The Minsk "Agreement"

by Alexander Mercouris

Already there is debate about who has "won" and who has "lost" in the Minsk talks.

The short answer is that as the German foreign minister Steinmeier correctly said there is no breakthrough but the Russians and the NAF have made progress.

One point needs to be explained or reiterated (since I have explained it already and many times).

The agreement does not make provision for federalisation or autonomy for the Donbass but still only refers to the grant of a law according the Donbass temporary special status within the Ukraine.

There could not be an agreement for federalisation out of the Minsk negotiations because they are primarily a summit meeting of five powers - Russia, Belarus, Ukraine, German and France. The Russians have always insisted that this is an internal conflict and civil war within the Ukraine and between Ukrainians and it is for the Ukrainians and them alone to resolve their internal differences between them through negotiations.

Given that this is Russia's stance, Russia and the other powers cannot impose a federalisation scheme on the Ukrainians and they have not - at least overtly - sought to do so. What the stated objective of the Minsk talks is - at least from the Russian point of view - is to set up conditions and a process for the constitutional negotiations that the Russians have been pushing for (and which were supposedly agreed on 21st February 2014 and on 17th April 2014 and 5th September 2014) to take place.

The Russians have been insisting on these negotiations since the February coup. The Russians are not publicly pre-ordaining the outcome of those negotiations because were they to do so they would not be negotiations at all. Whatever a negotiation is, it is by definition not something whose outcome is preordained.

If the Russians sought to preordain the outcome of the negotiations by insisting on federalisation as the outcome they would be imposing their views on the parties and would be admitting that they are a party to the conflict, which is what they have consistently said they are not. They would in effect be doing what the US has tried to do in the Syrian conflict, which is insist on an outcome to negotiations (Assad's resignation) before negotiations even take place. The Russians have always opposed this sort of behaviour and they are being consistent in not openly adopting it now.

Depending on what the parties agree between them, the negotiations could in theory result in decentralisation, federalisation, a confederation or even outright independence for the Donbass (the Russians floated that idea as a serious possibility in the summer). The latter is not by the way contrary to the reaffirmation of respect or even support for the Ukraine's sovereignty and territorial integrity that we saw in the statement today. If the internal parties to the conflict were to decide on a formal partition as the solution to the Ukraine's conflict, then international actors like Russia could recognise it without calling into question their previous declared support for the Ukraine's territorial integrity, as they previously did when Czechoslovakia split up.

In reality everybody knows that the Russians' preferred option is federalisation and the Europeans are now edging towards that solution. Whether it is a viable solution is another matter.

Once this key point is understood everything else starts to fall into place.

Last spring and summer the Russians sought a ceasefire so the constitutional negotiations could begin. The Europeans are now also demanding a ceasefire (they were less keen on the idea last spring and summer). There is now therefore an agreement for a ceasefire.

Back in August the Russians demanded the withdrawal of heavy weapons from the Donbass. There is now an agreement for the withdrawal of heavy weapons from the Donbass.

If that happens it will be a major weakening of the Junta's position in the Donbass because it is the Junta whose military has the big preponderance in heavy weapons. If the opposing sides are left with light infantry forces, the advantage on the ground will pass decisively to the NAF.

The political machinery that was supposed to have been agreed in Minsk on 5th September 2014 to create the conditions for the constitutional elections is being revived. Thus there is to be a law of special status for the Donbass pending the constitutional negotiations to clarify its current legal status and provide legal mechanisms for its internal administration by the NAF (Ukraine passed one previously and then reneged on it), more elections etc.

There is a new provision, which is the first indications of some sort of timeline for this process with the constitutional negotiations supposed to have been concluded by the end of the year.

There are also some ideas for a beefed up monitoring process via the OSCE.

Will any of this happen? Highly doubtful I would say. Consider what happened after the Minsk process of 5th September 2014. The Junta did not withdraw its heavy weapons. It did not retreat to the agreed boundary line. It imposed an economic blockade on the Donbass (it is now obliged to lift it). It rescinded the law on the Donbass's special status. It reinforced its army and in January it attempted to renew its offensive.

Is there any more prospect of this process succeeding than did the one that was agreed in Minsk in September?

The big difference between this process and the previous process is that the Europeans are now formally involved. Its success or failure ultimately depends on whether the Europeans are going to insist on the Junta fulfilling its obligations. They spectacularly failed to do so before and I have to say I think it is very unlikely they will do so now. If the Europeans fail to insist on the Junta fulfilling its obligations then the process will unravel as the previous Minsk process did and with the balance of advantage continuing to shift every day on the ground towards the NAF we will see a further renewal of the fighting and a further NAF advance in the spring.

In the meantime control of the border, disarmament of "illegal armed groups" etc are now overtly linked to the successful conclusion of the constitutional negotiations, which is supposed to happen before the end of the year. Of course if the constitutional negotiations succeed, then when all these things happen we will have a different Ukraine from the one we have now. At that point the control of border posts etc will be in the hands of differently constituted authorities from those that exist today.

Will those negotiations actually happen? Will they succeed if they do? I doubt it. The Junta will resist them tooth and nail if only because those negotiations put in jeopardy the whole Maidan project and by their mere fact call into question the Junta's legitimacy.

It depends in the end on what the Europeans do. This has been true of the conflict from the start.

That it depends on what the Europeans do is in itself a good reason to doubt this process will succeed. The probability is more conflict down the road but in the meantime Poroshenko's admission that there is "no good news for the Ukraine" from this process tells us who is winning.

Talks in Moscow - a two-part analysis

by Alexander Mercouris

Part one (On 6th February 2015)
They have apparently continued for 5 hours and are still not finished though it seems some sort of document is being prepared for tomorrow.

Three comments:

1. If negotiations go on for 5 hours that does not suggest a smooth and conflict free discussion.

2. One of the most interesting things about the Moscow talks is that they mainly happened without the presence of aides and officials i.e. Putin, Hollande and Merkel were by themselves save for interpreters and stenographers. Putin and Merkel are known to be masters of detail and given his background as an enarque I presume Hollande also is. However the German and French officials will be very unhappy about this. The Russians less so because since the meeting is taking place in the Kremlin they are listening in to the discussions via hidden microphones.

One wonders why this is happening? Even if the Russian officials are not listening in Merkel and Hollande will assume they are. The fact that Russian officials were not present is therefore less significant than that German and French officials have been barred from the meeting by their respective chiefs, suggesting that Merkel and Hollande do not entirely trust them.

There has been an extraordinary degree of secrecy about this whole episode and it rather looks as if Merkel and Hollande were anxious to stop leaks and to prevent information about the talks from getting out. Presumably this is why their officials were barred from the meeting. From whom one wonders do Merkel and Hollande want to keep details of the meeting secret? From the media? From other members of their own governments? From the Americans? What do they need to keep so secret? The frustration and worry on the part of all these groups must be intense.

3. The fact that the British are excluded from the talks is going down very badly with many people here in London. It has not escaped people's notice that this is the first major negotiation to settle a big crisis in Europe in which Britain is not involved since the one that ended the Franco-Prussian War in 1870. Of course it is largely the fault of the inept diplomacy of Cameron, who has taken such an extreme pro-Ukrainian position that Moscow simply doesn't see him as someone worth talking to. Also one suspects Merkel and Hollande do not trust Cameron not to leak the whole discussion to whomever they want to keep it from. Having said that it is difficult to see this as anything other than further evidence of Britain's decline into complete irrelevance. I cannot imagine Thatcher being excluded in this way. If the United Kingdom is indeed in the process of breaking up (and as I suspected the Scottish referendum settled nothing with polls indicating that the SNP may make an almost clean sweep of all the seats in Scotland in the election in May) then the slide into irrelevance still has a long way to go.

Part two (On 7th February 2015)
I am coming increasingly round to the view of Alastair Newman that Merkel and Hollande came with no plan to Moscow but with the purpose of having what diplomats call "a full and frank discussion" in private with Putin looking at all the issues in the one place in Europe - the Kremlin - where they can be confident the Americans are not spying on them. That must be why they sent their officials away.

It is also clear that Merkel's and Hollande's visit to Kiev before their flight to Moscow was just for show.

Poroshenko's officials are insisting that the question of federalisation was not discussed during Poroshenko's meeting with Hollande and Merkel. Hollande has however now come out publicly to support "autonomy" for the eastern regions i.e. federalisation, which makes it a virtual certainty that in the meeting in Moscow it was discussed. The point is that Merkel and Hollande did not want to discuss federalisation with Poroshenko because they know the junta adamantly opposes the idea and did not want him to veto it before the meeting in Moscow had even begun.

The problem is that since everyone pretends that federalisation is an internal Ukrainian issue to be agreed freely between the two Ukrainian sides, its terms will only be thrashed out once constitutional negotiations between the two Ukrainian sides begin. Since the junta will never willingly agree to federalisation, in reality its form will have to be hammered out in private by Moscow after consultations with the NAF and with Berlin and Paris and then imposed on the junta in the negotiations.

Saying this shows how fraught with difficulty this whole process is going to be.

Not only are there plenty of people in the Donbass who now oppose federalisation (and some in Moscow too I suspect) but this whole process if it is to work would somehow have to get round the roadblock of the Washington hardliners, who will undoubtedly give their full support to the junta as it tries to obstruct a process over which it has a theoretical veto. Frankly, I wonder whether it can be done.

If the process is to have any chance of success then Merkel and Hollande must screw up the courage to do what they failed to do last spring and summer, which is publicly stand up to the hardliners in Washington and Kiev and impose their will upon them. Are they really willing to do that? Given how entrenched attitudes have become over the last few months and given the false position Merkel and Hollande put themselves in by so strongly supporting Kiev, the chances of them pulling this off look much weaker than they did last spring.

I would add a few more points;

1. There is one major difference between the situation now and in the Spring, which might offer some hope of movement.

Anyone reading the Western media now cannot fail but see that there is a growing sense of defeat. Sanctions have failed to work, the Ukrainian economy is disintegrating and the junta's military is being defeated.

That was not the case last spring, when many in the West had convinced themselves that the junta would win the military struggle with the NAF. The confrontation strategy Merkel opted for in July based on that belief has totally and visibly failed. It is not therefore surprising if she is now looking for a way-out by reviving some of the ideas that were being floated by the Russians in the spring. She now has a political imperative to look for a solution in order to avoid the appearance of defeat, which would leave her position both in Germany and Europe badly weakened. That political imperative was not there in the spring. It is now. In a sense the pressure is now on her.

2. I should stress that it is Merkel who is Putin's key interlocutor. The reason Hollande is there and appears to be taking the lead is to provide Merkel with cover. The one thing Merkel cannot afford politically is the appearance of a Moscow-Berlin stitch-up that the hardliners in Washington, Kiev, London, Warsaw and the Baltic States will claim is a new Molotov-Ribbentrop Pact to divide Europe into German and Russian spheres of influence. Whether we like it or not in Germany the shadow of Hitler still hangs heavy and exposes Berlin to endless moral blackmail whenever it tries to pursue with Moscow an independent course. That is why Merkel needs Hollande present when she meets Putin for talks of the sort she's just had in Moscow.

3. One other possible sign of hope is that there is some evidence that a sea-change in European and especially German opinion may be underway.

Whatever the purpose of the ongoing debate in Washington about sending weapons to the junta, whether it is a serious proposal or an attempt to secure diplomatic leverage or a combination of the two, it has horrified opinion in Europe, bringing home to many people there how fundamentally nihilistic US policy has become.

All the talk in the Western media yesterday and this morning is of a split between Europe and the US. That is going much too far. However for the first time there is public disagreement in Europe with Washington on the Ukrainian question. Whether that crystallises into an actual break with Washington leading to a serious and sustained European attempt to reach a diplomatic solution to the Ukrainian crisis against Washington's wishes is an altogether different question. I have to say that for the moment I very much doubt it.

4. I remain deeply pessimistic about this whole process. The best opportunity to settle this conflict diplomatically was last spring. I cannot help but feel that as Peter Lavelle said on the Crosstalk in which I appeared yesterday, the train has now left the station.

A peaceful solution to the Ukrainian conflict ultimately depends on European resolve to face down the hardliners in Washington and Kiev. It is going to be much harder to do this now than it was last year.

Moreover, despite the bad news on the economy and on the front line in Debaltsevo, the hardliners in Kiev are bound to have been emboldened by all the talk in Washington about sending them arms, which is going to make the effort to bring them round even harder than it already is.

The besetting problem of this whole crisis is that the Europeans have never shown either the resolve or the realism to face the hardliners down though it is certainly within their power to do so. In Merkel's case one has to wonder whether her heart is in it anyway. My view remains that this situation will only be resolved by war, and that the negotiations in Moscow will prove just another footnote to that.

5. If I am wrong and some autonomy really is granted to the Donbass, then I make one confident prediction. This is that the Ukraine will in that case disintegrate even more rapidly than it would have done if federalisation had been agreed upon last spring or summer.

Following such a terrible war, I cannot see people in the Donbass accepting federalisation as anything other than a stepping stone to eventual secession and union with Russia. If the Donbass secures autonomy, I cannot see people in places like Odessa and Kharkov failing to press for an at least equivalent degree of autonomy to that granted to the Donbass. If the Europeans are prepared to see the Donbass achieve autonomy, by what logic can they deny it to the people of Odessa and Kharkov?

More to the point, the November elections showed the emergence of what looks like an increasingly strong potential autonomy or even independence movement in Galicia.

Given that a terrible war has been fought and lost in the east to defeat "separatism" in the Donbass, and given the widespread disillusion with the junta in Kiev, it is difficult to see how many people in Galicia will not feel betrayed if the grant of federalisation to the Donbass is now imposed on them after so many of their men died to prevent it. If in reaction Galicia presses for the same sort of autonomy as the Donbass - which it could well do - then the Ukraine is finished. I doubt it would hold together for more than a few months. If federalisation had been granted last spring or summer before the war began then it is possible - likely even - that the Ukraine could have been held together in a sort of state of suspended animation at least for a while. I don't think there's much chance of that now.

War in the Ukraine

by Alexander Mercouris

Russia Insider has published my latest piece on the course of the Ukrainian war. It is a more refined and thought through version of the piece I previously wrote on this Page.

http://russia-insider.com/en/2015/02/02/3054

1. My key point is that it is not minor tactical movements that are determining the course of this war. It is the level of casualties the Ukrainian military is suffering. They were hammered in the summer and they are being hammered again now.

In my pieces for Russia Insider I quoted the number of Ukrainian military deaths on the basis of official Ukrainian documents obtained by a hacking group as 1,100 for a two week period that covered the battle for Donetsk airport. The NAF today puts the total number of Ukrainian military deaths presumably since the resumption of the fighting at 1,500. Colonel Cassad yesterday was saying that the number could be over 1,800.

The figures of 1,500 and 1,800 cover a longer period than the 1,100 in the hacked Ukrainian documents. The fact that they are all of the same order of magnitude however suggests that all these figures are reliable. If so then that that shows that my guess that the Ukrainian army is suffering deaths at a rate of several hundred a week is probably correct.

2. Of course the NAF is also currently suffering a high rate of losses. However it is clear that these are at a substantially lesser level than the Ukrainian. As I said in the Russia Insider piece an NAF spokesman put the loss ratio at 4 to 1. Colonel Cassad put the total number of NAF deaths at 600 for the same period as that of his 1,800 estimate for Ukrainian deaths. That is a 3 to 1 ratio.

I suspect that the number of NAF deaths over the last 3 weeks is higher than usual because the NAF has been on the attack for most of this period. When that stage ends after the Debaltsevo pocket is fully encircled I would guess the number will fall. By contrast as the pocket collapses the rate of deaths of Ukrainians will rise especially if the pattern of unsuccessful counterattacks the Ukrainians have a habit of launching is followed.

3. As I said in the article for Russia Insider the Ukrainian military simply cannot go on taking losses at a rate of several hundred a week. In the slugfest we are seeing it is only a matter of time before it breaks. This is especially so since I strongly suspect that I have greatly overestimated the total number of Ukrainian troops in the Donbass in my Russia Insider piece. I put the number in the same range of 60,000 or so thousand that was the case in the summer. I suspect the real total is substantially less, thus the attempted mobilisations about which in the Russia Insider piece I have much to say.

4. On the political front, the DPR/LPR are taking a very hardline in the negotiations. Specifically:

(1) they are now formally challenging Kuchma's plenipotentiary rights i.e. his right to sign agreements that formally and legally bind the junta. They are insisting that he formally be given such rights.

As I have argued before there was no doubt that Kuchma was acting on behalf of the junta when he signed the Minsk Protocol and it is fatuous to deny the fact. However the junta has repeatedly resisted pressure to formalise Kuchma's position since if they formally admit he is their representative then they formally admit they are negotiating with the NAF, which is something for political and ideological reasons they emphatically do not want to do.

(2) the NAF has said that they would agree to a new ceasefire on the basis of the actual combat line and not the line agreed in the Minsk Memorandum. This is a way of rejecting calls for a ceasefire because they know perfectly well that the junta will not agree to this. Importantly the NAF rejected a call for a temporary 7 day ceasefire in Debaltsevo today. I think this is the first time the NAF has rejected a ceasefire when it has been offered.

This is a fundamental shift from the position last spring and summer. At that time it was the NAF (and the Russians) who were repeatedly calling for a ceasefire and the junta that was ignoring such calls even as it purported to agree to them. Now the situation is reversed. There is no better indicator that the initiative has now passed to the NAF than that.

(3) The Russians are backing the NAF line. It has been completely overlooked but yesterday 2nd February 2015 Interfax carried this brief but momentous report at 20:03 hours Moscow time:

"Kremlin source: East Ukraine militias' hardline 'absolutely justifiable'"

As I have said previously, the Russians have abandoned hope of Western pressure to force the junta to negotiate. This provides further confirmation. The NAF has the green light from Moscow to see its offensive through.

(4) To understand why the Russians have given up hope of a negotiated solution consider Poroshenko's latest statement today. Even as the situation collapses around him he is continuing to reject calls for federalisation and is continuing to say that the Ukraine will remain a unitary state. As I have said previously, the ideological and political nature of the junta makes no other response possible and anyone who thinks the junta will voluntary agree a compromise is fooling himself.

5. I am not going to say anything about what looks like a gathering political crisis in Kiev because there are others who understand it better than me.
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Saker commentary: here is what I wrote in the comments section of Russia Insider under Alexander's analysis.

Since Alexander has been so kind as to mention me I just want to say that I indeed *fully* agree with his analysis, especially when he predicts further disaster for the Ukrainian military. He is also correct when he says that the number of killed Ukrainians is a humanitarian catastrophe: we might well see something quite amazing happening - a war where there are more military casualties then civilian ones. Furthermore, I also fully agree that the decision to stop the massacre depends not on Kiev, but on Washington. This war will last as long as the US wants to keep this bleeding wound open and no amount of western "aid" (lethal or otherwise) will turn the tide in this war. The only question is how many Ukrainians will have to die for this abomination to finally stop. Even the "solution" to this war is obvious and understood by everybody: a nominally unitary Ukraine with full cultural, economic and political autonomy for *all* its regions, not only the Donbass and a full recognition of the Novorussian authorities as a equal partner for negotiations. All this nonsense about "9000 Russian troops" "invading" the Ukraine and Russia as the "aggressor country" (as the Rada says) or the nonsense about the LNR and DNR being "terrorist organizations" (official Kiev position) only delays the inevitable and will generate more useless deaths. Finally, I also agree that the US/NATO cannot and therefore will not send forces to crush the Novorussians. What US/NATO can, and will, do is provide some financial and some military aid, and lots of hot air and big empty statements and promises. That will not be enough. Alexander's analysis is flawless.
Cheers,
The Saker

EU sanctions meeting

by Alexander Mercouris

As Eric Kraus has pointed out there is complete confusion in the media today about how to spin the latest EU sanctions decision.  Did Syriza fold as per Reuters and Bloomberg.  Or did the meeting expose growing splits within the EU as per the Financial Times and the London Times.

The best answer is that nothing definite was decided at the latest EU Council meeting but Syriza did manage to put a marker down.

I go back to my piece about Syriza for Russia Insider (http://russia-insider.com/en/germany_politics_opinion/2015/01/27/2785).  Whether one likes the fact or not, for Syriza relations with Russia are not the priority.  Syriza does not agree with the sanctions, but its overriding priority is Greece's own economic crisis.

Given that this is so, it is simply unrealistic to expect a very young government in the very first days of its existence to provoke a crisis within the European Union that pitches it against the Commission, Germany, Britain and France, risking a deeper crisis in Greece and putting in jeopardy its own existence, on an issue that for Greeks is of only peripheral importance.  

What Syriza did on Thursday was all that in the circumstances it could realistically do: apply a soft brake on the sanctions train.  

The European Council meeting was convened by Mogherini, the EU's "foreign minister", following demands from the EU hardliners led by Donald Tusk (who now nominally chairs the European Council when it meets at heads of government level) who have been calling for a strong EU response to the breakdown of the ceasefire and the ongoing NAF offensive, which has resulted in the capture of Donetsk airport and the gradual encirclement of the Debratselvo pocket.  It also took place against a drumbeat of orchestrated hysteria following the shelling in Mariupol.  Prior to the meeting Tusk said that he was not interested in a meeting that was purely declamatory.

That however is what Tusk got.  What came out of the meeting was essentially declamatory.  

The Greeks insisted on a belligerent paragraph directed against Russia being removed from the text of the final EU statement and postponed any further decision on further sanctions to a European Council meeting on 12th February 2015, which will take place at heads of government level.  In return they agreed to an extension of the limited sanctions against specific Russian companies and individuals that came into force in March, but not for a full year (as the hardliners apparently wanted) but only for 6 months (to September 2015).  

These sanctions are a serious matter for the individuals concerned, but they are not critical for Russia. 

This is not the outcome that either the Russians or the EU hardliners led by Tusk had wanted, but it gives time and space for Syriza to sort out its own position and make whatever alliances within the EU it can, both on the critical debt question and on the less critical question of sanctions.  

The next test will come at the European Council meeting on 12th February 2015 which Tsipras himself will attend.  As of now it is looking unlikely that the EU will impose further significant sanctions on Russia at that meeting.  Syriza is opposed to such sanctions but more importantly some of the other EU states are not keen on them either.  They now known that one EU government - that of Greece - is strongly of that view, which is likely to make their opposition still stronger.  To what extent more sanctions can be prevented at the meeting on 12th February 2015 will depend on the extent to which Syriza is able to play on the doubts of these other EU states.  Significantly Syriza did manage to play successfully on these doubts at the meeting on Thursday, when it received the discrete support of several other EU states.

The big test however will be when the sectoral sanctions come up for renewal in July.  That is the key decision upon which the future of the sanctions ultimately depends.

I would add that by July - and even more by September when the sanctions that were extended on Thursday come up for renewal - we will also have a better idea of the prospects for a Podemos victory in Spain.  

If Podemos does win in Spain, then the entire calculus changes with Syriza having one of the big EU countries as an ally.  I hardly need say that Spain carries immeasurably more weight within the EU than does Greece.  A Podemos government in Spain can afford to go it alone on sanctions and defy the other big powers in the EU.  A Syriza government cannot.

In my opinion Thursday's decision was the best that could be expected in the circumstances.  As I said the big decisions are still to come.  It would be of no benefit to Russia, Greece or Syriza if Syriza had provoked a crisis in the EU on Thursday on a question of extending the least important sanctions, which caused a dramatic escalation of the economic crisis in Greece, which in turn meant that Syriza was either swept from power in Greece or was unable to make independent decisions when the big decisions come up in July.  

I would finish by again repeating what I said before in my Russia Insider piece and here.  

Greece is a small and economically very weak country.  For its people the sanctions are not the priority.  The economic crisis is.  That is why they voted for Syriza:  to solve the economic crisis, not to get the sanctions on Russia lifted.  On the sanctions issue people should not expect more from Syriza than it promised or can realistically deliver.

A key day in the Ukrainian Conflict?

by Alexander Mercouris

This may turn out to be a critical day in the evolution of the Ukrainian conflict.

1. The Russian Security Council met today. We do not (obviously) have a full account but Putin's website has provided some details.

Strikingly, Putin referred to the junta as "official Kiev" and not "the Ukrainian government" or "the Ukrainian side". He also referred to the two east Ukrainian republics as "the Donetsk People's Republic" and "the Lugansk People's Republic".

This is the closest Putin has yet come to since Poroshenko's election in implying that the junta is not the legitimate authority in the Donbass and that the two NAF republics are.

2. Putin also pointedly referred to "criminal orders" coming from "official Kiev".

http://eng.kremlin.ru/news/23512

3. Putin has also had a telephone conversation with Lukashenko, who is a key partner in relation to the Ukrainian conflict. Again we have scarcely any information about what was discussed but Putin will have wanted to ensure that Lukashenko remains on board. I expect a phone call to Nazarbayev shortly.

4. We now know from comments made by Shuvalov at Davos that Beijing is being consulted all the time. The key point about what happened at Davos is that Shuvalov made it absolutely clear that Russia will not submit to sanctions and Kostin of VTB gave a very clear warning against any attempts to exclude Russian banks from the SWIFT payments system. The Financial Times has a good summary of the comments Shuvalov and Kostin made and I attach it below.

5. The Russian Justice Ministry meanwhile has formally banned a number of Ukrainian organisations including Right Sector. Some of us are surprised that they had not been banned already.

http://itar-tass.com/en/russia/773105

6. Zakharchenko has said that the Minsk Memorandum no longer applies. This is not the same document as the Minsk Protocol, which was the original ceasefire agreement that was agreed on 5th September 2014. Rather, it is the technical follow-up document that purported to set out the ceasefire line and which provided for the withdrawal of heavy weapons, which was agreed on 19th September 2014. Neither the Minsk Protocol nor the Minsk Memorandum have ever been implemented. By saying the Minsk Memorandum no longer applies Zakharchenko has freed the NAF to pursue offensive operations, which is currently what it is doing.

7. Lastly, Zakharchenko has also again been saying that the DPR's/LPR's decision to secede from the Ukraine is final.

Now it may be that all these discussions and conversations and comments are uncoordinated and do not in total amount to anything. Perhaps there has been no change in Russian policy. However they do look like a hardening of position and perhaps give clues that the Russians have at least for the moment given up hope of the diplomatic approach. They also suggest a preparation for a battening down of the hatches in case another round of sanctions is on the way.
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From the Financial Times:

One of Russia’s top bankers on Friday warned that excluding the country from the Swift banking payment system would be tantamount to “war”.

The suggestion that Russia could be shut out of Swift triggered widespread alarm in Moscow’s financial community when it was floated by western politicians last summer. Russia’s banks rely heavily on the Belgium-based payments system for both domestic and international payments. However, the move was at the time considered too punitive a sanction, being described by one adviser as “the nuclear option”.

Speaking at a panel in Davos on Friday Andrei Kostin, chief executive of VTB, Russia’s second-largest bank, said: “If there is no Swift, there is no banking . . . relationship, it means that the countries are on the verge of war, or they are definitely in a cold war.”

“The next day, the Russian and American ambassadors would have to leave the capitals,” he added.

Mr Kostin’s comments highlight how the west’s sanctions regime is creating a sense of anger and defiance among the Russian political and business elite.

“The more you press Russia, I do not think the situation will change,” he said, pointing out that the country was moving to reduce its reliance on western payment systems such as Swift.

“We have already created a domestic alternative to the Swift system . . . and we need to create alternatives internationally.”

He drew attention to efforts under way between Russia and China to create a separate platform of their own, outside western control.

Igor Shuvalov, Russia’s deputy prime minister, echoed this theme. “We are developing our eastern vector,” Mr Shuvalov declared, pointing out that although efforts to build links with China had been under way before the crisis, they had dramatically intensified since sanctions started, as Russia looked for alternatives to the west.

Mr Shuvalov said that the so-called Bric countries (Brazil, Russia, India and China) were ready to help each other in a financial crisis too. “Large Chinese investors are coming to us,” he said.

The “pivot to Asia” has become a key part of Vladimir Putin’s foreign policy since the breakdown in relations with the west over Ukraine. While several flagship deals have been signed, such as the $400bn contract to supply Russian gas to China for 30 years last May, few Russian policy makers or businesspeople believe China can save the Russian economy from a painful recession.

“The present situation looks like it is softer than [the 2008-09 financial crisis] but we are going into a long crisis situation and it may be protracted,” Mr Shuvalov said.

But he added that foreign pressure would not succeed in changing the political leadership of the country.

“We will survive any hardship in the country — eat less food, use less electricity,” he said.

Alexei Kudrin, the respected former finance minister, predicted Russia could see capital outflows of $90bn this year after a record $151bn in 2014. “We should clearly understand the price we are paying for sanctions,” he said.

Ukraine Goes to War – and Always Will as Long as Maidan Holds Power

by Alexander Mercouris for Russia Insider

As the economic situation in Ukraine goes from bad to worse the response of the Ukrainian government's attention is focused instead on resuming the war in the Donbass.

Over the last few weeks we have heard boasts from President Poroshenko that the combat capabilities of the Ukrainian military have been fully restored since its defeat last summer and that all its losses in armour (according to Poroshenko 65% of the total with which the Ukrainian army started its offensive in June) have been made good. We have also had a succession of mobilisation decrees calling up a grand total of 250,000 men in three waves extending to June.

All of this has been accompanied with the usual fiery rhetoric against Russia and the people in the Donbass the Ukrainian government calls “separatists” or “terrorists”.

Meanwhile a tragic shelling of a bus near Volnovakha has been blamed by the government on the rebels, leading to staged protests attended by government officials in Kiev and elsewhere.

The sequel has been a renewal of the fighting on a scale unseen since the Minsk Protocol was signed on 5th September 2014. Over the course of the fighting the rebels appear to have captured the new terminal of Donetsk airport (they already held the old terminal), a Ukrainian counter attack to recapture the new terminal contrary to Ukrainian reports appears to have failed, at least for the moment, there has been renewed shelling across the whole front, including indiscriminate shelling of Donetsk, an air raid was launched on the rebel held town of Gorlovka and the rebels for their part have shelled government positions near Mariupol.

How did we get to this position?

The short answer is that the Ukrainian government has refused to carry out the peace process it committed itself to in the Minsk Protocol. The constitutional negotiations that were supposed to happen and which the government committed itself to in the Minsk Protocol and which were supposed to lead to a final settlement of the Ukrainian conflict have never taken place.

The Minsk Protocol also committed the government to extensive decentralisation of the Donbass preliminary to a final peace settlement and to elections there. The elections duly took place but the government did not recognise them or their outcome and though the Ukrainian parliament passed a law for the decentralisation of the Donbass, the Ukrainian government then almost immediately reversed it.

Previously, back in September, I discussed the Minsk Protocol in detail here, where I said

“…..the Protocol is in my opinion a total red herring. The Protocol is not a contract or treaty. There is no court or tribunal that will arbitrate on the meaning of its words. All the sides will construe it as they wish. The junta will not of course construe it as I have done and nor will its western backers even though my interpretation is undoubtedly the correct one. The junta will continue to call the NAF (the “Novorossian Armed Forces” - AM) “terrorists” and will continue to deny they are the representatives of the Donbas whether they win the election or not. Certainly the junta will not recognise an election the NAF wins or any declaration of independence the NAF makes. For what it’s worth in my opinion there is little chance of the terms of such an election being agreed upon or such an election taking place whilst the Donbas remains part of the Ukraine”.

Every word in this paragraph has come true. The Ukrainian government still refuses to recognise the Donbass leaders Zakharchenko and Plotnisky as the representatives of the people of the Donbass even though their signatures are on the Minsk Protocol, which the Ukrainian government negotiated with them and itself signed. Elections in the Donbass did take place in November but as I predicted the Ukrainian government did not agree their terms. The Ukrainian government still calls Zakharchenko and Plotnitsky and the other Donbass leaders “terrorists”.

The reason I was able to make that prediction in September with such confidence and why that prediction has in every respect come true, is because the nature of the Ukrainian government allowed for no other.

The basic truth about the crisis in Ukraine and why there is a war there - the one that many people especially in the West refuse to acknowledge - is that the faction that seized power in Ukraine through the February 2014 coup is structurally incapable of negotiation or compromise with those it considers its opponents.

I discussed the nature of this faction when I discussed the results of the elections in Ukraine last November. Briefly, the whole purpose of the February coup was so that the faction in Ukraine that holds power now could achieve the unrestricted dominance of Ukrainian society which is its only way of making true its vision of a unitary, monolingual, monocultural Ukraine that is forever distanced from Russia.

Given the diversity of Ukrainian society, it cannot compromise with its opponents since were it to do so that would jeopardise the entire project that is the reason for its existence and the justification for its hold on power. That is why it acted in February to eliminate from Ukrainian political life the faction that had held power in Ukraine before and why it remains committed to eliminating its opponents in the Donbass now.

It is also incidentally the reason for the repeated attacks on the Lenin statues discussed by Paul Robinson here. Given the regime’s overriding, aggressive drive to reshape Ukraine in its own image, it cannot tolerate the existence of these statues precisely because so many Ukrainians adhere to them and by doing so hold fast to a different vision of Ukraine from the one the regime has. The very reason why Robinson says it is a mistake to attack these statues is therefore for the regime a compelling reason to destroy them. The statues have to be eliminated from Ukraine just as opponents who think of Ukraine differently must be.

It is this drive - not Russia’s actions - which is why Ukraine is in a state of perpetual war and crisis and why atrocities like the 2nd May 2014 Odessa fire can happen without being properly investigated or the perpetrators brought to account.

Though the Maidan regime is deeply divided and factionalised, its drive to remake Ukraine and to eliminate all opponents of its vision, is the common denominator of all its factions. As factional differences intensify as the economic situation deteriorates, fulfilment of the drive through war increasingly becomes the way the regime retains coherence, making a renewal of the war inevitable.

What this means in practice is that negotiations between the Ukrainian government and the Donbass as a route to peace in Ukraine are all but impossible. As Yanukovych repeatedly discovered during the Maidan crisis (see our discussion of his ouster here), any attempt to achieve a compromise is bound in the end to fail since the Maidan movement which holds power in Ukraine now is structurally unable to compromise.

What this means is that there cannot be peace in Ukraine whilst the present government survives there and whilst Ukraine retains its existing borders unless overwhelming pressure is brought to bear on the government by its Western backers to compromise in a way that left to itself it will never do. Nor can there be any hope of economic stabilisation in Ukraine when the government’s focus is so single mindedly elsewhere.

This reality is now well understood by all the parties in Ukraine itself. It is also widely understood in Russia. The unanswered question of the Ukrainian crisis is how far it is understood in the West. The answer I suspect is very little. This is why all the West’s pressure is on Russia and the Donbass, where it is not needed and where it achieves nothing, and none is on the Ukrainian government, where it is really needed and where it might do some good.

That is is why we also still hear Western declarations of support for Ukraine and its government. Given Ukrainian realities, as a way of achieving peace in Ukraine, that is almost the worst thing Western governments can do.

CrossTalk: Turk Stream

The Importance Of The Cancellation Of South Stream

by Alexander Mercouris

The reaction to the cancellation of the Sound Stream project has been a wonder to behold and needs to be explained very carefully.

In order to understand what has happened it is first necessary to go back to the way Russian-European relations were developing in the 1990s.

Briefly, at that period, the assumption was that Russia would become the great supplier of energy and raw materials to Europe. This was the period of Europe's great “rush for gas” as the Europeans looked forward to unlimited and unending Russian supplies. It was the increase in the role of Russian gas in the European energy mix which made it possible for Europe to run down its coal industry and cut its carbon emissions and bully and lecture everyone else to do the same.

However the Europeans did not envisage that Russia would just supply them with energy. Rather they always supposed this energy would be extracted for them in Russia by Western energy companies. This after all is the pattern in most of the developing world. The EU calls this “energy security” - a euphemism for the extraction of energy in other countries by its own companies under its own control.

It never happened that way. Though the Russian oil industry was privatised it mostly remained in Russian hands. After Putin came to power in 2000 the trend towards privatisation in the oil industry was reversed. One of the major reasons for western anger at the arrest of Khodorkovsky and the closure of Yukos and the transfer of its assets to the state oil company Rosneft was precisely because is reversed this trend of privatisation in the oil industry.

In the gas industry the process of privatisation never really got started. Gas export continued to be controlled by Gazprom, maintaining its position as a state owned monopoly gas exporter. Since Putin came to power Gazprom’s position as a state owned Russian monopoly has been made fully secure.

Much of the anger that exists in the west towards Putin can be explained by European and western resentment at his refusal and that of the Russian government to the break up of Russia's energy monopolies and to the “opening up” (as it is euphemistically called) of the Russian energy industry to the advantage of western companies. Many of the allegations of corruption that are routinely made against Putin personally are intended to insinuate that he opposes the “opening up” of the Russian energy industry and the break up and privatisation of Gazprom and Rosneft because he has a personal stake in them (in the case of Gazprom, that he is actually its owner). If one examines in detail the specific allegations of corruption made against Putin (as I have done) this quickly becomes obvious.

His agenda of forcing Russia to privatise and break up its energy monopolies has never gone away. This is why Gazprom, despite the vital and reliable service it provides to its European customers, comes in for so much criticism. When Europeans complain about Europe's energy dependence upon Russia, they express their resentment at having to buy gas from a single Russian state owned company (Gazprom) as opposed to their own western companies operating in Russia.

This resentment exists simultaneously with a belief, very entrenched in Europe, that Russia is somehow dependent upon Europe as a customer for its gas and as a supplier of finance and technology.

This combination of resentment and overconfidence is what lies behind the repeated European attempts to legislate in Europe on energy questions in a way that is intended to force Russia to “open up” its the energy industry there.

The first attempt was the so-called Energy Charter, which Russia signed but ultimately refused to ratify. The latest attempt is the EU's so-called Third Energy Package.

This is presented as a development of EU anti-competition and anti-monopoly law. In reality, as everyone knows, it is targeted at Gazprom, which is a monopoly, though obviously not a European one.

This is the background to the conflict over South Stream. The EU authorities have insisted that South Stream must comply with the Third Energy Package even though the Third Energy Package came into existence only after the outline agreements for South Stream had been already reached.

Compliance with the Third Energy Package would have meant that though Gazprom supplied the gas it could not own or control the pipeline through which gas was supplied.

Were Gazprom to agree to this, it would acknowledge the EU’s authority over its operations. It would in that case undoubtedly face down the line more demands for more changes to its operating methods. Ultimately this would lead to demands for changes in the structure of the energy industry in Russia itself.

What has just happened is that the Russians have said no. Rather than proceed with the project by submitting to European demands, which is what the Europeans expected, the Russians have to everyone’s astonishment instead pulled out of the whole project.

This decision was completely unexpected. As I write this, the air is of full of angry complaints from south-eastern Europe that they were not consulted or informed of this decision in advance. Several politicians in south-eastern Europe (Bulgaria especially) are desperately clinging to the idea that the Russian announcement is a bluff (it isn’t) and that the project can still be saved. Since the Europeans cling to the belief that the Russians have no alternative to them as a customer, they were unable to anticipate and cannot now explain this decision.

Here it is important to explain why South Stream is important to the countries of south-eastern Europe and to the European economy as a whole.

All the south eastern European economies are in bad shape. For these countries South Stream was a vital investment and infrastructure project, securing their energy future. Moreover the transit fees that it promised would have been a major foreign currency earner.

For the EU, the essential point is that it depends on Russian gas. There has been a vast amount of talk in Europe about seeking alternative supplies. Progress in that direction had been to put it mildly small. Quite simply alternative supplies do not exist in anything like the quantity needed to replace the gas Europe gets from Russia.

There has been some brave talk of supplies of US liquefied natural gas replacing gas supplied by pipeline from Russia. Not only is such US gas inherently more expensive than Russian pipeline gas, hitting European consumers hard and hurting European competitiveness. It is unlikely to be available in anything like the necessary quantity. Quite apart from the probable dampening effects of the recent oil price fall on the US shale industry, on past record the US as a voracious consumer of energy will consume most or all of the energy from shales it produces. It is unlikely to be in a position to export much to Europe. The facilities to do this anyway do not exist, and are unlikely to exist for some time if ever.

Other possible sources of gas are problematic to say the least. Production of North Sea gas is falling. Imports of gas from north Africa and the Arabian Gulf are unlikely to be available in anything like the necessary quantity. Gas from Iran is not available for political reasons. Whilst that might eventually change, the probability is when it does that the Iranians (like the Russians) will decide to direct their energy flow eastwards, towards India and China, rather than to Europe.

For obvious reasons of geography Russia is the logical and most economic source of Europe’s gas. All alternatives come with economic and political costs that make them in the end unattractive.

The EU's difficulties in finding alternative sources of gas were cruelly exposed by the debacle of the so-called another Nabucco pipeline project to bring Europe gas from the Caucasus and Central Asia. Though talked about for years in the end it never got off the ground because it never made economic sense.

Meanwhile, whilst Europe talks about diversifying its supplies, it is Russia which is actually cutting the deals.

Russia has sealed a key deal with Iran to swap Iranian oil for Russian industrial goods. Russia has also agreed to invest heavily in the Iranian nuclear industry. If and when sanctions on Iran are lifted the Europeans will find the Russians already there. Russia has just agreed a massive deal to supply gas to Turkey (about which more below). Overshadowing these deals are the two huge deals Russia has made this year to supply gas to China.

Russia's energy resources are enormous but they are not infinite. The second deal done with China and the deal just done with Turkey redirect to these two countries gas that had previously been earmarked for Europe. The gas volumes involved in the Turkish deal almost exactly match those previously intended for South Stream. The Turkish deal replaces South Stream.

These deals show that Russia had made a strategic decision this year to redirect its energy flow away from Europe. Though it will take time for the full effect to become clear, the consequences of that for Europe are grim. Europe is looking at a serious energy shortfall, which it will only be able to make up by buying energy at a much higher price.

These Russian deals with China and Turkey have been criticised or even ridiculed for providing Russia with a lower price for its gas than that paid by Europe.

The actual difference in price is not as great as some allege. Such criticism anyway overlooks the fact that price is only one part in a business relationship.

By redirecting gas to China, Russia cements economic links with the country that it now considers its key strategic ally and which has (or which soon will have) the world’s biggest and fastest growing economy. By redirecting gas to Turkey, Russia consolidates a burgeoning relationship with Turkey of which it is now the biggest trading partner.

Turkey is a key potential ally for Russia, consolidating Russia's position in the Caucasus and the Black Sea. It is also a country of 76 million people with a $1.5 trillion rapidly growing economy, which over the last two decades has become increasingly alienated and distanced from the EU and the West.

By redirecting gas away from Europe, Russia by contrast leaves behind a market for its gas which is economically stagnant and which (as the events of this year have shown) is irremediably hostile. No one should be surprised that Russia has given up on a relationship from which it gets from its erstwhile partner an endless stream of threats and abuse, combined with moralising lectures, political meddling and now sanctions. No relationship, business or otherwise, can work that way and the one between Russia and Europe is no exception.

I have said nothing about the Ukraine since in my opinion this has little bearing on this issue.

South Stream was first conceived because of the Ukraine's continuous abuse of its position as a transit state - something which is likely to continue. It is important to say that this fact was acknowledged in Europe as much as in Russia. It was because the Ukraine perennially abuses its position as a transit state that the South Stream project had the grudging formal endorsement of the EU. Basically, the EU needs to circumvent the Ukraine to secure its energy supplies every bit as much as Russia wanted a route around the Ukraine to avoid it.

The Ukraine’s friends in Washington and Brussels have never been happy about this, and have constantly lobbied against South Stream.

The point is it was Russia which pulled the plug on South Stream when it had the option of going ahead with it by accepting the Europeans’ conditions. In other words the Russians consider the problems posed by the Ukraine as a transit state to be a lesser evil than the conditions the EU was attaching to South Stream .

South Stream would take years to build and its cancellation therefore has no bearing on the current Ukrainian crisis. The Russians decided they could afford to cancel it is because they have decided Russia’s future is in selling its energy to China and Turkey and other states in Asia (more gas deals are pending with Korea and Japan and possibly also with Pakistan and India) than to Europe. Given that this is so, for Russia South Stream has lost its point. That is why in their characteristically direct way, rather than accept the Europeans’ conditions, the Russians pulled the plug on it. 

In doing so the Russians have called the Europeans’ bluff. So far from Russia being dependent on Europe as its energy customer, it is Europe which has antagonised, probably irreparably, its key economic partner and energy supplier.

Before finishing I would however first say something about those who have come out worst of all from this affair. These are the corrupt and incompetent political pygmies who pretend to be the government of Bulgaria. Had these people had a modicum of dignity and self respect they would have told the EU Commission when it brought up the Third Energy Package to take a running jump. If Bulgaria had made clear its intention to press ahead with the South Stream project, there is no doubt it would have been built. There would of course have been an almighty row within the EU as Bulgaria openly flouted the Third Energy Package, but Bulgaria would have been acting in its national interests and would have had within the EU no shortage of friends. In the end it would have won through.

Instead, under pressure from individuals like Senator John McCain, the Bulgarian leadership behaved like the provincial politicians they are, and tried to run at the same time with both the EU hare and the Russian hounds. The result of this imbecile policy is to offend Russia, Bulgaria's historic ally, whilst ensuring that the Russian gas which might have flown to Bulgaria and transformed the country, will instead flow to Turkey, Bulgaria's historic enemy.

The Bulgarians are not the only ones to have acted in this craven fashion. All the EU countries, even those with historic ties to Russia, have supported the EU's various sanctions packages against Russia notwithstanding the doubts they have expressed about the policy. Last year Greece, another country with strong ties to Russia, pulled out of a deal to sell its natural gas company to Gazprom because the EU disapproved of it, even though it was Gazprom that offered the best price.

This points to a larger moral. Whenever the Russians act in the way they have just done, the Europeans respond bafflement and anger, of which there is plenty around at the moment. The EU politicians who make the decisions that provoke these Russian actions seem to have this strange assumption that whilst it is fine for the EU to sanction Russia as much as it wishes, Russia will never do the same to the EU. When Russia does, there is astonishment, accompanied always by a flood of mendacious commentary about how Russia is behaving “aggressively” or “contrary to its interests” or has “suffered a defeat”. None of this is true as the rage and recriminations currently sweeping through the EU’s corridors (of which I am well informed) bear witness.

In July the EU sought to cripple Russia’s oil industry by sanctioning the export of oil drilling technology to Russia. That attempt will certainly fail as Russia and the countries it trades with (including China and South Korea) are certainly capable of producing this technology themselves.

By contrast through the deals it has made this year with China, Turkey and Iran, Russia has dealt a devastating blow to the energy future of the EU. A few years down the line Europeans will start to discover that moralising and bluff comes with a price. Regardless, by cancelling South Stream, Russia has imposed upon Europe the most effective of the sanctions we have seen this year. .

Official - China Recognises Crimean Referendum

by Alexander Mercouris

"OFFICIAL - CHINA RECOGNISES CRIMEAN REFERENDUM"

This is the clear meaning of the statement TASS reports that a senior official of the Chinese Foreign Ministry has made. 

The fact that China recognises the Crimean referendum means that de facto (and surely before long de jure) China has recognised Crimea's unification with Russia.  Note also that the official has expressed support for Russia's Ukrainian policy.

http://en.itar-tass.com/world/760944

This is the clearest statement from an official source (as opposed to the news media) of China's position viz the Ukrainian crisis that China has made to date.  Because it is made by an official rather than a minister it has gone almost unnoticed.  However that is how China works: statements of this sort are first floated in the media, then made formally but at a relatively low level, following which they become uncontested policy.  Suffice to say that it is inconceivable that the official in question would have spoken out in this way without clearance from the very highest levels of the Chinese government and the fact that in his conversation to TASS he actually quotes comments made by Xi Jinping in telephone conversations with Putin puts that question beyond doubt.

I have always felt that the Chinese dimension in influencing Russia's Ukrainian policy is consistently underestimated.  I am sure that every single step Moscow has taken since the start of the Ukrainian crisis has been discussed and coordinated with Beijing at the highest possible level.  We should not make the mistake of thinking that the only conversations between Putin and Xi Jinping are those that are officially or publicly  reported.  The Chinese do not want to be seen taking an active or public role in the Ukrainian crisis - which formally speaking has nothing to do with them - but given the importance of China's support for Russia and the importance of Russia to China, it is a certainty that the two sides have been working closely together with each other and that they are discussing every aspect of this crisis all the time.  Knowledge that he has China's support is one reason for Putin's confidence in his dealings with the US and the Europeans.

The need to coordinate with Beijing does however place certain constraints on Moscow's actions.  Again I am sure that one reason amongst many why Russia has been wary of intervening actively in the Donbas or of formally recognising the various votes there is because it knows that doing so too obviously or too hastily would not be welcome in Beijing.  

China is traditionally very wary of independence declarations (a policy restated with specific reference to the Ukraine by the official quoted by TASS) not because it is worried about Xinjiang or Tibet (where the situation is fully under control) as the west alleges but because it does not want to create a precedent for Taiwan.  

Again I do not think many people especially in the west but also in Russia understand what a sensitive issue for China Taiwan is.  Suffice to say that a key reason for the Sino Soviet split of the 1960s was precisely Mao  Zedong's anger at what he correctly saw as a lack of support from Moscow over Taiwan.

That does not mean Novorossian independence will not happen or that either the Russians or indeed the Chinese are reconciled to the results of the Maidan coup or to the survival of the present regime in Kiev.  Both countries perceive the sort of staged US backed "revolutions" that the Maidan coup was, as a direct challenge and threat to themselves.  Both countries are almost certainly agreed that the results of the coup in a key Eurasian state must be reversed. Note how the official, in the clearest possible sign that he is speaking on behalf of the Chinese government, quotes a previously unreported but very revealing remark Xi Jinping said to Putin in one of their telephone conversations, that "there is no smoke without fire".  No guesses who or what that refers to.  

However the joint policy of reversing the effects of the Maidan coup is going to be done incrementally, step by step, for many reasons of which China's concerns about Taiwan are just one. 

Anyway, to those who think there is some division between Beijing and Moscow both over the Crimean issue and over the Ukrainian crisis generally, this statement from an official of the Chinese government should finally and once and for all put that question to rest: there is none.

Obama in retreat on MH17

by Alexander Mercouris

Amidst all the hysteria about what western leaders said to Putin during the Brisbane G20 summit (answer: nothing new or important), the media has entirely ignored certain very interesting comments about MH17 that Obama made in his speech at the University of Queensland. His precise words (taken from the White House website) were as follows:

"We’re leading the international community in the fight to destroy the terrorist group ISIL. We're leading in dealing with Ebola in West Africa and in opposing Russia’s aggression against Ukraine -- which is a threat to the world, as we saw in the appalling shoot-down of MH17, a tragedy that took so many innocent lives, among them your fellow citizens. As your ally and friend, America shares the grief of these Australian families, and we share the determination of your nation for justice and accountability. So, yes, we have a range of responsibilities. That's the deal. It's a burden we gladly shoulder."

Obama played his usually sly trick of talking about the MH17 tragedy in conjunction with his condemnation of Russian policy ("Russia's aggression") towards the Ukraine. That way he continues to give the impression that Russia shot MH17 down.

This should not confuse. What is striking is that in this speech, delivered in Australia where the MH17 tragedy is a very hot issue, Obama did not say that Russia shot MH17 down and did not say that the NAF shot MH17 down. He did not even say (as he has said in the past) that MH17 was shot down by a surface to air missile launched from NAF controlled territory. Rather what Obama is now saying is that Russia is responsible for MH17 being shot down because by its supposed "aggression" against Ukraine it has supposedly created the conditions that led to MH17 being shot down.

This actually leaves open the possibility (for the first time coming from Obama or from anyone in the US administration) that it might have been the Ukrainians who shot MH17 down.

With a character as slippery as Obama it is never possible to be completely sure but this looks to me frankly like a retreat to a fall back position. Certainly it is a long way from the categorical claims made by Obama and Kerry in the immediate aftermath of the tragedy.

All this makes me wonder what Obama is been told in private by his intelligence chiefs as more information about the shoot down comes trickling in.

New MH17 satellite photos - a warning

by Alexander Mercouris

I have deliberately helped back on the story about the satellite photos that supposedly show a Ukrainian fighter shooting down MH17 to see what the response would be, whether any more evidence would come to light and what the Russian government and military would say about them .

In the event the Russian government and military have ignored them as I notice to a great extent have Russian media organisations like Sputnik,TASS and RT.

The photos have been widely ridiculed as fakes and I am afraid I tend to agree. My reason for thinking that these photos are almost certainly fakes is not because of the specific criticisms that have been made of the photos (persuasive though some of these criticisms are) but that the photos are quite simply too good to be true. Until and unless we know the actual provenance of these photos (ie. whose satellite supposedly took them - we only know it was not the Russians') we should pay them no attention.

I would make two more points about these photos:

1. It seems that these photos were part of the evidence used by a body known as the Russian Institute of Engineers that published a report on MH17. I don't know much about this body but I was frankly unimpressed by the report. If the report did draw on these photos, then I am afraid that is another reason to treat that report with skepticism.

2. From literally the day MH17 was shot down it has been clear to me that an organised attempt is being made by someone to spread the story that MH17 was shot down by a Ukrainian fighter. There was the story of the mysterious Spanish air traffic controller for instance that circulated within hours of the tragedy and which effectively got the theory going. Note that we have heard little or nothing from this person since then, which makes his evidence look even more like someone's fabrication.

It is possible that those behind this operation are the Russians, possibly because they know that that is what happened and they want to draw people's attention to the fact. However if that were the case then I would have expected them to say as much publicly and to make their evidence public since they have no conceivable reason to keep it secret.

I have to say (and I have been worrying about this for some time) that It seems to me frankly more likely that whoever is behind the campaign to circulate this theory is doing so deliberately in order to create a false trail in the full knowledge that the theory is false and that it will eventually be proved to be false, leaving those who believed it feeling foolish and appearing discredited.

Let me assure people that I know both from history and experience that these sort of provocation tactics really do happen in the world of intelligence and there most definitely are people working in intelligence agencies around the world who really are capable of concocting and carrying out operations of this sort. The fact that these photos appear to originate with a western source strengthen these concerns. .

Let me remind people of my previous comment: we should not let ourselves be hustled into a false binary where fighter=Ukrainians and BUK=NAF. As of today we know for a fact the Ukrainians had both and we do not know for a fact that the NAF had either. That is as far as the facts so far go.
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Commentary by the Saker: while I do not have the expertise to state so categorically, I continue to believe that this is a fake.  What I am sure of is that it shows a Su-27 and not a Su-25 (or even a MiG-29).  The difference between a Su-27 and Su-25 is immense, and if we accept the notion that a Su-278 might have attacked MH-17 then we need to completely revise our model of the flight envelopes of the two aircraft and of the engagement.  I am not saying categorically that this is impossible, but only that I am extremely dubious.

The Saker

German intelligence report on MH17

by Alexander Mercouris

It seems the German intelligence agency the BND has provided a Bundestag committee with a report that once again attributes the MH17 shoot down to the NAF.

The report has not been published but for me the single most interesting thing in it is that it apparently finally demolishes the theory that MH17 was shot down by a BUK system secretly transferred to the NAF by the Russians. We are back it seems to the theory that the NAF shot down MH17 with a BUK missile system it captured from the Ukrainians.

There are a number of points to make here:

1. At the time when MH17 was shot down the western media were in full flood that the Russians were responsible. All sorts of stories circulated about how a BUK missile system was supposedly secretly smuggled by Russia across the border and supplied to the NAF, which the NAF then used to shoot MH17 down. These stories played a key role in influencing western public opinion against Russia. The Germans forced other EU states to impose sectoral sanctions on Russia on the grounds it was responsible for the tragedy because it was arming the NAF. The stories of a BUK missile system being secretly smuggled back and forth across the border (and films supposedly culled from social media supposedly showing it doing just that) undoubtedly played a part in giving credence to these claims. The BND has now admitted that the Russians were not involved in the shooting down of MH17 and that MH17 was not shot down by a BUK missile system smuggled by the Russians across the border. It turns out therefore that all those stores that gained so much attention and which did Russia's image so much harm were untrue. I wonder whether sectoral sanctions would have been imposed on Russia if it had been known then that those stories were untrue.

2. By saying that MH17 was shot down by the NAF using a captured BUK missile system, the BND is contradicting what the junta said at the time and is still saying. The junta still denies that any of its BUK systems have been captured by the NAF. By contrast the BND now admits that what the Russians were saying in July - that they did not transfer a BUK system to the NAF and that they were not involved in the shooting down of MH17 - was true.

3. The BND has also apparently admitted that the "evidence" the junta produced supposedly culled from social media was fabricated or falsified. This is important because it is the first western admission of the fact that the junta has lied. Up to now no western government or agency has ever called into question anything the junta has ever said. Of course if the junta falsified or fabricated evidence about MH17 it might have done so about other matters (eg. the Kiev snipers or the Odessa fire).

4. There were some reports before the MH17 tragedy that the NAF had indeed captured a BUK missile system. It is difficult to say how credible those reports were. As I have previously said, given that the capture of such a system would have been a considerable coup, one might have expected the NAF to make more of the fact by publishing photographs of the BUK system they had captured. That however never happened. Absence of evidence is not necessarily evidence of absence but I would still like to see some convincing evidence that the NAF really did have a BUK missile system in its possession (and a crew able to operate it) before I accepted the fact. Uncorroborated claims denied then and since by the Ukrainians and made in the midst of an armed conflict when all sorts of exaggerated claims are made are not sufficient evidence and do not prove anything. In the absence of such evidence all I can do is note (1) that the NAF continues to deny that it had or was operating a BUK system when MH17 was shot down and (2) that no evidence exists or has been made public which refutes that denial. .

5. The media reports about the BND report say that the BND has shown such evidence to the Bundestag committee and that supposedly it includes satellite imagery. The evidence has not however been made public and again one has to ask why? It is scarcely believable that there is something so secret about the way this evidence was collected that prevents it from being made public. The Russians and the Chinese certainly know everything there is to know about how the western powers collect imagery and other intelligence from their satellites. It is not as if publishing this evidence is therefore going to compromise any intelligence source or capability. Why then the secrecy especially over an issue of such importance? Whether the western powers want to admit to the fact or not, their refusal to make their evidence public casts doubt on how much weight this evidence really has.

6. In the absence of publication of this evidence (which would allow it to be properly examined and tested) it remains impossible to accept any claims based on it. There have just been too many cases of western intelligence agencies assuring us on the basis of "evidence" kept secret of the truth of things that turned out to be false. Recent examples include the false claims made by all western intelligence agencies including the BND about Saddam Hussein's non-existent weapons of mass destruction, the wrong claims of massive Russian slush funds hidden away in Cyprus, which actually originated with the BND, and the denials last year made by all western intelligence agencies including the BND that the Syrian rebels have used sarin gas, which a UN report has since admitted they almost certainly have.

7. There is one point about MH17 I do however wish to make.

On balance and despite the fact that the body of one of the passengers was found wearing an oxygen mask, I still think the most likely explanation for the tragedy is that MH17 was shot down by a BUK missile. I realise others (eg, Petri Kohn) disagree. I am not technically qualified to decide the question.

I am however concerned that some people are trying to reduce this issue to a false binary of SU25=junta versus BUK=NAF. That is precisely what the BBC for example sought to do in a recent Panorama programme.

The attraction of insisting that MH17 was shot down by a SU25 is that in that case only the junta could have done it since no one says the NAF had an operational SU25 capable of shooting MH17 down. The danger of insisting that MH17 was shot down by an SU25 is that if it does turn out that MH17 was in fact actually shot down by a BUK missile, then some in the west will treat that as proof that it was the NAF that shot it down.

It is nothing of the sort. It cannot be said too strongly that as of now there is no proof that at the time when MH17 was shot down the NAF was in possession of either an operational SU25 aircraft or an operational BUK system, whereas there is conclusive proof that the junta was in possession of both. Until the BND or some other western intelligence makes evidence public that proves the contrary that remains the position.

Alexander Mercouris: Deadlock and Gas Talks in Milan

Dear friends,

It is a huge pleasure to announce today, specifically in response to the request of many of you, Alexander Mercouris has agreed to send me his his FaceBook analytical posts for posting here.  I have a huge respect for Alexander and I am delighted to welcome him here as a regular contributor.

The Saker
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Alexander Mercouris: Deadlock and Gas Talks in Milan
by Alexander Mercouris

Deadlock in Milan
News from the Milan summit is still trickling through but it is clear that there has been no breakthrough and the Ukrainian crisis remains deadlocked. Poroshenko said that the "parameters" of a gas agreement have been agreed but it seems that nothing of the sort has happened.

The most fatuous comment of the day has come from van Rompuy, who called it "progress" because Putin is supposed to have said that he does not want a frozen conflict in Ukraine or for eastern Ukraine to become another Transdniestria. To see the absurdity of that comment just try to imagine Putin solemnly telling the Europeans the opposite: that he does want a frozen conflict in Ukraine and that he does want eastern Ukraine to become another Transdniestria!

Not for the first time Putin comes over as a man surrounded by dwarfs.

As I understand it the idea of a breakfast meeting between Putin and European leaders came from Merkel. With the German and European economies tanking in part because of the very sanctions policy she has imposed, Merkel needs this crisis to end. At the same time she remains utterly unwilling to take on the US and its European allies or the Atlanticists within Germany. She therefore looks to Putin to extricate her from the mess she has got herself into. However because she is not prepared to face up to the US and its allies or the Atlanticists she wants Putin to get her out of trouble by capitulating to all their demands. She tries to do this by applying "pressure" on Putin (that was what today's breakfast meeting was all about) and then looks sullenly angry and baffled when it doesn't work.

Accustomed to bullying other European leaders and getting her way, it's as if Merkel, when faced by an adversary her own size, doesn't know what to do. She reminds me of Obama who came away similarly baffled and angry after facing off with Putin two years ago at a summit when they discussed the Syrian crisis.

Meanwhile as the European and German economy tanks the Russian economy accelerates despite the falling oil price whilst the Ukraine's disintegration gathers pace. In politics and diplomacy as in war it is necessary to know when to retreat before the situation becomes a total rout. The Europeans show no such ability or understanding so we are looking at a rout.

The Gas Talks in Milan

More information is trickling out about the gas talks in Milan and they make for an ugly picture.

Ever since June the Russians have been saying that the contractual price of gas supplied to the Ukraine is $485/1000 but that they are prepared to offer on a temporary basis a $100/1000 discount, bringing the price of gas supplied to the Ukraine this winter down to $385/1000, on condition that Ukraine pays its outstanding arrears and prepays for all gas actually supplied.

The Russians have never wavered from this position. The Ukrainians have never wavered from rejecting it.

As I understand it the Ukrainian position is that the "proper" price for Russian gas is the $269/1000 Yanukovitch achieved through the discounts he negotiated with Putin last December. The Ukrainians insist that all gas arrears should be recalculated on the basis of this price and that only when that happens will they consider paying them. In the interim, under European pressure, they have said they would agree to pay a higher price on a temporary basis (apparently $320/1000) until the dispute is settled. However they insist that any payments they make during the period of this price should be treated as payment for gas supplied according to this price and not payment of arrears.

I am not going to discuss here in any detail the absurdity of the Ukrainian position, which treats a discounted price offered to Yanukovitch in return for conditions the Ukraine never fulfilled, as the "proper" price in substitution for the agreed contractual price. I don't think anyone apart from the Ukrainians believes in it. Certainly the Europeans don't.

Anyway, returning to what happened in Milan, one of the great mysteries for me about Ukrainian politicians is that though in public they compete with each other in being tough on Russia, the moment they actually have to deal with Putin face to face over gas issues they come immediately apart and turn out to be spectacularly bad negotiators. We saw this happen with Tymoshenko in 2009 and we have just seen it happen again with Poroshenko in Milan.

Briefly, earlier in the day Poroshenko said that the "parameters" of a gas deal with Russia had been agreed. This led to a brief flurry of hopeful claims and headlines including a statement from Hollande that the two sides had almost bridged their differences.

It then turned out as the day progressed that the "parameters" Poroshenko was saying had been agreed with Russia were the same as the original Russian offer. In other words Poroshenko capitulated, perhaps without understanding, to what Putin asked of him.

Putin even said that the only remaining outstanding issue was how the Ukraine would find the money to discharge the obligations it had just taken on. His suggestions amount to a proposal that the Europeans pay for the Ukraine's gas and arrears either directly or via a further IMF loan. This is something the Europeans by the way have always refused to do.

Anyway, when it finally seems to have dawned on Poroshenko that the "parameters" he had agreed to were simply what the Russians have been demanding all along, his response was to flounce out of what looks like a hurriedly arranged meeting with Putin to announce that there had been no agreement after all.

Putin for his part stuck to the Russian position and publicly declared that Russia would not supply the Ukraine with gas on credit (which is what the Ukrainian counter proposals amount to) and that "that was final".

It appears therefore that we have deadlock with no actual progress made despite some of the earlier headlines that appeared during the day. Along the way Poroshenko has been made to look a fool in front of all the leaders of Europe and Asia and the gas talks on 21st October 2014 have just been made more difficult.

Putin said just before he went to Milan that Russia would reduce the amount of gas pumped through the Ukraine if the Ukraine starts stealing gas destined for other customers. That is what Russia did in 2009 and I have no doubt it is what it will do again. Unless the Europeans now give Poroshenko an ultimatum to accept the Russian offer a total cut off looms.