Tag Archives: Sanctions and embargoes

Business

Russian oil sanctions are about to kick in. And they could disrupt markets in a big way

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European oil sanctions are due to kick in on December 5. The idea is to reduce oil revenues for Russia given its war in Ukraine.

Andrey Rudakov | Bloomberg | Getty Images

Upcoming sanctions on Russian oil are set to be “really disruptive” for energy markets if European nations fail to set a cap on prices, analysts warned.

The 27 countries of the European Union agreed in June to ban the purchase of crude oil from Dec. 5. In practical terms, the EU — together with the United States, Japan, Canada and the U.K. — want to drastically cut Russia’s oil revenues in a bid to drain the Kremlin’s war chest following its invasion of Ukraine.

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However, concerns that a complete ban would send crude prices soaring led the G-7 to consider setting a cap on the amount it will pay for Russian oil.

An outright ban on Russian imports could be “really disruptive” to markets, according to Henning Gloystein, director of energy, climate and resources at political risk consultancy Eurasia Group.

The potential for rising oil prices is “why there’s pressure from the U.S.” to agree on a cap, Gloystein told CNBC Wednesday.

A price limit would see G-7 nations buy Russian oil at a lower price, in an effort to reduce Russia’s oil income without raising crude prices across the globe.

However, EU nations have been in dispute for several days over the right level to cap prices.

The right oil cap

A proposal discussed earlier this week suggested a limit of $62 a barrel, but Poland, Estonia and Lithuania refused to agree to it, arguing it was too high to dent Russia’s revenues. These nations have been among the most vocal in pushing for action against the Kremlin for its aggressions in Ukraine.

Speaking to CNBC’s Julianna Tatelbaum Wednesday, the Dutch energy minister said a cap on Russian oil prices was “a very important next step.”

“If you want effective sanctions that are really hurting the Russian regime, then we need this oil cap mechanism. So hopefully we can agree on it as soon as possible,” Rob Jetten said.

On Wednesday, Russian oil traded at about $66 a barrel. Officials at the Kremlin have repeatedly said that a price cap is anti-competitive and they will not sell their oil to countries that have implemented the cap.

They’re hoping that other major buyers — such as India and China — won’t agree to the limit and so will continue to purchase Russian oil.

China and India

G-7 nations agreed to impose a limit on Russian oil back in September, and have been working on the details ever since. At the time, the EU’s energy chief, Kadri Simson, told CNBC she was hoping China and India would support the price cap too.

Both nations stepped up their purchases of Russian oil following Moscow’s invasion of Ukraine, benefiting from discounted rates. Their participation is seen as essential if the restrictions on Russian oil are to work.

“China and India are crucial as they buy the bulk of Russian oil,” Jacob Kirkegaard, senior fellow at the Peterson Institute For International Economics, told CNBC.

“They won’t commit, however, for political reasons, as the cap is a U.S.-sponsored policy and [for] commercial reasons, as they already get a lot of cheap oil from Russia, so why jeopardize that? Thinking they would voluntarily join was always naive as Ukraine is not that important to them.”

India’s Petroleum Minister Shri Hardeep S Puri told CNBC in September he has a “moral duty” to his country’s consumers. “We will buy oil from Russia, we will buy from wherever,” he added.

As such, there are growing doubts about the true impact of the restrictions on Russia.

“Energy sanctions against Russia have come too late and are too timid,” Guntram Wolff, director at the German Council on Foreign Relations, said via email.

“This is just a continuation of an unfortunate series of timid decisions. The longer and later the sanctions come, the easier it will be for Russia to circumvent them.”

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Business

US chip export restrictions could hobble China’s semiconductor goals

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The U.S. government has introduced some of its most sweeping export controls yet aiming to cut China off from advanced semiconductors. Analysts said the move could hobble China’s domestic chip industry.

Mandel Ngan | AFP | Getty Images

China’s ambitions to boost its domestic chip industry has likely become magnitudes more difficult and costly after the U.S. launched some of its most wide-ranging export controls related to technology against Beijing.

On Friday, the U.S. Department of Commerce introduced sweeping rules aimed at cutting China off from obtaining or manufacturing key chips and components for supercomputers, in what is seen as a huge escalation in tensions between Beijing and Washington in the technology sphere.

America argues that such advanced semiconductors can be used by China for advanced military capabilities.

“There is no going back to the way things were,” Abishur Prakash, co-founder of the Center for Innovating the Future, an advisory firm, told CNBC.

“With the latest action, the chasm between the U.S. and China has now expanded to the point of no return.”

Here are some of the highlights of the new U.S. rules:

  • Companies require licenses to export high-performance chips, usually designed for artificial intelligence applications, to China.
  • Even foreign-made chips related to AI and supercomputing, that use American tools and software in the design and manufacturing process, will require a license to be exported to China.
  • U.S. companies will be heavily restricted in exporting machinery to Chinese companies that are manufacturing chips of a certain sophistication.

“The latest chip rules are a sign that Washington is not trying to rebuild relations with Beijing. Instead, the U.S. is making it clear that it’s taking this competition more seriously than it ever has, and is willing to take steps that were once unthinkable,” Prakash said.

What impact will U.S. restrictions have on China?

Semiconductors are some of the most important technology products. They go into everything from smartphones to cars and refrigerators. But they’re also seen as key to military applications and advancing artificial intelligence.

As geopolitical tensions between China and the U.S. have ramped up in the past few years, technology, and in particular sensitive areas like chips, have been dragged into the battle.

Artificial intelligence, quantum computing and semiconductors are all areas China has identified as “frontier” technologies it wants to boost its domestic capabilities in. But the new U.S. rules will make that extremely hard, particularly in the area of chips.

“The U.S. has formally shifted its goal from outpacing China in the semiconductor industry to actively denying it access to advanced chips,” Pranay Kotasthane, chairperson of the high tech geopolitics program at the Takshashila Institution, told CNBC.

“China’s homegrown chip sector will be hobbled by these extensive controls.”

The nature of the supply chain

The reason why the U.S.’s export controls could be so effective is how they could touch several parts of the semiconductor supply chain, even those not directly based in America or controlled by American firms.

That comes down to the global nature of the chip supply chain but also how power and expertise is controlled by very few companies.

The United States, while strong in many areas of the market, has lost its dominance in manufacturing. Over the last 15 years or so, Taiwan’s TSMC and South Korea’s Samsung have come to dominate the manufacturing of the world’s most advanced semiconductors. Intel, the United States’ largest chipmaker, fell far behind.

Reinventing the wheel will be far more costly now (for China).

Pranay Kotasthane

Takshashila Institution

Taiwan and South Korea make up about 80% of the global foundry market. Foundries are facilities that manufacture chips that other companies design.

The U.S., however, still boasts strong companies in the area of design tools, many of which are used by other companies in the supply chain. For example, it’s unlikely that advanced chips manufactured by TSMC won’t have used American tools somewhere along the way. In this instance, the U.S. export restrictions to China will apply.

Washington has used this so-called foreign direct product rule before on the poster child of the Trump-era U.S.-China tech tensions — Huawei. Under those rules, Huawei was cut off from the most advanced chips that TSMC was manufacturing and that were designed for its smartphones. Huawei, which was once the number one player in the smartphone market, saw its handset business crippled.

But never has such a rule been used so widely by the U.S.

China will need to ‘reinvent the wheel’

Meanwhile, other countries could be under pressure to not ship certain pieces of equipment to China. For example, the latest rules mean companies will need to get licenses to ship machinery to Chinese foundries if those facilities are making certain memory chips or logic semiconductors of 16 nanometer, 14 nanometer or below.

The nanometer figure refers to the size of each individual transistor on a chip. The smaller the transistor, the more of them can be packed onto a single semiconductor. Typically, a reduction in nanometer size can yield more powerful and efficient chips.

China’s most advanced chipmaker, Semiconductor Manufacturing International Co. or SMIC, is currently making 7nm chips, but not on a huge scale. It is generations behind the likes of TSMC and Samsung which have a roadmap to make 2nm chips.

But to make chips of this sophistication on a large scale, with lower costs and more reliability, SMIC and other Chinese foundries will need to get their hands on a specific piece of kit called an extreme ultraviolet lithography machine. The Dutch firm ASML is the only company in the world capable of making this critical piece of machinery.

If it falls under the U.S.’s export restrictions or comes under pressure from Washington not to sell to Chinese companies, this could hamper progress among the country’s chipmakers.

ASML underscores the complexities of the semiconductor supply chain.

“Semiconductor production is a hyper globalised supply chain. Being cut off from this engine will mean that Chinese companies must ‘reinvent the wheel’ domestically. China’s semiconductor industry will need much higher capital and talent infusion to absorb this shock,” Kotasthane said.

But this will be an uphill climb.

Kotasthane said that China will be able to make advanced chips even without ASML’s machinery “but the yield will be far lower, meaning higher costs and lower reliability.”

Meanwhile, Chinese firms will have to rely on “lower-end” domestic alternatives for design tools, Kotasthane said, which they would typically have gotten from American and Japanese firms.

Washington’s latest rules also require any “U.S. persons” to obtain a license if they want to support the development or production of semiconductors at certain China-based manufacturing facilities. This effectively cuts off a key pipeline of American talent to China.

“Reinventing the wheel will be far more costly now,” Kotasthane said.

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World

US and Russia clash over cause of food price rises

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The U.S. ambassador to the United Nations is accusing Russia of making the precarious food situation in Yemen and elsewhere even worse by invading Ukraine

14 April 2022, 22:39

3 min read

UNTED NATIONS — The U.S. ambassador to the United Nations accused Russia on Thursday of making the precarious food situation in Yemen and elsewhere even worse by invading Ukraine, calling it “just another grim example of the ripple effect Russia’s unprovoked, unjust, unconscionable war is having on the world’s most vulnerable.”

Linda Thomas-Greenfield told a U.N. Security Council meeting on war-torn Yemen that the World Food Program identified the Arab world’s poorest nation as one of the countries most affected by wheat price increases and lack of imports from Ukraine.

Russia’s deputy U.N. ambassador Dmitry Polyansky shot back saying: “The main factor for instability and the source of the problem today is not the Russian special military operation in Ukraine, but sanctions measures imposed on our country seeking to cut off any supplies from Russia and the supply chain, apart from those supplies that those countries in the West need, in other words energy.”

“If you really want to help the world avoid a food crisis you should lift the sanctions that you yourselves imposed, your sanctions of choice indeed, and poor countries will immediately feel the difference,” he said. “And if you’re not prepared to do that, then don’t get involved in demagoguery, and don’t mislead everybody.”

The sharp exchange took place a day after a U.N. task force warned that the war threatens to devastate the economies of many developing countries that are now facing even higher food and energy costs and increasingly difficult financial conditions.

U.N. Secretary-General Antonio Guterres launched their report saying, “As many as 1.7 billion people — one-third of whom are already living in poverty — are now highly exposed to disruptions in food, energy and finance systems that are triggering increases in poverty and hunger.”

Thirty-six countries rely on Russia and Ukraine for more than half their wheat imports, including some of the world’s poorest countries, he said, and wheat and corn prices have risen 30% just since the start of the year.

Rebeca Grynspan, secretary-general of the U.N. agency promoting trade and development who coordinated the task force, said the 1.7 billion people live in 107 countries that have “severe exposure” to at least one dimension of the crisis — rising food prices, increasing energy prices and tightening financial conditions.

The task force said 69 of the countries, with a population of 1.2 billion people, face a “perfect storm” and are severely or significantly exposed to all three crises. They include 25 countries in Africa, 25 in Asia and the Pacific, and 19 in Latin America and the Caribbean.

The United Nations on Thursday announced it was releasing $100 million from its emergency fund for seven hunger hotspots, Yemen and six African countries — Somalia, Ethiopia, Kenya, Sudan, South Sudan and Nigeria.

“Hundreds of thousands of children are going to sleep hungry every night while their parents are worried sick about how to feed them,” U.N. humanitarian chief Martin Griffiths said in a statement. “A war halfway around the world makes their prospects even worse. This allocation will save lives.”

U.N. spokesman Stephane Dujarric was asked about Polyansky’s comments and whether Guterres is concerned that sanctions are driving up food prices.

“I think it would be safe to say that there would be no sanctions if there were no conflict,” Dujarric replied.

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World

How much can — and will — China help Russia as its economy crumbles?

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Russia’s President Vladimir Putin (R) shakes hands with his China’s counterpart Xi Jinping during a signing ceremony following the Russian-Chinese talks on the sidelines of the Eastern Economic Forum in Vladivostok on September 11, 2018. 

Sergei Chriikov | AFP | Getty Images

Sanctions, asset freezes and withdrawals of international companies are hammering the Russian economy in response to President Vladimir Putin’s military assault on Ukraine, leaving Moscow with only one ally powerful enough to rely on as a source of potential support: China.

“I think that our partnership with China will still allow us to maintain the cooperation that we have achieved, and not only maintain, but also increase it in an environment where Western markets are closing,” Russian Finance Minister Anton Siluanov said on Sunday. 

U.S. national security advisor Jake Sullivan, in response, said it had warned Beijing that there “will absolutely be consequences for large-scale sanctions, evasion efforts or support to Russia to backfill them.” On Monday, U.S. and Chinese diplomats discussed the issue over seven hours of talks. 

Siluanov had made reference to U.S.-led asset freezes on nearly half of Russia’s central bank reserves – $300 billion of the $640 billion in gold and foreign currency that it had amassed since a previous wave of Western sanctions following its annexation of Ukraine’s Crimea in 2014.

The remaining reserves are in gold and Chinese yuan, effectively making China Moscow’s main potential source of foreign exchange to back up the spiraling ruble amid devastating capital outflows.

In some of Beijing’s most explicit comments on the sanctions yet, Chinese Foreign Minister Wang Yi said Monday during a call with a European counterpart that “China is not a party to the crisis, nor does it want the sanctions to affect China.” He added that “China has the right to safeguard its legitimate rights and interests.”

Spokespersons for the China’s Dubai consulate, the Abu Dhabi embassy and the South African embassy were not immediately available for comment when contacted by CNBC.

How much could China help ease Russia’s economic pain? Quite a lot, theoretically.

If China decided to open up a full swap line with Russia, accepting rubles as payment for anything it needed to buy — including crucial imports like technology parts and semiconductors that Moscow has been cut off from in the latest rounds of sanctions — China could essentially plug most of the holes fired into Russia’s economy by the West. 

But whether that’s entirely in Beijing’s interest to do, and how much it could backfire, is another matter.

“In terms of to what extent China could help Russia, they could help them a ton,” Maximilian Hess, a Central Asia fellow at the Foreign Policy Research Institute, told CNBC. “But they would be risking major secondary sanctions on themselves, major renewed trade and sanctions war with the U.S. and the West as well.”

Given the uncertain state of Chinese markets over the last few weeks, amid mounting inflation and a major new Covid-19 outbreak in the country, “it might not be the best time to do that,” Hess said.

A ‘no-limits’ partnership

Still, Beijing does have a long-held alliance with Russia and can benefit from its position. 

Prior to the invasion, Beijing and Moscow announced a “no limits” strategic partnership they said was intended to counter U.S. influence. China’s position has been to ultimately blame the U.S. and NATO’s eastward expansion for the conflict, and on March 7 its Foreign Minister Wang Yi called Russia his country’s “most important strategic partner.”

“No matter how perilous the international landscape, we will maintain our strategic focus and promote the development of a comprehensive China-Russia partnership in the new era,” Wang said from Beijing. 

(China would) be taking all the liabilities and risks of the Russian economy onto their own balance sheet at a time when the Russian economy is at its weakest in decades

Maximilian Hess

Central Asia fellow, Foreign Policy Research Institute

And while China’s government has expressed “concern” over the conflict in Ukraine, it has refused to call it an invasion or condemn Russia, largely pushing Moscow’s narrative of the war on its state news outlets.

“China and Putin have a clear interest in working together more closely,” Holger Schmieding, chief economist at Berenberg Bank, wrote in an early March research note.

“China is happy to cause problems for the West and would not mind turning Russia gradually into its pliant junior partner.” It could also take advantage of its position to buy Russian oil, gas and other commodities at discounted prices, similar to what it’s been doing with Iran. 

To what extent China’s leadership steps in to support Moscow will play a key role in the future of Russia’s economy. China is Russia’s top export market after the European Union; trade between China and Russia reached a record high of $146.9 billion in 2021, up 35.9% year-on-year, according to China’s customs agency. Russian exports to China were worth $79.3 billion in 2021, with oil and gas accounting for 56% of that. China’s imports from Russia exceeded exports by more than $10 billion last year. 

“Russia can use China over time as a bigger alternative market for its raw material exports and a conduit to help circumvent Western sanctions,” Schmieding said.

“But for both countries with their very different perceptions of history, it could be an uneasy and fragile alliance that may not outlast Putin.”

The powerful alliance of the G-7 economies, composed of the U.S. and its European and Asian partners, can slap harsh secondary sanctions on any entity that supports Moscow. But the problem here is that China’s economy is the second-largest in the world and is a key part of global supply chains. It impacts global markets far more than Russia does. Any move to sanction China would mean much greater global effects, and likely economic pain for the West, too.  

Treading a middle path on sanctions?

Beijing likely seeks a “third way somewhere between the binary choice of supporting Russia or refusing to do so,” analysts at New York-based research firm Rhodium Group wrote in a note in early March. That middle path involves “quietly maintaining existing channels of economic engagement with Russia … while minimizing the exposure of China’s financial institutions to Western sanctions.” 

Indeed, in early March, the chairman of China’s banking regulator Guo Shuqing said that China opposed “unilateral” sanctions and would continue normal trade relations with the affected parties.

But maintaining that kind of economic engagement with Russia will be “hard to conceal under the current sanctions architecture,” Rhodium’s analysts wrote. 

Could Beijing keep letting Russia access and trade with its yuan reserves, which total around $90 billion, or about 14% of Russia’s FX reserves? Yes. But what if Beijing allowed Russia’s central bank to sell yuan-denominated assets for dollars or euros? That would likely expose it to sanctions.

China can still trade with Russian firms in rubles and yuan through the Russian banks that haven’t yet been sanctioned. But despite many years of working to increase bilateral trade in their own currencies, the vast majority of that trade – including 88% of Russian exports – is still invoiced in dollars or euros. 

Not only that, but China could be essentially catching a falling knife by taking on the credit and sanctions risks of Russia’s rapidly deteriorating economy. 

“China could alleviate the vast majority of the pain,” Hess said. “But if they offered those swap lines and everything, effectively they’d be taking all the liabilities and risks of the Russian economy onto their own balance sheet at a time when the Russian economy is at its weakest in decades.” 

“So that’s maybe not the wisest move economically,” Hess said. “But politics are different decisions.”

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World

EU considers energy sanctions on Russia after nuclear power plant attack

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A worker carries gas cylinders from the truck in Poland.

Sopa Images | Lightrocket | Getty Images

The European Union is debating new sanctions against Russia — and this time they could hit the energy sector.

Three European officials, who did not want to be named due to the sensitivity of the talks, told CNBC that ministers will be looking at imposing energy sanctions on Russia when they meet Friday.

EU foreign affairs ministers are meeting in Brussels to discuss next steps as Moscow continues to bombard Ukraine. Concerns have intensified over the last 24 hours following Russia’s attack on Europe’s largest nuclear plant — in Zaporizhzhia, Ukraine — which has now been seized by Russian forces.

Speaking ahead of the meeting, Josep Borrell, the EU’s foreign policy chief, told CNBC’s Steve Sedgwick that “everything is on the table.”

One official told CNBC that ministers will discuss energy sanctions today, “but no major decision is expected.” While another said that both defensive and offensive sanctions against Russia would be looked at.

Representatives of Ukraine, the United States, Canada and the United Kingdom will also take part in the discussions.

A third official said that Friday was a good moment to take stock of where the West is on sanctions, and to show “the transatlantic unity and the good cooperation between the EU and NATO.”

The EU has already taken bold steps to sanction the Kremlin, notably by blocking Russian banks from the international payment system, SWIFT. However, pressure has been mounting on the bloc to do more.

Renew Europe, the liberal party at the European Parliament, said Thursday: “We call for a complete economic blockade banning imports from Russia, including oil & gas, and investments!”

Russia is a crucial source of energy for the European Union.

In 2021, the EU imported around 45% of gas from the country, according to the International Energy Agency. In 2020, Russian oil imports accounted for about 25% of the bloc’s oil purchases, according to the region’s statistics office.

Poland’s Prime Minister Mateusz Morawiecki said that Sberbank and Gazprombank, two major Russian banks, had not yet been hit by EU sanctions because they facilitate transactions relating to the supply of energy to the EU.

“This is unacceptable,” he said. “Poland demands sanctions to fully encompass all Russian entities via which the war is being financed.”

The United States has also said that energy sanctions are on the table, but the costs of pursuing them would have to be analyzed.

Implementing energy embargoes would likely mean higher costs for consumers in the U.S. and the EU in particular.

Emre Peker, analyst at consultancy firm Eurasia Group, told CNBC Thursday that energy sanctions on Russia would be painful.

“The longer that decision is delayed, and the more we’re out of winter and into spring, the easier it becomes to move,” Peker added.

The bloc has so far said that any ripple effects from sanctioning Russia are worth it, given that the Kremlin is not just attacking Ukraine, but also Europe’s democratic values.

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US

Visa, Mastercard block Russian financial institutions after sanctions

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Visa and Mastercard credit cards.

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Payment and credit card giants Visa and Mastercard have blocked financial institutions from their networks in response to sanctions targeting Russia after its invasion of Ukraine.

Last week, Russia launched an unprecedented invasion of Ukraine, forcing the U.S. and governments around the world to impose a series of sanctions aimed at cutting off Moscow from the global financial system.

Last week, the U.S. placed a number of Russian individuals and financial institutions on a sanctions list called the Specially Designated Nationals list. It effectively blocks U.S. companies and people from doing business with any individual or entity on that list. Washington also sanctioned Russia’s central bank on Monday.

On Monday, Mastercard said it had “blocked multiple financial institutions” from its payment network, without naming companies or individuals. “We will continue to work with regulators in the days ahead to abide fully by our compliance obligations as they evolve,” the company added.

Rival Visa has also blocked those on the sanctions list, saying Tuesday that it was “taking prompt action to ensure compliance with applicable sanctions, and are prepared to comply with additional sanctions that may be implemented.”

Visa and Mastercard also both pledged $2 million toward humanitarian relief funds for Ukraine.

It comes after the U.S., Canada and European allies agreed Saturday to remove key Russian banks from the interbank messaging system, SWIFT. It means Russian banks won’t be able to communicate securely with banks beyond its borders.

The wide-ranging sanctions have caused a plunge in the value of the Russian ruble. Citizens in Russia have also been waiting in long lines to withdraw cash from ATMs.

Meanwhile, Ukraine’s Vice Prime Minister Mykhailo Fedorov called on major cryptocurrency exchanges to block the addresses of Russian users.

Bitcoin and other digital currencies could become a way for Russians to potentially circumvent sanctions and get their money out of the country, as cryptocurrencies are not owned or controlled by a single entity like a central bank.

Binance, the world’s largest exchange, has said it will block the accounts of Russian individuals who have been sanctioned, but stressed that it will not “unilaterally” freeze the accounts of all Russian users.

– CNBC’s Amanda Macias contributed to this report.

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Technology

Huawei P50 Pro, P50 Pocket launch: Price, release date, features

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Huawei has launched its premium P50 Pro and foldable P50 Pocket smartphones in international markets even as it continues to face challenges from U.S. sanctions. The P50 Pocket is featured at Huawei’s flagship store in Hangzhou, China.

Long Wei | Costfoto | Future Publishing | Getty Images

Huawei has launched high-end smartphones in international markets despite its diminished global standing as a result of U.S. sanctions.

The Chinese telecommunications firm announced plans on Wednesday to launch the P50 Pro and foldable P50 Pocket to markets outside China. These phones launched last year in China.

Neither phone however has the ability to connect to super-fast 5G internet as a result of U.S. sanctions that continue to bar Huawei from purchasing certain U.S. technology. Instead, the devices sport chips from U.S. company Qualcomm to allow 4G connections.

The P50 Pro has a 6.6-inch display and two large camera modules on the back of the phone. The P50 Pocket is a foldable smartphone designed to slip into pockets and bags. The phones are designed to be able to sync across various Huawei hardware products.

The P50 Pro starts at 1,199 euros ($1,353).

With the release of these handsets globally, Huawei is sticking to its ambitions to continue to have a feasible business in consumer electronics.

But its global standing has declined dramatically since it became the number one smartphone player in the world in the second quarter of 2020. Counterpoint Research estimates Huawei’s worldwide market share to be 1.7% in the fourth quarter of 2021, with China making up more than 90% of that total.

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World

Russia won’t rule out military deployment to Cuba, Venezuela

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MOSCOW — Russia raised the stakes Thursday in its dispute with the West over Ukraine and NATO’s expansion when a top diplomat refused to rule out a military deployment to Cuba and Venezuela if tensions with the United States escalate.

Deputy Foreign Minister Sergei Ryabkov said he could “neither confirm nor exclude” the possibility of Russia sending military assets to Latin America if the U.S. and its allies don’t curtail their military activities on Russia’s doorstep.

“It all depends on the action by our U.S. counterparts,” the minister said in an interview with Russian television network RTVI, citing Russian President Vladimir Putin’s warning that Moscow could take unspecified “military-technical measures” if the U.S. and its allies fail to heed its demands.

Ryabkov led a Russian delegation in talks with the U.S. on Monday. The negotiations in Geneva and a related NATO-Russia meeting in Brussels took place in response to a significant Russian troop buildup near Ukraine that the West fears might be a prelude to an invasion.

Russia, which annexed Ukraine’s Crimea Peninsula in 2014, has denied having plans to attack the neighboring country. The Kremlin reacted to the suggestion by accusing NATO of threatening its territory and demanding that the military alliance never embrace Ukraine or any other ex-Soviet nations as new members.

Washington and its allies firmly rejected the demand this week as a nonstarter, but the NATO and Russian delegations agreed to leave the door open to further talks on arms control and other issues intended to reduce the potential for hostilities.

A senior Biden administration official suggested Thursday that Ryabkov’s statement about Cuba and Venezuela had not changed Washington’s calculations.

“We are not going to respond to bluster. If Russia actually started moving in that direction, we would deal with it decisively,” said the official, speaking on condition of anonymity to discuss the ongoing negotiations.

Ryabkov last month compared the current tensions over Ukraine with the 1962 Cuban Missile Crisis — when the Soviet Union deployed missiles to Cuba and the U.S. imposed a naval blockade of the island.

That crisis ended after U.S. President John F. Kennedy and Soviet leader Nikita Khrushchev agreed that Moscow would withdraw its missiles in exchange for Washington’s pledge not to invade Cuba and the removal of U.S. missiles from Turkey.

Putin, in seeking to curtail the West’s military activity in Eastern Europe, has argued that NATO could use Ukrainian territory to deploy missiles capable of reaching Moscow in just five minutes. He warned that Russia could gain a similar capability by deploying warships armed with the latest Zircon hypersonic cruise missile in neutral waters.

Soon after his first election in 2000, Putin ordered the closure of a Soviet-built military surveillance facility in Cuba as he sought to improve ties with Washington. Moscow has intensified contacts with Cuba in recent years as tensions with the U.S. and its allies mounted.

In December 2018, Russia briefly dispatched a pair of its nuclear-capable Tu-160 bombers to Venezuela in a show of support for Venezuelan President Nicolas Maduro amid Western pressure.

Ryabkov said a refusal by the U.S. and its allies to consider the key Russian demand for guarantees against the alliance’s expansion to Ukraine and other ex-Soviet nations makes it hard to discuss the confidence-building steps that Washington says it’s ready to negotiate.

“The U.S. wants to conduct a dialogue on some elements of the security situation … to ease the tensions and then continue the process of geopolitical and military development of the new territories, coming closer to Moscow,” he said. “We have nowhere to retreat.”

Ryabkov described U.S. and NATO military deployments and drills near Russia’s territory as extremely destabilizing. He said U.S. nuclear-capable strategic bombers flew just 15 kilometers (9 miles) from Russia’s border.

“We are constantly facing a provocative military pressure intended to test our strength,” he said, adding that he wondered how Americans would react “if our bombers fly within 15 kilometers off some U.S. bases on the East or the West Coast.”

The high-stakes diplomacy this week took place as an estimated 100,000 Russian troops with tanks and other heavy weapons are massed near Ukraine’s eastern border. Kremlin spokesman Dmitry Peskov on Thursday rebuffed the West’s calls for a troop pullback from areas near Ukraine.

“It’s hardly possible for NATO to dictate to us where we should move our armed forces on Russian territory,” he said.

Peskov said this week’s talks produced “some positive elements and nuances,” but he characterized them as unsuccessful overall.

“The talks were initiated to receive specific answers to concrete principal issues that were raised, and disagreements remained on those principal issues, which is bad,” Peskov said in a conference call with reporters.

He warned of a complete rupture in U.S.-Russia relations if proposed sanctions targeting Putin and other top civilian and military leaders are adopted. The measures, proposed by Senate Democrats, would also target leading leading Russian financial institutions if Moscow sends troops into Ukraine.

Russian Foreign Minister Sergey Lavrov likewise denounced the proposed sanctions as a reflection of U.S. “arrogance,” adding that Moscow expects a written response to its demands from the U.S. and NATO next week in order to mull further steps.

Tensions revolving around Ukraine and Russia’s demands on the West again appeared on the table at a Thursday meeting of the Organization for Security and Cooperation in Vienna.

Polish Foreign Minister Zbigniew Rau, who assumed the position of the OSCE’s chairman-in-office, noted in his opening speech that “the risk of war in the OSCE area is now greater than ever before in the last 30 years.”

The tensions over Ukraine also figured high on the agenda of a meeting of European Union foreign ministers in Brest, France. Danish Foreign Minister Jeppe Kofod said it’s important “for Putin to understand that the military threats, the game he’s playing, the way he’s trying to take us back to the darkest days of the Cold War, is totally unacceptable.”

The EU’s foreign policy chief, Josep Borrell, reiterated that “any further aggression against Ukraine will have massive consequences and severe costs for Russia.” Borrell said the 27-country bloc is providing 31 million euros ($35.5 million) in logistical assistance to the Ukrainian army and is preparing to send a mission to help the country counter cyberattacks.

Russia seized the Crimean Peninsula after the ouster of Ukraine’s Moscow-friendly leader and in 2014 also threw its weight behind a separatist insurgency in eastern Ukraine. More than 14,000 people have been killed in nearly eight years of fighting between the Russia-backed rebels and Ukrainian forces.

Asked whether he’s worried about possible cofrontation, U.N. Secretary-General Antonio Guterres said “it is absolutely essential that the dialogue that is taking place find a way allowing for de-escalation of tension … to avoid any kind of confrontation that will be a disaster for Europe and for the world.”

Commenting on the possibility of Russia deploying its military assets to Cuba and Venezuela, Guterres said: “We have seen rhetoric escalation in the recent past. What we need is to make sure that we can create conditions for peace and stability in Europe.”

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Emily Schultheis reported from Vienna. Lorne Cook in Brussels, Edith M. Lederer at the United Nastions and Colleen Long in Washington contributed to this report.

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World

EU leaders say Nord Stream 2 should feature in sanctions against Russia

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Ukraine wants the EU to quickly outline a package of sanctions to use against Russia if the Kremlin chooses to step up its military aggression against Kyiv.

The call comes as concerns grow about the intentions of President Vladimir Putin and the increasing Russian troop presence near the Ukrainian border.

“If you at least set up or pull together a serious package of sanctions and you let Russia know this is what’s going to happen then that will deter Russia,” Dmytro Kuleba, Ukraine’s foreign minister, said.

“At this point our partners maintain the constructive ambiguity approach, they say that consequences for Russia will be severe and unprecedented and so far and so on, but they don’t go into details,” Kuleba CNBC’s Hadley Gamble Thursday, making clear his frustration with EU leaders.

The heightened tensions at the Ukraine border with Russia are being discussed by EU heads of state in Brussels on Thursday. It is so far unclear how far they are willing to go to address Russia’s military activity, but some EU leaders share Ukraine’s view that a package of sanctions needs to be developed soon.

Nord Stream 2

In fact, some European capitals have even suggested that Nord Stream 2, the contentious gas pipeline that bypasses places like Ukraine and Poland, should feature on a potential sanctions list against Russia.

“I think we will raise this issue because this is one of the instruments which could be very strong in relation to Russia,” Gitanas Nauseda, the president of Lithuania, said at his arrival in Brussels on Nord Stream 2.

This energy project is meant to bring gas into Europe from Russia to Germany. However, the pipeline has not yet gained full regulatory approval and has been embroiled in political controversy.

On the one hand, some politicians, notably in Germany, argue that the project is an economic matter. Critics of the pipeline, however, say it increases Europe’s dependency on Russia.

Germany’s Foreign Affairs Minister Annalena Baerbock has said that Nord Stream 2 should not be allowed to operate if there’s more Russian aggression toward Ukraine.

Putin has previously pressured EU officials to approve the project, saying it is an easy solution to bring down energy costs in the region.

A spokesperson for the Kremlin said Thursday that Nord Stream 2 was in the interests of Russia and Germany, Reuters reported.

‘Energy policy out of the conflict’

“It would be important that we could also decide that Nord Stream 2 is on the table [in terms of sanctions],” Arturs Karins, the prime minister of Latvia, also said in Brussels.

“If there is heightened military activity then this project would be turned off,” Karins added

However, not everybody agrees. Finish Prime Minister Sanna Marin told CNBC that “it is important to keep energy policy out of the conflict.”

The different views highlight the difficulty for EU leaders to find common ground on how to address aggression from Russia.

Slovenia Prime Minister Janez Jansa said that the “military concentration” taking place close to Ukrainian borders is “not normal for regular military exercises.”

“There is no doubt that Russia is using military power to make pressure,” he told CNBC.

Talks with Russia

In the meantime, some EU leaders think that dialogue is needed with Russia to prevent any further escalation.

“I strongly believe … we need to speak with Russia also,” Xavier Bettel, the prime minister of Luxembourg, told CNBC.

He added that the format of these talks are not important as long as they are effective.

It’s possible that France and Germany reach out to Moscow and Kyiv in the hope of finding a solution. It is unlikely that these talks with include the whole of the EU in the short term.

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China’s rumored aims to dive into Afghanistan are exaggerated: experts

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View of a gold mine in Nor Aaba, Takhar province, Afghanistan.

Omar Sobhani | Reuters

One of the first things many Western pundits predicted as the chaotic U.S. withdrawal from Afghanistan unraveled was the replacement in that power vacuum by China, long a critic of and strategic adversary to the U.S. 

Afghanistan has trillions of dollars worth of untapped mineral resources, and is in dire need of infrastructure investment, making it in theory a prime ground for China’s expansive Belt and Road Initiative. What’s more, China is one of the few countries and the only economic superpower to have so far established friendly relations with the Taliban, who shocked the world in early August by overtaking Afghanistan in a matter of days. 

In what many see as a symbolic taunt to the West, Chinese state officials have chastised Washington and its 20-year war, and cautiously welcomed the Taliban’s announcement of its new government of hardliners and FBI-wanted terrorists this week.  

Taliban take control of Hamid Karzai International Airport after the completion of the U.S. withdrawal from Afghanistan, in Kabul, Afghanistan on August 31, 2021.

Wali Sabawoon | Anadolu Agency | Getty Images

“This has ended the more than three weeks of anarchy in Afghanistan and is a necessary step for Afghanistan’s restoration of domestic order and postwar reconstruction,” Wang Wenbin, a spokesman for the Chinese foreign ministry, told reporters at a briefing on Wednesday, according to a transcript published by the Chinese Foreign Ministry. 

But beyond the statements, many regional experts are not convinced of China’s enthusiasm for barreling into the war-torn Central Asian state on its western border.  

China is ‘very aware’ of security risks 

China has long been wary of Islamic extremism in its far west. It’s also determined not to fall into the same quagmires that the Soviet Union and the U.S. were sucked into with Afghanistan, analysts say. 

“China is interested in economic engagement in Afghanistan and extension of its Belt and Road, including reconstruction and investing in untapped mineral resources of the landlocked country,” Ekta Raghuwanshi, Stratfor’s South Asia analyst for RANE, told CNBC.  

“However,” she cautioned, “it wouldn’t invest substantially anytime soon given security concerns in Afghanistan and proximity to China’s restive Xinjiang province,” she said, referring to Uyghur militants and the resurgence of the East Turkestan Islamic Movement. 

And while China has made clear its approval of the Taliban, that doesn’t mean it’s ready to commit to doing business with them.  

“We don’t have evidence China will see the Taliban as a more secure partner,” Maximilian Hess, a Central Asia fellow at the Foreign Policy Research Institute’s Eurasia Program, told CNBC.  

“It is very aware of the security risks, and attacks on Chinese infrastructure in Pakistan by Islamist groups have increased in recent years” including one as recently as August, Hess said. China risks angering local Afghans with its presence, and Beijing “recognizes Afghanistan’s tribal reality and that the Taliban has many sub-factions that it lets operate with quasi-autonomy in many areas,” he added. 

So even if the Taliban — who have embraced China’s diplomatic overtures and celebrate the prospect of its investment — give Chinese investors a guarantee of security, the group does not necessarily have control over other militants and tribes across the country of nearly 40 million people. 

What Beijing doesn’t voice publicly, analysts say, is its concern about the impact of the U.S. withdrawal, much like Russia.  

As journalist Sreemoy Talukdar wrote in Indian news outlet Firstpost this week, China “may have been gloating at U.S. discomfiture during the bungling exit … but had so far been quite content with America’s role as the security guarantor next door in a region that is a veritable witches’ brew of terrorism and ethnic insurgency.”

The Chinese foreign ministry did not reply to a CNBC request for comment.

Sanctions loom large 

The Taliban remains sanctioned by the U.S., EU and United Nations. That presents an obvious legal and financial risk for anyone hoping to do business with the group.

“Any deals signed with the Taliban face obvious political and sanctions risks,” said Jonathan Wood, deputy global research director at Control Risks.

China has proven adept at navigating U.S. sanctions in the past, importing embargoed Iranian oil thanks to the use of things like “ghost ships.” But some Chinese companies have been hit by U.S. penalties, and in the case of Afghanistan, the security risks make pushing that boundary even less appealing.  

“Western sanctions mean that even if the Taliban is recognized (by China), very few banks or financial institutions will deal with the Taliban government while those sanctions remain,” Hess said.  

Infrastructure constraints

Afghanistan’s mineral wealth is staggering. The country sits above some 60 tons of copper reserves, more than 2.2 billion tons of iron ore, 1.4 million tons of rare earth minerals coveted for their use in electronic products such as lithium — which is in high demand for electric vehicle batteries — 1.6 billion barrels of crude oil, 16 trillion cubic feet of natural gas and another 500 million barrels of natural gas liquids, according to U.S. geological surveys. 

But so far, it’s proven nearly impossible to reach.  

In 2008, a consortium of Chinese companies took on a 30-year lease for the largest copper project in Afghanistan, called Mes Aynak. To date — 13 years later — no work has been started on the mining project.  

This is due to a combination of security issues, state corruption and infrastructure constraints, even though the 11.08 million tons of copper it’s estimated to hold would be worth over $100 billion at current London Metal Exchange prices. 

“Afghanistan’s limited infrastructure — power, roads, rails — difficult terrain, and landlocked geography will continue to hinder natural resource development,” Stratfor’s Wood said. 

Despite all the limitations, these have not necessarily stopped China in the past, as its investments in Sudan and the Congo show, noted Samuel Ramani, a tutor of International Relations at the University of Oxford. 

Given the stagnation of its previous Afghan ventures, “I think Chinese involvement in Afghanistan could look a lot like their purported reconstruction plans in Syria,” Ramani said. “A lot of speculation, but little substance.”

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