Daily Archives: January 11, 2007

LR on PP

Check out La Russophobe’s latest installment on Publius Pundit, where she exposes the Russophile fraud that is Professor Daniel Treisman, who told us several years ago that Vladimir Putin’s Russia was a “normal country” we didn’t need to get worked up about. It’s the first in a projected series of articles calling Russophiles to account for misleading us on Russia and causing us to drop our guard, thus putting us in a position of appeasement where the challenge we face has become far worse than it needed to be, just as in Munich before World War II. Of course, we’ll also be giving due credit to the early Russophobes, like Professor Pipes of Harvard who is also mentioned in the post. If we can’t learn from our mistakes and start listening to the right people, we’re doomed to repeat history. Feel free to leave a comment about Professor Treisman or Professor Pipes, or tipping us to others who have made mistakes in the past for which they should be called to account, or those who have shone the bright light truth on Russia.

Frosty Congress on collision course with Moscow

The Financial Times reports on the Kremlin’s total alienation of the American government and the onset of Cold War II.

The Bush administration’s relationship with the Kremlin has chilled considerably since the moment in 2001 when the US president famously looked into the soul of his Russian counterpart and declared that Vladimir Putin was “very straightforward and trustworthy”.

And Washington’s stance towards Moscow could become even more frosty in coming months, potentially colliding with expected attempts by Russia to use its new found oil and natural gas wealth to step up its investment in the US, including the expansion of Gazprom, its national energy group, into the US market.

For years most lawmakers in the Republican-controlled Congress have taken the White House’s lead in their stance toward Russia. Now experts predict that mounting concerns on Capitol Hill, on issues ranging from Mr Putin’s commitment to democracy to questions about the security of western investments in the Russian energy sector, could see lawmakers taking a more robust, sceptical approach.

Barney Frank, the Democratic lawmaker who, as chair the House financial services committee has an influential voice on foreign investment issues, exemplified the expected change in tone last week in a speech to the National Press Club.

In remarks that extolled the “absolute security” of the US market, Mr Frank took a shot at the Kremlin when he remarked: “Where do you want to invest? Russia? So Putin can steal your company?”

The 2008 presidential race could also colour relations with Russia. Two of the Kremlin’s most vociferous critics are contenders for the White House: Democrat Joseph Biden who heads the Senate foreign relations committee and John McCain, a favourite to win the Republican nomination.

The defeat in the recent mid-term elections of Republican congressman Curt Weldon, a staunch defender of the Kremlin, and the ascension of Democrat Tom Lantos to the top ranks of the House international relations committee, are also likely to renew the focus on allegations of human rights abuses in Russia, including the controversy over the forced sale of Yukos, the energy group, and the imprisonment of Mikhail Khodorkovsky, its former chief executive.

One Democratic Senate source said Russia had been “flying under the radar screen” because Washington had largely focused its attention on Iraq, Iran and North Korea, but that concerns had become increasingly hard to ignore.

“To some extent, it’s not our business to regulate the Russian economy, but to the extent they use their control over the Russian economy to affect countries that are close friends and partners, that’s something we care about,” the person said. “I would hope that we don’t respond to bad behaviour with protectionism of our own but one can’t discount that option entirely.”

One Washington business lobbyist, noting the recent storm over Shell ceding control of its Sakhalin-2 oil and gas project in Russia to Gazprom, agreed: “I wouldn’t be surprised if Russian investment in the US was subject to higher political attention in Congress given that Russia has basically expropriated western investments.”

Marshall Goldman, associate director of the Davis Center for Russian Studies at Harvard, says Russia has $300bn in cash “rolling around” and that the recently proposed $2.3bn takeover of Oregon Steel by Evraz, a Russian steel group, is “just the beginning”.

“I think we have to learn there really isn’t much to restrain them. But if they engage in these kinds of games, people can play them too,” Mr Goldman says.

Ultimately, Congress’s ability to affect the US government’s overall relationship with Russia will be limited. Critics will not have a formal vote, for example, over an agreement hatched by the White House that paves the way for Russia to join the World Trade Organisation. However, lawmakers could seize an expected request by the White House for Congress to repeal the 1974 Jackson-Vanik amendment as an opportunity to air broad grievances. The amendment subjects Russia’s trading status to annual review and must be repealed in order to give Russia permanent normal trade relations.

Don Evans, who served as commerce secretary during Mr Bush’s first term and who last year turned down a top position at Rosneft, the Russian energy group, offered to him by Mr Putin, said in an interview with the Financial Times that Russia’s inclusion in the WTO would ultimately foster greater understanding between it and the US and would help integrate Russia into the global economy.

“The issues people want to point to all the time will be a few cases within the [Russian] energy sector that get all the attention,” said Mr Evans, who heads the Financial Services Forum, banking lobby group.

“But all the American companies that are providing other services and goods . . are doing very, very well.”

European Dependence on Russian Natural Gas

The Opinionist offers readers the following outstanding graphic he has created based on data from the Congressional Research Service regarding the dependance of Europe on Russian natural gas, citing a recent CRS report (click through to check out his extended analysis of the issue):

Russia Kills the Oily Goose

Writing on American.com Leon Aron, a resident scholar and director of Russian studies at the American Enterprise Institute as well as the author of Yeltsin: A Revolutionary Life(St. Martin’s Press) and of the forthcoming Russia’s Revolution(AEI Press), explains that Moscow’s attachment to statist economic policy is undermining its bid for global energy dominance. By re-nationalizing its energy sector, Putin’s regime is slaying its largest golden goose.

RUSSIA’S OIL WOES

The idea that Russia is a new “energy super­power” is all the rage in Moscow, thanks in part to President Putin’s vigorous salesmanship. The coun­try holds between 6 and 10 percent of the world’s known oil reserves and exports around seven mil­lion barrels a day—second only to Saudi Arabia. Last summer, the Kremlin pushed hard to make energy security the centerpiece of the G8 summit in St. Petersburg. Lost in the crash of cymbals, however, is Russia’s uncertain ability to keep up with growing world demand—or even to maintain its current level of production, after a dazzling run from 1999 to 2004. While there are several reasons for concern, the underlying problem is sadly familiar in Russian history: a state ideology is poised to undermine the country’s progress at precisely the time when Russia seems on the verge of a breakthrough.

The government’s campaign to take control of energy firms began in 2004 with the selective prosecution of Russia’s largest and finest private oil company, YUKOS. In a series of blatantly rigged trials, Russian courts found YUKOS guilty of corporate sins and tax violations, including the nonpayment of a tax bill far exceeding the company’s profits. The company was bankrupted, and its most productive unit, Yuganskneftegaz, was sold through an intermediary to the state-owned Rosneft. YUKOS’s founder and principal shareholder, Mikhail Khodorkovsky, is serving a sentence of nine years’ hard labor at a prison camp in eastern Siberia. Soon thereafter, another leading private oil company, Sibneft, was purchased by the state-owned natural monopoly, Gazprom. In 2004–2005, the state’s share of oil production increased from 10 per­cent to 30 percent.

By re-nationalizing its energy sector, Russia is slaying its largest golden goose. Between 1999 and 2004, the much maligned “oligarchs,” as the young tycoons who became fabulously rich in the privatization of the 1990s are often called, invested over $36 billion, or 88 percent of their net profits, in “greenfield” exploration, drilling, and modern technology.[1] Helped along by the cheaper ruble and an overhaul in the companies’ corporate manage­ment (which became leaner, more transparent, and responsive to the markets), the private sector’s oil production grew by 47 percent. Trillions of rubles were paid in taxes to the Treasury and, for the first time in post-Soviet history, dividends went to the shareholders.

By contrast, during the same five years, extrac­tion by state-owned companies was up by a mere 14 percent.[2] But ever since “acquiring” most of YUKOS, Rosneft—which was an obscure firm about to be put up for sale when Putin’s confidant and deputy chief of staff, Igor Sechin, took over as chairman—has aggressively continued to buy oil assets. Gazprom has been on a shopping spree of its own: in just the last three years it has spent $18 billion on acquiring “non-core” businesses outside the gas field (such as Sibneft, for $13 billion)—more than it has invested in exploration and production since 1996.[3]

Thus, some of the most productive assets of the Russian oil industry have been transferred from the most transparent and efficient companies (YUKOS and Sibneft) to the least transparent and efficient (Rosneft and Gazprom). The result? After an average growth of 8.5 percent between 2001 and 2004, in the last two years, the growth in oil production has dropped to 2 percent.[4]

Russia’s largest deposits of hydro­carbons lie thousands of miles away from the terminals that can carry them to world markets. The state-owned pipeline monopoly, Transneft, operates over 29,000 miles of pipeline. But of the seven million barrels a day that Russia produces for export, only about four million are shipped via the pipelines.[5] The rest have to be transported much more expensively and slowly, by rail. This year, Russia’s production may exceed its total shipping capacity by between 220 and 294 million barrels.[6]

The Russian pipelines are not only short of what’s needed, they are also old. Two miles in three were laid over 20 years ago. Breakdowns and leaks are becoming increasingly common. Last year’s survey of the 1960s-era “Druzhba” (Friendship) pipeline, which carries 1.2 million barrels a day to Eastern and Central Europe, found almost 500 “damaged points.”[7] Last July, 11,000 gallons of crude leaked from the Druzhba near Russia’s border with Belarus, briefly shutting down the route and sending world oil markets up to about $75 a barrel.

Four years ago, a consortium of the largest Russian private oil companies offered to build a pipeline that would have carried one million barrels a day over 960 miles from the main fields in west­ern Siberia across the White Sea to the terminals in Murmansk, the only northern port in Russia that does not ice over in winter. The project, estimated at about $4 billion, was to be financed entirely by private capital. By that time, however, economic re-centralization was becoming the dominant state policy, and the Kremlin turned down the construc­tion, in effect vetoing private pipelines in Russia.

With some of its key potential domestic inves­tors expropriated, scared into selling, or forced to reduce their investments because of the increasingly uncertain business climate, Russia needs a massive infusion of foreign capital in order to continue devel­oping its energy sector. Here too, however, statist ideology trumps the country’s long-term interests.

As-yet-unwritten laws (which are understood as effective constraints on firms in the country) limit foreign ownership in joint ventures to 25 percent and bar companies of which foreigners own more than 49 percent from participating in the largest oil fields.

Moreover, Russia has begun to pressure the existing foreign operators of oil and gas fields into renegotiating their agree­ments. Last September, the author­ities were suddenly so concerned about environmental and ecological “violations” that they threatened to halt the construction, led by Royal Dutch Shell, of the world’s biggest liquefied natural gas plant on Sakhalin Island in the Far East. Known as “Sakhalin-2,” the project is the larg­est direct foreign investment in Russia, estimated to cost Shell and its Japanese partners $20 billion. Projected annual output is 70 million barrels.

At the same time, pressure was also brought to bear on ExxonMobil’s offshore Sakhalin production (“Sakhalin-1”) just as it was about to start shipping. That project was expected to cost $17 billion and produce 88 million barrels of oil annually. There is no Russian participation in Sakhalin-2, while Rosneft has only a 20 percent stake in Sakhalin-1. Now that oil and gas are so much more expensive than when the original deals were struck, the Kremlin wants a larger share of profits—or all of them.

It is now widely assumed that the government will pull the license of Russia’s second-largest oil company, half-owned by the British, unless the three principal Russian owners agree to sell their shares to Gazprom. That firm, TNK-BP, is develop­ing the Kovykta, a giant gas field in eastern Siberia. The latest addition to the Kremlin’s hit list is Russia’s largest remaining private company, Lukoil, one-fifth of which is owned by ConocoPhillips. The company, which pumps 18 percent of Russia’s daily production, has been charged by the Ministry of Natural Resources with unspecified “violations” in the development of oil fields and is threatened with the recall of almost two dozen licenses.

These moves are bound to make foreign direct investors think twice before going into Russia—and if last July’s float of Rosneft’s shares on the London Stock Exchange is an indicator, harvesting stock markets might not work either. Intoxicated as they were with high oil prices, investors’ response to the largest initial public offering in Russian history (and the sixth-biggest in the world)[8] was less enthusias­tic than Moscow had hoped for. The interest from international institutional investors, such as insur­ance companies, was weaker than an offering this large would normally produce.[9] The three biggest accounts belonged to the entities clearly seeking to refurbish their Kremlin loyalty credentials: BP (10 percent of the offering), the Malaysian state oil com­pany Petronas (9 percent), and the China National Petroleum Corporation (4 percent). The offering produced half the revenues expected.

By choosing re-centralization and re-national­ization over liberal reforms in energy markets, and opting for state control over direct foreign invest­ment, Russia may stop itself from raising enough capital to sustain the current level of energy pro­duction and transportation, much less to expand it. “Energy superpower” is likely to become an even more distant dream than it is today.

On Rationalizing Neo-Soviet Imperialism

Writing in RIA Novosti, Alexander Pogorelsky, director of the Institute of Eastern Europe and member of the RIA Novosti Expert Council discusses the value of Russia exercising imperial control over the nations of the former USSR (with LR’s running commentary in red):

In general, Russia does not stand to gain from the international recognition of self-proclaimed post-Soviet countries. However, together with the world community it will have to search for new solutions to this problem.

LR: By this logic, the world shouldn’t have recognized Russia when it “self-proclaimed” separation from the USSR.

The world community has not recognized Abkhazia, Nagorno-Karabakh, Transdnestr and South Ossetia. They emerged immediately after the disintegration of the Soviet Union, and preserved their de facto independence over the past 15 years. Their problem is becoming increasingly urgent, and not only because of the expected recognition of Kosovo, which, as some experts believe, can create a precedent in this respect. Although formally the world community does not recognize the presidential elections in South Ossetia and Transdnestr, and a constitutional referendum in Nagorno-Karabakh, they point to a clear invigoration of political life in these republics. At the same time, metropolitan countries, primarily Georgia, are prone to retrieve the lost territories by force, which is bound to negatively affect the general situation in the area and Russian-Georgian relations. It seems that now the breakaway republics, these smallest fragments of the former U.S.S.R., have approached the time of trial.

LR: Is he suggesting that Russia is not “prone to retrieve lost territories by force”? Is he actually saying, with a straight face, that Georgian aggression is responsible for the deterioration of relations? Perhaps he hasn’t heard about Russia’s attempt to foment a coup d’etat against Georgia . . .

The problem of breakaway republics is a challenge both for Russia, and the rest of the world. The right of nations to self-determination, and the principle of the inviolability of frontiers are often separated in international documents by a comma. However, the persisting contradiction between them is capable of shattering the relatively stable international practice on territorial integrity and border disputes. Some experts perceive the expected Kosovo precedent as a master key that can unlock any borders, and essentially wreck a system of frontiers in Europe and the rest of the world. More often then not, the notorious “right of a nation to self-determination, up to and including secession” becomes a weapon in the hands of political schemers and extremists. Abuse of this right is extremely dangerous everywhere, including Russia and its neighbors – any successful example of separatism on post-Soviet territory can trigger off a domino effect.

LR: By “experts” he apparently means himself, and “more often than not” he means apparently whenever Russia is not seeking to break territory away from other countries and seize it for itself.

There is no doubt that it is in Russia’s national interests to support the inviolability of frontiers and territorial integrity no matter where, although this principle cannot be absolute or universal. It has some restrictions, for instance, when a country’s central government, and titular nation suppress the rights of ethnic minorities, such as the right to autonomy, and still worse, pursue a policy of tough assimilation. In this case, the state loses its right to territorial integrity because it is violating inalienable human rights, including the right to life, when it is suppressing national movements by force. In other words, separatism is turning into a form of struggle for survival, and small nations are fighting for their right to national identity and independence in the modern multi-cultural world.

LR: Hmmm . . . so if a country is found to “suppress the rights of ethnic minorities” then its frontiers become violable? In that case, the fact that Russia murders one dark-skinned person every week probably means Russia is affected, right?

How to find a compromise in settling this most urgent contradiction? Universal solutions are not likely to help. However, a number of general principles could be applied to each particular case. The main point is to display mutual responsibility, and achieve a pragmatic balance of interests between a metropolitan country and a breakaway nation striving for independence and international recognition. If a country is multi-ethnic, it is obliged to take into account the interests of all ethnic groups on its territory. It should not be Unitarian, or discriminate against any of its nations. The current Georgian leaders are refusing to recognize the autonomy of Abkhazia and South Ossetia, and it is not surprising that these former autonomies are striving for independence – they simply do not see themselves as part of Georgia. If during a long period of time a self-proclaimed entity demonstrates the functioning of independent state institutions, observance of the rights of ethnic minorities, a consensus of its elites, economic self-sufficiency and cultural identity, if it moves towards independence peacefully and democratically, and on the basis of reasonable bargaining and compromise, there is an obvious opportunity for its international recognition as an independent and valid state.

LR: In other words, let Russia grab whatever territory it wants, and don’t let anybody grab any territory from Russia. Use international pressure to protect Russia, but not to attack it, to help advance Russia’s imperliast agenda but not to impede it. That’s fair, isn’t it?

Russia does not stand to gain from the self-determination, and international recognition of its neighbors, although its sympathies are on their side. This is so not only because the threat of separatism exists in Russia itself. If unrecognized countries become subjects of international law, Moscow will automatically lose the right to patron-client relations with them. Speaking figuratively, there may appear new gambling chips in the international stock exchange, on which Russia’s rivals may place their bets.

LR: Why exactly does Russia suffer from letting Chechnya be free? Can anyone explain? Certainly not this fellow, that’s for sure.

Nobody can guarantee that Moscow’s former unrecognized friends will not make an about-face towards the Euro-Atlantic community. Moreover, this turn may be one of the conditions for their full recognition. The threat of armed conflicts, especially between Georgia and South Ossetia, and between Georgia and Abkhazia may generate unpredictable consequences for the Russian North Caucasus. Russia is more interested in the restoration of the territorial integrity of its neighbors – Georgia, Moldova and Azerbaijan. However, there are not many chances that this would be done in a peaceful and civilized way. For this reason, Moscow will have to look for new standards in settling the problem of self-proclaimed countries.

LR: Note that well. Russia is the civilized country, the others are barbarians.

One of the possible ways is to establish a supranational entity patterned after the European Union. It could largely resolve the problem of separatism and regionalism by uniting metropolitan countries and breakaway nations on the basis of a broader identity that would be acceptable for all the members. The question is whether post-Soviet states and their leaders will show enough political maturity to make this choice.

LR: The key is for Russia to have total control over that entity, of course.

Annals of Russian "Sportsmanship"

The Sydney Herald reports:

WORLD No.3 Nikolay Davydenko yesterday slammed the Sydney International, labelling it a small tournament that no one cared about. The 25-year-old joined the multitude of big name players to pull out of the Australian Open lead-up event with apparent injuries. Davydenko had lost the first set 6-4 to Frenchman Paul Henri-Mathieu when he pulled out of the second round match yesterday with a suspected stress fracture in his right foot. When asked why he thought so many players were pulling out, Davydenko said: “Because it’s a small tournament. So I don’t think nobody care about here.” He suggested another problem was that the court surface in Sydney was no longer similar to the one the players will play on next week in the grand slam event. The implication was that players were keen to get to Melbourne earlier to get used to the conditions. “It should be the same – [the] balls and surface normally is the same, but after I play here last year, like I play here every year, [it was] a little bit different,” Davyenko said. “The court is a little bit more slow and balls flying not so fast like here.”

Annals of Russian Sportsmanship

The Sydney Herald reports:

WORLD No.3 Nikolay Davydenko yesterday slammed the Sydney International, labelling it a small tournament that no one cared about. The 25-year-old joined the multitude of big name players to pull out of the Australian Open lead-up event with apparent injuries. Davydenko had lost the first set 6-4 to Frenchman Paul Henri-Mathieu when he pulled out of the second round match yesterday with a suspected stress fracture in his right foot. When asked why he thought so many players were pulling out, Davydenko said: “Because it’s a small tournament. So I don’t think nobody care about here.” He suggested another problem was that the court surface in Sydney was no longer similar to the one the players will play on next week in the grand slam event. The implication was that players were keen to get to Melbourne earlier to get used to the conditions. “It should be the same – [the] balls and surface normally is the same, but after I play here last year, like I play here every year, [it was] a little bit different,” Davyenko said. “The court is a little bit more slow and balls flying not so fast like here.”