You wanna be Uncle Sam's bitch? Pay the price!

Dear friends,

I just took a short break from my life in "meatspace" to comment upon the great news
of the day: Russia is introducing a full 12 months embargo on the import of beef,
pork, fruits and vegetables, poultry, fish, cheese, milk and dairy products from the
European Union, the United States, Australia, Canada and the Kingdom of
Norway. Russia is also introducing an airspace ban against European and US airlines
that fly over our airspace to Eastern Asia, namely, the Asia-Pacific Region and is
considering changing the so-called Russian airspace entry and exit points for
European scheduled and charter flights. Furthermore, Russia is ready to revise the
rules of using the trans-Siberian routes, and will also discontinue talks with the US air
authorities on the use of the trans-Siberian routes. Finally, starting this winter, we
may revoke the additional rights issued by the Russian air authorities beyond the
previous agreements. This is such an interesting and major development that it
requires a much more subtle analysis than just the crude calculation of how much this
might cost the EU or US. I will attempt no such calculation, but instead I would point
out the following elements:

First, this is a typically Russian response. There is a basic rule which every Russian
kid learns in school, in street fights, in the military or elsewhere: never promise and
never threaten - just act. Unlike western politicians who spent months threatening
sanctions, the all the Russians did was to say, rather vaguely, that they reserve the
right to reply. And then, BANG!, this wide and far-reaching embargo which, unlike
the western sanctions, will have a major impact on the West, but even much more so
on Russia (more about that in an instant). This "no words & only action" tactic is
designed to maximize deterrence of hostile acts: since the Russians do not clearly
spell out what they could do in retaliation, God only knows what they could do next!
:-) On top of that, to maximize insecurity, the Russians only said that these were the
measures agreed upon, but not when they would be introduced, partially or fully, and
against whom. They also strongly implied that other measure were under
consideration in the pipeline.

Second, the sanctions are wonderfully targeted. The Europeans have acted like
spineless and brainless prostitutes in this entire business, they were opposed to
sanctions from day 1, but they did not have the courage to tell that to Uncle Sam, so
each time they ended up caving in. Russia's message to the EU is simple: you wanna
be Uncle Sam's bitch? Pay the price! This embargo will especially hurt southern
Europe (Spain, France, Italy, Greece) whose agricultural production will greatly suffer
from it These countries also happen to be the weakest in the EU. By hitting them,
Russia is maximizing the inevitable friction inside the EU over sanctions against
Russia.

Third, not only will EU carriers suffer from much higher costs and flight times on the
very important Europe to Asia route, but the Asian carriers will not, giving the latter a
double competitive advantage. How is that for a way to reward one side while hurting
the other? The EU got one Russian airline in trouble over its flights to Crimea
(Dobrolet) and for that the entire EU airlines community could end being at a huge
disadvantage vis--vis its Asian counterparts.

Fourth, Russia used these sanctions to do something vital for the Russian
economy. Let me explain: after the collapse of the USSR the Russian agriculture was
in disarray, and the Eltsin only made things worse. Russian farmers simply could not
compete against advanced western agro-industrial concerns which benefited from
huge economies of scale, from expensive and high-tech chemical and biological
research, which had a full chain of production (often through large holdings), and a
top quality marketing capability. The Russian agricultural sector badly, desperately,
needed barriers and tariffs to be protected form the western capitalist giants and,
instead, Russia voluntarily abided by the terms of the WTO and then eventually
became member. Now Russia is using this total embargo to provide a crucially
needed time for the Russian agriculture to invest and take up a much bigger share on
the Russian market. Also, keep in mind that Russian products are GMO-free, and that
they have much less preservatives, antibiotics, colors, taste enhancers, or
pesticides. And since they are local, they don't need to be brought in by using the
kind of refrigeration/preservation techniques which typically make products taste like
cardboard. In other words, Russian agricultural products taste much better, but that is
not enough to complete. This embargo now gives them a powerful boost to invest,
develop and conquer market shares.

Fifth, there are 100 countries which did not vote with the US on Crimea. The
Russians have already announced that these are the countries with which Russia will
trade to get whatever products it cannot produce indigenously. A nice reward for
standing up to Uncle Sam.

Sixth, small but sweet: did you notice that EU sanctions were introduced for 3 months
only, "to be reviewed" later? By introducing a 12 months embargo Russia also sends
a clear message: who do you think will benefit from this mess?

Seventh, it is plain wrong to calculate that EU country X was exporting for Y million
dollars to Russia and to then conclude that the Russian embargo will cost Y million
dollars to EU country X. Why is it wrong? Because the non-sale of these product
with create a surplus which will then adversely affect the demand or, if the production
is decreased, this will affect production costs (economies of scale). Conversely, for a
hypothetical non-EU country Z a contract with Russia might mean enough cash to
invest, modernize and become more competitive, not only in Russia, but on the world
market, including the EU.

Eighth, the Baltic countries have played a particularly nasty role in the entire
Ukrainian business and now some of their most profitable industries (such as
fisheries), which were 90% dependent on Russia, will have to shut down. These
countries are already a mess, but now they will hurt even more. Again, the message
to them is simple: you wanna be Uncle Sam's bitch? Pay the price!

Ninth, and this is really important, what is happening is a gradual decoupling of
Russia from the western economies. The West severed some of the financial, military
and aerospace ties, Russia severed the monetary, agricultural and industrial
ones. Keep in mind that the US/EU market is a sinking one, affected by deep
systemic problems and huge social issues. In a way, the perfect comparison is the
Titanic whose orchestra continued to play music while the sink was sinking. Well,
Russia is like a passenger who is told that the Titanic's authorities have decided to
disembark him at the next port. Well, gee, too bad, right?

'clock' by Josetxo Ezcurra
Last, but most definitely not least, this trade-war, combined with the West's hysterical
russophobia, is doing for Putin a better PR campaign than anything the Kremlin could
have dreamed of. All his PR people need to tell the Russian population is the truth:
"we did everything right, we played it exactly by the book, we did everything we could
to deescalate this crisis and all we asked for was to please not allow the genocide of
our people in Novorussia - and what was the West's response to that? An insane hate
campaign, sanctions against us and unconditional support for thegenocidal Nazis in
Kiev". Furthermore, as somebody who carefully follows the Russian media, I can tell
you that what is taking place today feels a lot like, paraphrasing Clausewitz, the "a
continuation of WWII, but by other means", in other words a struggle to the end
between two regimes, two civilizations, which cannot coexist on the same planet and
who are locked in struggle to death. In these circumstances, expect the Russian
people to support Putin even more.

In other words, in a typical Judo move, Putin has used the momentum of the the
West's Russia-basing and Putin-bashing campaign to his advantage across the board:
Russia will benefit from this economically and politically. Far from being threatened
by some kind of "nationalistic Maidan" this winter, Putin's regime is being
strengthened by his handling of the crisis (his ratings are higher than ever before).

Yes, of course, the USA have shown they they have a very wide array of capabilities
to hurt Russia, especially through a court system (in the US and EU) which is as
subservient to the US deep state as the courts in the DPRK are to their own "Dear
Leader" in Pyongyang. And the total loss of the Ukrainian market (for both imports
and exports) will also hurt Russia. Temporarily. But in the long wrong, this situation
is immensely profitable for Russia.

In the meantime, the Maidan is burning again, Andriy Parubiy has resigned, a the
Ukies are shelling hospital and churches in Novorussia. What else is knew?

As for Europe, it is shell-shocked and furious. Frankly, my own Schadenfreude
knows no bounds this morning. Let these arrogant non-entities like Van Rompuy,
Catherine Ashton, Angela Merkel or Jos Manuel Barroso deal with the shitstorm
their stupidity and spinelessness have created.

In the USA, Jen Psaki seems to be under the impression that the Astrakhan region is
on the Ukrainian border, while the Russian Defense Ministry plans to "open special
accounts in social networks and video hosting resources so that the US State
Department and the Pentagon will be able to receive unbiased information about
Russian armys actions".

Will all that be enough to suggest to the EU leaders that they have put their money on
the wrong horse?

The Saker

PS: have to leave again. Will be back on Saturday afternoon.