Why Putin will not be short of strategic partners

John Defterios

Diplomatic isolation by the countries of the NATO alliance against Russia has been, in a word, unprecedented. The use of a military-grade nerve agent to poison former Russian spy Sergei Skripal and his daughter in the UK set off heated accusations and counter-accusations and the expelling of diplomats on both sides.

But using recent history as our guide, Vladimir Putin won’t be left out in the cold in his search for strategic partners. Russia’s president has made a giant pivot east to Asia, when sanctions by the West took hold after the annexation of Crimea. The move can be best described as an economic survival strategy initially built around selling oil and gas. Professor Richard Connolly, a Russia specialist at the University of Birmingham, said the approach by Moscow has been a methodical one.

“Since 2014, Putin and other key members of the Russian policy elite have been very systematic building closer ties with China, South Korea and even Japan,” said Connolly. Back-to-back deals in China, when Western-led economic isolation was at its peak, best illustrate the point. In 2013, President Putin signed a 25-year oil deal worth $270 billion dollars. In May of 2014, a 30-year gas contract was inked for a projected $400 billon. That agreement was particularly notable since he finalized terms with China’s President Xi Jinping 24 hours before the start of his annual pow-wow at the St. Petersburg International Economic Forum.

Before a packed audience of Russia’s business elite and western investors, he made it clear the country has plenty of choices, and did everything but physically wave the contract at the gathering to prove his point. President Putin has kept on pushing for more emerging markets alliances, where his counterparts focus their lens on geopolitical and business opportunities and tend to overlook human rights violations. In the Middle East, Putin signed a $5 billion strategic investment partnership with a United Arab Emirates sovereign fund way back in 2013. Last autumn, Russia made a major push into Saudi Arabia, the region’s largest economy. A tight bond between the energy ministers of Russia and the Kingdom cemented the historic OPEC-Non-OPEC agreement at the end of 2016. That deal, which has triggered an oil price recovery, naturally led Russia to deepen the partnership and ink a series of agreements, despite King Salman’s strategic alliance with the Trump White House.

A month later, Putin did the same with the Kingdom’s regional arch-rival Iran, finalizing oil and infrastructure contracts pegged at $30 billion. But the Russian leader has quickly moved to expand his economic offering to include military hardware and nuclear know-how. In the past three years, the country has finalized contracts for 34 nuclear power reactors in more than a dozen states, mainly in emerging markets. Russia’s Rosatom has back orders worth $300 billion.

“For the Russian leadership they like to see their nuclear power generation sold to as many countries as possible. It makes Russia a lot of money and it keeps people working in a high-tech industry,” said Connolly.

While the West remains verbally defiant against Putin, there is another harsh reality for Europe. It cannot live without, at least not yet, Russia’s natural gas. John Defterios

During a tri-lateral meeting in Turkey with President Recep Tayyip Erdogan and Iran’s President Hassan Rouhani, strategic business interests shared top billing alongside the conflict in Syria. Putin finalized a more than $20 billion contract to build a 4800-kilowatt nuclear power plant in Southern Turkey and iron out the last details of the Turkstream pipeline to bring natural gas from Russia to Turkey while bypassing Ukraine. Russia already accounts for 55 percent of Turkey’s gas imports.

The Russian President is a wily survivor, but his economy did suffer when Western sanctions collided with a collapse in oil and gas prices. After hitting a peak of nearly $2.3 trillion in 2013, GDP shrank by $1 trillion by 2016, according to the World Bank. While the West remains verbally defiant against Putin, there is another harsh reality for Europe. It cannot live without, at least not yet, Russia’s natural gas. Exports to the European Union hit a record sum last year.

French energy group Total is invested in Russia’s giant Yamal LNG plant. Its CEO Patrick Pouyanne told me in an interview that tensions between the West and Moscow will not put the brakes on Moscow’s gas production, but the level of discord is geo-politically flammable. “We can be worried to see escalation with any event around the world as clashes with big tensions, big players. I am not sure if it is in the interest of anybody to come back to a Cold War system,” said Pouyanne. There is no doubt that a diplomatic Cold War is brewing. But an economic defeat of Vladimir Putin, emboldened by another election victory, seems less likely with Russia’s new partners.

John Defterios, CNNMoney emerging markets editor and CNN anchor, is the host of “Marketplace Middle East.”

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