US could bring about its own decline

When equations change, markets too change. And when revisions are forced on a large scale, expect a cataclysm to change all paradigms.

That is what could be happening in the war that the US has decided to wage against Russia over Ukraine.

First, the US has been gradually losing its moral authority amongst all countries in this world.  During the past two decades, it has embarked on adventures, justifications and condemnations, which appear to contradict each other. Instead of winning a broad-based consensus, it has opted to go by, what it calls, “a coalition of the willing”. Take a few instances.  

The war against weapons of mass destruction (WMD) was reason for the incursion into Iraq.  Eventually, no WMD was found. Instead, the US began using depleted uranium to bomb out insurgency in Iraq, which in turn has been causing abnormal foetuses today.  Moreover, while the US claims that only 30,000-40,000 Iraqis died in the war, the only well-planned survey (conducted by the prestigious Lancet team) put the figure closer to 600,000. The US has debunked these figures but has not commissioned any independent survey to counter such claims.

The US supported rebels in both Syria and Libya as freedom fighters, who — the US claimed — had a right to liberate their country. But when it came to Ukraine, these freedom fighters became terrorists. A referendum (which is democratic, mind you) became a Soviet machination. And the determination of a people to choose their affiliation has been called an annexation.

Second, unlike the sanctions against Iran, any sanction against Russia could trigger far-reaching consequences that the US itself may not be prepared for.  

Take one scenario. Last year, the EIA’s Short-Term Energy Outlook (STEO) forecast that China’s net oil imports will exceed those of the United States by October 2013 on a monthly basis and by 2014 on an annual basis, making China the largest importer of oil in the world. China’s northern neighbour is Russia, with the world’s largest oil and gas reserves (it is already the world’s third-largest oil producer after Saudi Arabia and the US).  Russia and China have already entered into a deal for China getting natural gas through a pipeline at prices that are less than half those at which Japan imports in LNG from Australia.

Expect China-Russia ties to get stronger, as China replaces the EU as Russia’s largest energy consumer. Over the next few decades, China-Russia trade could surpass even US-Canada trade. Expect this to shift global power towards China and Russia, away from the US and the Middle-East.

Take a second scenario. Russia has some of the largest gold reserves which remain unexploited.  China has already emerged as the world’s largest consumer of gold (followed by India).  Expect Russia to make its money by selling gold to both India and China.

Take a third scenario, which could be most far-reaching.  The US decides to stop all banking transactions with Russia. The possible retaliation?  Russia enters into a renminbi-based trade agreement with China.

The renminbi is entrenched as one of the top 10 most-traded currencies in the world. The Reserve Bank of Australia has already announced that it plans to invest about 5% of its reserves in Chinese debt. And China is the largest holder of US debt (its dollar-based reserves). If that happens, expect the renminbi to become the world currency, taking away from the US all its financial clout with banks and with nations.

The next few months will be crucial as they force a rethink on the world of tomorrow.

The author is consulting editor with dna