New Tools for a World War – II. US-Russian Financial Duel May Release Cyber War and Encompass Europe and Mid East

New Tools for a World War – II. US-Russian Financial Duel May Release Cyber War and Encompass Europe and Mid East 

Debka 25-Apr-14 

By choosing Ukraine as the main arena for his joust with Moscow, President Barack Obama confounded the pundits who believed his declared intention of pivoting towards Asia and shifting his policy focus away from Europe and the troubles of the Middle East. 

After making that choice at the beginning of the year, he had to backtrack and rediscover Europe, once again postponing his Asia tour until this week. 

Regardless of any strategy he started out with, the US president needed a solid coalition of Western allies led by Central and East Europe behind him and the provisional rulers of Kiev, before he went head on head with President Vladimir Putin. 

Europe was all the more crucial when Obama contemplated using economic weapons for grappling with Moscow. The US may boast of its near-total control of world banking, but for what would be a titanic struggle against the world's biggest energy producer with assets of a $2 trillion economy, superb scientists and a first-strike nuclear arsenal, Washington had to call up every scrap of support available from Europe’s financial, banking and intelligence systems. 

This struggle, in the view of DEBKA Weekly's military and intelligence experts, is being revved up by the spiraling Ukraine crisis. Its global repercussions are already powerful enough to blow back on the Middle East. 

Washington rushes to appease Cairo after arms deal with Moscow 

This began happening Tuesday, April 22, when RSK MiG's director general Sergei Korotkov announced the possible $1.7 billion sale to the Egyptian air force of 22 advanced MiG-35 fighters, which they say are the equal of the American F-35. 

The transaction was more symbolic than immediate. Western aviation experts say the Russians have so far only built 5-7 prototypes of this super-fighter plane and will need years to make it fully operational. 

All the same, the deal galvanized Washington into action. The Obama administration showed alarm over the potential return to Cairo – facilitated by Saudi funding – of Russian military advisers and influence 42 years after they were expelled. 

That same day, therefore, Secretary of State John Kerry notified Egyptian Foreign Minister Nabil Fahmi that the US had decided to release a part of the $1.3 billion of military aid frozen last year over the ouster of President Mohamed Morsi, in the form of 10 assault helicopters, after confirming that Egypt was upholding its 1979 peace treaty with Israel and combating terrorism. 

Twenty-four hours later, Egypt’s General Intelligence Director, Maj. Gen. Mohamed El-Tohamy, headed for Washington for a closed meeting with Kerry. 

It was then announced that Fahmy too was imminently due in the United States to discuss bilateral relations as well as the latest regional and international developments. 

And US Secretary of Defense Chuck Hagel called his Egyptian counterpart, Maj. Gen. Sedki Sobhy, to inform him that Congress would soon be negotiating the restoration of financial aid. He confirmed that President Obama had decided to deliver 10 Apache helicopters in support of Egypt’s counterterrorism operations in Sinai. 

Russian agents interspersed in all Ukraine walks of life 

This incident positioned the Ukraine crisis as a catalyst for sucking the US back into the Middle East as a subsidiary war arena of the main battleground. 

For the Americans, getting a grip on Ukraine is no cake walk. This vast country of 46 million inhabitants has a heavy sprinkling of Russian speakers and ethnic Russians holding top positions in almost every field of endeavor. 

Russian spy agencies, including the GRU military intelligence, are embedded in all of Ukraine’s clandestine and security services. Small units of Russian special forces, trained for years in tactics for seizing control of key cities and strategic locations in Ukraine, are planted in the field. 

So no one really credited Putin's denial on April 17 of any “Russian military subdivisions” in eastern Ukraine, “no secret services or instructors. They are all local citizens.” 

But any CIA officer seeking to engage a Ukrainian unit’s cooperation would have no way of knowing whether he was dealing with Russian agents. 

To help overcome this difficulty, the Americans are using not just the Ukrainian Security Service-SBU, which they trust as loyal. They have enlisted the British clandestine MI6, the Polish intelligence agency Agencja Wywiadu, and the Romanian Intelligence Service-SRI, all three of which are solidly ensconced in Kiev and other parts of Ukraine. 

The Israeli Mossad is also well-placed in Ukraine. In the next item, we will discuss the position adopted by Jerusalem in the US-Russian dispute over Ukraine. 

Europeans fear tough sanctions would prompt Russian tit-for-tat 

The rival US and Russian undercover agencies operating in Ukraine use different tactics to prepare for the conflict ahead, say DEBKA Weekly's intelligence experts. 

Russian agents focus on controlling the country from the ground up and laying the foundaton for toppling the provisional regime in Kiev. 

The Americans are intent on shoring up that regime and building the infrastructure for the coming US and European sanctions battle against Russian banks. 

Washington has found little appetite in the Eurozone for cooperating in sanctions that vitally cut into their own financial and economic interests. European banks have greater direct exposure to Russia than US and Asian lenders. In the worst case, they would lose their subsidiaries in Russia by tit-for-tat reprisals or find it impossible to do business there. 

Germany depends on Russia for around a quarter of its energy consumption. French banks are stuffed with Russian loans. Austrian banks are the most exposed to Russian risk through their local subsidiaries. Cyprus, whose banking system nearly crashed in the 2012/13 recession, is one of the biggest offshore investment destinations for Russian oligarchs. The fallout from sanctions could destroy its economy. 

While the City of London welcomed and thrived on Russian business, Chancellor George Osborne last week issued an alert during a visit to Washington warning City bankers to get ready for the fallout from sanctions against Russia. 

The City is precious, he said, "but that doesn't mean its interests will come above the national security interests of our country." 

Russia holds strong hand in intelligence and cyber war 

The Russian president asked his advisers for precise calculations of the cost American financial warfare in sanctions form would exact from the Russian economy. He came to the conclusion that Russia commands a substantial second-strike capability for this war in three fields: 

1. His experience as a KGB officer left Putin with the conviction that Russian intelligence is superior to the US spy services and that, in a crunch, the CIA would not measure up to the SVR. This conviction rests on his knowledge of the scale of Russian penetration of Western clandestine agencies. Some Western intelligence officials agree with him. 

2. Putin does not dispute Obama's statement of April 16: "They're (the Russians) not interested in any kind of military confrontation with us, understanding that our conventional forces are significantly superior to the Russians'. We don’t' need a war." 

However, this conflict is not a matter of two conventional armies facing each other across a battlefield. Putin believes that when it comes to cyber warfare, Russia has the upper hand. 

In the view of DEBKA Weekly's intelligence and military experts, Obama has held back from an all-out financial assault on Russia - not just over European reluctance to join, but out of fear of a Russian tit-for-tat in the form of a hostile cyber attack on strategic US targets. 

Hidden Russian mafia funds available for crashing markets 

“If we were in a cyber war today, the US would lose. We're simply the most dependent and most vulnerable," US spy chief Mike McConnell admitted in 2010 

Two years later, in 2012, Leon Panetta, then US defense secretary, warned that America could face a cyber-Pearl Harbor. "They could shut down the power grid across large parts of the country. They could derail passenger trains or, even more dangerous, derail passenger trains loaded with lethal chemicals. They could contaminate the water supply in major cities, or shut down the power grid across large parts of the country,” he said. 

Without going to such extremes, Moscow is quite capable of shutting down the US banking system and the Wall Street Stock Exchange. 

3. The sum total of Russian mafia funds hidden in the crevices and cracks of the world’s banking and financial systems is an unknown quantity for Washington and other Western capitals. The Kremlin and Russian intelligence have better control of this information. It lends Putin the option, if he so wishes, to pull quiet strings and orchestrate sudden market fluctuations – especially in European markets and shaky economies, like Greece and Cyprus - that would cause major corporate upheavals and bank crashes, without leaving Moscow’s fingerprints.