Daily Archives: August 12, 2014

Russian (Border) Trade Agreements Are Nothing New

So why is everyone fretting about the $20 Billion Oil Deal between Iran and Russia? Yes, it delivers another blow to the US-based petro-dollar, but is it really any worse than China and it’s efforts to not only reign in the value of the western dollar but control the valuation of its yen at the same time? We should not forget that the GDP of China is more than FOUR times that of Russia and that Russia and Iran used to be neighbours. Even though Russia is now two countries away from Iran border-wise — as it now borders Kazakhstan which borders Turkmenistan which borders Iran — it wasn’t always this way. The Russian Empire began to expand into what is present day Kazakhstan back in 1813 and essentially all of present day Kazakhstan was annexed by 1907. Similarly, Turkmenistan was annexed by the Russian Empire in 1881 and became a constituent republic of the Soviet Union in 1924, only regaining its independence upon the dissolution of the Soviet Union in 1991.

And Russia has a long history of either conquering, annexing, trading, or negotiating with its neighbours. For example, 691 years ago today, the Treaty of Noteborg was signed between Sweden and Novgorod (present day Russia, more or less), and for the first time the border between the two countries was regulated. The conclusion of the Swedish-Novgorodian Wars, the treaty awarded three Karelian parishes to Sweden who, in return, would stay out of the conflict between Novgorod and Narva (present day Estonia, more or less). In addition, both sides would refrain from building castles on the new border. So it should be no surprise that, given the opportunity to reclaim Crimea — and to do so relatively peacefully — that Russia took it or that they took the opportunity to trade with Iran on local terms.

But it’s not worth fretting about. One has to look at the bigger picture. When it comes to the BRIC, Russia is essentially the weakest player. India has considerably more population and a long-term outlook of becoming a top 5 GDP player. Brazil has a larger GDP (by as much as 20%) and very bright prospects as the new near-shoring destination for North America. And China has 4 times the GDP, 9 times the population, and a heck of a lot more clout when it comes to global trade!

So don’t fret about a 20 Billion Oil deal, the return of what is essentially a small province to Russia, or the fact that Russia has agreed to pay China in domestic currency. It’s a drop in the bucket. The real shocks to global trade will come from China and the new Silk Road they are building.

Don’t get caught up in the meaningless media frenzy focused on Russia. Just because the media has forgotten that the cold war is over doesn’t mean we should.