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Sanctions Against Belarus: A Hybrid Option

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Another package of economic sanctions has been introduced against Belarus. US President Joe Biden signed a new executive order expanding both the number of Belarusian persons under sanctions and the range of restrictive measures applied. These actions mark another stage in the escalation of pressure on Minsk. They are largely the same as previously-imposed EU restrictions.

The new executive order of the President of the United States was published on August 9 this year. It expanded the state of emergency in connection with the “undermining of democratic processes and institutions in Belarus”, which was introduced by George W. Bush in 2006 (Executive Order 13405). There are several new features in the new decree.

First, the sanctions have acquired a sectoral dimension. The sectoral meaning of the sanctions differs from that in which they are used against the Russian defence, financial and energy sectors. In the case of Russia, we are talking about a certain set of restrictions used against a number of organisations from the aforementioned sectors, which is not related to blocking sanctions. For this, a separate list of persons subject to sectoral sanctions (Sectoral Sanctions Individuals) is maintained. They are milder in comparison with blocking sanctions and, in the case of each sector, imply a separate set of restrictive measures. The new sanctions against Belarus are a hybrid of sectoral and blocking sanctions. Specialised executive bodies of the United States are given the opportunity, at their discretion, to block people associated with certain sectors.

That is, this hybrid option is more destructive. In the case of Belarus, we are talking about such sectors as defence, state security, energy, potassium production, the tobacco industry, construction and transport. In other words, the affiliation of an organisation to one of the indicated sectors can in itself become the basis for blocking sanctions.

The latter, in turn, imply a ban on US citizens and organisations carrying out any transactions with a blocked person. Such persons lose, among other things, access to the US market, as well as the ability to use US dollars in their settlements. The US has already used hybrid blocking and sectoral sanctions against Iran and Russia. With regard to Russia, we are talking about the recent Executive Order 14024, which, among other things, targeted Russian citizens associated with the technology sector with blocking sanctions.

Second, any government structure and its leadership, as well as any organisation that the US authorities consider a government agent or instrument, can now fall under blocking sanctions. This is a broader interpretation in comparison with Executive Order 13405 of 2006. At that time, only those persons who were believed to be involved in the undermining of democratic institutions in the United States were subject to blocking sanctions. Now, any state or state-related organisation can be sanctioned.

Third, the range of actions subject to sanctions has been expanded. In particular, they include actions to undermine the “peace, security and territorial integrity” of the Republic of Belarus, corruption, the violation of freedom of speech and press, etc.

Simultaneously with the issuance of the decree, the US Treasury announced blocking sanctions against 23 individuals and 21 organisations in the Republic of Belarus. They include: Belneftegaz, Belaruskali, Belkaztrans, Absolutbank, Energo-Oil, New Nafta Company, Dana Holding, Dana Astra, Oil Bitumen Plant, Bremino Group, Dubai Water Front, Emirates Blue Sky, Inter Tobacco, New Oil Company Vostok, Intersevis, and Neman Tobacco.

To this list we need to add nine more large companies, according to which at the beginning of June this year the general license was not renewed. That is, they were no longer exempt from the sanctions.

In part, this list overlaps with the list of 78 organizations specified by the European Union when it introduced its restrictions in June. Brussels also used sectoral sanctions, but their principle is different from the American one. In particular, certain categories of petroleum products and potash fertilisers were prohibited from being imported into the EU, but significant concessions were made. In the American case, there are no such indulgences. Specific companies are blocked. The general license for Belaruskali, exempting it until December 2021, can be considered a weak consolation. However, such a license is only needed to wind up existing transactions and its extension is far from guaranteed. Along with the US and the EU, the UK has also introduced new sectoral and blocking sanctions, as well as Canada and Switzerland.

The effect of US sanctions will be much stronger in comparison with the restrictive measures of the EU and other countries. This is due to the persistence of US authorities in enforcing compliance, targeting companies, organisations and individuals that violate their sanctions regimes. Over the past 10 years, EU businesses have been slapped with hefty fines by the US Treasury. Their aggregate volume, since 2009, is nearly 5 billion US dollars. It is highly probable that EU banks and other counterparties of Belarusian companies that have come under sanctions are unlikely to decide to continue transactions, fearing secondary sanctions and coercive US measures. The ineffectiveness of the 1996 EU Blocking Statute, which was designed to protect EU businesses from extraterritorial sanctions by third countries, will only strengthen their resolve.

Other jurisdictions, including India, China and even Russia, are also wary of the prospect of administrative and criminal investigations by the US authorities. Russian business is not eager to be on the list of blocked persons or to go through the exhausting millstones of administrative or criminal proceedings. Joe Biden’s new executive order has a specific rule that will be of concern to businesses. Paragraph “D” of Article 1 of the new decree subjects those persons who carry out transactions bypassing the US sanctions regime in the interests of the government of the Republic of Belarus or parties blocked on the basis of this decree to US blocking sanctions; order 13405 applies the same measures to individuals and legal entities. At the same time, in contrast to order 13405, where a similar norm was enshrined, the nationality of the violators is not indicated. In theory, they could be anyone. American regulators may well interpret this provision broadly, which has already taken place in practice in relation to other sanctions regimes.

In other words, the popular point of view in the media that now Belarusian industry is “automatically” reorienting from counterparties in the EU and the United States to Russia should be taken with great caution. The question of the financial infrastructure for transactions within the Union State of Russia and Belarus is becoming even more urgent.

From our partner RIAC

RIAC Director of Programs, RIAC Member, Head of "Contemporary State" program at Valdai Discussion Club, RIAC member.

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Eastern Europe

Ukraine Lies About 2022 Russian Attack to Hide Dying Economy

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Image source: Wikimedia Commons

Yesterday, Ukraine’s president Zelensky speaking to the Ukrainian Foreign Intelligence Service said “We have learned to contain external threats. It is time to launch an offensive to secure our national interests. We are united in wanting our territory returned immediately”.

Beginning the day after Joe Biden’s inauguration, Ukraine has been complaining of Russia’s troop buildup of over 90,000 men on its border. According to Ukraine’s Zelensky, Russia was prepared to attack at any moment.

In response to this, Ukraine mobilized over ½ its army or over 170,000 troops to the frontline with all the heavy weapons at its disposal accompanying them.

This force was a supposed counter to the Russian invasion army, which again, was just over the border.

In reality, the Russian army staged planned war games near the city of Yelnya, 160 miles (257 kilometers) from the Ukrainian border. You read that right, the Russian army was160 miles away from the Ukrainian border even though every major western publication made it sound like they were already in Kiev.

For the average modern army, that means over a day’s travel just to get to the Ukrainian border. Then another 4-5 hours travel on top of that to where the Ukrainian army is. So much for a surprise attack.

So what is it that Ukraine’s President Zelensky finds so threatening about Russia?

Ukraine’s President Zelensky told visiting US Senators in early June that the country’s military defense against Russia and the completion of the Nord Stream 2 pipeline are inextricably intertwined.

Once the project is completed, Ukraine will be deprived of the funds required to fund defense spending and defend Europe’s eastern border.

“Nord Stream 2 will cut Ukraine off from gas supplies, which will cost us at least USD 3 billion per year.”

Zelensky, always the joker, wants Russia to pay $3 billion per year so he personally can defend Europe from Russia who is paying him.

What a great story. He’s confusing screenwriting fantasy with diplomacy again.

“We won’t be able to pay for the Ukrainian army,” Zelensky observed.

In reality, Ukraine has about one month’s worth of diesel if Kiev ignores Ukraine’s responsibility to its own people to provide a safety net or at least access to necessities like bread or shelter in below-zero weather that’s on its way next month by heavily subsidizing gas and electric costs.

The only thing the government in Kiev is concerned about is losing the $3 billion in transit fees from the country they accuse of attacking them.

Zelensky’s government went as far as demanding fees from Germany and Russia when Nordstream II took over the transit game.

Zelensky’s Ukraine is shuffling Europe, NATO, and the US closer and closer to the line where one mistake in diplomacy, one stupid move by any of Ukraine’s infamous Neanderthal nationalist volunteers, and bang!

The next headline reads- Oops! Thousands dead in Ukraine as the war spreads to Europe.

Joe “Brandon” and club RINO are sleepwalking America right into this level of catastrophe by coddling his pet kleptocracy who’s already stolen billions of US dollars meant as aid.

And why? Why oh-why indeed.

Ukraine is using the supposed Russian attack to renegotiate its unsolvable gas situation.

It’s either this or tells Ukrainians; Oops! We screwed the pooch guys! You’re gonna freeze because we can’t afford gas.

Russia won’t invade because then Russia will be responsible for providing a total civil safety net including gas and electricity for Ukrainian people who otherwise can’t afford it.

Ukraine’s economy is dying. Russia doesn’t plan to foot the bill.

According to Oleg Popenko, the head of the Union of Consumers of Utilities (UCU), high gas costs will prevent most small and medium-sized firms from operating and will force them to close.

According to him, small business owners will be unable to “pull” the payment of 7,000 hryvnias (22,000 rubles) for heating.

As a result, we can anticipate a reduction in the activities of hairdressing salons, bakers, dry cleaners, dental offices, and so on.

They will either have to include the higher-priced communal unit in the pricing of their services, or they will have to close.

All types of businesses, from small dry cleaners to big agricultural holdings, use gas to some extent.

The only ones who benefit from the price increase are Ukrainian gas-producing businesses, which are now raising the price for their users’ dozens of times, resulting in massive profits.

In a recent interview, former President’s Office head Andriy Bogdan forecast a total economic collapse by February of next year.

“Here we still have December – this is the pre-New Year’s, joyous month, when everyone spends money, and somehow with hope:” We’ll pluck something out of the egg-box and live.”

However, this will not be the case in January and February.

“We will dismiss people, our industry will grow, our budget revenues will fall, and our economy will boom based on the price of gas and electricity,” Bogdan added.

“With a further rise in gas prices, the chemical industry and the production of fertilizers are at risk of dying altogether, predicts energy expert Valentin Zemlyansky.

“Industry will die. I am not kidding. The impact of energy prices on the business situation is an inertial process. The business will not close immediately, it will happen in stages. The beginning will be in March 2022, we will see the peak by May-June,”the expert says. Zemlyansky also emphasizes that this happens with a favorable market environment – mineral fertilizers are in demand, they are actively purchased by India, Pakistan, and China, but Ukrainian enterprises cannot afford their production. This was confirmed by the recent suspension of the specialized work of the Odessa Port Plant.

Thus, Ukrainian exporters are squeezed out of world markets. Many of Ukraine’s neighbors that produce similar products (for example, nitrogen fertilizers) receive gas at fixed low prices. In Turkey, for example, the government regulates gas prices for such businesses. It will also be difficult to sell the products that have risen in price on the domestic market due to the falling purchasing power.

Economic analyst Igor Deysan also warns that an increase in fertilizer prices will lead to the abandonment of sowing of many crops and an increase in the price of agricultural products, especially wheat in the 2022-2023 season.

“The cost of gas is largely carried over to the cost of wheat and other crops. If gas prices remain high for a long time, the rise in gas prices can make a significant contribution to the price of wheat,” the expert predicts.

Farmers still need to dry the harvested wheat crop, which also implies significant gas consumption. The next in the cycle of its processing are millers and bakers, who are also going bankrupt due to high gas prices.”

The breadbasket of Europe is empty. Ukraine hasn’t seen this scarcity since the 1932-33 famine they are constantly enshrining. The difference between then and now is this time the government is responsible for all of it.

Bakeries will close down because Ukraine oversold wheat to Turkey and its stocks are empty. Now, the breadbasket nation needs to purchase flour from Turkey.

Even if the grain was there, the gas needed to furnish the bakeries, cities, businesses, homes, hospitals, and government buildings with heat and electricity is not.

Deputy from the “Opposition Platform – For Life” Yuriy Boyko said on the air the other day that high gas prices are ruining bakeries. “I came to a bakery in the Kiev region. A modern enterprise. The bakery today pays for gas seven times more than a year ago. And for electricity twice. And energy carriers play a very significant role in the cost of bread, about 20%. That is, in reality, already today they are forced to either increase the cost of bread, or there will be no bread, ”the deputy said.

The short-term gas forecast for Ukraine looks bleak even though Ukraine has the second-largest proven gas reserves in Europe right behind Russia.

 Former Ukrainian Prime Minister Yulia Tymoshenko, now the leader of the Batkivshchyna party, stated on the Nash TV station on December 22 that Ukraine could furnish itself with gas in three years, but only under particular conditions.

Earlier, the politician said that Ukraine should not wait to purchase Russian gas supplies until the end of the heating season, because there is nowhere else to get it.

According to Tymoshenko, “To enhance gas production in Ukraine, the president’s will is required first and foremost because this should become a strategic and critical program for the development of the state’s energy sector.”

Today, there is no such political will. “Licenses are dispersed on the right and left,” she explained.

Secondly, according to Tymoshenko, non-budget banking investment resources must be directed to Ukrgazvydobuvannya, which also needs to be licensed for all explored deposits. In this case, the ex-prime minister is sure that Ukraine will provide its own gas in 3 years.            

Gas firms promise to reinvest revenues in increased production and modernization, but in the meantime, all other industries and small businesses can relocate across the world.

The Association of Gas Production Companies (AGKU) vehemently rejected proposals to impose state regulation of Ukrainian gas pricing in October, citing the fact that it would “inflict a blow on Ukraine’s image in the world arena and severely harm the European Union.” integration processes”.

Only those Ukrainian oligarchs’ enterprises like those of Rinat Akhmetov, Igor Kolomoisky, and Viktor Pinchuk, who control gas production companies and can send natural gas to their enterprises are affected in this situation.

If Ukraine could produce enough gas tomorrow, its citizens can’t afford high-priced Ukrainian gas and hydrocarbon products. The reserves are 5000 ft. below the surface and the costs of drilling and extraction are quite high.

The only way Biden’s Ukraine can become energy independent is if fuel prices perpetually soar from now on. Ukraine will be able to pay financial obligations like World Bank loans and investors like Hunter Biden.

According to Yuriy Vitrenko, the newly appointed CEO of Ukraine’s energy behemoth Naftogaz, Nord Stream 2 will give Gazprom a dominant position in Europe, giving it significant leverage over Germany and other EU countries.

The only option to avert this scenario is for Ukraine to gain access to gas from other gas-producing countries like Turkmenistan, Kazakhstan, or Azerbaijan, which would gladly use Ukraine’s transit system to sell gas to Europe.

“Germany should ensure that Gazprom cannot obstruct us,” Vitrenko argues.

“They must do so before Nord Stream 2 is completed, while Germany retains the essential leverage.”

The Germans must impose a moratorium until this type of competitive solution is implemented.”

If Russia refuses to cooperate, it will show that Nord Stream 2 is simply a geopolitical weapon aimed at harming Ukraine and monopolizing Europe’s energy markets, according to Vitrenko.”We have a transit system in Ukraine.” Let us compete to bring other gas providers into Europe,” we argue.

Vitrenko believes that once Nord Stream 2 is completed and the present five-year contract expires in 2025, Russian gas will no longer flow via Ukraine.

Arsen Avakov, Ukraine’s Interior Minister, has claimed that Russia may not even complete the current contract.

He warned that Moscow may disrupt Ukraine’s pipeline network to hinder gas transit across the nation and boost the argument for Nord Stream 2.

What’s interesting about this is it brings us right back to a graft-investor scenario reminiscent of Biden-Burisma. The companies feed profits to investors instead of reinvestment into equipment and permitting.

Secondly, Vitrenko wants the most expensive gas in Europe to materialize in his Ukrainian pipe. Caspian Sea gas, like Ukrainian fracked gas, is extremely costly to produce. The average Ukrainian won’t be able to afford it even if it was a possibility.

It’s only now that we get to the part that will make Americans and Europeans equally appalled.

Biden is using gas and oil cost spikes due to his mandated production cuts and the attempt to shutter Nordstream II to support Ukraine.

The more hydrocarbon product costs spike, the less dependent the EU and Ukraine are on Russian gas. This means fewer Russian gas transits to the EU.

As a consequence, Ukraine can profitably frack hydrocarbons and pay oligarchs, political grafts, and international loans. The gas is too expensive for Ukrainian people but investors like Hunter Biden or Amos Hochstein make out like bandits.

The more profitable the expensive EU oil and gas production rigs become, the more diverse gas purchases are and short-term energy diversification and security is achieved through extremely high price energy products.

If energy costs are through the roof, Joe “Brandon” has a clear runway to dismantle the US economy and Democrats will do what Democrats are doing.

Why should this infuriate you? What’s the difference between $1.80 per gallon and $4.00 per gallon gasoline in the US when it’s coming out of your pocket? The difference is Ukraine’s ability to pay its bills. The difference is Ukrainian politicians dealing with their own problems like grownups. The difference is Ukraine starts acting like a partner and less like a petulant child throwing temper tantrums.

How do higher fuel costs transfer to high retail off-the-shelf product costs?

Do high energy costs contribute to runaway inflation?

Now you know.

It is a hard enough choice to bear the cost in lives when a war is worth fighting and can’t be avoided. Ukraine’s Zelensky doesn’t want Donbass back in the fold. Just a few weeks ago, Zelensky described the citizens he claims to want back as “subhuman.”

The Ukrainians, as of January 2022, are not good partners or friends to America. They are unworthy of American support.  Do we want to give them the opportunity to send American kids to war so their oligarchs and our politicians can steal more?

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Eastern Europe

The Stewards of Hate

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A big bear is rattling the open door of his cage.  He cannot abide a NATO spear in his belly.  Hence Valdimir Putin’s demand for Ukraine to remain out of it, and for the military alliance to stop its advance into eastern Europe.

For 72 years until 1991, Ukraine was a republic of the Soviet Union, and before that for centuries an oblast of the Imperial Russian empire.  In 1939, parts belonging to Poland were annexed.

It was during the breakup of Russia following an independence referendum that Ukraine opted to separate.  But NATO is another story.  After the dissolution of the Warsaw Pact (NATO’s eastern counterpart), Russia had expected the West to do the same.  Instead, NATO became a US fig leaf for its wars in Iraq and Afghanistan.  Apparently, everyone in the world saw through this — except the US — as it embroiled itself in both countries, and the bill for the misadventures rocketed from $80 billion to an estimated $5 trillion.

The EU, a path to riches for East Europeans, is a Ukrainian dream, and Russian troops the reality when they wake up.  Such are the facts, no matter how much the Ukrainians are trying to ignore them. 

If the powerful Russian bear is the Ukrainian bete noire, its polar opposite is the case in India.  A powerful Hindutva movement abhors the Muslim minority.  It blames them for India’s problems, very much akin to the situation for Jews in pre-WW2 Germany.  Not unsurprisingly given the roots of the RSS, which modeled itself after the Nazis, instituting uniforms and drills.  A former member assassinated Gandhi for being too soft on Muslims.  Post independence, the RSS was banned by India’s first government which was led by Jawaharlal Nehru, a secular socialist.

The current prime minister, Narendra Modi, is a former RSS pracharak —  that is an active member who devotes himself full time to promoting RSS doctrine and, like a missionary, in seeking new members.  As an ambitious politician, he shed RSS ties when he entered politics and as leader expresses the wish for unity — sentiments not shared by his BHP colleagues.

There is the yogi elected chief minister of India’s largest state, and his undisguised derogatory opinions of Muslims.  Worse, at a political event at the end of December, leaders called openly for the killing of Muslims, and India’s leaders kept silent.  After general social media outrage at the speeches, the police  finally registered a case against some of the speakers for ‘promoting hatred between religious groups.’

Videos show many of the speakers are prominent religious leaders often present with senior ministers in the BJP government.  Imagine, calling for genocide in 2021.  The world reacted to the effort to eliminate Tutsis in Rwanda where it also began with reviling and dehumanization.  Genocide and even incitement to genocide is a crime.  Hence the prosecutions.  Incitement to genocide is recognized as a separate crime under international law and an inchoate crime which does not require genocide to have taken place to be prosecutable.

The founders of post-independence India, Gandhi and Nehru who took pride in being secular, must be in agony over international outlaws wanting to become the stewards of their child.

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Eastern Europe

Lithuania is left in the dust

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The nearly completed Nord Stream 2 is again in focus. It has become known that the U.S. Senate on January 13 failed to pass a bill to slap sanctions on Russia’s Nord Stream 2 natural gas pipeline sponsored by Republican Senator Ted Cruz. The tally was 55 in favor and 44 against the bill that needed 60 votes to pass. Those who voted against his bill said it risked breaking unity in Washington and in Europe. U.S. senators said also Cruz sanctions on Nord Stream 2 could harm relations with Germany which is very important for the U.S. foreign policy and economy.

Top Ukrainian officials, as well as Lithuanian government supported Cruz’s bill, arguing the United States should do everything in its power to halt the pipeline project.

The link is designed to export gas from Russia directly to Germany by bypassing Ukraine, through which Russia has sent gas to Europe for decades. That would deprive Ukraine of lucrative transit fees and potentially undermine its struggle against alleged Russian aggression. The decision will allow the completion of the gas pipeline to Europe without the imposition of further US sanctions. Earlier Lithuanian Foreign Minister Gabrielius Landsbergis said that the a deal between the United States and Germany on the Nord Stream 2 pipeline was a “mistake”. It is interesting that the vote came as U.S. and European officials held high-level talks with their Russian counterparts. It is quite possible that the decision about Nord Stream 2 pipeline was the result of these negotiations.

This fact has sparked anger and has become great political disappointment for the Lithuanian officials who view the project as a security threat.

Lithuania, positioning itself as the main Ukraine’s patron in Europe, is confused with such U.S. decision. Lithuania promotes the U.S. interests and support all American initiatives even to the detriment of its own interests. Only this month Lithuania took a number of steps to prove its commitment to US policy. Lithuania even has dared to challenge China, one the main US strategic competitors. It continues to spend millions of dollars on military purchases from the U.S. using the narrative of “the threat from the East”. In December Lithuania signed an agreement with the U.S. to improve military interoperability.

The more so, the Lithuanian government has decided to accelerate its planned purchase of a multiple launch rocket system (MLRS) amid Russia’s military buildup on its border with Ukraine. The decision to buy US’ Lockheed Martin system in 2026, two years earlier than Vilnius previously planned.

The country also regularly holds political consultations with the U.S. officials to coordinate its further actions. But the U.S. in its turn does not pay attention to Lithuania’s opinion and makes decision in its favour.

Lithuanian government should gain Lithuanians’ support and pay attention to their needs. The matter is discontent in Lithuanian society is growing every day. Thus, on January 13, the usual commemoration of Freedom Defenders saw loud booing and heckles from the crowd of protesters who called on the government (and the parliament) to resign.

It is obviously that the threat from the East is not so real as threat to be fired due to loss of confidence in near future.

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