Why Nurture Russia's Illusions? By Matthew Kaminski
Excessive deference only strengthens Putin's hand.
WSJ, Feb 13, 2009
Barack Obama wants to make friends with Russia, "press the reset button" as his Veep proposed the other day.
Sounds familiar. Bill Clinton bear hugged Boris Yeltsin and George W. Bush peered into successor Vladimir Putin's soul. Yet relations haven't been this bad since Konstantin Chernenko's days at the Kremlin.
So what? America is on a roll in Eurasia. Democracy, open markets and stability spread across the region in the Clinton and Bush eras. From Estonia to Georgia to Macedonia, free people want to join the West.
At every step of the way, Russia sought to undermine this great post-Cold War project. Grant that the Kremlin acts in defense of its perceived interests but so should the U.S., and continue down this same path.
Here Foggy Bottom's finest chime in: Yes, but imagine a world with a friendly Russia, able to help us, say, stop Iran's atomic bomb program. So let's not push so hard to deploy anti-Iran missile defense sites in Poland and the Czech Republic that Russia hates -- use, if necessary, the excuse that costs and feasibility require further study. Back off on closer NATO ties for Ukraine and Georgia. Make Russia feel important and consulted. Joe Biden sketched out this sort of bargain at last weekend's Munich security conference.
The conceit is we can win the Kremlin over by modifying our behavior. Before Mr. Obama tries, he should be aware of recent history. On missile defense, American diplomats spent as much time negotiating with Russia as with the Central Europeans, offering Moscow the chance to join in. Nothing came of it. On Kosovo independence and Iran sanctions, Russia blocked the West at the U.N.
Last spring, NATO snubbed Georgia and Ukraine in a signal of good will to Mr. Putin. The day after, Mr. Putin privately told Mr. Bush that Ukraine wasn't "a real country" and belonged in the Russian fold. Five months later, Russia invaded Georgia and de facto annexed its breakaway provinces of Abkhazia and South Ossetia.
Mr. Obama may be tempted to think Russia can be won over. After all, they would seem to need America (short for the West) far more than America needs Russia. We're not the enemy. Russia's real strategic challenges are in the East: China looks ravenously at the vast, mineral-rich, lightly populated Siberian steppe cut off from Moscow (to this day, you can't drive across Russia). And to the South: The arc of Islamic extremism, starting with a possibly nuclear Iran, a competitor for Caspian energy and influence.
And as Mr. Putin discovers each day his economy sinks further, Russia failed to take advantage of sky-high oil prices to diversify away from energy. It sells nothing of value to the world aside from gas, oil and second-rate weapons. Its infrastructure is decaying and its population in decline.
A Kremlin leader with a long-term view would see these grave threats to Russia's future and rush to build a close partnership with the West. But the interests of Mr. Putin and his small, thuggish, authoritarian clique don't necessarily coincide with that of Russia.
The Obama magic dust doesn't seem to work on a regime defined and legitimized by its deep dislike for America. Dmitry Medvedev, the Putin underling in the president's office, moved the state of the nation address to the day after the American election to spin the outcome for the domestic audience. The U.S., he said into the winds of pro-American sentiment sweeping across the world in the wake of the Obama win, was "selfish . . . mistaken, egotistical and sometime simply dangerous."
The Kremlin then welcomed Mr. Obama into the White House with the administration's first serious foreign policy headache. Taking $2 billion from its fast-depleting reserves, Russia bullied and bribed Kyrgyzstan to close a U.S. military airfield, the main transport hub for supplies going into Afghanistan. Russia's desire for a "sphere of influence" trumps the threat of resurgent extreme Islamism in its southern underbelly.
The thinking here is Cold War porridge. But the Russians were never offered a new narrative. Mikhail Gorbachev's idea of a "European family" and Yeltsin's reforms foundered. Mr. Putin went back to a familiar recipe: Russia, empire-builder and scourge of the West.
A Cold War mentality lingers in America, too. A foreign policy caste rich in Sovietologists by habit overstates Russia's importance. The embassy in Moscow is huge; bilateral meetings inevitably become "summits," like in the old days.
Mr. Obama's fresh start is a good time for a reality check. The U.S. can work with Russia, seen in its proper place. To even suggest that the Russians have a special say over the fate of a Ukraine or our alliance with the Czechs lets Mr. Putin nurture the illusion of supposed greatness, and helps him hang on to power.
Ultimately it's up to the Russians to decide to be friends. One day, someone in the Kremlin will have to confront a hard choice: Does an isolated and dysfunctional Russia want to modernize and join up with the West, look toward China, or continue its slow decline? Until then, Mr. Obama better stock up on aspirin and dampen his and our expectations about Russia.
Mr. Kaminski is a member of the Journal's editorial board.
Showing posts with label russia. Show all posts
Showing posts with label russia. Show all posts
Friday, February 13, 2009
Wednesday, February 11, 2009
Conservative views: The U.S. and U.K. Must Oppose French Plans to Weaken NATO
The U.S. and U.K. Must Oppose French Plans to Weaken NATO. By Nile Gardiner, Ph.D., and Sally McNamara
Heritage, Feb 10, 2009
Full article w/references here.
The Obama Administration has announced it will back the full reintegration of France into the NATO command structure, with French officers reportedly in line to take two senior Alliance command positions: Allied Command Transformation (one of NATO's two supreme commands, based in Norfolk, Virginia) and Joint Command Lisbon (one of NATO's three main operations headquarters, which also commands the NATO Rapid Reaction Force).[1]
This is a highly significant development that would put France at the heart of NATO military planning and reform proposals and represents an ill-thought-out and risky concession by Washington to the Sarkozy administration.
In a major speech at the Munich Security Conference on February 7,[2] Vice President Joe Biden welcomed France's decision "to fully participate in NATO structures" and also made it clear that the United States will "support the further strengthening of European defense, an increased role for the European Union in preserving peace and security, [and] a fundamentally stronger NATO-EU partnership." Biden's remarks echoed the views of British Defence Secretary John Hutton, who recklessly backed French plans for a European Union army last October.[3]
Both the United States and Great Britain must take a step back and launch a fundamental, wide-ranging review of the long-term implications of French demands for the future of NATO. The U.S. Congress should hold hearings to assess the new Administration's strategy with regard to French reintegration in order to highlight any dangers posed to U.S. interests.
It would be a huge strategic error of judgment by the new U.S. Administration and the British government to continue supporting French ambitions for restructuring Europe's security architecture. Such acquiescence would hand Paris an extraordinary degree of power and influence within NATO--power and influence well out of proportion to France's actual military role in Alliance operations.
Providing France with such influence would also ultimately weaken the Anglo-American Special Relationship, shifting power away from Washington and London and toward continental Europe while paving the way for the development of a separate European Union defense identity--all of which will undermine NATO.
French Reintegration into NATO
When President Sarkozy first floated the idea of French reintegration into NATO's military command in June 2007, he outlined two preconditions: guaranteed senior command posts for French officers within the Alliance, and American endorsement of an increased EU defense identity (the latter of which he emphasized as the more important of the two).[4] To formally establish the principle of reintegration, Sarkozy commissioned an influential "White Paper on Defense and National Security," which was published in March 2008.
Designed to promote an independent European defense identity, the French White Paper on Defense and National Security clearly states:
The European ambition stands as a priority. Making the European Union a major player in crisis management and international security is one of the central tenets of our security policy. France wants Europe to be equipped with the corresponding military and civilian capability.[5]
The paper endorses several key principles:
In June 2008, President Sarkozy circulated an additional document outlining Paris's policy initiatives for European military integration. It presents the major elements of what an EU defense identity will entail, including:
America Has Little to Gain--and a Lot to Lose
It is likely that the Obama Administration will regard France's reintegration into NATO as a diplomatic masterstroke. The Administration will claim that it has rebuilt the Franco-American relationship in a mutually beneficial way, and Sarkozy will in turn claim that it tangibly demonstrates France's commitment to standing alongside America.
However, the Administration must ask itself what the U.S. actually gains from such a quid pro quo. Such reintegration may extract a few hundred additional French troops for eastern Afghanistan and generate stronger French public support for the Afghan mission. But President Obama will find that he has rescued the furniture only to give away the house. Not only is France already able to commit as many troops as it wishes to NATO missions (as it proved last year when 700 additional French troops were sent to Afghanistan), but 10 years of EU security initiatives have actually seen a decrease in European defense spending.
Washington continues to argue that supporting the European Security and Defense Policy is a means toward improving European defense spending and military capabilities. But after 10 years, such improvement has yet to occur and is not reflected in the projected defense budgets of any major European power. Since the EU and NATO operate in the same areas both militarily and geographically, the competition for resources will become fiercer, and Washington is likely to see its requests for military help increasingly rebuffed as France demands European commitments to EU missions.[7] Once the United States gives its blessing to the creation of a separate European defense structure, it will have no grounds to compel Europe to choose NATO over EU requests in the future.
A Parisian Power Play
Rather than genuinely attempting to increase Europe's contribution to defense on the international stage, France is seeking to expand both Paris's and the EU's power base. Sarkozy's proposal is largely political, not military. In practice, France is already involved with almost all of NATO's structures and operations, including all political bodies and the NATO Response Force. It also partakes in joint training exercises.
French reintegration into NATO command structures offers little additional value to Washington but gives immense momentum to French ambitions for an autonomous EU foreign and defense policy. When French presidents talk about European foreign policy, they more often than not mean French foreign policy. Equally, when Sarkozy talks about increasing European security capabilities, he means decreasing American involvement in Europe.
For instance, in January 2007 the EU established a military operations center in Brussels, which later that year conducted "a nine-day exercise involving the virtual deployment of 2,000 European soldiers to deal with a crisis in the fictional country of Alisia."[8] The operational center is without doubt a fledgling EU military headquarters that duplicates and will eventually compete with the NATO command.
The French proposal for an independent European defense structure will build upon the foundations laid by this new EU military headquarters. If the United States agrees to the French plan, it will represent yet another reversal of the Berlin Plus arrangements and a further erosion of the supremacy of NATO in Europe.
No Quid Pro Quo with France
If the Obama Administration agrees to support an independent EU defense structure as part of the French plan for rejoining NATO's command, such backing would represent a major transformation in U.S. strategic thinking that would have a dramatic, negative impact on the future of the alliance. It would shift the political balance of power within NATO away from Washington and London toward the main centers of power within the European Union: Paris, Berlin, and Brussels. Far from encouraging European countries to spend more on defense, it would foster an even greater dependency culture within continental Europe upon NATO resources. Such a shift would also lead to a duplication of the NATO command structure without a doubling of manpower or materiel.
It is vital that both the U.S. and U.K. reject any French proposal predicated on American and British support for an independent European defense organization. Paris should be welcomed back into NATO's leadership club only on terms that are acceptable to all NATO members, and without the doling out of powerful command positions to a country that is at best a half-hearted member of the alliance.
Simply Unacceptable
It is difficult to see how a greater EU defense capability will actually strengthen the NATO mission or the broader transatlantic alliance. Indeed, encouraging a bigger military role for the EU can only make NATO's task more complicated.
NATO has been the most successful post-war multilateral organization precisely because it is a truly transatlantic defense and security alliance of independent nation-states with a single command. The French proposal to build up a separate EU defense structure--i.e., a competitor to NATO sucking up valuable NATO resources--is simply unacceptable and should be firmly rejected.
Nile Gardiner Ph.D. is the Director of, and Sally McNamara is Senior Policy Analyst in European Affairs in, the Margaret Thatcher Center for Freedom at the Heritage Foundation. Erica Munkwitz assisted with research for this paper.
Heritage, Feb 10, 2009
Full article w/references here.
The Obama Administration has announced it will back the full reintegration of France into the NATO command structure, with French officers reportedly in line to take two senior Alliance command positions: Allied Command Transformation (one of NATO's two supreme commands, based in Norfolk, Virginia) and Joint Command Lisbon (one of NATO's three main operations headquarters, which also commands the NATO Rapid Reaction Force).[1]
This is a highly significant development that would put France at the heart of NATO military planning and reform proposals and represents an ill-thought-out and risky concession by Washington to the Sarkozy administration.
In a major speech at the Munich Security Conference on February 7,[2] Vice President Joe Biden welcomed France's decision "to fully participate in NATO structures" and also made it clear that the United States will "support the further strengthening of European defense, an increased role for the European Union in preserving peace and security, [and] a fundamentally stronger NATO-EU partnership." Biden's remarks echoed the views of British Defence Secretary John Hutton, who recklessly backed French plans for a European Union army last October.[3]
Both the United States and Great Britain must take a step back and launch a fundamental, wide-ranging review of the long-term implications of French demands for the future of NATO. The U.S. Congress should hold hearings to assess the new Administration's strategy with regard to French reintegration in order to highlight any dangers posed to U.S. interests.
It would be a huge strategic error of judgment by the new U.S. Administration and the British government to continue supporting French ambitions for restructuring Europe's security architecture. Such acquiescence would hand Paris an extraordinary degree of power and influence within NATO--power and influence well out of proportion to France's actual military role in Alliance operations.
Providing France with such influence would also ultimately weaken the Anglo-American Special Relationship, shifting power away from Washington and London and toward continental Europe while paving the way for the development of a separate European Union defense identity--all of which will undermine NATO.
French Reintegration into NATO
When President Sarkozy first floated the idea of French reintegration into NATO's military command in June 2007, he outlined two preconditions: guaranteed senior command posts for French officers within the Alliance, and American endorsement of an increased EU defense identity (the latter of which he emphasized as the more important of the two).[4] To formally establish the principle of reintegration, Sarkozy commissioned an influential "White Paper on Defense and National Security," which was published in March 2008.
Designed to promote an independent European defense identity, the French White Paper on Defense and National Security clearly states:
The European ambition stands as a priority. Making the European Union a major player in crisis management and international security is one of the central tenets of our security policy. France wants Europe to be equipped with the corresponding military and civilian capability.[5]
The paper endorses several key principles:
- Redefinition of responsibility-sharing between America and Europe;
- An explicit rejection of the idea that the EU act as a civilian complement to NATO; and
- A strong preference for buying European defense technologies.
In June 2008, President Sarkozy circulated an additional document outlining Paris's policy initiatives for European military integration. It presents the major elements of what an EU defense identity will entail, including:
- A permanent operation headquarters in Brussels;
- Common EU funding for military operations; and
- European exchange programs for military personnel.[6]
America Has Little to Gain--and a Lot to Lose
It is likely that the Obama Administration will regard France's reintegration into NATO as a diplomatic masterstroke. The Administration will claim that it has rebuilt the Franco-American relationship in a mutually beneficial way, and Sarkozy will in turn claim that it tangibly demonstrates France's commitment to standing alongside America.
However, the Administration must ask itself what the U.S. actually gains from such a quid pro quo. Such reintegration may extract a few hundred additional French troops for eastern Afghanistan and generate stronger French public support for the Afghan mission. But President Obama will find that he has rescued the furniture only to give away the house. Not only is France already able to commit as many troops as it wishes to NATO missions (as it proved last year when 700 additional French troops were sent to Afghanistan), but 10 years of EU security initiatives have actually seen a decrease in European defense spending.
Washington continues to argue that supporting the European Security and Defense Policy is a means toward improving European defense spending and military capabilities. But after 10 years, such improvement has yet to occur and is not reflected in the projected defense budgets of any major European power. Since the EU and NATO operate in the same areas both militarily and geographically, the competition for resources will become fiercer, and Washington is likely to see its requests for military help increasingly rebuffed as France demands European commitments to EU missions.[7] Once the United States gives its blessing to the creation of a separate European defense structure, it will have no grounds to compel Europe to choose NATO over EU requests in the future.
A Parisian Power Play
Rather than genuinely attempting to increase Europe's contribution to defense on the international stage, France is seeking to expand both Paris's and the EU's power base. Sarkozy's proposal is largely political, not military. In practice, France is already involved with almost all of NATO's structures and operations, including all political bodies and the NATO Response Force. It also partakes in joint training exercises.
French reintegration into NATO command structures offers little additional value to Washington but gives immense momentum to French ambitions for an autonomous EU foreign and defense policy. When French presidents talk about European foreign policy, they more often than not mean French foreign policy. Equally, when Sarkozy talks about increasing European security capabilities, he means decreasing American involvement in Europe.
For instance, in January 2007 the EU established a military operations center in Brussels, which later that year conducted "a nine-day exercise involving the virtual deployment of 2,000 European soldiers to deal with a crisis in the fictional country of Alisia."[8] The operational center is without doubt a fledgling EU military headquarters that duplicates and will eventually compete with the NATO command.
The French proposal for an independent European defense structure will build upon the foundations laid by this new EU military headquarters. If the United States agrees to the French plan, it will represent yet another reversal of the Berlin Plus arrangements and a further erosion of the supremacy of NATO in Europe.
No Quid Pro Quo with France
If the Obama Administration agrees to support an independent EU defense structure as part of the French plan for rejoining NATO's command, such backing would represent a major transformation in U.S. strategic thinking that would have a dramatic, negative impact on the future of the alliance. It would shift the political balance of power within NATO away from Washington and London toward the main centers of power within the European Union: Paris, Berlin, and Brussels. Far from encouraging European countries to spend more on defense, it would foster an even greater dependency culture within continental Europe upon NATO resources. Such a shift would also lead to a duplication of the NATO command structure without a doubling of manpower or materiel.
It is vital that both the U.S. and U.K. reject any French proposal predicated on American and British support for an independent European defense organization. Paris should be welcomed back into NATO's leadership club only on terms that are acceptable to all NATO members, and without the doling out of powerful command positions to a country that is at best a half-hearted member of the alliance.
Simply Unacceptable
It is difficult to see how a greater EU defense capability will actually strengthen the NATO mission or the broader transatlantic alliance. Indeed, encouraging a bigger military role for the EU can only make NATO's task more complicated.
NATO has been the most successful post-war multilateral organization precisely because it is a truly transatlantic defense and security alliance of independent nation-states with a single command. The French proposal to build up a separate EU defense structure--i.e., a competitor to NATO sucking up valuable NATO resources--is simply unacceptable and should be firmly rejected.
Nile Gardiner Ph.D. is the Director of, and Sally McNamara is Senior Policy Analyst in European Affairs in, the Margaret Thatcher Center for Freedom at the Heritage Foundation. Erica Munkwitz assisted with research for this paper.
State Sec: The Czech Republic and the United States Share a Strong Commitment to Defense, Development, and Human Rights
The Czech Republic and the United States Share a Strong Commitment to Defense, Development, and Human Rights. By Hillary Rodham Clinton, Secretary of State
Remarks With Czech Republic Foreign Minister Karel Schwarzenberg After Their Meeting
Treaty room, Washington, DC, February 10, 2009
SECRETARY CLINTON: I am delighted today to welcome Foreign Minister Schwarzenberg to the Department of State. The minister and I just had a wide-ranging, good discussion about global, European, and bilateral issues. The Czech Republic is an important ally of the United States and, of course, our two nations share a strong commitment to defense, development, and human rights. And we are dedicated to strengthening our transatlantic alliance.
I also welcomed the foreign minister in his current European Union presidency role. The U.S. and Europe have great responsibilities in the world, especially at this time of global challenges and opportunities. And the United States appreciates Czech leadership on such key issues as Afghanistan, energy security, and the Middle East.
It was also a pleasure for me to particularly thank the Czech Republic for being at the forefront of the NATO-led International Security Assistance Force in Afghanistan, with a commitment of 500 troops and leadership of the Logar Provincial Reconstruction Team. Europe and the United States, the Czech Republic and the United States, we have a big, important agenda before us. And I’m confident, as I told the minister, that our shared values, our common objectives, our commitment to freedom will continue to strengthen and deepen our partnership. So it’s a great personal pleasure for me to welcome the foreign minister here today.
FOREIGN MINISTER SCHWARZENBERG: Well, I would like to say that this is, for me, great honor and pleasure to be one of the first visits to Secretary Clinton. I do think we have a certain luck because it coincides that the new Administration started vigorously its work, and the Czech presidency of the European Union is at its beginning.
And the fact that at one side, the Czech Republic is probably the country that Americans have the most sympathies in all of Europe, and we are staunch allies of the United States on one side, as is American – your Administration changed not only America, but the world. It is an important start – motivation to work together to rejuvenate the process of (inaudible), which, after all – I mean, there are – NATO becomes 60 years old, we all became older, and we sometimes stuck too much to the routine. And now, there’s a change, a chance to make a real change, to rejuvenate the relation, to invigorate it, and to start together to tackle the enormous problems we have in the world. Some were mentioned by Secretary Clinton.
And of one thing – I’m sure that if we stick together, if the cooperation between the United States and the European Union goes with a new attitude (inaudible), we can really achieve something in the world to make it and to change it to the better. Thank you so much.
SECRETARY CLINTON: Thank you, Minister.
QUESTION: Thank you, Madame Secretary, and Mr. Minister, if you want to jump in as well. On the Israeli elections, you’ve said you’re looking forward to working with the new government, but certainly some of the candidates would make it easier to advance some of the goals that you’ve been talking about on a deal with Israeli and Palestinians. Could you talk about what’s at stake at this election, in terms of U.S. and European foreign policy?
And on Iran, there does – there definitely seems to be an interesting dance going on between the U.S. and Iran. Last night, after President Obama’s comments about engaging Iran, President Ahmadinejad said that Iran would hold talks based on mutual respect. Your review notwithstanding, what do you think is going on here, and are you heartened by the Iranian messages that they’ve been trying to send to the U.S.?
Thank you.
SECRETARY CLINTON: Well, as to the Israeli elections, I’m going to wait to find out what the people of Israel have decided.
As to Iran, we have been very clear that, as the Vice President discussed in Munich over the weekend, as the President said again last night, there is an opportunity for the Iranian Government to demonstrate a willingness to unclench their fist and to begin a serious and responsible discussion about a range of matters.
We still persist in our view that Iran should not obtain nuclear weapons, that it would be a very unfortunate course for them to pursue. And we hope that there will be opportunities in the future for us to develop a better understanding of one another and to work out a way of talking that would produce positive results for the people of Iran.
QUESTION: Czech television. Madame Secretary, this is a question about missile defense. Does your Administration have a, kind of like, plan to be presented – a clear plan, including timeframe, to be presented at NATO summit?
And on both of you, is there still an option to abandon this project if there would be a kind of diplomatic agreement with Iran or with Russia?
SECRETARY CLINTON: Well, as the Vice President also said in Munich, we are first and foremost very grateful to the Czech Republic, to the government and the people, for working with us to try to deter the threat from Iran. If we are able to deter that threat, it will be, in some measure, due to the courage of the Czech people in stepping up and being a partner to provide a strong defense in Europe against Iranian aggression that would certainly be present were they to obtain nuclear weapons.
There are technical issues concerning missile defense that you – that you know well. We had a very good discussion about our hopes to work together – the European Union and the United States – in dissuading the Iranians from pursuing nuclear weapons. But if the Iranians continue on this path, certainly one of the options for free countries like the Czech Republic, other Europeans, and the United States, is to defend ourselves. So this is one of those issues that really will rest with the decisions made by the Iranian Government.
QUESTION: Madame Secretary, there is a prospect looming on the Korean Peninsula of possible military clashes between the two Koreas, as a result of some actions that the North has taken in the past couple of weeks. And there are some reports that Chinese fishing boats are being pulled out of the area in case something happens. You’re going to Asia next week.
Can you tell us what can you do to make sure that such a situation doesn’t occur? And more broadly, what is your expectation on that trip? What do you hope to – what message do you hope to convey to not only the government, but the people of Asia?
SECRETARY CLINTON: Well, I am going to Asia to reassert our commitment to our allies and partners in Asia, to work on a range of issues with Japan and South Korea, China, and Indonesia, as well as reaching out to the rest of East Asia.
And clearly, with respect to North Korea, our position remains the same. We intend to pursue the Six-Party Talks. We expect that -- with our partners in those talks to continue a policy that would lead to the denuclearization of North Korea and the end of any proliferating activities by North Korea.
We are hopeful that some of the behavior that we have seen coming from North Korea in the last few weeks is, you know, not a precursor of any action that would up the ante, or threaten the stability and peace and security of the neighbors in the region.
But again, North Korea has to understand that all of the countries in East Asia have made it clear that its behavior is viewed as unacceptable. And there are opportunities for the government and people of North Korea were they to begin, once again, to engage through the Six-Party Talks, through other bilateral and multilateral forums. And we’re hopeful that we’ll see that in the weeks and months ahead. But I know of the continuing concern on the part of the other members of the Six-Party Talks with respect to North Korea’s attitude in the last weeks, and I’ll be talking with our counterparts to determine the most effective way forward. Thank you.
Last question?
QUESTION: Czech daily newspaper. Madame Secretary, do you think that the current financial crisis could anyhow delay the plans for development and deployment of the missile defense systems?
SECRETARY CLINTON: Well, our concerns about missile defense are primarily technical. There may be some economic factors. But we’ve always seen this as primarily a technical challenge. Obviously, we expect any system that we deploy to be able to operate effectively to achieve the goals that are set. And as I have said earlier, our concern, the concern of other nations within the broad geographic area that could be affected by an Iranian missile, you know, are looking for ways to deter and end that behavior.
But you know, we have to be realistic, you know. Our slogan can be “hope for the best, but plan for the worst.” I think that’s a realistic approach that we should be taking, and that’s why I admire the Czech Government. I know that that was a difficult decision. I understand that. But the Czech people won their freedom and do not want to be intimidated by the specter of, you know, nuclear weapons in the hands of unfriendly regimes. So I think that what the Czech Government and the Polish Government did in saying, you know, we want to be prepared in the event that we are unable to persuade, dissuade, deter, the Iranians from pursuing nuclear weapons makes a great deal of sense.
Now, the timing and the, you know, actual deployment, those are largely technical matters. And as the Vice President said, which I underscore, if we are able to see a change in behavior on the part of the Iranians with respect to what we believe to be their pursuit of nuclear weapons, you know, then – you know, we will reconsider where we stand. But we are a long, long way from seeing such evidence of any behavior change.
Mr. Minister, do you want to add anything?
FOREIGN MINISTER SCHWARZENBERG: No. I’d have to agree with what you have said. And I think the most necessary thing is that as with Iran, as to other dangers in this world, we need to stick together and we can rely on each other.
And just I would like to add one thing. It was a special pleasure for me – the meeting today with Secretary Clinton, whom I had the honor and pleasure to meet before already in Prague when she visit my former chief, President Havel. And I already was impressed by her great energy. Now to see her as Secretary of State of the United States is a special pleasure.
SECRETARY CLINTON: Thank you. Thank you all very much. Thank you.
FOREIGN MINISTER SCHWARZENBERG: Thank you so much.
Remarks With Czech Republic Foreign Minister Karel Schwarzenberg After Their Meeting
Treaty room, Washington, DC, February 10, 2009
SECRETARY CLINTON: I am delighted today to welcome Foreign Minister Schwarzenberg to the Department of State. The minister and I just had a wide-ranging, good discussion about global, European, and bilateral issues. The Czech Republic is an important ally of the United States and, of course, our two nations share a strong commitment to defense, development, and human rights. And we are dedicated to strengthening our transatlantic alliance.
I also welcomed the foreign minister in his current European Union presidency role. The U.S. and Europe have great responsibilities in the world, especially at this time of global challenges and opportunities. And the United States appreciates Czech leadership on such key issues as Afghanistan, energy security, and the Middle East.
It was also a pleasure for me to particularly thank the Czech Republic for being at the forefront of the NATO-led International Security Assistance Force in Afghanistan, with a commitment of 500 troops and leadership of the Logar Provincial Reconstruction Team. Europe and the United States, the Czech Republic and the United States, we have a big, important agenda before us. And I’m confident, as I told the minister, that our shared values, our common objectives, our commitment to freedom will continue to strengthen and deepen our partnership. So it’s a great personal pleasure for me to welcome the foreign minister here today.
FOREIGN MINISTER SCHWARZENBERG: Well, I would like to say that this is, for me, great honor and pleasure to be one of the first visits to Secretary Clinton. I do think we have a certain luck because it coincides that the new Administration started vigorously its work, and the Czech presidency of the European Union is at its beginning.
And the fact that at one side, the Czech Republic is probably the country that Americans have the most sympathies in all of Europe, and we are staunch allies of the United States on one side, as is American – your Administration changed not only America, but the world. It is an important start – motivation to work together to rejuvenate the process of (inaudible), which, after all – I mean, there are – NATO becomes 60 years old, we all became older, and we sometimes stuck too much to the routine. And now, there’s a change, a chance to make a real change, to rejuvenate the relation, to invigorate it, and to start together to tackle the enormous problems we have in the world. Some were mentioned by Secretary Clinton.
And of one thing – I’m sure that if we stick together, if the cooperation between the United States and the European Union goes with a new attitude (inaudible), we can really achieve something in the world to make it and to change it to the better. Thank you so much.
SECRETARY CLINTON: Thank you, Minister.
QUESTION: Thank you, Madame Secretary, and Mr. Minister, if you want to jump in as well. On the Israeli elections, you’ve said you’re looking forward to working with the new government, but certainly some of the candidates would make it easier to advance some of the goals that you’ve been talking about on a deal with Israeli and Palestinians. Could you talk about what’s at stake at this election, in terms of U.S. and European foreign policy?
And on Iran, there does – there definitely seems to be an interesting dance going on between the U.S. and Iran. Last night, after President Obama’s comments about engaging Iran, President Ahmadinejad said that Iran would hold talks based on mutual respect. Your review notwithstanding, what do you think is going on here, and are you heartened by the Iranian messages that they’ve been trying to send to the U.S.?
Thank you.
SECRETARY CLINTON: Well, as to the Israeli elections, I’m going to wait to find out what the people of Israel have decided.
As to Iran, we have been very clear that, as the Vice President discussed in Munich over the weekend, as the President said again last night, there is an opportunity for the Iranian Government to demonstrate a willingness to unclench their fist and to begin a serious and responsible discussion about a range of matters.
We still persist in our view that Iran should not obtain nuclear weapons, that it would be a very unfortunate course for them to pursue. And we hope that there will be opportunities in the future for us to develop a better understanding of one another and to work out a way of talking that would produce positive results for the people of Iran.
QUESTION: Czech television. Madame Secretary, this is a question about missile defense. Does your Administration have a, kind of like, plan to be presented – a clear plan, including timeframe, to be presented at NATO summit?
And on both of you, is there still an option to abandon this project if there would be a kind of diplomatic agreement with Iran or with Russia?
SECRETARY CLINTON: Well, as the Vice President also said in Munich, we are first and foremost very grateful to the Czech Republic, to the government and the people, for working with us to try to deter the threat from Iran. If we are able to deter that threat, it will be, in some measure, due to the courage of the Czech people in stepping up and being a partner to provide a strong defense in Europe against Iranian aggression that would certainly be present were they to obtain nuclear weapons.
There are technical issues concerning missile defense that you – that you know well. We had a very good discussion about our hopes to work together – the European Union and the United States – in dissuading the Iranians from pursuing nuclear weapons. But if the Iranians continue on this path, certainly one of the options for free countries like the Czech Republic, other Europeans, and the United States, is to defend ourselves. So this is one of those issues that really will rest with the decisions made by the Iranian Government.
QUESTION: Madame Secretary, there is a prospect looming on the Korean Peninsula of possible military clashes between the two Koreas, as a result of some actions that the North has taken in the past couple of weeks. And there are some reports that Chinese fishing boats are being pulled out of the area in case something happens. You’re going to Asia next week.
Can you tell us what can you do to make sure that such a situation doesn’t occur? And more broadly, what is your expectation on that trip? What do you hope to – what message do you hope to convey to not only the government, but the people of Asia?
SECRETARY CLINTON: Well, I am going to Asia to reassert our commitment to our allies and partners in Asia, to work on a range of issues with Japan and South Korea, China, and Indonesia, as well as reaching out to the rest of East Asia.
And clearly, with respect to North Korea, our position remains the same. We intend to pursue the Six-Party Talks. We expect that -- with our partners in those talks to continue a policy that would lead to the denuclearization of North Korea and the end of any proliferating activities by North Korea.
We are hopeful that some of the behavior that we have seen coming from North Korea in the last few weeks is, you know, not a precursor of any action that would up the ante, or threaten the stability and peace and security of the neighbors in the region.
But again, North Korea has to understand that all of the countries in East Asia have made it clear that its behavior is viewed as unacceptable. And there are opportunities for the government and people of North Korea were they to begin, once again, to engage through the Six-Party Talks, through other bilateral and multilateral forums. And we’re hopeful that we’ll see that in the weeks and months ahead. But I know of the continuing concern on the part of the other members of the Six-Party Talks with respect to North Korea’s attitude in the last weeks, and I’ll be talking with our counterparts to determine the most effective way forward. Thank you.
Last question?
QUESTION: Czech daily newspaper. Madame Secretary, do you think that the current financial crisis could anyhow delay the plans for development and deployment of the missile defense systems?
SECRETARY CLINTON: Well, our concerns about missile defense are primarily technical. There may be some economic factors. But we’ve always seen this as primarily a technical challenge. Obviously, we expect any system that we deploy to be able to operate effectively to achieve the goals that are set. And as I have said earlier, our concern, the concern of other nations within the broad geographic area that could be affected by an Iranian missile, you know, are looking for ways to deter and end that behavior.
But you know, we have to be realistic, you know. Our slogan can be “hope for the best, but plan for the worst.” I think that’s a realistic approach that we should be taking, and that’s why I admire the Czech Government. I know that that was a difficult decision. I understand that. But the Czech people won their freedom and do not want to be intimidated by the specter of, you know, nuclear weapons in the hands of unfriendly regimes. So I think that what the Czech Government and the Polish Government did in saying, you know, we want to be prepared in the event that we are unable to persuade, dissuade, deter, the Iranians from pursuing nuclear weapons makes a great deal of sense.
Now, the timing and the, you know, actual deployment, those are largely technical matters. And as the Vice President said, which I underscore, if we are able to see a change in behavior on the part of the Iranians with respect to what we believe to be their pursuit of nuclear weapons, you know, then – you know, we will reconsider where we stand. But we are a long, long way from seeing such evidence of any behavior change.
Mr. Minister, do you want to add anything?
FOREIGN MINISTER SCHWARZENBERG: No. I’d have to agree with what you have said. And I think the most necessary thing is that as with Iran, as to other dangers in this world, we need to stick together and we can rely on each other.
And just I would like to add one thing. It was a special pleasure for me – the meeting today with Secretary Clinton, whom I had the honor and pleasure to meet before already in Prague when she visit my former chief, President Havel. And I already was impressed by her great energy. Now to see her as Secretary of State of the United States is a special pleasure.
SECRETARY CLINTON: Thank you. Thank you all very much. Thank you.
FOREIGN MINISTER SCHWARZENBERG: Thank you so much.
Czech views: Russia Shouldn't Have a Veto on Missile Defense
Russia Shouldn't Have a Veto on Missile Defense, by Milan Vodicka
European leaders relied on U.S. commitments.
WSJ, Feb 11, 2009
Prague
If the United States builds a radar system in the Czech Republic as part of the missile defense program developed by the Bush administration, it's likely that the Russians will target the Czech Republic with their tactical nuclear missiles. But many Czechs are fearful of an even greater danger than Russia: The possibility that the U.S. may decide not to deploy the defense system. Unfortunately, Vice President Joseph Biden suggested this prospect last week in Munich when he said, "We will wait for what the experts say and then we will see."
Czech politicians and their Polish counterparts have invested a lot of political capital in the missile defense project. If the Obama administration doesn't follow through, supporters of the missile shield would feel abandoned by the U.S.
What's worse, Czech and Polish leaders would lose credibility among their opponents and, most importantly, Russia. Moscow would see the failure to build the radar system as proof of its influence over Central Europe, and as recognition of its veto power over European security policy.
Mr. Biden doesn't seem to appreciate that the missile defense project isn't just about American interests. It's about the Czechs and the Poles, too.
The Americans wanted the radar and the interceptors, and they wanted them within the borders of our countries. Our leaders went to great lengths to meet Washington's requests. They stood firm in the face of passionate protests at home and intimidation from Russia. Recently, Moscow backed down from its threat to deploy Iskander missiles in Kaliningrad, but it stands ready to follow through if missile defense becomes a reality.
It's beginning to look as though the Americans were taking us for a ride. Now that there's a new driver in the White House, they think they can just drop us off at the curb.
Even if the Obama administration wants to backtrack on missile defense, doing so won't return relations with Russia to the status quo ante. This is because Russia has transformed the issue of the missile defense system in the Czech Republic and Poland into evidence of its growing influence. Russia has turned this into a question of its power beyond its borders.
If it weren't for Russia, there would be little difficulty in Washington's change of heart. Yet Russia's involvement makes the game a different one entirely. While several interceptors in Poland can stop individual missiles, they can't prevent a massive strike by a nuclear power like Russia. This is because the system is aimed at Iran, not Russia.
Moscow's rigid position has hardened the resolve of Prague and Warsaw, which fear that the Kremlin is attempting to dictate the limits of Czech and Polish sovereignty and foreign policy. We have experienced this before.
This, at least, is how the situation appears from the Czech point of view. I can already anticipate the Obama administration's conclusion: that missile defense is an expensive diversion with uncertain benefits and unpleasant side effects. Such an outcome is all the more likely given the global economic crisis and the difficult fiscal situation in the U.S.
There's no doubt that Russia would profit from a scenario in which the U.S. put the missile defense project on hold. Just consider the situation in Georgia last summer.
During the conflict in South Ossetia, it was alarming how many observers in the U.S. press implied that NATO enlargement was a mistake. The tone of these articles strongly suggested that expansion of the Atlantic alliance only caused the U.S. more trouble with Russia. They also implied that the U.S. and other Western powers were less than fully committed to their new eastern partners.
In this light, it's clear that American retreat on the missile defense program would hand Moscow a huge victory. Washington can't afford to leave the Czechs out in the cold.
Mr. Vodicka is senior writer for the Czech newspaper Mladá Fronta Dnes.
European leaders relied on U.S. commitments.
WSJ, Feb 11, 2009
Prague
If the United States builds a radar system in the Czech Republic as part of the missile defense program developed by the Bush administration, it's likely that the Russians will target the Czech Republic with their tactical nuclear missiles. But many Czechs are fearful of an even greater danger than Russia: The possibility that the U.S. may decide not to deploy the defense system. Unfortunately, Vice President Joseph Biden suggested this prospect last week in Munich when he said, "We will wait for what the experts say and then we will see."
Czech politicians and their Polish counterparts have invested a lot of political capital in the missile defense project. If the Obama administration doesn't follow through, supporters of the missile shield would feel abandoned by the U.S.
What's worse, Czech and Polish leaders would lose credibility among their opponents and, most importantly, Russia. Moscow would see the failure to build the radar system as proof of its influence over Central Europe, and as recognition of its veto power over European security policy.
Mr. Biden doesn't seem to appreciate that the missile defense project isn't just about American interests. It's about the Czechs and the Poles, too.
The Americans wanted the radar and the interceptors, and they wanted them within the borders of our countries. Our leaders went to great lengths to meet Washington's requests. They stood firm in the face of passionate protests at home and intimidation from Russia. Recently, Moscow backed down from its threat to deploy Iskander missiles in Kaliningrad, but it stands ready to follow through if missile defense becomes a reality.
It's beginning to look as though the Americans were taking us for a ride. Now that there's a new driver in the White House, they think they can just drop us off at the curb.
Even if the Obama administration wants to backtrack on missile defense, doing so won't return relations with Russia to the status quo ante. This is because Russia has transformed the issue of the missile defense system in the Czech Republic and Poland into evidence of its growing influence. Russia has turned this into a question of its power beyond its borders.
If it weren't for Russia, there would be little difficulty in Washington's change of heart. Yet Russia's involvement makes the game a different one entirely. While several interceptors in Poland can stop individual missiles, they can't prevent a massive strike by a nuclear power like Russia. This is because the system is aimed at Iran, not Russia.
Moscow's rigid position has hardened the resolve of Prague and Warsaw, which fear that the Kremlin is attempting to dictate the limits of Czech and Polish sovereignty and foreign policy. We have experienced this before.
This, at least, is how the situation appears from the Czech point of view. I can already anticipate the Obama administration's conclusion: that missile defense is an expensive diversion with uncertain benefits and unpleasant side effects. Such an outcome is all the more likely given the global economic crisis and the difficult fiscal situation in the U.S.
There's no doubt that Russia would profit from a scenario in which the U.S. put the missile defense project on hold. Just consider the situation in Georgia last summer.
During the conflict in South Ossetia, it was alarming how many observers in the U.S. press implied that NATO enlargement was a mistake. The tone of these articles strongly suggested that expansion of the Atlantic alliance only caused the U.S. more trouble with Russia. They also implied that the U.S. and other Western powers were less than fully committed to their new eastern partners.
In this light, it's clear that American retreat on the missile defense program would hand Moscow a huge victory. Washington can't afford to leave the Czechs out in the cold.
Mr. Vodicka is senior writer for the Czech newspaper Mladá Fronta Dnes.
Saturday, February 7, 2009
State Dept on Russian Bases in Georgia
Russian Bases in Georgia, by Robert Wood, Acting Department Spokesman
US State Dept, Washington, DC, Fri, 06 Feb 2009 17:36:46 -0600
The United States regrets the Russian Federation’s expressed intention to establish bases in the territory of Georgia as contrary to the spirit and the letter of Russia’s existing commitments. These Russian plans include a naval base at the port of Ochamchire, army bases in the Abkhazia and South Ossetia regions of Georgia, and the possible deployment of combat aircraft.
Under the August 12 and September 8 ceasefire agreements between Georgia and Russia, mediated by the French EU Presidency, Russia committed to return its forces to their pre-war numbers and locations in South Ossetia and Abkhazia. This latest announced build-up of the Russian Federation’s military presence in the Georgian regions of Abkhazia and South Ossetia without the consent of the Georgian Government would clearly violate that commitment. Implementation of these basing plans would also violate Georgia’s sovereignty and territorial integrity, to which Russia repeatedly committed itself in numerous United Nations Security Council resolutions.
The U.S. urges Russia to respect Georgia’s sovereignty and territorial integrity and facilitate stability in the region through implementation of its commitments and participation in the Geneva Process.
PRN: 2009/110
US State Dept, Washington, DC, Fri, 06 Feb 2009 17:36:46 -0600
The United States regrets the Russian Federation’s expressed intention to establish bases in the territory of Georgia as contrary to the spirit and the letter of Russia’s existing commitments. These Russian plans include a naval base at the port of Ochamchire, army bases in the Abkhazia and South Ossetia regions of Georgia, and the possible deployment of combat aircraft.
Under the August 12 and September 8 ceasefire agreements between Georgia and Russia, mediated by the French EU Presidency, Russia committed to return its forces to their pre-war numbers and locations in South Ossetia and Abkhazia. This latest announced build-up of the Russian Federation’s military presence in the Georgian regions of Abkhazia and South Ossetia without the consent of the Georgian Government would clearly violate that commitment. Implementation of these basing plans would also violate Georgia’s sovereignty and territorial integrity, to which Russia repeatedly committed itself in numerous United Nations Security Council resolutions.
The U.S. urges Russia to respect Georgia’s sovereignty and territorial integrity and facilitate stability in the region through implementation of its commitments and participation in the Geneva Process.
PRN: 2009/110
Friday, February 6, 2009
Soviet incentives
Soviet economy, by Eric S. Weisman, Former Assistant to the US. Executive Director, International Monetary fund
In: "Some Comments upon the Retirement of Professor Vladimir G. Treml", Duke University, Economics Dept, Fall 2001
Vlad loves to tell stories of how perverse incentive structures in the Soviet Union led to seemingly bizarre, but in fact entirely rational, economic decision-making. The story I like the best is the one about the used light bulb market. For most of us, it is hard to fathom the rationale for a market in burnt-out light bulbs. But in the scarcity-driven Soviet economy, the market was entirely reasonable. Light bulbs were rarely available to individual consumers, but were obtainable for state-sponsored activities. Thus, it would be difficult to purchase a light bulb for a new lamp in one's home, while burnt-out bulbs in state-run offices or factories were routinely replaced. So if someone purchased a new lamp and needed a bulb, he would buy a used light bulb for a small fee and replace a functioning bulb at work with the dud. He would then take the functioning bulb home for the new lamp, while the burnt-out bulb at the office/factory would be replaced with a new functioning bulb. Meanwhile, the maintenance person at the office/factory would take the used bulb and sell it on the used light bulb market.
In: "Some Comments upon the Retirement of Professor Vladimir G. Treml", Duke University, Economics Dept, Fall 2001
Vlad loves to tell stories of how perverse incentive structures in the Soviet Union led to seemingly bizarre, but in fact entirely rational, economic decision-making. The story I like the best is the one about the used light bulb market. For most of us, it is hard to fathom the rationale for a market in burnt-out light bulbs. But in the scarcity-driven Soviet economy, the market was entirely reasonable. Light bulbs were rarely available to individual consumers, but were obtainable for state-sponsored activities. Thus, it would be difficult to purchase a light bulb for a new lamp in one's home, while burnt-out bulbs in state-run offices or factories were routinely replaced. So if someone purchased a new lamp and needed a bulb, he would buy a used light bulb for a small fee and replace a functioning bulb at work with the dud. He would then take the functioning bulb home for the new lamp, while the burnt-out bulb at the office/factory would be replaced with a new functioning bulb. Meanwhile, the maintenance person at the office/factory would take the used bulb and sell it on the used light bulb market.
Sunday, February 1, 2009
Russia's Drive for Global Economic Power: A Challenge for the Obama Administration
Russia's Drive for Global Economic Power: A Challenge for the Obama Administration. By Ariel Cohen, Ph.D., and Lajos F. Szaszdi, Ph.D.
Heritage, January 30, 2009
Full text w/references here
Until the recent global financial crisis, Russia's economic revival during the presidency of Vladimir Putin had helped to restore the country's standing as a major player in the world arena. Yet, prosperity has come with some unintended consequences. Russia's invasion of Georgia was fueled by Russia's economic growth and newfound wealth.
This economic comeback is largely the result of Russia's oil and natural gas exports, coupled with the high prices that other Russian commodities have enjoyed in world markets. With the seventh-largest oil reserves and the largest gas reserves in the world, and as the leading exporter of oil and gas, the Kremlin is using its energy exports, revenue from arms and metals sales, and investments abroad in the mining and energy sectors to extend Russia's influence worldwide.
The interruption of gas supply to Ukraine and the rest of Europe in January 2009 resulted in the worst energy crisis in Europe since the Arab Oil Embargo of 1973, and once again raised questions about Russia's reliability as an energy supplier.[1] In the recent past, Russia has already prevented Caspian oil and gas supplies from flowing freely to the European markets; has threatened to disrupt oil exports that pass through Georgian territory when it invaded Georgia last August; has acquired, and is in the process of acquiring, major European energy companies, as well as pipelines, refineries, and other assets in more than a dozen countries. Moscow is also targeting the strategic Middle Eastern oil sector and is displacing Western energy companies operating in OPEC founding member Venezuela.
Beyond that, Russia has dominant global positions in the strategic and precious metals sectors including titanium, platinum, and other precious metals used in aerospace industries, electronics, and military and automotive production. A major Kremlin-connected oligarch owns the world's largest aluminum company and has been accused of corrupt practices in the U.S., Germany, Nigeria, and Guinea, while the Russian banking sector is tied in with organized crime.
Moscow's expanding business interests have made Europe highly--and dangerously--dependent on Russian oil, gas, and raw materials. Russia currently supplies two-thirds of Europe's imported natural gas--42 percent of total European consumption; Central and Eastern European countries depend on Russian gas for more than 90 percent of their needs. By 2030, Europe will import 84 percent of its gas needs.[2] Europe has not developed alternative sources of gas, and has rejected nuclear power and coal. Since natural gas is supplied by pipelines controlled by Gazprom, the Russian state gas monopoly, these countries cannot easily turn to other suppliers. Thus, Europe has tied itself to dependence on a commodity supplier with a track record of geopolitical intimidation as opposed to a free-market relationship.
Severe repercussions for Europe's national security dependence on Russian energy are widely recognized by the European Union and individual countries. Europe has now "stepped up its attempts to reduce its exposure to potential Russian blackmail over energy supplies," reports Ian Traynor in The Guardian. The European Commission unveiled "an ambitious strategy aimed at weakening Russian giant Gazprom's domination of Europe's gas imports." "We must not sleepwalk into Europe's energy dependence crisis," said Jose Manuel Barroso, EU Commission President.[3] Russia is trying to replicate this model in other areas as well, such as electricity and raw-materials exports by state-owned corporations, as demonstrated below.
Russia also aims to become a major energy supplier and provider of raw materials to countries of the Asia-Pacific region, including China, Japan, South Korea, and the United States. Such a goal, if accomplished, will greatly enhance Russian leverage in the Pacific Rim.
Controlling Eurasia
Russia's war with Georgia was as much about Moscow's plans to annex South Ossetia and Abkhazia as it was to reassert economic domination of the Caucasus by force and prevent additional oil and gas pipelines from being built outside Russian control. Russia sent the signal by temporarily controlling the cargo port of Poti and Georgia's main highway and railway line and by threatening the safety--and thus the viability--of current and future oil and gas pipelines that bypass Russia.
The Russian invasion and partial occupation had the intended effect of persuading Kazakhstan to drop its investment plans for Georgia. The Kazakh state oil and gas company KazMunaiGas announced in September that it would abandon its plan to build an oil refinery in the Georgian port of Batumi, and not long before that, the Kazakh government also announced it would not build a grain-export terminal in the port of Poti. This terminal would have enabled Kazakhstan to export part of its grain production through an alternative route, bypassing Russia.[4]
For years, Russian energy policy was a crafty tool of power projection in Eurasia. Russian state-controlled entities like Gazprom used mysterious, economically useless affiliates to ensnare local political leaders in corruption, thus co-opting them. Examples include Rosukrenergo (with Ukraine) as well as Gazprom-Zeromax in Uzbekistan. Energy deals are used to entangle the local regimes, ensuring their political dependence on Moscow.
Moscow has not only used its resources and economic prowess to exert its influence in the former Soviet states of Eurasia. Russia's neo-corporatist state[5] is also pursuing an anti-American agenda and challenging the existing global economic system. It seeks control or influence of sectors that are of paramount importance to American and European security, such as special materials like platinum, titanium, and other rare metals; defense technologies, such as the European aircraft manufacturer EADS; and energy resources and infrastructure, such as U.S. Getty, Spain's Repsol, Germany's Ruhrgas, refineries, and a slew of companies in Germany, Hungary, Bulgaria, Poland, Serbia, Slovakia, and elsewhere. Russia seeks to establish platforms from which it can more easily conduct industrial and classic espionage, money laundering, and other covert activities, and increase political dependency through corruption. Moscow is also seeking influence in the developing world, as well as challenging the independence and security of Europe, including major powers like Germany and Italy, as well as Ukraine and Georgia, in which the United States has national security interests.
The Tools for Global Cooperation
The U.S. should cooperate with its friends and allies on combating excessive dependency (beyond 25-30 percent) on Russian strategic raw materials and energy exports, such as oil, gas, coal, and electricity. What is needed is a global security system for tracking investment activities by Russia and other anti-Western governments in industries and sectors with defense and security implications.
One of those tools is the Committee on Foreign Investment in the United States (CFIUS). CFIUS is an inter-agency committee of the United States government that reviews the national security implications of foreign investments in U.S. companies or operations. Chaired by the Secretary of the Treasury, CFIUS coordinates representatives from nine U.S. agencies including the Departments of Defense, State, Commerce, and Homeland Security.
The U.S. Treasury recently published final rules to strengthen security reviews of foreign investments in U.S. businesses. As the former Treasury Secretary Henry Paulson put it, the final regulations are intended to "strengthen the CFIUS process in a manner that reaffirms America's longstanding policy of openness to investment, consistent with the protection of our national security."[6] The regulations clarify that transactions in which a foreign entity acquires less than a 10 percent stake in a U.S. business are not automatically exempt from a CFIUS review. Under the new procedures, a foreign investor in a U.S. business considered "critical infrastructure" is encouraged to consult with the CFIUS panel before filing a formal notice. This is a wise step in improving oversight of investments in critical infrastructure, resources, and financial systems on which our nation and our alliances depend.
The U.S. should also increase cooperative effortsamong the international intelligence and law enforcement agencies and independent experts to keep track of how the Russian state and oligarchs may be laundering money and engaging in corruption and unfair competition. The Obama Administration should encourage, without dictating investment decisions,U.S. and other multinational companies to compete with Russian companies like Gazprom for pipeline and energy projects, as well as promote alternative market-based sources of energy and unconventional sources of fuels worldwide to counter any over-dependency on energy from countries such as Russia, Iran and Venezuela, which overtly seek to counter the West's economic and military strength.
Russia's Economic March
The geo-economic and geopolitical implications of Russia's economic power projection abroad cannot be overstated: As the Russian state's main source of revenues, and as a foreign policy arm, it enables the Kremlin to extend Russia's influence on a global scale. Moscow exercises economic--and political-- influence over countries that depend on its resources. Russian exports and investment projects are an instrument for establishing and developing strategic relationships through the export of commodities, arms, and nuclear technology.[7]
Since Vladimir Putin became president in spring of 2000, the Kremlin has backed the formation of "national champions" of the economy, state- or publicly owned corporate giants that are subservient to the government. Initially, the amalgamation of companies into big conglomerates was intended to help Russian companies compete successfully at home and abroad. But the massive corporations favored by the Kremlin soon became instruments of the Russian state's policy to dominate the national economy and to project its power abroad through a trade-based foreign economic policy.
These state and private corporate players are subject to the instructions of the government in both business and geopolitical priorities. So important are such strategic sectors like oil and gas or the military-industrial complex that, together with the big corporations that dominate these sectors-- Gazprom, Rosneft, LUKoil, and Rostekhnologii (Russian Technologies)--they constitute one of the pillars of the Russian state, along with the other pillars of power: the military, the intelligence services, the police and law-enforcement agencies, and the government bureaucracy.
Indeed, the Kremlin has been using energy exports as a tool of its foreign policy. The most notorious example of this practice is cutting off or threatening to cut off oil and gas exports to any country that adopts policies that go against Russia's national interests. A recent example was the September 1, 2008, announcement to reduce the flow of gas to the European Union, reportedly announced by the Russian gas monopoly Gazprom soon after the 27 EU member countries agreed to halt negotiations with Russia for a new partnership agreement. The EU measure came in response to Russia's war against Georgia in August.
In another example of the use of energy exports as a tool of foreign policy, Prime Minister Vladimir Putin, in a veiled threat to Europe, urged on the eve of the same EU meeting that the construction work on the East Siberia-Pacific Ocean (ESPO) oil pipeline, destined to export crude to the Asia-Pacific region markets, be accelerated.[8] The message was clear: If Europe does not want to buy Russian oil, Moscow can sell it to China, South Korea, and Japan. Currently, Europe imports from Russia a third of the oil and 40 percent of the natural gas it consumes.[9]
This is no coincidence, since Russia's global posture is directed by now-Prime Minister Putin and his associates--KGB veterans. As Putin's former economic adviser Andrey Illarionov described it, the Russian Federation is being run as a corporation.[10] Today, this "Russia Inc." operates essentially with a hierarchical structure in which Prime Minister Putin is the equivalent of the CEO and chairman of the board, with President Dmitry Medvedev as a member and chief operating officer. While President Medvedev is a civilian, Putin and many of his close allies are alumni of the Russian intelligence community. In a study conducted in 2006 by the Center for the Study of Elites at the Russian Academy of Sciences,of 1,016 senior government officials and elected members of Parliament, 26 percent belonged to the KGB or the post-Soviet intelligence agencies. That proportion grew to 78 percent when individuals with "unexplained gaps in résumés, unlikely career paths or service in organizations affiliated with the KGB" were included.[11]
More than five years ago it was suggested that up to 6,000 active duty and reserve members of the Russian intelligence community occupied positions of influence in the state.[12] It can be concluded that the alumni of the Russian intelligence apparatus control the state by controlling the government's civilian bureaucracy, the military, and the country's main economic sectors. As Daniel Treisman, professor of political science at the University of California, Los Angeles, pointed out, in Russia "the security forces' takeover of corporate boardrooms is coming to define Putin's regime,"[13] during his presidency and premierships.
Moscow business insider Oleg Shvartsman suggested that the goal of the members of the Russian intelligence services who occupy senior positions in the corporate world is to gain wealth for themselves in addition to global power for Russia through business expansion abroad. There have been revelations by a businessman managing the assets of members of the Presidential Administration from the so-called "siloviki" (men of power). These are officials with links to the FSB (the Federal Security Service and the main successor to the KGB) and SVR (the Foreign Intelligence Service, formerly the KGB's First Main Directorate) through the obscure Finansgroup company which claims assets worth around $3.2 billion.[14] Thus, huge amounts of money in the hands of the former members of the Russian intelligence apparatus could be employed for personal use, while vast state revenues can be directed to fund clandestine operations and other state activities.
Massive money laundering operations through the Bank of New York[15] and Republic Bank of New York are well documented and were the subject of congressional hearings.[16] According to publications in the Russian media, the Austrian Raiffeisen bank is reportedly involved in suspicious activities in the Russian gas sector and other questionable business transactions with ties to intelligence services.[17] Back in 2004, Czech counterintelligence sources revealed that the SVR invested "huge sums in local real estate, hotels, casinos, and entertainment complexes" in the Czech Republic, probably in order to obtain front companies for intelligence operations, to strengthen the SVR's (and the Russian state's) influence in the country, and possibly as alternative sources of funding outside of the regular control of the Russian leadership.[18]
It is little wonder that earlier last year U.S. Attorney General Michael Mukasey cited Russia and other Eurasian nations as places where "organized criminals control significant positions in the global energy and strategic-materials markets. They are expanding their holdings in those sectors, which corrupts the normal functioning of these markets and may have a destabilizing effect on U.S. geopolitical interests."[19]He revealed that the U.S. government has re-assembled its Organized Crime Council to combat a new "hybrid criminal problem" involving alliances between foreign intelligence agencies and criminal groups. Mr. Mukasey said law-enforcement officials have "grave concern" about "so-called "iron triangles' of corrupt business leaders, corrupt government officials and organized criminals."[20]
Beyond Personal Wealth
The Russian leadership's ambition surpassed the drive for self-enrichment a long time ago. Putin and then-Defense Minister Sergey Ivanov meant every word when they set the goal for Russia to become a world energy superpower. In 2006, Vladislav Surkov, Deputy Head of the Presidential Administration, aide to President Putin and ideological chief of Putin's regime, declared that "the idea of Russia as an energy superpower is…fully consistent" with the country becoming competitive economically.[21] Yet, ever cautious, at that year's Valdai Club meeting, President Putin rejected the idea that Russia wanted to become an "energy superpower," assuring the audience that his government wanted instead to provide stable energy supplies to world markets.[22]
A key instrument in the dream of Russia as an energy superpower is Gazprom, the world's largest gas company and Russia's state-owned gas monopoly. Gazprom was the Kremlin's principal tool in the two gas supply interruptions to Europe, which were triggered by the gas prices disputes between Moscow and Kyiv.[23] Gazprom is rated as the company with the highest capitalization in Russia.[24] It is intended to become the core of a gas counterpart to OPEC, and its close energy ties with Iran, which has the second-largest gas reserves on earth, threaten market access and competitiveness, especially in the liquefied natural gas (LNG) sector, and as a result, stability of the world economy.
The recent agreement between Russia, Iran, and Qatar to form a "Gas Troika" (in the works for at least a year and a half) that would meet several times a year, could lead to unfair business practices, such as "the exchange of information about prices, development schedules and investment plans."[25] Russia, Iran, and Qatar hold 56 percent of global gas reserves, and the Iranian oil minister declared in October of last year that the three countries have reached an agreement on the formation of a "gas OPEC."[26] Less than a week later, Alexei Miller, Gazprom's deputy chairman of the board of directors and chairman of the management committee, said that the Gas Troika could become a formal organization in November of 2008.[27] Later, Anatoly Yanovsky, deputy energy minister, disclosed that at a December 23 summit in Moscow, 16 gas-producing countries, including the host nation, plan to sign a charter establishing an "organization of gas exporting countries."[28]
A Perfect Storm.
The international financial crisis has seemingly put a stop to Russia's dynamic efforts to expand its economic interests worldwide. Prime Minister Putin wrongly blamed the U.S. exclusively for the meltdown, which since May has affected Russia's stock exchanges, the RTS and the MICEX, with Russia's indexes losing thus far as much as 70 percent of their value.[29]
Several observers pointed out that the Russian invasion of Georgia made the financial problem worse, triggering a further outflow of capital out of fear of instability. Other problems have combined to create a perfect financial storm against Russia: International banks called loans of powerful oligarchs who before the crisis and their loss in value used their company shares as collateral for foreign loans; and oil prices and those of other commodities fell, including metals, causing grave financial damage to Russian state financing.[30]
Russia's financial benefits accruing from foreign trade are altering its international behavior. In early August 2008, the Russian government's Reserve Fund and National Welfare Fund held the equivalent of $162 billion, while its hard currency and gold reserves summed their highest point on August 8--the day Russian forces invaded Georgia--with more than $597 billion, the third-largestreserves in the world after China and Japan.[31] By December 5, Russia's hard currency and gold reserves were down to $437 billion, yet they lost $31 billion in one week from October 17 to 24, and $17.9 billion in the week of December 5.[32] These reserves are expected to continue to decline as the Russian government uses them to rescue the national economy from the effects of the international financial crisis, and if oil prices remain below $70 a barrel.[33]
The effects of the financial crisis in Russia have left many Russian companies and banks unable to repay their foreign loans without state intervention. Thus, the Russian Central Bank has provided liquidity to Russia's state development bank, Vnesheconombank (VEB): $50 billion to help enterprises in financial trouble pay their foreign creditors. This situation is allowing the Russian government to take over failing banks and acquire stakes in struggling companies, strengthening the power and influence of the state.[34]
The crisis has also caused Russia's most powerful billionaire businessmen, with close links to the Kremlin, to incur combined losses of up to $230 billion. The one with the highest losses according to Forbes is Oleg Deripaska, who, until the crisis, was the wealthiest man in Russia and who had lost more than $16 billion by early October of an estimated $28 billion fortune before the crisis. Deripaska is the owner of RUSAL, the largest aluminum and alumina producer in the world.[35] Other examples include Roman Abramovich, who by the third week of October lost over $20 billion after his shares in steelmaker Evraz plummeted. The owner of steel producer Novolipetsk Steel (NLMK), Vladimir Lisin, lost $22 billion by early October, and the fortune of Severstal's Alexei Mordashov went down from $21.2 billion by March 2008 to $5.3 billion by early October.[36] LUKoil's owner Vagit Alekperov's value of his 20 percent stake in the oil company fell from $19.5 billion to $7.2 billion by early October.[37]
All these private-sector companies with close Kremlin ties are involved in international trade and investment activities, serving as sources of tax revenues and hard currency for the Russian state, and as tools of the Kremlin to expand Russia's influence worldwide. The Kremlin might use this opportunity as well to try to gain controlling stakes of private companies that are in financial trouble, thus expanding the state's commanding role in the national economy and in the long term give it further resources and power, enabling foreign adventurism.
Despite the fact that it will be cancelling plans for more drilling and oil refining, private oil company LUKoil still intends to buy a 30 percent stake in Repsol, the Spanish national oil company, as well as a refinery in Sicily, and is putting together a $1 billion loan for that purpose.[38] It seems that the national corporate champions, such as LUKoil or Gazprom might see their expanding investment plans at home or abroad shelved due to lower oil prices, yet this is likely to be a temporary setback, depending on how quickly the international financial markets in general and foreign investor confidence in Russia in particular recover.
Yet, Russian businesses are feeling the brunt of the crisis. The abysmal loss of value of Russian banks and companies' shares has led Bloomberg to declare the stocks of Russian companies as the cheapest in the world. Indeed, there seem to be fears in Russian nationalist circles that the low value of Russian companies' stakes could lead to free-for-all acquisitions of Russian stocks by Western financial interests. To avoid this outcome, the Russian state, through its banks like VEB and institutions like the Deposit Insurance Agency, is providing the loans and guarantees needed by Russian banks and companies in distress. It is also using them to take control of failed banks.[39] But even the Russian state itself could go broke if the price of oil continues to fall.
Budgetary Woes
This petroleum windfall is also being used to win the loyalty of some European politicians. Such arrangements benefit Russian energy interests, as in Germany with regard to the Nord Stream gas pipeline consortium chaired by former chancellor Gerhard Schroeder for an annual compensation of 1,000,000 euros (about $1,270,000 in U.S. dollars).[40] Nord Stream also hired the Finnish prime minister as a consultant, triggering concerns in Europe about spreading corruption.[41] An extremely expensive project, the Nord Stream pipeline would reach from Russia along the Baltic Sea bottom to Germany, bypassing the Baltic states and Poland and denying them transit revenue, with spurs to the Netherlands and France. In Bulgaria, Hungary, Serbia, and Austria, the planned--and even more expensive--South Stream gas pipeline would stop the EU- and U.S.-backed Nabucco gas pipeline, which bypasses Russia. The cooperation of Schroeder and Hungarian Prime Minister Ferenc Gyurcsany is key in implementing Russian projects that undermine Europe's security of energy supply.
The anti-competitive practices of Russian companies are spreading in the West and are undermining the rule of law as well as sound economic practices and business ethics. Gazprom, Rosneft, and their subsidiaries negotiate and make energy deals with foreign energy companies.[42] Such opaque business partnerships are shrouded in secrecy, politicize the energy business, and are devoid of free and fair competition. Worse, the opaque nature of such agreements between state energy companies leaves an ample margin for corrupt practices that violate both the law and business ethics. One notorious example are the allegations made against the Austrian Raiffeisen bank, which has been accused by the Russian press of participating in a money laundering scheme that sent capital out of Russia and that involved senior Russian government officials with links to oil companies and ties to the FSB.[43]
What Russia Wants: "New World System"
Russia needs its oil price to be at least $70 a barrel in 2009 to avoid falling into budget deficits.[44] Its recent talks with OPEC may be directed at coordinating efforts to reduce oil production and thus raising the price of oil, a goal also pursued in earnest by OPEC members Iran and Venezuela, whose national budgets depend on $70 a barrel to balance their budgets.[45] The budget deficit may also constrain some foreign policy tools Russia uses.
Attending an OPEC meeting in Vienna in September 2008, Russian Deputy Prime Minister Igor Sechin, a friend of Putin's, said that "OPEC is one of Russia's key partners on the global oil market" and that "it is very important for us to create mechanisms of regular dialogue" with the oil exporting organization.[46]
With Russia and OPEC responsible for a combined total of 51 percent of the world's oil,[47] Moscow's cooperation with OPEC to coordinate oil prices and production quotas would be a requisite for the further expansion of Russia's influence in the world. Even though the idea of Russia joining OPEC has been rejected by Russian officials, one of LUKoil's vice presidents declared recently that Russian membership of OPEC "will be only good for Russia" for "the future of the Russian industry and [oil] price stability."[48] Cooperation with OPEC and the formation of a gas cartel are consistent with one of the objectives enunciated in the recent Foreign Policy Concept of the Russian Federation, which announced that Russia "strengthens strategic partnership with the leading producers of energy resources."[49]
Russia aims to challenge the current international financial system dominated by the U.S. and Western industrialized countries. At the St. Petersburg Economic Summit in 2007, President Putin called for a new world economic framework based on regional alliances, relegating Bretton Woods-era global institutions like the International Monetary Fund and the World Bank to the sidelines. He demanded that the new system reflect the rising power of emerging market economies like Russia, China, India, and Brazil, as well as the decline of the established powers: the United States, Japan, and Western European countries.[50]
Moscow is establishing "favorable political conditions for diversifying Russia's presence in the world markets through expanding the export range and geography of foreign economic and investment links of Russia."[51] At the same time, the Kremlin is promoting a multilateral, state-driven approach to the international economic and financial system to regulate the free markets globally, and using the ruble as the dominant currency in the Commonwealth of Independent States.
Speaking at the recent conference on the international financial crisis in Evian, France, Russian President Medvedev said that "the formation of new financial centers and strong regional currencies will act as new stability factors" in the face of the crisis. While suggesting that the current international U.S.-based "unipolar economic model" is inefficient, Medvedev alluded to the "multi-polar nature of the world and the complexity of globalization." Medvedev is proposing that "the global financial architecture be changed, the role of the current international institutions be reviewed, and new ones created to guarantee stability."[52] "It will take years to shape a new world system," Medvedev said.[53]
Another goal seems to be replacing the dollar in Russia's international trade transactions. Putin has proposed this goal to his Chinese counterpart Wen Jiabao for bilateral trade between Russia and China, which was estimated to reach $50 billion in 2008.[54]
Russia is following a multilateral approach to challenge the current international financial and trading system, as part of its overall strategy of pursuing a multilateral world system, through the Shanghai Cooperation Organization,[55] OPEC, a new gas OPEC, or new international financial bodies that would include China, India, EU member states, and challengers of the established international order such as Iran and Venezuela.
Influencing the international prices of oil and gas would be key for the economic recovery of the country as well as for funding military and industrial modernization and economic development programs at home.
Before the international financial crisis hit Russia, an increasing share of its resources had been directed at the rearming of the military with modern weapon systems, and at increases in funding of the Ministry of the Interior, and of the security and intelligence services, such as the FSB domestic security service, the SVR foreign intelligence service, the GRU military intelligence, and the Border Guards under FSB supervision. Before the crisis, the Kremlin planned to raise defense spending by 50 percent over three years, deploy an army rapid reaction force at a high level of operational readiness, and construct new nuclear-powered ballistic missile submarines.[56] It remains to be seen if the government's financial stabilization efforts at home will reduce spending in defense as well as activities of the Ministry of Foreign Affairs and of Russian government propaganda and information warfare.
Arms Exports Boost Russia's Power
Russia is also a major world weapons exporter. The Kremlin aims to forge long-lasting military relations and strategic partnerships with foreign countries through the export of arms. Russia's military exports extend to Europe, the Middle East, Central Asia, South Asia (primarily India), the Far East (mainly China), Southeast Asia, Africa, and Latin America. To further centralize government control over the production of the military-industrial complex, the Kremlin has created an industrial behemoth, Rostekhnologii (Russian Technologies), which agglomerates 426 state enterprises. These include the defense export enterprise Rosoboronexport, the aircraft manufacturing, non-ferrous metals, and shipbuilding conglomerates to name just a few. Russia's titanium exports corporation, VSMPO- Avisma, vital for Airbus and Boeing, is now controlled by Rostekhnologii, which is planning to develop it into one of the largest non-ferrous-metals companies in the world.[57] Rostekhnologii will centralize the planning and production of the various enterprises under its umbrella. It could also attempt to marshal together its various resources and coordinate its efforts to become a formidable competitor in the international market for arms, metals, and aerospace technology.
What the Obama Administration Should Do
If Russia were a friendly Euro-Atlantic power, the United States would be no more concerned about its economic activity than about that of France. Russia's use of state-dominated businesses to enhance its geopolitical posture and gain dominance over U.S. allies' energy supply, however, should raise deep concerns in the Obama Administration and in European capitals. Free-market competition is and should remain a fundamental principle of U.S. trade policy; but America and its allies have a duty to their citizens to monitor, and, where necessary, prevent, any country's anti-market, political, covert, or illicit efforts to undermine our markets or our security, which Russia increasingly is aiming to do.
For example, Russian's growing control of Eurasian energy resources and exports to Europe through non-market means is both strategically and economically burdensome, as well as dangerous. To better ensure that the U.S. and its allies have access to the energy that fuels their economies and their militaries, to prevent Russian domination in strategic sectors, and to counter corrupt and criminal activities of Russian corporations and tycoons, the Obama Administration should take early action to:
Conclusion: The Way Forward
Russia is being run as a corporation by the former senior members of the Russian intelligence community who strive to maximize profits and power, expanding global corporations for exports of raw materials and weapons. America's European allies and the newly independent states of Eurasia have already been subjected to Russia's heavy-handed policies and corrupt practices aimed at increasing their energy dependency, as well as a flurry of efforts to acquire critical infrastructure such as ports, pipelines, refineries, and energy distribution networks.
The Kremlin has made clear that it intends to diminish America's standing as a world leader by promoting a "multipolar" world, and using its military, economic, and "soft" power to re-establish Russia as America's near-peer competitor. The lower energy profits accruing to Moscow from the current global economic downturn can play a role in mitigating Russia's anti-status quo foreign policy, and slow down the growth and modernization of its armed forces. But the U.S. should not rely on these developments. The U.S. should develop comprehensive policies to handle Russia's economic power projection that is aimed at undermining American allies, power, and security interests, employing a mix of commercial, national security, intelligence, and diplomatic means.
Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian Studies and International Energy Security and Lajos F. Szaszdi, Ph.D., was a Consultant in the Douglas and Sarah Allison Center for Foreign Policy Studies, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation.
Heritage, January 30, 2009
Full text w/references here
Until the recent global financial crisis, Russia's economic revival during the presidency of Vladimir Putin had helped to restore the country's standing as a major player in the world arena. Yet, prosperity has come with some unintended consequences. Russia's invasion of Georgia was fueled by Russia's economic growth and newfound wealth.
This economic comeback is largely the result of Russia's oil and natural gas exports, coupled with the high prices that other Russian commodities have enjoyed in world markets. With the seventh-largest oil reserves and the largest gas reserves in the world, and as the leading exporter of oil and gas, the Kremlin is using its energy exports, revenue from arms and metals sales, and investments abroad in the mining and energy sectors to extend Russia's influence worldwide.
The interruption of gas supply to Ukraine and the rest of Europe in January 2009 resulted in the worst energy crisis in Europe since the Arab Oil Embargo of 1973, and once again raised questions about Russia's reliability as an energy supplier.[1] In the recent past, Russia has already prevented Caspian oil and gas supplies from flowing freely to the European markets; has threatened to disrupt oil exports that pass through Georgian territory when it invaded Georgia last August; has acquired, and is in the process of acquiring, major European energy companies, as well as pipelines, refineries, and other assets in more than a dozen countries. Moscow is also targeting the strategic Middle Eastern oil sector and is displacing Western energy companies operating in OPEC founding member Venezuela.
Beyond that, Russia has dominant global positions in the strategic and precious metals sectors including titanium, platinum, and other precious metals used in aerospace industries, electronics, and military and automotive production. A major Kremlin-connected oligarch owns the world's largest aluminum company and has been accused of corrupt practices in the U.S., Germany, Nigeria, and Guinea, while the Russian banking sector is tied in with organized crime.
Moscow's expanding business interests have made Europe highly--and dangerously--dependent on Russian oil, gas, and raw materials. Russia currently supplies two-thirds of Europe's imported natural gas--42 percent of total European consumption; Central and Eastern European countries depend on Russian gas for more than 90 percent of their needs. By 2030, Europe will import 84 percent of its gas needs.[2] Europe has not developed alternative sources of gas, and has rejected nuclear power and coal. Since natural gas is supplied by pipelines controlled by Gazprom, the Russian state gas monopoly, these countries cannot easily turn to other suppliers. Thus, Europe has tied itself to dependence on a commodity supplier with a track record of geopolitical intimidation as opposed to a free-market relationship.
Severe repercussions for Europe's national security dependence on Russian energy are widely recognized by the European Union and individual countries. Europe has now "stepped up its attempts to reduce its exposure to potential Russian blackmail over energy supplies," reports Ian Traynor in The Guardian. The European Commission unveiled "an ambitious strategy aimed at weakening Russian giant Gazprom's domination of Europe's gas imports." "We must not sleepwalk into Europe's energy dependence crisis," said Jose Manuel Barroso, EU Commission President.[3] Russia is trying to replicate this model in other areas as well, such as electricity and raw-materials exports by state-owned corporations, as demonstrated below.
Russia also aims to become a major energy supplier and provider of raw materials to countries of the Asia-Pacific region, including China, Japan, South Korea, and the United States. Such a goal, if accomplished, will greatly enhance Russian leverage in the Pacific Rim.
Controlling Eurasia
Russia's war with Georgia was as much about Moscow's plans to annex South Ossetia and Abkhazia as it was to reassert economic domination of the Caucasus by force and prevent additional oil and gas pipelines from being built outside Russian control. Russia sent the signal by temporarily controlling the cargo port of Poti and Georgia's main highway and railway line and by threatening the safety--and thus the viability--of current and future oil and gas pipelines that bypass Russia.
The Russian invasion and partial occupation had the intended effect of persuading Kazakhstan to drop its investment plans for Georgia. The Kazakh state oil and gas company KazMunaiGas announced in September that it would abandon its plan to build an oil refinery in the Georgian port of Batumi, and not long before that, the Kazakh government also announced it would not build a grain-export terminal in the port of Poti. This terminal would have enabled Kazakhstan to export part of its grain production through an alternative route, bypassing Russia.[4]
For years, Russian energy policy was a crafty tool of power projection in Eurasia. Russian state-controlled entities like Gazprom used mysterious, economically useless affiliates to ensnare local political leaders in corruption, thus co-opting them. Examples include Rosukrenergo (with Ukraine) as well as Gazprom-Zeromax in Uzbekistan. Energy deals are used to entangle the local regimes, ensuring their political dependence on Moscow.
Moscow has not only used its resources and economic prowess to exert its influence in the former Soviet states of Eurasia. Russia's neo-corporatist state[5] is also pursuing an anti-American agenda and challenging the existing global economic system. It seeks control or influence of sectors that are of paramount importance to American and European security, such as special materials like platinum, titanium, and other rare metals; defense technologies, such as the European aircraft manufacturer EADS; and energy resources and infrastructure, such as U.S. Getty, Spain's Repsol, Germany's Ruhrgas, refineries, and a slew of companies in Germany, Hungary, Bulgaria, Poland, Serbia, Slovakia, and elsewhere. Russia seeks to establish platforms from which it can more easily conduct industrial and classic espionage, money laundering, and other covert activities, and increase political dependency through corruption. Moscow is also seeking influence in the developing world, as well as challenging the independence and security of Europe, including major powers like Germany and Italy, as well as Ukraine and Georgia, in which the United States has national security interests.
The Tools for Global Cooperation
The U.S. should cooperate with its friends and allies on combating excessive dependency (beyond 25-30 percent) on Russian strategic raw materials and energy exports, such as oil, gas, coal, and electricity. What is needed is a global security system for tracking investment activities by Russia and other anti-Western governments in industries and sectors with defense and security implications.
One of those tools is the Committee on Foreign Investment in the United States (CFIUS). CFIUS is an inter-agency committee of the United States government that reviews the national security implications of foreign investments in U.S. companies or operations. Chaired by the Secretary of the Treasury, CFIUS coordinates representatives from nine U.S. agencies including the Departments of Defense, State, Commerce, and Homeland Security.
The U.S. Treasury recently published final rules to strengthen security reviews of foreign investments in U.S. businesses. As the former Treasury Secretary Henry Paulson put it, the final regulations are intended to "strengthen the CFIUS process in a manner that reaffirms America's longstanding policy of openness to investment, consistent with the protection of our national security."[6] The regulations clarify that transactions in which a foreign entity acquires less than a 10 percent stake in a U.S. business are not automatically exempt from a CFIUS review. Under the new procedures, a foreign investor in a U.S. business considered "critical infrastructure" is encouraged to consult with the CFIUS panel before filing a formal notice. This is a wise step in improving oversight of investments in critical infrastructure, resources, and financial systems on which our nation and our alliances depend.
The U.S. should also increase cooperative effortsamong the international intelligence and law enforcement agencies and independent experts to keep track of how the Russian state and oligarchs may be laundering money and engaging in corruption and unfair competition. The Obama Administration should encourage, without dictating investment decisions,U.S. and other multinational companies to compete with Russian companies like Gazprom for pipeline and energy projects, as well as promote alternative market-based sources of energy and unconventional sources of fuels worldwide to counter any over-dependency on energy from countries such as Russia, Iran and Venezuela, which overtly seek to counter the West's economic and military strength.
Russia's Economic March
The geo-economic and geopolitical implications of Russia's economic power projection abroad cannot be overstated: As the Russian state's main source of revenues, and as a foreign policy arm, it enables the Kremlin to extend Russia's influence on a global scale. Moscow exercises economic--and political-- influence over countries that depend on its resources. Russian exports and investment projects are an instrument for establishing and developing strategic relationships through the export of commodities, arms, and nuclear technology.[7]
Since Vladimir Putin became president in spring of 2000, the Kremlin has backed the formation of "national champions" of the economy, state- or publicly owned corporate giants that are subservient to the government. Initially, the amalgamation of companies into big conglomerates was intended to help Russian companies compete successfully at home and abroad. But the massive corporations favored by the Kremlin soon became instruments of the Russian state's policy to dominate the national economy and to project its power abroad through a trade-based foreign economic policy.
These state and private corporate players are subject to the instructions of the government in both business and geopolitical priorities. So important are such strategic sectors like oil and gas or the military-industrial complex that, together with the big corporations that dominate these sectors-- Gazprom, Rosneft, LUKoil, and Rostekhnologii (Russian Technologies)--they constitute one of the pillars of the Russian state, along with the other pillars of power: the military, the intelligence services, the police and law-enforcement agencies, and the government bureaucracy.
Indeed, the Kremlin has been using energy exports as a tool of its foreign policy. The most notorious example of this practice is cutting off or threatening to cut off oil and gas exports to any country that adopts policies that go against Russia's national interests. A recent example was the September 1, 2008, announcement to reduce the flow of gas to the European Union, reportedly announced by the Russian gas monopoly Gazprom soon after the 27 EU member countries agreed to halt negotiations with Russia for a new partnership agreement. The EU measure came in response to Russia's war against Georgia in August.
In another example of the use of energy exports as a tool of foreign policy, Prime Minister Vladimir Putin, in a veiled threat to Europe, urged on the eve of the same EU meeting that the construction work on the East Siberia-Pacific Ocean (ESPO) oil pipeline, destined to export crude to the Asia-Pacific region markets, be accelerated.[8] The message was clear: If Europe does not want to buy Russian oil, Moscow can sell it to China, South Korea, and Japan. Currently, Europe imports from Russia a third of the oil and 40 percent of the natural gas it consumes.[9]
This is no coincidence, since Russia's global posture is directed by now-Prime Minister Putin and his associates--KGB veterans. As Putin's former economic adviser Andrey Illarionov described it, the Russian Federation is being run as a corporation.[10] Today, this "Russia Inc." operates essentially with a hierarchical structure in which Prime Minister Putin is the equivalent of the CEO and chairman of the board, with President Dmitry Medvedev as a member and chief operating officer. While President Medvedev is a civilian, Putin and many of his close allies are alumni of the Russian intelligence community. In a study conducted in 2006 by the Center for the Study of Elites at the Russian Academy of Sciences,of 1,016 senior government officials and elected members of Parliament, 26 percent belonged to the KGB or the post-Soviet intelligence agencies. That proportion grew to 78 percent when individuals with "unexplained gaps in résumés, unlikely career paths or service in organizations affiliated with the KGB" were included.[11]
More than five years ago it was suggested that up to 6,000 active duty and reserve members of the Russian intelligence community occupied positions of influence in the state.[12] It can be concluded that the alumni of the Russian intelligence apparatus control the state by controlling the government's civilian bureaucracy, the military, and the country's main economic sectors. As Daniel Treisman, professor of political science at the University of California, Los Angeles, pointed out, in Russia "the security forces' takeover of corporate boardrooms is coming to define Putin's regime,"[13] during his presidency and premierships.
Moscow business insider Oleg Shvartsman suggested that the goal of the members of the Russian intelligence services who occupy senior positions in the corporate world is to gain wealth for themselves in addition to global power for Russia through business expansion abroad. There have been revelations by a businessman managing the assets of members of the Presidential Administration from the so-called "siloviki" (men of power). These are officials with links to the FSB (the Federal Security Service and the main successor to the KGB) and SVR (the Foreign Intelligence Service, formerly the KGB's First Main Directorate) through the obscure Finansgroup company which claims assets worth around $3.2 billion.[14] Thus, huge amounts of money in the hands of the former members of the Russian intelligence apparatus could be employed for personal use, while vast state revenues can be directed to fund clandestine operations and other state activities.
Massive money laundering operations through the Bank of New York[15] and Republic Bank of New York are well documented and were the subject of congressional hearings.[16] According to publications in the Russian media, the Austrian Raiffeisen bank is reportedly involved in suspicious activities in the Russian gas sector and other questionable business transactions with ties to intelligence services.[17] Back in 2004, Czech counterintelligence sources revealed that the SVR invested "huge sums in local real estate, hotels, casinos, and entertainment complexes" in the Czech Republic, probably in order to obtain front companies for intelligence operations, to strengthen the SVR's (and the Russian state's) influence in the country, and possibly as alternative sources of funding outside of the regular control of the Russian leadership.[18]
It is little wonder that earlier last year U.S. Attorney General Michael Mukasey cited Russia and other Eurasian nations as places where "organized criminals control significant positions in the global energy and strategic-materials markets. They are expanding their holdings in those sectors, which corrupts the normal functioning of these markets and may have a destabilizing effect on U.S. geopolitical interests."[19]He revealed that the U.S. government has re-assembled its Organized Crime Council to combat a new "hybrid criminal problem" involving alliances between foreign intelligence agencies and criminal groups. Mr. Mukasey said law-enforcement officials have "grave concern" about "so-called "iron triangles' of corrupt business leaders, corrupt government officials and organized criminals."[20]
Beyond Personal Wealth
The Russian leadership's ambition surpassed the drive for self-enrichment a long time ago. Putin and then-Defense Minister Sergey Ivanov meant every word when they set the goal for Russia to become a world energy superpower. In 2006, Vladislav Surkov, Deputy Head of the Presidential Administration, aide to President Putin and ideological chief of Putin's regime, declared that "the idea of Russia as an energy superpower is…fully consistent" with the country becoming competitive economically.[21] Yet, ever cautious, at that year's Valdai Club meeting, President Putin rejected the idea that Russia wanted to become an "energy superpower," assuring the audience that his government wanted instead to provide stable energy supplies to world markets.[22]
A key instrument in the dream of Russia as an energy superpower is Gazprom, the world's largest gas company and Russia's state-owned gas monopoly. Gazprom was the Kremlin's principal tool in the two gas supply interruptions to Europe, which were triggered by the gas prices disputes between Moscow and Kyiv.[23] Gazprom is rated as the company with the highest capitalization in Russia.[24] It is intended to become the core of a gas counterpart to OPEC, and its close energy ties with Iran, which has the second-largest gas reserves on earth, threaten market access and competitiveness, especially in the liquefied natural gas (LNG) sector, and as a result, stability of the world economy.
The recent agreement between Russia, Iran, and Qatar to form a "Gas Troika" (in the works for at least a year and a half) that would meet several times a year, could lead to unfair business practices, such as "the exchange of information about prices, development schedules and investment plans."[25] Russia, Iran, and Qatar hold 56 percent of global gas reserves, and the Iranian oil minister declared in October of last year that the three countries have reached an agreement on the formation of a "gas OPEC."[26] Less than a week later, Alexei Miller, Gazprom's deputy chairman of the board of directors and chairman of the management committee, said that the Gas Troika could become a formal organization in November of 2008.[27] Later, Anatoly Yanovsky, deputy energy minister, disclosed that at a December 23 summit in Moscow, 16 gas-producing countries, including the host nation, plan to sign a charter establishing an "organization of gas exporting countries."[28]
A Perfect Storm.
The international financial crisis has seemingly put a stop to Russia's dynamic efforts to expand its economic interests worldwide. Prime Minister Putin wrongly blamed the U.S. exclusively for the meltdown, which since May has affected Russia's stock exchanges, the RTS and the MICEX, with Russia's indexes losing thus far as much as 70 percent of their value.[29]
Several observers pointed out that the Russian invasion of Georgia made the financial problem worse, triggering a further outflow of capital out of fear of instability. Other problems have combined to create a perfect financial storm against Russia: International banks called loans of powerful oligarchs who before the crisis and their loss in value used their company shares as collateral for foreign loans; and oil prices and those of other commodities fell, including metals, causing grave financial damage to Russian state financing.[30]
Russia's financial benefits accruing from foreign trade are altering its international behavior. In early August 2008, the Russian government's Reserve Fund and National Welfare Fund held the equivalent of $162 billion, while its hard currency and gold reserves summed their highest point on August 8--the day Russian forces invaded Georgia--with more than $597 billion, the third-largestreserves in the world after China and Japan.[31] By December 5, Russia's hard currency and gold reserves were down to $437 billion, yet they lost $31 billion in one week from October 17 to 24, and $17.9 billion in the week of December 5.[32] These reserves are expected to continue to decline as the Russian government uses them to rescue the national economy from the effects of the international financial crisis, and if oil prices remain below $70 a barrel.[33]
The effects of the financial crisis in Russia have left many Russian companies and banks unable to repay their foreign loans without state intervention. Thus, the Russian Central Bank has provided liquidity to Russia's state development bank, Vnesheconombank (VEB): $50 billion to help enterprises in financial trouble pay their foreign creditors. This situation is allowing the Russian government to take over failing banks and acquire stakes in struggling companies, strengthening the power and influence of the state.[34]
The crisis has also caused Russia's most powerful billionaire businessmen, with close links to the Kremlin, to incur combined losses of up to $230 billion. The one with the highest losses according to Forbes is Oleg Deripaska, who, until the crisis, was the wealthiest man in Russia and who had lost more than $16 billion by early October of an estimated $28 billion fortune before the crisis. Deripaska is the owner of RUSAL, the largest aluminum and alumina producer in the world.[35] Other examples include Roman Abramovich, who by the third week of October lost over $20 billion after his shares in steelmaker Evraz plummeted. The owner of steel producer Novolipetsk Steel (NLMK), Vladimir Lisin, lost $22 billion by early October, and the fortune of Severstal's Alexei Mordashov went down from $21.2 billion by March 2008 to $5.3 billion by early October.[36] LUKoil's owner Vagit Alekperov's value of his 20 percent stake in the oil company fell from $19.5 billion to $7.2 billion by early October.[37]
All these private-sector companies with close Kremlin ties are involved in international trade and investment activities, serving as sources of tax revenues and hard currency for the Russian state, and as tools of the Kremlin to expand Russia's influence worldwide. The Kremlin might use this opportunity as well to try to gain controlling stakes of private companies that are in financial trouble, thus expanding the state's commanding role in the national economy and in the long term give it further resources and power, enabling foreign adventurism.
Despite the fact that it will be cancelling plans for more drilling and oil refining, private oil company LUKoil still intends to buy a 30 percent stake in Repsol, the Spanish national oil company, as well as a refinery in Sicily, and is putting together a $1 billion loan for that purpose.[38] It seems that the national corporate champions, such as LUKoil or Gazprom might see their expanding investment plans at home or abroad shelved due to lower oil prices, yet this is likely to be a temporary setback, depending on how quickly the international financial markets in general and foreign investor confidence in Russia in particular recover.
Yet, Russian businesses are feeling the brunt of the crisis. The abysmal loss of value of Russian banks and companies' shares has led Bloomberg to declare the stocks of Russian companies as the cheapest in the world. Indeed, there seem to be fears in Russian nationalist circles that the low value of Russian companies' stakes could lead to free-for-all acquisitions of Russian stocks by Western financial interests. To avoid this outcome, the Russian state, through its banks like VEB and institutions like the Deposit Insurance Agency, is providing the loans and guarantees needed by Russian banks and companies in distress. It is also using them to take control of failed banks.[39] But even the Russian state itself could go broke if the price of oil continues to fall.
Budgetary Woes
This petroleum windfall is also being used to win the loyalty of some European politicians. Such arrangements benefit Russian energy interests, as in Germany with regard to the Nord Stream gas pipeline consortium chaired by former chancellor Gerhard Schroeder for an annual compensation of 1,000,000 euros (about $1,270,000 in U.S. dollars).[40] Nord Stream also hired the Finnish prime minister as a consultant, triggering concerns in Europe about spreading corruption.[41] An extremely expensive project, the Nord Stream pipeline would reach from Russia along the Baltic Sea bottom to Germany, bypassing the Baltic states and Poland and denying them transit revenue, with spurs to the Netherlands and France. In Bulgaria, Hungary, Serbia, and Austria, the planned--and even more expensive--South Stream gas pipeline would stop the EU- and U.S.-backed Nabucco gas pipeline, which bypasses Russia. The cooperation of Schroeder and Hungarian Prime Minister Ferenc Gyurcsany is key in implementing Russian projects that undermine Europe's security of energy supply.
The anti-competitive practices of Russian companies are spreading in the West and are undermining the rule of law as well as sound economic practices and business ethics. Gazprom, Rosneft, and their subsidiaries negotiate and make energy deals with foreign energy companies.[42] Such opaque business partnerships are shrouded in secrecy, politicize the energy business, and are devoid of free and fair competition. Worse, the opaque nature of such agreements between state energy companies leaves an ample margin for corrupt practices that violate both the law and business ethics. One notorious example are the allegations made against the Austrian Raiffeisen bank, which has been accused by the Russian press of participating in a money laundering scheme that sent capital out of Russia and that involved senior Russian government officials with links to oil companies and ties to the FSB.[43]
What Russia Wants: "New World System"
Russia needs its oil price to be at least $70 a barrel in 2009 to avoid falling into budget deficits.[44] Its recent talks with OPEC may be directed at coordinating efforts to reduce oil production and thus raising the price of oil, a goal also pursued in earnest by OPEC members Iran and Venezuela, whose national budgets depend on $70 a barrel to balance their budgets.[45] The budget deficit may also constrain some foreign policy tools Russia uses.
Attending an OPEC meeting in Vienna in September 2008, Russian Deputy Prime Minister Igor Sechin, a friend of Putin's, said that "OPEC is one of Russia's key partners on the global oil market" and that "it is very important for us to create mechanisms of regular dialogue" with the oil exporting organization.[46]
With Russia and OPEC responsible for a combined total of 51 percent of the world's oil,[47] Moscow's cooperation with OPEC to coordinate oil prices and production quotas would be a requisite for the further expansion of Russia's influence in the world. Even though the idea of Russia joining OPEC has been rejected by Russian officials, one of LUKoil's vice presidents declared recently that Russian membership of OPEC "will be only good for Russia" for "the future of the Russian industry and [oil] price stability."[48] Cooperation with OPEC and the formation of a gas cartel are consistent with one of the objectives enunciated in the recent Foreign Policy Concept of the Russian Federation, which announced that Russia "strengthens strategic partnership with the leading producers of energy resources."[49]
Russia aims to challenge the current international financial system dominated by the U.S. and Western industrialized countries. At the St. Petersburg Economic Summit in 2007, President Putin called for a new world economic framework based on regional alliances, relegating Bretton Woods-era global institutions like the International Monetary Fund and the World Bank to the sidelines. He demanded that the new system reflect the rising power of emerging market economies like Russia, China, India, and Brazil, as well as the decline of the established powers: the United States, Japan, and Western European countries.[50]
Moscow is establishing "favorable political conditions for diversifying Russia's presence in the world markets through expanding the export range and geography of foreign economic and investment links of Russia."[51] At the same time, the Kremlin is promoting a multilateral, state-driven approach to the international economic and financial system to regulate the free markets globally, and using the ruble as the dominant currency in the Commonwealth of Independent States.
Speaking at the recent conference on the international financial crisis in Evian, France, Russian President Medvedev said that "the formation of new financial centers and strong regional currencies will act as new stability factors" in the face of the crisis. While suggesting that the current international U.S.-based "unipolar economic model" is inefficient, Medvedev alluded to the "multi-polar nature of the world and the complexity of globalization." Medvedev is proposing that "the global financial architecture be changed, the role of the current international institutions be reviewed, and new ones created to guarantee stability."[52] "It will take years to shape a new world system," Medvedev said.[53]
Another goal seems to be replacing the dollar in Russia's international trade transactions. Putin has proposed this goal to his Chinese counterpart Wen Jiabao for bilateral trade between Russia and China, which was estimated to reach $50 billion in 2008.[54]
Russia is following a multilateral approach to challenge the current international financial and trading system, as part of its overall strategy of pursuing a multilateral world system, through the Shanghai Cooperation Organization,[55] OPEC, a new gas OPEC, or new international financial bodies that would include China, India, EU member states, and challengers of the established international order such as Iran and Venezuela.
Influencing the international prices of oil and gas would be key for the economic recovery of the country as well as for funding military and industrial modernization and economic development programs at home.
Before the international financial crisis hit Russia, an increasing share of its resources had been directed at the rearming of the military with modern weapon systems, and at increases in funding of the Ministry of the Interior, and of the security and intelligence services, such as the FSB domestic security service, the SVR foreign intelligence service, the GRU military intelligence, and the Border Guards under FSB supervision. Before the crisis, the Kremlin planned to raise defense spending by 50 percent over three years, deploy an army rapid reaction force at a high level of operational readiness, and construct new nuclear-powered ballistic missile submarines.[56] It remains to be seen if the government's financial stabilization efforts at home will reduce spending in defense as well as activities of the Ministry of Foreign Affairs and of Russian government propaganda and information warfare.
Arms Exports Boost Russia's Power
Russia is also a major world weapons exporter. The Kremlin aims to forge long-lasting military relations and strategic partnerships with foreign countries through the export of arms. Russia's military exports extend to Europe, the Middle East, Central Asia, South Asia (primarily India), the Far East (mainly China), Southeast Asia, Africa, and Latin America. To further centralize government control over the production of the military-industrial complex, the Kremlin has created an industrial behemoth, Rostekhnologii (Russian Technologies), which agglomerates 426 state enterprises. These include the defense export enterprise Rosoboronexport, the aircraft manufacturing, non-ferrous metals, and shipbuilding conglomerates to name just a few. Russia's titanium exports corporation, VSMPO- Avisma, vital for Airbus and Boeing, is now controlled by Rostekhnologii, which is planning to develop it into one of the largest non-ferrous-metals companies in the world.[57] Rostekhnologii will centralize the planning and production of the various enterprises under its umbrella. It could also attempt to marshal together its various resources and coordinate its efforts to become a formidable competitor in the international market for arms, metals, and aerospace technology.
What the Obama Administration Should Do
If Russia were a friendly Euro-Atlantic power, the United States would be no more concerned about its economic activity than about that of France. Russia's use of state-dominated businesses to enhance its geopolitical posture and gain dominance over U.S. allies' energy supply, however, should raise deep concerns in the Obama Administration and in European capitals. Free-market competition is and should remain a fundamental principle of U.S. trade policy; but America and its allies have a duty to their citizens to monitor, and, where necessary, prevent, any country's anti-market, political, covert, or illicit efforts to undermine our markets or our security, which Russia increasingly is aiming to do.
For example, Russian's growing control of Eurasian energy resources and exports to Europe through non-market means is both strategically and economically burdensome, as well as dangerous. To better ensure that the U.S. and its allies have access to the energy that fuels their economies and their militaries, to prevent Russian domination in strategic sectors, and to counter corrupt and criminal activities of Russian corporations and tycoons, the Obama Administration should take early action to:
- Ensure that CFIUS has the resources and support it needs to conduct its investigations according to the law. The U.S. should urge its allies to develop similar institutions and processes to perform their own national security evaluations and screenings.
- Increase cooperation among U.S. and allied intelligence services, law enforcement agencies, and independent experts to track Russian state and oligarch money laundering activities, corruption, and unfair competition practices. The Obama Administration should make the collection of actionable intelligence on questionable Russian activities by U.S. and allied law enforcement agencies a priority. Such intelligence is critical in gathering evidence necessary for achieving convictions in courts of law. Such intelligence includes, for instance, Russian banks providing credit card support for child pornography Web sites. The U.S. should exercise leadership in expanding international cooperation among law enforcement agencies to prevent and stop complex trans-border crimes, such as money laundering, and those that involve current or former Russian government officials; oligarchs with close ties to Russia's political leaders; intelligence operatives; and persons with ties to organized crime. When U.S. laws--such as the Patriot Act (especially Section 312, proceeds of foreign corruption), the Foreign Investment and National Security Act of 2007 (FINSA), the Defense Production Act of 1950 (DPA), money laundering laws, the Foreign Corrupt Practices Act, G-8 anticorruption initiatives, and similar laws in allied jurisdictions--are violated by Russian entities, the U.S. and its allies should not hesitate to vigorously prosecute the offenders and confiscate, through appropriate court proceedings, illegally laundered funds and properties acquired with illegally procured funds, and aggressively deny visas to those government and business figures involved in the illicit activities.
- Encourage U.S. and other multinational companies to compete in economically viable energy and infrastructure projects overseas through free-trade, diplomatic and security support, and regulatory and tax policies that will enhance free competition without government-directed investment decisions. U.S. companies should be encouraged to compete for the Libyan and Trans-Saharan gas pipelines, Turkmenistan's gas fields, and other geopolitically significant ventures, which Russia is targeting in India, Southeast Asia, Africa, and Latin America.
- Promote market-viable alternative energy sources and unconventional sources of fuels worldwide to counter strategic dependency on Russian, Iranian, and Venezuelan oil. This should be accomplished through deregulation and trade and tax policies that encourage innovation and investment to develop, and through commercializing new sources of energy that best meet the needs of individual regions and nations. Western economies will be better off by expanding the supply of transportation fuels and reducing their Russian energy imports, thus reducing the influx of revenue into Kremlin coffers.
- Expand security cooperation with Russia's energy-exporting neighbors and other countries that Russia is targeting for energy cooperation, including train-and-equip programs for military and security forces protecting pipelines, and officer corps education in U.S. military colleges. The U.S. should make use of NATO's Partnership for Peace program.
Conclusion: The Way Forward
Russia is being run as a corporation by the former senior members of the Russian intelligence community who strive to maximize profits and power, expanding global corporations for exports of raw materials and weapons. America's European allies and the newly independent states of Eurasia have already been subjected to Russia's heavy-handed policies and corrupt practices aimed at increasing their energy dependency, as well as a flurry of efforts to acquire critical infrastructure such as ports, pipelines, refineries, and energy distribution networks.
The Kremlin has made clear that it intends to diminish America's standing as a world leader by promoting a "multipolar" world, and using its military, economic, and "soft" power to re-establish Russia as America's near-peer competitor. The lower energy profits accruing to Moscow from the current global economic downturn can play a role in mitigating Russia's anti-status quo foreign policy, and slow down the growth and modernization of its armed forces. But the U.S. should not rely on these developments. The U.S. should develop comprehensive policies to handle Russia's economic power projection that is aimed at undermining American allies, power, and security interests, employing a mix of commercial, national security, intelligence, and diplomatic means.
Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian Studies and International Energy Security and Lajos F. Szaszdi, Ph.D., was a Consultant in the Douglas and Sarah Allison Center for Foreign Policy Studies, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation.
Thursday, January 15, 2009
"Reversing the Decline: An Agenda for U.S.-Russian Relations in 2009"
Reversing the Decline: An Agenda for U.S.-Russian Relations in 2009. By Steven Pifer
The Brookings Institution, Jan 2009
As the Bush administration comes to a close, U.S.-Russian relations have fallen to their lowest level since the Soviet Union collapsed in 1991. Unresolved and problematic issues dominate the agenda, little confidence exists between Washington and Moscow, and the shrill tone of official rhetoric approaches that of the Cold War.
This state of affairs is a far cry from what Presidents George Bush and Vladimir Putin envisaged in 2002, when they defined a framework for a qualitatively different U.S.-Russian relationship. Both sides bear responsibility for the failure to realize that vision.
As President Barack Obama takes charge of the Oval Office, he confronts a wary and assertive Russia among the many foreign policy challenges in his inbox. Moscow desires to reclaim “great power” status, an ambition fueled over the past five years by hundreds of billions of dollars in energy revenues. Its desires are colored by a bitter perception that the West took advantage of Russian weakness in the 1990s and that Washington has failed to take serious account of Moscow’s interests. Building a more sustainable relationship with Russia will not prove easy.
Securing Russian help in controlling nuclear materials, pressuring Iran not to acquire nuclear arms, and countering international terrorism is very much in the U.S. interest. Getting Russia right, however, will require a carefully considered, focused and sustained Russia policy, not just treating Russia as a function of the U.S. approach to other issues. Washington should seek to put U.S.-Russian relations on a more solid footing.
Building areas of cooperation not only can advance specific U.S. goals, it can reduce frictions on other issues. Further, the more there is to the bilateral relationship, the greater the interest it will hold for Russia, and the greater the leverage Washington will have with Moscow. The thin state of U.S.-Russian relations in August gave the Kremlin little reason for pause before answering the Georgian military incursion into South Ossetia with a large and disproportionate response. Washington should strive to build a relationship so that, should a similar crisis arise in the future, Russian concern about damaging relations with the United States would exercise a restraining influence.
The Obama administration should aim for a balance in its approach toward Russia, making clear the unacceptability of Russian actions that violate international norms while encouraging cooperation and integration that will make Russia a stakeholder in existing international institutions. The new administration can offer initiatives in several areas to test Moscow’s readiness for cooperation on issues of interest to Washington:
[Get the paper here]
The Brookings Institution, Jan 2009
As the Bush administration comes to a close, U.S.-Russian relations have fallen to their lowest level since the Soviet Union collapsed in 1991. Unresolved and problematic issues dominate the agenda, little confidence exists between Washington and Moscow, and the shrill tone of official rhetoric approaches that of the Cold War.
This state of affairs is a far cry from what Presidents George Bush and Vladimir Putin envisaged in 2002, when they defined a framework for a qualitatively different U.S.-Russian relationship. Both sides bear responsibility for the failure to realize that vision.
As President Barack Obama takes charge of the Oval Office, he confronts a wary and assertive Russia among the many foreign policy challenges in his inbox. Moscow desires to reclaim “great power” status, an ambition fueled over the past five years by hundreds of billions of dollars in energy revenues. Its desires are colored by a bitter perception that the West took advantage of Russian weakness in the 1990s and that Washington has failed to take serious account of Moscow’s interests. Building a more sustainable relationship with Russia will not prove easy.
Securing Russian help in controlling nuclear materials, pressuring Iran not to acquire nuclear arms, and countering international terrorism is very much in the U.S. interest. Getting Russia right, however, will require a carefully considered, focused and sustained Russia policy, not just treating Russia as a function of the U.S. approach to other issues. Washington should seek to put U.S.-Russian relations on a more solid footing.
Building areas of cooperation not only can advance specific U.S. goals, it can reduce frictions on other issues. Further, the more there is to the bilateral relationship, the greater the interest it will hold for Russia, and the greater the leverage Washington will have with Moscow. The thin state of U.S.-Russian relations in August gave the Kremlin little reason for pause before answering the Georgian military incursion into South Ossetia with a large and disproportionate response. Washington should strive to build a relationship so that, should a similar crisis arise in the future, Russian concern about damaging relations with the United States would exercise a restraining influence.
The Obama administration should aim for a balance in its approach toward Russia, making clear the unacceptability of Russian actions that violate international norms while encouraging cooperation and integration that will make Russia a stakeholder in existing international institutions. The new administration can offer initiatives in several areas to test Moscow’s readiness for cooperation on issues of interest to Washington:
- A revived nuclear arms control dialogue could lower the number of nuclear weapons capable of striking the United States while exerting a positive influence on the broader relationship. The Obama administration should propose reducing each side to no more than 1,000 strategic nuclear warheads, with ancillary limits on strategic nuclear delivery vehicles (missiles and bombers).
- Different timelines for Iran’s missile development and for U.S. missile defense deployment in Central Europe offer a possibility to defuse the missle defense issue. The Obama administration should impose a two- or three-year moratorium on the construction of missile defense facilities in Central Europe and in form the Russians that the moratorium could be extended if the Iranian missile program slows or stops.
- Expanding commercial links would add economic ballast that could cushion the overall relationship against differences on other issues. Specific steps include bringing Russia into the World Trade Organization, moving forward with the agreement on civil nuclear cooperation, and conferring permanent normal trade relations status on Russia by graduating it from the Jackson-Vanik Amendment.
- Greater creativity in the NATO-Russia channel could, over the longer term, reshape how Moscow views the Alliance and European security. This should include new areas for NATO-Russia cooperation, such as counter piracy operations, and greater transparency about NATO plans.
Transnational challenges may offer other areas for U.S.-Russian cooperation. Proposing new ideas to develop better relations with Moscow does not mean overlooking unacceptable Russian behavior or areas of difference, and differences will remain, even in an improved relationship. For example, the United States will continue to have concerns about the course of democracy within Russia. These questions should be addressed candidly and clearly. But the Obama administration should seek a different way to conduct the dialogue from that of the past five years, which has not worked.
[Get the paper here]
Tuesday, January 13, 2009
Towards a Biden-Putin Commission
Towards a Biden-Putin Commission, by Boris Mamlyuk
Huffington Post, January 13, 2009 06:18 AM (EST)
Excerpts:
[...]
The importance of improving U.S./Russia relations cannot be understated. While there are reasons to be mistrustful of political developments in Russia, most commentators agree that Russia and the U.S. have vested interests in avoiding further antagonism. For this reason, the U.S. has maintained public dialogue with Russia open even in moments of crisis. For instance, on the heels of Russia's Georgia war, top U.S. brass met with Russian generals to discuss security and related issues. Even in an election cycle which saw the Georgia war politicized, and under an administration which had little to lose by further alienating Russia, pragmatism trumped politics.
What form should U.S./Russia cooperation take in the Obama administration? And what is in it for Russia? I agree with several other commentators (and here, Lord Boyce speaking before the Select Committee on the EU at the House of Lords) that America can boost its lagging relations with Russia by reestablishing the famous Gore-Chernomyrdin talks in the form of a Biden-Putin Commission. A Biden-Putin Commission has several advantages over the current form of dialogue.
First, a Biden-Putin Commission would serve as a perfect opening chapter for Obama's campaign blueprint of engaging adversaries while aggressively defending American interests. America has always had vibrant diplomatic relations with Russia--from the 1930s with American Ambassador Joseph Davies, to the height of the Cold War, and throughout the transition period. High-level talks are old hat for U.S. and Russia; they carry none of the political baggage Obama faced when discussing diplomatic talks with adversaries such as Iran without preconditions on the campaign trail. If successful, Biden-Putin talks can thus serve as a roadmap for future dialogue with other nations. Second, the commission has the potential to actually change substantive policy. Russia's influence in the aforementioned areas of cooperation is significant; America does need Russian help, especially with Iran and arms sales. Russia on the other hand needs America to recognize it as a rational partner and to reincorporate it into the global community (read: to reverse the capital flight after the Georgia war and to resume the WTO accession process). More fundamentally, Russia (hard hit by the financial crisis, despite denying the damage) needs America to acknowledge it as an equal partner. This alone gives the new administration much leverage.
The commission would also arguably deflate Putin and Medvedev's recent wave of anti-American rhetoric. From Putin's point of view, this may militate against the commission. As noted by Russian historian Boris Kagarlitsky here and elsewhere, Bush's ambivalence towards Russia has played into Putin's hand domestically. How will Putin view Biden, and will he agree to the talks? Russians know Biden as a staunch but reasonable Russia critic. Biden's rhetoric on Russia gives Putin a sufficient measure of protection at home. With Bush gone and a new negotiator across the table, Putin loses no face in participating in the talks and revisiting anew many of the thorny issues of the past eight years. Still, is there sufficient pressure on Russia to participate?
As Stephen Sestanovich of the Council on Foreign Relations notes, Russia will emerge from the current financial crisis weaker and more inclined to work with the West:
For instance, by June 1995, the Gore-Chernomyrdin Commission also encompassed America's efforts to prevent Iran from acquiring weapons from Russia; despite agreements with the U.S., Russia continued selling weapons and nuclear technology to Iran. Critics also argued that the high-profile commission detracted from established low-level diplomatic efforts, stifling conventional channels of negotiation. When the commission was effectively dissolved in 1998 with Chernomyrdin's dismissal by Yeltsin, few could point to actual policy achievements. The Biden-Putin Commission can be successful and avoid these pitfalls of its predecessor.
To begin with, Putin is no Chernomyrdin. Next, even among the critics of the prior commission, few doubted the efficacy of regular face-to-face meetings in establishing goodwill and garnering popular support for U.S./Russia cooperation. If nothing else, the goodwill manifested itself in greater business ties between the two former foes. The U.S. led the world in foreign direct investment in Russia and the CIS states in the 1990s. If nothing else, the Biden-Putin Commission can discharge the pent-up anger and distrust on both sides, galvanize popular opinion towards cooperation, and renew investment in Russia.
Huffington Post, January 13, 2009 06:18 AM (EST)
Excerpts:
[...]
The importance of improving U.S./Russia relations cannot be understated. While there are reasons to be mistrustful of political developments in Russia, most commentators agree that Russia and the U.S. have vested interests in avoiding further antagonism. For this reason, the U.S. has maintained public dialogue with Russia open even in moments of crisis. For instance, on the heels of Russia's Georgia war, top U.S. brass met with Russian generals to discuss security and related issues. Even in an election cycle which saw the Georgia war politicized, and under an administration which had little to lose by further alienating Russia, pragmatism trumped politics.
What form should U.S./Russia cooperation take in the Obama administration? And what is in it for Russia? I agree with several other commentators (and here, Lord Boyce speaking before the Select Committee on the EU at the House of Lords) that America can boost its lagging relations with Russia by reestablishing the famous Gore-Chernomyrdin talks in the form of a Biden-Putin Commission. A Biden-Putin Commission has several advantages over the current form of dialogue.
First, a Biden-Putin Commission would serve as a perfect opening chapter for Obama's campaign blueprint of engaging adversaries while aggressively defending American interests. America has always had vibrant diplomatic relations with Russia--from the 1930s with American Ambassador Joseph Davies, to the height of the Cold War, and throughout the transition period. High-level talks are old hat for U.S. and Russia; they carry none of the political baggage Obama faced when discussing diplomatic talks with adversaries such as Iran without preconditions on the campaign trail. If successful, Biden-Putin talks can thus serve as a roadmap for future dialogue with other nations. Second, the commission has the potential to actually change substantive policy. Russia's influence in the aforementioned areas of cooperation is significant; America does need Russian help, especially with Iran and arms sales. Russia on the other hand needs America to recognize it as a rational partner and to reincorporate it into the global community (read: to reverse the capital flight after the Georgia war and to resume the WTO accession process). More fundamentally, Russia (hard hit by the financial crisis, despite denying the damage) needs America to acknowledge it as an equal partner. This alone gives the new administration much leverage.
The commission would also arguably deflate Putin and Medvedev's recent wave of anti-American rhetoric. From Putin's point of view, this may militate against the commission. As noted by Russian historian Boris Kagarlitsky here and elsewhere, Bush's ambivalence towards Russia has played into Putin's hand domestically. How will Putin view Biden, and will he agree to the talks? Russians know Biden as a staunch but reasonable Russia critic. Biden's rhetoric on Russia gives Putin a sufficient measure of protection at home. With Bush gone and a new negotiator across the table, Putin loses no face in participating in the talks and revisiting anew many of the thorny issues of the past eight years. Still, is there sufficient pressure on Russia to participate?
As Stephen Sestanovich of the Council on Foreign Relations notes, Russia will emerge from the current financial crisis weaker and more inclined to work with the West:
Many Russian commentators have said that if the goal is to keep a hard-hit Russian economy in the international mainstream, adjustments in Russian foreign policy are likely to follow as well. They do not predict a complete change of direction, but a less confrontational, less ideological, more prudent, more resource-constrained approach to relations with the West. The need for such adjustments is particularly obvious where resources are concerned.Russia's desire to be treated as an equal in the global economy, to gain a seat at Obama's proverbial table, presents an opportunity not seen since the collapse of the USSR. The prospect for a new Gore-Chernomyrdin Commission to support cooperation in the areas of space, energy, high-tech, business development, defense, the environment and the like dwarfs any other prospective development between the U.S. and Russia. Yet it is not without critics.
For instance, by June 1995, the Gore-Chernomyrdin Commission also encompassed America's efforts to prevent Iran from acquiring weapons from Russia; despite agreements with the U.S., Russia continued selling weapons and nuclear technology to Iran. Critics also argued that the high-profile commission detracted from established low-level diplomatic efforts, stifling conventional channels of negotiation. When the commission was effectively dissolved in 1998 with Chernomyrdin's dismissal by Yeltsin, few could point to actual policy achievements. The Biden-Putin Commission can be successful and avoid these pitfalls of its predecessor.
To begin with, Putin is no Chernomyrdin. Next, even among the critics of the prior commission, few doubted the efficacy of regular face-to-face meetings in establishing goodwill and garnering popular support for U.S./Russia cooperation. If nothing else, the goodwill manifested itself in greater business ties between the two former foes. The U.S. led the world in foreign direct investment in Russia and the CIS states in the 1990s. If nothing else, the Biden-Putin Commission can discharge the pent-up anger and distrust on both sides, galvanize popular opinion towards cooperation, and renew investment in Russia.
Wednesday, January 7, 2009
Russian Energy Supply Conflict: Domestic Resources Key To U.S. Energy Security
Russian Energy Supply Conflict: Further Evidence Domestic Resources Key To U.S. Energy Security
IER urges Congress to focus on America’s oil and natural gas resources in both energy and economic policies
Institute for Energy Research, Wednesday, January 7, 2009
WASHINGTON, D.C. —As the Senate Energy and Natural Resources Committee prepares to hold its first hearing on energy security tomorrow, Institute for Energy Research (IER) Senior Vice President for Policy Daniel Kish is reminding lawmakers that the answer to both our economic recovery and energy future lies in our nation’s vast domestic natural resources.
Russia’s sudden decision to shut off natural gas supply to neighboring Ukraine last week further reinforces the need to reduce U.S. reliance on unstable foreign regimes for oil and natural gas imports. As such, any effort by the 111th Congress to increase energy production at home would reduce America’s reliance on imported oil while simultaneously creating jobs, generating tax revenue, and providing a major boost to the national economy.
IER urges Congress to focus on America’s oil and natural gas resources in both energy and economic policies
Institute for Energy Research, Wednesday, January 7, 2009
WASHINGTON, D.C. —As the Senate Energy and Natural Resources Committee prepares to hold its first hearing on energy security tomorrow, Institute for Energy Research (IER) Senior Vice President for Policy Daniel Kish is reminding lawmakers that the answer to both our economic recovery and energy future lies in our nation’s vast domestic natural resources.
Russia’s sudden decision to shut off natural gas supply to neighboring Ukraine last week further reinforces the need to reduce U.S. reliance on unstable foreign regimes for oil and natural gas imports. As such, any effort by the 111th Congress to increase energy production at home would reduce America’s reliance on imported oil while simultaneously creating jobs, generating tax revenue, and providing a major boost to the national economy.
“With Congress beginning to map out an agenda to address our nation’s energy security, our lawmakers should consider the havoc wreaked last week by Russia’s abrupt decision to shut off the supply of natural gas to the Ukraine,” says Kish. “This rash action imperiled almost 20 percent of central Europe’s gas supplies — which must first pass through the Ukraine.
“As this overseas energy supply conflict illustrates, any plan to improve America’s energy security must involve reducing U.S. reliance on imports from unstable foreign regimes like Russia. While Europe may be forced to rely on Russia and other imported energy, the US has no excuse. North America is chock full of natural gas, conventional and unconventional oil and coal that can be cleanly converted to energy. With less than 4% of our governments’ lands leased for energy, Congress should be asking if we can afford to say ‘Nyet’ to domestic energy production. And that’s not the only reason Capitol Hill should act to expand access to our energy supplies here at home.
“Amid a faltering economy and rising unemployment rates, ‘job security’ has joined ‘energy security’ as one of many Americans’ top priorities.Fortunately, our domestic natural resources hold answers to the current recession too. Recent research shows that developing America’s oil and gas resources will create jobs, stimulate the economy, and generate massive revenues for taxpayers.
“Policies that encourage greater exploration and development of our nation’s vast energy resources will ensure that Americans are able to take control of their energy and financial future.”
Friday, January 2, 2009
US Sate Dept On Dispute Regarding Gas Delivery from Russia to Ukraine
Press Statement
Gordon K. Duguid, Acting Deputy Spokesman
Washington, DC, January 1, 2009
Ukraine: Dispute Regarding Gas Delivery from Russia to Ukraine
We are concerned that Gazprom has cut off gas sold to Ukraine. The U.S. encourages Gazprom and Naftogaz to resume negotiations on an agreement that will maintain the reliability of gas delivery to Ukraine and Europe. We urge Russia and Ukraine to resolve their dispute over the gas debt and the terms of their natural gas supply arrangements in a transparent, commercial manner.
Released on January 1, 2009
Gordon K. Duguid, Acting Deputy Spokesman
Washington, DC, January 1, 2009
Ukraine: Dispute Regarding Gas Delivery from Russia to Ukraine
We are concerned that Gazprom has cut off gas sold to Ukraine. The U.S. encourages Gazprom and Naftogaz to resume negotiations on an agreement that will maintain the reliability of gas delivery to Ukraine and Europe. We urge Russia and Ukraine to resolve their dispute over the gas debt and the terms of their natural gas supply arrangements in a transparent, commercial manner.
Released on January 1, 2009
Wednesday, December 31, 2008
The Kremlin's foreign policy priorities are determined by the changing ideology and the domestic political agenda of Russia's rulers
Russia's Woes Spell Trouble for the U.S. By Leon Aron
WSJ, Wednesday, December 31, 2008
Russia faces a particularly nasty version of the global recession (at a minimum), and perhaps an economic "perfect storm." Regardless of how bad its economy gets, two broad political trends, each carrying profound implications for Russia's foreign policy and U.S.-Russian relations, are bound to emerge.
The first will be a growing dissatisfaction with the government, which may lead to a political crisis. The second will be a reactionary retrenchment: increased internal repression and more of its already troubling foreign policy. Managing the relationship with Moscow in the face of these trends is something President-elect Barack Obama and his administration should start thinking about now.
The size and depth of Russia's economic problems -- and thus the amount of political turbulence -- will depend primarily on two variables. The first is the ruble decline. The national currency is steadily depreciating and has reached an all-time low against the euro despite the central bank's having spent $161 billion on its defense since mid-September. The ruble's losing at least 25% to 30% of its value is a given; the key political issue is whether the weakening can be managed into a gradual decline, or whether the depreciation turns into a panicky flight from the currency. (Already last September Russians dumped around 160 billion rubles to buy $6 billion -- the highest demand for dollars since the aftermath of the 1998 financial crisis.)
The second factor is oil prices. Last year, oil revenues accounted for at least one-fifth of Russia's GDP and half of state revenues. At $40 a barrel, the state budget goes into a 3%-4% deficit. In the past eight years, the national economy has mirrored fluctuating oil prices. So the 7%-8% growth projected for 2008 will have to be cut at best to 1%-2% for 2009. Zero growth or contraction are distinct possibilities.
Such a predicament is most dangerous politically for a country whose population has become used to incomes increasing 8%-10% every year since 2000. Growing disappointment is sure to follow, first among the elites and then people at large.
Despite the reduction of the poverty rate to 14% from 20% in the last five years, tens of millions of Russians continue to live precariously: A recent poll found that 37% of all families have money enough only to cover food. Unemployment and inflation (already 14%, year-on-year, in November) may well push these people over the edge and into the streets.
Perilous for any regime, such disenchantment would be especially worrisome in a country where the legitimacy of the entire political structure appears to rest on the popularity of one man, Vladimir Putin, whose astronomic ratings stemmed largely from the relative economic prosperity he has presided over. This dangerously narrow legitimacy will be sorely tried in the coming months.
Forestalling or at least containing inevitable political consequences of the economic crisis is likely to be at the root of the other political tendency: an attempt by the Putin-led elite, coalesced around Gazprom, Rosneft, state corporations and the loyal industrial "oligarchs," to pre-empt challenges by beefing up the authoritarian "vertical of power." The rewriting of the constitution to give the president 12 consecutive years in office signals the implementation of this strategy. The amendment was overwhelmingly passed by both houses of the Federal Assembly within three weeks in November, ratified by all 83 regional parliaments in less than a month. President Dmitry Medvedev signed it into law yesterday.
One scenario bruited about in Moscow has Mr. Medvedev taking full responsibility for the crisis and resigning to free the Kremlin for the caretaker prime minister (Mr. Putin), soon to be re-elected president.
A bill introduced in the Duma on Dec. 12 expands the definition of treason, punishable by up to 20 years in prison, to "taking action aimed at endangering the constitutional order, sovereignty and territorial integrity" of Russia. That same day the parliament approved the elimination of the right to jury trials for defendants charged with treason. The ruthlessness with which the riot police troops, the OMON, attacked protesters, journalists and bystanders in Vladivostok over the weekend of Dec. 20 may be a preview of things to come.
A reactionary crackdown will also mean the continuation and intensification of the already incessant and deafening propaganda portraying Russia as a "besieged fortress," surrounded by the U.S.-led enemies on the outside and undermined by the "fifth column" of the democratic political opposition within. In the words of one of the most astute independent columnists, the courageous Yulia Latyinina, the rabid anti-Americanism, which has become a linchpin of the regime's domestic political strategy, is likely to turn into a full-blown "hysteria."
The key lesson of George W. Bush's dealings with Russia is that the Kremlin's foreign policy priorities are determined by the changing ideology and the domestic political agenda of Russia's rulers to a far greater degree than by anything the U.S. does or does not do. (Which is why the U.S. exit from the antiballistic missile treaty was accepted with equanimity in 2002, while the intent to install a rudimentary antimissile system provoked Moscow's fury in 2007.) If reaction advances at home, the Kremlin will continue a truculent or outright aggressive foreign policy of resurgence and retribution, intended, among other things, to distract from and justify domestic repression. The recovery of geostrategic assets lost in the Soviet collapse will remain Moscow's overarching objective, especially in the territory of the former Soviet Union.
The Obama White House will have to navigate a difficult and narrow path in its relations with Moscow in 2009 between continuing to engage Moscow on the key issues of mutual concern (Iran, missile defense, nonproliferation, terrorism), on the one hand, and the broader strategic goal of assisting democratic stabilization in Russia.
But no matter what the Kremlin leaders and their propaganda stooges say in public, anything interpreted as approval or even a mere sign of respect by America, first and foremost by its president, is a huge boost to the government's domestic popularity and legitimacy. So the natural, almost protocol-dictated, inclination of the new administration to show good will must be balanced against firm support for the return to political and economic liberalization in Russia. Throwing diplomatic lifelines to a regime that refuses to choose such a path out of the crisis is not in America's -- and Russia's -- long-term interests.
Mr. Aron is director of Russian studies at the American Enterprise Institute and the author, most recently, of "Russia's Revolution: Essays 1989-2007" (AEI, 2007).
WSJ, Wednesday, December 31, 2008
Russia faces a particularly nasty version of the global recession (at a minimum), and perhaps an economic "perfect storm." Regardless of how bad its economy gets, two broad political trends, each carrying profound implications for Russia's foreign policy and U.S.-Russian relations, are bound to emerge.
The first will be a growing dissatisfaction with the government, which may lead to a political crisis. The second will be a reactionary retrenchment: increased internal repression and more of its already troubling foreign policy. Managing the relationship with Moscow in the face of these trends is something President-elect Barack Obama and his administration should start thinking about now.
The size and depth of Russia's economic problems -- and thus the amount of political turbulence -- will depend primarily on two variables. The first is the ruble decline. The national currency is steadily depreciating and has reached an all-time low against the euro despite the central bank's having spent $161 billion on its defense since mid-September. The ruble's losing at least 25% to 30% of its value is a given; the key political issue is whether the weakening can be managed into a gradual decline, or whether the depreciation turns into a panicky flight from the currency. (Already last September Russians dumped around 160 billion rubles to buy $6 billion -- the highest demand for dollars since the aftermath of the 1998 financial crisis.)
The second factor is oil prices. Last year, oil revenues accounted for at least one-fifth of Russia's GDP and half of state revenues. At $40 a barrel, the state budget goes into a 3%-4% deficit. In the past eight years, the national economy has mirrored fluctuating oil prices. So the 7%-8% growth projected for 2008 will have to be cut at best to 1%-2% for 2009. Zero growth or contraction are distinct possibilities.
Such a predicament is most dangerous politically for a country whose population has become used to incomes increasing 8%-10% every year since 2000. Growing disappointment is sure to follow, first among the elites and then people at large.
Despite the reduction of the poverty rate to 14% from 20% in the last five years, tens of millions of Russians continue to live precariously: A recent poll found that 37% of all families have money enough only to cover food. Unemployment and inflation (already 14%, year-on-year, in November) may well push these people over the edge and into the streets.
Perilous for any regime, such disenchantment would be especially worrisome in a country where the legitimacy of the entire political structure appears to rest on the popularity of one man, Vladimir Putin, whose astronomic ratings stemmed largely from the relative economic prosperity he has presided over. This dangerously narrow legitimacy will be sorely tried in the coming months.
Forestalling or at least containing inevitable political consequences of the economic crisis is likely to be at the root of the other political tendency: an attempt by the Putin-led elite, coalesced around Gazprom, Rosneft, state corporations and the loyal industrial "oligarchs," to pre-empt challenges by beefing up the authoritarian "vertical of power." The rewriting of the constitution to give the president 12 consecutive years in office signals the implementation of this strategy. The amendment was overwhelmingly passed by both houses of the Federal Assembly within three weeks in November, ratified by all 83 regional parliaments in less than a month. President Dmitry Medvedev signed it into law yesterday.
One scenario bruited about in Moscow has Mr. Medvedev taking full responsibility for the crisis and resigning to free the Kremlin for the caretaker prime minister (Mr. Putin), soon to be re-elected president.
A bill introduced in the Duma on Dec. 12 expands the definition of treason, punishable by up to 20 years in prison, to "taking action aimed at endangering the constitutional order, sovereignty and territorial integrity" of Russia. That same day the parliament approved the elimination of the right to jury trials for defendants charged with treason. The ruthlessness with which the riot police troops, the OMON, attacked protesters, journalists and bystanders in Vladivostok over the weekend of Dec. 20 may be a preview of things to come.
A reactionary crackdown will also mean the continuation and intensification of the already incessant and deafening propaganda portraying Russia as a "besieged fortress," surrounded by the U.S.-led enemies on the outside and undermined by the "fifth column" of the democratic political opposition within. In the words of one of the most astute independent columnists, the courageous Yulia Latyinina, the rabid anti-Americanism, which has become a linchpin of the regime's domestic political strategy, is likely to turn into a full-blown "hysteria."
The key lesson of George W. Bush's dealings with Russia is that the Kremlin's foreign policy priorities are determined by the changing ideology and the domestic political agenda of Russia's rulers to a far greater degree than by anything the U.S. does or does not do. (Which is why the U.S. exit from the antiballistic missile treaty was accepted with equanimity in 2002, while the intent to install a rudimentary antimissile system provoked Moscow's fury in 2007.) If reaction advances at home, the Kremlin will continue a truculent or outright aggressive foreign policy of resurgence and retribution, intended, among other things, to distract from and justify domestic repression. The recovery of geostrategic assets lost in the Soviet collapse will remain Moscow's overarching objective, especially in the territory of the former Soviet Union.
The Obama White House will have to navigate a difficult and narrow path in its relations with Moscow in 2009 between continuing to engage Moscow on the key issues of mutual concern (Iran, missile defense, nonproliferation, terrorism), on the one hand, and the broader strategic goal of assisting democratic stabilization in Russia.
But no matter what the Kremlin leaders and their propaganda stooges say in public, anything interpreted as approval or even a mere sign of respect by America, first and foremost by its president, is a huge boost to the government's domestic popularity and legitimacy. So the natural, almost protocol-dictated, inclination of the new administration to show good will must be balanced against firm support for the return to political and economic liberalization in Russia. Throwing diplomatic lifelines to a regime that refuses to choose such a path out of the crisis is not in America's -- and Russia's -- long-term interests.
Mr. Aron is director of Russian studies at the American Enterprise Institute and the author, most recently, of "Russia's Revolution: Essays 1989-2007" (AEI, 2007).
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