A Western Retreat?

Mainstream media are focusing on a Russian hit against Odessa which they are interpreting, on the basis of no evidence that I have yet seen , as a reneging on their agreement to facilitate Ukraine grain exports (an agreement that I do not believe is limited to any particular port and has to do with port facilities not with entire cities!). Almost inevitably, further contextualizing information has yet to come and we will shall see what sense to make of it, and some of this clarification is provided by Mercouris (see my summary below):

In the meantime, Mercouris sees a possibility that the war is shifting, and the West, very grudgingly, is making concessions. There was talk yesterday that the great Ukrainian counteroffensive was starting, and that 2000 Russian troops had been encircled. It now seems clear that the Ukrainians did indeed attempt an offensive on Kherson but that this was repulsed after a few hours. The encirclement had probably not happened, another invention of Zelenskiy’s media spokesman.

Also in Kherson the Ukrainians have launched further HIMARS in an attempt to disrupt Russian communications across the Dnieper. They further attacked the road bridge they hit earlier in the week, and attacked a railway bridge across the dam. Russia claims to have shot down 12 HIMARS missiles, but some got through. No serious damage has yet occurred and repairs have commenced.

It is the British, particularly, says Mercouris, that are goading Ukrainians to attack with HIMARS. British media have been consistently harping on about the counteroffensive, encouraging a maneuver that is misconceived. The British are obsessed about the Kherson area, whereas the Russians are concentrating on the move southwards in Donetsk. The Ukrainian strategy is to simply stay on in the Donbas for as long as possible to give them more time to build defenses beyond Donbass. But the British want a big firework display.Russia is still fighting Ukrainians close to Seversk, and has reached central areas of the town of Solidar (not the correct spelling), preparatory to a major Russian offensive. Russians have captured half the forested area north of Slaviansk.

On the Istanbul meeting yesterday regarding the facilitation of Ukrainian grain from Ukrainian ports:

As part of the agreement the Western powers, specifically the EU, have had to reduce restrictions on Russian agricultural and other exports. The EU has accordingly announced a seventh sanctions package. But when you look at this package there is very little in it. There are further restrictions (unenforceable) on Russian exports of gold. Such restrictions have already been exercised. There is an extension in the list of prohibited items, more of the same, some new measures extending the import ban to locks in addition to ports.

Then, the major steps: relaxation of restrictions on public procurement, aviation, and justice. It will be easier for Russian to bring legal action in western countries. In aviation there may be more freedom to provide spare parts. Russians have been able to cannibalize existing aircraft for this purpose and have also found spare parts in China. And the EU may be getting worried about extension of sanctions to China. There may be swap of parts for titanium?

The most important thing is that for food and energy purposes, certain prohibitions on Russian public institutions, including to do with transportation of oil, wheat etc., have been lifted, and EU measures do not prevent purchase of pharmaceutical or medical productions from Russia. Previously food, fertilizer etc., even when not specifically identified, had been affected for fear of sanctions. Food, agricultural products including wheats and fertilizer, and pharmaceuticals are no longer sanctioned. Anyone can buy these from Russia and anyone can transport these. It will be fairly straightforward for Russia to increase these supplies in general and to Belarus more specifically.

But notice the EU has also extended exemptions to the transport of oil, including to such countries as India, China and Saudi Arabia. This trade is now specifically allowed.

What does all this mean? It draws attention to the much greater importance of Russia as a global provider of food and fertilizer than Ukraine. A major problem: several of the clauses are being kept secret, so there is no complete text. But we have clues: Russia confirms Ukraine is free to move food, and Russia will not launch attacks on ports facilities. Missile strikes on Odessa can and are continuing. But Russia will not attack port facilities or de-mining of ports for a period of three months, enough time to clear the existing Ukrainian backlog. We can expect that following this period, Russia may move on towards Odessa early in 2023. Russia is already forming the Odessa Brigade of anti-Ukrainian Ukrainians whose purpose may be an attack on Odessa and thus to capture the whole of the Ukrainian Black Sea coast.

So the agreement is time-limited. On the issue of mines, Russia has consistently argued that the mines were planted by Ukraine and that one of the problems in getting ships out of Ukrainian ports is the existence of minefields that Ukraine has refused to de-mine because of fear of Russian attacks on ships that pass through the fields. Do we know whether these ports will be de-mined? This may be the topic in the secret clauses. The mine fields will likely be de-mined and de-mined by Turkey, in collaboration with some non-NATO country. Turkey will inspect ships from Ukraine ports on their way to their destinations to make sure that the ships contain only food and the ships will also be inspected, with some Russian overwatch role, to make sure that they do not contain arms when they return. Since Ukraine has had no problem in getting arms in other ways, this agreement regarding arms may not have that much significance.

Putin has got everything he wanted from the agreement. Mercouris defines it as a retreat by Ukraine and the West in Putin’s favor. Why has this happened? The West needs to get those Russian food and chemical fertilizer exports in order to avoid a catastrophe of global food shortage, not to mention inflationary pressure. The issue of Ukrainian food exports is a sort of “cover,” especially because the Global South is blaming not Russia, but the West, for the food crisis. So the West has capitulated. On the issue of gold, the EU probably exaggerates the significance of Russian gold after energy. Gold is being used to make it seem that sanctions are still being tough when in fact the West is retreating on sanctions.

The Istanbul agreement appears to acknowledge that the sanctions regime has hardly had any impact on Russian oil exports (only on the direction of those exports). The proposed oil price cap is support to be applied from December. If such a cap is ever imposed, Russia says it will stop exporting oil. Global reaction to the idea of an oil price cap has been derisory, including reactions from India and Saudi Arabia, who would rather talk with Putin about maintaining the OPEC+ price regime.

Global oil prices are becoming a bigger problem than ever (even if pump prices are falling right now in the USA). The Istanbul agreement seems to be making it easier to get Russian oil onto the market, which in turn seems to make the notion of an oil price cap absurd. It appears to soften insurance obstacles so as to encourage free circulation of Russian oil (everywhere but Europe!).

The oil price cap notion is not to be taken seriously. The EU is now working to undermine its own oil sanctions! Oil has played an important part in inflation, so if Europe wants to control inflation it has to do something about its own sanctions.

What about gas? Canada has said it will now release the Siemens turbine for Nord Stream One. More and more people in German are querying official assertions that from the end of the year Germany will no longer be dependent on Russian oil. Few people believe that is possible. In Italy, the resignation of Draghi a second time is also indicative of his impossible position because he knows that Italy like the rest of Europe will in a few months be in deep recession for which he does not wish to be held accountable (even if he is). So Western powers are stealthily retreating from the absurdities of their own sanctions regimes.

They are starting doing the same with sales of arms to Ukraine: several countries (not France, not UK) have stopped their sales of arms, and the arms packages are shrinking, perhaps limited to replacements for things that have been destroyed by Russia. Apparently the USA will not supply the 300km range of HIMARS, and the idea of providing western fighter jets is also on ice. The hardliners are still there but for the time being we are starting to see western governments adjusting to the realities of the situation.

Ukraine has defaulted on its foreign debt and is asking for restructuring on its debt, and is technically in default. Russia was forced by Western sanctions to default. But in stead of being in economic crisis, Russia has cut interest rates by 150 points, and inflation is falling fast. The Central Bank sees signs of an economic recovery.