Russian Defense Minister Tells Troops "To Be In State Of Constant Battle Readiness"

Having discussed his view that the Ukraine government is at fault for worsening the conflict, Russia's Putin explained to Angela Merkel that a "rising civilian toll has created a humanitarian crisis in Ukraine." However, it was Defense Minister Sergei Shoigu's comments that "the world has changed and changed dramatically," demanding that his troops "must be in constant combat readiness," are the most disconcerting as his strong tone in the following clip appears to confirm Poland and NATO's fears.

Putin's conversation with Merkel...

Russian President Vladimir Putin, German Chancellor Angela Merkel spoke by phone, exchanged views on “intensifying crisis situation” in Ukraine, Kremlin says in e-mailed statement.

*PUTIN TELLS MERKEL UKRAINE GOVT AT FAULT FOR WORSENING CONFLICT

Putin says “real political dialogue” needed between authorities in Kiev and representatives of rebels

Offensive by Ukrainian forces in southeast leads to mounting civilian toll, humanitarian problems: Putin

Shoigu starts talking (in Russian) at around 30 second mark, clip includes coverage of the military drills that are under way...

Excerpted Transcript (via NTV),

Sergey Shoigu, Russia's Defense Minister said that "Peacekeeping units should be in a state of constant battle readiness."

He added: "The world has changed, and has changed dramatically. As you know from previous examples, including in the brigade, peacekeeping units can be activated without warning."

After checking the 15th motorized rifle brigade of peacekeeping forces, the defense minister said that now all peacekeeping brigades are staffed exclusively by contractors, reported "Interfax".

Meanwhile, the humanitarian crisis in eastern Ukraine is getting worse by the day. Today the problems of those who are located in the eastern Ukraine zone where the Ukrainian army has been dispatched was discussed at an emergency meeting of the UN Security Council.

According to recent reports, the casualties of the conflict now amount to 1,400 people, with more than four thousand injured. In addition, about 300,000 people have fled their homes.

"Prepare for the unexpected," Shoigu concludes...

German industry would support "100 percent" tougher sanctions against Russia over the Ukraine crisis

German industry would support "100 percent" tougher sanctions against Russia over the Ukraine crisis, the chairman of a major business lobby, the Committee on Eastern European Economic Relations, said Friday.

Punitive measures now being considered by the EU would hurt German businesses, but "if there is a price to pay then we will pay it," the chairman, Eckhardt Cordes, told the business daily Handelsblatt.

Cordes, who has so far spoken out against sanctions, said the situation had changed with the downing a passenger jet over eastern Ukraine, which Western powers have blamed on pro-Moscow rebels.

The handling of the disaster had been an "act of inhumanity", said Cordes, the former CEO of retail group Metro, who spoke of "disturbing conduct of separatists rummaging through corpses."

The committee, which represents more than 6,000 German companies with business links to Russia, had previously warned sanctions would risk many of the 350,000 related German jobs.

In the latest interview, Cordes criticised Russian President Vladimir Putin for supporting the rebels in the former Soviet satellite state.

"If Putin continues along this path then this is not the path of German industry," he said.

"It is now urgently necessary that he asserts his influence over the separatists, and if he doesn't have any influence than he better get some."

11.7% Of The World's At War: Global Geopolitical Risk Mapped

You can be forgiven for thinking that the world is a pretty terrible place right now, exclaims JPMorgan's Michael Cembalest. With 11.7% of the world's population currently at war (and a considerably larger percentage seemingly on the verge), it seemed an appropriate time to summarize the main geopolitical risk points in the world.

Deutsche Bank warns Geopolitical Risks Remain High

As Cembalest notes, the list is long... and growing

The downing of a Malaysian jetliner in eastern Ukraine and escalating sanctions against Russia, the Israeli invasion of Gaza, renewed fighting in Libya, civil wars in Syria, Afghanistan, Iraq and Somalia, Islamist insurgencies in Nigeria and Mali, ongoing post-election chaos in Kenya, violent conflicts in Pakistan, Sudan and Yemen, assorted mayhem in central Africa, and the situation in North Korea, described in a 2014 United Nations Human Rights report as having no parallel in the contemporary world. Only in Colombia does it look like a multi-decade conflict is finally staggering to its end.

For investors, strange as it might seem, such conflicts are not affecting the world’s largest equity markets very much (for now). Perhaps this reflects the small footprint of war zone countries within the global capital markets and global economy, other than through oil production.

While markets maybe ignorant of the risk flares, economies are not as today's durable goods orders in the US show, even the cleanest dirty shirt is starting to get soiled.

BRICS Announce $100 Billion Reserve To Bypass Fed, Developed World Central Banks

As we suggested last night, the anti-dollar alliance among the BRICS has successfully created a so-called "mini-IMF" since the BRICS are clearly furious with the IMF as it stands currently: this is what the world's developing nations just said on this topic "We remain disappointed and seriously concerned with the current non-implementation of the 2010 International Monetary Fund (IMF) reforms, which negatively impacts on the IMF’s legitimacy, credibility and effectiveness."

As Putin explains, this is part of "a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decisions made by the United States and their allies." Initial capital for the BRICS Bank will be $50 Billion - paid in equal share among the 5 members (with a contingent reserve up to $100 Billion) and will see India as the first President. The BRICS Bank will be based in Shanghai and chaired by Russia. Simply put, as Sovereign Man's Simon Black warns, "when you see this happen, you’ll know it’s game over for the dollar.... I give it 2-3 years."

• BRICS MINISTERS SIGN DEVELOPMENT BANK AGREEMENT
• INITIAL SUBSCRIBED CAPITAL OF BRICS BANK IS $50 BLN: STATEMENT

A quick take on existing monetary policy.

• MONETARY POLICY MUST BE CAREFULLY CALIBRATED: BRICS STATEMENT

The punchline, however, is that using bilateral swaps, the BRICS are effectively disintermediating themselves from a Fed and other "developed world" central-bank dominated world and will provide their own funding.

We are pleased to announce the signing of the Treaty for the establishment of the BRICS Contingent Reserve Arrangement (CRA) with an initial size of US$ 100 billion.This arrangement will have a positive precautionary effect, help countries forestall short-term liquidity pressures, promote further BRICS cooperation, strengthen the global financial safety net and complement existing international arrangements.... The Agreement is a framework for the provision of liquidity through currency swaps in response to actual or potential short-term balance of payments pressures. 

Incidentally, the role of the dollar in such a world is, well, nil.

For those who have forgotten who the BRICS are, aside from a droll acronym by a former Goldman banker, here is a reminder of the countries that make up 3 billion in population.

Key excerpts from the Full statement:

We remain disappointed and seriously concerned with the current non-implementation of the 2010 International Monetary Fund (IMF) reforms, which negatively impacts on the IMF’s legitimacy, credibility and effectiveness. The IMF reform process is based on high-level commitments, which already strengthened the Fund's resources and must also lead to the modernization of its governance structure so as to better reflect the increasing weight of EMDCs in the world economy. The Fund must remain a quota-based institution. We call on the membership of the IMF to find ways to implement the 14th General Review of Quotas without further delay. We reiterate our call on the IMF to develop options to move ahead with its reform process, with a view to ensuring increased voice and representation of EMDCs, in case the 2010 reforms are not entered into force by the end of the year. We also call on the membership of the IMF to reach a final agreement on a new quota formula together with the 15th General Review of Quotas so as not to further jeopardize the postponed deadline of January 2015.

BRICS, as well as other EMDCs, continue to face significant financing constraints to address infrastructure gaps and sustainable development needs. With this in mind, we are pleased to announce the signing of the Agreement establishing the New Development Bank (NDB), with the purpose of mobilizing resources for infrastructure and sustainable development projects in BRICS and other emerging and developing economies. We appreciate the work undertaken by our Finance Ministers. Based on sound banking principles, the NDB will strengthen the cooperation among our countries and will supplement the efforts of multilateral and regional financial institutions for global development, thus contributing to our collective commitments for achieving the goal of strong, sustainable and balanced growth.

The Bank shall have an initial authorized capital of US$ 100 billion. The initial subscribed capital shall be of US$ 50 billion, equally shared among founding members. The first chair of the Board of Governors shall be from Russia. The first chair of the Board of Directors shall be from Brazil. The first President of the Bank shall be from India. The headquarters of the Bank shall be located in Shanghai. The New Development Bank Africa Regional Center shall be established in South Africa concurrently with the headquarters. We direct our Finance Ministers to work out the modalities for its operationalization.

We are pleased to announce the signing of the Treaty for the establishment of the BRICS Contingent Reserve Arrangement (CRA) with an initial size of US$ 100 billion.This arrangement will have a positive precautionary effect, help countries forestall short-term liquidity pressures, promote further BRICS cooperation, strengthen the global financial safety net and complement existing international arrangements. We appreciate the work undertaken by our Finance Ministers and Central Bank Governors. The Agreement is a framework for the provision of liquidity through currency swaps in response to actual or potential short-term balance of payments pressures.

Goodbye visions of an SDR-world currency. As for the USD...

Anti-Dollar Alliance Prepares Launch Of BRICS Bank (Brazil, Russia, India, China and South Africa)

Three months ago we discussed in detail the growing anti-dollar hegemony alliances that were building across the BRICS countries (Brazil, Russia, India, China and South Africa). Their efforts at the time, to create a structure that would serve as an alternative to the IMF and the World Bank (which are dominated by the U.S. and the EU), appear to be nearing completion. As AP reports, Brazil's President Dilma Rousseff and Russia's Vladimir Putin have discussed the creation of a development bank to promote growth across the BRICS and hope to produce an agreement on the proposed institution at this week's BRICS Summit.

As AP reports,

Brazil's President Dilma Rousseff and Russia's Vladimir Putin have discussed the creation of a development bank to promote growth in Brazil, India, China, Russia and South Africa.

Rousseff received Putin in the presidential palace in Brasilia on Monday, a day before leaders of the five emerging BRICS nations meet in the northeastern city of Fortaleza.

Rousseff told reporters the bank would top the summit's agenda, adding she hoped the event would produce an agreement on the proposed institution.

She said the five countries "are among the largest in the world and cannot content themselves in the middle of the 21st century with any kind of dependency."

Brazil and Russia also signed bilateral accords on air defense, gas and education

The leaders who will be present (not so many big fans of the US there)...

They seem serious:

• *BRICS DEVELOPMENT BANK KEY TO FOSTER GROWTH IN GROUP: BORGES
• *BRICS BANK AT 1ST TO FINANCE EXCLUSIVELY INFRASTRUCTURE:BORGES
• *RUSSIA'S PUTIN SAYS COOPERATION WITH CHINA IS GROWING
• *PUTIN SAYS RUSSIA TO PROMOTE CURRENCY SWAP WITH CHINA: XINHUA

As we concluded previously, as RBTH reports, it seems the BRICS are not slowing down efforts to create their own IMF-alternative...

The BRICS countries (Brazil, Russia, India, China and South Africa) have made significant progress in setting up structures that would serve as an alternative to the International Monetary Fund and the World Bank, which are dominated by the U.S. and the EU. A currency reserve pool, as a replacement for the IMF, and a BRICS development bank, as a replacement for the World Bank, will begin operating as soon as in 2015, Russian Ambassador at Large Vadim Lukov has said.

Brazil has already drafted a charter for the BRICS Development Bank, while Russia is drawing up intergovernmental agreements on setting the bank up, he added.

In addition, the BRICS countries have already agreed on the amount of authorized capital for the new institutions: $100 billion each. "Talks are under way on the distribution of the initial capital of $50 billion between the partners and on the location for the headquarters of the bank. Each of the BRICS countries has expressed a considerable interest in having the headquarters on its territory," Lukov said.

It is expected that contributions to the currency reserve pool will be as follows: China, $41 billion; Brazil, India, and Russia, $18 billion each; and South Africa, $5 billion. The amount of the contributions reflects the size of the countries' economies.

...

The creation of the BRICS Development Bank has a political significance too, since it allows its member states to promote their interests abroad. "It is a political move that can highlight the strengthening positions of countries whose opinion is frequently ignored by their developed American and European colleagues. The stronger this union and its positions on the world arena are, the easier it will be for its members to protect their own interests," points out Natalya Samoilova, head of research at the investment company Golden Hills-Kapital AM.

Perhaps the following sums it all up perfectly...

Economists warn the IMF's legitimacy is at stake, and they say U.S. standing abroad is being eroded.

"Eroded" indeed...

*  *  *

Read more here on the BRICS morphing into an anti-dollar alliance...

If the current trend continues, soon the dollar will be abandoned by most of the significant global economies and it will be kicked out of the global trade finance. Washington's bullying will make even former American allies choose the anti-dollar alliance instead of the existing dollar-based monetary system. The point of no return for the dollar may be much closer than it is generally thought. In fact, the greenback may have already past its point of no return on its way to irrelevance.

Just in Modi to press for equal shareholding in proposed BRICS bank TOI
India will press for equal shareholding for its five member countries in the proposed $50 billion BRICS Development Bank so that no shareholder dominates.

US Sales To Russia Hit Record High After Sanctions

While it is all too easy to show the massive outperformance of Russian stocks (even after Carney's "sell" recommendation) as evidence that US sanctions were not 'punishing' as the mainstream media might suggest; this week's release of trade data shows the utter farce that the so-called "costs" imposed on Putin actually are. As WSJ reports, despite all the scaremongery and sanctioning, US exports to Russia in May hit $1.2 billion - a record high (up 21% from pre-sanctions). That will certainly teach them!!

As WSJ reports,

U.S. efforts to penalize Russia for its actions in Ukraine appear to have done little to stem exports of U.S. goods to the country.

The U.S. announced targeted sanctions against several Russian companies and individuals in March, but U.S. trade data published Thursday shows exports to the country were the highest on record at $1.2 billion in May.

The sanctions, organized with Europe and other major industrialized nations over Moscow’s alleged actions to destabilize its former client state, sparked investor flight out of Russia, led the ruble to tumble and pushed the economy into a recession. Russian markets have since recovered somewhat, but investors have been wary of an escalation in the sanctions battle.

Demand for U.S. products apparently hasn’t been hit, however, and in fact jumped 21% from the previous month.

So much for those sanctions - need moar targeted sectoral ones to really teach them a lesson (oh wait - what about the boomerang?)

Where The World's Biggest Worries Are

With US equity markets hovering near record-er highs, we thought a quick summary of the state of the world's growing geopolitical risks would 'help' rationalize the BTFATH mentality. Here is Deutsche Bank's map of the most potentially destabilizing risks around the world..

The Latest From Iraq - The Complete Troop Movements

 The Institute for the Study of War notes, the violent clashes continue from north to south in Iraq.

Source: ISWIraq

World's Biggest Exporters Of Weapons Or Arms

One glance at the following chart prepared by the Economist, showcasing the world's largest importers of weapons, and more importantly, exporters, and one could almost imagine why both the US and Russia have an interest in a "contained" (or not so much) regional war...

Some more insight:

Five countries—America, Russia, Germany, China and France—accounted for three-quarters of international arms exports over the past five years. China tripled its share in that time, overtaking France. It is on track to surpass Germany to become the third-largest arms dealer. Business is brisk. Overall, sales between 2009 and 2013 were 14% higher than the previous five-year period, according to the Stockholm International Peace Research Institute, which tracks the arms trade. China sells to 35 mainly low- and middle-income countries, but is also a big importer (two-thirds of its weapons come from Russia). America exports to over 90 nations, with aircraft making up most of its sales. Russia exports more ships than any other country. Its weapons exports have significantly increased, thanks in part to being India's biggest supplier, accounting for three-quarters of its arms purchases. As for Ukraine, it exports more weapons than Italy or Israel. But with regional tensions flaring, it may choose to keep some of those arms for itself.

Source: Economist

Russia Holds "De-Dollarization Meeting": China, Iran Willing To Drop USD From Bilateral Trade

That Russia has been pushing for trade arrangements that minimize the participation (and influence) of the US dollar ever since the onset of the Ukraine crisis (and before) is no secret: this has been covered extensively on these pages before (see Gazprom Prepares "Symbolic" Bond Issue In Chinese Yuan;Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China; Russia And China About To Sign "Holy Grail" Gas Deal; 40 Central Banks Are Betting This Will Be The Next Reserve Currency; From the Petrodollar to the Gas-o-yuan and so on).

But until now much of this was in the realm of hearsay and general wishful thinking. After all, surely it is "ridiculous" that a country can seriously contemplate to exist outside the ideological and religious confines of the Petrodollar... because if one can do it, all can do it, and next thing you know the US has hyperinflation, social collapse, civil war and all those other features prominently featured in other socialist banana republics like Venezuela which alas do not have a global reserve currency to kick around.

Or so the Keynesian economists, aka tenured priests of said Petrodollar religion, would demand that the world believe.

However, as much as it may trouble the statists to read, Russia is actively pushing on with plans to put the US dollar in the rearview mirror and replace it with a dollar-free system. Or, as it is called in Russia, a "de-dollarized" world.

Voice of Russia reports citing Russian press sources that the country's Ministry of Finance is ready to greenlight a plan to radically increase the role of the Russian ruble in export operations while reducing the share of dollar-denominated transactions. Governmental sources believe that the Russian banking sector is "ready to handle the increased number of ruble-denominated transactions".

According to the Prime news agency, on April 24th the government organized a special meeting dedicated to finding a solution for getting rid of the US dollar in Russian export operations. Top level experts from the energy sector, banks and governmental agencies were summoned and a number of measures were proposed as a response for American sanctions against Russia.

Well, if the west wanted Russia's response to ever escalating sanctions against the country, it is about to get it.

The "de-dollarization meeting” was chaired by First Deputy Prime Minister of the Russian Federation Igor Shuvalov, proving that Moscow is very serious in its intention to stop using the dollar. A subsequent meeting was chaired by Deputy Finance Minister Alexey Moiseev who later told the Rossia 24 channel that "the amount of ruble-denominated contracts will be increased”, adding that none of the polled experts and bank representatives found any problems with the government's plan to increase the share of ruble payments.

Further, if you thought that only Obama can reign supreme by executive order alone, you were wrong - the Russians can do it just as effectively. Enter the "currency switch executive order":

It is interesting that in his interview, Moiseev mentioned a legal mechanism that can be described as "currency switch executive order”, telling that the government has the legal power to force Russian companies to trade a percentage of certain goods in rubles. Referring to the case when this level may be set to 100%, the Russian official said that "it's an extreme option and it is hard for me to tell right now how the government will use these powers".

Well, as long as the options exists.

But more importantly, none of what Russia is contemplating would have any practical chance of implementation if it weren't for other nations who would engage in USD-free bilateral trade relations. Such countries, however, do exist and it should come as a surprise to nobody that the two which have already stepped up are none other than China and Iran.

Of course, the success of Moscow's campaign to switch its trading to rubles or other regional currencies will depend on the willingness of its trading partners to get rid of the dollar. Sources cited by Politonline.ru mentioned two countries who would be willing to support Russia: Iran and China. Given that Vladimir Putin will visit Beijing on May 20, it can be speculated that the gas and oil contracts that are going to be signed between Russia and China will be denominated in rubles and yuan, not dollars.

In other words, in one week's time look for not only the announcement of the Russia-China "holy grail" gas agreement described previously here, but its financial terms, which now appears virtually certain will be settled exclusively in RUB and CNY. Not USD.

And as we have explained repeatedly in the past, the further the west antagonizes Russia, and the more economic sanctions it lobs at it, the more Russia will be forced away from a USD-denominated trading system and into one which faces China and India. Which is why next week's announcement, as groundbreaking as it most certainly will be, is just the beginning.

East Ukraine Independence And Gold Movement On Sunday

There's no better time (or fiduciarily dutiful moment) than a Sunday night at 650pm ET after the majority of Eastern Ukraine votes to secede to Russia to sell $231.5 million notional worth of gold futures...

And in case you were wondering... no other asset classes reacted in any way like this...

No Russian Troop Withdrawals Shows Latest Satellite Images.

Surprise: Putin punked everyone again.

But it's all good because the fake de-escalation allowed the rigged Dow Jones to close at a new all time high inspiring Americans full of "confidence" so they can go ahead and spend money they don't have to boost US Q2 GDP: after all it has a ways to go to hit Goldman's 3.9% quarterly target.

And now it's time to unleash the Kerry once again, who will explain all the "cost" nuances the Kremlin has missed for the past two months, and we get round X+1 of "de-escalation" headlines next week again which in turn pushed the DJIA to record-est highs. Rinse. Repeat.

China Calls Iran A Strategic Partner And Deepen Defense Ties

On Monday China and Iran agreed to deepen defense ties, according to Chinese state media. The announcement was made following a meeting between Chinese Defense Minister Chang Wanquan and his Iranian counterpart, Hossein Dehqan.

According to Reuters, which quoted a report in Xinhua News Agency, China said that bilateral relations “remained positive and steady, featuring frequent high-level exchanges and deepened political mutual trust.”Reuters also quoted Chang as saying that he is personally “confident that the friendly relations between the two countries as well as the armed forces will be reinforced” as a result of “increased mutual visits and personnel training cooperation between the armed forces.”

According to an Iranian news report, Chang also said that China views Iran as a strategic partner. “Given Iran and China’s common views over many important political-security, regional and international issues, Beijing assumes Tehran as its strategic partner,” Chang was quoted as saying by Fars News Agency, which is viewed as having close ties with Iran’s Revolutionary Guards Corps.

For his part, Dehqan said, “The age-old and historical relations between the two countries which date back to over 2,000 years ago are full of instances of cooperation in cultural, economic, industrial and technological arenas.” He also “voiced the hope that the two countries will continue to play a positive role in safeguarding regional peace and stability,” presumably referring to the Middle East and Central and South Asia.

More specifically, Dehqan was quoted by Fars as saying: “We can remove the two sides’ common security concerns over extremism, terrorism, drug trafficking and piracy by developing military cooperation.”

The meeting took place in Beijing. Dehqan arrived in Beijing on Sunday for a four-day official visit to China at the invitation of Chang. It is his first visit to China since becoming Iran’s defense minister.

In some ways, the announcement today represents something of a shift — and possible weakening — of the defense ties between China and Iran. Since the 1979 revolution severed Tehran’s ties to the U.S. and the Western world, Iran’s defense relationship with China has primarily centered on Beijing selling Tehran advanced defense technologies. As Dan Blumenthal noted in 2005, “Since the mid-1980s, China has sold Iran, in whole or in parts, different variants of anti-ship cruise missiles such as the Silkworm (HY-2), the C-801, and the C-802.” Blumenthal also noted, citing a Jane’s report, that “China is producing several classes of tactical guided missiles – the JJ/TL-6b and 10A, the KJ/TL-10B and a new variant of the C-107 anti-ship missile, specifically for Iran.”

China is also believed to have been integral to Iran’s development of ballistic missiles. Beijing’s assistance was especially crucial in helping Iran with precision guidance and solid-fueled rocket propulsion.

Although in recent years — particularly since the late 1990s — the Chinese government is believed to have scaled back its defense sales to Iran, private Chinese companies have continued assisting the Persian Gulf country. As recently as 2012, the U.S. Director of National Intelligence told Congress, “Chinese entities — primarily private companies and individuals — continue to supply a variety of missile-related items to multiple customers, including recent exports to Iran and Pakistan.” Indeed, the U.S. has repeatedly sanctioned Chinese companies and individuals for selling Iran defense technologies, including just last week.

Chang and Dehqan’s focus on personnel visits in their remarks might simply be a desire on both sides part to publicly downplay arms sales and defense technology transfers. At the same time, it could be a reflection that Iran’s increasingly capable domestic defense industry no longer requires substantial Chinese assistance. In the same vein, Iran is increasingly wary of China’s long-term intentions in its surrounding areas.

Still, Sino-Iranian relations have generally improved since the P5+1 countries and Iran signed an interim agreement last November. China’s oil imports from Iran during the first quarter of this year were up 36 percent from 2013. In a sign of future economic cooperation, last month Zhang Gaoli, a Politburo Standing Committee member and vice premier, met with Iranian Minister of Finance and Economic Affairs Ali Tayyeb-Nia. Tayyeb-Nia was visiting China in a bid to boost economies ties in various areas. He also met with China’s Finance Minister, Lou Jiwei, during the trip.

China is already Iran’s largest trading partner and oil customer. Iran is China’s third largest oil provider.

China Sends Oil Rig To Disputed Waters

Over the weekend of May 3 and 4, China sent an oil rig into disputed waters of the South China Sea to begin oil exploration. The rig is near the Paracel Islands, inside the 200-mile exclusive economic zone of Vietnam, which angrily protested the decision. The Vietnamese government insists that the waters, as well as the oil and gas reserves held beneath, belong to Vietnam.

• VIETNAM CANNOT ACCEPT AND STRONGLY OPPOSES CHINA RIG PLACEMENT

Where boundaries are drawn in the South China Sea has long been a source of regional tension, but China has escalated the conflict by moving to drill the first well inside disputed territory. China said the oil rig would be operating from now until August 15.

Some observers see the move as a careful calculation by Beijing, which believes Vietnam won’t be willing to risk war over Chinese drilling. “It's going to be one more of these small, incremental steps that individually won't lead to conflict, but collectively, over time, gradually will change the status quo,” said Admiral Mike McDevitt U.S. Navy (Ret.), according to Foreign Policy.

For its part, Vietnam is demanding that China cease drilling operations. “All foreign activities in Vietnam's seas without Vietnam's permission are illegal and invalid,” Vietnam’s Foreign Ministry said in a statement. “Vietnam resolutely protests them.”

The move may also be a response to U.S. President Barack Obama’s recent trip to Southeast Asia, which included a deal with the Philippines to allow for a greater American troop presence in the region. The U.S. and the Philippines kicked off a two-week long military exercise on May 5.

The U.S. Energy Information Administration estimates that the South China Sea holds 11 billion barrels of oil and 190 trillion cubic feet of natural gas, most of which is located in disputed territory. China believes the oil and gas reserves could be much larger.

The question now becomes, after his recent Asia trip, is this another red line being crossed for President Obama?

Submitted by James Burgess via OilPrice.com

Fighting Escalates In East Ukraine, Killing 4 And 40 Wounded.

First from Interfax, which reported that:

• UKRAINE GOVT TROOPS IN HEAVY FIGHTING IN SLOVYANSK: IFX

This was followed up promptly bya Bloomberg report that government forces engaged in firefight after ambush by separatists in Slovyansk, Interfax reports, citing acting Interior Minister Arsen Avakov. Number of soldiers killed unknown, Avakov is cited as saying by news service

And then this most recent update from Bloomberg:

• UKRAINE TROOPS SUFFER 4 KILLED, ABOUT 30 WOUNDED IN SLOVYANSK
• UKRAINE'S INTERIOR MINISTRY SAYS CIVILIANS KILLED IN FIGHTING

More from RT:

Reports of gun battles are coming from eastern Ukraine again, where local militias are holding several cities against a force of Kiev loyalists. There are deaths among Ukraine troops, Interior Minister said.

There was a shooting on the outskirts of Slavyansk as pro-government troops raided a protester checkpoint, RIA Novosti reported on Monday.

The agency said at least 11 people were injured in the attack on the checkpoint.

Ukraine’s acting Interior Minister Arsen Avakov, who is near Slavyansk, confirmed that Kiev has re-launched its crackdown on the protesters. He said up to eight troops have been injured in the clashes so far

“The number of fatalities is being double-checked,” the minister said.

Bells tolled in churches around the city to alert residents of the incoming threat.

Intefax cites a militia member as saying that their forces pulled back into the city after fighting in the villages of Andreevka and Semyonovka near Slavyansk. The Security Service of Ukraine spokesperson Marina Ostapenko said the renewed operation’s aim is “to establish a security perimeter around the regions engulfed by violence.”

There is a report of a separate civilian death near Slavyansk. A man driving his car was shot by one of Kiev’s armored personnel carriers blocking the city, protester spokesman, Aleksandr Maltsev, told Itar-Tass.

Why the continued and escalating aggression as per this:

Kiev has intensified attacks on Slavyansk and other protester-held cities in eastern Ukraine since Friday morning. So far government troops have managed to blockade transport to and from Slavyansk, but haven’t made significant territorial gains, preferring hit and run tactics.

Simple: recall that it was the warmongering IMF which told Kiev that unless it regains the east, that no bailout money will be forthcoming. In other words, while one can blame the violent coup and overthrow of the elected president on the CIA, the ensuing civil war is as much the doing of US foreign service as it is of the financial globalists.