Russia beginning to turn East, towards China

Big ideas of 2015: the year of two pivots

Russia and the US are both preparing to make major shifts
December 10, 2014
Read the rest of our big ideas of 2015

2015 will be a year of two pivots. Russia is performing the first, turning east towards China, away from Europe. Sanctions imposed by the west after Russia’s invasion of Ukraine, and the plunging oil price, have hit the Russian economy hard. In November, the rouble fell by 15 per cent in just one week to an all-time low. Foreign currency reserves are down by $100bn and interest rates are rising. The Russian government now expects the economy to contract in 2015 by 0.8 per cent—it had previously forecast 1.2 per cent growth.

In November, Russia cancelled the $40bn South Stream pipeline, which would have carried Russian gas into the EU via Bulgaria. With few friends left in Europe, Russia has cast about for new ones—and new markets for its gas. In 2014, Russia and China signed two colossal energy deals, the first, in May, worth $400bn. These amount to a 30-year arrangement for Russia to supply China with 68bn cubic metres of gas each year from Siberia. China has also acquired a 10 per cent stake in a western Siberian gas field. Eventually more Russian gas will flow east than west.

The US will perform the second pivot. Obama’s previous declaration of a “pivot” in late 2011—away from Europe and the Middle East and towards Asia—succeeded in annoying or alarming all those from whom the spotlight of attention was apparently to be withdrawn (such as Israel and Saudi Arabia); some of those in its new glare (meaning China) weren’t keen on it either. Some say that the US has now swung back to the Middle East again, if reluctantly. But really, this second pivot is a turn back towards home, where a sharp sense of national interest, a loathing of foreign battles, and an all-consuming political battleground in Washington are commanding attention. Obama now faces two hard years of political combat against the Senate and House of Representatives. Both houses of Congress are now controlled by a Republican Party determined to attack and if possible to dismantle the President’s legislative achievements of the last six years. Healthcare is their top target.

America is clearly withdrawing from the global stage (even if this proves, as so often before, to be just a phase). White House relations with Israel are frosty, Saudi Arabia is appalled not only at the overtures towards Iran but at the US’s rapid abandonment (as Riyadh sees it) of its long time ally in Egypt, the autocrat President Hosni Mubarak, at the start of the Arab Spring. What price American protestations of support for the House of Saud? That is their bitter question. Meanwhile, the US has stopped its programme of quantitative easing, which was providing easy credit conditions for emerging economies: an unintended but important consequence.

The huge trade deal being negotiated with the EU—the Transatlantic Trade and Investment Partnership—will open the US up to European markets and could be concluded in 2015. But this will be an exception in a year in which the economy, healthcare, energy prices and most poisonously of all, immigration, will keep the US’s focus firmly at home.