- The Washington Times - Sunday, May 25, 2014

In the tit-for-tat economic war between the United States and Russia this year, Moscow has scored a significant victory with its monumental deal to provide natural gas to China, directly challenging U.S. attempts to isolate Russia with economic sanctions.

By securing a major new customer for Russia’s gas outside Europe, President Vladimir Putin has accomplished several top strategic goals.

The most obvious is to stoke fears among Europeans that they will have to compete with China for Russian energy supplies.

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Another goal was to lay down the gauntlet for U.S. and Canadian ambitions to export liquefied natural gas to lucrative Asian markets. The deal establishes Russia’s presence in the heart of the biggest Asian market.

But the geopolitical triumphs have been bittersweet. Russia’s economy is widely believed to have sunk into recession as a result of Western sanctions imposed in response to Mr. Putin’s takeover of Crimea and the investor stampede out of Russia caused by his Ukrainian land grab.

Mr. Putin may have given a final push to clinch the long-stalled gas deal with an eye on the Russian economy. Russian energy giant Gazprom plans to spend $55 billion and hire 11,700 people to build the pipelines, gas processing plants and other infrastructure needed to make good on what Mr. Putin said would be the world’s largest infrastructure project.

“I guess China never got the sanctions memo,” said Max Keiser, a former Wall Street trader and British broadcaster.

He said the $400 billion, 30-year deal will further the strategic goals of Moscow and Beijing to diminish the status of the U.S. dollar by conducting world trade in critical commodities such as oil and gas using other currencies.

Russia is the world’s biggest producer of commodities such as crude oil, gold and titanium. China is the world’s biggest consumer of these commodities.

Both countries have chafed for years at having to conduct purchases and sales in dollars, as is customary worldwide. The gas deal announced in Beijing on Wednesday would be the first major commodities contract to be settled in Russian rubles and Chinese yuan rather than dollars.

“This means the U.S. dollar’s days as the world reserve currency are numbered,” said Mr. Keiser, noting that Russia and China have been investing heavily in gold.

Many analysts question whether Moscow and Beijing can succeed in displacing the dollar as the world’s reserve currency. If that happens, however, it likely would usher in a period of global financial instability and force Americans to pay much more for the massive amounts of imported energy, Mr. Keiser said.

Some reports said Russia had to accept a lower price for gas, $360 per 1,000 cubic meters, than the $380 originally sought from China. Mr. Keiser said the strategic gains for Russia were well worth any short-term financial sacrifice.

Strategic competitor

Constantin Gurdgiev, an analyst at True Economics, said the deal was a mutual win for energy-rich Russia and its energy-hungry neighbor while posing significant strategic competition for the U.S. and its allies.

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