The Russian gambit of recognizing the separatist regions of Donetsk and Luhansk blindsided the West, to the extent that some pundits are still braying that Russia will invade Ukraine, as if it wants Ukraine, as opposed to making it untenable for the US/NATO to continue to use it as a staging ground to threaten Russia.

I thought it would be useful to clear up some points where the press reporting has been less than stellar. Most of the information is also found in our posts in Links today, but we thought we’d highlight some issues:

1. The Germans have not cancelled Nord Stream 2 but have instead put it on hold. We pointed that out in comments yesterday and some outlets, from the Wall Street Journal to Al Jazeera, made that explicit.

2. The EU will have difficulty replacing Russian fuel, even with LNG. From Reuters:

“Russia (provides) I think 30-40% of the supply to Europe. There is no single country that can replace that kind of volume, there isn’t the capacity to do that from LNG,” [Qatar energy minsiter Saad al-]Kaabi told reporters at a gas conference in Doha.

“Most of the LNG are tied to long-term contracts and destinations that are very clear. So, to replace that sum of volume that quickly is almost impossible,” he said.

As I read it, the EU, particularly Germany, has a short-term problem of filling a supply shortage if there’s a cold snap before winter is over, since inventories are already low. And even if the EU can arrange to get more fuel before next winter, it certainly won’t be at the old Russian price. While the US financial press is keen about the opportunities for frackers, US courts have increasingly been sympathetic to environmental objections to pipelines. The Supreme Court just refused to hear an appeal by the operator of the Dakota Access Pipeline to sidestep certain environmental provisions, for instance. So protracted and occasionally successful fights over pipelines could throw a spanner in shale gas expansion hopes.

3. The Russian recognition is not without precedent. NATO describes how its role as a “peace keeper” preceded the establishment of Kosovo. The State Department write-up is oddly silent on details; readers said, and I am not able to confirm in reasonable time thanks to the terrible state of search engines, that the domestic mechanism was a vote of the Kosovo parliament. I am also told that Russia had at the time depicted this approach as inadequate, and so wanted a referendum in Crimea on the specific question of joining Russia.

Note that there had been some acknowledgement of the separatists. The Donbass and Luhansk “republics” had been observers at the Minsk negotiations and even signed the agreement despite having no official role. Keep in mind there were also other means to address the concerns of the separatists, as the example of Quebec shows: more autonomy and specific protections for the aggrieved population.

4. Even Bloomberg is pointing out that the new US sanctions are wet noodle-level:

US President Joe Biden’s debut set of sanctions on Russia for its actions over disputed Ukrainian territory hit markets with a whimper and were quickly criticized as limited in scope.

Instead of a sweeping package that crippled top Russian banks, cut its financial transactions off from the global economy, or personally singled out President Vladimir Putin, the US and its allies settled on a modest “first tranche” of penalties. Markets responded with a shrug .

As reader Maxwell Johnson pointed out:

Joining the fray a bit later this evening, but a few quick observations re Russia sanctions:

a. After 10 years of this, Russia is pretty well insulated from further damage. It is self-sufficient in the most important stuff: food, energy, weapons. It can buy consumer goods and electronics from China and medicines from India (and I highly doubt these two will seriously comply with any USA sanctions regime). Even the fabed SWIFT cutoff is overrated, IMHO: SWIFT is a messaging system not a payments system, and in any case for intra-Russia bank transfers the Russians already have their own system (as do the Chinese).

b. Nordstream 2 isn’t cancelled, its certification process has been suspended. Lots of wiggle room there.

c. The two Donbas states have not been annexed (yet), they’ve only been given diplomatic recognition; again lots of wiggle room for future diplomacy.

d. During my daily visit to the BBC website, I was amused to see the screaming headlines about BoJo’s Russia sanctions (along with his soaring rhetoric)…..only to scroll down and read what the sanctions are actually targeting: three Russian (quote ) businessmen (unquote), that would be the Rotenberg brothers and Timchenko, who are businessmen in the same mold as Hunter Biden and Mark Thatcher. And 5 Russian banks, 3 of which I’ve never heard of, and the other 2 are essentially pocket banks for the Russian government (and only 1 of the 5 is in the top 10 of Russian bank

s). In short: a nothingburger so far. Let us wait and see.

We are still very early in what’s likely to be a long slog. But if things get nasty, the EU will definitely suffer. Russia still has a lot of cards to play.

5. The best one-stop shopping on what is likely to come next comes from Gilbert Doctorow. His latest post is worth reading not only for that analysis but also his careful reading of Putin’s speech yesterday. A key section is Putin laying forth the reasons Ukraine is a defacto junior NATO member and an active threat to Russia, particularly its ambition to become a nuclear power.

A key Doctorow point early on is an invasion remains Russia’s least preferred option. Note that even major Western news outlets like The Hill and the Financial Times were calling the Russian an ‘invasion’ only in quotes in headlines yesterday. As he pointed out:

Though from the beginning I had stressed Putin’s likely reliance on psychological rather than kinetic warfare to win his objectives, I also succumbed to the temptation of more dramatic methods…

However, we see so far that violence is not in Putin’s playbook. The recognition of the two republics is, like the massing of troops earlier at the Ukrainian border, a way of preventing violence. Moreover, in diplomatic discourse, this recognition can be likened to the precedent that the United States and its NATO allies set when they recognized the independence of Kosovo from Yugoslavia. The justification then was alleged genocidal intentions of the Serbs, the very same issue that Putin has raised with regard to Kiev’s intentions in Donbas.

Russia can get what it wants by other means. A big weapon, oddly not mentioned in the English-language press despite being discussed regularly on Russian TV, is sanctions against Ukraine. From Doctorow:

At present, Ukraine receives electricity, oil and gas transit revenues from Russia, and despite everything there is a substantial two way trade. This could all be halted at a moment’s notice with or without Zelensky’s possibly cutting diplomatic relations. Russia can claim that Ukraine is a hostile nation and put an end to all commercial dealings. Still more, Russia could impose a naval blockade just as the USA once did to Cuba to force the removal of Soviet missiles. All of this has historic precedent to support it. Moreover, with Its great love for draconian sanctions, the United States and its allies cannot say a word about any sanctions Russia chooses to impose on Ukraine. Obviously, the objective would be to destabilize the Kiev regime sufficiently to promote regime change.

One assumes (literally) broadcasting this option was to attempt to knock some sense into Zelensky, which failed, and secondly to give Russian businesses that might be harmed by sanctions the opportunity to hunker down.

Another option is to mess with the US, as in given them a taste of what they subjected Russia to via Ukraine:

I have in mind two types of threat to America’s overblown sense of its invulnerability. The first would be for Russia to position its latest hypersonic missiles and Poseidon deep sea drone in international waters off the US East and West coasts. Some ‘peek-a- boo’ surfacing of untracked Russian submarines carrying these super weapons off the coast would attract a good deal of media attention That would expose the American political establishment to the same kind of threat the Russians see coming from America’s various offensive missile systems targeting them with negligible warning times.

The other possible Russian counter measure that has been mentioned among analysts in Russia is the stationing of Russian strategic bombers and nuclear armed naval vessels on permanent watch in the Caribbean, making use of port facilities in Nicaragua, Venezuela and possibly Cuba.

And what Doctorow does not mention is the US will be destabilized, to a much lesser but nevertheless real degree by continuing high energy prices and high prices and inflation in other key commodities where Russia is important. High fuel prices are on the way to becoming embedded in other goods and services prices, which will make what should have been a “transitory” inflation sticky.

The objective US failure to recognize that Russia had very important cards it could play that it had held back is remarkable. It seems that Russian patience, as in waiting for a propitious juncture, was bizarrely interpreted as weakness. The US is about to learn a costly lesson.