Trade wars and sanctions are economic weapons against rival regimes, and like actual military warfare, often lead to unanticipated and sometimes devastating blowback from the targeted regimes.

A prime example was President Obama sanctioning Russia over its annexation of Crimea. The sanctions were designed to block Russia from any access to western financing, aimed at causing a dire financial and economic crisis in Russia that would force it to relinquish Crimea and end support for Ukraine’s breakaway territories.

In fact, the sanctions did cause Russia to enter a short-lived recession. But it also had other, much more drastic results for the West. It forced Russia to move closer to China, and Moscow saw Beijing as a great alternative to western financing for Russian industries.

At the same time, western companies were forced to withdraw from Russian mega-deals because of sanctions. The best-known example was Exxon, forced by sanctions to walk away from an Arctic joint venture with Russia’s state-owned oil giant, Rosneft, where it had invested $3.2 billion. In their very first effort, the partners successfully drilled oil wells containing 750 million barrels.

As noted by Reuters, the withdrawal was costly:

“Exxon will post an after-tax loss of $200 million as a result of pulling out of the Rosneft deal, but the true costs for the company run much deeper. Exploring and developing giant offshore fields in Russia was supposed to provide long-term growth for the company, and, in recent years, has seen falling reserves.”

But the opportunity losses are likely to be far higher for Exxon, the company that famously missed the US shale revolution. The long-term deal with Rosneft, expected to continue for decades, included exploration for oil in the Black Sea, enormous shale resources in Western Siberia, and the development of three large blocks in the Arctic (Kara Sea).

The trade war with China that has led to tariffs on billions of dollars in Chinese exports to the US, and as a result, Russia and China have moved even closer. It remains an absolute mystery why no one in the west had foreseen the blowback from economic warfare leading to an alliance between two of its most powerful adversaries.

China’s major state-owned oil companies and its Silk Road fund each became 10% partners in Russia’s first major Arctic LNG (liquified natural gas), project in the Yamal Peninsula, undertaken with Novatek, Russia’s largest independent gas producer. The project offers great prospects for enormous expansion.

The US acts as if it has been blind-sided by the Russian/China moves, even though years before it undertook economic warfare against them, China, the world’s largest energy importer, agreed to finance oil and gas multi-billion-dollar pipelines in neighboring Russia. Now Russia has become China’s largest energy supplier, equaling or perhaps even surpassing its energy supplies to Europe.

A similar scenario is taking place in the Persian Gulf where the US has withdrawn from the Iran nuclear deal, while imposing economic sanctions on Iranian oil exports. The French energy giant, Total, that in recent years has been a leading international oil company in that country, was forced to withdraw because of sanctions, just like Exxon in Russia’s Arctic, it left billions of dollars on the table.

This may also answer the question as to why French Prime Minister Macron was so intent on inviting the Iranian Foreign Secretary to the recent G7 meeting in France. It’s also no secret that French carmakers Peugeot and Renault are the main suppliers to Iran’s auto assembly plants.

As stated by Global Village Space (GBS), China and Russia rushed to aid Iran, with China replacing Total, in a 25-year deal estimated to be worth some $400 billions. With that, China inherits a bonanza, providing much needed finance and technology to a country that was and could again become one of the world’s leading energy producers. China is looking to finance $280 billion to develop Iran’s gas, oil and petrochemicals industries, along with $120 billion to improve transport and manufacturing, making it a key partner in China’s Road and Belt program.

The deal also gives China the right to buy any or all Iranian oil, gas, and petrochemicals products at a minimum guaranteed 12% discount to global benchmarks, plus an additional discount of 6-8% for risk adjusted compensation. Financing will proceed using local currencies, avoiding the costs of converting to a hard currency like the US dollar or the Euro, giving the Beijing yet another 10% cost advantage.