The Sanctioned Ones: How Iran-Russia are setting new rules

While China, keen to ward off US sanctions as long as possible, is lagging, its RIC partners Iran and Russia are doing the legwork to break the west’s global financial grip.

May 31 2022

Iran and Russia are taking the lead in establishing alternative financial networks to bypass western sanctionsPhoto Credit: The Cradle

By Pepe Escobar

The first Eurasia Economic Forum, held last week in Bishkek, Kyrgyzstan, should be regarded as a milestone in setting the parameters for the geoeconomic integration of the Eurasian heartland.

Sergei Glazyev, Russia’s Minister in Charge of Integration and Macroeconomics of the Eurasia Economic Union (EAEU), is coordinating the drive to design an alternative monetary-financial system – a de facto post-Bretton Woods III – in cooperation with China.

According to Glazyev, the forum “discussed the model of a new global settlement currency pegged to baskets of national currencies and commodities. The introduction of this currency instrument in Eurasia will entail the collapse of the dollar system and the final undermining of the US military and political power. It is necessary to start negotiations on signing an appropriate international treaty within the framework of the SCO.”

Glazyev described the initiative to upend the western global financial system in more detail during an exclusive interview with The Cradle in April.

It’s particularly relevant to understand how Glazyev interconnects the EAEU’s drive with the increasing geopolitical and geoeconomic role of the Shanghai Cooperation Organization (SCO), which unites at the same table key Eurasian powers: China, Russia, India, Pakistan, Kazakhstan and Iran.

That connects directly with Russian President Vladimir Putin, at the meeting of the Supreme Eurasian Economic Council, supporting the extension of a temporary free trade agreement between the EAEU and Iran, which is the newest (and only West Asian) full member of the SCO. Putin said this should go ahead despite the “confrontation by the collective West.”

The EAEU, inaugurated in 2015 with five full members – Russia, Kazakhstan, Kyrgyzstan, Belarus and Armenia – represents a market of 184 million people and a collective GDP of over $5 trillion. The next step with Iran will be to implement a full free trade agreement, possibly before the end of the year, according to Iranian deputy trade minister Alireza Peymanpak. Egypt, Indonesia and the UAE are also candidates to strike deals with the EAEU.

Iran, which has for over four decades now been forced to find creative solutions to bypass serial, imperial sanction packages, may have a conceptual lesson or two to teach Russia. Barter arrangements are gaining ground: Tehran is offering spare parts and gas turbines to Moscow’s power plants in exchange for much needed zinc, aluminum, lead and steel for its metal and mining industries, according to Iranian trade and industries minister Reza Fatemi Amin.

And more barter on a wide range of commodities is ahead, as discussed during a recent visit to Tehran by Russian Deputy Prime Minister Alexander Novak.

The other ‘RIC’

Slowly but surely, the new RIC (Russia-Iran-China) – as opposed to the old RIC in BRICS (Russia-India-China) – is attempting to integrate their financial systems. Iran is a matter of national security strategy for China, as an energy provider and essential partner of the Belt and Road Initiative (BRI) in West Asia.

Russia-China, though, is a much more complex matter. Extremely fearful of provoking US sanctions, Chinese banks are refraining – at least for the moment – to increase their deals with Russian banks, which brings us to the case of UnionPay:

The Chinese bank card provider – increasingly popular, especially across Asia – declined from partnering with Sberbank even before Russia’s largest bank was excluded by the EU and the US from the global bank messaging platform SWIFT. UnionPay also canceled plans with other Russian banks to issue UnionPay cards linked with the Russian Mir payment system, profiting from the exit of Visa and Mastercard from the Russian market.

This is still a careful balancing act for China. Earlier this year at the Boao Forum in Asia, President Xi Jinping was adamant in opposing the “wanton use of unilateral sanctions.” And over 80 percent of Chinese companies already established in Russia appeared to continue their business as usual.

Yet in practical terms, there are serious problems. The Bank of China and the Industrial and Commercial Bank of China (ICBC) have restricted financing for Russian commodities. Even the Asian Infrastructure Investment Bank (AIIB), absolutely essential for sustainable development projects, linked or not with BRI, decided to freeze all lending to Russia and Belarus in early March to “safeguard” its “financial integrity.”

On the financial front, cautious Chinese banks, with enormous western exposure, are always balancing the fact that nearly 80 percent of global cross-border transactions are still in dollars and euros, and only two percent in yuan. So the Russian market is not exactly a priority.

In parallel, the Russia-Iran front is quite lively. They are turbo-charging mutual settlements in their national currencies to “the highest possible level,” as highlighted by Deputy Prime Minister Alexander Novak: “We discussed together with central banks the spread and operation of the financial messaging system, as well as the connection of Mir and [Iranian] Shetab payment cards.”

As it stands, the Mir card is still not accepted in Iran, but that’s about to change – just as in Turkey, which this summer will start accepting Mir card payments from legions of Russian tourists. What this means in practice is that Russia and Iran will be connecting their banks to the System for Transfer of Financial Messages (SPFS), the Russian equivalent to SWIFT. The Chinese will obviously be examining how seamlessly the transition works.

Now compare all of the above with the prospect that soon there won’t be any SWIFT at all, as Mastercard CEO Michael Miebach let slip in Davos.

Miebach was participating in a panel on Central Bank Digital Currencies, discussing cross-border payments, when he suggested that SWIFT might soon be a thing of the past. No question about it: Moscow is eyeing crypto and digital currencies already, and Beijing is dead set on setting up the digital yuan to work around SWIFT and its linked CHIPS (Clearing House Interbank Payment System).

The Sanctioned Ones, now moving fast

The Russia-Iran front has been fast evolving since January this year, when Iranian President Ebrahim Raisi, on a visit to Moscow, handed a draft agreement to Putin on strategic cooperation for the next 20 years, building on “the very good experience of cooperation between Iran and Russia in Syria in combating terrorism,” and expanding to “economy, politics, culture, science, technology, defense, and military spheres, as well as security and space issues.”

Raisi also explicitly thanked Putin “for facilitating Tehran’s entry into the SCO.”

Iranian Oil Minister Javad Ouji went straight to the point in his meeting with Novak in Tehran last week: “Our countries are under strict sanctions, and we have the potential to neutralize them through the development of bilateral relations…We have created joint committees on banking, energy, transport, agriculture issues, as well as the issue of creation of nuclear power plants.”

And that brings us once again to the seemingly eternal soap opera of the Vienna-based Joint Comprehensive Plan of Action (JCPOA) talks, with Russian Deputy Foreign Minister Sergey Ryabkov now signaling the final draft “is at a high degree of readiness for adoption. There are some political problems, which are not related to the finalization of the text.”

Cutting through the proverbial fog of US swamp spin, Ryabkov stressed how “in terms of our interests, including in the context of peaceful nuclear cooperation with Iran, the text is quite satisfactory…there is nothing to ‘fine-tune’.” So when the Americans say that the deal is “out of reach,” Raybkov added, it means that they “broadcast the results of their internal discussions.”

The bottom line is that on the JCPOA, Tehran and Moscow are in sync: “We are what they call on edge, and it could happen very quickly if the political decision is made.”

Expanding on their synchronicity, Tehran even proposed to host negotiations between Moscow and Kiev over the Ukraine conflict – following the Turkish example. By now though, after Ankara’s failure, it is clear that Washington decision makers want no negotiation, but an endless war to the last Ukrainian.

Iranian Foreign Minister Hossein Amir-Abdollahian remains in sync with his counterpart Sergei Lavrov. At Davos, he said the Ukraine drama was caused by “the US and NATO’s provocative actions…they “provoked the Kremlin into this.” That’s essentially what Beijing has been discreetly implying.

All of the above shows some of the trials and tribulations of Eurasia integration, and the long and winding road to an EAEU-SCO new monetary system. But first things first: there’s got to be some action on the Mir-UnionPay front. When that news breaks, the die will be cast.

The views expressed in this article do not necessarily reflect those of The Cradle.

Russian Judo Tears the West Apart

Washington’s sanctions on Moscow will destroy Europe, not Russia

MARCH 8, 2022

Washington’s ‘replacement strategy’ for sanctioned Russian oil and gas imports appears to be to cozy up to its oil-producing arch-enemies Iran and Venezuela. Photo Credit: The Cradle

PEPE ESCOBAR  

The official Russian blacklist of hostile sanctioning nations includes the US, the EU, Canada and, in Asia, Japan, South Korea, Taiwan, and Singapore (the only one from Southeast Asia). Notice how that ‘international community’ keeps shrinking.

The Global South should be aware that no nations from West Asia, Latin America and Africa have joined Washington’s sanctions bandwagon.

Moscow has not even announced its own package of counter-sanctions. Yet an official decree “On Temporary Order of Obligations to Certain Foreign Creditors,” which allows Russian companies to settle their debts in rubles, provides a hint of what’s to come.

Russian counter-measures all revolve around this new presidential decree, signed last Saturday, which economist Yevgeny Yushchuk defines as a “nuclear retaliatory landmine.” .

It works like this: to pay for loans obtained from a sanctioning country exceeding 10 million rubles a month, a Russian company does not have to make a transfer. They ask for a Russian bank to open a correspondent account in rubles under the creditor’s name. Then the company transfers rubles to this account at the current exchange rate, and it’s all perfectly legal.

Payments in foreign currency only go through the Central Bank on a case-by-case basis. They must receive special permission from the Government Commission for the Control of Foreign Investment.

What this mean in practice is that the bulk of the $478 billion or so in Russian foreign debt may “disappear” from the balance sheets of western banks. The equivalent in rubles will be deposited somewhere, in Russian banks, but western banks, as things stand, can’t access it.

It is debatable whether this straightforward strategy was the product of those non-sovereignist brains gathered at the Russian Central Bank. More likely, there has been input from influential economist Sergei Glazyev, also a top former advisor to Russian President Vladimir Putin on regional integration: here is a revised edition, in English, of his groundbreaking essay Sanctions and Sovereignty, which I have previously summarized.

Meanwhile, Sberbank confirmed it will issue Russia’s Mir debit/credit cards co-badged with China’s UnionPay. Alfa-Bank – the largest private bank in Russia – will also issue UnionPay credit and debit cards. Although only introduced five years ago, 40 percent of Russians already have a Mir card for domestic use. Now they will also be able to use it internationally, via UnionPay’s enormous network. And without Visa and Mastercard, commissions on all transactions will remain in the Russia-China sphere. De-dollarization in effect.

Mr. Maduro, gimme some oil

The Iran sanctions negotiations in Vienna may be reaching the last stage – as acknowledged even by Chinese diplomat Wang Qun. But it was Russian Foreign Minister Sergei Lavrov who introduced a new, crucial variable into Vienna’s final discussions.

Lavrov made his eleventh-hour demand quite explicit: “We have asked for a written guarantee…that the current [Russian sanctions] process triggered by the United States does not in any way damage our right to free and full trade, economic and investment cooperation and military-technical cooperation with the Islamic Republic.”

As per the Joint Comprehensive Plan of Action (JCPOA) agreement of 2015, Russia receives enriched uranium from Iran and exchanges it for yellowcake, and in parallel, is reconverting Iran’s Fordow nuclear plant into a research center. Without Iranian enriched uranium exports there’s simply no JCPOA deal. It boggles the mind that US Secretary of State Blinken does not seem to understand that.

Everyone in Vienna, sidelines included, knows that for all actors to sign on the JCPOA revival, no nation must be individually targeted in terms of trading with Iran. Tehran also knows it.

So what’s happening now is an elaborate game of Persian mirrors, coordinated between Russian and Iranian diplomacy. Moscow’s Ambassador to Tehran, Levan Jagaryan, attributed the fierce reaction to Lavrov in some Iranian quarters to a “misunderstanding.” This will all be played out in the shade.

An extra element is that according to a Persian Gulf intel source with privileged Iranian access, Tehran may be selling as many as three million barrels of oil a day already, “so if they do sign a deal it will not affect supply at all, only they will be paid more.”

The US administration of President Joe Biden is now absolutely desperate: today it banned all imports of oil and gas from Russia, which happens to be the second-largest exporter of oil to the US, behind Canada and ahead of Mexico. The US’ big Russian-energy ‘replacement strategy’ is to beg for oil from Iran and Venezuela.

So, the White House sent a delegation to talk to Venezuelan President Nicolás Maduro, led by Juan Gonzalez, the White House’s top Latin America adviser. The US offer is to “alleviate” sanctions on Caracas in exchange for oil.

The United States government has spent years – if not decades – burning all bridges with Venezuela and Iran. The USG destroyed Iraq and Libya, and isolated Venezuela and Iran, in its attempt to take over global oil markets – just to end up miserably trying to buy out both and escape from being crushed by the economic forces it has unleashed. That proves, once again, that imperial ‘policy makers’ are utterly clueless.

Caracas will request the elimination of all sanctions on Venezuela and the return of all its confiscated gold. And it seems like none of this was cleared with ‘President’ Juan Guaido, who since 2019, was the only Venezuelan leader “recognized” by Washington.

Social cohesion torn apart

Oil and gas markets, meanwhile, are in total panic. No western trader wants to buy Russian gas; and that has nothing to do with Russia’s state-owned energy behemoth Gazprom, which continues to duly supply customers that signed contracts with fixed tariffs, from $100 to $300 (others are paying over $3,000 in the spot market).

European banks are less and less willing to grant loans for energy trade with Russia because of the sanctions hysteria. A strong hint that the Russia-to-Germany gas pipeline Nord Stream 2 may be literally six feet under is that importer Wintershall-Dea wrote off its share of the financing, de facto assuming that the pipeline will not be launched.

Everyone with a brain in Germany knows that two extra Liquefied natural gas (LNG) terminals – still to be constructed – will not be enough for Berlin’s needs. There is simply not enough LNG to supply them. Europe will have to fight with Asia over who can pay more. Asia wins.

Europe imports roughly 400 billion cubic meters of gas a year, with Russia responsible for 200 billion of this. There’s no way Europe can find $200 billion anywhere else to replace Russia – be it in Algeria, Qatar or Turkmenistan. Not to mention its lack of necessary LNG terminals.

So obviously the top beneficiary of all the mess will be the US – which will be able to impose not only their terminals and control systems, but also profit from loans to the EU, sales of equipment, and full access to the whole EU energy infrastructure. All LNG installations, pipelines and warehouses will be connected to a sole network with a single control room: an American business dream.

Europe will be left with reduced gas production for its – dwindling – industry; job losses; decreasing quality of life standards; increased pressure over the social security system; and, last but not least, the necessity to apply for extra American loans. Some nations will go back to coal for heating. The Green Parade will be livid.

What about Russia? As a hypothesis, even if all its energy exports were curtailed – and they won’t be, their top clients are in Asia – Russia would not have to use its foreign reserves.

The Russophobic all-out attack on Russian exports also targets palladium metals – vital for electronics, from laptops to aircraft systems. Prices are skyrocketing. Russia controls 50% of the global market. Then there are noble gases – neon, helium, argon, xenon – essential for production of microchips. Titanium has risen by a quarter, and both Boeing – by a third – and Airbus – by two thirds – rely on titanium from Russia.

Oil, food, fertilizers, strategic metals, neon gas for semiconductors: all burning at the stake, at the feet of Witch Russia.

Some Westerners who still treasure Bismarckian realpolitik have started wondering whether shielding energy (in the case of Europe) and selected commodity flows from sanctions may have everything to do with protecting an immense racket: the commodity derivatives system.

After all, if that implodes, because of a shortage of commodities, the whole western financial system blows up. Now that’s a real system failure.

The key issue for the Global South to digest is that the “west” is not committing suicide. What we have here, essentially, is the United States willfully destroying German industry and the European economy – bizarrely, with their connivance.

To destroy the European economy means not allowing extra market space for China, and blocking the inevitable extra trade which will be a direct consequence of closer exchanges between the EU and the Regional Comprehensive Economic Partnership (RCEP), the world’s biggest trade deal.

The end result will be the US eating European savings for lunch while China expands its middle class to over 500 million people. Russia will do just fine, as Glazyev outlines: sovereign – and self-sufficient.

American economist Michael Hudson has concisely sketched the lineaments of imperial self-implosion. Yet way more dramatic, as a strategic disaster, is how the deaf, dumb and blind parade toward deep recession and near-hyperinflation will rip what’s left of the west’s social cohesion apart. Mission Accomplished.

(Republished from The Cradle by permission of author or representative)

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Putin Reveals Conditions for Offensive in Ukraine to Stop

 March 6, 2022

Russian President Vladimir Putin has reiterated that the military operation against Ukraine is going according to plan and schedule, stressing that Moscow will only halt its offensive if Kiev stops fighting and the Kremlin’s demands are met.

Putin made the remarks in a phone conversation with his Turkish counterpart Recep Tayyip Erdogan on Sunday, as the conflict between the two sides continues for the 11th day.

“It was underlined that the suspension of the special operation is only possible if Kyiv stops military operations and carries out well-known Russian demands,” the Kremlin said in a statement quoting the president.

Putin further said Russia is open to dialogue with Ukraine, but that he hoped Ukrainian negotiators would take a more constructive approach at the next round of talks and take into account the reality on the ground.

He emphasized that any attempt by Ukrainian negotiators to drag out the negotiations will cause the whole process to fail.

Erdogan, for his part, urged his Russian counterpart to declare a ceasefire in Ukraine, open humanitarian corridors and sign a peace agreement.

In a statement after a one-hour phone call, the Turkish presidency said Erdogan told Putin that Turkey was ready to contribute to a peaceful resolution of the conflict.

“President Erdogan, who said an immediate ceasefire will not only ease humanitarian concerns in the region but also give the search for a political solution an opportunity, renewed his call of ‘let’s pave the way for peace together’,” his office said.

“Erdogan emphasized the importance of taking urgent steps to achieve a ceasefire, open humanitarian corridors and sign a peace agreement,” it added.

On February 24, Russian President Vladimir Putin announced a “special military operation” aimed at “demilitarization” of the Donetsk and Lugansk Republics in eastern Ukraine, collectively known as the Donbass.

The regions broke away from Ukraine in 2014 after refusing to recognize a Western-backed Ukrainian government that had overthrown a democratically-elected Russia-friendly administration.

Announcing the operation, Putin said the mission was aimed at “defending people who for eight years are suffering persecution and genocide by the Kiev regime.”

Russian forces have been advancing towards Kiev and seizing control of a number of towns and cities along the way. Authorities in Moscow have fiercely denied claims made by Ukrainian and Western officials of civilian areas being targeted by the Russian military.

The conflict has provoked a unanimous response from the US and allies, imposing a long list of sanctions on Moscow.

Russia and Ukraine held the second round of talks in Belarus for a way out of the conflict on Friday. A third round of talks is expected to take place on Monday.

Putin holds Ukraine responsible for March 3 power plant incident

In another phone call on Sunday, Putin talked to his French counterpart, Emmanuel Macron, accusing Ukrainian radicals for an incident on March 3 at the Zaporizhzhia nuclear power plant in Ukraine, the Kremlin said in a statement.

During the call, the statement said, Macron asked Putin by telephone about a fire at Europe’s biggest nuclear power plant.

“Vladimir Putin informed about the provocation by Ukrainian radicals in the area of the Zaporizhzhia nuclear power plant,” the Kremlin said, adding, “The radiation levels are normal.”

Putin also accused Ukraine of preventing civilians from leaving Mariupol.

Putin said “Ukrainian nationalists” prevented civilians and foreign citizens from leaving the port city of Mariupol and neighboring Volnovakha on Saturday despite a ceasefire announcement.

“And the pause in hostilities was again used only to build up forces and means in their positions,” Putin told Macron.

Russia banks turn to China after Visa, Mastercard suspension

Meanwhile, Russian banks have announced they plan to issue cards using China’s UnionPay system after card payment companies Visa and Mastercard suspended operations in Russia.

Russia’s largest bank Sberbank said in a statement on Sunday that it “is working on the possibility of issuing co-branded Mir-UnionPay cards,” adding that the timeframe for the issue will be announced later.

The country’s largest private lender Alfa Bank also said it is “already working on launching cards on UnionPay, China’s national payment system.”

Rosbank, Tinkoff Bank, and the Credit Bank of Moscow (MKB) are also working on releasing UnionPay cards, Russian news agencies reported.

On Saturday, the global payments companies announced that Russian Visa and Mastercard bank cards will no longer be valid abroad, and cards issued abroad will no longer work in Russia.

Source: Agencies (edited by Al-Manar English Website)

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