Tillerson And Trump Hit The Pause Button On Russia Fight Over Syria
By Kenneth Rapoza
The dust has (literally) settled from last Thursday's bombing of a Syrian airfield believed to be the launching strip for a chemical weapons bombing attack against opposition forces in the city of Idlib. Secretary of State Rex Tillerson, once lambasted for being a "friend of Vladimir Putin", went to Moscow to bemoan Syria's "butcher Bashar Assad". It was the first official meeting between the U.S. and Russia since Donald Trump was inaugurated in January, allegedly all thanks to the help of Putin himself. Shortly after the bombing, the knee-jerk reaction had Trump and Putin never setting foot in the same room. And Russian Prime Minister Dmitry Medvedev was rolled out to offer us his favorite quip of the past 12 months, "this is worse than the Cold War."
Of course this is not worse than the Cold War, and thank goodness for that. During the real Cold War, the Russians were moving nuclear missiles to Cuba and they were pointed right at us. It was in retaliation for us moving mushroom cloud creating missiles into Turkey that were pointed at them. And while the usual chorus of Hillary Clinton fans and the Maidan movement supporters in Ukraine wonder loudly whether Trump's 59 Tomahawk missiles were truly programmed to hit the airfield or if they were mostly all duds used in a "wag the dog" type of ploy set up with Putin, the good news is that we are not talking about further military operations in Syria.
That doesn't mean that if a gas attack occurs somewhere that Trump won't blame Assad (rightfully or not) and start firing again. But what we have here -- in market speak -- is an overshoot. The financial press is no different than the political press on Russia. Search out any story on Bloomberg or CNBC on Russia these days and it inevitably comes down to Syria, which has since taken the place, perhaps temporarily, of the preferred headlines about the Trump campaign working in cahoots with the Russian government and more "friends of Putin".
Nevertheless, Tillerson's return from Moscow suggests people may have shorted the "Russia reset" too soon.
"There is a low level of trust between our two countries," Tillerson had reportedly said, stating the obvious. "The world's two foremost nuclear powers cannot have this kind of relationship."
Bloomberg reported that Putin and Tillerson had a "quite constructive" and detailed discussion about Syria and the "sad state" of U.S.-Russia relations, according to what they got out of Kremlin spokesman Dmitry Peskov in a conference call on Thursday. They also talked about the Ukrainian conflict, of course, which is the secondary wedge between Washington and the Kremlin after Putin stopped regime change in Syria. Peskov made it sound like the relationship between the two countries was no different than it was under former president Obama. He also said that Putin and Trump may meet in July on the sidelines of the Group-of-20 meeting in Germany. But if more mysterious leaks about "collusion" with the Russians surface, this could serve to exhaust the president's expressed desires to meet with his Russian counterpart to fight Islamic jihadis.
The market reacted to this change of tune today. The VanEck Russia (RSX) fund beat the MSCI Emerging Markets index and every one of its BRIC counterparts today. Bloomberg got trigger happy this morning when they ran a headline that euphoria in the Russian stock market was over because of Trump's move on Putin's other best friend, Assad. There has been absolutely no euphoria in Russian stocks since the start of the year. Russia's been getting beat by their BRIC peers since January.
On Thursday, Barclays' global economic's weekly report focused on political risk and guess what? Russia and Syria (and even North Korea) weren't even mentioned.
Even by small measures, Tillerson's meeting with Lavrov and Putin served to quell concerns that a fight over Assad was a certainty. Both Tillerson and Lavrov announced a "working group" would be made up of envoys of Russian and American officials to work on Syria. Many differences persist and the distrust sewn after nearly 50 years of a real Cold War will not go away overnight, but Tillerson and Lavrov insisted on keeping the lines of communication open. These lines were also maintained during the Cold War.
In December, however, Obama gave the market a scare when he kicked around 30 Russian diplomats out of the country for their alleged involving in the DNC hacking scandal that unveiled the lead party funding organization's plans to pull the rug out from under Bernie Sanders, a Democratic turncoat who was a registered independent before rejoining the party in his presidential bid. Russia did not retaliate in kind, hoping for a better deal with Trump.
On Syria, the U.S. military kept their communications lines alive with the Russians. They warned the Russian military there the Navy was launching strikes on an airbase. Social media activists were lit up over "Trump calling Putin" for the OK before launching the missiles from two Navy destroyers docked near Crete.
The fact is, markets prefer we let Russia know on this one. Syria is a Pandora's box.
At a United Nations Security Council meeting yesterday, Russia insisted yet again that the chemical weapons attack was not done by the Syrian government. They asked for an investigation in The Hague, but it is unclear if this will see the light of day and most probably not in any official U.N. capacity.