China and Russia are Acquiring Gold, Dumping US Dollars

By Prof Michel Chossudovsky

Global Research, November 11, 2012

Url of this article:

http://www.globalresearch.ca/central-banks-are-acquiring-gold-dumping-us-dollars/22672

There is evidence that central banks in several regions of the World are building up their gold reserves. What is published are the official purchases.

A large part of these Central Bank purchases of gold bullion are not disclosed. They are undertaken through third party contracting companies, with utmost discretion.

US dollar holdings and US dollar denominated debt instruments are in effect being traded in for gold, which in turn puts pressure on the US dollar.

In turn, both China and Russia have boosted domestic production of gold, a large share of which is being purchased by their central banks:

It has long been assumed that China is surreptitiously building up its gold reserves through buying local production. Russia is another major gold miner where the Central bank has been purchasing gold from another state entity, Gokhran, which is the marketing arm and central repository for the country’s mined gold production. Now it has been reported by Bloomberg that the Venezuelan Central Bank director, Jose Khan, has said that country will boost its gold reserves through purchasing more than half the gold produced from its rapidly growing domestic gold mining industry.

In Russia, for example, Gokhran sold some 30 tonnes of gold to the Central Bank in an internal accounting exercise late last year. In part, so it was said at the time, the direct sale was made rather than placing the metal on the open market and perhaps adversely affecting the gold price.

China is currently the world’s largest gold producer and last year it confirmed it had raised its own Central Bank gold holdings by more than 450 tones over the previous six years. Mineweb.com – The world’s premier mining and mining investment website Venezuela taking own gold production into Central Bank reserves – GOLD NEWS | Mineweb

The 450 tons figure corresponds to an increase in the gold reserves of the central bank from 600 tons in 2003 to 1054 tons in 2009. If we go by official statements, China’s gold reserves are increasing by approximately 10 percent per annum.

China has risen to now be the largest gold producing nation in the world at around 270 tonnes. The amount bought in by the government initially looks like 90 tonnes per annum or just under, 2 tonnes a week. Before 2003 the announcement by the Chinese central bank that gold reserves had been doubled to 600 tonnes, accounted for similar purchases before that date. Why so small an amount you may well ask? We think local and national issues clouded the central bank’s view as it was the government that bought the gold since 2003 and have now placed it on the central bank’s Balance Sheet. So we would conclude that the government has ensured central bank gold purchasing must continue. “How will Chinese Central Bank Gold Buying affect the Gold Price short & Long-Term?” by Julian Phillips. FSO Editorial 05/07/2009

Russia

Russia’s Central bank holdings are in excess of 20 million troy ounces (January 2010)

click to enlarge

Russia’s Central Bank reserves have increased markedly in recent years. The RCB reported in May 2010 purchasing 34.2 tons of gold in a single month.Russian Central Bank Gold Purchases Soar In May – China Too? | The Daily Gold

The diagram below shows a significant increase in monthly purchases by the the RCB since June 2009.

(click on chart to enlarge)

Central Banks in the Middle East are also building up their gold reserves, while reducing their dollar forex holding.

Gold reserves of GCC states is less than 5 percent:

Dubai International Financial Centre Authority economists released a report yesterday calling for local countries to build gold reserves, according to The National.

Despite a high interest in gold, GCC states maintain less than 5 percent of their total reserves in gold. Compared to the ECB, which holds 25 percent of reserves in gold, that leaves a lot of room for growth. http://www.businessinsider.com/gcc-boost-gold-holdings-2010-12#ixzz18FEqpTy3

GCC states should boost their foreign reserve holdings of gold to help shield their billions of dollars of assets from turbulence in global currency markets, say economists at the Dubai International Financial Centre Authority (DIFCA).

Diversifying more of their reserves from US dollars to the yellow metal would help to offer central banks in the region higher investment returns, said Dr Nasser Saidi, the chief economist of DIFCA, and Dr Fabio Scacciavillani, the director of macroeconomics and statistics at the authority.

“When you have a great deal of economic uncertainty, going into paper assets, whatever they may be – stocks, bonds, other types of equity – is not attractive,” said Dr Saidi. “That makes gold more attractive.”

Declines in the dollar during recent months have dented the value of GCC oil revenues, which are predominantly weighted in the greenback.GCC urged to boost gold reserves

According to a report in People`s Daily;

The latest rankings of gold reserves show that, as of mid-December, the United States remains the top country and the Chinese mainland is ranked sixth with 1,054 tons of reserves, the World Gold Council announced recently.

Russia climbed to eighth place because its gold reserves increased by 167.5 tons since December 2009. The top ten in 2010 remains the same compared to the rankings of the same period of last year. And Saudi Arabia squeezed to the top 20.

Developing countries and regions, including Saudi Arabia and South Africa, have become the main force driving the gold reserve increase. … .

The International Monetary Fund (IMF) and the European central bank are the major gold sellers, and the IMF’s gold reserves decreased by 158.6 tons. (China’s gold reserves rank 6th worldwide – People’s Daily Online

It should be understood that actual purchases of physical gold are not the only factor in explaining the movement of gold prices. The gold market is marked by organized speculation by large scale financial institutions.

The gold market is characterised by numerous paper instruments, gold index funds, gold certificates, OTC gold derivatives (including options, swaps and forwards), which play a strong role, particularly in short-term movement of gold prices. The recent increase and subsequent decline of gold prices are the result of manipulation by powerful financial actors.

Copyright © 2012 Global Research

The Virtual Economic Recovery

By Dr. Paul Craig Roberts

Global Research, October 30, 2012

Url of this article:

http://www.globalresearch.ca/the-virtual-economic-recovery/5310073

Since mid-2009 the US has been enjoying a virtual recovery courtesy of a rigged inflation measure that understates inflation. The financial Presstitutes spoon out the government’s propaganda that prices are rising less than 2%. But anyone who purchases food, fuel, medical care or anything else knows that low inflation is no more real that Saddam Hussein’s weapons of mass destruction or Gadhafi’s alleged attacks on Libyan protesters or Iran’s nuclear weapons. Everything is a lie to serve the power-brokers.

During the Clinton administration, Republican economists pushed through a change in the way the CPI is measured in order to save money by depriving Social Security retirees of their cost-of-living adjustment. Previously, the CPI measured the change in the cost of a constant standard of living. The new measure assumes that consumers adjust to price increases by lowering their standard of living by substituting lower quality, lower priced items. If the price, for example, of New York strip steak goes up, consumers are assumed to substitute the lower quality round steak. In other words, the new measure of inflation keeps inflation down by reflecting a lowered standard of living.

Statistician John Williams (shadowstats.com), who closely follows the collecting and reporting of official US economic statistics, reports that consumer inflation, as measured by the 1990 official government methodology has been running at about 5%. If the 1980 official methodology for measuring the CPI is used, John Williams reports that the current rate of US inflation is about 9%.

The 9% figure is more consistent with people’s experience in grocery stores.

Officially the recession that began in 2007 ended in June 2009 after 18 months, making the Bush Recession the longest recession since World War II. However, John Williams says that the recession has not ended. He says that only the GDP reporting, distorted by an erroneous measurement of inflation, shows a recovery. Other, more reliable measures of economic activity, show no recovery.

Williams reports that the economy began turning down in 2006, falling lower in 2008 and 2009, and bottom-bouncing ever since. Not only is there no sign of any recovery, but “the economic downturn now is intensifying once again.” The absence of an economic recovery “is evident in the [official] reporting of nearly all major economic series. Not one of these series shows a pattern of activity that confirms the recovery [shown] in the GDP series.”

Williams concludes that “the official recovery simply is a statistical illusion created by the government’s use of understated inflation in deflating the GDP.” In other words, the reported gains in GDP are accounted for by price increases, not increases in real output.

The result of the US government’s economic deception is the same as the deception Washington has used to start wars all over the Middle East. The government propaganda produces a make-believe virtual reality that bears no relationship to real reality. In history there have been many governments who have prevailed by deceiving the people, but Washington has moved this success to a new peak. As long as Americans believe anything Washington says, they are doomed.

It is easy to see why there is no economic recovery and cannot be an economic recovery. Look at the chart below (courtesy of John Williams,shadowstats.com).

Real median household income at the end of 2011 is back where it was in 1967-68. Moreover, Williams has deflated household income to get its real value by using the official inflation measure, which substantially understates inflation. If Williams had used the 1990 or 1980 official government methodology for calculating the consumer price index, the real median incomes of households would show a larger decline.

Moreover, the low 2011 real median household income is the summation, in most cases, of two household earners, whereas in 1967-68 one earner could produce the same real income. As Nobel economist Gary Becker, my former colleague as Business Week columnist, pointed out, when both husband and wife have to work in order to maintain the same purchasing power, household income from the wife’s in-kind household services is eliminated. Therefore, the monetary measure of the dual household income overstates income, because it is not adjusted for the lost benefits formerly provided by the wife who at home managed the household.

Americans are far more oppressed by the power brokers in Washington than statistics display. Moreover, the young are born into the oppressive, exploitative American system and do not know any different. They are fed by the Presstitute media with endless propaganda about how fortunate they are and how indispensable their wonderful country is. Americans are kept in a constant state of amusement, and many never grasp the loss of their civil liberties, job and career opportunities, and respect that the US won during the decades-long cold war with Soviet Communism.

On September 13, Federal Reserve Chairman Ben “Helicopter” Bernanke announced Quantitative Easing 3. Bernanke said that the recovery is weak and needs more Fed stimulus. He said the Fed will purchase $40 billion of mortgage bonds per month in order to drive interest rates further below the rate of inflation and help to sell more houses.

But how do you sell houses to households who are getting by with 1967-68 levels of real income and who have absolutely no job security? Their company can be taken over and offshored tomorrow or they can be replaced by foreign workers on H-1B visas. Housing prices have dropped, but not to 1967-68 levels.

Bernanke’s announcement that the Fed’s purchase of mortgage bonds is to spur housing and the economy is disinformation. Bernanke is purchasing the bonds in order to boost the values of the derivatives and debt instruments in the banks’ portfolios. Lower interest rates raise the value of the debt instruments on the banks’ balance sheets. By depriving American savers of a real interest rate on their savings, Bernanke makes the busted banks look solvent.

This is what is happening in “freedom and democracy” America. The vast majority of Americans, especially the retired, are forced to consume their savings and draw down their capital because they can get no real interest on their savings. The beneficiaries are the banksters, who can borrow at near zero interest rates, charge consumers 16% on their credit cards, and use the Federal Reserve’s largess to speculate on interest rate swaps and credit default swaps. The American taxpayers hold the bag for the banksters’ uncovered gambles.

Would you not gamble if the American taxpayers had to cover your bets, but your winnings were yours alone?

The future of the American political order is in doubt. The Bush and Obama regimes have so badly abused the Constitution and statutory law, that the America that Ronald Reagan left to us no longer exists. America is on the path to collapse or tyranny.

Suppose that a miracle produces an economic recovery. What becomes of the enormous excess bank reserves that the Federal Reserve has provided the banks?

If these bank reserves are used for expanding loans, the money supply will outstrip the production of goods and services, and inflation will rise.

If the Fed tries to take the excess reserves out of the banking system by selling bonds, interest rates will rise, thus destroying the wealth of bond holders and draining liquidity from the stock market. In other words, another depression that wipes out the remaining American wealth.

The Federal Reserve’s announcement of QE3 shows that the Fed will continue to create new money in order to protect the values of the insolvent banks’ questionable assets. The Federal Reserve represents the banksters, not the American public. Like every other American government institution, the Federal Reserve is far removed from concerns about American citizens.

In my opinion, the Federal Reserve’s purchase of bonds in order to drive down interest rates has produced a bond market bubble that is larger than the real estate and derivative bubbles. Economically, it is nonsensical for a bond to carry a negative real interest rate, especially when the government issuing the bond is running large budget deficits that it seems unable to reduce and when the central bank is monetizing the debt.

The bubble has been protected by the euro “crisis,” which possibly is more of a virtual crisis than a real one. The euro crisis has caused money to seek refuge in dollars, thus supporting the dollar’s value even while the Federal Reserve prints money with which to purchase the never-ending flow of the governments’ bonds to finance trillion dollar plus annual budget deficits–about 5 times the “Reagan deficits” that Wall Street alleged would wreck the US economy.

Indeed, the US dollar’s exchange value is itself a bubble waiting to pop. The sharp rise in the dollar price of gold and silver since 2003 indicates a flight from the US dollar. (The chart is courtesy of John Williams, shadowstats.com.)

The bond market bubble will pop if the dollar bubble pops. The Federal Reserve can sustain the bond market bubble by purchasing bonds, and there are no limits on the Federal Reserve’s ability to purchase bonds. However, the endless monetization of debt, even if the new money is stuck in the banks and does not find its way into the economy, can spook foreign holders of dollar-denominated assets.

Foreign central banks can decide that they want to hold fewer dollars and more precious metals as their reserves. Other countries, sensing the US dollar’s demise,

are organizing to conduct their trade without the use of the world’s reserve currency. Brazil, Russia, India, China, and South Africa intend to conduct their trade with one another in their own currencies. China and Japan have also negotiated to settle their trade balances with one another in their own currencies.

These agreements substantially reduce the use of the US dollar in international trade and, thus, the demand for dollars. When demand falls, so does price, unless the supply shrinks. But the Federal Reserve has announced, essentially, unlimited supply of US dollars. So we are faced with a paradox. The US dollar is supposed to remain valuable despite its enormous increase in supply.

In addition, China, America’s largest creditor and in the past a reliable purchaser of US Treasury bonds, holds some two trillion in dollar-denominated assets, primarily Treasury bonds. How is Washington treating its largest foreign creditor? Not with appreciation or deference. Washington is surrounding China with naval and air bases, interfering in China’s disputes with other countries, and bringing contrived actions against China in the World Trade Organization. Washington claims that US corporations are deserting the US not because of the lower cost of labor in China, but because of Chinese “subsidies” to the relocated US firms.

In my April 30 column, “Brewing a Conflict with China,” I wrote that Washington would like to substitute a cold war with China for the hot wars in the Middle East. The problem with the hot wars is the loss of superpower face from Washington’s inability to prevail after eleven years, and although the hot wars are profitable for the military/security complex, the wars don’t generate the level of profits that would flow from a high-tech arms race with China. Moreover, Washington believes that diverting Chinese investment from the economy into a military buildup would slow the rate at which the Chinese economy is overtaking the US economy.

What if instead of taking the bait from Washington, China targets Washington’s Archilles heel–the dollar’s role as reserve currency–and decides it is cheaper to dump one trillion dollars of US Treasury debt on the bond market than to commit to a 30 year arms race? To keep the price of Treasuries from collapsing, the Federal Reserve could print the money to buy the bonds. But if China then dumps the printed one trillion dollars in the foreign exchange markets, Washington cannot print euros, British pounds, Russian rubles, Swiss francs, and other currencies in order to buy up the dollars.

Frantic, Washington would try to arrange currency swaps with foreign countries in order to acquire the foreign exchange with which to buy up the dollars that, otherwise, will drive down the dollar exchange rate and destroy the Federal Reserve’s control over interest rates.

But if the Chinese don’t want the dollars, will other countries want to swap their currencies for the abandoned US dollar?

Some of Washington’s puppet states will comply, but the wider world will rejoice in the termination of Washington’s financial hegemony and refuse the offer.

Sooner or later the dollar will collapse from Washington’s abuse of the dollar’s role as reserve currency, and the dollar will lose its “safe haven” status. US inflation will rise, and US political stability, along with America’s hegemonic power, will wane.

The rest of the world will sigh with relief. And China will have defeated the superpower without an arms race or firing a shot.

Copyright © 2012 Global Research

Russia's High Stakes Energy Geopolitics‏

Nord Stream, the huge Russian-German pipeline project, began delivering gas to the EU

By F. William Engdahl

On November 7 the first of two pipelines for Nord Stream, the huge Russian-German gas pipeline project, began delivery of gas. The event was no minor affair. German Chancellor Merkel and Russian President Medvedev along with the prime ministers of France and the Netherlands and the EU Energy Commissioner formally opened the first of two 1224-kilometre pipelines at Lubmin in northern Germany, beginning delivery of the first gas direct from Russia’s Yuzhno-Russkoye gas field in Siberia to Germany.

Nord Stream was not cheap. It cost a total of more than $12 billion for the complex 760 mile long undersea pipeline through the Baltic Sea from Vyborg near Russia's St Petersburg to north eastern Germany. It was laid in remarkable time and with extraordinary environmental precautions to insure protection of sea life, a precondition set by several EU Baltic countries. When the second pipeline is finished in late 2012, Nord Stream will be able to deliver 55 billion cubic meters of Russian gas a year, almost ten percent the entire EU annual gas consumption, or roughly one third the entire current gas consumption of China.

Nord Stream estimates it will provide enough energy to fuel 56 million West European households. With current EU political decisions over reducing CO² “carbon footprint” emissions, the Russian gas giant argues its natural gas gives 50% less CO² than rival coal plants at as much as 50% greater energy efficiency.

Even if Moscow is being more than somewhat opportunist and is not convinced about the shoddy science of global warming, Gazprom does not hesitate to use this as a shrewd political selling point. The EU is going for natural gas energy big time and Moscow intends to be a major, if not the major beneficiary of that push. In addition to delivering Siberian gas to Germany, Nord Stream will deliver to the United Kingdom, Denmark, the Netherlands, Belgium, France and the Czech Republic.

Moscow appears to hold a winning hand in the one important non-military lever it has to tip the global geopolitical balance of power in its direction and away from Washington's overwhelming dominance. Oil and natural gas are at the heart of the strategy. For some months Russian production of crude oil has surpassed Saudi Arabia’s to be the world’s largest oil producer with over 10.3 million barrels daily, nearly one million barrels more.[1] And in terms of known reserves of natural gas Russia is far away the world leader according to industry data.

Russian natural gas has increasingly been the foundation for a brilliant series of Russian energy geopolitical initiatives for several years. Gazprom, a closely-held state company, is the centerpiece of this energy strategy.

To counter the eastward march of NATO into countries of the former Warsaw Pact such as Poland, the Czech Republic or Romania and the various US attempts to lure Ukraine and Georgia into NATO, Russia’s Vladimir Putin, both as President and more recently as Prime Minister, has used the economic lever of Gazprom. With its enormous gas resources Russia seeks to win stronger economic ties in western Europe, thereby hopefully neutralizing somewhat the potential military strategic threat from the NATO encirclement. No country has been more the focus of this Russian pipeline diplomacy than former wartime foe Germany where Nord Stream lands.

The undersea route across the Baltic to Germany was chosen by a German-Russian consortium including Gazprom with 51% and the German chemicals group BASF Wintershall and E.ON Ruhrgas of Germany each today with 15.5% share, giving the German-Russian partners a dominating 82% control. Further adding to the political support from key EU countries, later they were joined by N.V. Nederlandse Gasunie and France’s GDF Suez which each own a 9% share.

The Baltic undersea route was chosen deliberately to avoid potential geopolitical disruptions such as occurred several years ago when a pro-NATO Ukrainian government blocked Russian gas deliveries to Western Europe to undercut Russian attempts to come closer to western Europe. Behind Ukraine was the long arm of Washington. [2]

Had Ukraine joined NATO as Washington urgently sought after Kiev’s 2004 "Orange Revolution" brought Washington’s man Viktor Yushchenko in as President, then Ukraine would have been in a strategic position to economically strangle Russia on command. Prior to opening of Nord Stream in November some 80% of all Russian gas exports to EU countries—mainly to Germany, Italy and France—were flowing across Ukrainian territory. Political instability and ongoing NATO meddling in Ukraine dictated the decision to build the new Nord Stream undersea route to Germany and other EU markets bypassing entirely Ukraine and Poland. Today some 40% of all state revenue in Russia comes from Russia's oil and gas exports.[3]

South Stream vs Nabucco

While few outside the energy industry and special political interest groups have paid much attention to it, at the same time Nord Stream was coming into play a ferocious geopolitical battle has also been raging over a second planned major Gazprom Russian gas pipeline project to EU countries called South Stream. South Stream gas pipeline will be laid on the Black Sea floor, pass through Bulgaria, Serbia, Hungary and Slovakia and on to west European markets from the southern part of the EU.

To politically counter the growing Russian energy ties to the EU, with strong Washington backing, the EU Commission proposed an alternative in 2002 called the Nabucco pipeline, curiously named after the Verdi opera. To date Turkey, Romania, Bulgaria, Hungary and Austria have agreed “in principle” to build the 3,900 km Nabucco pipeline that theoretically would pump up to 31 billion cubic meters of gas annually from the Caspian and the Middle East across Turkey into western Europe. Nabucco partners to date include energy companies RWE of Germany; OMV of Austria; MOL of Hungary; Botas of Turkey; Bulgaria Energy Holding of Bulgaria; and Transgaz of Romania.

The problem is that the Nabucco partners have yet to secure gas anywhere to fill the pipeline. Moscow has deftly locked up the gas from the obvious supplier Azerbaijan, and surplus gas from former Soviet Republic Turkmenistan is also secured in deals with Gazprom, leaving only Iran as an option, something politically Washington is not ready to consider, to put it mildly.

Both Nord Stream and South Stream came into being when Ukraine's previous Yushchenko regime, with reported strong US behind-the-scenes backing, twice disrupted transit gas flows to European markets beginning 2006. To assure stability of supplies, Moscow created both new pipeline projects to bypass Ukraine.[4]

The geopolitical problem for Washington and its allies in Brussels is the fact that its Nabucco project appears dead in the water before it even gets started. Not only has Gazprom locked up the major gas supply sources including Azerbaijan. Nabucco is also far more costly than its Russian rival.

Latest estimates put Nabucco's ultimate construction cost at almost double that of South Stream. Tamás Fellegi, Hungarian National Development Minister, recently stated that the cost of Nabucco gas pipeline will exceed original plans by four times. "No one can predict the final cost of Nabucco, but according to optimistic estimates, its cost may reach 24-26 billion euro," Fellegi said.[5]

In late October Gazprom made a major move to secure partners for its South Stream in a Moscow meeting with its largest consortium partner, Italy’s ENI. [6] Some days before in September, Gazprom secured the significant participation into South Stream of its major Nord Stream German partner, BASF Wintershall, a major blow to Nabucco hopes. They joined the major French energy company EDF to give the South Stream project major clout versus the floundering Nabucco.

Last April, Turkey, also at least on paper a key player in Nabucco, gave permission to Gazprom to begin offshore prospecting for the potential undersea route of South Stream, a first step to gain Turkish approval to begin construction in Turkish territorial waters on the Black Sea. Turkey is trying to play a new role as an energy crossroads between the EU and its neighbors. By giving Gazprom the green light to begin prospecting, Turkey’s Erdogan government clearly has decided not to put all its energy eggs into the NATO Nabucco basket.[7]

Possible routes for Gazprom’s South Stream Pipeline

Already Gazprom is the largest natural gas supplier to the EU. Gazprom with Nord Stream and other lines plans to increase its gas supply to Europe this year by 12% to 155 billion cubic meters. It now controls 25% of the total European gas market and aims to reach 30% with completion of South Stream and other projects.

Rainer Seele, chairman of Wintershall, suggested the geopolitical thinking behind the decision to join South Stream: "In the global race against Asian countries for raw materials, South Stream, like Nord Stream, will ensure access to energy resources which are vital to our economy." [8]

But rather than Asia, the real focus of South Stream lies to the West. The ongoing battle between Russia’s South Stream and the Washington-backed Nabucco is intensely geopolitical. The winner will hold a major advantage in the future political terrain of Europe.

According to Andrei Polischuk, an energy analyst at the BKS Finance Group, Nabucco is in far the weaker position at present. “This project is facing several problems. One of them is how to fill it with gas and how to find a resource basis. The second is its growing cost. Earlier, the project was estimated at 8 billion US dollars, but at present, it has grown up to 12 to 15 billion US dollars.” says Polischuk. “All these projects have first and foremost a hidden political motive. By implementing them, Europe tries to lower its dependence on Russian gas.” [9]

Reinhard Mitschek, director of Nabucco Gas Pipeline International, recently admitted that Nabucco now has been pushed back until 2017, three years later than originally planned. The construction work won’t begin until at least 2013. He feebly admitted in a recent press conference when pressed on a date for gas deliveries, that gas would flow, “as soon as there are firm indications that gas supply commitments are in place.” [10]

EU Nacht und Nebel Raid on Gazprom

As if on cue, just days before the planned opening ceremony for Gazprom's Nord Stream pipeline the EU launched an unprecedented “nacht und nebel” style raid on the offices of Gazprom and its EU partners covering ten countries.

In response to a complaint by the Washington-friendly government of Lithuania, on September 28 EU officials raided Gazprom and associated offices in central and eastern European states to investigate firms involved in the supply, transmission and storage of natural gas. The Commission claimed the raids were linked to “suspicions” about anti-competitive practices.

The raids were an unprecedented use of new EU “antitrust” weapons including the threat of fines up to 10% of a company's global turnover. Following a Thatcherite “free market” model, the EU Commission has in recent years forced E.ON, RWE and ENI to open up or sell their energy pipelines to rivals. E.ON and GDF were also forced to dismantle their market-sharing deals.

The EU is working a so-called Third Energy Package, which imposes limits on ownership of EU pipeline infrastructure by gas suppliers and calls for the "unbundling" of over-concentrated ownership. Under the rules, Russia could be forced to sell off parts of its pipeline network in the EU, something Moscow is understandably not about to do. It could open a Pandora’s box of geopolitical interference with potential for anti-Russian companies to in effect sabotage the vital and growing Russian gas trade with the EU, a mainstay today of Russian state finances.

The Gazprom raids were explicitly political. The EU even admits it has little evidence: “We're at the beginning of the investigation; we have our suspicions and we have to see whether these are confirmed on the basis of the evidence we find and our analysis," Commission spokeswoman Amelia Torres told press in Brussels.[11]

According to Reuters, “A Commission official, who declined to be named, told Reuters the raids were part of the EU's efforts to wean itself off reliance on Russian gas and concerns about Gazprom's power as a state-controlled entity.” Gazprom itself clearly links the raids to their recent progress on South Stream: “My guess is that it comes as Russia is speeding up its projects, including the South Stream underwater link,” a Gazprom source said. [12]

Vladimir Feigin, a member of the Russian delegation discussing the issue with EU officials, charges the European Commission with taking a "dangerous path" with the raids. “It's not a simple demonstration of muscles ... There are lots of issues, which are highly politicized, including Gazprom's long-term contracts,” he insisted. [13]

While free market game rules may sound attractive to market outsiders, for the future planning of Gazprom long-term fixed contracts are essential. As oil markets reveal in recent years, while prices sometimes fall, most often they are subject to manipulation by major Wall Street banks like JP MorganChase, Citigroup or Goldman Sachs, the gang that pushed oil prices above $147 a barrel in June 2008 at a time supply on the world market was in glut, making a literal killing in the process.[14]

In anticipation of the larger export market for its gas to Europe, Gazprom has been making huge infrastructure investments across Europe which could be wiped out by an adverse EU decision. It is in the process of doubling its underground storage capacities for gas. It already operates gas storage facilities in Austria and leases facilities in Britain, France and Germany to handle the planned new flow from Nord Stream and South Stream. As well, Gazprom has built a joint venture storage facility with Serbia to serve gas exports to Serbia, Bosnia-Herzegovina and Hungary. Feasibility studies are being done for similar joint storage projects in the Czech Republic, France, Romania, Belgium, Britain, Slovakia, Turkey and Greece. This, in addition to the major investment in the pipelines, makes it clear the EU raids are aimed at Moscow’s energy jugular.[15]

Were Moscow to succeed in completing South Stream and retain its integral control over the delivery pipeline infrastructure, it would represent nothing less than a major geopolitical defeat for Washington. Since the collapse of the Soviet Union in the early 1990’s, Washington energy geopolitics in the Caspian region and across Eurasia into Russia have attempted to weaken if not permanently cripple the one major remaining geopolitical lever Moscow holds to counter Washington’s NATO encirclement strategy. Not letting itself be totally dependent on EU gas or oil revenues, Moscow has recently indicated it is greatly increasing its focus on building long-term energy partnerships with its eastern neighbors of Eurasia, most notably with China. The geopolitical implications for Washington of that shift will be examined in a subsequent article.

F. William Engdahl is author of A Century of War: Anglo-American Oil Politics in the New World Order. He may be contacted through his website at www.engdahl.oilgeopolitics.net

Notes:

[1] News Wires, Russian Output Hits Post-Soviet Highs, 2 November 2011, accessed in http://www.upstreamonline.com/live/article286798.ece . 

[2] F. William Engdahl, Ukraine Geopolitics and the US-NATO Military Agenda: Tectonic Shift in Heartland Power--Part I, accessed in http://www.globalresearch.ca/index.php?context=va&aid=18128 .

[3] Friedbert Pflüger, Russia and Europe: Time to bury the hatchet-and embrace the market, 20 October, 2011, European Energy Review.

[4] RIA Novosti, Ukraine lost reputation of reliable gas transit country – Yanukovych, 19 October, 2011, accessed in http://en.ria.ru/world/20111019/167874442.html

[5] ABC.AZ, Nabucco project cost to exceed value of South Stream and make it world’s most expensive gas pipeline, 24 October 2011, http://abc.az/eng/news/main/58939.html

[6] ENI, Gazprom CEOs discuss South Stream Development, October 17, 2011, accessed in www.offshoreenergy.com

[7] Newswires, Turkey gives offshore permit to Gazprom for South Stream project, 11 April, 2011.

[8] UPI, Wintershall joins South Stream consortium, September 16, 2011, accessed in

http://www.upi.com/Business_News/Energy-Resources/2011/09/16/Wintershall-joins-South-Stream-consortium/UPI-92591316173513/#ixzz1dUq77i89 .

[9] Moscow Times, Europe still wants to go around South Stream, September 30, 2011, accessed in http://english.ruvr.ru/2011/09/30/57380344.html .

[10] M K Bhadrakumar, Russia redrawing Europe energy map, Asia Times Online, May 12, 2011, accessed in http://www.atimes.com/atimes/Central_Asia/ME12Ag02.html .

[11] Reuters, EU raids Gazprom offices in anti-trust probe, 29 September 2011, accessed in http://www.euractiv.com/energy/eu-raids-gazprom-offices-anti-trust-probe-news-508007 .

[12] Ibid.

[13] Ibid.

[14] F. William Engdahl, More on the real reason behind high oil prices: Part II, Global Research, May 21, 2008, accessed in http://www.globalresearch.ca/index.php?context=va&aid=9042 .

[15] M K Bhadrakumar, op. cit.

http://www.globalresearch.ca/index.php?context=va&aid=27653

http://www.globalresearch.ca/

http://engdahl.oilgeopolitics.net/

China and Russia to quit dollar

"St. Petersburg, Russia - China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday."

"Pang Zhongying, who specializes in international politics at Renmin University of China, said the proposal is not challenging the dollar, but aimed at avoiding the risks the dollar represents."

"Wen said Beijing is willing to boost cooperation with Moscow in Northeast Asia, Central Asia and the Asia-Pacific region, as well as in major international organizations and on mechanisms in pursuit of a "fair and reasonable new order" in international politics and the economy."

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Russia ditches the dollar, Germany for next superpower

Russia ditches the US dollar and Putin suggests the Euro to be the next world reserve currency. Max Keiser predicts Germany to be the next superpower.