wealth transfer with wealth flowing from the West to itself. Both Russia and China have the US in particular and the West in general massively on the defensive in the sphere of global economics, therefore. That development has gargantuan, ominous implications. Ü Russia and its growing, tightening array of resource-rich global partners are moving inexorably toward the achievement of a total economic encirclement of the West by means of steadily mounting control over strategic global resources.

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CHAPTER VII: THE SECURITY COUNCIL AS A SPOILER OF UNIPOLARITY

Ü What is the real significance of the standing up of the UN Security Council in 2003 to oppose the US invasion of Iraq? Ü How are both East and West pulling the Security Council ever closer to the geopolitical center of decision-making and decisionenforcement? Ü In what direction is geopolitical power flowing within the international system and what are the implications for US-led unipolarity and for the Security Council?

The U.N. has long been recognized as a useful forum where disagreements can be aired, and occasionally even resolved. It is also well known that when the world's major powers are in no mood for compromise and negotiation, then the U.N. simply gets pushed outside the center of developments and decision-making. But what is interesting about the U.N. is the fact that the world's powers, not even excepting the last superpower, always seem to come running back, pleading for its help, when they have gotten themselves into trouble. Why is that so? And does that portend the U.N.'s relevance will continue to grow rather than decrease? What are the forces pulling the U.N. increasingly into the center of geopolitical developments and decision-making? Are those forces stronger than the ones which tend to spin the U.N. to the outside of the geopolitical center? How has the Security Council already played a major role in undermining US-led unipolarity, and how will it yet do so? Both the League of Nations and its successor the United Nations were created on the heels of terrible international crises, namely, WWI and WWII respectively. The U.N. has played an important and undisputed role in preventing, so far, another world war. In that sense it has mostly lived up to the prime goal enshrined within its charter, namely, to ensure “international peace and security”. Though it is very imperfect and has often been

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Chapter VII: The Security Council as a Spoiler of Unipolarity bitterly disappointing, yet the world manifests by its repeated return to the U.N. in times of crisis that it cannot do without the U.N. Not even the last superpower can manage to successfully conduct its international affairs independent of the United Nations and its Security Council. The naked truth of this tenet has been recently driven home in the Iraq crisis. Relatively

In 2003 the UN Security

few were predicting the outcome we have

Council stood up to confront

witnessed, the return of the U.S. to the United

unipolarity head-on as a clash

Nations for help in extricating itself from a

of wills ensued between the

growing Iraqi quagmire only five months after it

US and the UN over Iraq. The

invaded, and even a general over-arching (though

UN is winning that clash of

definitely begrudging) return of the US to the UN

wills by a wide margin.

as the Iraq and Afghanistan quagmires rapidly deepen, other foreign policy crises continue to mount, Washington becomes increasingly uncertain as to trying unilateral and militarized “solutions”, and even its closest friends and allies insist on multilateral diplomatic approaches through the UN.

The Iraq Crisis – Tuning the Multilateral Model

However, very importantly, a closer examination of the Iraq crisis in the light of the bigger picture, involving the U.N. and the issue of unilateralism vs. multilateralism, reveals that the begrudging U.S. return to the U.N. as a significantly humiliated and needy supplicant was largely engineered by weaker but more strategically astute powers which sought to bring the U.S. to heel on the very issue of unilateralism vs. multilateralism, that it therefore did not happen merely as a chance occurrence. No, rather than by a mere chance occurrence, those weaker powers arrayed themselves against the last superpower before, during, and after the invasion of Iraq, specifically for the purpose of discrediting unilateralism and to establish multilateralism as the fundamental standard for the conducting of international affairs. The chosen instrument with which to solidify their unity on the issue and to thereby exercise combined influence over the U.S. was none other than the United

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PART II: THE IMPENDING SHIFT TO BIPOLARITY Nations Security Council. Those weaker but much more cunning powers have done what almost no one foresaw or imagined they could do – they have brought the U.S. to heel on the Great Issue which stands before the entire international system, namely, will it continue to be the unilateralism of the last superpower or will multilateralism rule? By now, the unapologetic unilateralists inside and outside the current U.S. administration are both frantic and dejected at contemplating the outcome of U.S. actions in first pushing past the U.N., and then coming back to plead for its help, not only on Iraq but eventually across the board, including the recent Israeli-Lebanese war. The U.S., in making such an ardent and short-sighted push for unilateralism, has unwittingly ended up severely discrediting its own chosen geopolitical philosophy (unilateralism and unipolarity) and has actually helped to establish multilateralism as the standard, much to the chagrin of many within the current administration. But the U.S. has had a great deal of help in humiliating both itself and its unilateralist philosophy. Thanks to the stubborn opposition of the so-called antiwar bloc at the U.N., the United States was grossly unable to put together a truly international coalition for action in Iraq. The “coalition of the willing” was nothing in comparison to the impressive international coalition which former President George H.W. Bush put together in 1990 for action in occupied Kuwait. As such, the U.S. ran into very significant logistical problems before the invasion in March, 2003, directly as a result of the antiwar bloc's opposition at the U.N. Turkey's refusal to allow U.S. forces to launch from its territory is but one example of the influence that new bloc was exercising from within the Security Council. Both by exerting economic, diplomatic and political pressure upon certain important U.S. allies, and also by disallowing a U.N. resolution explicitly authorizing the invasion and thereby providing political cover at the U.N. for those already reluctant to support the U.S. plan, the new antiwar bloc prevented full international support for the U.S., and even succeeded in isolating the U.S. on an unprecedented scale before and after the war, right up to today.

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Chapter VII: The Security Council as a Spoiler of Unipolarity Such collective strategy by relatively weaker

powers

against

the

heretofore

Russia,

China

and

their

unquestioned global hegemony of the U.S., and

partners employ the Security

centered firmly within the Security Council, was

Council as an instrument used

a stratagem whose time had finally arrived.

to

Defying almost all predictions, that collective

geopolitical influence, to target

strategy and the fundamental unity of its

and

participants have refused to disintegrate in the

unipolarity across the globe

focus

to

their

undercut

rising

US-led

aftermath of the invasion, and consequently have held sway right up until today. In fact, the strategy has spread to virtually every other issue of importance, obliging the US and Britain to accept and seek compromise with their opponents. On Iraq, in denying all but minimal international support for the U.S. in the form of troops and funds, and in succeeding in changing the U.S.’s original pet agenda from that of rebuilding and securing Iraq under US control and domination to that of restoring Iraqi sovereignty, and in greatly accelerating the timetable for such restoration of sovereignty, the antiwar bloc succeeded in bringing the U.S. hegemon to heel on the Great Issue. It cut directly across the US goals of increasing its control over Iraq, its oil resources and of extending its control over the resources of the wider region. US influence in the resource-rich Middle East region is at an all-time low and getting lower. Consequently, those opposing the U.S. on Iraq have been able to pointedly demonstrate the real power of a form of multilateralism (more accurately designated as collective opposition), even when the last superpower refuses to play along willingly. Willingly or not, wittingly or not, the U.S. has been made to come around to the wishes of that opposing bloc centered firmly inside the Security Council. The full burden, all the enormous costs of the invasion and occupation of Iraq has thus been forced to remain on the shoulders of Washington and London, precisely where Russia and its strategic partners at the UN wished it to remain. As a result of being forced to continue to bear that heavy burden alone, Washington and London have been severely isolated internationally, weakened geopolitically and they struggle increasingly with hesitation and insecurity with respect to their ability to “go it alone” in applying militarized “solutions” elsewhere.

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Westphalia v. Unilateral Preemptive War

Wittingly or unwittingly, the U.S. and Britain are adding to the U.N.'s potential relevance and the centricity of its role in international decision-making. They have done this by the proffering of certain doctrines which, on the surface, would appear to enhance primarily the U.S., and to a lesser extent the British roles far above that of the U.N. in international decision-making and leadership. However, in effect they are very likely to have the opposite effect. They are likely to pull the U.N. Security Council much more directly to the geopolitical center. The Preemptive War Doctrine Mr. Bush and Mr. Blair put forward in the lead-up to the Iraq war and the International Community Doctrine put forward in the spring of 1999 during the Kosovo crisis, which was re-emphasized recently by Mr. Blair, can have a tremendous weakening effect upon the principle of State Sovereignty. Obviously, in the view of the two leaders, state sovereignty as codified in the Treaty of Westphalia stands as an unnecessary and dangerous obstacle in the way of the implementation of the preemptive war doctrine. To summarize their position, sooner or later, unless action is taken now, there will occur a catastrophic attack by terrorists in possession of WMD, most probably obtained from terrorist-sponsoring rogue states. The likely death toll and damage to crucial infrastructure and the economy of the target state will dwarf that of the September 11 attacks on the United States. In fact, in the event that certain biological weapons are used in such an attack, truly catastrophic damage could result world-wide. The acquiring of WMD by terrorist groups bent on the destruction of the West is truly the nightmare scenario. In fact, the two leaders are absolutely correct with respect to the fact that such an attack will eventually come if action is not taken immediately. And even if it is taken immediately, there may be no way to assure that such an attack does not occur anyway. The issue here, though, is what kind of action must be taken? And should action be taken multilaterally or even unilaterally if necessary? The two leaders, while obviously recommending military action (preemptive war), would clearly prefer very tough non-military and multilateral action against the “bad guys” wherever possible and

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Chapter VII: The Security Council as a Spoiler of Unipolarity practical. However, they warned once again that, lacking such multilateral support at the U.N., they will act militarily and unilaterally if need be. Mr. Blair has made a number of impassioned appeals for a multilateral but more courageous stance at the U.N. to confront the “bad guys”. He has called for significant reform of the U.N. Security Council, to give it significantly more authority. He has also clearly laid out a vision of the Security Council operating at the very center of decisionmaking and decision-enforcing. He is very much more the internationalist than Mr. Bush is, yet, as shown in the Iraq crisis, when push comes to shove, he will come down on the unilateralist U.S. side. Mr. Bush, however, pays only lip service to the principle of multilateralism. He is interested in multilateralism and a strong U.N. role only insofar as it rubber stamps his agenda. In the event that the international community and the U.N. refuse to support his agenda, he is most likely determined to act largely on his own if need be. Of course, it is not clear that any other world leader, in the same traditionally unequaled position atop the last superpower, would act much differently than Mr. Bush has acted. Hence, it is abundantly clear, notwithstanding all the very serious setbacks in the past four years, the two leaders are mostly unrepentant over their unilateral military action in Iraq. And they have warned that such action may be necessary again in the very near future. Not only is the entire international situation extremely complicated at the present time, but it is also exceptionally dangerous. There is no international consensus on how best to meet the threat of a catastrophic terrorist attack. But interestingly, and primarily as a result of the ardent U.S. / British push for adoption of the preemptive war doctrine in the past four years and its unilateral application in Iraq and recently by Israel in Lebanon against the will of most of the international community, the world seems divided primarily into two camps, namely those who side with the U.S. and Britain, and those who side against the doctrine of unilateralism and preemptive war. And Mr. Blair has analyzed the debate as essentially boiling down to the two differing views of state sovereignty. In the Westphalia view, the issue of the legitimacy or illegitimacy of the sovereignty of any state is not to be used as a justification to violate its sovereignty. Hence, in the strict Westphalia view, even the sovereignty of despot regimes must not be

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PART II: THE IMPENDING SHIFT TO BIPOLARITY violated absent a serious provocation. However, in the American view, the issue of legitimacy has primacy over sovereignty, such that any sovereign state which proves itself (or whose leaders prove themselves) illegitimate, based on internationally accepted norms of conduct, may be declared or considered illegitimate and forfeit its sovereignty, by force if necessary. The strengths and weaknesses of both philosophies should be readily apparent. The Westphalia model has the proven advantage of strengthening the principle of state sovereignty and thereby tending to assure the inviolable integrity of nations, thus tending to avert military invasion and war. However, it has the weaknesses of its strengths, also having demonstrated in two world wars that it can allow the rise of dangerous, illegitimate regimes, eventually leading to significant crisis and war. The American model has the proven advantage of raising the bar of acceptable conduct on the part of nations by raising high the issue of legitimacy. However, it also has the weaknesses of its strengths in that it has demonstrated that by severely weakening the principle of state sovereignty military invasion becomes more easily justifiable and thus more frequent, with instability and even near-chaos as the result. The post-invasion nation-building required is both terrifically costly and enormously risky, since more often than not such invasions take place in nations with deep but mounting ethnic rivalries which can easily plunge the violated nation into civil war, risking region-wide involvement. The Westphalia model is predominantly laid-back, whereas the American model, especially as envisioned by George Bush and Tony Blair, tends to be very activist, even militant. Neither model, in its pure form, is a desirable “solution”. It is clear from Mr. Blair's speech proffering the doctrine of international community that the U.N. Security Council is envisioned as undergoing structural changes to facilitate investing it with significantly greater authority in dealing with the threats to international peace and security, and to avoid the deadlock which often paralyzes the Security Council.

Acceleration Toward Bipolarity

These are very significant proposals, though not new ones. However, the atmosphere of urgency and environment of international danger in which the proposals

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Chapter VII: The Security Council as a Spoiler of Unipolarity are being made and considered, and the particular parties making such proposals, are quite significant indeed. In the past, it was mostly the lesser, marginalized powers at the U.N. which made such U.N. Security Council reform proposals. Now the U.S. has been forced to pull the U.N. closer to the geopolitical center, and Britain is actually playing the role of activist in attempting to oversee the creation of a U.N. Security Council-centered world order. In the past the U.S. and Britain were the main obstacles to such reform. Now Britain has become the proponent, tutor and activist, and the U.S. is the still-reluctant but increasingly malleable student. This is an enormously important transformation. Despite bluster, evident lack of repentance over Iraq and seemingly confident statements, manifestly the Bush and Blair administrations have lost significant confidence in their own ability to act

For

different

both

reasons,

knowingly

unknowingly,

and the

effectively alone – they do need international

US/British side and the

consensus and support in any effort to disarm the “bad

Russia/China

guys” after all. So they feel they have to go to the

pulling

U.N. to get what they need. They still believe very

Council ever closer to the

deeply in the preemptive war doctrine – but in the

geopolitical

pragmatic and effective application of that doctrine in

decision-making

the real world, they are being forced to face the reality

decision-enforcing

side

the

are

Security

center

of and

of their own inability to make it work on the ground without international support from the very start. The Iraq invasion and its aftermath have given them pause, significantly eroding their formerly over-inflated opinion of their own capabilities. Israel’s inability to defang Hezbollah in Lebanon has further eroded their confidence. Britain appears primed and ready to help facilitate the creation of a Security Council-centric world order with significant authority. But what about the U.S.? Even though the Bush administration has indeed suffered a significant blow to its over-inflated opinion of U.S. capabilities, and this has forced the administration to come back to the U.N. and ask for its help in Iraq and in an increasing array of other foreign policy crises, it would be a mistake to say that any fundamental, philosophical change has yet occurred within the administration with respect to the Great Issue of unilateralism vs. multilateralism. In fact, the administration is highly unlikely to ever undergo such a

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PART II: THE IMPENDING SHIFT TO BIPOLARITY fundamental philosophical transform. Yet, as crises continue to present themselves, the U.S. will have little choice but to progressively (but very reluctantly) pull the U.N. and its Security Council ever closer to the geopolitical center. This is an unavoidable fact of life in the ever more closely interconnected and intertwined international system we are making for ourselves. Additionally, both the U.S. and Britain, by tearing away at the principle of state sovereignty, are actually helping to pave the way toward a new world order in which a significant amount of power is transferred from the sovereign state and invested in an international body (the U.N. and its Security Council) gifted with the authority to decree on the legitimacy of any state's sovereignty, and with the authority to violate that state's sovereignty by an array of means, including preemptive war. The U.S. is, in effect, attempting to make that transfer of power from the sovereign state to the U.S. itself, rather than to any international body. However, on Iraq, the transfer of power went, not to the U.S. as expected, but to the very organization the administration disdained and pushed aside. The U.S. has had to change both its agenda and its timeframe to that of the U.N. and its so-called antiwar bloc. Consequently, what the U.S. evidently doesn't consider is that once you weaken the principle of state sovereignty, it is weakened for all, and not just for the “bad guys”. The U.S. still imagines it can remain an exception to this rule – but can it? The Iraq crisis has demonstrated that the U.S. is not nearly omnipotent – therefore, how can it guarantee its exception status? In a future crisis, how can the U.S. ensure that it won't have to again appeal to, and again bow to, international will at odds with its own will? No such guarantee exists for the U.S. or anyone else. Hence, by tearing away at state sovereignty in the pursuit of preemptive war, unwittingly, the U.S. and Britain are helping to establish Security Council-centric multilateralism. They are accelerating the transfer of significant power away from the sovereign state and toward the Security Council. This is the direction the international system is heading, prompted by a procession of crises. All these developments carry with them enormous significance with respect to the future relevance and even the authority of the U.N. Security Council. We now have very potent forces acting from two disparate directions but converging precisely at the U.N. and its Security Council. As noted above, the Eastern bloc comprising US rivals, centered

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Chapter VII: The Security Council as a Spoiler of Unipolarity firmly within the Security Council, is intent on maintaining, and even increasing, their own power and influence by increasing the relevance and influence of that Council. Additionally, Britain seems intent on giving the Security Council the authority it requires in order to meet the imminent threat of terrorism and its state sponsors. And while still very reluctant to go down that path, the U.S. is being forced, by circumstances and events, to concede that it now needs the U.N. far more than it realized. And there is every indication that need will grow, not diminish. The geopolitical forces moving the world toward a Security Council-centric world order are like big waves crashing against the principles of state sovereignty and unilateralism. The U.S. will have to decide, very soon, if it wants to place itself on the crest of the wave, or remain in its wake, floundering, as it currently is. Consequently, the U.N. Security Council has become the real focal point where all those forces must wreak change – significant, structural change. This situation, while still developing and still in flux, is brand new, unprecedented and enormously significant. How do such forces and developments relate to either the bolstering or the undermining of unipolarity and a shift toward bipolarity? It was stated above that the net, on-the-ground result of Washington’s and London’s promoting and application of the International Community and Preemptive War doctrines is to cause the notable transference of decision-making and decisionenforcing power in the international system, away from the sovereign state toward the collective institution of the UN Security Council. This ongoing process of the transference of power occurs as the struggle between the two incompatible doctrines of the Westphalia Peace and unilateralist Preemptive War resolves itself. How so? The doctrine of preemptive war is suffering a catastrophic crisis of legitimacy in the aftermath of its application in Iraq and Lebanon. The deleterious geopolitical repercussions suffered by

Geopolitical

power

is

flowing away from the West toward the

multifarious

the two proponents of that doctrine (Washington

East, which is increasingly

and London) have moved even those two powers to

cohesive, thus fueling the

proclaim (not very convincingly) that they never

rise of a bipolar order

meant the doctrine to apply to military war alone, but mostly to preemptive diplomacy! In

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PART II: THE IMPENDING SHIFT TO BIPOLARITY the aftermath of their colossal over-reach in Iraq they are increasingly insecure and hesitant to ‘go it alone, if they must’ in a military way anywhere else. They have both returned to the UN Security Council (albeit begrudgingly) as the first and best hope on a wide range of pressing and dangerous global issues and crises. Neither one can afford another quagmire like that they created for themselves in Iraq. The great significance of these developments is that power as respects decisionmaking and decision-enforcing is flowing into the Security Council from the sovereign state. Sovereign states such as the US and Britain are finding that they cannot afford the costs of unilateral decision-making and decision-enforcing when it concerns crises like Iraq, Iran, North Korea and others. To its chagrin Washington is watching helplessly as its own unilateral relevance decreases while the collective relevance of the Security Council increases. Washington’s legitimacy decreases as that of the Security Council increases. This is the precise opposite of what Washington intended when it invaded Iraq in 2003. But as the struggle between the two incompatible doctrines resolves itself that is what the world is getting – a more powerful, influential and relevant UN Security Council. In effect, this undermines US-led unipolarity in favor of a shift to the rough bipolarity of the US, Britain and other Western allies on one side and their Eastern-geopolitically-oriented opponents and competitors on the other side. It is a system where opposition to the US and Britain is aided by the Security Council to coalesce, to focus its growing influence. The Security Council itself has thus reverted to bipolarity (East and West) – those generally aligned against the US and those generally aligned with – because the real world at large is rapidly doing so. The Security Council is merely a refection (not yet a perfect reflection) of the geopolitical reality evident in the world at large.

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Chapter VII: The Security Council as a Spoiler of Unipolarity As long as the US exists as a superpower and strives to maintain, regain and reconsolidate its

US efforts to recapture and

weakening grip on global power and dominance, the

reconsolidate its declining

multifarious East will become ever more cohesive

global

and determined to create the seed of a new world

increase the cohesiveness

order, embodied in their own multifarious yet

and influence of the rising

cohesive, geopolitical bloc based upon mutuallybeneficial alliances and ties, thus undermining USled unipolarity. The component states of the rising pole of the East will act collectively in their mutual

influence

only

multifarious East, further fueling the impending shift to bipolarity

interests and as against a common rival and competitor, placing their inherent differences in the background in favor of creating an ever more united front against unipolarity and for so-called “multi-polarity”. Whether they even know it or not, in reality they thus are shifting the world order toward bipolarity, not “multi-polarity”, in view of the fact that their own deepening cohesiveness is creating, in effect, one Eastern pole with a multifarious composition. Thus, the world order will contain just two poles, East and West. The UN Security Council, which is being pulled ever closer to the geopolitical center, will increasingly serve as the pressure relief valve in the super-heated geopolitical gap between the two poles of East and West. As the East continues its rise and the West continues its decline and the shift to bipolarity progresses toward completion, one may hope the UNSC safety valve holds up under the mounting heat and pressure. If it fails, there exists nothing to act as replacement.

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Summary of the Main Points Ü When the Security Council stood up in 2003 to oppose the US on Iraq a watershed development of enormous significance had occurred. The Security Council is being successfully employed by Russia-China as a spoiler of US-led unipolarity, with implications across the globe. The Security Council has been employed to cut directly across US interests in Iraq, Iran, North Korea and elsewhere. It accomplishes this either by changing the agenda from what the US wants to what its rivals want or by stalling the US in its attempts to get what it wants. Ü The US has (begrudgingly) made a significant return to the UN in the face of its growing Iraq and Afghanistan quagmires. It seeks to reform and strengthen the UN and tries ever harder to get the Security Council to unite on global crises. It found out the hard way that it cannot successfully conduct its global business without the UN after all. Russia-China and its partners have employed the Security Council as an instrument of growing importance with which to focus their rising influence, targeting and incrementally undermining US-led unipolarity across the globe. As such, whether knowingly or not, both East and West are acting so as to pull the Security Council ever closer to the geopolitical center. Ü Geopolitical power within the international system is flowing from the sovereign state into the Security Council and simultaneously from the West into the East. The implications for US-led unipolarity are obvious; it is rapidly and irreversibly being undermined. As the multifarious East continues to rise and the West continues to decline the shift to bipolarity becomes ever more imminent. The Security Council is being pulled ever nearer the center, the super-heated geopolitical gap between two rival global poles, where it will act as a pressure safety valve, one which it is hoped will prevent a violent clash between the two poles.

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Chapter VIII: ‘Axis of Evil’ Proxies Employed Against Unipolarity

CHAPTER VIII: ‘AXIS OF EVIL’ PROXIES EMPLOYED AGAINST UNIPOLARITY

Ü What single vital interest was at the core of both the Chechnya and Iraq invasions and occupations? Ü What vortexes of interplay between the forces of East and West have been created and for what purpose? Ü What success will the West have at the vortexes it has created? Ü What success will the East have at its chosen vortexes?

Russia invaded Chechnya for one obvious reason – to prevent loss of control over a crucial region vital to Russian oil and gas interests and to extend its control, denying the US any hand there. What has the US to do with Chechnya? Both Washington and London provide various levels of support to separatists and terrorists in the hope that Russia’s control will be loosened, facilitating geopolitical advances by the West into the strategic resource-rich Caspian Basin. The same strategy of using terrorist proxies was evident in the decade of the 1980’s when the US successfully employed Osama bin Laden and similar fundamentalist Islamic groups in the fight against the Soviets in Afghanistan. The US had armed and supported such groups against the Soviets, whom Washington suspected of invading Afghanistan for the purpose of using it as a base to move forward toward seizure of the Persian Gulf’s Strait of Hormuz. Consequently, even in that war control over strategic resources was the key motivation on both sides. We must remember the maxim that one man’s terrorist is another man’s freedom fighter. The U.S. invaded Iraq for one obvious reason – to extend its geopolitical influence in a region of the world considered crucial to America's strategic energy security. By establishing a secure base of operations in Iraq, the U.S. hoped to reorder in harmony with its own interests the entire Middle East and the rest of the "arc of instability", which is generally the same as the arc of crude oil and gas resources, one Page 145 of 319

PART II: THE IMPENDING SHIFT TO BIPOLARITY quick step at a time. Using Iraq as a pivot point, the U.S. could have exercised greatly increased geopolitical influence over Iran, Saudi Arabia and Central Asia. It could have controlled the enormous crude oil resources of Iraq, thereby exercising greatly increased leverage over the global price of crude oil, ensuring that the price would be held in a lower range which suits its economic interests. Not

only

is

this

increased

geopolitical leverage considered vital to U.S. national security, but it is also very desirable from another standpoint - the ability to

The

US

directed

funded,

armed

Islamic

and

insurgents

against the Soviets in Afghanistan

throttle Russia's economic strength and

in the 1980’s and is credibly

viability by controlling the price of crude oil.

accused of supporting separatists

Russia's economy is very greatly dependent

in

upon crude oil, and it strongly desires a

military and intelligence officials

global price significantly higher than what

help to set up the logistics of the

the U.S. wants. Firm U.S. control of Iraq and

Sunni-based insurgency in Iraq

of the global price of crude oil is not an

before the 2003 invasion?

Chechnya.

Did

Russian

eventuality which Russia wants to see. Russia, China, France and Germany had close ties to Saddam, including lucrative crude oil contracts. It is little wonder, then, that Russia and her partners resisted the U.S. invasion of Iraq. Their publicly-stated, “principled” reasons for doing so are every bit as disingenuous as those reasons the U.S. gave in justification for the invasion. On both sides of the issue, geopolitical influence and control over the crude oil resources across the entire arc of instability (and in Russia's case denying such control to the U.S.) is the fundamental interest driving the respective strategies. Consequently, Russia sought to frustrate U.S. plans for an invasion of Iraq. It joined in partnership with Germany, France and China to form what was called the antiwar bloc, espousing the principles of a multi-polar world order in which one superpower would be denied sole global dominance. The members of the anti-war bloc understood the geopolitical implications of a new and stable Iraq under U.S. control - they could not permit such an eventuality.

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Chapter VIII: ‘Axis of Evil’ Proxies Employed Against Unipolarity We now know that the virulent insurgency which quickly arose in the aftermath of the Iraq invasion was well planned before the invasion. The carefully coordinated plan was for Iraqi forces to feign defeat, falling back and letting the invader come fully into the country. Iraqi forces would melt into the populace, only to strike back at the invader with the cunning and secretive insurgency. It possesses no ‘head’ that can be chopped off, as it were, to kill the monster. Thus, the capture or killing of key figures like Saddam, his two sons and al Qaida’s Zarqawi has done nothing to defeat the insurgency. In fact, with the capture or killing of each of these figures the insurgency has only been kicked into ever higher gear and efficiency. Its intel and financing are still largely a mystery. However, it uses Russian weapons and technologies funneled through Syria and Iran. Russian generals and high Kremlin officials repeatedly consulted with Saddam and other top Iraqi leaders before the invasion and a number of high officials in the Iraqi intelligence services were known to have had Russian and Belarusian visas. Russia originally set up Iraq's intelligence services, and both Germany and France have maintained deep intel assets there and in other Middle Eastern nations such as Syria, Lebanon and Iran. China is also deeply involved. The Sunni-dominated Iraqi insurgency has proved itself to be of such a level of sophistication and organization and it possesses such staying power that it is inconceivable that it operates on its own, without the assistance of sponsoring greater powers, who usually prefer to remain behind several, nearly impossible to trace, layers of indirection so as to provide plausible deniability of any involvement on their part. The Sunni-dominated Iraqi insurgency has (merely coincidentally?) served the geopolitical interests of Russia and her strategic partners very well indeed, denying the U.S. the control of Iraq and of its resources which it sought when it invaded in March 2003. The U.S. has effectively been bogged down at its first step (Iraq) in attempting to reorder and control the entire arc of instability (also the arc of strategic crude oil and gas resources). Consequently, Russia may be returning the ‘favor’ America did it in Afghanistan in the 1980’s. Thus the U.S. has been denied the geo-strategic pivot point it coveted, from which it planned to deepen and extend its control. The Sunni Arab regimes in the region also have deep interests in Iraq and are secretive participants in Iraq’s insurgency, which

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PART II: THE IMPENDING SHIFT TO BIPOLARITY is not by any means monolithic. Iran and Syria also participate through their regional proxies, all with the net effect of denying the US the control it desired over Iraq and the region. Of course, all participants in this geopolitical great game act with plausible deniability - they carry

Had the US succeeded in

on their rivalry-by-proxy strategies in a very

controlling Iraq and its

secretive and cunning fashion in order that the other

vast oil resources it could

sides may not produce a "smoking gun" with which

have extended its control

to

across the entire region

convict

the

other

of such

"evil"

deeds.

Additionally, there are dangerous wild cards such as

and

al Qaida in Iraq, which no state sponsor can control.

rise by keeping oil prices

However, when it comes to the two major players (US and Russia) both sides know clearly what the other is up to. Only naive persons believe the geopolitical rivalry between the two sides ended in 1991 and that America and Russia are strategic

prevented

Russia’s

low. However, the Sunniled insurgency has ensured the

precise

opposite

eventuality

"partners". Such naive persons do not understand how the world really works - it is all about geopolitical power and control, and strategic energy resources are the most coveted of all by our industrialized world. Control of these assets equals de facto global control and dominance because the world's economies are utterly dependent upon such assets. Russia and her strategic partners must prevent America from attaining such control, and America must weaken Russia and her partners to prevent the realization of their muchvaunted “multi-polar” world order, a world order in which America would be obliged to accede to the geopolitical wishes of a new Eastern collective power bloc. Seen in this light, the Chechnya and Iraq quagmires form key components of the great geopolitical game being played out between the U.S. and Britain on one side, and Russia and its strategic partners on the other. However, there are even greater, more powerful proxies being employed in the successful effort to undermine US-led unipolarity. Who are they, who are their great power sponsors and how is unipolarity being undermined by them?

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Chapter VIII: ‘Axis of Evil’ Proxies Employed Against Unipolarity “Evil Axis” Member Iran: The Latest Nexus of East -West Rivalry

The shift away from the unipolar configuration for our global order keeps knocking ever more loudly, now pounding its fist at the door. Russia’s rise in the economic, political, military and geopolitical spheres continues, with mounting control over strategic energy resources playing a key role. Russia’s ever closer strategic partner, China, is also rising like a meteor in the same spheres. Apparently, nothing of this earth can put a halt to the rise of Russia-China, the nucleus of the rising pole of the “East”. Its mounting gravitational pull already is attracting, and even capturing into its orbit resource-rich Central Asia, Canada and Latin America, key African states, Middle Eastern states and (somewhat unwillingly) even Europe. Simultaneously, US power and prestige, in all the same spheres as those mentioned above, has suffered a sharp decline primarily since the Iraq crisis of March, 2003. US influence is noticeably contracting in Central Asia, the Middle East, Europe, Southeast Asia, Africa and even in the Americas, in its own back yard with the rise of leftist resource-rich regimes aligned with Russia and China. By now, even a geopolitically “blind” person should be able to see the path along which global developments are inexorably proceeding – toward geopolitical equilibrium is where the world order is heading. That word “equilibrium” implies the change to a more balanced distribution of power between two poles, rather than an inordinate concentration of power in just one pole. The simultaneous arising of new poles, most notably Russia-China in the East, and the dilution of power formerly concentrated within the US pole, bespeaks a global move toward equilibrium. That move translates into a reconfiguration of the global order from unipolar to bipolar. That reconfiguration is occurring much more rapidly than most analysts believed possible. It has already progressed to an advanced stage in only 42 months counting from March 2003 when the US invaded Iraq. Whether or not the ongoing reconfiguration of the world order will result in the so-called “multi-polar” world order, or will overshoot the mark of equilibrium and result

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PART II: THE IMPENDING SHIFT TO BIPOLARITY in a lopsided bipolar order in which the multifarious East can checkmate the West, is discussed in great detail in Part III of this book. But why do statements here imply the return to a cold war style “East”-West rivalry? As the new so-called “multi-polar” world order keeps pounding its fist ever more loudly on the door, why should we expect a global realignment into two de facto camps, “East” and West, again? And where does Iran fit into the picture described above of a global move toward (or past) equilibrium?

Global Complexity, Ambiguity Equate to Instability

The world order, and the multitude of powers that comprise it, disdain undue complexity because complexity all too often translates into chaos and insecurity. In an overly complex world order with a multitude of poles engaged in a complex web of cross-competition for achievement of economic, strategic energy and political interests and goals, the leadership of any single power or regional confederation can never feel comfortable and secure that it won’t be double-crossed by its supposed “partners”. In such a world order no one is too sure who are its friends and who are its rivals. That insecurity breeds dangerous instability. Added

to

the

nightmare

of

over-

complexity is that of the greatly accelerated pace

A

of events. Look at how the lack of clear

order would be a nightmare of

definition as respects the configuration of the

complexity, cross-competition

world

and

order,

and

the

dizzying

pace

of

true

multi-polar

ambiguity.

world

Bipolarity

developments, all since 9/11, has already added

brings definition, simplicity

to pointedly increased global instability and

and the potential for greater

insecurity during this geopolitical transition

stability to the world order

period between the unipolar and so-called “multipolar” world orders. The same was true in the aftermath of the collapse of the Soviet Union in 1991, when ambiguity as respects the configuration of the arising world order and the role of each of its powers was lacking. That undue complexity and ambiguity

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Chapter VIII: ‘Axis of Evil’ Proxies Employed Against Unipolarity pointedly increased instability and chaos was the result in a number of important regions of the world. No, the world’s leaders desperately crave the simplicity and rough balance of a world order subdivided into only two major, well-defined geopolitical blocs. As global/regional instability and insecurity continue to mount in this geopolitical transition period between world orders, world leaders will (knowingly or unknowingly) revert to the simplicity and relative security of a de facto bipolar configuration, that of “East” and West. “East” is led by Russia-China and West is led by America-Britain. Then, within each of those two de facto blocs, we’ll continue to see shades of gray with respect to how closely aligned with the lead power of the bloc any particular power might be. But from a distance the world order will look fundamentally bipolar. We are already seeing a reversion to such a bipolar configuration, and that re-polarization of the global order will continue. In one sense such a reversion to polarization into East and West is disturbing, but in another sense it is welcome because it has the potential to bring simplicity, definition, rough balance and order to an increasingly chaotic and unstable world led by a declining and ever more desperate sole superpower.

At the Vortexes - Bigger Powers, Bigger Forces at Play

Here is where Iran, North Korea, Syria and powers like them fit into the picture. The rise of Russia-China and the simultaneous decline of America create a vortex of conflicting interests and competing geopolitical forces wherever the lines of force of the two competing poles meet and interact. Thus, it isn’t merely local forces at play; rather it is global forces originating and emanating from the two competing poles of “East” and West. Oil-rich strategically located Iran is the latest vortex where the lines of force of the two poles have become engaged. Such vortexes can be extremely dangerous. Iraq, where the US and Britain ran into stiff Russian, Chinese, French and German opposition and where those opposed to the US and Britain (fundamentally Russia and China) have gained a great deal geopolitically while the US and Britain have suffered a corresponding geopolitical loss, proves the point. But the vortex swirling ever more violently around Iran is very much more dangerous than Iraq was (is). And we have

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PART II: THE IMPENDING SHIFT TO BIPOLARITY seen other dangerous vortexes arise; Lebanon, North Korea, Ukraine, Georgia, Syria and Uzbekistan are notable examples. In each of these the global forces of the two competing poles, those of “East” and West, played major roles while local forces (often used as tools by the two big powers) took a back seat, in reality. Consequently, even though the mass media is characterizing the Iran crisis as a confrontation between Iran and the West, it is much bigger than that. Through direct Russian support and often indirect Russian-Chinese support via North Korea and Pakistan, Iran has been greatly helped along the nuclear and strategic missile development pathways. Russia-China has also provided a range of other help in the diplomatic, economic and military spheres. Russia and China view Iran from much more than merely an economic and energy security perspective. There are great geopolitical interests and goals for Russia and China at stake in Iran. An expansionist, militarized US seeks to bend the world at large to its will, refusing to easily relinquish its

Russia-China vortexes

create

where

competing

the

East-West

grip on global dominance. It has pushed its agenda of

geopolitical forces swirl,

consolidation of its power deep into the traditional

interact and contend and

sphere of both Russia and of China, neither of which

where the West can be

found a practical way to actually prevent the US from

made to suffer geopolitical

pushing into Iraq. Nevertheless, US fortunes and

loss

goals are massively collapsing there and in the region

confrontation

at large, due in no small way to the diplomatic,

East and West. Iran, Syria

economic and political efforts of both Russia and China designed to internationally isolate (and keep isolated) the US and Britain over the Iraq invasion

and

without

North

direct between

Korea

are

notable examples

and occupation. But from the Russia-China geopolitical perspective the US must actually be stopped somewhere, at some point in time. A line must be drawn beyond which the US will not be permitted to pass. For China that line is clearly Taiwan. Iran is the Russian red line. Russia-China has shown a determination to use all available means, including military ones, to push back hard against the US. To the Russia-China axis, the military

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Chapter VIII: ‘Axis of Evil’ Proxies Employed Against Unipolarity option is truly the last one. However, it is making the necessary preparation to exercise even that option if called upon by circumstances to do so. But the lesser options are also very potent ones as well. We’re seeing in the Ukraine and Georgia vortexes, for example, Russia’s use of its profound energy weapon. And in Central Asia we’re seeing Russia-China exercise the diplomatic and economic weapons to consolidate those states firmly under its umbrella by means of the SCO (Shanghai Security Organization) to the great detriment of the US, which is being kicked out of crucial bases in the region. In Iran and Syria Russia has sold sophisticated radars, weapon systems and missiles that will greatly complicate any US or Israeli attack. In the Ukraine vortex we have seen the Kremlin embark upon a course of shockingly rapid

The US creates vortexes

escalation and a determined pursuit of its interests,

where it seeks to diminish

seeking to bring the situation to a conclusion suitable

the geopolitical influence

to Russia’s interests by forcing Ukraine to pay

of

market prices for its gas. The Kremlin has also taken

Chechnya,

a number of steps to ensure domestic order and

Ukraine and Kyrgyzstan

security in the face of US-sponsored democratic

are notable examples

Russia-China. Georgia,

revolutions that often employ domestic NGOs to support opposition to autocratic regimes. Clearly, Moscow is no longer merely sitting back to await the next US moves. It is successfully pushing back against the US at a number of the vortex locations and tipping the US backward onto its heels.

Shiite Iran in the Ascendancy

Tehran senses that victory, meaning the realization of its regional and wider geopolitical goals having to do with dominance over the resource-rich Middle East region, is very close. Thanks to the US/British invasion of Iraq the main counterbalancing force (the Saddam Hussein regime) that kept Iran's extremely dangerous regional ambitions in check has been removed. With the over-stretched US and British forces in Iraq compelled to put up with an ever more virulent insurgency and mounting sectarian

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PART II: THE IMPENDING SHIFT TO BIPOLARITY violence nothing of real consequence stands in Tehran's way. More than that, a Shiitedominated regime sympathetic to Iran's goals is arising in Iraq. So Iraq is not neutral - it is rather becoming a key pillar of Iran's multiple-pillar strategy to achieve regional dominance. And even if Iraq fractures along sectarian lines, oil-rich, strategically-located south Iraq will still serve as a key pillar in Tehran's regional designs. Tehran is no true friend of the Sunni-dominated oil-rich Arab regimes in the region. When it needs Sunni cooperation and sympathy, as against a larger common foe of Islam (Israel, the US and Britain), then it is willing to cultivate and accept such. But Iran has designs on those regimes, which it sees as an apostasy from Islam. Iran's rise threatens those regimes because Tehran wishes to reorder the Middle East to be more along its own ideological and political lines. Why does it want to accomplish such a reordering? To get control over the oil and gas resources of the region. Tehran knows full well that such control is the lever to regional and global power. That is why it has carefully and diligently cultivated and extended its array of tentacle-like proxies, such as Hezbollah and Hamas, across the region, tentacles that are being used to alter the political landscape of the region in line with its own goals. Iran is successfully accomplishing the desired reordering of the Middle East by winning the hearts and minds of the Islamic man on the street, forcing change from the ground upward. As evidenced by the political advances made by such entities in recent free and fair elections in the region, Iran’s strategy is affording it significant advances. This is a crucial part of Iran’s strategy to increase its influence across the region, further radicalize the peoples, and thereby apply mounting pressure to the resource-rich Sunni Arab regimes, either to become radicalized along with its peoples or else be destabilized, over-thrown and replaced by regimes more in tune with Iran’s agenda.

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Chapter VIII: ‘Axis of Evil’ Proxies Employed Against Unipolarity Shiite minorities inhabit all the Sunni Arab nations. In Saudi Arabia they are located in the key oil exporting provinces. More than that, Tehran has in excess of half a dozen powerful proxy

Iran seeks to gain control of Persian Gulf resources by reordering the regimes

organizations such as Hezbollah and Hamas which

to be more closely aligned

are on the rise across the region politically and

with itself. Iran works to

ideologically speaking, and through which Tehran

prompt regime changes by

can exercise its growing influence. Such influence

instigating radicalism and

increasingly threatens the Sunni regimes and

Islamic unity throughout

positions Tehran to instigate, then capitalize upon,

the

political instability.

threatening the stability of

In the event that Iraq fractures in a civil war (drawing the surrounding states into the fray), or if

region,

thus

moderate US-backed oilrich regimes

the US strikes Iran, or now in the aftermath of the Israeli-Lebanese war Tehran is fully positioning itself to capitalize. It has constructed potent and coherent strategies with the participation of its regional proxies and it is disbursing the necessary funds and weapons to be used in their achievement. Such strategies will go into operation region-wide even if the US succeeds (its chances are remote, however) in 'chopping the head off the chicken', as it were, decapitating Iran's leadership in the opening phase of any air campaign. Tehran's strategies and operations will thrive upon the fierce anti-American backlash, already now building both below and above the surface across the region and beyond, in the event of US military action against Iran or Syria. The Israeli-Lebanese war of 2006, clearly strengthening Hezbollah, one of its primary terrorist proxies, demonstrates the strategy of Iran to reorder the oil-rich Sunni Arab regimes. What is the Iranian-Syrian strategy? In a nutshell, it is to prompt excessive Israeli military retaliation and loss of life and civilian infrastructure in Lebanon, thus galvanizing both Sunni and Shiite fighters in the joint cause of combating Israel. This strategy is intended to unite, region-wide, the Islamic man on the street in a common cause, no matter his sectarian stripe, while

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PART II: THE IMPENDING SHIFT TO BIPOLARITY simultaneously widening to a chasm the rift between the corrupt Arab regimes and their peoples, unless those regimes fall into line behind Iran’s radical agenda. In the environment of radically heightened Islamic unity and passions against Israel and the US, and of unflagging US support for Israel and US “peace” proposals intended to marshal support from the Arab regimes for the virtual destruction of Islamic entities (like Hezbollah and Hamas, who have joined forces against Israel), those Arab regimes were placed in an impossible situation. They cannot openly sign onto US / Israeli strategies and peace proposals aimed at the destruction of Shiite Islamic entities, though that is what they initially hoped for – the rolling back of Shiite advances throughout the region. To adopt publicly such anti-Islamic, de facto pro-Israel strategies and policies would be sure suicide on the part of the Saudi and other regimes. But at the same time if those regimes, under pressure of their peoples, ally along with the bulk of Islam against Israel and the US, then they have at one and the same time adopted and will be furthering the strategic interests of the Iran-Syria axis, which desires to radicalize the entire region in order that its goals, noted above, might be more easily and thoroughly accomplished. The Arab regimes have fallen into line behind Iran’s proxies because they had no real choice but to do so. Advantage Hezbollah. Advantage Iran. Iran now has the oil-rich Sunni regimes on the horns of a deadly dilemma, and it can now bring immense pressure to bear on those regimes and either continue to radicalize them in accord with its own regional agenda or prompt their destabilization and overthrow by means of their own radicalized peoples. Such tenuous regimes have only stayed in power because they have been able, so far, to keep their increasingly restless peoples from uniting against them. The Iran-Syria axis has evidently calculated that now is the time to push the buttons of anti-Israel, anti-US Islamic unity, let loose a wave of anti-Israel hatred and ride the wave clear to Riyadh, if possible.

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Chapter VIII: ‘Axis of Evil’ Proxies Employed Against Unipolarity Israel’s

short-sighted

and

massive

retaliation has played directly into the hands of

Iran’s regional goals will come

the Iran-Syria axis. So do US efforts aimed at

closer to realization as Israel

getting the Arab regimes to support, in any

and the US continue to play

fashion, the virtual destruction of Islamic

into its hands by virtue of their

entities no matter whom and what they are. The

attempting divisive diplomatic

Iran-Syria axis is playing the Islamic unity

and militarized “solutions” in

trump card and the more that Israel, the US and

the region

the Sunni Arab regimes do to try to fight and destroy Islamic proxies (even if they are Shiite) the more the designs of the Iran-Syria axis will actually be realized. The US diplomatic strategy of attempting to divide the Islamic peoples into two groups based on their Sunni and Shiite sectarian affiliations, and then to purge the Shiite entities from Lebanon by force with the tacit support and approval of the oil-rich Sunni regimes, is doomed to failure. Why? Because by injecting Israel into the mix, or by allowing it to inject itself in the massive military way it has recently done, the US has introduced the one factor that is sure to unite the Islamic peoples no matter their sectarian stripe. Islamic infighting is legendary, but Israel’s massive retaliation and push into Lebanon inflames passions that transcend Islamic divisions. The most likely eventuality of the “success” of such a strategy is that the region’s peoples would come to see ever more clearly the duplicity of the oil-rich regimes as well as their willingness to stay in power at almost any cost, compromising Islamic principles and unity by their de facto alignment with the US and Israel in the attempted destruction of Hezbollah and other Islamic entities. That would undermine regional and domestic support for those regimes and lead to their further destabilization. The Iran-Syria axis would come out the winner. However, the strategy is not “succeeding” because the oil-rich Arab regimes have instead fallen into line behind Iran’s agenda. They had no choice but to do so and this illustrates Iran’s superior strategy and mounting regional influence. If, as is charged by respected investigative reporter Seymour Hersh in The New Yorker magazine, the massive Israeli retaliation in Lebanon was pre-planned and preapproved by the Bush administration for the purpose of cutting down Iran’s ability to

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PART II: THE IMPENDING SHIFT TO BIPOLARITY retaliate through its proxies in the event of a US strike on Iran, thus paving the way for such a strike before Mr. Bush leaves office, then the strategy is a miserable failure that comes at enormous costs. Israel has not been able to ‘de-fang’ Hezbollah, which has shocked Israel by the potency and effectiveness of its retaliation. Neither air power nor ground forces have been able to crush, nor even seriously cripple, Iran’s proxy Hezbollah. The planned installation of the Lebanese army and thousands of UN peacekeepers in Southern Lebanon under the cease-fire agreement will do little to hamper or degrade Hezbollah’s potency. Its popularity in successfully standing up to Israeli “aggression” has boosted it across the region. Israel and the US will have to go to excruciating linguistic extremes to spin matters into any kind of victory. On the ground Iran and its proxies have advanced as a result of the situation. The only real victory for Israel and the US would have been a virtual destruction of Hezbollah, Hamas and Iran’s numerous other proxies, but nothing of the kind has been achieved. Instead, increased region-wide support for Hezbollah on the part of the region’s ever more radicalized peoples, profoundly increased anti-Israeli and anti-American passions, and mounting anger directed at the so-called moderate oil-rich regimes who secretly wished for Israel’s success against rising Shiite influence have been the results. The net result of American policies and involvement throughout the Middle East is increasingly being seen by its peoples and governments as instability bordering on chaos. Again it must be emphasized that this unstable regional situation goes directly back to the US invasion and occupation of Iraq. By removing the Saddam regime Washington also removed the ‘natural’ regional counterbalance to Iran, permitting the ominous rise of its influence across the region. Trying to put the Shiite genie back into the bottle by means of the Israel-Lebanon war of 2006 is a virtually hopeless cause. If anything, the genie will become a monster as the oil-rich Arab regimes come under the threat of acute destabilization as a repercussion of the war.

Iran Also Realizing Its Wider Geopolitical Goals

Geopolitically, Iran is using its highly-coveted oil and gas resources to cultivate important relationships that tend to immunize it from political and economic isolation. It

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Chapter VIII: ‘Axis of Evil’ Proxies Employed Against Unipolarity is establishing and deepening such relationships with Pakistan and India, with Japan, with China and with the sympathetic states of Central Asia and Latin America. Of course, Russia also stands by Iran in its economic and political relations with the rest of the world. Iran's rise not only frustrates the US and Europe in their effort to pressure and isolate Iran over its nuclear ambitions, but its rise directly threatens the strategic interests of the US and Europe as respects energy security related to the entire Middle East and beyond. That region is already stepping rapidly down the road to more fervent antiWestern radicalization. Iran’s influence reaches deep into Iraq and is largely responsible for US misfortunes there. All this is a direct threat to the US and Europe. Iran's growing influence threatens to complete the region's move toward the eventuality of a strident anti-western position. Iran is already incrementally succeeding in its goal of reordering the Middle East. The US-friendly oil-rich regimes such as Saudi Arabia are increasingly at risk as Iran's influence grows. It is only a matter of time, and not much time, before the reordering is complete. The handwriting is on the wall for all to see. Iran is accomplishing all this without possessing a nuclear weapon. What if it were allowed to develop such weapons? To the West, that is simply not permissible. However, the current Iran crisis is less about nuclear weapons and more about energy geopolitics. The nuclear issue merely serves to make the worrying regional and geopolitical rise of Shiite Iran more "sexy", attention-getting, eye-opening. It also serves as a convenient justification for heavy-handed US-Europe actions. Time is running out. Iran can smell victory - it is that close. Conversely, the US and Europe can smell imminent defeat with regard to their strategic energy-related interests. None of this has anything directly to do with Iran's alleged desire for nuclear weapons. Iran already possesses "weapons" deadly to vital Western interests, therefore. It knows how to

Iran’s

use such weapons very effectively. It will not be

weapons

turned aside from its regional and wider geopolitical

and political, and it wields

goals by threat and intimidation. The recent letter

these

from

dexterity and efficacy

Iran's

radical

president

to

America's

fundamentalist president only confirms that fact. All

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most

dangerous

are

ideological

with

astonishing

PART II: THE IMPENDING SHIFT TO BIPOLARITY the evidence proves that Iran is not a power the West can simply leave alone, therefore. When the US and Britain removed the Saddam regime and miserably fumbled the subsequent nation-building effort in the void they created, they truly did let loose upon the region an entity far more dangerous to Western interests than the Saddam regime ever pretended to be. The real question is whether Iran can be stopped by any means that don't themselves loose a yet more destructive (to the West) eventuality in turn.

America, the "Decaying Power"

Recently, Iran's radical president described the US as "a decaying power" that has over-reached in Iraq and is desperately trying to recover its global power. He also alluded to the fact that America’s stated goal of promoting its version of democracy world-wide is suffering serious setbacks and that due to its duplicity on many issues and its overlymilitarized foreign policy America is increasingly disrespected, even hated, in the world at large. There is much truth in those statements despite the fact that they came from a fundamentalist Islamic propagandist. The US has been deeply harmed, weakened as respects its standing on the world stage, mostly as a result of its self-made Iraq debacle. Against the backdrop of its bloody Iraq invasion founded upon cynically concocted propaganda rather than solid fact, and the rampant torture and abuse scandal, the US is widely seen as morally hollow and grossly hypocritical. Its gross mishandling of post-invasion planning and nation-building has further eroded its credibility in the eyes of the world at large. Without a tinge of conscience top administration officials lecture Russia on its imperialist past and on what they perceive as its new anti-democratic, authoritarian course while at the same time those same officials have led and continue to lead America on a course of chosen, unjustified war, all the while cynically using the wartime environment to “justify” an array of widening secret curbs on domestic civil liberties, thus consolidating growing power in the executive branch of government, some experts say in direct violation of the constitution. What room do American leaders have to bitterly criticize Russia?

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Chapter VIII: ‘Axis of Evil’ Proxies Employed Against Unipolarity Such gross American duplicity is not lost on the world at large. It has severely undermined international respect for America and caused an acute decay of its moral authority. While the US has been bogged down and distracted in Iraq the rest of the world has moved on to form new regional alliances and economic relationships that discount, or even ignore and at times oppose, the US. America's former image of virtual economic, political and military invincibility has been shattered. Once the trusted partner of choice virtually the world over, America is now seen as very undesirable, untrustworthy, or at a minimum, much less desirable and trustworthy than other great powers like Russia, China, India and others. That is a watershed development occurring in the last four years and one that has greatly facilitated the accelerated rise of other rival centers of power that collectively can credibly challenge US global dominance. Domestically, the Bush administration has lost all but a small minority of hardcore support for its foreign and domestic policies. The US now borrows $7 billion a day from Asia and elsewhere to keep itself afloat at the top of the unipolar world order. America lives on bubbles inflated by ever-mounting debt, hoping that as each one bursts another will be found to take its place. The wars in Afghanistan and Iraq are costing many hundreds of billions of dollars, with

The US is on the verge of a

no relief in sight. Hurricanes Katrina and Rita have

massive regional forfeiture

sapped the budget as well, and the hurricane

with enormous geopolitical

season has begun again.

repercussions and it knows it

With

sustained

high

energy

prices

full

well.

However,

its

prompting mounting inflation, in turn prompting

pursuit of militarized, one-

rising interest rates, America’s paper wealth

dimensional

generating

contraption

masquerading

as

an

economy in real growth is about to show its true

strategies

merely bring forfeiture that much closer

colors. Everyone in the world at large fears it, and the fears are steadily deepening. This too is a watershed development that has occurred only in the last few years.

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PART II: THE IMPENDING SHIFT TO BIPOLARITY The US dollar has given back virtually all its 2005 gains and continues to manifest strategic weakness. Asia in particular fears that the Bush administration is adopting a weak dollar policy to ease its deficit and imbalance problems. Such a policy would deeply anger Japan, China and the other big economies holding large sums of dollars in their forex reserves. The US cannot afford to alienate such economies, and if it foolishly does so anyway, they may be forced to take undesirable monetary actions that will hurt the US position far more than their own in the outworking of matters. All such developments have produced an acute determination, even desperation in Washington to recapture and reconsolidate American global power and dominance. Mr. Bush has recently described the events on 9/11 as the start of WWIII, implying that the US must do whatever is necessary to win because failure means a colossal loss of our way of life to “the evildoers”, who will dominate and seek to destroy us. The US is at the crossroads. Some say it has actually passed the crossroads. Either it will continue its sharp decline on the world stage or it will find a way to reconsolidate its former grip on global power and dominance. But the Bush administration senses clearly that the US has few chances left to turn things around. If the US permits Iran a regional win in the Middle East as it seeks dominance over the region’s energy resources then all is virtually lost for the US as respects its top global position. Events will swarm in the direction of sidelining the US as the world’s dominant power, and a new non-UScentric configuration for the world order will rapidly take the place of the unipolar one. It is this impending birth of a new configuration for the world order, one that will no longer be centered on the US and that will thus result in great losses for it, that the Bush administration is desperately striving to prevent, like a mid-wife who sees the baby coming and frantically tries to push it back into the womb. Halting Iran’s rise, which is being sponsored by greater powers rivaling the US, is seen by the Bush administration as the last stop-gap to the figurative birth mentioned here. If the US fails on Iran then the floodgates will open against it worldwide. With so much at stake for the US it can be seen why the Bush administration refuses to rule out military action. The US cannot negotiate with Iran in a fashion that leaves Iran intact to continue to pursue its regional and geopolitical goals. Denying Iran nuclear technology and weapons will do nothing to deny it the impending successful

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Chapter VIII: ‘Axis of Evil’ Proxies Employed Against Unipolarity realization of its goals. Iran is on the verge of success and it possesses no nuclear weapons, nor is it likely to for a few more years at least. Hence, the US-European advertising of the nuclear issue is merely a ploy designed to excuse and justify implementing measures against Iran that are designed to scupper its imperialist goals in the all-important Middle East region. Iran is a determined and rising power that will not willingly forfeit its regional and geopolitical goals for anyone or any reason. The US is a determined but desperate, declining power that simply cannot afford a strategic loss to Iran in the oil-rich Middle East region. Such a loss would be infinitely costly to the US and its position atop the unipolar world order. Yet, the options are few, if any and would be enormously costly for successfully halting Iran’s rise and avoiding the deleterious US forfeiture described above. Iran and its great power sponsors have the US on the horns of a deadly dilemma.

What Happens if the US Strikes Iran?

A US military “victory”, but geopolitical forfeiture to Russia-China would be the unavoidable result of a US military strike on Iran. No one doubts that the US and Israel could achieve a resounding military victory over Iran, which is simply no match for the two in military terms. However, a geopolitical victory over Iran and its sponsors (Russia and China) is an entirely different matter altogether. In Iraq and the region at large the US and Israel would face radically increased attacks as Islamists moved rapidly down the path of radicalism and became united against a common foe. Region-wide instability would rise exponentially and the US would likely face an insurrection and a forced eviction from Iraq. Oil and gas prices would not merely spike temporarily, but would rise to new floors well above $100 to $150 per barrel as fears that pointedly increased Middle East instability and Islamic radicalism might threaten the moderate Saudi and other crucial regimes in the oil-rich region. The logistical, political, diplomatic and economic repercussions the US would have to endure would effectively deny it any geopolitical victory. Russia and China would be required to do very little in a direct way other than to keep the international diplomatic pressure and condemnation on the US, as they have

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PART II: THE IMPENDING SHIFT TO BIPOLARITY done in the Iraq crisis. With Middle East instability and even chaos in the aftermath of any attack on Iran, Russia’s global position as respects energy would be dramatically strengthened and with much higher oil and gas prices it would receive a mounting economic windfall. Its global hand would be massively strengthened as a result. In effect, the US will hand Russia-China the key global position of dominance, by virtue of unquestioned control of strategic energy resources, if either it or Israel attacks Iran. Russia and China will seek to prevent any attack on Iran, using all the measures at their disposal, but most likely short of military confrontation with the US. They would prefer that such an attack not take place. However, if it does take place, they are set to capitalize geopolitically in a major way on the unavoidable repercussions against the US, just as they have done in the aftermath of the US invasion of Iraq. However, the aftermath of an attack on Iran is infinitely worse for the US than that of Iraq. The real question here is whether the American and Israeli administrations are wise

If the US or Israel strike Iran

enough to foresee the assured outcome of their

the resulting acute regional

actions if they attack Iran and if they are therefore

instability will only bolster

wise enough to change course now and seek a true

Russia’s key global energy

diplomatic solution to the mounting crisis. No

position and hand to Russia-

matter whether there is a diplomatic solution of

China the Great Game over

some kind, a military confrontation or no pending

control of strategic resources

solution at all to the Iran crisis, the US in particular and the West in general are heading for painful geopolitical reverses. This is true because Iran is inexorably progressing toward the realization of both its regional and its wider geopolitical goals with the help of Russia-China, and nothing can prevent its advances. At best, military action could only delay, very temporarily, those advances, and it would do so at a colossal cost to the West itself. All this illustrates the profound geopolitical advantage Russia-China receives from employing ‘axis of evil’ proxies against US-led unipolarity.

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Chapter VIII: ‘Axis of Evil’ Proxies Employed Against Unipolarity

North Korea’s Bid to Marginalize the US in SE Asia

Directly as a result of the showcasing of America’s damning characteristics, policies and actions during the recent years of the North Korea crisis a colossal wedge has been driven between the US and South Korea, which is increasingly realigning itself with Russia-China on a range of fundamental regional and geopolitical issues. The Bush administration basically refuses to talk and negotiate with its enemies and rivals. It refuses even to consider granting security guarantees to North Korea and takes a fundamentally intransigent position. As North Korea has prompted ever more serious crises the US is left with a stark choice; either work out a compromise and a regional solution, thus remaining mostly at the center of developments, or continue to be intransigent and stand on the sidelines while regional developments pass it (the US) by. It has chosen to let developments pass it by, and in the process a new regional center is arising. Furthermore, in its dealings with South Korea it has shown a chronic insensitivity to, and ignorance of the South’s legitimate interests and changing national views and attitudes. The one-time close and strategically vital alliance between the US and the South has been both neglected and squandered. That development has important regional implications, because all the states in the region with the exception of Japan have undergone realignment toward Russia-China. The economic and security implications of that ongoing realignment are enormous because Russia-China is being granted a larger hand in the region while the US’s hand is simultaneously weakened. For a superpower to allow its alliances and influence in such a crucial region to thus wither on the vine is a strategic blunder of almost incalculable proportions. Whereas the region was at one time clearly configured with the US at its center, that is no longer the case. The tipping point has already been reached where Russia-China is its center now in the economic, political, ideological and energy-related spheres. Consequently, China’s meteoric rise is greatly facilitated, and even bolstered and assured, by such regional developments. The US has virtually given up any and all regional leverage it might have used to throttle China’s regional economic and therefore its wider geopolitical ascension. This has serious implications for Taiwan and Japan, the

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PART II: THE IMPENDING SHIFT TO BIPOLARITY only two remaining allies of the US in the general region, both of which have come to be inordinately dependent upon China in an economic sense. That gives China an even larger hand both regionally and even in the domestic politics and direction of each of the two powers. Japan Increasingly Succumbing to Russia-China

As mentioned above Japan has already become inordinately dependent upon China in an economic sense. Japan’s trade with China has superseded that with the US and its regional trade with its other Asian partners is following the same path. The unchecked development of such economic ties between Japan and China without fail leads to increasing China’s hand in the direction of Japan’s domestic politics and in its general geopolitical alignment. While it appears to the casual observer that Japan is firmly and unchangeably aligned closely with the US, such is not truly the case. Japan’s pro-US alignment is becoming ever more tenuous and impractical, unworkable in the real and changing world order that is already arising. In September 2006 Prime Minister Junichiro Koizumi will step down, to be replaced by someone from his party who will be elected by the Diet (Parliament). Mr. Koizumi has lifted Japan’s economy from a decade-long recession and put an end to deflation. However, he has done so at the cost of mounting debt and budget deficits. Japan is in hock to the tune of nearly $7 trillion dollars. Its budget deficit is running at 6% of GDP, which is the worst for any industrialized economy. Its gross outstanding debt is 160% of GDP, which is among the world’s highest. All careful observers agree that Japan’s economic recovery is on shaky ground.

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Chapter VIII: ‘Axis of Evil’ Proxies Employed Against Unipolarity With respect to its relations with its Asian neighbors Koizumi’s Japan has reached the crisis point. Its relations with South Korea are dangerously moving toward the precipice,

Japan cannot much longer resist

essential

realignment

geopolitical

toward

Russia-

with the North Korean crisis playing a large role

China as it moves further

here. Additionally, its relations with China have

under

also approached the abyss. Territorial, energy-

dependency

related and other disputes have brought its

powers in the economic and

relations with South Korea and Japan to the

energy spheres

the

shadow upon

the

of two

breaking point. Yet, at the same time trade relations between the three states have significantly deepened. The anti-Japanese riots in China in 2005 served as an alarming wakeup for Japan’s business leaders who are afraid of the terrible economic effects any worsening of relations between Japan and its Asian partners would have on Japan’s shaky recovery. Hence, when it comes to choosing a successor to Koizumi in September there will be powerful political pressure to choose a leader who will be more conciliatory toward those Asian neighbors and who will improve relations. Significantly, those neighbors are determined that Japan’s close alignment with the US be altered such that it acts much more in line with the interests of the region. They have mounting influence and can be expected to use it to accomplish their aims. While Japan is entering into an agreement with the US on missile defense as a response to the North Korea crisis, that is also problematic. Japan’s shaky economic recovery won’t substantiate significant military spending without causing additional serious problems. This casts a shadow over any move by Japan to remilitarize in alignment with the US as well. China can be expected to react very unfavorably to the implementation of such an ABM system and to use its powerful influence to hinder Japan’s participation, for fear that the umbrella might next be extended to Taiwan. Hence, Japan’s current course of close alignment with the US is simply not sustainable in the medium to long term. Its business leaders increasingly realize this fact, and its political leadership is waking up to the reality of the situation as well. Finally, in the sphere of energy Japan is falling under the long shadow of Russia. Japan must import 90% of its oil. With Middle East instability mounting, and with no

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PART II: THE IMPENDING SHIFT TO BIPOLARITY letup in sight, Japan is becoming extremely nervous. It is looking to Russia for its strategic energy security, therefore. Reports indicate that Russia and Japan may have reached, or are about to reach final agreement on the Pacific pipeline from Russia to the Pacific, which is already under construction. Japan has agreed to invest heavily in Siberian and other projects, as well as funding a major portion of the new pipeline itself in return for the Russian agreement to build the pipeline, thus aiding Russia to further develop and modernize its crucial energy infrastructure. Dependency upon Russia for energy will apply further pressure upon Japan to realign away from the US toward Russia-China. This is inescapable for Japan. The North Korea crisis, along with other regional developments, has powerfully showcased and highlighted the insurmountable disadvantages of too close an alignment with the US while simultaneously highlighting the strategic advantages of realignment toward Russia-China. That regional / global trend of realignment toward Russia-China is gaining momentum, and as it does the pressure that is applied on holdouts like Japan to join in the process becomes overwhelming.

‘Axis of Evil’ Proxies: Damaging the US Global Image

For a superpower image is nearly everything. Since the US isn’t nearly omnipotent and therefore cannot by sheer force alone compel the rest of the world at large to align with its interests, then it must instead work to win the hearts and minds of both governments and their peoples, thereby swaying other governments to align or cooperate with its interests and goals. However, if it should possess a severely damaged global image then it cannot command the respect and the deep strategic cooperation and acquiescence it needs on the part of others in order to maintain its global position. If a rival can showcase to the world at large the unflattering, and even the damning characteristics of a superpower, its image and influence will be seriously eroded. Additionally, if that superpower unwittingly cooperates in the effort and inflicts damage upon its own image, then the lethal effects on its global position and influence will be

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Chapter VIII: ‘Axis of Evil’ Proxies Employed Against Unipolarity compounded. In the case of the US global image, it has been seriously damaged both by its rivals and by its own foolish policies and actions. The advantage Russia, China and their partners are realizing from their adroit use of Iran, North Korea, Syria and other ‘axis of evil’ proxies relates to the principles having to do with image noted above. And they are realizing a number of other, related geopolitical advantages as well. The Iran, North Korea, Iraq, Israel-Palestine-Lebanon-Syria and Afghanistan crises in particular permit Russia and China to showcase to the world US impotence, intransigence, arrogance, lack of common sense, insensitivity to the legitimate interests of the associated regional powers and peoples, propensity toward bloody and destabilizing military “solutions”, hypocrisy as respects human rights and as respects the principles of non-proliferation and many other such damning characteristics. Russian and Chinese utilization of ‘axis of evil’ proxies to prompt serious regional crises forces the US to look to them (Russia and China) to influence those proxies in a search for solutions to those mounting crises, thus according power and influence to the two rising powers. It obliges the US either to compromise with the rogue regimes and their sponsors, thus weakening the US position and influence, or attack them and suffer irreparable deleterious consequences – it truly is a no-win situation for the US because it refuses to get out ahead of the crises and institute a US-centric but multi-polar solution not based on inordinate US dominance, to compromise on its own demands for inordinate regional and global dominance and make a US-centric solution and regional order based upon the legitimate interests of all the parties while accepting a role for itself that is at the center yet not inordinately dominant, to work to truly win the hearts and minds of the governments and peoples and thus beat Russia-China at its own game. Miserably failing even to consider that more modest approach to its relations with the rest of the world, the US finds itself in strategic over-reach in region after region. Thanks to the ‘axis of evil’ crises that are mounting, its military is stretched to, and some say beyond its limits and the US leadership is becoming exhausted with the tremendous burden of crisis management. In crisis after crisis involving the ‘axis of evil’ proxies significant opportunity is presented to drive a wedge between the US and its allies, thus instigating progressive geopolitical realignment of those allies more in line with Russia-

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PART II: THE IMPENDING SHIFT TO BIPOLARITY China. Additionally, the US economy suffers from ever greater over-reach as the direct and indirect economic costs associated with multiple worsening crises continues to mount. This, at a time when the all-important US housing bubble is running out of steam, economic growth is slowing and energy costs simultaneously continue to spur rising inflation. Is it merely coincidence that the Iran, Syria and North Korea ‘axis of evil’ proxies, which enjoy the unflagging support of the Russia-China axis, see fit to prompt ever worsening crises that in turn instill mounting fear in the markets and keep the global price of crude oil at lofty levels, thus irreversibly fueling the geopolitical rise of Russia and other key oil exporting states that are aligned against US-led unipolarity? Many analysts have wondered if there is possibly a connection. In general, the showcasing of such damning US characteristics demonstrates the distinct undesirability of US-led unipolarity and of aligning too closely with the US. And the US is cooperating in the effort to undermine its global position by gravely injuring its own image. The degree of its international isolation and condescension is unprecedented and growing. That development is one of frightful consequence for the US. It cannot any longer engender the strategic and meaningful cooperation from its friends and allies that it absolutely requires if it is to stay atop the unipolar world order. And it cannot prompt the fearful respect on the part of its competitors and rivals that is required to keep these from standing up against its interests in region after region. The global admiration and esteem the US enjoyed immediately after the collapse of the Soviet Empire in 1991 is a thing of the past, having been squandered by the US itself and undermined by its rivals, notably through the adroit use of ‘axis of evil’ proxies.

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Chapter VIII: ‘Axis of Evil’ Proxies Employed Against Unipolarity Such developments have profound implications for the US-led unipolar order, which is, in reality,

The

undergoing a collapse in the sense that its fundamental

respectability are being

underpinnings are being gravely weakened as the very

shattered by its mounting

concept and composition of US-centricity in the global

geopolitical

order

and

suffered at the vortexes

undermined. A similar pre-collapse process occurred

created where Russia-

with the Soviet Union during the decade of the 1980’s.

China

are

being

increasingly

discredited

The outward collapse that began in 1989 with the tearing down of the Berlin Wall and that ended in 1991

US

image

are

and

losses

skillfully

employing ‘axis of evil’ proxies

with the formal dissolution of the Soviet Union was inevitable because the very underpinnings of the Soviet Empire had been gravely weakened, both by its own foolish domestic and foreign policies and actions and by the adroit policies and actions of its rivals in discrediting its ideologies by showcasing their damning characteristics to the world at large. Sound familiar? In that period of geopolitical transition the bipolar world order of the two superpowers gave way to the unipolar world order of the last superpower. However, in this geopolitical transition period the unipolar order is about to give way to the global shift to bipolarity, with the rising multifarious pole of the East about to return the favor (to a degree) to the West. Not that the US in particular or the West in general is facing a Soviet-style collapse. It isn’t. However, the US is certainly facing the complete loss of its position of global dominance and leadership in the geopolitical and economic spheres, and even in the military sphere. While certainly not equating to a Soviet-style collapse, such a loss of position will unquestionably be accompanied by colossal negative economic and geopolitical implications and repercussions for the US in particular and for the West in general as the world order completes its reconfiguration, dispensing at length with the concept and makeup of US-centricity.

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Summary of the Main Points Ü Control over strategic energy resources and assets (like pipelines) was at the core of the decisions to invade both Chechnya and Iraq. Chechnya, strategically located virtually against the resource-rich Caspian Sea in the North Caucasus, is home to a major oil pipeline that forms part of Russia’s export monopoly. If it forfeited Chechnya it would likely have lost control of at least a major area of the Caspian Basin itself and would have seen its export monopoly severely damaged. The US wanted control of Iraq and its huge oil reserves so that it could use Iraq as the first stepping stone to reordering the entire Middle East region and beyond. It would have been enabled thereby to extend its control of strategic resources far beyond Iraq. Ü Vortexes where the interplay between the forces of East and West have been created by the use of proxies are Lebanon, Georgia, Ukraine, Kyrgyzstan, Iraq, Iran, Syria and North Korea. Certain ones were created by the West, others by the East in the effort to erode the geopolitical influence of one’s rival. Control of strategic resources is nearly always at issue. Ü The success for the West at the vortexes it has created (Georgia, Ukraine, Kyrgyzstan) is dubious at best and its strategies are failing, leading to Russia gaining the upper hand. Ü The success for the East at the vortexes it has created is noteworthy

and is facilitating its expanding control over global resources.

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Chapter IX: The Ominous Economic Decline of the US

CHAPTER IX: THE OMINOUS ECONOMIC DECLINE OF THE US

Ü Why does it matter that US public, corporate and private indebtedness has reached colossal proportions? Ü How and why has the US economy become profoundly vulnerable to higher interest rates? Ü How has the US economy transformed from generating real to “paper” wealth and what are the implications of that transformation? Ü How has the Fed dealt the economic trump card to energy prices? Ü What new geopolitical ramifications are being suffered as a result of America’s economic decline?

The US economy is in fundamental trouble on the world stage. The US has already forfeited its once formidable industrial / manufacturing base. It is in the process of forfeiting its services base. The economy is inordinately dependent for growth upon consumer spending and serial asset bubbles, both of which continue to plunge America into unprecedented, alarming depths of indebtedness. The nation’s economic stability and even its solvency entirely depend upon huge monthly cash inflows from foreigners. Energy prices increasingly spur inflation and curtail consumer spending while simultaneously higher interest rates deflate asset bubbles and sharply slow economic growth. As the economy moves inexorably in the direction of stagnation and simultaneous mounting inflation the Fed holds an already-played-out, severely weakened hand and is now quite literally at the mercy of unfolding developments, especially those related to high energy prices. Global worries over the stability and health of the US economy continue to deepen while the so-called emerging economies in the East attract ever more optimistic attention and tangible investment and support. The economic day of reckoning for the US economy is fast approaching.

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PART II: THE IMPENDING SHIFT TO BIPOLARITY Evidence the Dollar Endgame Nears

In the first week of 2006 the US dollar fell against all major currencies as the markets turned bearish on prospects for further US interest rate hikes and somewhat bullish on prospects for Euro zone growth and interest rate hikes, thus weakening the prospects for a continued significant interest rate differential between the US and the rest of the world. As we all have come to realize the dollar has significant chronic, structural problems. However, the wide differential in interest rates between the US and the rest of the world in 2005 made dollar-denominated assets attractive from the perspective of return on investment and resulted in a nearly 15% rise of the dollar against other major currencies in that year. During that same year the fundamental structural problems for the US economy and the dollar continued to worsen with mounting public, private and corporate debt and a worsening current account deficit and trade imbalances. But at the same time economic growth advanced and the budget deficit was reduced somewhat. But those signs of apparent health merely mask much deeper, worsening chronic health problems for the dollar. The Fed, and the entire US economy itself, is now moving into the advanced stages of a catch-22 situation in which interest rates play the role of the lever which is labeled, “CAUTION: SELF DESTRUCT”. Is that statement merely hyperbole or is it backed up by the facts?

The Invincible Enemy: Mounting Debt

Crucial to this discussion is the matter of the enormous, unprecedented and mounting levels of government, corporate and private US debt. The US economy and its apparently “healthy growth” are almost entirely financed – that is, based on massive borrowing in all three spheres (government, corporate and private), which entails plunging ever deeper into debt. On-budget government debt, corporate debt and private debt now total well over 300% of GDP, exceeding even the 290% of GDP that occurred

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circa the 1929 crash. That is nearly $40 trillion dollars of debt. Additionally, when the inescapable off-budget items like Social Security, Medicare, government pensions, military pensions and the like are added in the ratio of debt-to-GDP explodes to more than 500%, an entirely frightening proportion never seen before in the history of the US. That figure is at least $66 trillion in debt measured against US GDP of about $12.7 trillion! Even that figure is based upon a somewhat rosy forecast of what expenditures and receipts will be over time. And none of that calculation includes the mounting pension crisis, which threatens to add additional hundreds of billions of dollars in initial effects and much more in follow-on effects to the negative side of the equation. Not only is the monumental size of US indebtedness profoundly disturbing, but so is its steep upward curve. Considering for a moment only the on-budget government, corporate and private debt (not the immense off-budget items) from WWII until the mid1980’s (a forty year period) US indebtedness as a percent of GDP held mostly steady at around 135%. But starting in the mid-1980’s the curve shot upward at a very steep angle. By 1988 it had reached more than 200%. By 1990 it had reached 250%, and by 2004 it had reached 300%. It was during the decade of the 1980’s that America went from being the largest creditor to the largest debtor nation. And there is no letup in the steep upward debt curve. America’s government simply prints more dollars as well as more Treasury Notes and sells them to foreigners to stay solvent. America’s corporations, formerly the envy of foreigners, issue more and more bonds in a losing battle to keep solvent in the face of the mounting forces of globalization and the subsequent incremental loss of US market dominance. Some of America’s biggest and oldest corporations are in serious trouble and their bonds have been downgraded to “junk” status. American consumers plunge themselves ever deeper into debt to finance their culture of out-of-control consumption (“consumerism”), which debt now runs near to 90% of US GDP. Such debt-based “consumerism” is based, not solidly upon real wage growth (which is virtually absent from this economy), but very precariously upon dubious and inherently unstable equities, real estate and stock bubbles “ingeniously” engineered serially by the Fed itself with its longstanding policy of low (negative real) interest rates.

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PART II: THE IMPENDING SHIFT TO BIPOLARITY Some may wonder what the real harm is in piling up so much public, corporate and private debt. The US economy appears to be humming along far better than any other, so why worry? In one respect only, the laws of economics are very unlike the laws of physics. If you violate one or more of the laws of physics, and if your violation is serious enough, you get dead real fast. To verify this, simply jump off a high building with only a table napkin for a parachute and see what happens. However, the repercussions from a violation of one or more of the laws of economics and financial good sense are nearly always significantly delayed. When they finally do arrive, however, they are just as

Because its very fortunes have come to rest upon the foundation of colossal

deadly as those related to the laws of physics. The fact

and mounting debt, the

that violations of the laws of physics carry almost

US economy exhibits an

immediate penalties tends to create great caution on the

ever

part of most individuals, deterring them from even

vulnerability to higher

toying with "fate". However, when penalties are

interest rates, which have

significantly delayed, and when there are possibly

the

handsome profits to be made in the interim,

oblige America to reap

individuals, corporations and governments are tempted to do much more than simply toy around with "fate".

the

more

unique

profound

ability

economic

to

and

geopolitical whirlwinds

They often outright tempt "fate" by one serious violation of the economic laws and of good sense stacked on top of another until the game is very unexpectedly over, at least for them. They deceive themselves into the erroneous view that the penalties can be escaped somehow. They cannot be escaped for those who play such a game of chicken with their economic future. America’s longrunning game of economic chicken is nearing a monumental and self-destructive end. Because the debt load has become so enormous, the US economy is now inherently much more sensitive to one prime economic factor: interest rates, that powerful economic tonic that became entirely addictive from the year 2000 forward as the Fed lowered rates to historic levels, but which now threatens to induce an enormously damaging withdrawal as the Fed is forced to hike rates higher and faster than is desired.

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As interest rates continue to rise the burden on the government and the economy rises as the costs of servicing all that enormous debt increase dramatically. An added negative feature of this scenario as respects private indebtedness is the alarming presence of a proliferation of adjustable rate debt and various forms of very risky interest rate instruments, all of which carry acutely heightened sensitivity to rising interest rates.

Rising Interest Rates: The Self-Destruct Lever

If the US is forced by mounting inflation to continue to hike interest rates then the costs of the ongoing financing (“servicing”) of the mountains of public, corporate and private debt will oppress economic growth and risk pushing the US government, many banks, corporations and individuals into insolvency and bankruptcy. Higher interest rates will suppress, collapse, even burst, the stock market and real estate bubbles that have grown virtually unhindered for nearly 6 years. The debt-ridden US economy is much more sensitive to interest rate levels than ever before, so it will not require rates to rise to the double-digit levels of previous decades for the terrible ill-effects to be felt. In fact, the current Federal Funds rate of 5.25% is still in negative real interest rate territory because the rate of inflation is actually higher than 5.25%, even though the official CPI is being reported at around 5%. Energy costs are severely discounted in the government’s CPI calculation in spite of the fact that high energy costs have now definitely proved not to be “transitory” in nature. The true rate of inflation is significantly higher than the 5% being touted by the government, and the Fed knows it. While speaking in South Korea on June 16, 2006 Fed Board member William Poole warned that the “formal data” used to compile the officially reported CPI measure of inflation may not be portraying the full inflationary picture and that inflation may actually be higher than the Fed thinks. Persistent signals of mounting inflation continue to arrive at the Fed. The government data for the 2nd quarter of 2006, released on July 28, 2006 demonstrate that fact. In the 2nd quarter of 2006 the core index of personal consumption rose at an annualized rate of 2.9%, the fastest rate since 1994. Additionally, employment costs rose 0.9%, further stoking already notable worries over wage inflation. Mounting inflation

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PART II: THE IMPENDING SHIFT TO BIPOLARITY almost across the board is one powerful factor pushing the Fed to hike interest rates, and high energy costs, for which there is no relief in sight, play the key role. The PPI (Producer Price Index) is running at an annualized 6% to 7% rate at least, due primarily to the upward pressure of rising energy costs. This provides a sense of where the CPI can go as producers are progressively forced to pass rising costs on to consumers. Both the immediate inflation landscape and the more distant horizon look entirely worrisome, therefore. There is another even more powerful factor that will oblige the Fed to keep hiking rates, however, even if it may decide to take a short pause. The US economy and its continued economic growth are financed to an alarming extent by foreign purchases of dollar-denominated assets (debt). Foreigners have sustained the US economy so far, and have enabled interest rates to stay in negative real territory, by massive purchases of US Treasury debt, corporate debt and consumer mortgage debt. The foreign demand for such debt has remained high, keeping interest rates relatively low. As noted above the interest rate differential has been very favorable for dollar-denominated assets as compared to non-US assets, so the required foreign cash inflows have continued until now and the dollar has risen as a result, until very recently.

The Fed: Little Choice but to Pull the Lever

The rise of the dollar in 2005 and the rapid about-face and significant dollar slide that have occurred in the first week of 2006 are very instructive. When investors became bearish on prospects for a continued significant US-favorable interest rate differential, meaning that US rates may level off and prove not to be much higher than elsewhere, then selling of large sums of dollar-denominated assets and repositioning from dollarlong to dollar-short positions took place, putting downward pressure on the dollar. Generally, investment money will flow where the return on investment is perceived to be greatest, as long as risk issues do not overrule such a move. But in this discussion we must make a distinction between “smart” money and that which is otherwise.

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Smart money will factor in risk much more intelligently and thus balance return and risk considerations better than non-smart money tends to do. Hence, the

Due to deepening worries over the stability of the US economy, the secure

official

(central

bank)

central banks around the globe have

sources of foreign cash inflow have

almost without exception refused to

already been lost, having been

increase their dollar positions for more

replaced by entirely fickle private

than two years now, even when the dollar

sources who will sell out of the

was rising against all major currencies in

dollar as fast as they bought in

2005. The vast bulk of foreign purchases of dollar assets have come from private investors, therefore, in search of the best return they can get. The problem here is that such money will flow just as quickly out of the dollar as it flowed into the dollar if the changing economic landscape requires it. Such sources of investment money inflow lack real stability, therefore. The slide of the dollar in the first week of 2006 well illustrates the truth of this analysis. Hence, the US has already lost an important, stable official source of foreign money inflows – the world’s central banks – since more than two years ago. Those official sources of investment deem the worsening fundamental, structural problems throughout the US economy to be too worrisome to ignore – risk concerns outweigh profit prospects, which are seen by smart money as short-term at best. China’s central bank has signaled that it will proceed with a steady diversification out of the dollar for its huge reserves. There was clearly a de facto deal between the US and China which said that if the Yuan peg to the dollar remains in place, which peg was very favorable to China’s export-based economy, then it (China) would purchase massive sums of US debt, greatly facilitating ongoing low US interest rates. Now that deal is clearly broken as China replaced the old yuan-dollar peg in the summer of 2005 in favor of a new regime of a peg to a basket of currencies, and as China refuses any longer to continue to purchase significant sums of US debt. That move affects the level of demand for US dollar debt, at least from stable, official sources. That will eventually likely begin to weigh upon the minds of private investors, non-smart money, as well, who will demand higher returns for dollar assets as greater prospects for interest rate hikes

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PART II: THE IMPENDING SHIFT TO BIPOLARITY elsewhere take hold and as prospects for investment returns elsewhere, such as in Russia, rapidly improve. That will tend to fuel higher interest rates in the US – higher than the Fed wants. The US will be forced to hike rates to continue to attract the approximately $3 billion per day in foreign cash inflows it relies upon every month. Slowed economic growth in the US due to higher inflation, higher interest rates and the already-noticeable wobbling of the real estate bubble will incrementally shake the confidence of foreign investors, resulting in a progressive demand for an even higher return on their investment if they are asked to buy dollar assets. Thus, the cycle of slowed growth and higher rates will feed on itself to some considerable extent. The prospects are increasing for a very serious bout of stagflation in the US as energy-induced inflation rises, interest rates are forced to rise, and economic growth slows. That is the endgame for the US economy and for the dollar because its underpinnings have already been greatly weakened by its worsening fundamental, structural problems – and these are already globally known, acknowledged and fretted over. Therefore, the impending US bout with stagflation and a recession seen as ever more likely will seriously risk breaking the back of whatever international confidence in the dollar now remains. As interest rates rise elsewhere in the world the attractive interest rate differential between the US and the rest of the world is progressively shrinking. That makes the troubled dollar much less attractive to foreign investment. To continue to win the foreign cash inflows required for the US economy to remain solvent, the Fed will be under increasing pressure to raise rates. Both that pressure and the pressure from mounting inflation caused by high energy prices gives the Fed precious little maneuvering room to engineer a soft landing for the troubled US economy. The Fed hopes to do perhaps one more .25% rate hike and stop there. It knows rates significantly higher than that can be perilous for this debt-ridden, over-sensitive economy. But the factors of (1) mounting inflation, which is now even beginning to be seen in the form of wage inflation, and (2) the need for continued foreign cash inflows to keep the economy solvent, will give the Fed little or no room for even a pause in rate hikes, let alone any real halt in them. If the Fed does pause in its rate hikes it risks the serious danger of falling behind in the fight against inflation and in keeping rates high enough to continue to attract foreign cash inflows. Yet, as rates continue to rise economic

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growth and stability will be further negatively impacted, thus tending to scare off foreign investors. It is a no-win situation for the US economy that is approaching. The US economy is approaching the moment of truth, its day of reckoning, for America’s utter and complete failure to plan for the future. As the Fed is obliged either to keep hiking interest rates unabated (or even at an accelerated pace due to mounting inflation and/or loss of significant levels of foreign cash inflows) or take only a short breather before resuming rate hikes again, the dollar may likely get a short-term lift as it did in 2005. Non-smart money likes higher interest rates because that equates to a shortterm higher return on investment. However, the key here is the fact that any coming lift to the dollar will be brief, not strategic. Additionally, that possible lift will be merely a façade that hides the impending endgame for the US economy as respects its position of global leadership, because it simply cannot sustain higher interest rates without moving into a prolonged period of stagnation and recession. As is shown in the remainder of this chapter the US economy has reached the tipping point where it retains very little inherent ability to generate growth, while simultaneously the forces of stagnation and recession are much more powerful than ever. That is why it is here stated that the coming period of stagnation and recession will be prolonged, not brief. That fact undermines the US position of global economic leadership and dominance since the rest of the world is no longer forced to look for its fortunes within the old US-centric order as it used to be. The US economy hummed along very nicely in the latter half of the decade of the 1990’s

The

during the era of cheap oil, and it did so without

corporate

massive artificial stimulation from the Fed, but it

sectors

did, of course, exploit the equities bubble which

prepare

finally burst in 2000. Then, when the era of cheap

themselves to thrive (or even

oil ended with oil prices doubling and tripling (and

to remain solvent) when the

are now at more than 8 times their 1999 levels)

inevitable economic ‘rainy

from their $9 per barrel lows in 1999 and with a rapidly developing recession, the Fed switched to

US

government, and

utterly and

private failed

to

position

day’ arrives. That day is here now

creating stock and real estate bubbles with a new era of cheap money at very low interest rates. Shortsightedly, during the era of cheap oil

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PART II: THE IMPENDING SHIFT TO BIPOLARITY the US utterly failed to position itself via a pragmatic energy policy to thrive without dangerous, double-edged artificial stimuli (like abnormally low and longstanding interest rates) when cheap oil inevitably becomes expensive oil, as it has now done. Then, in the subsequent era of cheap and easy money since 2000, the US has again shortsightedly and utterly failed to position itself, via a credible and pragmatic economic policy of restraint and saving, to thrive when the era of cheap and easy money inevitably comes to an end by virtue of rising interest rates. The era of expensive oil and the era of expensive money are ushering in the era of acute and strategic US economic decline on the world stage. Not surprisingly, accompanying that decline will be an entire array of painful repercussions for the US, which is already forfeiting its global leadership and dominance in the economic, military, ideological and political spheres on an incremental basis. Suffering loss of economic power, the US will suffer also losses of power in all other spheres. That process is already underway. The impending accelerated decline of US economic power bodes ill for the US global position and for the current US-dominated unipolar world order as well.

Nearing the Collapse of the Asset-Based Model

A long period of releases of economic data up to now bespeak mounting trouble ahead for an economy that has become inordinately dependent upon, and chronically addicted to, foreign cash inflows, negative real interest rates and perpetually-expanding real estate and other asset bubbles. As background, over the last three decades the U.S. economy has rapidly converted from a traditional, industry-based income-generating machine to a so-called “New Economy” asset-inflating one. An industry-based income-generating machine derives wealth from the production and sale of goods and services, while an assetinflating one derives wealth from accelerated asset appreciation, or targeted inflation. Morgan Stanley economist Stephen Roach has written a number of insightful analyses on

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the comparison between the two economic models and a number of his insights are drawn upon here. In

the

traditional

income-based

model,

inflation, at any level, is an enemy for the simple

In the “New Economy”

reason that it erodes the real value of income or wealth

asset-based

derived from the model and saps the model’s inner

“targeted” inflation is the

vitality.

key, central component,

model,

In the “New Economy” asset-based model,

and in fact the model will

“targeted” inflation is the key, central component, and

not run without it. It is

in fact the model will not run without it. It is achieved

achieved by virtue of

by virtue of negative or very low real interest rates designed to produce high liquidity, an environment of

negative or very low real interest rates

very easy credit, by means of very loose monetary policy. In such an environment accelerated asset appreciation (another way to say “targeted inflation”) is virtually assured. If the targeted inflation desired in the asset realm spreads outside that confined area to infect wages and prices in general, however, then the asset-based model risks collapse, for the simple reason that the Fed will be forced to progressively abandon the life-blood of the asset-based model, namely the negative or low real interest rates, in an effort to control mounting and spreading inflation. In a development of enormous negative consequence, in the last decade the asset-based

It can easily be seen that the

side of the U.S. economy has become the

asset-based

predominant side, eclipsing all else. U.S. GDP

dangerous trade-off between

has

very

rapid and easy wealth creation

intentionally) in the last decade to well over $12

on one hand and acutely

trillion per year. But an inordinate portion of that

increased vulnerability and

wealth creation is coming from the ballooning

instability on the other hand

ballooned

(that

term

is

used

model

is

a

asset-based portion of the economy, not the shrinking income-based one. Twenty-five years ago manufacturing accounted for 50% of all corporate profits in the US. Now, manufacturing accounts for only about 5% of

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PART II: THE IMPENDING SHIFT TO BIPOLARITY corporate profits, while financial services resting mostly on the asset-based model as a foundation accounts for 50%. Manufacturing accounts for barely more than 10% of US GDP while the rest is accounted for by consumer spending and financial services, both of which rely almost totally on the asset-based model. Additionally, with the acute vulnerabilities of the asset-based model being that the government is actually generating and nurturing inflation, but at the same time trying to contain the ‘monster’ from spreading beyond the assets being “targeted”, and also that the Fed has to maintain very low interest rates, and thus allow mushrooming private and public indebtedness to keep consumers spending at a high rate, you can easily see that the asset-based model is a dangerous trade-off between rapid and easy wealth creation on one hand and acutely increased vulnerability and instability on the other. The real problem with the asset-based model is obviously that when all assets are exhausted (and this happens in a relatively short period of time), meaning there are no more assets to inflate because the intentionally-created asset bubbles have all burst (as the NASDAQ did in 2000, after which attention was focused on stocks and the real estate bubble creation), then you have the potentially severe problem of making a quick yet orderly transition back to the income-based model. There is no historical example we know of where an economy of considerable size has made such a transition without enduring a gut-wrenching collapse at the same time. How does a country quickly restore its manufacturing base when that base and all the real intellectual, technical, public/private policy and infrastructure assets that support it, including jobs, have long since been transferred overseas? How does a country perform such a miraculous restoration feat in the environment of globalization where Latin America and Asia have the profound advantages of a massive cheap labor force and rapidly increasing skill and expertise with which America can no longer compete? Such collapses are generally preceded by “very hot” economic activity in relation to assets, because near the ‘burst time’ the intentionally-generated bubbles expand almost literally out-of-control. That is what happened in late 1999 and early 2000 when the equities bubble burst. Economic activity related to the NASDAQ was white-hot, and then the implosion came, turning 401k's into 101k's and sowing the seeds of the current deepening pension crisis (pensions were heavily invested in equities).

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Ominously, we have already seen the passing of that white-hot economic activity in the real estate-based economic realm, and by all indicators we are already sliding down the ever steeper downside. That bespeaks an inescapable real estate implosion as mounting, spreading inflation defies "targeting" and forces the Fed to keep hiking interest rates, and the asset-inflation-friendly environment is progressively destroyed by those selfsame higher interest rates. The government data releases over the past year establish the fact that inflation is mounting and spreading, brought on primarily by elevated crude oil prices. Thus, crude oil, rather than lubricating the gears, is acting like gravel to foul the gears of America's so-called "New Economy". Currency, stock and commodity markets generally are moved by expectation, which is another way of saying expectation and desire for

Currency,

stock

and

commodity markets generally

profit. Expectations may often be at such variance

are moved by expectation,

with fundamental facts and trends that the markets

which is another way of

find themselves standing on clouds, as it were,

saying expectation and desire

rather than on firm ground. But the fundamentals,

for profit. Expectations may

especially ones as powerfully negative as those

often be at such variance

associated with the U.S. economy, always win out

with fundamental facts and

in time. Such powerfully negative fundamentals

trends that the markets find

can only be ignored for relatively short intervals.

themselves

Those more intelligent among us, such as the central bankers (themselves charged with managing and safeguarding enormous sums of

standing

on

clouds, as it were, rather than on firm ground

money), understand such principles clearly. In the late part of 2004 and early part of 2005 they each in turn floated certain trial balloons with respect to the dollar. They used the dirty “D” word, diversification, and then carefully observed whether or not the currency markets would tolerate the notion that central banks might diversify their reserves by actually selling dollars. What they observed was that any perception of a general selling off of dollars would rapidly sink the currency.

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PART II: THE IMPENDING SHIFT TO BIPOLARITY Consequently, after taking the measure of the beast, as it were, they have had to accomplish diversification of their reserves without significant selling of dollars. How? By generally ceasing to buy dollars and accumulating their growing reserves in other currencies, like the euro. That changes the complexion of the makeup of their reserves, decreasing the percentage of dollars in favor of other currencies, without having to actually sell dollars. The official government data released over the past two years shows that central banks around the world are no longer buying dollars in any significant sums. But their growing reserves have to be accumulated in something – other currencies, not dollars, and in precious metals. Diversification is occurring at a steady pace as the central bankers anticipate further trouble ahead for the dollar, when the stark fundamentals at length win out over current, hopeful market expectations that are based mostly on clouds, not solid ground. Sophisticated persons such as those central bankers understand that America's asset-based economic model cannot continue much longer, that a reversion to the traditional income-based model is in the offing, sooner rather than later. They understand that rising inflation and rising interest rates signal the end of the usefulness of the assetbased, "New Economy". They also understand that the reversion back to the traditional model will be acutely painful, even chaotic, for the U.S. That is precisely why they are planning for that transition now by diversifying their reserves and also by diversifying their economic ties away from the U.S. economy, planning for a much steeper decline, or even a collapse of the dollar.

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It used to be said that the U.S. economy was the only global economic engine. Such is no longer

It used to be said that the U.S. economy was the only global economic engine.

the case as Europe (predominantly

Such is no longer the case as Europe

Russia) and Asia rise and deepen

(predominantly Russia) and Asia rise and

their mutual economic ties. Beware

deepen

their

of

Beware

the

the

unfounded

conventional

mutual

economic

unfounded

ties.

conventional

wisdom that portrays the Eurasia as

wisdom that portrays Eurasia as unable

unable to carry on without the U.S.

to carry on without the U.S. economy

economy leading the way. There is

leading the way. There is underway a

underway a massive transfer of

massive transfer of America's wealth

America's wealth outside of its own borders. Eurasia is capitalizing on that

ongoing

transfer.

Already,

America no longer controls its own economic

future,

or

its

own

outside of its own borders. Both Europe and Asia are capitalizing on that ongoing transfer. Already, America no longer controls its own economic future

economic viability. Asian central banks have achieved at least as much, if not more, influence over U.S. interest rates than the Fed itself possesses. Increasingly, the U.S. economy is becoming an engine controlled from outside its own borders, one without the real autonomy it previously had. The U.S. used to dominate the globe economically, obliging all others to align with its interests or suffer deep economic pain. However, now the rising Eurasian economic powers are achieving the basis for a collective autonomy and ability to oblige U.S. compliance with their interests and goals - else they can inflict considerable pain on the U.S. economy. Under such conditions America's economic "partners", or rivals, as the case may be, are engineering a switch of sorts - displacing the U.S. financial and political leaders out of the driver's seat and placing themselves in that position instead. In computer terminology, we could say foreign "hackers" have breached the US economic firewall and are seizing control of its economic "server", using it as they see fit. Foolishly, the Federal Government has unwittingly participated with such "hackers", actually facilitating a de facto takeover of America's economic 'steering wheel'. As such, US

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PART II: THE IMPENDING SHIFT TO BIPOLARITY political and financial leaders are being reduced to the status of annoying back-seat drivers who keep trying to tell the new driver what to do, but who are increasingly ignored. The US is unable to induce China’s leaders to adopt the desired currency policy changes it wants them to. It cannot influence economic reform in the euro zone to take the desired path. Neither can it successfully lead the world along the path of a world trade agreement. It is powerless to influence the economic course of Asia and Latin America. It has little or no influence over Russian economic policy. All these players are proceeding in a direction that impinges negatively upon US economic fortunes and leaves the US leadership entirely on the defensive with few if any options in achieving a desirable outcome for the US economy. Already, US global economic leadership and dominance is being forfeited, not all at once in dramatic fashion, but insidiously and incrementally yet irreversibly. Evidence continues to mount that the tipping point may already have been reached.

Economic Repercussions Now Settling In

The current US-dominated economic world order has been in transition since shortly before 9/11. Fed economic policies and Washington’s foreign policies have seriously undermined America’s fundamental economic strength. The US economy’s solvency is now quite literally in the hands of its rivals and competitors, who grow increasingly irritated at America’s economic and foreign policies. US economic decline is fueling profound geopolitical ramifications, undermining the very underpinnings of the US-dominated unipolar order, which is literally coming unglued at its seams. What economic policies have brought about the current situation and what can we expect for the US economy in the near future? What will be the geopolitical ramifications of continued, accelerated US economic decline?

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A Review of Unfolding Events of the Past Five Years

Over the past five years an array of important developments have occurred which highlight the truly precarious position occupied by the US economy since the equities bubble burst of the year 2000. Heretofore, the US economy occupied the position of the world’s leading economy by almost any measure. However, by an increasing number of measures, that has been changing. The real significance of the aforementioned developments that have been alluded to above is that they prove the US and the global economies are in the most important and fundamental transition ever and that such transition is already having enormous geopolitical ramifications for the US-dominated unipolar world order. Let’s briefly review the developments, thereby refreshing in our minds the accurate economic picture that now confronts us.

Black Gold’s Profound Effects Not Diluted After All

Contrary to the widespread, loudly-trumpeted conventional wisdom of the period of 2000 to 2005 that said crude oil had lost its former importance and influence over the economy, black gold’s importance and influence has been steadily mounting to such an extent that it can rightly be said to be ruling as king. Mr. Greenspan and other experts were proclaiming the exact opposite during most of that period. But they were wrong. Energy prices have continued their upward track without any meaningful relief since the year 2000. Remember that it isn’t temporary energy price spikes that matter, but rather sustained elevations in the price of oil and gas. Such ‘high price plateaus’ that keep getting ever higher are what have a toxic effect on the economy for the simple reason that they last over considerable periods of time, causing inflationary pressures to take deep root and expand powerfully upward. They are anything but “transitory” as Mr. Greenspan habitually and incorrectly insisted on describing them. Now, even he is admitting (far too late) that sustained high energy prices are “an unwelcome development” for the US

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PART II: THE IMPENDING SHIFT TO BIPOLARITY economy, prompting uncomfortably high levels of inflation and threatening to push the economy toward stagnation and stagflation as the Fed is obliged to keep hiking interest rates. In fact, high energy prices constitute the key factor that drives economic and geopolitical events and developments. With crude oil now sustained above $70 per barrel and growing instability in strategically important resource-rich regions of the world, prospects are good for a much higher ‘price plateau’ in the near future.

Fed’s Self-Made Catch-22 Comes Back to Haunt It

In the aftermath of the equities bubble burst of the year 2000, and in the environment of the beginnings of recession, the Fed embarked upon a course that turned out to be one characterized by “prolonged monetary accommodation” – interest rates were eventually cut to 50-year lows to dramatically increase liquidity and spur economic growth. The “easy money” environment the Fed created did spur economic growth, of sorts, and the recession was “avoided” (or more accurately, it was merely delayed) until now. This was growth spurred entirely by artificial means and the Fed must take full responsibility for creating the short-sighted prolonged toxic environment of negative real interest rates. The refinance and real estate “booms” produced economic growth on the books as people cashed out their inflated home equity and spent wildly, but at the significant expense of mushrooming private and public debt, mounting deficits and imbalances and virulent inflation. Virulent inflation? Yes, deep-rooted and virulent but deceptively masked in two important ways. First, in the environment of entirely artificial growth created by the Fed, real private sector job growth and real wage growth were either near zero or actually in negative territory for at least four full years after the recession of 1999/2000. In the environment of paltry real growth, companies continued to suffer increasing costs, largely due to rising energy prices, but could not pass those costs on to consumers. Employees were glad merely to have a job, and refrained from seeking wage increases.

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Consequently, visible inflation was mostly absent, since there was no leeway for it to surface. But the inflationary pressures continued to mount below the surface, and we are now seeing them begin to break more powerfully into visibility. Second, the Fed’s policies directly spurred a different kind of inflation than that traditionally present in the US economy – asset inflation. Once the Fed had inadvertently engineered the equities asset bubble burst of 2000, it switched gears to real estate, and by its policy of prolonged negative real interest rates it created the current enormous bubble. It should not surprise anyone to see real estate prices balloon when borrowing costs become so low that even borrowers of dubious qualifications can “afford” homes of much greater price. Long streams of potential buyers lining up to purchase homes facilitated ever higher asking prices for those homes, and the real estate bubble was pumped up to frightening proportions. Consequently, the Fed has either deceived itself or cynically manipulated and deceived the rest of us with respect to the true inflationary picture, until now, when the cat is finally rushing out of the bag. The problem now for the Fed is that sustained high energy prices and the deflating of the asset bubbles are pushing the economy toward recession at the same time that inflation is mounting. Should the Fed keep

Both the Fed and the US economy

are

moving

more deeply into a no-

raising interest rates to try to contain inflation, or should

win

situation

where

it pause for the sake of avoiding pushing the economy

choices and outcome are

further toward stagnation?

only bad and worse

This is the catch-22 of the Fed’s own making. Keep pulling the interest rate lever to raise rates in the fight against inflation and the real estate and stock market bubbles will deflate ever faster, perhaps even implode. But take hands off the interest rate lever and inflation is likely to explode in their faces. History forcefully makes that case. In the environment of sustained high energy prices and decreasing foreign investment in the dollar the Fed will have no choice but to keep pulling on that interest rate lever to fight off inflation, and that lever is in reality the self-destruct lever for the US economy, with “self-destruct” defined not as literal annihilation, but as a hard move toward stagnated growth into eventual recession and simultaneous mounting inflation –

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PART II: THE IMPENDING SHIFT TO BIPOLARITY the dreaded stagflation. A very hard landing for the US economy is knocking ever louder at the door. Therefore, black gold and blue gold (gas) are judged entirely correctly as the key factors in determining future US and global economic developments. When the Fed officials arrogantly decided to outsmart the recession of 1999/2000 by employing massive prolonged artificial stimulus to the economy, they merely delayed the recession, but also multiplied its impact many times over. We are now moving into the period of economic repercussion, the seeds of which were sown by the Fed in 2000. Hence, in reality, Fed officials have idiotically outsmarted only themselves.

Rising Interest Rates only Briefly Bolster Dollar

The dollar’s temporary 2005 lift came mostly as a result of the interest rate differential between dollar assets and that anywhere else in the world. Currency traders and investors, looking for the highest profits, flocked to the dollar because of that higher return. However, when interest rates began to approach the range of 4.5% to 5.25% the short-term profit benefit of the dollar began to be overcome by growing risk aversion as forecasters saw slowing growth resulting from asset bubble deflation, mounting structural imbalances and deficits, and mounting inflation as weighing more on the dollar than a shrinking interest rate differential could provide strategic dollar lift. Already in 2006 the dollar has given up most of its 2005 gains, and it is still exhibiting strategic weakness. As the Fed is obliged by mounting inflation to keep hiking interest rates significantly above the current 5.25% mark, the excess liquidity that produced and supported the real estate and stock market bubbles will be significantly squeezed out of the economy, resulting in mounting losses. That will bring US economic growth nearer the point of stagnation later this year, while inflation will continue to mount. These and related factors will make the dollar far less attractive internationally, and its strategic decline will be steepened because without

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the now-dissipated temporary lift of higher interest rates there is little to support the dollar. Most economists are now beginning to talk openly about the prospects for “stagflation-lite” for the US economy later this year, but full-blown stagflation is more likely when interest rates move into positive real territory, meaning when interest rates become higher than the true rate of inflation, which is higher than the roughly 5% currently reported by the Fed. The Fed may soon be obliged, not only to keep hiking rates, but to do so in larger steps to battle stubbornly mounting inflation. Thus, by year’s end or the first quarter of 2007 we could see interest rates in the 6% to 7% range or higher, and this will have a profound effect in moving the economy into stagnation. With accompanying high inflation, that will lock the economy into the dreaded stagflation with all its extremely toxic ramifications.

Incremental Global Diversification out of the Dollar

A recent report from Russia’s central bank revealed that the Bank was much further down the path of diversification out of the dollar than anyone realized. It was calculated that Russia held about 70% of its forex reserves in dollars and about 20% in euros. However, the report reveals that Russia has already achieved the target mark of 50% dollars, 40% euros and 10% precious metals. This announcement carries enormous significance. Evidently, Russia is the first to achieve that target mark in the makeup of its forex reserves. In fact, Russia has been the global pacesetter in the sphere of diversification out of the dollar. For any central bank that wishes to immunize against loss in the event of a sharp dollar decline, the ratio of 50% dollars to 50% other currencies and precious metals is the required target to hit. Now Russia has done so, and other central banks must follow suit. Why? For the simple reason that as the world’s second-largest crude oil and largest natural gas exporter, Russia has enormous pull in the realm of global energy markets and

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PART II: THE IMPENDING SHIFT TO BIPOLARITY therefore in central bank psychology also. The world’s central bankers fully understand that if Russia were to move to replace the dollar as the preferred currency for its energy exports then the dollar would quickly begin a nauseating decline. The world’s central bankers cannot take the chance that Russia might even begin such a move while they are unprepared and holding too high a percentage of dollars in their reserves. Why is achieving the target mark of 50% dollars to 50% other currencies and precious metals as a makeup of a central bank’s forex reserves so important? Because in the event the dollar declines, the other currencies and precious metals will increase in value by a corresponding amount. The banks must possess and hold the equivalent of one dollar in non-US currency or metals for every US dollar it holds. Then, for every US dollar that loses value, there is another denomination of currency or precious metal to take up the loss in the form of a corresponding rise in value. This effectively immunizes the central bank against loss in the event of a dollar decline or crash. Every central bank around the world fully understands this fundamental economic formula, and their eyes have been focused for a few years now on what Russia does. As such, the Asian central banks in particular, holding enormous forex reserves that were largely denominated in dollars, have been quietly diversifying out of the dollar just as Russia has. The estimates of how far

Official

foreign

observers

see

the

‘handwriting on the

down the path of diversification the Russian central bank

wall’

had gotten were grossly in error. Russia is already sitting

economy

pretty, ready for a dollar decline or crash.

taking prudent steps

The makeup of the forex reserves of the Asian and other central banks is a very closely guarded secret, for

for

to prepare

the and

US are

both for

crisis and disaster

obvious reasons. They do not want to spur a dollar crash while they are still in the midst of approaching the target mark that Russia has already achieved. But we can be sure they also are much further down the path of diversification out of the dollar than current estimates would indicate. For one thing, the dramatic rise in gold prices may indicate that central banks are using their dollars to buy gold. China is also on the path of using dollars to buy oil for its

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strategic reserves. And recent reports reveal that the Asian central banks are striving to reach the target mark of 50% dollars, not by selling them (which would be a dead giveaway) but rather by accumulating mounting reserves mostly in other currencies and metals. This enables the banks to diversify without massive selling of dollars. Thus central bankers have a deceptive strategy that enables them to diversify out of dollars far more quickly than is apparent. Middle East central banks are doing likewise. There is already a massive but clandestine global move out of the dollar underway, preparing for its sharp decline or even its collapse. One must ask the question whether such players as Russia and China are merely being prudent in preparing for disaster or perhaps preparing to be able to threaten or actually cause disaster to the US with virtual economic impunity.

US-Dominated Order Coming Unglued

The unstoppable rise of Russia and the Asian economic bloc has been occurring during a period of high energy prices and growing US international isolation. High energy prices facilitate the economic and geopolitical rise of Russia and other exporters, while at the same time the high price of crude oil acts as a toxic solvent to dissolve US economic stability and growth, undermining the desirability of, and confidence in continued US global economic leadership. Washington’s militarist, unilateralist foreign policies result in growing US isolation, with rival powers consolidating their cooperation in the economic, security, energy and military spheres to counter inordinate US global domination. There is a global process underway to change the unipolar configuration of the current world order into something more equitable, as defined by US rivals and competitors. The fundamental US economic decline plays into that process very well, helping to facilitate the rise of other centers of power. The Russia-China axis is clearly serving as the core of a growing constellation of the East, made up of Eurasian powers and other key East-oriented powers that possess

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PART II: THE IMPENDING SHIFT TO BIPOLARITY great and growing wealth in the form of economic reserves and mounting control over most of the globe’s strategic energy and mineral resources. The East will continue its rise. The US cannot stop it at this late date. Based on key developments that have already occurred and the pace at which new key developments are moving, there shouldn’t be any doubt as to which center of power will soon move into the ascendant global position.

New Implications of the Impending US Economic Downturn

The hitherto unquestioned global economic leader, the US, has endured a number of economic downturns and full-blown recessions over the past several decades, few if any of which have carried serious negative geopolitical implications for the US. The rest of the world has endured the repercussions of such US economic setbacks and historically has confidently continued to look within the framework of the US-centric global economic order for solutions and a path forward. Even with the serious and growing structural problems within the US economy, few mainstream economists would say the current US-centric global economic order is actually breaking down. Fewer still would label it already broken. Could the experts be wrong? Might they be in a significant measure of collective denial as to the real seriousness of the current US situation and how imminent the repercussions could be? Is it possible, even incontestable, that the old order is already being fundamentally undermined by the US’s own deepening structural problems, by flagging international confidence in the old US-centric order and by the rise of new and powerful Eurasian economies that don’t suffer from the array of deep structural problems now inherent in the US economy? By measurements that turn out to be largely superficial from a strategic standpoint, the US economy appears to be holding its own on the global stage. Foreign cash inflows have generally continued until now to cover America’s financing requirements on a month-by-month basis. While the dollar has given up most of its 2005

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gains, it certainly is not in a free-fall as of today. And US economic growth, though now sharply slowing, has been more than that enjoyed almost anywhere else. So why should anyone be concerned about basic US economic health or America’s current global economic position? If an economic downturn, or even a recession, is now building, why should we consider that this time it might carry painful negative geopolitical implications for the US on the world stage? The accurate answers to the questions raised here are to be found in a two-fold investigation, that of (1) the unmatched elemental causes for the onset of the current US downturn, the Fed’s extremely limited options for dealing with it and the ominous timing of its occurrence, and that of (2) the implications brought by an unprecedented fundamental transformation of the global economic order that has already been taking place for a few years. By looking below the benign and often-deceptive surface events which frequently mask the far more important deep-seated trends, we can get a clearer idea of where the global order is already heading.

A Different Kind of Downturn Knocks at the Door

The equities bubble burst of 2000 which evaporated some $7 trillion dollars of wealth virtually overnight, and the recession of 2000/2001 presented the Fed with a situation that its leaders evidently felt should be used to justify strong action. They also felt, rightly or wrongly, that they need not wait mostly on the sidelines this time, that instead they had acquired unprecedented knowledge, wisdom and power and that they therefore had the tools and the skills to actually lift the economy out of recession in unprecedented fashion and possibly even with blinding speed. Starting early in 2001 the Fed employed an array of powerful synthetic stimuli, like economic steroids combined with amphetamines (“speed”), referred to by the Fed as “prolonged monetary accommodation” – it lowered interest rates finally to 50-year lows and kept them very low for nearly five years. It also continued to print huge sums of paper money. It thereby pumped the economy up with massive liquidity, but

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PART II: THE IMPENDING SHIFT TO BIPOLARITY simultaneously it powerfully fueled currency and asset inflation. The era of cheap and easy money was born. The US economy on Fed ‘steroids and speed’ quickly began to show growth on the books, and judging mostly by the numbers the Fed wanted highlighted it had indeed lifted the economy out of recession in truly unprecedented fashion. But there was and is a high cost, and the growth the Fed got wasn’t nearly akin to that of previous ‘natural’ recoveries that were not induced by massive artificial means. Real private-sector job growth and real wage growth have been very sickly, often dithering in negative territory, years after the “recovery”. Nearly 70% of US economic growth is accounted for by consumer spending, and the Fed’s constant injections of ‘steroids’ (high liquidity) and ‘speed’ (paper money) into the economy facilitated the refinance and real estate “booms” that permitted US consumers to go on a spending binge of unequalled proportions. However, the spending money has come inordinately from borrowing against inflated real estate and other assets and thus indebtedness has assumed gigantic proportions while the saving rate has hovered near 0%. Fed policies directly facilitated the current enormous real estate and asset bubbles that are even now deflating. Recently it was reported that the global equities downturn prompted by inflation fears has already evaporated more than $2 trillion dollars in wealth so far, for but one example. And speaking of inflation, the Fed’s activist approach to the recession of 2000/2001 powerfully induced rampant asset inflation seen in the form of bubbles – a real estate bubble for example. Much debate has been carried on as to whether or not there is a real estate bubble. The Fed, understandably, takes the position that there may be a few “local” bubbles and perhaps some “froth”, but that no enormous nation-wide real estate bubble actually exists. The problem with such “logic” is that it is the logic of denial and deception. The massive run-up in asset prices has coincided so closely with the Fed’s policy of pumping massive liquidity into the economy, and the recent stall in that price run-up has also coincided so closely with the Fed’s hiking of interest rates to near the neutral level, that any denial of the existence of massive artificially-induced asset bubbles loses all credibility in the minds of thinking persons.

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The Fed Deals the Trump Card to Energy Prices

In 2000/2001 oil prices were just coming off historic lows at $9 per barrel in 1999. The more than tripling of those prices into the high $20’s per barrel by mid 2001 has turned out to be significant because oil’s relentless climb since then has been without meaningful pause. When the Fed embarked upon its ‘steroids and speed’ approach to the economic recession, it was short-sighted in its assumption that the run-up in energy prices was “only transitory”, to quote chairman Greenspan. That was a fatal assumption that now has at length backed the Fed into the catch-22 dilemma that it foolishly created for itself over the past 5 years. How so? The fed might well have gotten away with its ‘steroids and speed’ policy of inducing

In what the history books will

economic growth by artificial means, were it

record as one of the greatest

not for the factor of high energy prices. By

strategic blunders in recent

enacting its short-sighted policies at the same

history the Fed has dealt the

time as a strategic run-up in energy prices the

economic trump card to energy

Fed has boxed itself into a corner made of

prices at a time of strategic run-

steel-reinforced concrete. High energy prices

up in those prices, which now

are spreading inflation throughout all levels of the economy, preventing the Fed from keeping interest rates static for long. To fight inflation the Fed must generally continue to raise interest rates. But rising rates deflate the asset

reign supreme in determining what kind of landing (soft or hard) lies immediately ahead for the US

bubbles ever more quickly, pushing the economy toward stagnation. At their August 8, 2006 meeting Fed officials decided to pause their interest rate hikes, hoping that slowing growth will soon put a damper on mounting inflation. That is a risky strategy because it risks getting behind in the fight against inflation, and also risks a weakening of public confidence in the determination and ability of the Fed to win the fight against inflation. The problem for the Fed is that its board members desperately hope slowing growth will damper mounting inflation because if it doesn’t, the Fed’s cure (higher interest rates) will

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PART II: THE IMPENDING SHIFT TO BIPOLARITY be every bit as destructive as the inflation disease itself. That desperation on the part of Fed officials is likely to move them to stay in pause mode longer than is advisable, perhaps for another two or three scheduled meetings, hoping to finally see the economic data that definitely vindicate their decision to pause. It won’t likely be forthcoming, and in the process precious time will be lost in the fight against inflation. When the Fed finally moves back into the mode of hiking rates they will be forced to hike them faster than the economy can bear. In effect, the Fed will have likely engineered a much harder landing than otherwise was in the offing, thereby compounding its past strategic blunders with yet another. Greenspan & Company embarked upon a prolonged policy of spurring powerful, artificially-induced asset and currency inflation during the identical extended period when energy’s price embarked upon a course of inducing powerful price inflation. Mr. Greenspan should have waited and watched to see if energy’s rise was “only a transitory factor” before he implemented his dangerous activist monetary policies. Because he threw prudence to the wind he has ended up adding a deadly second shot of inflationary pressures (asset inflation) to the US economy on top of energy’s first shot, almost assuredly dooming the US economy to a perilous crisis, much like that which would be induced in a diabetic who is already suffering insulin shock, if his doctor administered an added powerful shot of insulin without determining first that the patient had just given himself one already. Where was the over-riding necessity and justification to implement such dangerous policies rather than to act prudently by waiting to make sure he was truly acting in US strategic interests? Why could Mr. Greenspan not have waited patiently for the 2000/2001 recession to dissipate as his predecessors had generally done? Did he let himself be unduly influenced, perhaps even compromised, by the Bush administration with its fervent political interest to get growth on the books as quickly as possible, at any cost? Were it not for energy-induced inflation the Fed might now have the option of employing more stimulus by pausing in its rate hikes, or even lowering rates a bit to spur greater growth if the economy slows. But it hasn’t that option now because elevated energy prices have stolen it away. They have stolen away from the Fed all prospects for

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stimulus of any kind for the US economy as it moves into slowdown and toward stagnation. The economy will now be forced to stand completely on its own merits absent any artificial stimuli. With the mounting gigantic public and private debt load, structural imbalances, deficits and currency weaknesses, along with the most strident and powerful international challenge ever mounted to its global dominance, that from the Eurasian economies, that should be a rather nauseating prospect for any thinking US observer. Consequently, the US economy has become like the top athlete who’s been on steroids and speed for five years, whose muscles ballooned to scary proportions, but who’s been found out by his coach just prior to the stiffest international competition of his career and has had all his meds confiscated. In the atmosphere of zero meds and the most intense international scrutiny and pressure ever, he’s on his own. Will he retain his top spot or be pushed aside by the competition?

Energy Rules Supreme in the US Economy – Thank the Fed

In this way it is energy that acts as the key factor determining the eventuality of the US economy and along with it the US-centric global order itself. Not only is energy (oil and gas) vital because modern industrialized economies rely upon it to keep functioning, but it has been made key specifically in the US economy because the Fed, by boxing itself into the catch-22 described above, has effectively played out its own weakened hand and dealt to energy prices the trump card. Energy prices now singlehandedly control the direction and outcome of the US economy because Fed officials outsmarted themselves and unknowingly handed it that power. The Fed has thus emasculated itself, but energy prices have become king. If energy prices come down, the US economy will thrive. But if they stay elevated or rise even further, the US economy is unquestionably headed for stagnation along with mounting inflation – the dreaded stagflation. But that is not all. As pointed out by The LA Times on Thursday, June 15, 2006, the ugly inflation specter is being caused, not by wage inflation, but by high energy prices. The Times quotes University of Maryland Business School professor Peter Morici, and The Times says the following: Page 201 of 319


Still, economists cautioned, a [Fed] rate hike may not cure today's inflation. That's because the upward pressure is coming not from rising wages but from high energy prices — over which U.S. consumption exerts less influence than ever, the University

of

Maryland's

Morici

said.

Giant emerging economies such as China are demanding more of the world's oil. As a result, the U.S. share is shrinking; today, the U.S. buys 22 million of 84 million

barrels

sold

each

day,

he

said.

Even if the Fed were to raise rates high enough to cut economic growth in half, U.S. demand for oil would shrink by 2% or less — not enough to drive prices down,

Morici

said.

"If Mr. Bernanke is worried about the high international price of oil creating inflation in the United States, then he's trying to put out a forest fire with a pop bottle's worth of water," he said.

What of the prospects for a drop in high gasoline prices, which prices the Fed says are the main cause for the inflation we are seeing, if US consumers get the message (from a stalled US economy) and finally curtail their driving? Will that decrease demand, bring gasoline prices down and ease inflation? That is a remote prospect at best. The Fed isn’t being fully honest when it says high gasoline prices are the inflation culprit. High diesel is also a major factor because that fuel is used in virtually every level of the economy, from production to delivery en route to consumers. There exists virtually no discretionary use of this fuel as compared with gasoline. As such, its price is unlikely to fall by any meaningful amount even if gasoline demand falls. Since there still exists an acute and strategic refinery capacity shortage, since worries over hurricanes persist and since refineries won’t be able to switch to sufficient degrees from gasoline to diesel even if gasoline demand falls, high prices are here to stay for the most part. So is inflation.

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The bottom line is that the Fed will be forced to raise rates much higher and faster than is generally realized at the moment. As soon as the psychological effects of that realization hit the markets, it’s anyone’s guess how steep their decline will be, further negatively impacting US economic growth.

US Rivals are Watching and They Have a Backup Plan

In all this, energy plays the key role, quite literally the king’s role within the US economy, thanks to the Fed and its short-sighted policies. Of very special significance is the fact that US economic and geopolitical rivals in rising Eurasia fully understand the foregoing facts. That means two things of enormous importance: First, their confidence in the US economy and the US-centric global order is being seriously and fundamentally undermined to an unprecedented degree. Second, the same group of nations (the rising East) along with their growing array of global oil and gas exporting partners already control the lion’s share of global energy and are extending such control rapidly. That means they have a growing motivation and ability to keep global energy prices at current levels or elevate them much further if they saw the need. Both factors above spell imminent disaster for the US-centric order, which is even now being incrementally replaced by a new order.

Ongoing Dilution of the Old US-Centric Order

Any economic order stands or falls on the perceptions of its health, stability, reliability, desirability and profitability. Confidence is king. Deep international worries over the stability of the US economy have mounted over the past few years. And since before the Iraq invasion of 2003 the desirability of the US-dominated economic and geopolitical global orders has come seriously into question

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PART II: THE IMPENDING SHIFT TO BIPOLARITY as well. Thus, deep-seated international confidence in the US economy is already flagging. As the US economy moves into slowing growth, toward stagnation, with a renewed and much steeper decline in the dollar, international observers won’t find it possible to look at the

The rest of the world has traditionally looked to within the

US-centric

global

development as they used to – as merely a

economic order for solutions

temporary

full

and for future fortunes, but

understanding of how serious the situation for the

that is already changing as

US economy has become (as explained above),

pessimism and worry over

they will find it advisable, prudent and relatively

US economic stability mount

easy by historical comparison to move to insulate

and

and even to isolate their own economies from that

turns to the East

of

the

downturn.

US.

While

Instead,

they

with

cannot

optimistic

attention

immunize

themselves completely against the US downturn, they certainly can buffer themselves against it.

The Global Economic Compass Increasingly Points East

They have already been doing so in significant ways. Asia as a rising economic bloc has become such partly because its local member states each conduct more trade with each other than they individually do with the US. That trend continues to accelerate. Furthermore, Russia itself is almost completely independent of the US in economic terms. The global economic compass, as it were, is increasingly pointing to the East as the rising center which now threatens to displace the US as the global center. When Washington foolishly squandered and otherwise neglected its global network of alliances painstakingly constructed over decades of time while it invaded and occupied Iraq, real economic consequences set in. Most of the players have realigned economically and geopolitically with each other, with special emphasis on Russia and China as key centers of power, often leaving the US out of their calculations and

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agreements to a considerable extent. That has already been fundamentally transforming the old US-centric order for several years now, and it results in increased buffering and growing isolation from the US. That has largely been the intent of its players. Central banks’ diversification of their forex reserves out of the dollar, what their governors repeatedly have called prudent policy, has also been underway for several years. Russia surprised the world recently when it reported that it has now achieved a breakdown of 50% dollars, 40% euros and 10% precious metals for its reserves. It was estimated that Russia was far less diversified out of the dollar than it actually was. The 50% dollars to 50% other currencies and precious metals is the ideal target mark central banks wish to reach, for that breakdown effectively immunizes them against loss in the event of a dollar crash. The actual breakdown of central bank reserves is a closely guarded secret for obvious reasons. While diversification is taking place the central banks do not wish to telegraph their moves and risk causing a dollar crash before they are immunized. The big Asian central banks are undoubtedly following Russia’s lead and are much farther down the path of diversification than analysts think. By accumulating their growing reserves in non-dollar currencies and precious metals on an ongoing basis, rather than by selling off dollars, they can achieve the desired target makeup with a good cover of deniability. Eurasia has thus already done much preparation for the replacement of the old US-centric economic order with a new one centered in the East. Such replacement could come much sooner than currently envisioned in the West. When the unprecedented US downturn soon sets in many in the US, including many political and economic leaders will be surprised to find that a new and vibrant Eurasia-centric economic order was already waiting in the wings to take its place.

Summary of the Main Points Ü The colossal and mounting US debt matters because the US is massively beholden to foreign governments for continued financing in order to stay solvent. That severely decreases US economic power and

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leverage against them while simultaneously increasing their political and economic leverage against the US. Additionally, mounting US debt undermines global confidence in the US and erodes the foundations of the US-centric global economic order, leading incrementally to the global shift toward a new center in the East. Ü The US economy has become profoundly vulnerable to higher interest rates because the colossal size of government, corporate and private debt makes servicing that debt an enormous burden. As rates rise interest payments on the debt mushroom, diverting funds from productive economic activity to merely servicing debt. Added to that cause of interest rate vulnerability is the fact that massive asset bubbles have been produced by virtue of the Fed’s policy of prolonged low interest rates, and those bubbles are now being deflated by rising rates, seriously impacting economic growth. A third cause of interest rate vulnerability is the wide proliferation of high-risk leveraged interest rate instruments (derivatives) whose risks and costs rise exponentially with higher interest rates. Ü The US economy predominantly generates “paper” wealth via asset inflation rather than real wealth through strong industry, manufacturing and services as it used to. Generation of “paper” wealth requires an environment of very low interest rates and deepening indebtedness, while generation of real wealth requires a strong industrial/manufacturing base. The US has massively forfeited its industrial and services base while simultaneously it has already exploited to its full limits the artificially-induced environment of low interest rates and asset inflation. Hence, no means remain to sustain economic growth. Ü The Fed dealt the economic trump card to energy prices by playing

out fully its own hand and using low interest rates to artificially induce growth during the same period (2001 forward) as energy prices embarked upon a strategic run-up. Now the Fed’s hand is completely played out whereas energy prices continue to rise. The Fed has nothing with which to stimulate growth, but energy has only begun to play its hand in causing inflation and stagnation. Now that the Fed has emasculated itself energy prices will determine the outcome regarding the US economic landing, whether soft or hard. Ü The geopolitical implications of the irreversible US economic decline

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include unwillingness across the globe to continue to look and to work mostly within the old US-centric economic and geopolitical orders and a simultaneous determination to prudently prepare for the collapse of the old order as a new one centered in the East continues to knock ever louder at the door.

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RUSSIAN RUBICON

In Part II we saw that US hegemony since 1991 has been exercised recklessly and irresponsibly as if no end to US global domination and leadership were possible. We also saw that US strategic blunders themselves have helped to guarantee a swift end to US-led unipolarity. Further, we saw the reactions of the multi-polar crowd to US hegemony, and examined their effective strategies for undermining unipolarity. Part III of this book examines the strategies of Russia and China under greater illumination and lays bare a striking new development that has become the centerpiece of their strategies – the ongoing and accelerated creation of an entirely new strategic resourcesbased multi-national entity that poses the greatest risk to the West ever encountered. Not only is evidence brought to bear to prove the existence of the joint strategy to create such an entity, but also to establish beyond any reasonable doubt that it is already too late to prevent its completion and operation. Also examined are (1) the inescapable fact that the new entity now under construction will possess the distinct ability to exercise a checkmate over the West whenever so desired by the multifarious East, and (2) the advance financial arrangements already underway in preparation for the exercise of such a checkmate. Finally, as a conclusion to the book, a strategic forecast is presented.

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Chapter X: It’s The Strategic Resources, Stupid!

CHAPTER X: IT’S THE STRATEGIC RESOURCES, STUPID!

Ü What role does contention for control of strategic resources play in Russian and American strategies and in Russian-American relations? Ü What role do energy prices play in the economic fortunes of Russia and of America? Ü Has the “New Economy” model liberated its adherents from oil dependency as promised? Ü Strategic American economic and geopolitical decline has afforded Russia what opportunity of colossal magnitude?

It is all too easy for us imperfect humans to become caught up in and distracted by high-sounding, pseudo-intellectual, sophisticated reasoning, explanations and strategies to such an extent that we can forget the most excellent value of simplicity and of common sense. In the 1992 US presidential campaign chief campaign strategist James Carville desired to keep the Clinton campaign on track and on message. The phrase, “It’s the economy, stupid!” became widely publicized and helped to hold the Clinton campaign firmly to the correct and irrefutable fundamentals. It worked, and Bill Clinton became America’s new president. In the past seven years since 1999 there has been no lack of high-sounding, pseudo-intellectual explanations for global events related to energy, the economic and geopolitical strategies and standing of both Russia and America and the relations between the two powers. Most such explanations sacrificed simple truth and common sense for the sake of wide acceptance in a world too often addicted to high-sounding but fundamentally shallow “conventional wisdom”.

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PART III: CHECKMATE BY THE MULTIFARIOUS EAST – HOW?

In the review of the developments of the past seven years that follows, one maxim stands out as irrefutable and as central in its ability to state simply and accurately what governs global developments – It’s the strategic resources, stupid!

Seven Years of Economic and Geopolitical Insight

It’s 1999, there’s a tremendous global oil glut and the average global price of oil is barely $10 per barrel. The Russian economy is on the ropes following the dreadful ruble crisis of 1998 and justifiable fears are growing of a total economic and political collapse. But America’s much touted “New Economy” has been humming along at a very impressive pace since 1995. No serious economic, military or geopolitical rivals to US global dominance are seen except on the most distant horizon. The US and Europe push the expansion of the EU and NATO deep into Russia’s traditional sphere of influence where crucial energy-related resources and assets (like pipelines) abound.

The decade of the 1990s was the

decade

cheap oil.

of

extremely

During the last

NATO bombs strategically important (due to

half of the decade America’s

pipeline routes) Serbia for 78 days and settles for

“New

an UN-brokered solution which sees the pro-

permitted

Russian

growth

regime

replaced.

Russia

complains

Economy” to while

enjoy

was swift

conversely

bitterly but cannot do much else. Amidst persistent

Russia’s economy virtually

accusations of secret Washington and London

collapsed. Oil was pulling the

support and funding of Chechen separatists Russia

strings then just as it is now

invades Chechnya, which is strategically vital as respects energy due to its location and its possession of pipelines, and besieges the capital Grozny. The 1990s was the decade of extraordinarily cheap oil, but few analysts are making the two-pronged correlation between that central development and its opposite effect on both the Russian and American economies, with one sinking while the other simultaneously soars.

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Chapter X: It’s The Strategic Resources, Stupid! Now it’s the summer of 2000 and the global price of oil is averaging around $27 per barrel, nearly three times that of most of the decade of the 1990s. Vladimir Putin has been president of Russia for only about six months, and he begins to move against the socalled oligarchs who, largely with the political and financial backing of the West, became rich by plundering Russia’s key resources-based industries during the Yeltsin era. In June Mr. Putin briefly jailed Vladimir Gusinsky, a leading media tycoon. And in July federal prosecutors brought charges against former Kremlin insider Vladimir Potanin, who was the

By the summer of 2000 oil’s price had nearly tripled from its 1999 lows, and

recipient of one of the most corrupt giveaways of

America’s “New Economy”

the nineties, the "privatization" of the enormous

was

Norilsk nickel reserves. They also seized the

trouble with the equities

financial records of several other oligarchs. Such

bubble

moves would prove to be a relatively small but

impending recession

heading

into

burst

deep

and

telling sign of major things to come as the Kremlin reconsolidated its grip on Russia’s strategic resources and industries. Russia’s economy begins its strategic rise this summer. On the other side of the world the US equities bubble burst has painfully demonstrated the vulnerability of the so-called “New Economy”. That turns out to be a development of strategic importance, signaling more profound trouble ahead as the Fed resorts to a short-sighted strategy of serial bubble creation and the US economy moves ominously into strategic decline. It’s 2004, the US has already proliferated its supposedly “temporary” military bases throughout resource-rich Central Asia, has invaded oil-rich Iraq, seeks to reorder the entire Middle East to be “democratic” and more closely aligned with US interests, and the global price of oil has reached $55 per barrel in October. However, virtually all analysts in the West continue to insist that oil’s price rise is only temporary and that its influence over the “New Economy” is nearly inconsequential. Fed officials tend to agree. Nevertheless, the US economic recovery, artificially arranged by the Fed with its serial bubble creation policies, continues on very shaky ground, based as it is almost entirely upon the real estate balloon. America’s indebtedness has reached profound proportions,

Page 211 of 319


real job and wage growth are running between zero and negative territory, deficits and trade imbalances are mushrooming due in no small part to mounting energy prices, the dollar is in steep decline, inflation is mounting and official foreign sources of financing have dried up in favor of much more fickle private foreign sources. The US and Europe try their hand at a new strategy in late 2003 and in 2004, supporting the Rose Revolution in Georgia and the Orange Revolution in Ukraine in an attempt to carve away at Russia’s growing oil and gas monopoly. On the other side of the world Russia’s economy has completely stabilized on the back of

By 2004 oil’s price was 5

rising global energy prices and is set for healthy

times that of its 1999 lows

growth. Russia is preparing to pay off its foreign

and Russia’s economy had

debt early and is making financial arrangements

completely

for the accumulation of massive sums of forex

was growing in might. On

reserves. It is actively positioning itself by

the other hand America’s

strengthening its oil and gas export monopolies to

“New Economy”, massively

capitalize economically and geopolitically on what it sees as the strategic rise of global energy prices and influence over the world’s economies, especially the “New Economies” of the West. Gazprom’s rise as a global player is becoming

stabilized

stimulated means

and

by

and

artificial inordinately

dependent upon the real estate

balloon,

became

ridden with debt, imbalances

evident. It’s 2005 and the price of oil reached a

and underlying weakness

high of $70 per barrel in October. Mounting inflation and the worrying signs of increasingly risky superheated asset markets obliged the Fed to keep hiking interest rates, which gave a temporary lift to the dollar on global currency markets. However, the worrying fundamentals of the US economy principally worsened during the year, prompting ever more serious warnings from a widening swath of experts to the effect that energy may be “unexpectedly” playing itself out as the key factor after all, since the contribution of high energy prices to the negative impacts on the economy is being seen as major and long-term rather than, as expected, minor and temporary. US efforts to stabilize oil-rich Iraq and to spread “democratic” revolutions throughout the oil-rich

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Chapter X: It’s The Strategic Resources, Stupid! region are failing miserably, where anti-West radicalism is mounting, instability is rising, thus further driving up energy prices and helping to enable Russia’s rise. Strategic and massive US overreach in Iraq is taking very heavy economic, geopolitical and military tolls. During the year the US and Europe have tried their hand at two more “colored” revolutions, the Tulip Revolution in strategic Kyrgyzstan and an abortive attempt at a revolution in Uzbekistan, where the authoritarian leadership cracked down on and virtually eliminated the Western-supported opposition. Thinly veiled warnings from the Bush administration of impending attempts by the West to instigate such revolutions throughout the post-Soviet space and even within Russia itself are delivered. However, the Orange Revolution in Ukraine is having its juice squeezed out and the Rose Revolution in Georgia is turning grey as the economies of both nations become ever more crippled as a direct result of politically divisive Western influence coupled with Russia’s refusal to accord the economic favoritism it did to the former pro-Russian regimes. Russian assertiveness and self-confidence grows profoundly. Russia continues to consolidate

By 2005 oil’s price was 7

its grip on oil and gas industries, resources and

times that of its 1999 lows

assets. Through Gazprom and Transneft it

and

continues to acquire new assets and to extend its

and

influence and control over strategic energy

rising on the back of its

resources far beyond Russia’s borders. Russia’s

mounting economic might.

economy is enjoying solid growth and is piling up

Conversely,

the

US

continued

to

fall

mounting surpluses and forex reserves. Russia destroys its old currency peg to the dollar and creates a new peg to a basket of currencies. Its central bank continues diversification of reserves out of the dollar. China’s central bank follows suit only a few weeks later in the summer, destroying its old peg to the dollar in favor of a new one to a

Russian

assertiveness

self-confidence

was

extraordinarily on the global defensive due in no small part

to

the

deepening

economic weakness of its “New Economy” model

basket of currencies. A number of other Asian central banks follow China’s lead. The Kremlin moves to limit the activities and influence of NGOs and further consolidates its domestic power and control. Russia embraces the new regime in Kyrgyzstan and the old

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one in Uzbekistan, and further assists the authoritarian regimes throughout Central Asia to consolidate their grip on power in the face of Western interference. Russia and China bolster the SCO confederation and employ it to push back against US advances in Central Asia. The US is kicked out of Uzbekistan and forced to pay a much higher rent on its base in Kyrgyzstan. Russian and Chinese geopolitical advances in the resource-rich regions of Central Asia, the Middle East, Africa, Canada and Latin America mount, at the significant expense of Western interests. In December-January Russia cuts off gas supplies to Ukraine and forces it to pay a much higher price. The raw power and influence of Russia’s new geopolitical position and the corresponding acute and strategic vulnerability of the West begin to be discerned in the world at large. It’s the summer of 2006 and the global price of oil has already touched $79 per barrel. Analysts are predicting it could reach $100 per barrel by year’s end if Middle East instability

By mid-2006 oil’s price was 8 times that of its 1999 lows and

America’s

“New

continues its ominous rise. Saudi Arabian leaders

Economy” is headed toward

predict the price could triple to at least $220 per

stagflation

barrel if the US attacks Iran over its nuclear

with no weapons remaining

program, or if the Israeli-Lebanese war spirals out

in the Fed’s arsenal with

of control to drag in other regimes, or if an all-out

which

civil war breaks out in Iraq and drags in

eventuality.

neighboring states. At present there probably

continues unabated, however

to

and

fight

recession

off

that

Russia’s

rise

doesn’t exist on the planet a single analyst or expert that doesn’t finally “get it” with respect to the central role energy now plays and will continue to play in global developments for the foreseeable future. The US economy, long since having had its industrial/manufacturing base hollowed out, its globally dominant services base now in the process of being hollowed out, its serial asset bubbles having either imploded or in the process of imploding, its consumer spending faltering and energy-induced inflation rising, its interest rates inexorably being pushed upward, its public, corporate and private sectors exhausted by nothing short of a colossal debt load, its pensions collapsing onto government rescue institutions, its deficits and imbalances strategically worsening, its growth sharply

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Chapter X: It’s The Strategic Resources, Stupid! decelerating, now retains nothing inherently of any real consequence to switch to as a base of reliable economic growth. Added to America’s unprecedented and deepening level of international isolation and the global rise of outright anti-Americanism, the picture is a very clearly one of the US in grave geopolitical trouble. The ominous trends and developments noted here show no signs of an authentic turnaround, and in fact they are becoming ever more firmly set in the American and global landscapes. There will occur no turnaround. Instead, the decline of the US will now accelerate. Russia, China and the pair’s rapidly growing array of key, ever more Easternaligned strategic partners around the globe, what is called here the multifarious East, continues its economic and geopolitical rise unabated. In fact that rise is even accelerating, and it comes at great expense to the dominant global position of the West in nearly every sphere. Ukraine has turned back toward Russia. We are talking about, and witnessing with our own eyes, the ongoing incremental (yet hastening) transformation of the old US-centric world order in favor of one no longer dominated inordinately by the West in general and the US in particular. The implications are profound.

Lessons Learned

During the old cold war the ideological warfare between democratic capitalism and Soviet communism provided good cover for the more fundamental and sensible contention between East and West over control of strategic energy and other resources. That more fundamental contention and its geo-strategic calculations lay at the root of nearly every move undertaken by both sides. When the Soviet Union collapsed in 1991 that contention over control of resources did not end with the death of old cold war. It continued to lay at the core of the calculations and strategies of both sides. The steady stream of public assurances and proclamations coming from both Russia and the West to the effect that Russia and America have become “strategic partners” and “friends” during the recent past must now be seen for what they truly were and are, at times as wishful thinking, at times as mere idiotic blather, but at other times as outright, carefully calculated propaganda and misdirection aimed at providing cover for the real motives and objectives of each side.

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Their unabated and intensified contention for control of strategic global resources is at present only

Contention for control of

thinly veiled by the new ideological warfare that has

strategic

replaced the old, “thick” ideological warfare between

wearing

capitalism and communism during the cold war.

ideological struggles, has

What is the new ideological warfare providing a thin

always been at the root of

veil at best? It is the debate raging between East and

Russian-American

West over the authoritarian “managed democracy” of

relations since WWII

resources, the

veil

of

the East and the liberal democracy of the West. In the old cold war both sides employed their respective ideologies both as effective geopolitical levers aimed at advancing their control of resources, and as moral and political justification for their actions, in their quest to win the Game. In the Neo Cold War of the present day, affairs are little changed from the past. Both sides employ their respective versions of “democracy” in much the same fashion. The US employs its pet ideology of liberal democracy to spread “colored” revolutions in the effort to cut away at Russian control of resources. And Russia-China employs its pet ideology of authoritarian “managed democracy” to discredit American-style liberal political ideologies in the post-Soviet space and beyond and to bolster the authoritarian regimes around the globe that control strategic resources, all in the effort to maintain and extend control of those very resources. Consequently, at the fundamental levels of geopolitics, which just so happen to govern most of what happens on the upper levels, not much has changed since 1945 and the birth of the old cold war. The full adoption of the asset-based so-called “New Economy” model by the US and Britain and to a lesser extent by the rest of Europe is proving to be a strategic blunder of almost incalculable proportions and repercussions. The new model is merely a ‘flash in the pan’ as respects its ability to generate wealth and it utterly fails to position its adherents firmly in the path leading to strategic geopolitical might. It rapidly generates enormous but comparatively only short-lived wealth at the tremendous expense of persistent, long-term colossal debt and stubborn imbalances. When the Fed runs out of asset bubbles to generate, then what? Economic growth has no supplementary foundation and the economy is entirely at the mercy of global and domestic developments over

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Chapter X: It’s The Strategic Resources, Stupid! which government and economic leaders have forfeited control, and the economy heads into intractable stagnation and recession. Consequently, the adoption of the model comes also at an eventual and unavoidable political and geopolitical cost that is immense, even incalculable. Significantly,

the

new

model

entirely

deceives and swindles its adherents by the wholly unfounded proposition of virtual freedom from reliance upon crude oil in the generation of massive

The

“New

Economy”

promised

virtual

emancipation from reliance

sums of “wealth”. It promises to virtually free its

on oil and the need for the

adherents

struggle to control strategic

from

the

longstanding

and

costly

contention for control of strategic resources detailed

resources.

in the previous paragraphs. Its promise is a lie

It

lied

and

thereby

swindled

its

wrapped in a façade. In hindsight it must be seen

adherents

out

mostly as a sugar stick devoid of any meaningful,

foundation for continued

long-term substance, sucked on as a comparatively

geopolitical dominance

of

their

temporary diversion from the geopolitical rigors of the real world. When at length the sugar stick has been used up, it is too late for the sucker (dupe, sap) to make up for lost time and position because the authentic geopolitical world is passing him by, leaving him extraordinarily on the defensive. The proponents and adherents of the new economic model thought to outsmart the ‘less sophisticated’ traditional model and its proponents, but developments are proving they idiotically outsmarted only themselves. Washington used to understand the limits of its own power and it used to know how to build and nurture mutually beneficial regional and global alliances and how to extend its reach indirectly through such alliances. Washington used to understand the importance and effectiveness of soft power and the limits and repercussions of resorting unnecessarily to hard power. It used to understand that America’s own inherent economic might, vitality and independence were among its greatest and most powerful assets. It used to act so as to guard, enhance and insure the future of its economic might and independence. Today, it understands and appreciates none of this. Since the decade of the

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1980s it has been undermining its own economic vigor and squandering its future. The future is now here. On the other hand Russia and its strategic partners have learned to appreciate and to apply in practice the lessons Washington has utterly forgotten and to exploit to their own advantage the momentous opportunities afforded by America’s gross forfeiture of practical wisdom. Russia

is

capitalizing

on

strategic

American blunders and persistent American

Based on an entirely new

weakness to construct around itself an entirely

model, Russia is constructing

new kind of confederation with global reach and

a new medium aimed at the

compelling leverage. The details regarding what

achievement

Russia is creating are taken up in the next chapter.

ascendancy. What is it?

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of

global

Chapter X: It’s The Strategic Resources, Stupid!

Summary of the Main Points Ü Contention for control of strategic resources has been and continues to be at the very root of American and Russian strategies and fundamentally governs relations between the two powers. Regardless of what else may influence their strategies and relations at times and at the higher levels, reversion to the root starting place of contention over resources always occurs. Ü Energy prices govern the economic fortunes of both Russia and America, but in opposite directions. Low prices hurt Russia’s fortunes but accommodate those of America, while high prices boost Russia’s fortunes and undermine those of America. Ü The inherent promised liberation from oil dependency made by the “New Economy” model has utterly failed to materialize. In its place the model has delivered instead a toxic array of costly economic repercussions and an expensive distraction from the rigors of the real geopolitical world, leaving its adherents ‘behind the 8-ball’ and forced to play an ever more futile game of catching up to Russia and its strategic partners in the East. Ü Strategic American economic and geopolitical decline is affording

Russia the opportunity to capitalize by constructing around itself an entirely new kind of confederation with global reach and compelling leverage.

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CHAPTER XI: RUSSIA HAS CROSSED THE RUBICON

Ü What new global phenomenon is Russia working to bring into existence and how does it differ from an oil or gas cartel? Ü What is RUBICON and how is it structured? Ü Explain the rise of the resources-based corporate state and how that phenomenon is related to the creation of RUBICON. Ü What is the basis for the fungibility of oil, why is it crucial to the West, what new trends threaten to undermine it, with what consequences for the West? Ü Explain the implications of Russia’s plans to launch resources-based market exchanges (bourses) denominated in rubles rather than in dollars. Ü If Russia succeeds in completing the creation of RUBICON explain how the multifarious East could checkmate the West.

The crossing of a small stream called the Rubicon in northern Italy in 49 BC became one of ancient history's most pivotal events, for from such an apparently minor event sprang the Roman Empire. It was none other than Julius Caesar who crossed the Rubicon in 49 BC. Already noted for his unbridled political ambition and unsurpassed oratory skills, he exhibited his outstanding military skill in subduing the native Celtic and Germanic tribes. He went on from success to success and the Roman Empire was founded. It mattered not that the establishment of a new iron-like empire of great power and longevity seemed to most observers to be a remote prospect at best in 49 BC. The phrase, “Crossing the Rubicon” has therefore come to mean committing one’s self to a course of great consequence, passing the point of no return. Often, the first

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Chapter XI: Russia Has Crossed the Rubicon step is much like that of Julius Caesar, apparently minor, yet in reality filled with significance. And once that initial step is taken there is no turning back. Russia has already crossed the Rubicon, as it were, embarking upon the creation of an entirely new phenomenon in today’s world. It is the creation of new kind of de facto multinational confederation with global reach and undeniable economic and geopolitical leverage. The new model around which this confederation is constructed is compelling, ingenious, and yet entirely simple. A confederation is a grouping or an integration of sovereign states cooperating together toward a common goal or purpose. Notably, it is not by chance that its creation comes precisely at a time of strategic US isolation, decline and relentless weakness. The new confederation is fundamentally based upon Russia’s strong suit – its considerable and widening control over strategic resources. However, it is not in any sense a cartel. A cartel is

Russia is seeking to create neither an oil nor a gas cartel. The cartel model

made up only of producers who cooperate together in

has the weaknesses of its

an attempt to exercise enhanced control over the

supposed

markets, which are made up of the consumers of the

lacks true self-sufficiency

cartel’s commodity. The OPEC cartel is a notable

and independence because

example. The cartel model has many inherent

it excludes consumer states

weaknesses

and

insurmountable

obstacles

strength

–

it

to

sustained success. Among its inherent weaknesses are the strong tendencies toward inordinate levels of competition and disunity among its members, the general inability of the cartel to provide sufficient financing on its own for the vital endeavors of exploration, construction, production and infrastructure upgrades, the considerable risk of loss of market share to independent producers, persistent image problems within the markets and strained relations with those markets, and limited ability to formulate and to achieve balanced and pragmatic global economic and geopolitical changes that are seen as crucial to the maintenance and extension of the leverage of the confederation. The cartel model has the weaknesses of its supposed strengths, therefore. Since it excludes consumers it is a one-sided confederation that cannot stand on its own, no matter its pretensions along those lines. In practice it is often obliged to compromise with and seek political and

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financial capital from prominent members within its counterpart, the markets. This fact undercuts the global leverage of the cartel and provides opportunity for certain market members to drive wedges between its members, further undermining the cartel’s leverage. On balance, the cartel model has roundly failed oil producing nations. The innovative model Russia is using in the creation of a new multinational confederation is that of a balanced, principally self-contained, self-sufficient de facto confederation enjoying enormous independence and employing the concept of complementary symmetry. The confederation is composed of both key producers and key consumers. The model fully addresses from within itself the vital, complementary interests of both producers and consumers within the confederation, thus forcefully reinforcing both the cohesiveness and the external leverage of the confederation. Hence, the concept distinguished here of complementary symmetry. Russia, by virtue of its strong suit in strategic resources, and in cooperation with other resource-rich powers, effectively underwrites the new symmetrical confederation. The inherent advantages of the new model will become ever more evident as the chapter proceeds. The new confederation Russia is assembling is informal in the sense that it does not possess a

The

formal written charter that explicitly lays out rules,

complementary symmetry

principles and requirements for membership and that

is that of the incorporation

formally registers its mission and goals. Russia’s

of

new confederation is an informal, de facto one.

producer/consumer

However, the reader must not conclude therefore

equation

that the new confederation is in any sense less

confederation

corporeal, less cohesive, or attains less global leverage, than would a formal multinational

model

both

cohesive,

of

sides

to

of

the

create

a

that

is

balanced,

self-

sufficient and independent

confederation with a written charter. As we shall see Russia’s new confederation is already on its way to achieving such qualities and influence in spades, as it were. The new de facto multinational confederation arises out of a growing, ever more multifarious complex, that is, a set of formal connections in the spheres of the economy, energy, security, politics and geopolitics, and military, between its member states, with Russia at its innermost core. Such state-level connections and

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Chapter XI: Russia Has Crossed the Rubicon alliances are entirely formalized by written agreement and charter. Hence, the de facto multinational confederation arises out of that complex of formal agreements and connections in all the key spheres of endeavor. The confederation itself needs no formal written charter any more than did other powerful and cohesive confederations, such as “the West” and “the East” during the old cold war. The name “Rubicon” provides a remarkably relevant acronym with which to name and to describe the new confederation Russia is already constructing. The new confederation is referred to here as the

Resources Underwriter-Based Importer-Inclusive Confederation As the reader proceeds through the substance that follows it will be much more clearly discerned how and why the name chosen above for the new confederation is wholly appropriate and precisely descriptive of the new phenomenon that is already arising at Russia’s behest. Russia has already ‘crossed the Rubicon’ in that the construction of its new multinational confederation, RUBICON, is well underway. There will be no turning back now for Russia. RUBICON is a concept whose time has arrived. It matters not that many observers may see the full establishment and successful operation of the Russian RUBICON as an unlikely eventuality. Those same observers could not, in the period of 1999-2004, fathom the prospect of Russia’s economic stabilization, its achievement of genuine global influence, and its doing so on a path of independence from the US only a few years later by 2005/2006. They could not accord respect to the idea of Russia’s unabated geopolitical rise, nor to the development of a full strategic partnership between Russia and China, nor to the prospect that global energy developments would profoundly play into Russia’s hands to facilitate its rise, nor to the idea that the US decline on the world stage would reach the major proportions that it has. Julius Caesar may not have commanded global respect in 49 BC, but he certainly did soon thereafter. Regarding Russia and its RUBICON, the reader must decide whether to let his/her thinking be inordinately hemmed in by the widely accepted but often superficial conventional wisdom, or by the solid facts presented here.

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This chapter will provide much more definition regarding the innovative concept embodied in the new model of complementary symmetry that Russia is employing in the creation of RUBICON, and its ascent will be traced from the ground up, starting with the rise of the resources-based corporate state.

The Rise of the Resources-Based Corporate State

Under the leadership of Vladimir Putin Russia has rapidly transformed into a resources-and-industry-based corporate state where the lines of separation between state and corporation (notably those corporations controlling strategic resources and other key industries) are not merely blurred, but where the political leadership of state and corporate directorship have all too often become virtually indistinguishable. How so? In many key areas of industry corporate directors are intimately tied to Mr. Putin, having formed a close association with him long before he became president, and many even hold key positions as upper level Kremlin officials or as government ministers. Not merely coincidentally, the key corporations the directors of which are so closely allied with Mr. Putin are also those that are state-controlled businesses, with the Russian State holding controlling (51% or more) interests. The Financial Times of June 18, 2006 carried a deeply insightful analysis by Neil Buckley and Arkady Ostrovsky entitled, “Putin’s Allies are Turning Russia into a Corporate State”. After outlining and detailing the unprecedented intimacy between leaders of state and directorship of key corporations, the authors say of the combined group of leaders: “Together, they form the quasiboard of what might be called Russia Inc, comprising the country’s most lucrative assets not just in oil and gas but also nuclear power, diamonds, metals, arms, aviation and transport.” Beginning in the year 2000 Mr. Putin progressively reasserted Kremlin control over a Russia gone wild, where the so-called oligarchs held more control than did Mr. Yeltsin’s Kremlin and where corporate leaders (oligarchs) raided Russian resources and other industries mostly for personal gain, without any concern for the future of Russia itself. Mr. Putin made examples of several of such oligarchs, most noteworthy of which Page 224 of 319

Chapter XI: Russia Has Crossed the Rubicon was Mikhail Khodorkovsky, who used to own Yukos Oil and who is stuck in a prison in Siberia. He brought the remaining “oligarchs” into line behind the Russian state and made them serve first and foremost the interests of the Russian state. The Kremlin has increased its ownership to that of a majority stake (51% or more) in key corporations and continues to be a leading participant in acquisitions on behalf of state-controlled corporations like Gazprom. Everywhere, in every key sphere, corporations that are either Kremlin-controlled or that offer deep cooperation with the Russian state have their pathways cleared of obstacle and impediment and enjoy a thriving business. The opposite is true of those who resist falling into line behind the Kremlin. Russia is not reverting to communist, statedirected economic ideology, but rather is using

The rise of the resources-

market capitalism within strict Kremlin-set bounds

based

in order to achieve its economic might. Foreign

permits

investors can buy shares of key Russian corporations

global confederation to be

on the world markets, but only up to 49%, with the

underwritten by politically

state retaining the majority stake. Russia’s new

like-minded

leaders have carefully examined how capitalist

around the globe

corporate

state

Russia’s

new

producers

principles and practices can be leveraged to enrich the power, influence and wealth of the Russian state rather than of the individual. This is akin to the so-called “managed democracy” embraced in China. What has happened is that leaders of China and Russia have combined what they perceive as the most desirable aspects of communism (ultimately the state is most important and it has the last word) with the most effective aspects of capitalism (private ownership, free market principles within state-determined bounds), to invigorate and enrich first and foremost the influence and wealth of the state rather than that of corporations and individuals. In the process the standard of living of the individual has also been raised, and this is crucial to the success of the “managed democracy” model because unless a nation’s people see sufficient progress in their own lot in life then the dangers of revolution and overthrow of the regime increase.

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The corporate states of China and Russia also blend in, to varying degrees, other democratic principles and practices, such as a measure of personal freedoms, some freedom of the press, elections and the like. However, these are much more strictly controlled and limited as compared to the liberal democracies of the West. The virtual control of the media powerfully facilitates the desire of the state to get the results it wants in any elections that are held. And the houses of parliament, if they exist, are usually stacked with allies and supporters of the president and/or ruling party such that those bodies of government merely rubber stamp the policies and actions of the executive. The corporate state model of “managed democracy” is enjoying undeniable success. The economic growth of both Russia and China is very impressive and the standard of living of both countries is rising. Compared to their overall domestic social and economic conditions only seven or eight years ago their current conditions furnish much basis for praise, notwithstanding the fact that their “managed democracies” modeled after the corporate state are indeed a much different path than that of the liberal democracies of the West. The rise of the corporate state is an important phenomenon in several ways as it relates to RUBICON. Ü

First, the model is being copied across the globe by key states who (1) already have an old-style, Soviet political and economic culture and infrastructure and wish to invigorate the economic and political capital of the state to bolster the existing regime, or (2) have a much more democratic political culture but who are progressively leaning toward the authoritarian “managed democracy” model in order to consolidate state influence and keep the existing regime in power perpetually. The trend is clearly evident in the resource-rich regions of Central Asia, Africa, Latin America and the Middle East.

Ü

Second, a profound and ominous trend has become evident in the last few years. The bulk of the globe’s crucial resources, including not only those that are energy-related but also including the wide range of strategic minerals, have fallen or are in the process of falling under the control of authoritarian

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Chapter XI: Russia Has Crossed the Rubicon regimes with a deep and growing ideological and political affinity with Russia and China and a simultaneous repulsion with respect to the West in general and the US in particular. Such regimes are not only proliferating in virtually every resource-rich region of the globe but they are also individually following the Russian model of consolidation of resources-based industries and corporations under ultimate state control. The global trend of outright nationalization of the resource industries, or of forcing the Western partners in joint ventures to give up their major interests for minor stakes, is now well established. It is the resource-rich states around the globe, therefore, that are copying the Russian and Chinese models. This has truly profound implications for the West, as we shall see. Ü

Third, the fact that states subscribing and adhering to the Russian model have an inherent, natural and growing disinterest in alignment with the US is motivating such regimes to diversify their markets away from the US, looking progressively eastward toward Eurasia, thus undercutting their own dependencies upon the US market.

Ü

Fourth, the internal political structure of the corporate state is such that policy and decisions with respect to key corporations, industries, existing agreements,

agreements

being

considered,

pipeline

routes,

delivery

agreements and the like are not subject to extensive review and debate by check-and-balance political bodies as is the case in liberal democracies. Key resources-related policies can be formulated and changed, and decisions can be undertaken, very quickly, and they are not subject to being overturned later. Therefore, the US and its allies have little if any opportunity to influence such matters. Ü

Fifth, since the ideologies of the regimes embracing the model of the corporate state are not deeply rooted in liberal democratic principles but rather in authoritarian ones, the individual regimes are virtually unconcerned about the human rights and democratic track record of their peer regimes. In fact, most such regimes have a vested individual and collective interest in pushing such matters and issues into the background so as to prevent a possible rise of

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opposition groups and a resulting destabilization of the regime(s). This fact further increases the tightness of the global cooperation and coordination of policy and action between such regimes. Ü

Sixth, the regimes embracing the corporate state model are far freer to review, alter the terms and conditions of, or drop crude oil delivery agreements with existing markets and customers and sign new ones seen as more favorable with those more closely aligned with them politically, economically and ideologically. This factor also extends to exerting a profound and still growing influence upon policy and decision affecting which pipelines get constructed, their exact trajectory, and the terms and conditions of pipeline agreements. Decisions are taken to support the markets and customers seen by the regimes as “preferred”, giving these important preference while often excluding, or severely discounting the interests of markets and customers not seen as preferred. This factor exerts an ever more powerful geopolitical influence over both consumer and pipeline transit states (like Turkey and Ukraine), tending to marshal an ever closer alignment of such states with those that are resource-rich.

The arising of the new phenomenon called RUBICON, or the appearance of any similar multinational confederation, would be impossible without the precursor global developments detailed

RUBICON is beginning to

emerge

from

the

shadows of recent, often

above, namely, the global trend of the rise of the

confusing and apparently

corporate state along with the array of its closely

unconnected

related implications. As such, the foundation for the

economic, military and

emergence of RUBICON has already been laid over

diplomatic developments

the period of the past seven or eight years.

concerning energy

political,

Consequently, most notably during the past 2 years Russia has been quietly but actively building upon that foundation, and RUBICON is beginning to emerge.

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Chapter XI: Russia Has Crossed the Rubicon

Russia’s Chosen G-8 Theme Provides Important Clues

The primary theme Russia chose for the 2006 G-8 Summit – International Energy Security – was largely politicized as well as severely criticized in the West, and its true significance was mostly lost on leaders and analysts in the West. On the one hand Russia was accused of incredible gall in choosing the theme of energy security while cutting off gas to Ukraine at the start of the year. On the other hand Russia was indicted of somehow trying to deflect attention from the Ukraine gas issue which resulted in the accusation that it is not a dependable energy supplier. How the choosing of that particular theme by Russia could in any way deflect attention from the Ukraine controversy is beyond this author. It did precisely the opposite and afforded Mr. Putin several opportunities to answer a number of the energy-related charges made by Russia’s critics. Mr. Putin’s answers, as well as his speeches, retorts and other statements left the duplicitous leaders of the West dumfounded and speechless, if not also deeply humiliated and irritated. Such leaders conveniently seek to apply one set of rules as their own corporate instrumentalities try to penetrate Russia’s energy markets, but an entirely different set of rules when Russia seeks to use its corporate instrumentalities to penetrate theirs. The G8 Summit showcased the new assertive, self-confident Russia that is emerging on the world stage, a Russia that is rapidly accumulating huge sums of both geopolitical and financial capital and that demands a fair shake. What was the real reason for Russia’s choice of that theme for the G-8 Summit?

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With respect to one of the motives of Russian leaders, undoubtedly they intended to use Russia’s prominence in hosting the summit and in leading the G8 in 2006 to showcase to the world Russia’s emergence

Russia has achieved the global rank of #1 as respects energy, able to

not only as a key player in the field of energy, but more

shape

unfolding

accurately its emergence as the key player, the power

developments as no one

that has taken the initiative on the global stage to lead

else

the global energy agenda. Saudi Arabia, which exports

important sense the new

more oil than Russia, is not stepping into that lead role.

global confederation is

Neither is any other exporter of strategic resources. In

forming around Russia

fact, Russia has long since seized the global energy

as its true center

can.

In

that

initiative, and at the G-8 Summit its leaders wanted to drive that point home to the world, solidifying Russia’s key position in the minds and awareness of the entire world. It has wholly succeeded in accomplishing that goal. It can be said with confidence at this juncture that when anyone asks who the global leader is in strategic energy and mineral resources Russia is the name that comes first and foremost to the mind of the world’s leaders. It isn’t merely the rank determined by level of exports as compared to other exporters, but rather the rank determined by the unique ability to shape global developments by changing the consciousness and priorities of other powers, incrementally marshalling other powers both on the exporting and consuming sides of the equation to line up, assemble and organize ever more closely along the lines of one’s chosen principles and priorities. In that definition of global rank, Russia has already achieved first place and the West by and large has fallen profoundly on the defensive. It isn’t Saudi Arabia that is most actively being courted by an impressive array of energy players and powerful energy consuming nations from around the globe. It is Russia that is being thus courted. Of deep significance is the fact that the US is no exception to that rule. It is not being courted. It has entirely muddled its way on the issue of strategic energy security and has a severely shrunken global presence and credibility on the issue from the standpoint of the effectiveness of its strategies, thus casting matters fully into Russia’s lap.

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Chapter XI: Russia Has Crossed the Rubicon The words of Mr. Putin himself provide some indirect insight on the answer to the question of what Russia’s core motives are in choosing the G-8 theme of International Energy Security. He said:

“We chose these themes as priority ones in part because they can improve the quality of life of millions of people and, as a whole, ensure that humanity develops in a stable and positive way.” “Russia's strategy for ensuring international energy security remains as it always was and is well known. We want to form a stable system of legal, political and economic relations that ensures a reliable demand and stable offer of energy resources on the international market. Of course, on the conditions of all necessary measures to ensure technological and environmental safety.” “We consider one of the main tasks to be further investing as well as incorporating new technologies into the extraction process, transport and use of traditional energy resources.” [Bold and italics added]

Three fundamentally important clues as to Russia’s core motives and strategy are revealed in Mr. Putin’s statement: Ü First, he emphasized Russia’s desire to lead, to build around itself a new global system based upon the principles of stability, international legality and mutually beneficial political-economic relations between the states within the new system. Such a system does not formally exist today. OPEC is no such system, nor can it ever become such. The new energy security system will be formed by Russia, Russia will serve as its core, and the new system will have global reach, according to Mr. Putin’s own statement. Ü Second, he stressed the fundamental principle of complementary symmetry by saying that the essential, elemental model for the new system will be reliable demand and stable offering of strategic resources. Reliable demand is what producing states most want from consuming states, and stable offering is what

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consuming states most want from producing states. The new international energy security system will therefore be symmetrical, encompassing not merely producers as does the OPEC cartel, but also key consuming nations. Additionally, the vital interests of both producers and consumers will be closely intermeshed in a mutually beneficial way that satisfies both sides of the equation. Unless the new system adequately addresses simultaneously the interests, needs and goals both of producers and consumers, the desired stability and global reach of the new system cannot be achieved. Hence, the concept of its being complementary and symmetrical in its fundamental nature emerges clearly from Mr. Putin’s statement. Ü Third, he gave priority to the main task of investment of capital and technology in every phase of energy development and use. This part of Mr. Putin’s statement underscores a number of important aspects of Russia’s strategy in building the new system. Among these are three main points. (1) It is a further acknowledgement that the new system will closely incorporate consumer nations since producers alone cannot bear the large burden of providing the needed financial and technological capital required to build and upgrade global energy infrastructures so as to achieve fully the “stable offering” promised under the new system. Consuming nations must share that burden. (2) Since Russia clearly positions itself as the prime mover in the creation of the new system and envisions itself serving as its nucleus, it is strongly inferred by Mr. Putin’s statement on investment of financial and technological capital that Russia’s own corporate instrumentalities will play the key global role in administration and application of such funds and technologies to the global energy infrastructure. That clearly means Russia envisions that Gazprom and similar instrumentalities must be significantly permitted, facilitated and aided by consuming nations, on the basis of international legality and fair and open market principles, to achieve their goal of investment in and acquisition of upstream and downstream energy assets within the markets of key powers in both the West and the East, thus further extending their global reach. (3) It is also clearly inferred from Mr. Putin’s statement here and on other occasions that agreements between producer and consumer states for the exploration, construction, operation and upgrade of energy

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Chapter XI: Russia Has Crossed the Rubicon infrastructure must conform to unified standards of legality and fairness, and that the inordinate advantages afforded to the West in prior lopsided agreements are both unworkable and obsolete from Russia’s standpoint. Russia and its exporting partners have a new assertiveness and self-confidence in standing up for their own legitimate interests and needs. The era of the West taking unfair advantage of producing states is now past. To help illustrate the truth of the statements above the following responses of Mr. Putin to questions from German and other reporters from the West during the G-8 Summit regarding its actions vis-à-vis Ukraine and the reliability of Russia in providing energy should be read carefully. They underline a number of the important points discussed in the paragraphs above: “Russia has been delivering energy to Europe for 40 years. There was never a day or any hour that witnessed a failure. And at the beginning of this year Russia provided full, and I want to stress it, the full amount of deliveries to our western European partners and European consumers. To understand why Ukraine, a transit country, illegally siphoned off a significant part of European resources you must not ask us you must ask Ukraine. And let's not complicate things unnecessarily. Let's talk directly and honestly about this problem.” “Our western friends supported the 'orange events' in Ukraine in a very active way. We see perfectly well what is happening there the whole time. The country has been faced with a great deal of problems. But if you want to support what happens there in the future, then you will have to pay for it. Why should we pay for that?” “Everyone is well aware that over the last 15 years Russia subsidized the Ukrainian economy by a sum that amounted to three to five billion USD each year. I want to emphasize that we did this every year. And each year we raised the issue of whether we should change to the European regime for determining prices.”

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“Let's work out uniform rules together. You, for example, represent a German news agency. Why should German consumers pay 250 USD for a 1000 cubic metres and Ukrainians 50? If you want to give Ukraine such a gift why don't you pay for it? Why do you want us to give such presents? Take these three to five billion USD, take them from the pockets of German taxpayers, and explain to them why you are doing so. We have nothing against this. Pay up. That's the first thing.” “The second concerns access to our energy systems. I want to emphasize that they are our energy systems. The transport systems have been paid for by Russian money and the deposits belong to the Russian people. We have a very responsible energy policy. We are very cooperative during this teamwork. But we will always look for mutually acceptable decisions. Just recently at the RussiaEU summit we discussed these problems in a very frank, companionable and even friendly way, and this was very pleasant for me. I asked our partners a question and I can ask you the same question. What are we talking about when you try to convince us to ratify an energy charter and other agreements? We are talking about access to two types of infrastructure ¬ infrastructure used in extraction and for transportation, which is first and foremost our main pipelines.” “It should be a shared, mutual decision. So it is natural that we are asking the question: okay, our partners are allowed to use our infrastructure for extraction and transport but what will you let us do? Where are the deposits that we can help exploit? There are simply none. As a matter of fact it is very one sided. And many of our partners with whom we met recently in Sochi at the Russia-EU summit agreed that together we need to look for methods of cooperation that would satisfy both sides.” “With the German company BASF we found such a solution. We allowed them to start extracting in one of the major Russian deposits. We evaluated their transport possibilities in Germany, actually an independent evaluation was made, and BASF allowed us to use its network for distributing gas. We consider that

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Chapter XI: Russia Has Crossed the Rubicon this is a very good example of cooperation and establishes a really new level of trust that joins our economies and establishes the necessary conditions for teamwork and trust. But no one-sided solutions will be accepted.” “But I can already add something to what I just said. Undoubtedly we will implement all our agreements and develop our cooperation. I will repeat once again that we only need to find adequate ways to satisfy our mutual interests. It is absolutely necessary that we do this. Without this there is no international cooperation possible nor is with Russia in the energy sector. This was always the case before. And we are not going to change the rules of the game in the future. In fact, our friends in Europe and in other countries are asking today that we allow them into the very heart of our economy. One of the colleagues asked earlier: 'what will happen to Russia's economy if oil prices fall?' True, this is very important for us today. And they ask us: 'will you let us in to the very heart of your economy?'. Of course the answer must be an asymmetrical one. Even today there are some decaying COCOM lists that limit the high-tech products that are allowed to enter the Russian economy. Why? The cold war has been over for a long time, the Soviet Union has also ceased to exist, yet the restrictions remain.” “I can now give you the outline of the many issues and problems that we have and that we want you to listen to. We are not imposing anything. We have resources. We are offering them. You require them. Let's search for solutions that would increase the level of trust and would allow us to benefit from longterm stable cooperation for many decades to come. Of course this is possible. And this is what we want.” [Bold and italics added] Very importantly, Mr. Putin is not seeking the permission of the West to create the new system for international energy security. Instead, Russia firmly holds in its hands the global initiative and he is serving notice that Russia is already actively building such a system and he is extending the invitation to join, appealing to the world at large for

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willing states to get on board. The example of Germany and of BASF he cited, which is only one of many recent concrete examples, illustrates the fact that Russia is already much farther down the path of achieving its new system of international energy security than is generally recognized in the West. RUBICON is already under construction. The clear implication is that, naturally, those states failing to become part of the new system will also fail to acquire the system’s main benefit – energy security. Russia’s leadership in the creation of its new international system for energy security, called here

States failing to get on

RUBICON, has the real potential to fundamentally alter

board

the current structure of global oil markets, with nothing

system for international

short of profound implications. The implications for the

energy security will lose

West in particular could be gargantuan and perilously

out on energy security

negative. To understand clearly how this is so it is first

because Russia’s new

necessary to understand the current fundamentals of the

system will incorporate

global oil markets and review the history of their development. Then it will be possible to speak with

Russia’s

new

the vast bulk of the globe’s resources

clarity and conviction about how RUBICON threatens to alter certain market fundamentals in such a way as to impinge directly, powerfully, negatively upon the potential of the West in general and the US in particular to achieve full energy security. In the era when the Arab oil embargo of 1973/1974 occurred crude oil pricing and delivery was handled somewhat differently than it is now. That was an era that featured long-term supply contracts and considerably less global oil market liquidity as compared to now, an era when exporting states tended to individually conclude agreements with consumer states (usually through their national and multinational oil companies) over the price and delivery of crude oil. Such contracts could be concluded for terms as long as one or two decades or more, and the price of oil was far less volatile than it is now. The structure of the global oil market itself was not designed or set up with the requirement of high liquidity (fungibility) in view because, prior to the 1973/1974 embargo, no one envisioned the now-known important requirement for the market to rapidly adjust itself to

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Chapter XI: Russia Has Crossed the Rubicon a cutoff of oil to one or more buyers resulting from a targeted embargo or supply disruption. Naturally, it was in the interest of any particular exporting state to a conclude sufficient number of long-term contracts so as to have most or all of its exportable oil accounted for and sold virtually at the time it was pumped out of the ground. That being the usual case, if an exporting state or group of states for some reason either failed or refused to honor their commitment of deliveries to a particular consumer state then that embargoed state found it necessary to try to acquire replacement crude oil supplies from elsewhere, usually from third-party traders and/or by arranging with other buyers for their tankers to be diverted from their original destinations. That process involved many additional risks, time delays, more complicated logistics and costs, all of which were unacceptable over a period of anything more than the very short term. Additionally, the psychological effects of an embargo greatly magnified its literal effects, leading to panic buying by consumers, resulting shortages, higher prices and ripple effects throughout the economy. That helps to explain why the US could be effectively targeted in 1973/1974 by the Arab oil embargo. Though that targeting was not nearly perfect, it was sufficient to inflict the desired pain. As the months wore on the US could not afford to continue to rely upon the undesirable and considerably less secure logistics it was forced to resort to in its effort to replace the oil which the Arab nations were refusing to ship. Declassified British government documents from that time reveal that both the US and Britain were actively planning for a seizure of Middle East oil fields, illustrating how real the combined physical and psychological effects of the embargo were. Therefore, in that era crude oil was considerably less fungible (exchangeable, interchangeable, rapidly able to be substituted) than it is today. The key factors making the lion’s share of the difference, making oil less fungible then as compared to now and thus making a targeted embargo possible, is the domination during that era of long-term supply contracts and the non-liquid structure of the global oil markets themselves.

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During the crisis the markets were being forced by unexpected circumstances to adapt and to attempt to make

Oil’s fungible nature

possible a substantial level of fungibility of oil, a

results

requirement and feature that was not significantly

global

demonstrable before the crisis. Therefore, it was much

coupled with the vital

more a case of oil’s becoming fungible than it was a case

liberal structure and

of oil’s supposed inherent possession of the quality of

presence of the global

fungibility. Oil does not inherently possess that quality to

oil market exchanges,

any meaningful degree, though its inherently high global demand certainly lays the foundation for it. Instead, the precise structure and presence of the global oil markets facilitate the passage of the quality of fungibility unto oil. To illustrate, imagine that over time one third of the world’s oil eventually became “locked up” via longterm supply contracts that included acquisition by a group

from

high

demand

not from any inherent ‘magic’ itself. oil’s

within

oil

Consequently, current

high

fungibility is not to be taken for granted

of rising consumer nations in the East of equity shares in the oil fields. All the oil covered in such contracts would disappear from the global markets, and the remaining portion still appearing on those markets would tend to run barely even with, or even short of demand and would be inordinately slanted toward serving Western demand. There would exist no quality of fungibility for the one-third of global oil that was “locked up” and the usefulness of the fungibility of the oil remaining on the global markets would be significantly offset by the fact that supply was perpetually barely even with, or short of demand, always forcing some consumer nation or nations to be at risk of significantly ‘going without’, especially if any embargo or other supply disruption occurred. Under such circumstances, oil’s supposed fungibility would provide no comfort at all. Hence, there is nothing ‘magical’ about oil itself in this regard. Consequently, if the precise structure and presence of the oil markets undergo change then oil’s level of fungibility, or perhaps the usefulness and practical value of its fungibility, can be either increased or decreased accordingly. This truth is important to remember as the discussion proceeds. In the aftermath of the 1973/1974 Arab oil embargo events and the markets themselves gradually evolved so as to radically change the fundamentals, dramatically

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Chapter XI: Russia Has Crossed the Rubicon increasing crude oil’s fungibility, with the effect that in the future, if a group of exporting nations attempted another embargo, oil from other exporters could be rapidly exchanged or substituted to replace the lost oil. But how was this change in the market fundamentals accomplished? Whether knowingly or unknowingly, over time the US had come up with an ingenious idea that impacted directly upon the issue. Through deregulation and the creation of spot markets in New York and London the foundations and market dominance of long-term supply contracts was undermined in favor of much shorter-term contracts. Oil futures contracts (“paper oil”) that looked forward only a relative few years at most and that could be freely bought and sold on a daily basis on the new spot exchanges replaced the traditional, discrete long-term supply contracts negotiated between exporting and importing states. The new exchanges created in the early 1980s provided a means for speculators to profit from the buying and selling of “paper oil” as well as for exporters and importers to sell, buy and arrange for delivery of oil. The spot exchanges also facilitated the factoring in of a much wider range of market forces in real time in determining the daily global price of oil. Oil export startups, those attempting to establish themselves as oil exporters, favored the spot markets as opposed to the traditional longterm supply contracts because, with their limited track record and credibility, they had a hard time successfully negotiating long-term contracts. However, they could sell on the spot markets by undercutting the price of the more established exporters and get a foothold for themselves in the markets. By the mid-1980s the new market arrangements in New York and London had been firmly established and were enjoying phenomenal success. While some exporters have refused to drop entirely the traditional long-term supply contracts in favor of selling on the spot markets, today most oil is marketed under the new market arrangement gradually created by the US in the aftermath of the Arab oil embargo of 1973/1974. Oil futures contracts are freely bought and sold on the exchanges and oil for physical delivery is bought comparatively ‘at the last hour’ on the spot market where delivery to the importing nation is then arranged. How has this new market arrangement radically increased the fungibility of oil?

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We saw that before the new market arrangement came into being the vast majority of exported oil tended to be ‘confined’ within the comparatively strict bounds of the long-term supply contracts and therefore tended not to be as easily and readily available for exchange and substitution in a practical way on the global markets. However, under the new market arrangement nearly all oil became highly visible and accessible on the markets because the traditional long-term supply contracts became the minor factor while the spot markets and oil futures contracts became the major factor. In effect,

this

radically

raised

the

visibility

and

fungibility

(exchangeability,

interchangeability, ability to be rapidly substituted) of global oil supplies to unheard of heights and made it possible for oil lost for some reason in one part of the market to be easily and almost instantly replaced by oil from another part of the market. In effect, the new spot market exchanges facilitated the creation of a virtual global pool of oil denominated in dollars into which nearly all exporters sell their oil and out of which nearly all importers

The

traditional

US-

backed

liberal

oil

market

arrangement

purchase oil, all on a daily basis. A discrete global pool

created and sustains one

of oil does not physically exist anywhere on the planet,

virtual global pool of oil

of course. But it does exist in a virtual sense, which

denominated in dollars

powerfully mimics a literal, discrete global pool of oil,

into which nearly all

because the structure and presence of the spot markets

producers sell and out

and the global adherence and devotion to them ensures

of

that oil is bought, sold and delivered precisely as if such

consumers buy oil

which

nearly

all

a literal pool does indeed exist. At present, therefore, any attempt to target the US with an oil embargo, as by the efforts of an exporter or group of exporters refusing to sell to the US, would fail miserably because the US would merely draw oil elsewhere from the global pool to suffice its needs. Oil is highly fungible as a result of the precise structure and presence of the markets, which fact completely undermines the ability of exporters to enact a targeted embargo with any effectiveness. At most an exporter could refuse to sell oil altogether on the global markets, which would drive up the price of oil for everyone.

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Chapter XI: Russia Has Crossed the Rubicon We have seen that the primary key to oil’s fungibility is the role of the discrete traditional long-term supply contract entered into between exporter and importer state pairs and the precise structure, presence and global adherence to the markets. Importantly, in effect, the long-term supply contracts often covered, not only the oil that had already come out of the ground but also “equity shares” in the oil fields, meaning that for all practical purposes the future production and ownership of fields was also significantly “locked up” and its oil was therefore denied to the global markets. From this point on in the text of this book the phrase “long-term supply contract” is intended to mean such contracts that include the “equity” of oil fields and that effectively lock up their oil. If such contracts play a major role in the global markets then oil becomes far less fungible and the ability of exporters to successfully enact targeted embargos rises significantly. However, if such contracts play only a minor role then the spot exchanges with their virtual global pool of oil ensure that oil becomes highly fungible and targeted embargos cannot be successful. Only 25 years ago when the spot markets were just getting started oil was significantly less fungible than it is in today’s highly liquid markets. In certain important ways the global oil and geopolitical situations have changed fundamentally since then. The reign of the spot markets has really been a short one so far. Is it turning out to be more of a stint than a reign? Does Russia possess the global rank that would be required to begin to move the global oil markets back toward the long-term supply contract, thus undermining the fungible nature of

Ongoing, unwavering global adherence to the US-backed, dollar-denominated

liberal

oil and placing the West at increasing risk of the

global oil market order is

targeted embargo? Is it already doing so? Could

essential for the continued

Russia’s

other

maintenance of oil’s high

fundamental changes in market structure, in its

degree of fungibility. Hence,

presence and in the level of global adherence to

that US-backed market order

those markets, changes that would impact

is the single point of failure

negatively on US energy security? The answers to

for the industrialized West

growing

influence

fashion

such questions are of inestimable importance for

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the US. If we make the two assumptions that no considerable level of conversions from the long-term supply contract toward the spot market are occurring and that no dramatic new oil supplies are entering the global market, then for all practical purposes every conversion from the spot market back to the long-term supply contract removes from the global pool of oil the amount of oil covered in that contract. The global pool is finite in size, unable to grow appreciably beyond its current dimensions due to various limitations on oil production, persistent and worsening geopolitical factors that prevent large increases in key production regions, and sustained global demand. Hence, any conversions from spot markets back to long-term supply contracts effectively shrink the global pool and tend to undermine the foundation of oil’s current fungibility. If such conversions back toward long-term supply contracts become a trend then oil’s loudly trumpeted, but short-lived (now only two decades’ duration) highly fungible “nature” could recede or even collapse, with enormous implications for the West. The ability to enact targeted embargos with sufficient effectiveness and impact could thus be revived. Considering the current precarious position and decreased stability of the US economy, even a partial reduction in oil’s fungibility and a corresponding partial revival of the effectiveness of the targeted embargo could have powerful negative implications for the US as it simultaneously deals with a host of other powerful negative factors impacting economic growth, inflation, deficits and imbalances, and confidence in the dollar.

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Chapter XI: Russia Has Crossed the Rubicon In a frightening new world of surging demand, rising geopolitical instability, sluggish

Swiftly mounting anxiety on

growth in the availability of oil supplies,

the part of increasing numbers

radically increasing competition for oil, little or

of the globe’s key economies in

no oil supply cushion, aging infrastructure in

the East as respects energy

key oil-producing regions in desperate need of

security is fueling incremental

massive,

upgrade,

abandonment of the US-backed

persistent exporter fears of loss of stable

global market order in favor of

costly

investment

and

demand through regional or global economic recession or efforts aimed at diversification of supply, radically heightened volatility in the global price of oil, increasing vulnerability of industrialized economies to energy-based shock – in such a frightening new world both producing

and

consuming

states

are

private, state-to-state long-term supply

contracts

agreements.

The

and

US-backed

order is already beginning to suffer

a

wavering

of

international support

increasingly seeking viable, mutually beneficial and non-militarist-oriented answers to the question of how to achieve energy security. As such, Russia’s ascendancy to the position of #1 global rank as respects energy leadership and influence, and its proposals and activities in creating a new system for international energy security, are developments whose time has truly arrived. The key question now increasingly being pondered around the globe is whether the current spot market arrangement, which was instituted nearly three decades ago and that fit well during a period of relatively calm global demand growth and plentiful supply, whether such spot market arrangement now fits the radically changed global situation. Does the current arrangement address properly and sufficiently the legitimate interests of both the producer and consumer sides of the equation? In our radically changed world, which now serves best the strategic interests of producers, who seek a stable and reliable demand, (1) the comparatively higher risks and volatility inherent in the short-term oriented spot market or (2) the comparatively more solid guarantee offered by the long-term supply contract?

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As global competition for finite available supply rapidly increases, which now serves best the strategic interests of consumers, (1) continuing to count on comparatively last-minute availability of oil from the spot market-based virtual global pool or (2) the security offered by locking in guaranteed supply by virtue of the long-term supply contract? The argument is often made by the US that strategically speaking, maintaining the current high liquidity of the global oil market, another way of saying maintaining oil’s high degree of fungibility, is in the best interest of all nations on both sides of the producer/consumer equation. This argument incorporates an acknowledgement of the established global trend of increasing state control of oil industries, falling traditional foreign investment and exploration by the corporate instrumentalities of the West, and resulting inability of global production to keep comfortably ahead of global demand in order that prices may fall. But at the same time, those proponents of the argument for maintaining the high liquidity of the oil markets (by trying to undermine the new trend toward proliferation of long-term supply contracts) see the disturbing trend noted here of extremely tight supply as only temporary, to be alleviated relatively soon by efforts by the West to reopen the now-hostile foreign investment environment. However, convincing fellow consumer nations in Europe and Asia that the global oil supply will advance comfortably ahead of global demand anytime soon is a very tall order. The rise of the resources-based corporate state and the resulting closure to traditional free market investment by the West shows no signs of a reversal anytime soon. Additionally, US influence is radically shrunken in key oil-producing regions of the world, making ever more nervous consumer nations increasingly intent on securing their own interests in their own ways with little real consideration for and confidence in the policies and plans of the US in such matters. Fear, and the growing certainty of a continued tight global supply and radically increased competition for finite resources for the foreseeable future, increasingly drives the thinking, policies and actions of consumer nations. As such, they are becoming much less likely to continue to support the liquidity of the global oil market and much more likely to enhance their energy security by locking in private long-term supply contracts. From the standpoint of consuming nations and in the new global environment of pronounced and mounting competition for finite supplies and increasing strategic

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Chapter XI: Russia Has Crossed the Rubicon instability in the Middle East and Africa, which is rapidly becoming the trumping interest, (1) diversification of supply or (2) securing a guarantee of supply? Again primarily from the standpoint of consuming nations, is it in their strategic interests to watch powerlessly the relentless driving up of global oil prices through speculation as is inherent in the spot market arrangement, or are their interests better served by moving toward the more stable and affordable pricing afforded by the private long-term supply contract? Aren’t the strategic interests of producers also at stake here, in that speculative-based needlessly escalating global prices also threaten to cause recession, thus collapsing demand and hurting exporters themselves? Aren’t states on both sides of the equation benefited by reclaiming a measure of control of global prices via the private long-term supply contract? The rapidly changing global situation is increasingly forcing leaders on both sides of the producer/consumer equation to wrestle with questions such as these. Russia’s #1 global rank as respects energy leadership affords it the unique opportunity to shape unfolding events toward the eventualities it wishes. As such it is rapidly acquiring profound global leverage that is becoming virtually immune to the efforts of a pointedly weakened and isolated US to roll back or to undermine at this very late date. How so?

Russia Already Shaping the Trend Toward a New Model

Pointedly heightened insecurity on the part of consuming nations as respects access to energy resources is powerfully governing policy in their capitals. China, India and other so-called emerging economies in Asia have an ever increasing appetite for oil. They can ill afford to take chances with their economic security by failing to secure the required energy resources. Hence, the growing trend is private state-to-state agreements between themselves and producers for the long-term supply of oil rather than what they increasingly see as blind reliance on the US-backed traditional global markets. Such agreements generally bypass completely the traditional global oil markets and are locking up an increasing portion of the finite global oil supply available, most often denying to

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the virtual global pool those supplies that are covered in such agreements which increasingly afford equity shares of oil fields to key consuming states. Both China and India have concluded and are continuing to seek such long-term supply contracts with key oil exporters such as Russia and those across the Middle East, Africa, with Canada, states in Latin America and Central Asia. For example, slightly over half of China’s oil and oil-based product imports come from the Persian Gulf states. Saudi Arabia alone accounts for nearly 20% of China’s oil imports. China has already grown to become Saudi Arabia’s fourth largest overall importer. During the recent visit of King Abdullah to China the two concluded a range of additional agreements for their joint cooperation and cross-investment in the energy and minerals sectors. Both Saudi Arabia and Kuwait are involved in construction of refining complexes in China. India’s private energy firm Reliance is investing in Saudi oil and gas sectors and India’s Oil and Natural Gas Corporation is cooperating with Saudi Arabia as an equity partner in its own domestic refinery projects. Saudi Arabia and India have signed a strategic accord for deepening their joint cooperation in the field of energy. These examples are only mirrors of what is taking place between key oil consuming states and key oil producing states around the globe. Producers are looking toward the East and diversifying their markets away from the West. The rising powers of the East do not meddle in the domestic politics of the oil producing regimes as does the West. An entirely new era has opened up in which the resources-based corporate state regimes around the globe and the rising economies of the East are forming an unprecedented complex web of alliances and ties based on energy and lubricated by their common political affinity. Russia is winning out in Ukraine where the new pro-Russian Prime Minister Viktor Yanukovych has proclaimed that Ukraine will participate with Russia’s Gazprom and other entities in the development of oil and gas fields inside Russia, in Central Asia, Libya and the Persian Gulf. Ukraine’s leaders know that the country’s economic fortunes and energy security lie in close cooperation with Russia. Ukraine is becoming a key asset in Russia’s quest to extend its already formidable energy influence throughout Europe, Central Asia and the Persian Gulf. Turkey, another vital oil and gas transit state, is yet another example of mounting Russian global influence with respect to key energy-oriented states. Turkey is vitally

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Chapter XI: Russia Has Crossed the Rubicon important in the global energy sphere because of its role in the transit of oil through the Turkish Strait and because of current and planned oil and gas pipelines. The US-backed BTC pipeline, which was only recently inaugurated, transits Turkey on its final stretch to the Mediterranean Sea where its oil is picked up by tankers heading to the West. The Washington Times of July 13, 2006 reports that the hub nation for the pipeline, Turkey itself, has become inordinately dependent upon Russian oil and gas during the same 5year period in which the BTC pipeline has been planned and constructed. Turkey has increasingly turned to Russia for its energy needs and now imports 65% of its gas from Russia. That is making Turkey very unwilling to conduct itself in any fashion which might anger its huge and powerful northern neighbor, Russia. It is not inconceivable that Turkey could one day be persuaded or even pressured by Russia to abandon, at least in part, its commitment to the BTC pipeline. For example, The Times reports that Russia has already pressured Turkey to waive the standard procedures for bidding on Turkish oil and gas contracts it is interested in. The Times notes:

“More significantly, Moscow is eager to see Turkey carry Russian gas to Central Europe through Nabucco, a 1,860-mile pipeline project the EU hopes will run from Azerbaijan to Austria by 2011. Given that the purpose of Nabucco is to provide Europe with a Caspian alternative to Russian gas, some analysts see Moscow's suggestion as tantamount to sabotage. Zeyno Baran, a Caspian and Turkish specialist at the Hudson Institute in Washington, insists Turkey is not deliberately favoring Russia over the West, but worries that Ankara's juggling act could eventually lead to political problems with Washington. “

The Nabucco pipeline may end up carrying Russian gas instead of Caspian gas because Russia's political influence over Turkey is growing rapidly, whereas that of the West is simultaneously waning just as quickly. Anti-American sentiment in Turkey has reached alarming levels, and the persistent stalling of the EU in admission talks for Turkey has frustrated and angered Turks toward Europe as well.

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The BTC pipeline is plagued with problems beyond those detailed here. It absolutely requires a firm commitment of Kazakh oil in order to achieve economic viability, but Kazakhstan is still wavering on providing the full commitment desired by the West. Yet, it is sending much of its oil eastward to China. It is vitally important here to note that such joint deals as noted earlier between Saudi Arabia and China and between Saudi Arabia and India in the oil extraction and refining sectors effectively create captive private pools of oil just for India and China, largely bypassing the liberal open global markets. This trend is a fairly recent but profoundly significant development, and it is also accelerating. Hence, key consuming nations are no longer content to blindly place their energy security fortunes entirely in the hands of the West-backed, comparatively less strategic security-oriented liberal open global oil markets. They are hedging their bets, diversifying their sources by turning increasingly to making direct agreements with exporters. Russia has taken the lead to encourage and bolster this global trend rather than to bolster the current global market model. If Russia bolstered the markets by refusing direct supply contracts with China, India and others and freely placed all its oil on the traditional markets it would not have seen the meteoric growth of its global influence it has seen. By refusing to narrow its options solely to the traditional markets and by proliferating its politically oriented stateto-state agreements and contracts it sees rapid growth in its direct leverage and influence. The same is true for all other producers who are increasingly less enchanted with the liberal open markets and more enchanted by the benefits arising from direct state-to-state ties and alliances. In addition to the trend of key consumer nations concluding supply contracts and agreements directly with producers, there is another powerful trend underway. That trend is the acquisition by consumer states of majority stakes in the energy industries of various key producing states such as Iran, Saudi Arabia, Venezuela, Russia and others. Why are India, China and other key consumer states seeking to acquire significant or even majority stakes in the energy-related industries of their suppliers, including acquiring equity stakes in the producing fields themselves? For the simple reason that they wish to acquire enhanced control of the policies and decisions of such industries to ensure that their own strategic interests as consumers are fulfilled and they are pursuing the strategy

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Chapter XI: Russia Has Crossed the Rubicon of “locking up” oil for themselves, denying that oil to the global markets. By controlling the future direction of the energy-related industries of their suppliers they have increased their leverage, not only over such industries but also over the producer states themselves. This is an entirely ominous trend from the US perspective because almost without fail

The West cannot compete with

the producing states are already displaying an

the

increasing level of anti-Americanism, and their

Russia, China and India to

deepening

producers,

ties

with

US

economic

and

incentives

who

offered

by

increasingly

geopolitical rivals China, India and others bodes

look to the East and bypass the

further ill for already shrinking US global

US-backed oil market order in

influence.

favor of private deals

The

package

of

diplomatic,

economic, security and commercial incentives offered by China, India and others to producing states to enter into such agreements are far beyond what the US can offer. Key consuming states are not pursuing a predatory policy in this regard, but rather are adhering to the model of complementary symmetry and enticing producer states with tangible, lucrative offers. The US cannot compete, and its leverage is severely contracting in crucial resource-rich regions as a result. It cannot prevent, nor turn back, the steadily advancing global trend of the locking up of oil by virtue of the private long-term supply contract. Additionally, producer states are invited to invest in the energy-related industries and projects in the consuming states. Saudi Arabia, for example, has invested in China’s refinery and other downstream projects in Fujian Province. This cross-investment cements long-term ties between producers and consumers. The same policies are being actively and successfully pursued between all the other producers and consumers in the expanding global confederation led by Russia. The accelerating global trend of deepening, strong and direct ties between key consumer and producer states lays the groundwork for further key developments. With the increasing cohesiveness between the rising numbers of global players entering into mutually beneficial agreements in the field of energy, the US-supported oil market model is not being bolstered, and this is occurring at a crucial juncture in global developments. The US-supported model is, in fact, seeing an insidious undermining of its foundation,

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though as of the present this may not be precisely measurable by statistic. But as measured by clearly identifiable trend in concrete agreements and contracts and psychology on the part of key global players, another model is obviously being bolstered and it is clearly one that places politically-based, private direct state-to-state ties at a much higher priority than adherence to the US-supported open global oil market model. The liquidity of that US-supported model, that is, oil’s fungible nature itself, is increasingly at risk as both global psychology and global policy move in another, incompatible direction, weakening the formerly deep-seated devotion to that US-backed model. Russia both leads and shapes this development on an ongoing basis as it encourages and facilitates adoption of and adherence to its alternate model for international energy security – complementary symmetry in direct and deepening stateto-state ties among the expanding global confederation of ever more politically likeminded producers and consumers. Russia, China, India and the rest of the expanding global confederation have little fundamental attraction or loyalty to the US-supported global oil market system the governing institutions of which (such as the IEA) they have largely been excluded from. They do not feel an integral part of the global system they see as greedily and inordinately dominated by the multinational oil companies of the West, with which their relations are growing ever more tense. Progressively, the Westbacked corporate instrumentalities (multinational oil companies and financial institutions) are being forced out of meaningful participation in oil exploration, infrastructure construction and upgrade, and production. This is occurring in Russia, Central Asia, the Middle East, Africa and Latin America as existing agreements are forced into modification and energy-related industries are nationalized or otherwise brought under the control of the corporate state. The global confederation Russia leads the development of adheres to a fundamentally different model and the formation of its complex web of diplomatic ties and alliances is accelerating in the wake of recent global developments over the past few years. This is the ongoing construction of RUBICON, the resources underwriter-based importer-inclusive confederation. Competitive tensions between Russia and China, between Russia and India, and between China and India are remarkably calm and their joint cooperation is surprisingly

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Chapter XI: Russia Has Crossed the Rubicon deep as all three powers seek to expand their access to and stakes in global energy resources and related industries. China and India have signed an accord to cooperate in their bidding for stakes in oil fields around the globe, and they are mostly living up to that accord. It doesn’t mean China and India do not compete with each other, even fiercely at times, for energy resources. But it does mean they are resolved not to resort to the tactics and practices that would wreck their deepening strategic cooperation and thrust the two into war. What accounts for this widely unexpected phenomenon of deepening trilateral cooperation instead of tense rivalry in the energy sphere? At the unprecedented three-way summit between Russia, China and India following the 2006 G-8 summit both India and China proclaimed the vital importance of Russia as the

The

widely

development

unexpected of

deepening

China-India cooperation in the

key power acting as the facilitator of successful

sphere

of

energy

security

India-China cooperation in the sphere of energy

demonstrates

security. Not only is Russia’s success in this

importance

role due to its fair treatment of both China and

profound

India as respects granting access to its

influence within the new global

resources, but also due to its promotion of the

confederation

complementary symmetry model of energy

RUBICON

the of

key Russia’s

leadership

called

and

here

security-based cooperation, rather than fierce competition between states and its own adherence to that model in its relations with other states. Without Russia’s central role China-India relations would be turning out quite different than is the case now. Russia conducts its relations with the many other states in its expanding global confederation, not from a position of weakness and insecurity, but rather from a position of mounting strength and self-confidence along with a good measure of modesty – that is, a full realization of its own limitations. The following factors enter into that equation and affect the outcome of Russia’s relations with the other states in the confederation, as well as affecting positively the relations between the other states themselves:

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PART III: CHECKMATE BY THE MULTIFARIOUS EAST – HOW? Ü

Russia is a nuclear power and need not unnecessarily fear for, or be obsessed with its own survival.

Ü

Russia already possesses a tight and unbreakable grip on its oil and gas export monopoly and need not unduly fear a loosening of that grip due to the policies and actions of its partners. The West (the US and Europe), rather than its eastern partners, is the power to be concerned about in that regard.

Ü

Russia possesses huge deposits of strategic resources which guarantee it will continue to play the key global role as respects energy. Therefore, it need not play the reactionary role to the legitimate efforts of India, China and others of its partners to secure greater access to such resources around the globe and within Russia’s traditional sphere.

Ü

Russia knows all three powers – itself, China and India – are crucial pillars within the global confederation that is arising. Hence, Russia applies its model of complementary symmetry in its relations with both China and India to ensure that those relations proceed along a path that benefits all three partners.

Ü

Accordingly, Russia does not seek to block their approach to key resourcerich regions. Instead, while it limits foreign ownership of its own resourcebased industries to 49% or less, it simultaneously cooperates with China, India and others in their efforts to deepen their state-to-state ties with itself and with the full range of other producers.

Ü

Russia directly benefits from its adherence to the complementary symmetry model in its relations with India and China. It is diversifying its markets from inordinate reliance upon Europe as Asia opens up as a lucrative market for Russian resources. Everyone in the growing confederation wins.

Ü

Russian blocking of, or its failure to facilitate the legitimate Indian and Chinese efforts to expand their energy security would result in economic destabilization of the two rising powers. That would lead to a perilous deterioration in Sino-Indian relations and a regional catastrophe for Russia as well as for them. Conversely, by serving as the central power to bring states in the East into ever closer, mutually beneficial relations and ties, Russia itself wins as the multifarious East continues its geopolitical rise.

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Chapter XI: Russia Has Crossed the Rubicon Ü

Russia has a fundamental interest in working to keep global oil prices at an elevated level, not too high so as to cause global economic recession, but certainly much higher than the West would prefer. Russia’s economic and geopolitical fortunes rest on the continuance of such elevated prices. Consequently, it has no objection to the efforts and activities of China, India and other states to progressively “lock up” oil around the globe by virtue of those states concluding private long-term supply contracts and acquiring equity shares in oil fields because that process works to keep the global oil supply tight and to keep prices at the elevated levels Russia desires. Producers have a vested interest in avoiding over-production and a resulting global oil glut. The activities of China and India tend to take oil off the global market, reducing the possibility of a glut, and this suits Russia well.

Ü

Furthermore, as the process in the previous point advances, Russia’s own importance as the key global energy player is enhanced because its own resources become ever more important to the global equation of energy pricing and security. With other global supplies progressively more “locked up”, Russia’s leverage increases, paying handsome financial and geopolitical rewards and further guaranteeing Russia’s key global position. Consequently, Russia often facilitates the global energy moves of India, China and others within the rising global confederation.

The entire fundamental philosophy pursued by Russia’s expanding global confederation of producer/consumer states is the central role of politics in forming ever deeper state-to-state relations rather than reliance upon the liberal open markets. The traditional liberalized US-backed global oil markets are being increasingly undermined as Russia’s confederation, which looks to a much different model, expands and as its complex web of alliances and ties progressively solidifies. The confederation is doing an end run around the traditional markets and is incrementally stealing their economic and financial thunder, as it were. Russia takes the global lead in acquiring stakes in the resource-based industries of other producers around the globe and it is increasingly engaging in joint projects for

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exploration, construction and upgrade of infrastructure, and production of oil and gas. It is establishing its presence in Latin America through deals with key players like Venezuela, in Africa where its cooperation with Algeria is an example, and in the Middle East. It is increasing its already massive presence in Central Asia as well. Russia’s deepening and expanding energy-based cooperation with such key producing states as Iran, Venezuela, Saudi Arabia, Algeria and many others is already well documented and clearly establishes a trend, namely, the deepening politics-based (as contrasted to open market-based) collaboration between the resources-based corporate states of the world, with the foremost resources-based corporate state, Russia itself, at the core. OPEC’s importance as a global entity is rapidly being undermined as Russia ignores its

OPEC’s relevance is being

membership boundaries to establish deepening ties

eclipsed by something else of

with its individual members. In all its relations with

far

such

cohesion

members

Russia

adheres

to

the

greater

proportions, and

global

complementary symmetry model, and powerful are

leverage. Centered in the

the enticements for individual OPEC members to

East, the new Russia-backed

enter into deepening cooperation with the world’s

global oil market order is a

unquestioned

key

energy

player.

Russia’s

complementary symmetry model is far eclipsing

serious

rival

to

the

traditional US-backed order

OPEC’s cartel model. Through cooperation with Russia the worlds’ other resources-based corporate states find additional avenues of ever deeper ties with key consumer states like China and India. A growing consensus exists among producers that touts diversification of markets away from the West, toward the East, as being crucial. Russia is powerfully facilitating such diversification by helping to bring together the two parties, its ever more cohesive group of resources-based corporate states and the rising consumer states of Asia, to facilitate the goal of “international energy security”. The West has envisioned the day when it could divide and conquer OPEC, but the ongoing de facto replacement of OPEC by something else of much greater proportions and leverage, and centered in the East, is something the West could not have foreseen.

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Chapter XI: Russia Has Crossed the Rubicon Experts and leaders in the West warn repeatedly that the rise of the resourcesbased corporate state is an entirely ominous development as respects global oil production and global political and economic stability. The fear in the West is that as states nationalize or otherwise limit and even drive out traditional Western-based financial participation and investment in the oil sector, sufficient exploration, construction and upgrade will not take place so as to ensure that global oil production can keep pace with mounting demand. That portends continually rising global prices, eventual global economic recession and the subsequent collapse of prices and of the economies and regimes of oil producers in a chaotic global wave of “regime changes”. Such a disorderly eventuality would serve the interests of no one and everyone would suffer painfully. Russia and its expanding global confederation are well aware of the risks of such an eventuality. Understandably, the West frets over the elevated global price of oil and is focused on ensuring that global production advances well ahead of global demand. It would mostly welcome another global oil glut, for example. That would benefit the economies of the West while simultaneously halting and rolling back Russia’s energy-based geopolitical rise along with the rise of the resources-based corporate state around the globe, handing the geopolitical advantage back to the US. In recent developments detailed here in this book, those having to do with Russia’s rise and the simultaneous rise of its global partners, the West in general and the US in particular share significant responsibility. By its predator-style capitalist policies via the multinational oil companies the West established a wretched track record for itself, one that in the view of most of the world’s oil producers smacks of economic colonialism. The West has not, in fact, adhered to the model of complementary symmetry in its dealings with the rest of the world. Quite the opposite is true. Consequently, at the present it is reaping what it has sown for decades as producers pursue politics-based domestic policies and politics-based alliances and ties between states. And the politics driving those domestic policies and state-to-state relations are most often the politics of anti-Americanism and a strident rivalry with America.

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Consequently, Russia’s global confederation is highly unlikely to embrace the solutions advocated by the West as respects ensuring that global oil production significantly exceeds demand. Instead, a different solution is being advanced: Ü

First, global production is intentionally being allowed to advance at a much slower rate than is desired by the West, specifically in order to keep global prices from collapsing. None of the producers wants a return to a global oil glut and care is being exercised to ensure that over-production does not happen. The lessons of certain of OPEC’s members engaging in overproduction in a quest to grab market share from other members, but which resulted in the oil glut and price collapse of the 1990s, is not being forgotten here.

Ü

Second, traditional investment in the oil sector by the West via its predatory multinational oil companies and financial institutions is being replaced by other investment sources and means that conform strictly to the complementary symmetry model and that incorporate the long range goal of achieving a stable balance between over-production and under-production. The level of foreign investment required to achieve that goal is perhaps significantly less than the level the West wants to see, but it will be sufficient to maintain the balance between the undesirable extremes of over and under production.

Ü

Third, by means of rapidly increasing oil-sector cross-investment and joint ventures between producer states exploration, infrastructure construction and upgrade, and production are being facilitated where formerly little or no such cross-investment occurred and where Western investment used to dominate. Such cross-investment is occurring between Russia and many of its oilproducing partners and between growing numbers of the other producer states themselves. Often, Russia is invited to add its investment and join in joint ventures between such states, such as in the expanding Venezuela-BoliviaColombia sphere of cooperation in gas and oil where Russian investment is being actively courted. By these means a growing percent of the revenues of

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Chapter XI: Russia Has Crossed the Rubicon producer states is being reinvested in the oil and gas sectors to help ensure stable production in the future, and it now comes cost-free as respects the economic and political leverage the West used to demand as a result of its investment. Ü

Fourth, the proliferation of (1) long-term supply contracts along with the acquisition of equity shares and (2) joint ventures and foreign investment from key Asian and European consumer states, provides an ever increasing flow of funds and technology into producing states to finance exploration, construction, upgrade and production. These inflows of capital and technology increasingly come from within the expanding global confederation Russia oversees the creation of. For example, Russia’s energy ties with Germany illustrate the new investment model, which for emphasis here, fully incorporates the principle of complementary symmetry. Russia is building the new Russian-German Baltic Sea gas pipeline which is being heavily financed by Germany. The pipeline opens directly into Germany, securing its energy needs directly while also affording the opportunity for Germany to become a powerful and lucrative distribution hub for the rest of Europe. The pipeline bypasses Poland, Ukraine and the Baltic states who have opposed Russia’s rise, denying them any benefit while simultaneously affording concrete benefits to its partner, Germany. Furthermore, German business (such as BASF) is being permitted to invest in Russian gas fields and assets while Russia cross-invests in German gas companies. Such deals benefit both partners and further cement their already close ties. Yet another example is that of Russian-Japanese cooperation in the building of an oil pipeline to the Pacific. Not only will Japan finance a major portion of the pipeline, but it is also being asked to invest in Siberian oil exploration and infrastructure under the developing deal. Additionally, the pipeline will also serve China by facilitating oil shipments to it, (as well as to Korea and Indonesia from the planned Pacific port facilities) which is also providing financing and investment into Russia’s energy sector. Further examples were cited earlier in

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this chapter having to do with cross-investment between Saudi Arabia, China and India.

With respect to global developments specifically in the sphere of natural gas Russia’s key position is already well known. But it is also working steadily to further extend its monopoly and influence by developing close ties with other key gas exporters, namely Iran and Algeria for but two examples. Between the three they possess nearly 60% of all the world’s natural gas reserves. Add Venezuela, Bolivia and Saudi Arabia to the equation and the six players would control the vast majority of the planet’s gas reserves. All the named players are deepening their cooperation with both Russia and China in the gas sector. Saudi Arabia, for instance, has recently concluded oil and gas sector deals with Russia, China, India and others as it looks to the East, steadily diversifying its markets away from the US. Significantly, wherever Russia deepens its ties in this sector it also includes accompanying arms sales to the client state in order that such regimes may enjoy enhanced security both from indigenous opposition and from invasion by the US. Russia’s arms sales to Iran are well known. It is also selling arms to Venezuela, with a recently announced deal worth $3 billion. Russia and Algeria have concluded a cooperation agreement over natural gas and simultaneously Algeria has purchased Russian weapons worth $6.5 billion. China also sells arms to the regimes it concludes energy deals with. China’s arms sales to Iran, Saudi Arabia, the Sudan and many others are well known. The bolstering of the world’s resources-based corporate state regimes through arms sales is a well established trend and one of great significance. Through Gazprom Russia continues to extend its gas-based influence and monopoly throughout Europe and Asia, and far beyond to include concrete deals on the African continent and developing deals in Latin America. Because natural gas is generally delivered via pipelines, its level of fungibility is extremely limited as compared to oil. That fact powerfully reinforces Russia’s monopoly and its ability to enact targeted embargos or to extract political and economic concessions. The unfolding development of liquefied natural gas (LNG) which is delivered by special tanker is unlikely to change that fact anytime soon. Huge expense is

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Chapter XI: Russia Has Crossed the Rubicon required to facilitate and equip the receiving terminals of an importing state to handle LNG deliveries. Russia is in a strong political and economic position to scupper Europe’s efforts to diversify into LNG. It could easily afford to simply flood the market with cheap gas and make the huge expenditures to equip for LNG politically impossible to enact. Russia’s monopoly over Europe isn’t going to disappear anytime soon. All of the developments and trends detailed above combine to create important implications for the West. As the Russian-led global confederation continues to explore and conclude within itself ever more state-to-state energy contracts and deals, increasing amounts of global oil will become “locked up”, invisible and inaccessible to the global markets. Notably, it isn’t Western demand for oil that is thereby progressively becoming satisfied outside the confines of the traditional global markets. Instead, it is Eastern demand for oil that is increasingly satisfied independent of those markets. That trend has an enormous implication for the West down the road. As that trend progresses, the traditional US-backed global oil market arrangement with its virtual pool of oil will become ever more unbalanced, dedicated to serving the oil demand of the West, rather than serving that of the globe. That is profoundly dangerous for the West. How so? The global pool of oil will progressively shrink as private state-to-state deals and contracts

proliferate.

That

will

tend

to

undermine the global fungibility of oil as

The proliferation of Easternoriented private state-to-state oil contracts and agreements

viewed from the perspective of the West

threatens

to

fundamentally

because too large a portion of the global supply

alter the virtual global pool of

will have been taken “off-line” from the West’s

oil, realigning it inordinately

own perspective, leaving a reduced pool for it to

toward chiefly serving Western

draw from. Furthermore, that reduced pool will

oil demand. That would revive

become ever more slanted toward, or even

the possibility of embargos

dedicated to, the West’s oil demand. That

targeting the West

reopens the possibility of an embargo targeted against the West because if a producer or set of producers wished to embargo the West, all that would be required is to cut back on the level of production they contribute to the ever more West-oriented global pool while simultaneously continuing to honor their

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private contracts with their other consumers in the East. The West would be hit by the embargo while the East would mostly escape its effects. If Russia were the primary power enacting such an embargo it could easily target the US while mostly exempting Europe. It could accomplish this by enacting a production cutback all by itself or by coordinating one with a few of its oil-producing partners, while simultaneously threatening Europe with a gas embargo if it attempted to bust the oil embargo by redirecting some of its own incoming oil shipments to the US. Under such circumstances the US would be directly affected by a shortfall of oil imports whose size and duration would be entirely up to Russia. Oil’s fungibility would have been entirely undermined. The global price of oil as determined on the traditional USbacked global market might skyrocket, but that need not unduly affect the price of oil covered by the private contracts and agreements already in place to serve the economies of the East. As such, price increases resulting from such an embargo as depicted here would affect mostly the West while largely exempting the East. As it watches very warily such global that

In the near future Russia will

insufficient foreign investment is taking place in

almost certainly be able to

the oil and gas sectors of the world’s producing

single out the US for an oil

states to meet future demand. However, the new

embargo

model for investment is taking hold and

Europe

promises to provide what is needed to ensure a

embargo by holding the threat

balance between over-production and under-

of a gas cutoff over Europe’s

developments

production,

the

and

US

it

is

complains

doing

so

while

simultaneously and incrementally pushing the US and its multinational oil companies out of the picture and dangerously slanting the ever more vulnerable traditional global oil markets inordinately toward serving the oil demand of the West. That amounts to ‘very sour grapes’

while from

preventing busting

the

head. Russia will not enact such measures without provocation by the US. But if it ever is provoked

sufficiently,

its

retaliatory measures would be devastating to the US economy

for the US as it increasingly complains about the crop it must now reap from the seed it has long sown. It must be noted very carefully here that experts are well aware of the

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Chapter XI: Russia Has Crossed the Rubicon risks of such developments and trends as noted above, but they generally assume the US has considerable time left before any such fundamental changes in the global energy order could take place. However, the experts generally fail to recognize the already accelerated pace at which such developments and trends are coming to fruition, aided by the two factors of (1) the acute insecurity and nervousness on the part of the key rising economies of the East as respects energy security, and (2) the global rise of the resourcesbased corporate state, which can ‘turn on a dime’ as respects energy policy. These two factors are combining to greatly accelerate the global move toward the rival model of a global energy order described here.

Russian Plans for Ruble-Based Resource Bourses

It has previously been demonstrated in this chapter how confidence in and adherence to the US-backed liberal, open global oil market is being insidiously undermined by the mounting global trend of politically-oriented state-to-state relations with oil, gas and other strategic resources at the center. The mounting trend toward a progressive “locking up” of those resources bodes great ill for the current US-backed global market arrangement down the road only a little distance from where we currently stand. As if that grave and mounting threat were not bad enough, another is pounding ever louder at the door, and the insidious undermining of adherence to the traditional markets already discussed is laying the foundation for, opening the door to, the new threat. It involves the often-publicly-stated plans of Russia and other key members of its expanding global confederation to create rival resources-based market exchanges (bourses) denominated in currencies other than in dollars. Before you the reader jump to the conclusion that what follows here is the stuff of conspiracy theories, be informed that the author’s contempt for hypothetically-based conspiracy theory is likely far more pronounced than is yours. What follows here is verifiable fact and concrete analysis, not mere conspiracy theory. Read on further for the proof of that statement. The top leadership of Russia, Iran, Venezuela and other producing states have repeatedly expressed not only their desire to see petro-transactions conducted in

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currencies other than the dollar, but they have also taken a series of practical steps to achieve that goal. First and foremost they have diversified their central bank reserves out of the dollar in order to immunize their reserves against loss in the event of a sharp dollar decline or collapse. But they have gone much further than that. Both Iran and Russia have taken the preparatory steps to organize and launch new regional bourses for oil, and Russia is planning to include strategic minerals as well. Russia has recently (in July of 2006) made the ruble completely convertible, a step required for launch of a viable oil-and-minerals bourse denominated in the ruble. Mr. Putin himself stated publicly in his May 10, 2006 State of the Nation speech that Russia plans to launch such a bourse in late 2006 or early 2007, and that the convertibility of the ruble is a step specifically toward that goal. He said:

"In my address of 2003, I set the goal of making the ruble convertible. I must say the [outlined] plans are being implemented." "The ruble must become a more widespread means of international transactions. To this end, we need to open a stock exchange in Russia to trade in oil, gas, and other goods to be paid for in rubles." "Our goods are traded on global markets. Why are not they traded in Russia?" The statements of Mr. Putin along these lines were largely ignored in the West, and those

Beware of underestimating

few media outlets and analysts who did comment

Russia’s

on his proposal for a new ruble-denominated

leverage and its ability to

bourse generally laughed at the ruble and ridiculed

shape

the plan as meaningless and as wishful Russian

Those who have done so

thinking. However, the smug over-confidence of

have made one mistake after

the West and its tendencies toward severely

another and established a

discounting the ability of Russia to shape global developments rests on a very shaky foundation.

growing

unfolding

global

events.

dreadful forecasting track record for themselves

The West has been chiefly astonished at the rapidity and strength of Russia’s rise since the ruble crisis of 1999. It failed to discern

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Chapter XI: Russia Has Crossed the Rubicon Russia’s rise until it was wholly unable to stop it from continuing, as it still is unable to this day. Severely underestimating one’s rivals while grossly overestimating one’s own strengths is not wise. It leaves one open to the suffering of astonishing, unexpected losses that can be exceedingly difficult, if not impossible, to recover from completely. Discount Russia at your own risk! The mounting stability and desirability of the ruble is based upon the increasingly attractive economic condition of the Russian economy. Russia operates in the black and will continue to do so for the foreseeable future. It has paid its Paris Club debts early. Domestic policy carefully avoids squandering economic stability through deficits. This is contrasted with the ever weaker and more unstable dollar and the mounting international fears over the strategic health of the US economy, running so deep into the red for so long now that policy-makers have virtually run out of options for keeping the economy afloat. That staying afloat is now entirely in the hands of foreigners in the East. Against the backdrop of failing international confidence in the dollar, many have looked for a global exit from the dollar as the international currency, moving to a single replacement, perhaps the euro. However, with Europe’s troubles along the lines of the economy and the failure to achieve the adoption of a European constitution and tighter European unity, the euro will be very unlikely to become the new international currency. In fact, no single currency is likely to replace the dollar. Instead, the dollar’s global dominance is more likely to be lost incrementally to a number of other currencies as those currencies continue to rise in international importance, that is, as they come to be used more frequently in international transactions. The ruble is set to become one of these. So is the euro, and the yuan is also in the mix. This fundamental truth is reflected in the global trend of central banks destroying their old direct-dollar currency pegs and creating new pegs to a basket of currencies. Such moves demonstrate that the dollar’s international underpinnings are already being undermined while simultaneously the international underpinnings of other currencies are firming. The leaders and policymakers of the rising economies of the East have repeatedly stated that inordinate global dominance by any single currency is not good for the international system. The dollar is incrementally losing its international position and dominance, not to one currency, but to several at once.

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Here is where the idea of new resource bourses denominated in currencies other than the dollar and located, not in New York or London, but rather in Moscow, Tehran and Caracas has profound and ominous implications for the West. How so? We saw that the launching of the US-backed

The

international

exit

from the dollar won’t be a move to a single new international

currency,

but rather to multiple

liberal global spot market arrangement in the early

currencies

1980s, with exchanges in New York and London and

away

with transactions denominated in dollars, effectively

current dominance

at

that the

slice

dollar’s

created the virtual global pool of oil into which nearly all exporters sell their oil and from which nearly all importers draw oil. We saw that global adherence to that arrangement is what passed on to oil an unprecedented level of fungibility, thus preventing the enacting of any targeted embargos by producers. We also saw that the West fundamentally counts upon continued global adherence to that liberal market model and that such continued adherence constitutes perhaps the most important pillar of support for sustained US global dominance and for nonstop global dominance of the dollar itself. As such it is the single point of failure for the West. However, we also saw that Russia and its growing array of collaborators, on both sides of the energy producer/consumer sides of the equation, increasingly bypass and undermine the foundations of the traditional global oil markets by pursuing politicallyoriented state-to-state deals and ties that threaten to “lock up” ever more significant portions of the global pool of oil into invisible private pools. Furthermore, there is no pressing need for those state-to-state private energy transactions to be denominated in dollars. Certainly they are generally not so denominated, but are rather conducted in the respective currencies of the two private participants. Consequently, we are seeing the formerly unquestioned global adherence to the traditional open global oil markets insidiously undermined in favor of a new, rival model. Even though the West-backed traditional liberal oil markets and their associated global pool of oil still exist and appear for the most part to be thriving, their foundation is unquestionably being weakened by the ongoing developments and trends detailed here.

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Chapter XI: Russia Has Crossed the Rubicon What happens if Russia launches its new resources-based bourse on its own territory? Will anyone outside of Russia support it? In fact, eventually they will have no choice but to do so en masse. Why is that true? The creation of new bourses separate from London and New York and denominated in currencies other than in dollars inevitably implies the creation of new virtual pools of oil similar to, but separate and

Via

its

irresistible

energy-based

global

leverage Russia is firmly

distinct from, the current virtual dollar-denominated

positioned to open the

global pool of oil that was created and is maintained by

floodgates

the London and New York exchanges. From where will

international exit from

the oil come (in a virtual sense) to fill these new pools?

the dollar. Its plan for a

Why, from the current dollar-denominated global pool,

new ruble-denominated

of course! It could not come from anywhere else.

resources

Russia will withdraw a portion, or all of its oil from the

unhinge those floodgates

of

bourse

an

will

current global pool and place it in the new rubledenominated pool. In today’s tight supply market that will in all probability leave insufficient oil in the dollar-denominated pool to satisfy the needs of consuming states, and they will flock en masse to Russia’s new bourse in order to satisfy their needs. But they won’t bring dollars to buy from Russia’s new bourse. Instead, they will bring rubles, in effect, by conducting the transactions based on the ruble exchange rate for their own currencies. Dollars will not be involved. In fact they will not be welcome at the new bourses. A large slice will thereby be cut out of the dollar’s global dominance, and this will occur virtually overnight. Russia, by such means, can quite literally oblige the international system to begin to sign onto the ruble as one of the new international currencies. One can imagine the psychological effects on the markets of such an occurrence and the negative effects upon the dollar. The same is true for every other new bourse that is launched anywhere in the world and that is denominated in a currency other than in the dollar. Each one launched creates a new virtual pool of oil by stealing from the current dollar-denominated global pool. Each one will carve away another major slice of global dollar dominance and oblige

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the international system to sign onto the currency in which the new bourse is denominated. It should be noted that there is the distinct possibility (even the likelihood) that in setting up new bourses Russia and others who launch them may initially pursue a strategy of duplication of their product offering both on the global exchange and on the new bourse(s). In other words, initially there may be no effort to steal from the traditional dollar-denominated global pool to fill the new pools denominated in other currencies. Instead, the new bourses may replicate the product offering in multiple exchanges, in the dollar-denominated global markets and in the new bourse(s). That strategy would help the new bourses get established while simultaneously avoiding the causing of an impending dollar crash. However, once they are established, with little effort and warning the switch could be made to drop the replication on the global dollar-denominated markets, stealing oil from the global pool and thereby potentially sending the dollar into an international crisis. Importantly, even the establishment of initially non-threatening product replicating bourses provides for a sharp increase in political and economic leverage on the part of the states that launch them. All the world’s producers and consumers of strategic resources will fully understand the implications if such bourses were to ever drop the replication of the product offering and move fully into a stand-alone mode. Consequently, they won’t want to be caught on their heels, unprepared for such an eventuality. That will apply powerful pressure for states to secure a presence on the new bourses from the moment of their launch. Prudence and the very presence of the new bourses will also dictate that the players work to complete whatever economic and financial preparations are required to insulate and immunize their economies from a possible dollar decline or collapse. Psychologically, the presence of the new bourses will tend to undermine international confidence in the dollar even before such bourses move into a stand-alone mode. Their presence will also dramatically increase the political and economic leverage of their host states against the US. They are important components of an impending economic checkmate over the West that is currently being put together by the multifarious East.

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Chapter XI: Russia Has Crossed the Rubicon Consider more closely the implications if even one such (non-product-replicating) bourse is

The

ever launched successfully or placed into a full

order cannot survive intact if

stand-alone mode of operation. The dramatic

Russia ever decides to acutely

demonstration of the sudden existence and

undermine it by launching a

thriving of a rival to the dollar-denominated oil

non-dollar-denominated

market will shake the confidence of the US-

resources bourse in a full

backed market. In all likelihood a number of

standalone mode of operation.

other exporting states who are geopolitically closely aligned with Russia or with whomever is the host state for the new bourse will prudently begin to pull at least some of their oil out of the dollar-denominated market and support the new

US-centric

economic

Such a move would provoke a hemorrhage international

of support

what still

remains for the dollar

bourse, just in case, to hedge their bets and not keep all their proverbial eggs in the dollar-denominated basket. The dollar will without question sharply weaken against the other currencies in response. That development will upset the oil producers who have so far remained within the dollar-denominated market arrangement because they will face having to take the weaker dollar as payment for their exports. That will put them at a growing disadvantage as the price of their oil on the dollar-denominated exchange rises sharply. Such volatility is extremely undesirable from the standpoint of buyers, who will look across to the new bourse and see little if any such volatility because dollars are not involved there. Exporters who still remain at the dollar-denominated market will be faced with the undesirable situation of exchanging dollars received through oil sales, for their own or perhaps other currencies, which have risen sharply against the weakened dollar. Private investors around the world who have invested in the dollar will rapidly divest themselves, causing and even sharper decline in the currency. The sharp decline of the dollar will in all likelihood feed upon itself as the psychology of panic takes over. The dollar-denominated global oil market will likely dry up as exporters pull their product out and enter the new bourse(s). The successful setting up of even one such new bourse has the very real potential to open the proverbial floodgates to an international exit from the dollar, beginning in the

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all-important sphere of petro-transactions and spreading to all international transactions, all in a very compressed period of time consisting probably of weeks and months rather than years. At present there remains little to support the dollar and much that weighs ever more heavily upon it. In the event that a new resources bourse is launched it is almost inconceivable that the dollar could remain unaffected. Even if it did for a time, the impact of the new development would eventually win out and the dollar would enter a major decline, much sooner than later. As the dollar declines sharply in such a scenario, consider what the US would be facing. The price of oil in dollars would skyrocket, yet as priced in other currencies it would remain mostly stable by comparison. The US would be forced to pay much more than what it now pays for a barrel of oil, and the sharp increase would happen over a period of mere weeks or months. Additionally, due directly to the sharp decline of the dollar, a massive price inflation hit would spread to everything else the US buys from overseas. That tremendous inflationary punch on the US economy would spread throughout its structure and would seriously risk causing a virtual collapse in sector after sector of the US economy. The international exit from the dollar to multiple other currencies would occur so quickly, over a period of several months at most, that the US would have little ability to deal with it in an orderly fashion. This is the nightmare scenario for the US. It could be unleashed quickly and with little effort. The tsunami from a US economic collapse would circle the globe multiple times and would certainly buffet the other economies of the world. Those tied the closest to the US would likely also collapse. However, by and large the economies of the East and their closest allies are far better prepared to endure the buffeting than is the US and its closest allies. Even if the dollar somehow managed to avoid sharp decline or collapse in such a scenario, it would certainly still be forced into a strategic decline that would rightly be classified as steady, if not steep. That is powerfully inflationary for a nation that is so dependent upon imports. To fight those rapidly added inflationary pressures the Fed would be forced to raise interest rates faster and further than the US economy can bear, pushing the US hard into stagflation and recession. That would further weaken the dollar and the decline of the currency would again feed upon itself, greatly exacerbating the negative effects. The US would experience, at a minimum, a very hard landing.

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Chapter XI: Russia Has Crossed the Rubicon Furthermore, in a global situation where the new bourses have been launched and they have been moved to stand-alone mode (their products no longer replicated on the dollar-denominated global markets), the dollar-denominated global pool of oil will have been significantly reduced in size as the new pools denominated in other currencies are created. Even if we assume the dollar has somehow come through such a development largely unscathed, the troubles for the West and for the US in particular would be far from over. Those host states launching the new bourses would all tend to be rivals, if not outright enemies, of the US. The oil filling their new virtual pools would tend to be that from states not aligned with the US, therefore. The division of the global pool of oil into separate pools hosted by states not sympathetic to the US, with a resulting dollardenominated global pool much smaller than its former size, would be an ominous development for the US itself. If certain bourse-hosting states wanted to enact an oil embargo against the US they could simply revoke US access to their respective bourse(s). That would close off significant amounts of oil from US access and force it to buy elsewhere, perhaps on another bourse if one existed and if US access had not also been revoked there, or else on the shrunken US-backed global market. Additionally, producers could deepen such an embargo by decreasing the amount of their product which they sell on the traditional US-backed global markets and increase the amount they sell via the new bourse(s). By controlling access to the new bourse(s) and the volumes of product they sell at each respective market exchange states could enact a finely targeted embargo against an enemy. That is why any development or trend that works to undermine the current US-backed global oil market arrangement is a development or trend of profound negative impact for the US because its rivals and enemies can find effective ways to exploit such matters against the US. A sharp US economic downturn or even a collapse will initially slow global growth significantly and sharply decrease global demand for oil, tending to cause its global price to fall. However, the global confederation led by Russia has been careful not to engage in over-production and the complex of close ties and alliances throughout the confederation will facilitate close cooperation in matching production closely to demand, thus avoiding a global oil glut and a price collapse. They are already displaying such coordination. Lower oil prices will facilitate a return to economic growth outside the US

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and global oil demand will rise again and stabilize, as will oil prices. The world will adjust to the shift of the global economic center from North America to the East.

The Form and the Global Leverage of RUBICON

RUSSIAN RUBICON was earlier defined here as Russia’s

Resources Underwriter-Based Importer-Inclusive Confederation The unofficial yet potent, ever more cohesive global confederation comprising RUBICON is progressively crystallizing around the Russian Phoenix as it inexorably rises from the ashes of its 1999 economic collapse, ascending ever higher on the universal flames fed by oil and gas. RUBICON is partly explained by the natural and inevitable geopolitical attraction of lesser powers to a rising Russia, partly explained by brilliant and opportunistic Russian strategies. Strategic American blunders opened the door to its formation. The irrevocable sovereignty of strategic resources thwarts slamming shut the door. In the new geopolitical environment especially after 1999 where the industrialized nation is the norm and where strategic resources reign supreme the new global confederation could be expected to form around the geopolitics of energy rather than around anything else. The new confederation would therefore be underwritten by the global array of energy producers serving as its foundation, with the foremost among them, Russia, acting as Chief Underwriter. This is why RUBICON is here referred to as being “resources underwriter-based”. The proven ability of the resources producers within the confederation to provide its fundamental energy needs enables them to underwrite its formation, expansion and ongoing viability. The energy geopolitics-driven disintegration of traditional confederations would also be expected in the wake of its formation as states progressively realign based on a reevaluation of their fundamental energy security interests. That global trend is now clear to all onlookers.

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Chapter XI: Russia Has Crossed the Rubicon Like galaxies, global confederations have an irresistibly energetic core or nucleus around which they coalesce. If that core’s energy is rising then it can attract an ever greater constellation of ‘stars’ into its orbit. But if its energy is waning then it can lose ‘stars’ from its constellation. One galaxy can attract stars away from another in such cases. Fundamentally, only two energetic cores have existed within the international geopolitical system, our geopolitical universe, as it were, since the end of WWII. They are America and Russia, and global confederations have formed, broken up, and reformed around them. After 1991 the more energetic American nucleus took nearly everything away of the constellation orbiting the collapsing Russian nucleus. However, now a grand reversal is taking place, and Russia is cheating the American constellation of its ‘stars’. After 1991 America seemingly took everything for granted with respect to the permanence of its constellation of allies and its position of global dominance in all spheres. It has done little to guarantee the livelihood of its constellation of precious alliances, precious little to ensure its global position by careful planning and preemptively positioning itself always in the coveted place where it can shape events rather than try merely to react to them. In fact it has marched headlong into one strategic blunder after another, virtually guaranteeing its own fall on the world stage. Russia takes nothing for granted. It embarks upon carefully thought out, forwardlooking strategies designed to properly position it to capitalize on developments by occupying a position where it can shape them, and it is quick to capitalize on those developments when they do occur. All designed to assure its geopolitical rise. America has arrogantly acted as if it could continue to occupy the dominant global position of its own volition, without the de facto acquiescence and support of the world at large! It utterly failed to appreciate the inestimable value of its alliances and has largely squandered them. Russia modestly recognizes its own limitations and it works tirelessly and it works smart to form and nurture its vital alliances and ties around the globe. Its leaders foresaw the general course of global developments as respects energy, positioned Russia to massively capitalize, and deepened its ties both with other producers and key consumers around the globe. It does not seek to form merely a cartel of producers,

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excluding consumers. Instead, it seeks to form a cohesive confederation, a true global confederation closely incorporating both producers and consumers, thus overseeing the formation of a global confederation that enjoys a remarkable level of self-sufficiency and independence. That is why RUBICON is here stated to be an “importer-inclusive confederation”. Global developments unmistakably add up to the fact that an ever more politically and economically cohesive new global confederation of both producers and consumers that is fundamentally based upon and driven by energy geopolitics, a confederation conveniently called here RUBICON, that is, the resources underwriter-based importerinclusive confederation, is progressively but rapidly forming before our eyes. Russia is its de facto center and coordinator and its driving force is international energy security. But energy security for whom? Assuredly not for the US! Both it and its imperative liberal global oil market exchanges are being excluded from the new confederation on every consequential level, and incrementally undermined in favor of an entirely new rival model, respectively. The ominous rise of the resources-based corporate state continues. The vast bulk of the globe’s strategic resources are rapidly falling under the control of regimes whose closeness to, and control over the domestic energy sector and all its corporations and industries hands the corporate state unprecedented domestic control and rapidly growing international leverage as well. Russia is the foremost example of such a corporate state. Accompanying Russia are similar regimes around the globe potentially locking up the world’s strategic resources. It is difficult to name more than a mere handful of liberal democratic governments that sit atop appreciable strategic reserves, let alone any that are closely aligned with the US. Ominously, the corporate state regimes around the globe that sit in control of strategic resources all have a political affinity for one another, and the politics that bind them ever closer is increasingly the politics of growing insensitivity to American interests, outright rivalry with America and growing anti-Americanism. The Middle East, Latin America, Central Asia and Africa are bursting at the seams with such resources-based corporate states and authoritarian regimes increasingly aligned either independently of American strategic interests or in outright opposition to America. Even the moderate oil exporting states of the Middle East are loathe to continue in close

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Chapter XI: Russia Has Crossed the Rubicon alignment with the US and are actively looking to the East, realigning accordingly. The West has little authentic influence over the resource-rich regimes of the world, but Russia’s influence within that faction is mounting as its alliances and ties with its members deepen. China’s influence there is mounting as well. Both powers actively arm and otherwise bolster such resource-rich regimes. The globe’s strategic resources have already moved out from under US sway and the regimes controlling those resources are rapidly moving beneath Russian and Chinese affiliation and persuasion. Could anything be more ominous for the West? Often, experts in the West put forward the scenario of a world soon descending into a free-for-all situation of war and chaos as energy-hungry powers in both the East and the West turn to violent self-serving confrontation over access to dwindling resources. That scenario is certainly not outside the realm of possibility. However, the ongoing construction of Russia’s global confederation of producer and consumer states, based fundamentally upon the fulfillment of the mutual interests of all members of the confederation (the principle of complementary symmetry), is the one powerful factor that has the real ability and even the likelihood to prevent such a scenario of global chaos from occurring. It depends largely upon the strength of Russia’s leadership and its ability to shape global events as they unfold, casting events toward cohesion among the producers and consumers in the confederation, seeing to it that the energy security interests of its members are adequately served, thus avoiding any pressing need for its members to break ranks and pursue a militarized course in the quest for energy security. Russia is already displaying such leadership and there is every reason to be confident that it will continue to do so. Additionally, securing access to strategic resources by military means is much easier said than done, and the rising economies of the East fully understand that fact. They have only to look at the quagmires the US has sunk into in Iraq and elsewhere to have that lesson reinforced for themselves. The model around which the new global confederation is being constructed helps to ensure that the chaotic fragmentation of its members is very unlikely. It is the powers left outside the circle defined by the global confederation that have to worry inordinately about energy security, not those within the circle. Those inside will have their energy security interests properly served, thus undermining any motivation toward war between its members. And the

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increasingly united front posed by the confederation itself will present an overwhelming barrier to the US in any militarized attempt it may mount to achieve access to certain strategic resources it may wish to secure for itself. In line with its chosen theme of international energy security which it promoted at the recent 2006 G-8 summit, Russia is actively constructing a new international system designed to achieve that very goal, international energy security. But Russia’s vision of “international energy security” conspicuously leaves out of the picture the strategic energy security of the US itself, at least as defined by the US. Russia’s vision, and the model it adheres to in the construction of its new international system, is radically different than the current US-backed model of liberal, open global oil markets and exchanges and radically increased foreign investment to ensure global production comfortably exceeds global demand. Russia’s vision is instead that of closed, private politically-oriented, politically-motivated state-to-state long-term supply contracts, agreements and ties that increasingly bypass the liberal open markets by locking up an ever greater percentage of global resources, making such resources no longer visible and accessible to the global markets. Russia’s vision is one of the rise of a complex of ever deepening mutually beneficial alliances and ties between the world’s producers and key consumers mostly in the East with ever greater political affinity between all the players on both sides of the producer/consumer equation. Its vision is one in which such deepening ties expand to other spheres outside of energy to include the spheres of security, the economy, the military and the diplomatic. Russia’s vision is that of new energy and mineral bourses denominated in currencies other than the dollar and of an international exit from the dollar as the dominant global currency. Russia’s vision is therefore one of the arising of a de facto geopolitical bloc of the East, multifarious yet enjoying profound cohesiveness, fundamentally based upon and driven by energy geopolitics and the quest for what Russia has called “international energy security”. This is Russian RUBICON. The US isn’t being invited into the expanding complex. Nor will it be invited in. By virtue of the progressive undermining of the foundations of the current liberal open global oil markets by means of locking up resources and the impending establishment of rival exchange markets not denominated in dollars, the Russian RUBICON is insidiously

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Chapter XI: Russia Has Crossed the Rubicon altering the fundamentals of the traditional global energy order. Developments under Russian lead are not moving in the direction of bolstering the traditional energy order. Instead, they are insidiously creating a new order where the West, and especially the US, will largely be left to tend and rely upon the old order while the bulk of the world’s states move into array around the new global energy order Russia and its partners are making. In the new order oil’s much-heralded fungibility won’t be sustained because the liberal US-backed market exchanges that ensured the global fungibility of oil will have been marginalized. The ability to enact targeted embargos against the West will be revived and sustained, therefore. It is the insidious, irreversible undermining of the traditional order in favor or the creation of a rival order by Russian RUBICON that paves the way for such ominous potential, that of an impending checkmate of the West. This is not to be the eventuality that first arrives in the year 2030, nor 2020, nor even in the year 2010. This eventuality arrives within this very decade, in which only about three years yet remain. As the multifarious East continues its rise as the rival center of power to the West the ongoing de facto re-polarization of the globe into two fundamental camps will progress toward conclusion. The shift to bipolarity is already ongoing and it is nearly complete. The presence and influence of two global poles, West and multifarious East, increasingly hold sway over global developments of any consequence. The much-touted term “multi-polar” isn’t adequate to describe the new configuration that is actually arising for the world order. Instead, the term “asymmetrical bipolar complexity” (asymm·plexity), a lopsided bipolar order in which the complex (multifarious) pole of the East is in the ascendant position, properly describes the new configuration whose fist is hammering ever louder at the door.

Summary of the Main Points Ü Russia is working to create a new cohesive global confederation of states that are politically like-minded, largely oriented economically and geopolitically toward the East, have a common view of how to achieve international energy security, and do not adhere to the USbacked traditional global oil market arrangement and order. The

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model around which the new confederation is being built is not asymmetrical like that of the cartel model which restricts membership to producers alone. The new model features the principle of complementary symmetry where both producers and consumers become equal members and where the legitimate needs and interests of both sides are fully accounted for within the confederation itself. Ü RUBICON is the Resources Underwriter-Based Importer-Inclusive Confederation, a convenient name for the new global confederation. The confederation is underwritten by the global array of producer states that collectively provide a stable offering of strategic resources. Russia is foremost among these. The confederation includes key consumer states primarily in the East, but including also certain states in Europe that are close energy partners with Russia, all of which collectively provide a stable assurance of demand for resources. The confederation is therefore largely self-sufficient and independent. Ü The rise of the resources-based corporate state is the accelerating global phenomenon evident among virtually all the world’s producer states characterized by unprecedented levels of integration between the state and the corporate/industrial entities of the energy and other key sectors of the economy. The Russian model, where the lines of separation between the political leadership of the state and the directorship of key corporations and industries have been virtually obliterated, is educational in this regard. Rather than a return to the communist structure of absolute state control at every level, the corporate state model places private corporations at the helm, but reserves ultimate, top-level control for the state. Private ownership and open market principles are adhered to, yet the state sets the ultimate bounds within which economic activities may take place. The model incorporates the ultimate authoritarianism of the communist system with certain pragmatic principles from democratic capitalism to form the so-called “managed democracy” politico-economic model of the corporate state. To varying but meaningful degrees the Russian model of the corporate state is being copied around the globe by resources-producing states resulting in actual or de facto nationalization of the energy sectors, a forcing out or a sizable reduction of the stakes of the oil companies and financial institutions of the West, resulting in the vast majority of the globe’s resources reserves coming under virtually absolute control by regimes with ever increasing political affinity with Russia, China and the East. The rise

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of the resources-based corporate state therefore plays directly into the building of the new global confederation called RUBICON. Ü The basis for the fungibility of oil is its ongoing high global demand

along with the vital factor of the presence and precise fundamental structure of the US-backed liberal global oil market arrangement, which arrangement has created one virtual global pool of oil into which most producers deposit their oil and out of which most consumers extract oil. The continuation of this arrangement without significant alteration and the undiminished global adherence to it is absolutely crucial for the West because this traditional arrangement profoundly increases the level of fungibility of oil, thereby preventing the possibility of an embargo targeted at the West. However, the new trend of state-to-state level long-term supply contracts and agreements involving equity shares of oil fields, conducted privately and therefore bypassing both the traditional global oil market arrangement and its virtual global pool of oil, threatens to undermine the vital (to the West) traditional arrangement by locking up increasing quantities of oil for the East, leaving the traditional virtual global pool of oil to predominantly serve the oil demand of the West. That decreases the fungibility of oil, or the usefulness of its fungible nature, because a virtual global pool of oil inordinately slanted toward the West rather than serving truly global demand revives the possibility of the targeted embargo. Producers could simply cut back on the oil they contribute to the altered global pool and thereby target the West by default. Ü If and when Russia or any other major producer opens any new independent oil and gas bourse(s) denominated in rubles (or other currency) rather than in dollars, and if Russia (or any other major producer) supplies oil to the new bourse(s) by removing a portion or all of its oil offering from the current US-backed dollar-denominated global oil market exchanges in London and New York, then in the current tight global supply situation consumer nations would have no choice but to flock en masse to the new bourse(s). The slice that would take out of the dollar’s global dominance in petro-transactions would pointedly weaken the dollar, leading to additional pressure for producers to sell on the non dollar-denominated bourse(s) where the price stability would be far greater and where they would be paid in currencies that are much more stable. The US economy would be faced with a potentially massive hit of inflation as its dollar weakened and prices of imported goods rapidly elevated across the board. The

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US would be facing virtual financial collapse as the psychology of panic took over and private investors around the world sold out of the dollar, precipitating a virtual collapse of the currency. Ü If Russia completes the building of RUBICON and if the West provokes its key players sufficiently, Russia and its partners making up the multifarious East could enact an economic checkmate of the West in three distinct ways: (1) RUBICON is being built under the philosophy of bypassing the traditional US-backed liberal global oil market order in favor of private state-to-state long-term supply contracts and agreements to fulfill the energy demand of the multifarious East. As such the US-backed virtual global pool of oil will both shrink and become inordinately slanted toward fulfilling the oil demand of the West as creation of RUBICON advances. That alteration of the orientation of the global pool of oil undermines the fungibility of oil and revives the possibility of an embargo targeting primarily the West. To enact such an embargo one or more producers would simply need to cut back on the amount of oil they sell on the open global market. They could do this because the lion’s share of their oil would likely already be sold under private contracts and agreements. The West would suffer a potentially devastating economic blow. Russia could isolate and target the US for such an embargo by cutting back on the amount of its oil sold on the global market, but promising sufficient oil shipments to Europe while simultaneously issuing a threat to cut off Europe’s gas if it tried to bust the UStargeted embargo by redirecting any of its oil to the US. (2) Russia and/or any of its oil producing partners within RUBICON could launch fully independent oil bourses denominated in currencies other than in dollars and transfer a portion of their product offering from the traditional US-backed dollar-denominated global oil markets to the new bourses. That move will powerfully undermine and most likely collapse the dollar. (3) In the event that new independent bourses not denominated in dollars are launched and the players making up RUBICON wish to further target the US for an economic checkmate, they could simply revoke US access to the any/all of the new bourses, leaving it able only to access its own traditional global oil market arrangement, which would by that time be severely crippled and wholly unable to meet US oil demand.

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Graphical Illustrations Click on the thumbnail images below for full-page graphical illustrations of the respective concepts of Russian Rubicon and Asymm·Plexity

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Key References for Chapter 11

UNITED STATES SENATE COMMITTEE ON FOREIGN RELATIONS ASIA’S ENERGY INSECURITY, CHINA, AND INDIA: IMPLICATIONS FOR THE U.S. Hearing: July 26, 2005 Testimony Mikkal E. Herberg The National Bureau of Asian Research Seattle, Washington

~ Testimony of David L. Goldwyn before the House Government Reform Subcommittee on National Security, Emerging Threats and International Relations and the Subcommittee on Energy and Resources May 16th, 2006

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Chapter XII: Advance Economic and Financial Measures

CHAPTER XII: ADVANCE ECONOMIC AND FINANCIAL MEASURES

Ü How are the regional economic integration and the global independence of the economies of East Asia progressing? Ü What are the implications of such growing regional economic integration and global independence? Ü How are the economies of the East, including Russia, immunizing themselves against US economic decline and a collapse of the dollar? Ü How are the economies of both Russia and China positioned to avoid a hard landing while that of the US is headed inexorably toward that unpleasant eventuality?

We have seen in the previous chapters (Chapters X and XI) how the ongoing creation of Russia’s RUBICON increasingly facilitates the global coordination and unity that will be required to overcome oil’s fungibility and thereby provide the working basis for successful targeted oil pricing and embargo directed at the US. Additionally, we have seen how all of Europe has already fallen under the dark shadow of Russia’s unbreakable gas export monopoly. Thus, we have already seen two of the four foundation cornerstones upon which rests the ability of the multifarious East to exercise energybased checkmate of the West. In this chapter we examine the two remaining foundation cornerstones supporting the ability of the multifarious East to exercise that checkmate if it deems it necessary to do so. They are: Ü

The boosting of the global economic independence while simultaneously deepening the regional integration of the economies of East Asia

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PART III: CHECKMATE BY THE MULTIFARIOUS EAST – HOW? Ü

The increasing immunization of the economies of the East against a dollar collapse.

These two important cornerstones constitute the advance economic and financial preparations that have been undertaken specifically to cushion the economies of the East against inordinate harm in the event of a sharp decline, or even collapse, of the US economy and currency.

The Economies of the East Boost Independence from the US

Ongoing, accelerating Asian economic integration is already undermining the former inordinate dependency of the Asian economies upon direct trade with the US. China has already surpassed the US as Japan’s primary trading partner. The rest of the East Asia economies are proceeding along the same path of regional economic integration above economic integration with the US. Thus, East Asia’s economic ties to the US are being incrementally weakened while simultaneously regional ties are being bolstered. East Asia is steadily moving along the path from inordinate dependence upon the US toward greater regional economic interdependence and global independence.

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Chapter XII: Advance Economic and Financial Measures According to the following figures compiled by The China Business Forum (by Edward Gresser, ISBN 1-929892-13-6, website: www.uschina.org) in June 2005, Asian economic integration and independence is proceeding along the clear path described above:

Asian Exports, 2000 and 2004 Country

2000

2004

% Change

Japan to United States

$144 billion

$131 billion

-9%

to South Korea

$31 billion

$46 billion

48%

to China/Hong Kong

$57 billion

$113 billion

98%

Mainland

$30 billion

$76 billion

Hong Kong

$27 billion

$37 billion

to United States

$38 billion

$43 billion

13%

to Japan

$20 billion

$22 billion

10%

to China/Hong Kong

$29 billion

$68 billion

135%

Mainland

$18 billion

$50 billion

Hong Kong

$11 billion

$18 billion

to United States

$80 billion

$85 billion

6%

to Japan

$57 billion

$57 billion

0%

to China/Hong Kong

$37 billion

$74 billion

100%

Mainland

$16 billion

$40 billion*

Hong Kong

$21 billion

$34 billion*

South Korea

ASEAN

Source: Table uses data from IMF, Korea International Trade Association, JETRO, and Southeast Asian statistical agencies. *ASEAN data for 2004 are unavailable for some member nations, so total ASEAN exports have been calculated using 2003 data and the 2003-2004 import growth rate reported by PRC Ministry of Commerce.

It can clearly be seen from the data above that the East Asia economies are rapidly integrating regionally, with exports to China growing swiftly, while exports to the US have seen little or no growth. As Mr. Gresser notes in his analysis, the fact is that

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“Asian integration, rather than Chinese economic strength alone, is creating a fundamentally and genuinely more competitive Asian economy.” [Italics added] With respect to China itself, by the end of 2005 its exports to the US reached a total of about $163 billion, which accounted for roughly 32% of China’s exports to the world. This was a dollar increase of about 30% from 2004. However, its exports to the rest of the world (aside from the US) also increased dramatically from 2004 to 2005, ranging from a 14% increase as respects Japan to a 44% increase as respects Russia, and averaging about a 29% increase. Hence, China’s year-on-year non-US export growth is not lagging significantly behind its US-centered export growth. Additionally, 70% of China’s foreign investment comes from East Asia, further demonstrating its regional economic integration. The New York Times of August 12, 2006 carried an article entitled, “There’s More Than the Currency Advantage Behind China’s Export Surge”. In it author Floyd Norris makes a comparison between China’s exports to the rest of the world and the total US exports to the world. In 1993 China’s total exports were one-fifth as large as US total exports to the world. By 2000 they had grown to one-third as large as total US exports. By 2003 they were nearly two-thirds, and by 2005 they were 84%. As of June 2006 they were 90% for the period of the first six months of the year. To emphasize the point, since two-thirds of China’s exports are to countries other than the US, then roughly two-thirds of its phenomenal export growth is not directly related to the US. Rather than confining its export activity inordinately to the US as many erroneously assume, China has been actively using its export standing with the US as a base from which to expand and to conquer global markets far beyond the US itself. The performance of East Asia as a rising de facto economic bloc and of China in particular demonstrate the distinct competitive ability to compete successfully with the US for global markets, and to overtake the US. East Asia’s dramatically advancing workforce and industrial sophistication, along with its comparatively low labor costs, give it increasingly powerful advantages and makes it a global force to reckon with. Contrary to the view of many, East Asia in general and China in particular have had their sights set, not inordinately on the US market, but on positioning themselves globally. The East Asia region is therefore already well positioned to move beyond the US and to

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Chapter XII: Advance Economic and Financial Measures capitalize on the non-US global market in the event of a US economic downturn. Hence, with respect to China in particular, its mounting export trade with the US does not, in its own strategy, constitute the end goal but rather only a key stepping stone and launch pad in its quest to catapult both itself and the East Asia region forward as global economic players. They are already accomplishing that feat as detailed above.

East Asia Achieving Greater Leverage over the US

Whenever the subject of possible future economic warfare between East and West arises, the assumption is often made in the West that the US maintains sufficient leverage against the Asian economies in general and China’s economy in particular such that it could deter any such move by threatening to add punitive import tariffs or even to cut off most or all imports from China and thus cripple its economy, since 32% of all China’s exports currently go to the US. The argument goes that the US could do likewise with the exports of the other economies of East Asia. But is that really a viable response for the US in the event that it and East Asia become embroiled in an economic war? The US is already inordinately dependent upon inexpensive imports from East Asia and it

The economic and financial

would risk seeing domestic price inflation mount

tools and weapons at the

rapidly if it placed punitive tariffs on those goods or

disposal of the multifarious

if it switched to more expensive imports from

East are profoundly more

Europe, or from Latin America which generally

effective, destructive and

lacks the industrial base required to replace East

focused

Asia’s exports. If it attempted to switch away from

comparatively

China to other East Asian imports China would still benefit indirectly because the other East Asian

than

are

the feeble

retaliatory means at the disposal of the US

economies are almost completely reliant upon China to support their own export base, and the costs of goods would turn out to be more than what the US now gets from China directly, and thus price inflation in the US would be fueled again. Mounting inflation in the US is already pinning Fed officials’ backs to the wall and threatening the onset of a hard push toward stagnation (or worse) due to higher

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interest rates. Taking on added inflationary pressures in an attempted retaliation against East Asia at this critical juncture is not a viable option. The US has little real ability to retaliate against China or East Asia via tariffs or embargo of imports, therefore. It would do far more harm to itself than to the enemy. Such a strategy of retaliation is both a clumsy and dull sword as well as a double-edged one, with the edge intended to cut the enemy being exceedingly dull while the edge that cuts back against the US being particularly sharp. China has already calculated that the US is overly reliant upon bubbles in the real estate and stock markets, that it has already forfeited its industrial/manufacturing base and that with rising inflation and interest rates the US economy is moving steadily and irreversibly toward recession. The likely implications for East Asia include a notable downturn in the volume of exports to the US very soon, regardless of whether East and West become embroiled in heightened economic tensions, or full warfare. China and its partners are already preparing to endure such a downturn, setting their real sights beyond the US, on expanded trade with their other global trade partners. The question is, in the US-China economic relationship which party is the most dependent, the most vulnerable? The US is inordinately reliant upon inexpensive East Asia imports and has no viable alternatives, but East Asia can export anywhere on the globe beyond the US market, virtually at will. It is already doing so. Another pertinent question is which party can endure greater economic pain in the event of an economic war between East and West? The US is internationally isolated while the multifarious East is increasingly unified. The US economy at this crucial juncture is massively in the red and is beset with instability and weakness and a pronounced vulnerability to an entire range of factors and trends, while the so-called emerging economies of the East are generally much healthier and more stable by comparison. Yet another key question is which party could inflict the greater pain in the shortest period of time if relations deteriorate into economic war? China and the multifarious East could inflict by far the greatest pain almost immediately because of their profound influence over the dollar and over interest rates. China could cause US interest rates to surge if it even threatened to sell off a portion of its reserve dollars or

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Chapter XII: Advance Economic and Financial Measures otherwise spoke or acted so as to curb the private Asian investor appetite for dollardenominated assets. The private Asian holders of dollars would run to other currencies, global demand for US assets (debt) would plummet, and interest rates would have to climb to attract investors back. China could cause repetitions of dollar volatility and thus undermine global confidence in the dollar and precipitate an incremental but accelerated exit from it to other currencies. China would likely coordinate any such moves with its Asian partners and with Russia (whose economy is already virtually independent of that of the US), greatly magnifying their negative impact on the US. The US economy would face a very hard landing while those of the multifarious East, now significantly more diversified and insulated than ever before from inordinate reliance upon the US, would in all likelihood face an endurable downturn.

Increasing Immunization against a Dollar Collapse

Asian central bank officials have sought to reassure the markets since the spring of 2005 that diversification out of the dollar is not taking place. Most find such statements confusing considering that they, and many other central bank officials in Europe and the Middle East have also repeatedly said that diversification of reserves out of the dollar is both prudent and necessary and that Asia cannot continue financing U.S. deficits by continuing to buy dollars. It should not surprise anyone that central bankers, especially those in Asia where enormous sums of reserves are still held in dollars, would be talking in a manner to firm up that currency. Denying that diversification of their reserves is taking place is one way to stem, temporarily, a further decline in the ailing dollar. But if such diversification is not taking place in East Asia, then why do the central bankers keep saying such actions are prudent and necessary?

Central Bankers have a Prudent Strategy

Human nature is such that keeping a secret is extremely difficult, and it gets much harder the bigger and more important the secret happens to be. The central bankers have

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positions of great influence and economic power, sitting atop trillions of dollars in reserves. Their position requires that they possess a significant measure of sophistication and shrewdness not possessed by all. But they are not perfect and therefore sometimes they err by saying publicly what should not be advertised. On the other hand, not all of the public statements about "diversification" of reserves have been delivered inadvertently or by accident. Some have clearly been engineered. The nature and character of their statements over the past two years, along with hard data, reveal much about what is really happening in secret and why such statements keep appearing in public from time to time. Recent statements about the need to diversify the reserves, and the intention to do so in the face of the dollar’s continued weakness, can hardly be characterized as mere erratic and unfounded conjecture, or as thoughtless blather, or as the ravings of radicals. Rather, the contents themselves of such statements have been well ordered and entirely lucid. On the other hand the official denial statements that invariably soon follow have always been rushed and have come on the heels of a renewed slide in the dollar’s value. Sometimes such slides were actually caused by the “diversification” comments made by officials, requiring rushed denials. At other times the dollar slides have been caused by the release of U.S. Treasury or other economic data depicting fundamental economic problems for the U.S. In any case the official denial statements have always been ‘damage control’ obviously designed to forestall or reverse a sharp decline in the dollar. Are we to take merely at face value such official denials regarding diversification and conclude

Central

that no diversification of reserves is occurring in

prudently embarked upon a

Japan, Korea, China or elsewhere? That would be

surreptitious

foolish on our part and the central bankers themselves

immunize their respective

would be foolish and imprudent to fail to make plans

economies against a dollar

to weather a further decline in the dollar. If no diversification is occurring in Asia, then we must conclude that when those Asian central bank officials

bankers

have

strategy

to

crash. Russia, in the clear global lead, has already

have spoken repeatedly of the prudence, wisdom and

achieved its objective, to the

necessity of diversification, they don’t include

shock of most analysts

themselves in the group of prudent and wise bankers who do what is necessary to protect their own enormous reserves! In view of the fact that such a conclusion is unreasonable in the

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Chapter XII: Advance Economic and Financial Measures extreme, we must conclude that the central bankers are engaging in market deception and indirection when they hurriedly issue their denials regarding diversification. They are making denials for obvious reasons, to keep the dollar propped up while their diversification process continues, because they cannot telegraph their intentions and secret undertakings too vigorously for fear the dollar may collapse before they are ready to weather it. Moving beyond the psychological to the concrete, what do the numbers show about diversification in Asia? With respect to China, about 50% of China's growth in foreign exchange reserves from 2001 to 2004 has been placed into dollars. In 2005, however, while China saw its reserves grow by $112 billion, the dollar portion of that growth was only 25% or $25 billion, according to the always well-informed Montreal-based financial consultancy firm, Bank Credit Analyst. China’s growth in forex reserves continues to mount, now achieving a total value approaching $1 trillion, yet its central bank holdings of US Treasuries has increased only slightly. With respect to the Bank of Korea, a study by Stephen Englander of Barclays Capital Research indicates that as of mid-2005 as much as 45% of its reserves were in non-dollar holdings. This is indicated by the fact that the fluctuation in the value of those reserves does not track nearly on a one-to-one basis with the value of the dollar, indicating that dollars now make up far less of the BOK reserves than previously. Additionally, while Japan’s central bank is evidently much farther behind those of China and Korea as respects diversification out of the dollar, it is very noteworthy that Japan has not intervened (buying massive sums of dollars) to stop the rise of the yen against the dollar for nearly three years now. More than that, Japan has been a net seller of U.S. Treasuries so that its current position in that regard is the lowest since 2000, before the dollar began its steady decline in mid-2001, according to Bloomberg data. The data prove Japan is no longer adding to the dollar-denominated portion of its reserves, and has even been selling off Treasuries to reduce its exposure to the dollar. It should be clear that Asian and eastern European central banks have been doing privately what they insist publicly they are not doing, namely diversifying their reserves out of the dollar. They are accomplishing that feat, not by massive selling off of dollars, but rather by accumulating their ongoing reserve growth in other currencies and gold. For anyone who cares to look at the obvious, the existence of an ongoing concerted process of Asian diversification out of the dollar is not debatable. Clumsily at times, Asian central bank officials and political leaders have been testing both the fundamental vulnerability of the dollar as well as their own influence over the dollar

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by their repeated public statements about diversification, and then issuing statements of denial. What they clearly saw in late 2004 and early 2005 from their shrewd intelligence gathering is that the dollar has so fundamentally weakened that it requires ongoing propping up, and that when such propping is not done, or when any statement even hinting at diversification is made, the dollar immediately goes into a steep slide. They have also seen that there is still a measure of elasticity to the dollar, meaning that with reassuring statements of denial about any diversification, the dollar can be made to recover some of its slide. They have confirmed for themselves what they initially suspected, that any diversification out of the dollar must be performed in an orderly and relatively gradual fashion, and must be conducted discretely behind a screen of plausible deniability. The fact that China’s central bank, as well as nearly all others around the globe, are holding much more tightly the secrets of the exact composition of their reserves, indicates they are engaged in diversification at a pace that they fear might collapse the dollar if the full extent of their efforts became public. As they get nearer the target composition of 50% dollars to 50% other currencies and precious metals the self-confidence and assertiveness of their respective governments as respects both foreign and economic policy will increase accordingly. That will be bad news for the dollar.

Central bankers and political leaders, though somewhat clumsy in this regard, are also acting wisely by ‘pinpricking the beast’, so to speak, to see how sensitive it is, testing the strength of the dollar, the strength of international confidence in it, and their own power to either talk it down or talk it back up. As they carry on their diversification process, they need to periodically ‘feel about’ and take the measurements of where they actually stand as respects the dollar. They need to keep gathering intelligence information on the dollar, as it were, and adjust their strategies accordingly. The only way they can do this is by testing the markets with the spoken and written word. We can expect them to do this again and again. It is important to understand the strategy of the central banker in these times of mounting strategic dollar weakness and not foolishly take merely at face value their public statements of denial as regards diversification, which is proceeding under cover of the public denials of the central bank officials and political leaders.

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Replacing Dollar Pegs with Pegs to a Basket of Currencies

Zhou (China's Central Bank Governor) stated in July of 2005 that China had dropped the old dollar peg because the U.S. currency had become too volatile in recent years, partly reflecting economic problems including large trade and budget deficits. China's move off the dollar in the summer of 2005, re-pegging the yuan to a basket of currencies, is pulling other Asian economies in the same direction - off the dollar. The new peg to a basket of currencies reduces the need for central banks to buy dollars in order to keep their currencies stable with respect to the dollar. It also provides a much more stable means of valuing their currencies in view of the instability of the dollar. The new peg will make it easier for central banks to re-balance their reserves away from the dollar, since future moves on their part that might cause dollar fluctuations will now have a decreasing effect on the movement of their own currencies. China's move off the dollar is the first step in a series designed to un-link its own currency and its economy from the dollar in preparation to meet the reality of Eurasian global economic ascendancy - the center of global economic power is rapidly shifting from North America to Eurasia. The rising economic powers of Asia are thus pointing both their currency and economic compass needles away from the dollar toward a basket of currencies that properly represents the new, developing reality of the rising East.

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The world's central banks have already pointedly slowed their purchases of US Treasuries

The new trend of replacing

over the past two years. That trend is now well

direct dollar currency pegs

established, and China’s move off the dollar only

with pegs to a basket of

accelerates and deepens the trend, since other central

currencies has largely been

banks in Asia and beyond will be pulled along in the same

direction

by

China’s

powerful

regional

influence. Hence, the US is already losing the official sources of funding for its ballooning deficits and

overlooked as one of the most significant advances along the deliberate and

imbalances. That is a development of enormous

orderly path of eventual

significance because those official sources of funding

abandonment of the dollar

were far more stable than the private sources - central

as

banks have tended to hold onto Treasuries rather than

international currency

the

sole,

dominant

sell off as quickly as they bought in, as most private investors and hedge funds will do. The central bank reserves of both Russia and China have been accumulating at a very rapid rate over the last two years, and the rate is even accelerating. Yet, during the same period, Russian and Chinese purchases of US Treasuries have been very small. The lion's share of their mounting reserves is being accumulated in something other than the dollar, therefore. That fact is rapidly facilitating a diversification of their immense reserves - now approaching $1.3 trillion - away from the dollar and into other currencies and gold. This is occurring and has occurred without actually selling US Treasuries, as the percentage of their non-dollar assets increases and the dollar percentage thereby decreases. The optimal breakdown of dollar to other currencies is 50% for the dollar, 50% for other currencies and precious metals. That breakdown cushions the reserves against any appreciable loss resulting from a renewed decline in the dollar because the other currency denominations will tend to appreciate by roughly the same amount the dollar declines. In proof of the above statements Russia announced in June of 2006 that its central bank had already achieved the target breakdown of 50% dollars to 50% other currencies and precious metals. That announcement surprised most analysts, who calculated Russia’s reserves were still at least 70% denominated in dollars. They were wrong, Russia had progressed much further and faster behind its carefully crafted screen of secrecy than they

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Chapter XII: Advance Economic and Financial Measures had imagined. Clearly, in spite of the fact that the actual breakdown percentages of the other centrals banks’ reserves are difficult to ascertain with clarity, the fact that their reserves are growing so fast, but their dollar purchases have slowed to near zero, proves the diversification out of the dollar is proceeding at a steady pace. It is noteworthy that the other Asian economies are clearly following the lead set by Russia and China in this same arena diversification out of the dollar without actually selling US Treasuries. The noteworthy example of Russia serves to demonstrate the strategy of the world’s central bankers in prudently, under cover of plausible deniability, working to increase immunization against a dollar decline or collapse. According to China Daily of April 18, 2006 China’s central bank held more than $810 billion in its reserves as of the end of 2005, with 60% of those reserves held in dollar-denominated assets. That demonstrates that China’s central bank is already very close to achieving the targeted rebalancing of its reserves, with 50% dollars to 50% other currencies and precious metals. It could easily achieve the target by the end of 2006. Why are Russia, China and virtually the rest of Eurasia taking such steps? They know the severe and mounting debts and imbalances in the US economy will eventually lead increasingly to instabilities, sector collapses and a resulting sharp decline in the dollar. They are preparing for that eventuality. It is inevitable that their preparations (the halting of official purchases of US Treasuries) will eventually also help to bring about the very sector collapses and the steep dollar decline they fear, by eventually driving up long-term interest rates. In the face of the unstable dollar and all the harm it can cause to unprepared nations, the East is learning to traverse an increasingly common path to an unprecedented degree. That fact is the salient point - US foreign and monetary policies are helping to hollow-out the US center of economic power and pave the way for the creation of an alternate center of global economic and even military power that is rising much faster than most expected, or even imagined, it could. In embarking on the new series of steps, China will ensure that its yuan remains stable, not permitting any large, fast revaluing. Instead, it will act in concert with its Eurasian partners to ensure a stable transition away from the dollar. China's "managed democracy", though far from perfect, is working far better than most analysts predicted it would. And they are generally the same analysts that used to chuckle whenever the subject of a stabilized and strengthened Russia, and a new strategic Russia-China axis, was brought up. They were entirely wrong in their predictions on such matters. And they are wrong now about China's

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supposed impending "hard landing" because they seriously underestimate China’s demonstrated ability to quickly but deliberately adapt to changing developments. How so?

Ü

China enjoys the significant global advantage and asset of many large, efficient factories with a huge, ever more sophisticated yet comparatively inexpensive workforce. This factor keeps China extremely competitive on the global front while simultaneously providing for enough excess production to make for domestic product competition, lower domestic prices and increased domestic consumption.

Ü

Even though China has created a new currency peg it will not permit the yuan to appreciate more than a few percentage points, and that small allowable appreciation will be easily absorbed by its manufacturing/exporting sector.

Ü

China is well positioned to lead the East Asia economies past the US market to expand fully into the global market and is in fact already doing so.

Ü

The economies of East Asia are steadily progressing from inordinate reliance upon exports to a more consumption-based foundation as its peoples rapidly become “enlightened”, seek the elevated standards of living associated with the West, and as the governments of East Asia continue to pursue an economic model that is fundamentally midway between the socialistic European and the liberal free-market American models, drawing upon the distinct benefits of each while simultaneously discarding their respective liabilities. Consequently, the East Asian economic model is a ‘third way’ that is facilitating the rapid transformation from the export-based to a consumption-based model. Domestic retail sales in China in 2005 reached US$827 billion, up 12.9 per cent from 2004, and official data shows the biggest growth since 1997. This year (2006), retail sales are forecast to rise 12.5 per cent in the first half, according to a Ministry of Commerce survey released in February. China is rapidly moving along the path of transformation to a domestic demand growth-based economy by taking a number of measures, such as raising private income, including scrapping the agriculture tax, raising thresholds on income tax, increasing minimum

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Chapter XII: Advance Economic and Financial Measures wages and civil servants' salaries, and providing free basic education in rural areas. Urban residents' per capita disposable income was up 9.6 per cent to 10,493 yuan (US$1,295) last year, according to the National Bureau of Statistics (NBS). Rural residents' net income per capita improved 6.2 percent to 3,255 yuan (US$402) over the same period. According to the macro-economic data of first quarter of 2006 issued by China's National Bureau of Statistics, China's economy has witnessed a good beginning with a 10.3% growth rate. Export rose by 26.6%, falling 8.3% than the same period of last year. Import rose by 24.8%, 12.6% higher, bridging the gap between the import and the export. This shows that the economic growth has changed from relying on foreign demand in the past few years to domestic demand. Consequently, China is poised reasonably well to make significant additional advances down the path of transition toward domestic-driven economic growth. The wide assumption that China’s economic growth is based almost entirely upon its exports, predominantly to the US, cannot be sustained. China’s growth is increasingly underpinned by domestic consumption growth. While China is the world’s 3rd largest exporter, it is also among the world’s top 4 importers, demonstrating that domestic consumption growth is a more powerful factor than is generally given credit in the West. This factor helps to immunize China and the other East Asia economies from suffering a hard landing when the US economy soon begins to falter seriously.

While there certainly are an array of risks for China as it embarks upon its new course, the facts simply do not support the hyperbole (or perhaps the wishful thinking) of analysts in the West who warn of a "hard landing". It is essential to stick to the facts and to disdain unfounded assumption of any kind when analyzing such matters. The real truth is that, as such major economic powers as China and Russia move off the dollar (pulling many other economies with them), it is that selfsame dollar that is increasingly at risk as its underpinnings are progressively undermined. The move off the dollar is ominous for the US. What may appear at first to be a case of China caving in to pressure from Washington is in reality something far different. It is rather a case of Eurasia, led by China and Russia (which made a similar move off the dollar to a basket of currencies in the fall of 2004) seizing the initiative to facilitate the healthy

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development of the new Eastern center of global economic power, leaving the US massively on the defensive.

Summary of the Main Points Ü The economies of East Asia are integrating on a regional level very fast, with China serving as the core of a rising East Asia economic bloc of formidable strength and global influence. Bilateral trade between the partners is on a fast track, surpassing direct trade with the US. On a global scale the bloc is well positioned to move past the US market to capitalize fully on global markets and is already moving strongly in that direction. Ü The implications of the economic developments of regional integration and global independence include a weakening of the direct economic links with, and dependency upon, the US. The growing economic leverage against the US enjoyed by the bloc and by China in particular is far more powerful and sharply focused than is the leverage the US possesses. In any economic row or outright warfare between the two sides East Asia can both inflict infinitely more immediate pain and endure any US retaliation. Consequently, there exists an ever increasing likelihood that East Asia can endure the upheaval generated by a US economic or financial collapse. Ü The central banks of the East, including Russia, Asia and the Middle East, are carrying on in secret what they assert in public they are not doing – they are steadily diversifying their mounting reserves out of the dollar. They are doing so by ongoing accumulation of reserves in non-dollar denominations rather than by selling off dollars. They are steadily and stealthily working toward the target that Russia has announced it has already achieved, that of 50% dollars to 50% other currencies and precious metals. Their new currency pegs to baskets of currencies replacing the old pegs directly to the dollar work to appreciably unlink their currencies from the dollar, stabilize their own currencies and provide sound currency reference points used to gauge their purchase decisions regarding the ongoing accumulation of their forex reserves into non-dollar denominations. Ü Russia’s economy is already virtually independent of that of the US

and therefore already enjoys a high degree of immunity to a US economic collapse. The economies of East Asia in general and China in

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particular are moving rapidly along the transition path toward the domestic demand growth-based model, away from inordinate reliance upon the export-based model. Its domestic-based economic growth is already increasing significantly faster than is its export-based growth. The assumption that China’s growth is still inordinately export-based can no longer be sustained. This development trend increasingly affords East Asia the ability to weather a US economic downturn or even a collapse. By contrast the US economy is now facing the simultaneous onset of an entire array of powerful negative factors such as slowing growth, rising inflation and interest rates, mounting debt, deflating asset markets, faltering consumer spending, deepening international loss of confidence in the dollar, loss of official foreign cash inflows, central bank diversification out of the dollar, deepening international isolation and other such factors that are combining to create the ‘perfect storm’ for the US economy – a very hard landing at the least.

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CHAPTER XIII: THE OMINOUS FORECAST

The unipolar order that was suddenly thrust upon the international system with the collapse of the Soviet Union in 1991 was a fleeting aberration only. The fabric of the international order, fundamentally altered as the dawning of the 20th century neared, simply doesn’t allow for the sustained, inordinate concentration of power in one pole that is required for unipolarity. Entirely too many potent forces are now inexorably at work diluting such concentrations of power. The technological advancements of the industrial revolution could not be sufficiently hoarded by the British Empire, simultaneously denied to its dissenters and opponents, in order that the Empire’s iron-like grip on power could be further strengthened. Instead, such technological advancements in the hands of the opponents of the Empire and of unipolarity cut directly across the ability of nations to achieve and sustain empire. That fact had profound implications for the US and for the world order all the way down to 1991 when the post-Soviet era unexpectedly opened up. America’s quest to achieve global empire was only a mirage and its new solitary position atop the global order, for which it was entirely unprepared, merely intoxicated and deluded America’s leaders into the belief that unipolarity could be sustained perpetually, that US global domination could be further consolidated into virtual empire. Recent American leaders have been profoundly disconnected from geopolitical reality, blindly and blissfully marching the last superpower down the treacherous path of massive unilateralist overreach, humiliation, isolation and disintegration of American power and influence on the world stage. The US has been entirely unable to conquer and rebuild to its own liking even a third-rate power called Iraq or a tenth-rate power called Afghanistan, with certain potent weapon technologies in the hands of anti-American insurgents playing no small part in those outcomes. It has also been unable, through its Israeli proxy, to create a ‘New Middle East’, unable to cut off Iranian-Syrian tentacles (like Hezbollah) in Lebanon so as to pave its way toward striking Iran. Russian-designed high-tech arms supplied by Syria Page 298 of 319

Chapter XIII: The Ominous Forecast and Iran have humiliated both Israel and its US sponsor. How will it achieve empire? How will it even stay atop the global order and maintain “unipolarity”? It cannot do so because the altered fabric of the international order is working against it, in every dimension undermining superior concentrations of solitary power in favor of something much more diluted. Not only the Pandora’s Box of advanced and at large technology, but also proliferation and reputation of powerful new ideologies have undermined empire by disgracing its very concept in the minds and hearts of the world’s peoples. Empire has become a dirty word and the world’s peoples will no longer submit to the colonialism that attends it. Liberal democracy and socialism are two such powerful ideologies that act like soft clay to amalgamate with and weaken iron-like conservative traditionalists who lean toward much stronger central government and who long for ‘the good old days’ of empire and unipolarity. The US and Britain are fully ‘polluted’ with such ideological “clay” and the effect has been to undercut the grandiose plans of the iron-like conservative Bush administration to establish the New American Century by virtue of military invasion and occupation of certain key resource-rich states while instigating “regime changes” for others. At nearly every step the domestic liberal “clay” questions, opposes and exposes such delusional schemes to achieve virtual empire and to consolidate US-led unipolarity. The championing of human rights and democracy by the great religious organizations of Christendom, albeit with a definite geopolitical agenda in addition to its much more obvious religious motivations, only added to the debilitating effect of the “clay”. So does the analogous activity of the UN in promoting the clay-like ideologies. Empire and unipolarity are forcefully spoiled. Because the invincible fabric of the international system has undergone such profoundly important change, the US-led unipolar world order that arrived in 1991 never really had a chance to persist. Its decade and a half of existence is merely a stint, not an era. It is already giving way to something else in which the US will merely play one part, not the key part. Aside from such technological and ideological challenges to its ability to achieve empire and consolidate its grip on global dominance, there are external challengers whose aim it is to divorce the US from its top global position. As it turns out, the ironlike Roman Empire dies a hard death indeed. The chief descendent of Rome’s Western

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Empire, the Germanic Empire, challenged the amalgamated (iron-and-clay) Britain/US in two world wars, first under the leadership of Kaiser Wilhelm in 1914 and then as Nazi Germany under Adolf Hitler in 1939. As a result of the First World War the British side of the dual kingdom began losing its grip on global empire (which Empire quickly collapsed in the aftermath of the two world wars), and the US side rose to the ascendancy. The chief metallic (iron-like) remnant of Rome’s Western Empire having finally been vanquished by 1945 with the end of WWII, another challenger to the sole dominance of the amalgam 7th world power of US/Britain rose to confront it in a new kind of war, a cold war. Russia as the core of the Soviet Union was really an indirect iron-like descendant of Rome’s Eastern (Byzantine) Empire by virtue of its conversion to the Orthodox brand of Christianity circa 1000 AD and its eventual dominance over the Eastern holdings of the Byzantine Empire. Russia and its Soviet Empire directly challenged US/Britain for global dominance through the ideological rivalry between capitalism and communism and by means of proxy wars fought between the two sides. The arising of serial challengers, remnants of the iron-like Roman Empire, further prevented the amalgam kingdom of US/Britain from achieving global dominance, empire, and unipolarity. From circa 1914 through to 1991 the international system took on the historically unprecedented characteristic and configuration of bipolarity. The inherent weakness presented by the amalgam makeup of the 7th world power, that of conservative iron mixed with liberal clay, the spread of democratic and socialistic ideologies the world over, the at large spread of advanced technologies, the activities of Christendom’s great religious organizations and of the League of Nations and the UN, and the serial challengers arising to confront the 7th world power all combined to undermine the virtual unipolarity seen throughout history in the successive march of world powers. Such factors seen as fundamental changes to the fabric of the international order relentlessly cast global developments toward bipolarity. From circa 1914 to 1991 the era of bipolarity reigned. Did that era of bipolarity really come to an end in 1991 when the US-led unipolar world order was suddenly thrust upon the international system? Or is US-led unipolarity merely a temporary aberration unable to be sustained and maintained because the fabric will not permit its maintenance? Has there arisen a new metallic (iron-like) descendent of

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Chapter XIII: The Ominous Forecast the Roman Empire as challenger? Iron-like Germany mounted two challenges (1914 and 1939), and iron-like Russia is currently mounting its second challenge to US dominance. Germany of the early 1930s was dismissed as an inconsequential challenger, but the conventional wisdom of the day was terribly mistaken. Russia of the last decade and of this decade has similarly been severely and habitually discounted by the purveyors of conventional wisdom, until of late. Russia has surprised, even shocked, the so-called experts as it continues to mount its geopolitical rise on the back of its growing dominance in the sphere of strategic resources, upon which the West has become hopelessly dependent, utterly reliant upon foreign sources of such resources. That persistent and deepening dependence upon foreign supply of strategic resources is simultaneously the Achilles Heel of the West and the lever to power for the East. Indisputable insinuations of a reversion to bipolarity persist, therefore. All during the Cold War the authentic rivalry between the two sides for control over such resources was heavily veiled by the ideological war between capitalism and communism. But underneath the ideological war’s cover the elemental struggle for control of such resources is what governed the policies, decisions and actions of both sides, which merely employed their respective ideologies as tools with which to make geopolitical advances on each other in the quest for control of resources. The elemental struggle for control of such resources has survived the collapse of the Soviet Union in 1991. After that collapse the US made deep inroads into the resource-rich post-Soviet space, all for the purpose of loosening Russia’s grip on such resources and consolidating them under US and Western control. The US unswervingly employed the so-called oligarchs to raid Russian resources-based industries, NATO and EU enlargement, the proliferating of US military bases virtually everywhere such resources existed (especially after 9/11), the invasion and occupation of resource-rich and strategically located countries like Iraq and Afghanistan, the spread of “colored” revolutions, and many other techniques designed to accomplish its resources-based strategies and goals. The elemental struggle for global control of strategic resources is presently only thinly veiled by the new ideological rivalry between East and West, that is, between the authoritarian “managed democracy” and the liberal American-style democracy, upon which the socalled “colored” revolutions are based.

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However, Russia under Vladimir Putin began implementing its own strategies aimed at recapturing, consolidating and extending its grip on strategic resources, beginning in the summer of 2000. The Kremlin has reconsolidated its control over Russia’s vast resources-based industries and corporations. Through Gazprom and Transneft it is further consolidating and extending its grip on its already considerable oil and gas export monopoly throughout Eurasia and far beyond. It worked with China, France and Germany to oppose the US on Iraq and effectively keep the US internationally isolated and weakened by means of its adroit diplomatic strategies and activities at the UN, preventing the US from taking control of Iraq and its huge resource reserves. It has worked with its strategic partners to push the US out of resource-rich Central Asia and it has supplied (indirectly, of course) advanced weaponry to Syria and Iran who in turn supply such weaponry to insurgents to block and roll back US advances in the oil-rich Middle East. Russia and China have reached across the oceans to embrace oil-rich Latin America and Canada and consolidate their energy-based joint cooperation. Russia has worked to negate the effectiveness of the “colored” revolutions and is, in virtually every sphere, effectively pushing back against the US and successfully consolidating its key global position as respects resources. Here we have illustrated the tangible beginnings of the impending shift to bipolarity as Russia and its strategic partners, working in concert, present an ever more serious challenge to US-led unipolarity, whose very underpinnings are rapidly being torn away. Additionally, multiple US strategic blunders are paving the way for that reversion to bipolarity. The US is being forced, largely by its own incompetence, to juggle multiple (and ever more numerous) foreign policy crises of huge dimensions and weight all at the same time. Iraq, Iran, Syria, North Korea, Israel-Lebanon, Latin America (VenezuelaBolivia-Colombia), Afghanistan, and a number of other crises all represent places where the US continues to blunder its way along the path of forfeiture. Such blunders result in the persistent and accelerating decay of American power, influence, leadership and ability to shape unfolding events on the world stage while simultaneously Russian power and influence and that of its strategic partners is continually mounting. In addition to such foreign policy blunders the US has massively blundered with respect to its own economic strength, utterly squandering its former prudence, might and independence in perhaps the

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Chapter XIII: The Ominous Forecast most ominous and damaging evidence of its irreversible geopolitical decline. The US, hopelessly in the red, no longer controls its own economic destiny – foreigners do. This too comes at a time when the rising economies of the East operate fully in the black and are enjoying a meteoric rise in their economic might. Against this comprehensive backdrop we see ever greater evidence of the truth of one of the basic premises of this book, namely that a shift to bipolarity is impending. An ever more assertive and self-confident Russia is advancing down the path of reacquisition of global power by virtue of its mounting control of strategic resources at the same time as American power continues to decay. While America keeps blundering and paying the almost inestimable and unrelenting costs of its blunders Russia keeps playing it very smart, capitalizing on American blunders and carefully and deliberately executing its strategy in the pursuit of global power. What is the Russian strategy? Modestly and pragmatically, Russia recognizes its own limitations and works smart within their confines. It does not pursue the delusional and impractical goal of empire. It seeks mutually beneficial strategic agreements, alliances and ties with its partners and works hard at nurturing and expanding the global complex of such ties. This sharply contrasts with the thinking of the Bush administration, which faces a steady and irreversible crumbling of America’s alliances and ties virtually the world over. Some of its traditional alliances still sport the façade of fundamental health, but behind the vocal pretense lies the specter of strategically divergent, even incompatible interests and goals that surface nearly every time the US attempts to obtain meaningful cooperation on issues and crises of importance. On the ground, where it really counts, the US retains only a comparative handful of strategic allies. The current US administration not only fails to learn from its strategic mistakes and blunders, but even appears keen to repeat them in region after region of strategic importance. Very ominously, this development has occurred when the mounting, Russian-led collective challenge to US global dominance and US-led unipolarity is more determined and dangerous than at any time in the past. Russia knows full well that control of strategic energy resources is simultaneously the Achilles Heel of the West and the principal lever to global power for Russia itself, but in concert with its strategic partners. To discern Russia’s strategy it is instructive to examine the identities and the strong suits of those it selects to become its strategic

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partners. It is also instructive to examine the nature of the ties it establishes with its partners.

The Deepening Russia-China-India Triad Carries Enormous Gravitational Pull and Attracts Key Players Into Ever Closer Geopolitical Alignment First and foremost Russia deepened its ties with China to the extent that the two have eventually formed a full-blown strategic alliance, the Russia-China axis. The virtual uniting of Russia’s vast strategic resources and advanced technical expertise with China’s mounting economic might and enormous manpower is a truly ominous development for the West. The two powers cooperate in every important sphere, including the military sphere. They are the two key pillars of the rising multifarious East, and therefore it is no exaggeration to refer to their partnership as the Russia-China axis. But there is a third key pillar upon which the rising East increasingly rests for support, and that pillar is India.

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Chapter XIII: The Ominous Forecast The deepening Russia-China-India triad is a development of enormous importance. Russia is bringing together China and India, traditional rivals and enemies, to cooperate rather than compete on an entire range of regional and global issues. Russia’s very deep ties to both are the key for the reason that, rather than sacrificing its (Russia’s) ties either with China for the sake of India or with India for the sake of China, it has shaped developments to a “third way”, toward the formation of the triad wherein the legitimate interests and goals of all three can be achieved and costly rivalry and war is avoided. Such a desirable outcome, now being solidified and gradually recognized around the globe, would be impossible without Russian leadership. It is therefore no accident, but rather results from a carefully conceived and skillfully executed Russian strategy. It is working, succeeding. It will continue to do so. Additionally, the ‘gravitational pull’ of that triad is progressively exerting profound influence upon lesser powers throughout Asia and far beyond, increasingly realigning those powers toward the Triad in all spheres of endeavor. These partners Russia has chosen are the economic powerhouses of the East, the very center of the globe’s rising economies. The precise geopolitical alignment of India, whether toward the US and the West or toward Russia, China and the East is a matter of much debate, and some will object to the idea presented here of a deepening Russia-China-India Triad. The important thing to remember with respect to India is that as an emerging power it is technologically and therefore economically and militarily lagging behind China, the awareness of which fact fuels a powerful push on the part of India’s leadership to leverage whatever relations and ties it can with more advanced states in order to catch up. India is scouring the globe, in both East and West, in an effort to acquire the technologies required to fuel an accelerated rise of its economy and its military. It has concluded agreements with the US and Russia for such technologies and it also looks to Israel and key powers in Europe for the same. Strategically positioned India intends to field a blue water navy to guarantee its access to crucial Persian Gulf oil and gas. India’s leaders understand that to avoid and prevent the possibility of conflict between itself and China India must not exist as a significantly weaker power than China. Rough balance of power between the two is in the long-term interests of both India and China. Russia and China understand and accept the inevitable reality of an emerging Indian economic and military power, and India is

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not seen as an aggressive power with imperialistic designs. Economic integration between India and China is developing rapidly and the two powers fully understand they have much more to gain from adhering to a policy of deepening strategic cooperation in all spheres than they would from reverting to rivalry and confrontation. Against this backdrop it must be pointed out that as India seeks and acquires crucial technologies from around the globe it also very cleverly crafts and concludes such agreements largely on its own terms, meaning that it refuses to lock itself into what it considers an undesirable, rigid geopolitical alignment with the West. It ensures that it retains its geopolitical independence as it deepens its technological ties with certain technologically advanced powers. We have seen this demonstrated in the recent US-India nuclear agreement, wherein India gave up very little, if anything of real consequence in a geopolitical sense in return for potentially great technological benefits. It has done similarly in its ties with Israel and with European states. Even in its deepening traditional ties with Russia India retains the geopolitical independence required so as to freely pursue non-geopolitically-based technological agreements with the West, as noted above. So what, in fact, is India’s genuine geopolitical alignment? Is it oriented toward the West, toward the East or truly independent? In a fundamental economic sense and aside from India’s special and short-term accelerated quest for advanced technologies as noted above, India’s fortunes lie far more with the East than with the West. India is an integral part of rising Asia and it cannot break the powerful geographical, economic and political ties that bind it to Asia, nor does it wish to do so. In a fundamental geopolitical sense India has neither the intention nor the desire to cast its lot in with the ever more internationally disdained and isolated US. To do so would amount to a strategic blunder and the Indian leadership knows that fact quite well. On every issue of major importance India has sided with Russia and the East when push comes to shove. India favors the “multipolar” world order, which equates to putting an end to inordinate US global dominance. On the ground, it refuses to embrace the US position on Iraq and Iran. India is adroitly using the US and Israel for what it can get in a technological sense while retaining and deepening its fundamental alignment with the East. For the time being while it leverages its relations with the West to obtain the desired technologies India prefers that issues not arise which will require it to fully

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Chapter XIII: The Ominous Forecast display its true East-oriented geopolitical alignment. It seeks to portray itself as ‘the middle road’, trying not to anger either side, when such issues do arise. But India’s calculated diplomatic straddling of the fence while it acquires what it wants from the West must not be confused with a supposed position of true geopolitical independence or with a supposed deepening alignment with the West. It is neither of those two. Instead, it is the diplomatic pragmatism of a two-track game designed to facilitate and advance its strategy of acquiring what it sees as crucial to fuel its economic and military rise, and nothing more. India’s true geopolitical alignment is oriented toward the East. It could not be otherwise considering all fundamental factors. It must also be remembered here that as detailed in Chapter XI, “Russia Has Crossed the Rubicon”, India is fully and actively participating in supporting and adhering, not to the traditional US-backed liberal global market for oil, but rather the new Russian-led model of private state-to-state agreements and ties for long-term supply contracts. The new model progressively takes oil off-line, away from the traditional global pool, and creates private invisible pools of oil for the rising economic powers of the East. In supporting that new model India is actively working to undermine the current US-led order in favor of a new one centered in the East. While the US assumes a rising India will serve as a valuable US-aligned counterbalance to China, in reality something quite different is developing. Rather than becoming as US-aligned counterbalance to China, India is becoming the third, balancing pillar of the deepening Russia-China-India Triad. There is a distinct difference between the two scenarios because of where, in a geopolitical sense, the base of the rising Indian pillar rests. It rests in the East, not in the West. As the Triad coalesces, the very real prospect of the Russian, Chinese and Indian navies cooperating jointly to secure the crucial shipments of Persian Gulf oil eastward all the way to East Asia arises as a checkmate to any future US naval effort to block such shipments in any future strategy to stop the rise of any of Asia’s emerging powers. Such joint cooperation within the Triad will ensure the energy interests of all its members as well as all those of Asia itself, as long as each member of the Asian region acts in the interests of the region itself. That could be an ominous development for Japan if it insists on an ever closer alignment with the US and attempts remilitarization to serve as the

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point of the US military spear. In any future mounting crisis in the region the joint navies of a Russia-China-India Triad could ensure Japan’s cooperation with the East, or scupper its cooperation with the US, by virtue of the credible threat of an oil embargo directed at its incoming tankers anywhere along the lengthy route from the Persian Gulf to Japan. Can the American strategy to pull India away from the coalescing Triad succeed? Can the new American nuclear agreement with India accomplish that aim, realigning India toward the US? That is extremely doubtful. India is a longtime strategic ally of Russia and as noted above its economic interests and fortunes lie much more with its Asian and Russian partners than with the US. The nuclear deal changes none of that reality. In fact, the deal was negotiated by a US administration desperate for a “win” on the books and as such hands India virtually all the advantages while requiring little in return. India will leverage the US for what it can get in the way of advanced technologies and concede little geopolitically speaking to the US in return. What of the prospects for instigating Sino-Indian tensions via Pakistan? Can the US play that card to break up the Triad? That strategy has its limitations as well as enormous risks for the US itself. China can apply enormous pressure both to Pakistan and to the US to prevent the successful execution of such a strategy. And India can apply significant pressure to the US as well. The US would come out the biggest loser because the costs to its own interests from increased tensions in the region are far greater than any benefits that might be achieved. For key strategic partners of considerable economic might and collective geopolitical weight Russia has also looked to so-called “Old Europe”. Germany, France, Italy and Spain have either moved left politically or have otherwise deepened their cooperation with Russia in the spheres of energy, politics, the economy and diplomacy at the UN. Germany in particular, Europe’s powerhouse economy, continues to deepen its ties with Russia. Top German officials have recently proclaimed that all the fuss about Europe becoming too dependent upon Russia for energy is misplaced and even “childish”. With few exceptions Germany’s leaders see Russia as a key partner and German dependence upon Russia in the energy sphere is rapidly deepening as the two cross-invest in each others’ energy and other sectors and as they pursue joint gas ventures. Despite the recent election of center-right Angela Merkel Germany’s ever closer alignment with Russia is not being turned around or halted. The French, Italian and

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Chapter XIII: The Ominous Forecast Spanish governments are also more politically aligned with Russia than with the US and are deepening their energy-based ties with Russia. In reality they have little choice but to do so. The global array of powerful economic partners Russia has gathered and is gathering to itself is impressive indeed. All have at least one vital thing in common – the fundamental need to achieve energy security. In constructing its global complex of alliances and ties Russia once again remains fully aware of its limitations in the energy sphere, its strong suit. It knows it alone cannot fully satisfy the energy security interests of its array of global economic partners. But it does know that it alone can play the leadership role in formulating a new global arrangement, a new basis, for international energy security. It is doing so by bringing together the globe’s key economic powers (discussed above) and its key resources exporters to form a complex of alliances and ties, a new confederation of sovereign states that ensures the energy security of its international partners. Russia’s influence with the globe’s other exporters is considerable, and it is having profound success in bringing these into ever closer cooperation with the consumer nations comprising the globe’s rising economic powers, mostly in the East. Russia fully understands that its fulfilling of that global role of leadership in international energy security further enhances its own influence across the globe. In Central Asia, the Middle East, Canada, Latin America and Africa the overriding philosophy of producers has become diversification from markets in the West to embrace the energy markets of the rising economic powers of the East. Virtually all the globe’s producers have significantly opened to the East and are solidifying their mutually beneficial ties. The global trend among producers of nationalization of their energy sectors and reduction of allowable stakes and influence by the West is now well established. Also well established is the growing political affinity between the producer regimes and the rising East, including Russia, and their simultaneous deepening political repulsion from the US. Increasingly, and very significantly, the deepening ties between producers and the rising economies of the East often bypass the traditional liberal USbacked global oil markets by making state-to-state long-term supply agreements and contracts, in effect creating private pools of oil for consumption by key powers in the East. This is a new but profoundly important and ominous trend for the West in general

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and the US in particular because its strategic energy security is being undermined while that of the East is simultaneously being assured. Russia leads the way in this new global trend of adherence to an entirely new model to achieve “international” energy security. It is a model that is dangerous rival to the traditional, US-backed liberal market model. It seriously endangers the current traditional US-backed global arrangement. Having now come full circle in this discussion, it should be readily apparent to the reader what the Russian strategy really is, how Russia is skillfully working the lever of control over strategic resources to reacquire global power and influence in partnership with an entire array of key global partners on both sides of the consumer/producer equation. It is a brilliant, opportunistic and entirely pragmatic strategy – that of virtual economic encirclement of the West through global dominance over strategic resources. It is economic encirclement of the West by restricting it from full and free access to such resources. Economic encirclement of the West? Yes, for all practical purposes that is precisely what Russia’s activities in the ongoing construction of its global complex of alliances and ties are leading to. That is true because Russia’s global complex includes the very economic powers in the East that hold the key to the solvency of the heavily indebted US economy, which has long since forfeited its independence. At the same time those very economies in the East have diversified their economic and financial fortunes in order to withstand the tsunami of a possible US economic/financial collapse. Economic encirclement of the US is also an emergent fact because Russia’s global complex now includes the vast bulk of the globe’s oil and gas producing nations, who also are actively diversifying their markets away from inordinate dependence upon the US and who are looking to the East. With Russia’s global complex of alliances and ties encompassing both key economic powers and key resources producers in ever more cohesive cooperation and coordination, the West in general and the US in particular face a global situation where the energy security of the multifarious East will be fully served as the first priority, at the significant expense of the economic independence of the West, which already is seeing its own energy security insidiously slipping away, or more accurately, being stolen away by default. Whatever one may wish to call the emerging global complex of alliances and ties described and documented here, the fact is that its

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Chapter XIII: The Ominous Forecast emergence increasingly places the West outside the circle that defines strategic energy security. Russia has crossed the Rubicon, embarking upon the execution of its strategy to define and to complete the drawing of the circle within which the energy security interests of its partners and associates will be met, but outside of which such interests will be neither guaranteed nor even favored. Very importantly, Russia has massively seized the global initiative from the US and it, not the US, is defining the circle mentioned above. That is a development of gargantuan meaning and consequence. The rising global complex lead by Russia is referred to here as the Resources Underwriter-Based ImporterInclusive Confederation (of sovereign states) – Russian RUBICON. Can the US prevent the completion of the drawing of the circle, can it thwart Russian RUBICON from achieving completion? The problem for the US is that at the very same time as Russia and its partners advance toward the completion of the circle it (the US) is suffering massive over-reach in the economic, diplomatic and military spheres of power and influence. Its presence and leverage on the global stage is acutely shrunken. Because its former economic might has been replaced by inordinate dependence upon foreign financing of its enormous debt and mounting imbalances, the US cannot compete with the economic incentives offered by Russia, China, India and the East to the globe’s producers, inducing them to align with the East rather than the West. From an economic perspective the US is in a very weak bargaining position, the persistent decay of its economic might and the ever-present list of political and social demands it insists upon adherence to excluding it from serious consideration by such producers. Its former diplomatic respectability and strength has also fallen into decay in the aftermath of the Iraq invasion of 2003. It can lure neither key producers nor key economic powers of the East away from Russian RUBICON. It can neither convince nor compel them to realign with the West. As measured by meaningful action in accordance with US directives, goals and interests, the world at large no longer listens to the US as it used to. But it is listening attentively to Russia and to the rising economic powers of the East. If the US further employs the military option in an effort to weaken certain key producer regimes or to change any such regimes to a more US-favorable character, it

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risks accelerating the completion of the circle spoken of above rather than preventing its completion. A strike on Iran, for example, would carry enormous geopolitical repercussions. The drastically increased Middle East radicalism and instability in the aftermath of such a strike would only increase the global price of oil and likely undermine further the region’s perceived reliability as respects oil, further bolstering Russia and its vast reserves. Global realignment of key powers toward Russia would only accelerate, therefore. Simultaneously, the rise in oil prices would put the US economy at risk of severe damage, further bolstering the already potent global trend of realignment away from the US. The US has no viable military options to prevent the completion of the circle. Against the backdrop of an America whose former might is decaying in all spheres including the moral, the ideological, the diplomatic, the economic and the military, Russian RUBICON will inexorably advance to completion. That will complete the circle, with those inside achieving strategic energy security while those outside lose out. The US and its key allies are outside the circle. The completion of the circle will hand to the multifarious East the ability to credibly threaten an energy-based economic checkmate of the West. However, that power won’t be exercised unless the US mounts a provocation of sufficient magnitude as to demand its use. Russia and its partners will hold the checkmate in reserve. What would amount to sufficient US-led provocation to oblige a Russian-led economic retaliation? If the US attempted to instigate another round of “colored” revolutions in the post-Soviet space, and perhaps within Russia and possibly China, then the full-blown economic checkmate-based retaliation will be exercised. Is it possible that the US could employ such a strategy of instigating new “colored” revolutions before the circle is completed, in order to scupper the rise of Russian RUBICON? That is a distinct possibility, but its success is on very shaky ground. The authoritarian regimes of the East have shown a willingness to use a high level of force to quell domestic unrest. Additionally, the regimes of the East have the economic wherewithal to sufficiently pacify their peoples so as to blunt the effectiveness of the strategy. It can certainly cause pain but it cannot collapse the rising regimes of the East. Additionally, the circle of RUBICON is already advanced sufficiently to enable Russia

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Chapter XIII: The Ominous Forecast and its partners to inflict terrible economic harm on the US in the event it provokes the East. That fact is detailed and established in Chapter 12 of this very book. Yet, we can expect the US and its closest partners to deliberately but foolishly try to reconsolidate their grip on global dominance, using whatever tools they have at hand, including the “colored” revolutions and further militarized “solutions”. The shift from US-led unipolarity to the lopsided bipolarity described by the term asymm·plexity (asymmetrical bipolar complexity) is already underway and its completion is impending. The simultaneous accelerated decline of the West and rise of the multifarious East signals the nearing completion of that shift. Acutely, even radically increased global instability and upheaval will attend that impending shift. But nothing can stop or impede it.

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RUSSIAN RUBICON

W. Joseph Stroupe has carefully observed and studied geopolitics for 35 years with a specific focus on the goal of the development of an entirely new model for the construction of the strategic forecast. He realized early on that as one scrutinizes past and present events and endeavors to settle on what is the accurate trajectory of the path of developments, that is, toward what eventuality that path is leading, the principal challenge is that of making an accurate determination of which events and trends carry strategic weight and which ones are merely lightweight. The new model the author was determined to develop would have to radically outperform existing ones, especially in the task of correctly weighting varied events and trends. Once that principal task is accomplished then the remainder of the undertaking is much less prone to error because it has been made far less complicated. The author’s new model for the construction of the strategic forecast steadily developed and in 1986 he made a start at providing regular non-partisan geopolitical analysis and strategic forecasting to private national and multinational educational institutions. By the fall of 1999 the author had developed and refined the new model to a point of advanced sophistication, with the trajectories of all the major and sub-major forecasting paths applicable to the entire range of significant geopolitical developments and trends since before WWI to the present clearly defined, carefully validated and integrated into the composite model. Using this composite model the author has been able to assign relative weights to current and ongoing developments and trends and ascertain

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RUSSIAN RUBICON far more correctly the most likely future course of events, resulting in a high degree of accuracy for his forecasts. By 2004 the author had integrated into the composite model the key forecasting paths related to global economics and their interaction with the geopolitical. In February 2004 the author added a public offering to his ongoing private strategic analysis and forecasting with the founding of Global Events Magazine online. The author has made a number of impressive forecasts that have proven to be right on target and that were made several years in advance. Only a few of the most important are listed below: Ü

In the fall of 1999 when Russia was an economic and geopolitical basket case he correctly warned that Russia’s geopolitical position and economy were set to stabilize and to grow mighty on the back of energy prices, which he said would soon begin a strategic rise. His forecasts back then pointed to the fact that oil and gas would become the most important geopolitical and economic factors and that Russia would massively capitalize while the West would suffer weakness and loss of independence as a result. He asserted, correctly, that the geopolitical and global economic landscapes would radically change as a result, with Russia rising to reacquire global power while that of the US would suffer decay.

Ü

Also in the fall of 1999 when relations between Russia and China were barely in their infancy the author warned that those relations were moving into that of a full-blown strategic partnership, with immense implications for the world order for the reason that many other key powers were sure to be attracted into closer ties with a Russia-China axis, with increasingly profound effects upon the ability of the US to remain atop a unipolar world order. That forecast has been proved correct.

Ü

In late 1999 when the entire world was still completely in awe at the overwhelming military might of the US the author warned that US military

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RUSSIAN RUBICON and economic power were inordinately image more than real substance, that the US relied inordinately upon its supposed virtual military omnipotence instead of protecting and deepening its global alliances, and that in the near future the US was likely to attempt further military exploits (the US had only recently led NATO to bomb Serbia for 78 days) that would demonstrate the distinct limits of US military power, resulting in a distinct strategic decay of American power and influence on the global stage. He warned that the US risked getting stuck in a quagmire of inestimable diplomatic, military, economic and geopolitical costs as a result. He warned such a scenario would provide opportunity for US rivals to collectively rise to achieve global power. That forecast has been proved correct. Ü

In the spring of 2003 as the Iraq invasion was only getting underway the author correctly forecast the US would quickly run into trouble in Iraq and would be obliged to go to the UN, hat in hand, asking for international help (troops and money) in Iraq. He correctly forecast such help would not be forthcoming, that rival powers at the UN would successfully see to it that US international isolation would only grow and deepen, that Iraq would turn into a quagmire and that the relevance of the UN would grow while that of the US would shrink on the global stage.

Ü

From the fall of 1999 until the present the author has consistently and correctly warned that no Russian-American “strategic partnership” was in the offing and that Russian-American relations were headed for ever more intense competition and rivalry and that a new cold war over control of strategic resources would break into the open. While virtually everyone else on the planet was severely discounting Russia’s global importance and role, especially as respects strategic resources, the author has consistently and repeatedly warned that Russia would rise to occupy the key global position as respects energy, to the shock of virtually all the experts.

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RUSSIAN RUBICON Ü

The author correctly forecast in 2004 that the US would be progressively pushed out of the strategically important region of Central Asia, that US influence in the Middle East would severely contract, that its influence in Europe would wane as the Trans-Atlantic Alliance atrophied, that the Orange Revolution in Ukraine and the Tulip Revolution in Kyrgyzstan would backfire and hand Russia the advantage, that the US-South Korea alliance would decay, and that US economic power would continue to deteriorate while that of Russia and its strategic partners in the East would continue to rise.

All these forecasts were made while the vast majority of the experts were predicting the precise opposite. However, the author’s new forecasting model has proven itself many times over precisely where it counts, by precisely analyzing the current course, and accurately forecasting the future course of global developments. The author is excited to provide, at this critical juncture in global developments, the latest comprehensive analyses and forecasts detailing where the world order is currently, and where it is in fact heading in the very near future. The new book, “RUSSIAN RUBICON, Impending Checkmate of the West” is a must-read for anyone who wants to know with confidence and certainty the real meaning of current events and the assured outline of future events.

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RUSSIAN RUBICON

RUSSIAN RUBICON

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Russian Rubicon: Impending Checkmate of the West

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The Art of Checkmate

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Russian Rubicon: Impending Checkmate of the West

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CheckMate

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The Art of Checkmate

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