Streetwise Professor

August 19, 2014

A Couple of Quick Russia Hits: Putin’s Natural State & Selling E. Europe Down the (Don) River

Filed under: Economics,History,Military,Politics,Russia — The Professor @ 8:09 pm

Back when I started to blog about Russia in 2006-2007, I often pointed out that Russia under Putin was an archaic “natural state” rather than a modern one. The idea of the natural state was set out in work by North, Wallis and Weingast. In essence, it is a state with a distributed and diffuse potential for violence that is prone to break down into internecine conflict between armed factions. The only way this is avoided is to bribe the various factions with rents and privileges granted by the state (to give them a stake in maintaining the status quo rather than grasping for total control), and to keep them in an unsteady equipoise by pitting each against the other.

An article in the Moscow Times provides a very good description that brings home that point. This description of Putin’s version of the natural state cannot be bettered:

Putin’s staffing policies are based on the principle of ”loyalty in return for corruption.” Bureaucrats in the government, law enforcement and military are practically granted the right to steal and forbidden just one thing: criticism of the president.

The greatest enabler of Putin’s natural state is Germany, and most notably its appalling foreign minister, Steinmeier.

This piece by Dustin Duhez lays out in detail the intellectual underpinnings of Steinmeir’s beliefs and strategy. It is a very disturbing, but worthwhile read. In a nutshell: Steinmeier’s overriding objective is to maintain strong relations (especially commercial relations) with Russia, and is willing to sacrifice everyone between the Oder and the Don to do so. In other words, he is willing to sell eastern Europe down the river: the Don River, specifically.

Keep this in mind when watching Merkel’s visit to Kiev. At best she is equivocal and conflicted. At worst she is objectively pro-Putin.

Neither of these articles should be missed. One gives a good analysis of what makes Putinism tick. The other shows how the most powerful state in Europe works overtime to keep it oiled and wound.

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Heckuva JV There, Barry: The Consequences of an Alfred E. Neuman Foreign Policy

Filed under: History,Military,Politics — The Professor @ 7:50 pm

Back in January, on a TV interview, naturally, Obama denigrated ISIS as the junior varsity. Even after ISIS ran amok in Iraq and Syria in June, the administration (or I should say Obama, because we know from many sources that he often completely disregards the recommendations of the Pentagon, intelligence community, and State Department) decided to abjure from taking action against the terrorist group, apparently out of pique at Maliki and the dysfunctions of the Iraqi government. That’ll learn ‘em, Barry apparently believed.

So here we are. ISIS has secured a foothold over an area the size of Jordan. What’s more, although its brutality (more on this below) is extreme, it has apparently enough sense and state building capacity to “combine the fighting capabilities of al Qaeda with the administrative capabilities of Hezbollah.” Thus, the hopes that its extreme brutality would lead to its overthrow are likely to be just another self-delusion by the Smart People in High Places.

Great. I hope they keep the varsity on the bench. Otherwise we’d really be screwed. (Or more accurately, everyone in Iraq, Syria, and bordering states would be truly screwed.)

Recall that the administration mulishly held to the position that it had correctly prioritized Islamist groups, and in particular held out Al Qaeda on the Arab Peninsula as far more of a threat to the US than ISIS. And actions spoke louder than words. Obama has been droning the crap out of AQAP for years, while he has held aloof from doing anything against ISIS.

Well wouldn’t you know, AQAP has come out and declared its solidarity with ISIS, and it seems the they are coordinating to a considerable degree.  Key quote:

Many observers note that AQAP and ISIL are using similar tactics and are exchanging strategy and advice.

Which would seem to totally smash to pieces Obama’s justification for drawing a distinction between the two groups.

As if to emphasize its bestiality and opposition to the US, today ISIS slaughtered an American reporter, James Foley. Per usual jihadi fashion, they filmed the heinous act, and distributed via social media along with a declaration that this was revenge for the US attacks on the group in Iraq.

This is the kind of evil bastards we are dealing with. The kind of evil bastards that our inattention permitted to flourish. Which makes it our responsibility to extirpate them.

Note that the voice on the video of Foley’s ritual killing has been identified as a Londoner. There are clearly many others in the group that hail from England and other western countries, including almost certainly Americans. The most serious fear since 9/12/2001 has been terrorists with western passports who can commit terrorism more readily than Middle Eastern natives.

But I am sure this is just the JV. So what, me worry?

To give some credit, Obama has loosened the leash on American airpower against ISIS. I deliberately didn’t say “unleashed”, because the air strikes have been extremely limited.

But even given the limited nature of the attacks, they have had an effect on the battlefield. So why not crank it up to 11? Moderation in war is idiocy, especially when fighting the extreme of the extreme, like ISIS. They have demonstrated that their ambitions are anything but regional, and that it is foolish (not to mention callous and amoral) to rely on their self-destruction and being thrown back by those whom they oppress.

The butchering of Foley should only demonstrate the folly of exquisitely calibrated (in Obama’s mind, anyways) use of force. They’ll kill for a ha’penny, never mind a pound. The price (in life, anyways) that Americans pay is unlikely to depend, in the slightest on the number of bombs we drop: nothing short of abject surrender will satisfy ISIS (and even that is unlikely to sate their blood lust). So since they’ve decided to go all medieval on us, and anyone less extreme than they, let’s go all modern on them and see how that works out for them.

ISIS is already whining about the unfairness of our air campaign. We should show them what unfair is really all about. Hit hard, hit fast, hit often (to quote Halsey), and get it over with quickly. I really cannot fathom why Obama would, at this juncture, consider any other alternative.

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August 18, 2014

Wage Asymmetric Warfare: Unleash the SPR!

Filed under: Commodities,Economics,Energy,Military,Politics,Russia — The Professor @ 3:25 pm

The decline in the price of oil-Brent is down almost to $100/bbl, and Urals-Med is below that level-puts pressure on an already stressed Russian economy. And it especially puts pressure on a stressed Russian government budget, which balances at about $110+. What’s more, Russia is looking to replace private western funding with state support for its banks, and some corporations: recall my post yesterday which described how Sechin is panting after tens of billions of government money to replace western creditors. Further, Putin has made all sorts of promises, including lavish spending on the military and on infrastructure (e.g., a hugely expensive bridge over the Kerch Strait to Crimea). All of these add to the strains on the Russian budget.

Some of this is due to a weakening of the Russian economy for independent factors. Some of it is due to the sanctions.

The effectiveness of the sanctions could be enhanced by putting even further pressures on the Russian government. The most direct means of doing so would be through the price of oil, and short of persuading the Saudis to do a reprise of their 1986 act of flooding the market with oil, the best way to do that would be to release oil from the Strategic Petroleum Reserve.

Especially given the burst in US domestic oil production, the already weak case for maintaining a large reserve is even weaker. Moreover, since much of the oil in the SPR is Brent, and thus could presumably be exported, this would be a way of mitigating the distortions associated with the existing crude export ban.

The number of barrels that would actually flow to the market would presumably be somewhat lower than the amount released from the SPR, because some of the public storage would be replaced by private storage. (As I argued in 2011, this effect depends on market expectations regarding how the SPR would be used.) But the direction of the price effect is clear, and the price impact would not be trivial.

Putin is waging asymmetric war in Ukraine. (Though it is becoming less asymmetric, and more conventional, by the day.) Sanctions are an asymmetric form of warfare. A release of the SPR would be another asymmetric move that would impact Russia directly, and indirectly by enhancing the financial strains produced by the sanctions. There’s no substantive economic case for retaining the SPR at its current levels. Seems like an obvious move. Will Obama make it?

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August 17, 2014

This Never Happens, Right?: Regulators Push a Flawed Solution

Filed under: Clearing,Derivatives,Economics,Politics,Regulation — The Professor @ 6:06 pm

Regulators are pushing ISDA and derivatives market participants really hard to incorporate a stay on derivatives trades of failing SIFIs. As I wrote a couple of weeks ago, this is a problem if bankruptcy law involving derivatives is not changed because the prospect of having contracts stayed, and thus the right of termination abridged, could lead counterparties to run from a weak counterparty before it actually defaults. This is possible if derivatives remain immune from fraudulent conveyance or preference claims.

Silla Brush, who co-wrote an article about the issue in Bloomberg, asked me a good question via Twitter: why should derivatives counterparties run, if they are confident that their positions with the failing bank will be transferred to a solvent one during the resolution process?

I didn’t think of the answer on the fly, but upon reflection it’s pretty clear. If counterparties were so confident that such a transfer will occur, a stay would be unnecessary: they would not terminate their contracts, but would breathe a sigh of relief and wait patiently while the transfer takes place.

If regulators think a stay is necessary, it is because they fear that counterparties would prefer to terminate their contracts than await their fate in a resolution.

So a stay is either a superfluous addition to the resolution process, or imposes costs on derivatives counterparties who lack confidence in that process.

If this is true, the logic I laid out before goes through. If you impose a stay, if market participants would prefer to terminate rather than live with the outcome of a resolution process, they have an incentive to run a failing bank, and find a way to get out of their derivatives positions and recover their collateral.

This can actually precipitate the failure of a weak bank.

I say again: constraining the actions of derivatives counterparties at the time of default can have perverse effects if their actions prior to default are not constrained.

This means that you need to fix bankruptcy rules regarding derivatives in a holistic way. And this is precisely the problem. Despairing at their ability to achieve a coherent, systematic fix of bankruptcy law in the present political environment, regulators are trying to implement piecemeal workarounds. But piecemeal workarounds create more problems than they correct.

But of course, the regulators pressing for this are pretty much the same people who rushed clearing mandates and other aspects of Frankendodd into effect without thinking through how things would work in practice.

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Nationalize the Clearinghouses?

Filed under: Clearing,Commodities,Derivatives,Economics,Politics,Regulation — The Professor @ 3:48 pm

Stephen Lubben has garnered a lot of attention with his recent paper “Nationalize the Clearinghouses.” Don’t get nervous, CME, ICE, LCH: he doesn’t mean now, but in the event of your failure.

A few brief comments.

First, I agree-obviously, since I’ve been saying this going back to the 90s-that the failure of a big CCP would be a catastrophic systemic event, and that a failure is a set of positive measure. Thus, planning for this contingency is essential. Second, I further agree that establishing a procedure that lays out in advance what will be done upon the failure of a CCP is vital, and that leaving things to be handled in an ad hoc way at the time of failure is a recipe for disaster (in large part because how market participants would respond to the uncertainty when a CCP teeters on the brink). Third, it is evident that CCPs do not fit into the recovery and resolution schemes established for banks under Frankendodd and EMIR. CCPs are very different from banks, and a recovery or resolution mechanism designed for banks would be a bad, bad fit for clearers.

Given all this, temporary nationalization, with a pre-established procedure for subsequent privatization, is reasonable. This would ensure continuity of operations of a CCP, which is essential.

It’s important not to exaggerate the benefits of this, however. Stephen states: nationalization “should provide stakeholders in the clearinghouses with strong incentives to oversee the clearinghouse’s management, and avoid such a fate.” I don’t think that the ex ante efficiency effects of nationalization will be that large. After all, nationalization would occur only after the equity of the CCP (which is pretty small to begin with) is wiped out, and the default fund plus additional assessments have been blown through. Shooting/nationalizing a corpse doesn’t have much of an incentive effect on the living ex ante.

Stephen recommends that upon nationalization that CCP memberships be canceled. This is superfluous, given the setup of CCPs. Many CCPs require members to meet an assessment call up to the amount of the original contribution to the default fund. Once they have met that call, they can resign from the CCP: that’s when the CCP gives up the ghost. Thus, a CCP fails when members exercise their option to check out. There are no memberships to cancel in a failed CCP.

Lubben recommends that there be an “expectation of member participation in the recapitalization of the clearinghouse, once that becomes systemically viable.” In effect, this involves the creation of a near unlimited liability regime for CCP members. The existing regime (which involves assessment rights, typically capped at the original default fund contribution amount) goes beyond traditional limited liability, but not all the way to a Lloyds of London-like unlimited liability regime. Telling members that they will be “expected” to recapitalize a CCP (which has very Don Corleone-esque overtones) essentially means that membership in a CCP requires a bank/FCM to undertake an unlimited exposure, and to provide capital at times they are likely to be very stressed.

This is problematic in the event, and ex ante.

Stephen qualifies the recapitalization obligation (excuse me, “expectation”) with “once that becomes systemically viable.” Well, that could be a helluva long time, given that the failure of a CCP will be triggered by the failure of 2 or more systemically important financial institutions. (And let’s not forget that given the fact that FCMs are members of multiple clearinghouses, multiple simultaneous failures of CCPs is a very real possibility: indeed, there is a huge correlation risk here, meaning that surviving members are likely to be expected to re-capitalize multiple CCPs.) Thus, even if the government keeps a CCP from failing via nationalization, the entities that it expects to recapitalize the seized clearinghouse will will almost certainly be in dire straits themselves at this juncture. A realistic nationalization plan must therefore recognize that the government will be bearing counterparty risk for the CCP’s derivatives trades for some considerable period of time. Nationalization is not free.

Ex ante, two problems arise. First, the prospect of unlimited liability will make banks very reluctant to become members of CCPs. Nationalization plus a recapitalization obligation is the wrong-way risk from hell: banks will be expected to pony up capital precisely when they are in desperate straits. My friend Blivy jokingly asked whether there will soon be more CCPs than clearing firms. An “expectation” of recapitalizing a nationalized CCP is likely to make that a reality, rather than a joke.

Second, the nationalization scheme creates a moral hazard. Users of CCPs (i.e., those trading cleared derivatives) will figure that they will be made whole in the event of a failure: the government and eventually the (coerced) banks will make the creditors of the CCP whole. They thus have less incentive to monitor a CCP or the clearing members.

Thus, other issues have to be grappled with. Specifically, should there be “bail-ins” of the creditors of a failed CCP, most notably through variation margin haircutting? Or should there be initial margin haircutting, which would intensify the incentives to monitor (as well as spread the default risk more broadly, and not force it disproportionately on those receiving VM payments, who are  likely to be hedgers) ? Hard questions, but ones that need to be addressed.

It is good to see that serious people like Stephen are now giving serious consideration to this issue. It is unfortunate that the people responsible for mandating clearing didn’t give these issues serious consideration when rushing to pass Frankendodd and EMIR.

Again: legislate in haste, repent at leisure.

 

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August 16, 2014

Sechin: Sanctions Don’t Hurt Rosneft, But I Need $42 Billion Because of Sanctions

Filed under: Commodities,Economics,Energy,Politics,Russia — The Professor @ 2:46 pm

Igor Sechin, he of the ape drape, is asking the Russian government for $42 billion for Rosneft, to be paid from the National Wealth Fund. This would represent almost half of the value of that fund’s $86 billion. Sechin “said the company needed the money to help it cope with a ban on U.S. credits and loans with a maturity longer than 90 days, which European banks and investors have joined.”

This newfound fear of sanctions contradicts what Sechin and other Russian officials have said: they have dismissed them as irrelevant trifles.

I really don’t think that Sechin has become convinced that the sanctions do in fact pose a serious threat to Rosneft. This is just his way of trying to let no crisis go to waste, and get his hands on Russian government monies. Sechin has always fought tooth and nail against Medvedev’s repeatedly shelved plans to sell off a big stake in Rosneft: he doesn’t want nosy western investors cramping his style. The sanctions, and their alleged impact on Rosneft’s ability to borrow in the west, gives him an opportunity to show the door to pesky western creditors as well. Sechin no doubt believes that he can exert far more influence and power over the Russian government than he can over foreign bankers and traders. Bad, empire building investments; sweetheart contracts with favored supply firms; and tunneling funds are all easier when the main obstacles are government bureaucrats who can be bought off or threatened with horrible fates. The challenges are greater when outside investors and creditors are involved.

Sane Russian economics officials (there are some!) are aghast:

An anonymous official cited by Vedomosti called Sechin’s plan “horrible”, and another government source told the paper Prime Minister Dmitry Medvedev was unlikely to back it.

As if Medvedev matters.

I doubt Sechin will get his $42 billion, but I imagine he will get a lot more than zero. Maybe the $12 billion that Rosneft has to repay this year. Putin is likely to be sympathetic, given his decided autarkic turn.

In other possibly sanctions-related news, Gazprom is apparently relocating its London trading operations to Zug. To its discredit, Switzerland has refused to join in on EU sanctions, or to adopt serious sanctions of its own. Switzerland’s economy minister cautioned against joining EU sanctions, and advanced his country as a mediator with the Russians.

Which makes this Russian rant over the one timorous move that Switzerland has made truly revealing:

The Russian Foreign Ministry on Friday sharply criticized the Swiss government for restrictivemeasures against Russia related to Moscow’s stance on the Ukrainian crisis, saying such moves could harm bilateral relations.

“We express our disappointment in connection with these decisions taken by Bern,” the ministry said in a statement.

Earlier on Friday, the Swiss government decided to draft additional measures aimed at preventing the use of the territory of the Swiss Confederation to circumvent the existing EU sanctions against Russia. The government also confirmed the ban on transfers of dual-purpose products and technologies to Russia.

Those Russians. Poster children for Dale Carnegie.

But who could resist the appeal of a guy like this?:

sechin_ape_drape

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Where There’s a Will, There’s a Way. That’s the Problem.

Filed under: History,Military,Politics — The Professor @ 12:37 pm

There is a lot of chin pulling going on about ISIS. Most of this seems to be an attempt to rationalize doing nothing, or very little.

One conclusion of the deep thinkers is that ISIS does not pose a threat to the US because it only has “regional ambitions.” This is the administration’s main theme. When asked about Obama’s JV remark, new flack Josh Earnest yammered on and on about other groups that posed a direct threat, such as Al Qaeda in the Arab Peninsula. This organization launches underwear bombers, and is working on body cavity bombers, from the caves of Back of Buggery, Yemen. Obama has been droning them for virtually his entire administration. The administration apparently believes this is a more serious threat than ISIS.

This is all beyond stupid.

First, ISIS has made threats against the US, and the White House in particular.

But that’s not the main thing. ISIS has declared itself to be a caliphate, which demands the allegiance of over a billion Muslims from around the world. This demonstrates that its ambitions are far from regional: they are global, and they will use a regional victory as a launching point for campaigns elsewhere. Of course it has to start somewhere, and taking advantage of the carnage in Syria and the vacuum in Iraq (from which Obama assiduously pumped out air) it has established itself across large areas in each country.

If it solidifies its control, it will have a base (will they call it Al Qaeda?) from which they can launch attacks elsewhere. Since it has attracted recruits from around the world, it will have large cadres that it can dispatch to wreak havoc in Europe, Asia (especially Malaysia and Indonesia), and yes, the United States. (Departing Defense Information Agency head General Michael Flynn warned about this threat in his rather heated on-his-way-out-the-door speeches and interviews.)  You have to focus on capability, not intent, and ISIS has demonstrated substantial capability that is quite worrisome. This group, more radical than Al Qaeda and ensconced in a region that is far more centrally located than Afghanistan, possesses capabilities that put Al Qaeda’s in the shade.

And we need to bet on form. Radical Islamists have repeatedly identified the US as the main enemy of Islam. Islam is a universalist religion, and its most extreme adherents aim at subjugating the entire world. It divides the world into the House of Peace and the House of War (dar al Harb). The US is leader of the latter. An organization and a leader ambitious enough to declare a caliphate-something that even Bin Laden declined to do-will almost inevitably attack the US.

Another rationale for inaction was mouthed by the administration’s foreign policy Charlie McCarthy, the WaPo’s David Ignatius. In this telling, ISIS is so insanely violent and brutal that it will inevitably wear out its welcome in the regions it has conquered. The resulting backlash will result in the group being defeated and thrown back. Or something. How many people have to die, be beheaded, crucified, enslaved, and raped before this happily ever after ending transpires at some unknown time goes unremarked.

And what happens if it doesn’t work out this way?

The sad reality is that US inattention allowed a bacteria that had been largely defeated but not totally eliminated come back in a far more virulent form. ISIS is the supergerm of Islamic radicalism. This strain will be all the more difficult to eliminate than the old one, which was hard enough as it was to tame. But doing nothing because it only attacks other hosts or because eventually the immune systems of enough people will be strong enough to fight it off (after it has killed many others without this resistance) is not a realistic option. But that’s the option that Obama and his courtiers inside and outside the administration are desperate to rationalize.

So far, US airstrikes against ISIS have been limited and reactive, and not part of any discernible strategic or operational plan. Moreover, air power alone will not be sufficient: it must be used in conjunction with Kurdish, and maybe eventually, Iraqi ground forces.

The best path forward at this time is to provide the Kurds with heavy weapons, training, and embedded American personnel to assist collecting and disseminating intelligence, planning, and coordination with American air power. The Kurds (and maybe eventually Iraqi regular forces) can provide the necessary ground forces, and the US can provide the aerial artillery to support the indigenous forces on the ground.

In his papers, Patton recorded two instances in which French General Koechlin-Schwartz told him: “The poorer the infantry, the more artillery it needs.” (Koechlin-Schwartz added the criticism: “American infantry needs all it can get.”*) The indigenous infantry the US will have to rely on is pretty poor. They need all the air support they can get. But ISIS infantry is not all that great either (its victories being due mainly to facing worse, and much less motivated, opposition). American planning, logistical, intelligence and air support, combined with superiority of numbers, should be sufficient to reverse ISIS’s gains.

In other words, where there’s a will, there’s a way. And that’s the problem. Obama does not have the will, for numerous reasons ideological and psychological. He is looking for reasons to justify that lack of will. The reasons that have been heaved up are very bad ones, but will probably suffice for Obama’s purpose. Meaning that his successor is likely to have to deal with a much more virulent foe infecting vast swathes of the Middle East, and spreading the infection far and wide.

* Patton was critical of the lack of aggressiveness of US riflemen.

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August 15, 2014

Chutzpah Alert, Sergei Shoigu Edition

Filed under: History,Music,Politics,Russia — The Professor @ 8:16 pm

US Defense Secretary Chuck Hagel spoke to his Russian opposite number, Sergei Shoigu. Shoigu ranted to Hagel about the fascist Ukrainians, saying that “the use of combat aviation and heavy artillery, including multiple-launch rocket systems and missiles against civilians and civilian infrastructure in the region was unacceptable.”

Talk about chutzpah. This coming from a man responsible for arming rebels in Ukraine that do everything-everything (except the use of combat aviation)-that he condemns. They do all that, and more: e.g., shooting down jetliners with nearly 300 innocent people aboard.

Good rule of thumb: whatever Russians rant about, is what the Russians are doing.

If Hagel had been anyone but the ignorant dolt* that he is, he would have schooled Shoigu on some history. Recent history. Russian history. Putin’s history.

In a word: Grozny.

Russian forces obliterated Grozny not once, but twice. The first time in 1994-1995, the second in 2000.

In the Yeltsin-era assault, Russian infantry and armor proved so incompetent in its initial assault on the city that the Russians were forced to resort to indiscriminate firepower: they leveled the place with artillery and bombing. The results are shown in this picture. As is always the case, the number of civilian casualties is in dispute, but accepted figures run in the tens of thousands.

Putin leveled Grozny again as part of his campaign to establish himself as a popular Russian leader. The Russian military avoided the mistakes of the first Grozny campaign and waited to deploy the armor and infantry until after they had unleashed an intense aerial and artillery bombardment. Most of the civilians had fled, but 40-50 thousand still remained. The Chechen rebels had dug in deeply, and the Russians had to root them out from their cellars and trenches. They had used thermobaric weapons sparingly in 94-95, but they used them indiscriminately in 99-00. The Buratino system rained fire down on the Chechen fighters-and the many civilians that were intermixed with them. And by “rain fire” I mean that literally, not figuratively. That’s what thermobaric weapons do.

Thermobaric weapons-fuel-air explosives-are truly grim weapons. This provides considerable detail on the weapons, and how the Russians-how Putin-deployed them in Grozny.

But the Chechens should feel lucky. The Russians decided not to employ chemical weapons.

I could also go into Russian use of artillery and air power during the Russo-Georgian War. And Russian support for Assad’s indiscriminate use of firepower-and chemical weapons-in Syria.

Hagel should have shoved all this back in Shoigu’s face, and told him to STFU. It is beyond chutzpah for Putin and his creatures to lecture Ukraine, and the world, about the use of artillery and airpower on civilians.

Putin wrote the book on this, when he first took power. He secured this power in Russia by obliterating Grozny. Russians loved him for it.

This is the same Putin who says sugary words about his desire for his desire to avoid war and confrontation in Ukraine.

Don’t believe a word of it, and don’t dare let him or his minions lecture anyone on the use of firepower on civilians.

*And likely drunk. His face has alkie written all over it.

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Putin Takes An Off-Ramp. Just One Problem: It’s the Donbas/Novorossiya Exit

Filed under: Military,Politics,Russia — The Professor @ 2:56 pm

The mystery of the convoy deepens. This morning (ET), it was widely reported that many of the white Russian trucks were virtually empty. So apparently the humanitarian aid was to consist of stale air.

Last night (ET-morning in Ukraine), several journalists witnessed a column of Russian armor entering Ukraine.  Nato and some western governments confirmed that this had in fact taken place. Around 11 ET, Ukraine released a synopsis of a call between Poroshenko and UK PM Cameron, in which the Ukrainian president claimed that Ukrainian artillery had destroyed most of the invading column. Russia vociferously denied this. Russia also claimed that Ukrainians were attacking  the route of the convoy. But it did not claim that the convoy itself was attacked. So what were the Ukrainians shelling on this route if the convoy and the armor weren’t there? And how would the Russians know about this shelling inside Ukrainian territory.

The murk just keeps getting murkier.

The most plausible hypothesis  is that the the convoy is part of an elaborate deception operation to distract attention, create a potential incident that would create a pretext for a Russian invasion, and/or to provide cover behind which a Russian force could assemble and then mount an attack into Ukraine.

Western leaders have desperately been offering Putin “off-ramps.” Putin only concludes from this that Western nations will do nothing to stop him. It is the West that wants the way out, not Putin.

Or, to put it another way, Putin has indeed taken an off-ramp. The problem is that it is the Donbas/Novorossiya Exit, and he isn’t going for a pit stop.

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August 14, 2014

10-4, хороший товарищ

Filed under: Military,Politics,Russia — The Professor @ 6:59 pm

Russia is known for remaking American TV shows, notably Married, With Children. Now it is doing a very bad remake of the 1978 Sam Peckinpah movie, Convoy. This time as a reality show.

An alleged “humanitarian” convoy of 270-odd white semis has been bouncing around southwestern Russia, bound for Luhansk and Donetsk. Cargo? Unknown, for certain. Route? Unknown, for certain: so far it has been serpentine, and interrupted by numerous stops. Ukraine demanded that it travel through Karkiv, via border posts it controls, but the convoy has apparently now split with one part headed for a border post controlled by Russians. The drivers and other personnel? Unknown; they claim to be “volunteers”, but some suspect they are Russian paratroopers.

The Russians confidently announced that this has all been done in coordination with the International Committee of the Red Cross, but the ICRC just says that it has been in discussions with Ukraine and Russia about it, and that it is ignorant of crucial details. Ukraine demands that the trucks be unloaded at the border, the cargo loaded into Red Cross vehicles driven by Red Cross. Russia refuses. It demands its way on the highway.

No one has a clue as to what Putin’s game is here. There is only one thing for certain: it is not what it purports to be, a legitimate relief effort. If it were, Putin would have let the Red Cross handle it from the get go, and limited Russian participation to the provision of supplies and perhaps vehicles and fuel. But although Russia has claimed Red Cross approval, it is pretty clear that it has grossly exaggerated this. Sadly, in classic useful idiot fashion, the ICRC has not called bullshit on Putin, limiting its response to mewling tweets like:

We have made initial contact with the #Russia-led aid convoy, Rostov region, #Ukraine. Many practical details are still to be clarified.

Respect for the #RedCross emblem is essential for us to assist and protect those worst affected by the armed conflict in eastern #Ukraine.

Amid the media storm, we stress that aid delivery into east #Ukraine should not be politicized. Our priority remains helping people in need.

So what is the game? So many possibilities. A propaganda exercise, and one that would actually be enhanced if Ukraine stopped the entry of the convoy into the Donbas: however, given the way Putin is viewed throughout the world, the only people that the propaganda would fool would be Russians and Putin’s fellow travelers on the fringe left and fringe right in the US and Europe. Along the same lines, but more sinisterly, a setup for a false flag operation in which the convoy would be attacked by Russian or rebel forces, masquerading as Ukrainians, to provide a pretext for an invasion. A way of smuggling weapons, ammunition, and reinforcements to the beleaguered rebels. All of the above.

To add to the chaos, three reporters observed a column of Russian APVs moving into Ukraine.

The whole episode reminds me of a Three Card Monte game. A lot of jabber, a lot of motion, a lot of misdirection, all intended to hide the real object. Which raises the question: where is the Black Queen?

All of this is very ominous. Adding to the sense of peril is Putin’s benign speech in Yalta, Crimea today. It is being interpreted as an attempt at conciliation, a step back. That interpretation works to Putin’s benefit, by getting those in Europe and the US, who are desperately hoping to avoid a confrontation and who are looking for any sign of hope, to drop their guard. At which time he will pounce. (A classic judo ploy, btw.)

Convoy was atypical of Peckinpah’s oeuvre. He specialized in graphic violence, heavily spattered with technicolor blood. Many of his characters were psychopathic antiheroes. Sadly, I think that only Peckinpah could do justice with what is likely to unfold in the Donbas, and the psychopath who will be responsible for it.

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