We know the Ukraine crisis is hot, with Ukraine and Russia accusing each other of terrorism and east Ukraine basically expecting a Russian invasion. But what interests me is the larger backdrop: the erosion of the U.S. dollar as the world “reserve currency” (or centerpiece of global finance and trade).
You see, the more President Obama tries to isolate Putin, the more he pushes Russia and its trading partners – such as China, India, Germany, Iran – to speed their efforts to integrate their economies and financial systems, to the exclusion of the U.S.
Consider the following news items. None are earth-shattering, but each reveals a bit of the picture.
- As I blogged two weeks ago, Russia and Iran are making progress on a large trade deal, which is being called ‘barter’ because the U.S. dollar won’t be used.
- Now the U.S. has warned Russia against that deal, saying it would trigger immediate, greater sanctions against Russia.
So, Russia annexing territory (the Crimea) is not really a big deal to Washington; it triggers token U.S. sanctions. But Russia trading with its own neighbor (Iran), in a way that bypasses the dollar-based financial system and thus the U.S. ability to eject little countries from world trade – that gets Washington’s attention. That tells you where the sore spot is.
- Russia has doubled military spending since 2010 and continues to increase it.
- Russia has doubled the price that Ukraine must pay for natural gas, and makes threatening noises about Ukraine’s failure to pay.
- Could those things be warnings to Europe? Why yes, along with more direct warnings: for example, Putin suggests that Europe’s gas supplies will be reduced if Europe doesn’t play ball with Russia.
- Could the threats work, prying Europe loose(r) from the U.S.? Possibly: A top German official warns that Germany needs Russian gas.
- Russia is set to strike a new gas deal with China, which speaks to further Russia-China integration.
- And Russian companies are getting set to issue Yuan-denominated debt, another sign of growing Russia-China integration.
Do you see where this is going? Not toward Russia being isolated. Maybe, in time, toward the U.S. being isolated.
UPDATE: Ordinary Russians are only annoyed, not frightened, by U.S. sanctions.