Daily Archives: August 15, 2007

August 15, 2007 — Contents

WEDNESDAY AUGUST 15 CONTENTS


(1) The Neo-Soviet Crackdown on the Internet in Russia Continues Apace

(2) Annals of Neo-Soviet “Journalism” in Russia

(3) The Nabucco Pipeline: Berlin Airlift for the 21st Century

(4) Neo-Soviet Inflation: Lies and the Lying Russian Liars who Tell Them

Annals of the Neo-Soviet Blog Crackdown in Russia

Inquirer.net reports that the Kremlin’s malignant forces have descended once again upon the blogosphere:

A Russian blogger could face two years in prison for insulting police in his online diary on the popular website livejournal.com, local prosecutors said Monday. Prosecutors in the northern Russian city of Syktyvkar have charged blogger Savva Terentyev [LR: pictured, he’s just 21 years old] with hate speech crimes carrying penalties ranging from a 100,000-ruble ($4,000) [LR: That’s more than half a year’s pay at the average wage] fine to two years in prison, the Komi regional prosecutor’s office said in a statement. A February 2007 post by Terentyev included “a direct call aimed at inciting hatred or hostility, as well as harming the dignity of… a particular social group: policemen,” the prosecutor said. The offending message has been deleted from the site, though local news agency BNKomi quoted the original entry as likening police officers to thugs and suggesting that they should be burnt. Terentyev’s blog, which focuses mostly on his music listening habits, contained hundreds of messages of support and outrage over the case from other livejournal.com users. Anton Nosik, director of livejournal.com’s chief administrator in Russia, told daily Kommersant the case was “absurd.” “The ignorance of local judges often plays a role in the outcome of cases connected to the internet,” Nosik said. “I hope that with many journalists present, the judge will look at the essence of the case and not simply hand down a guilty verdict.”

Kudos to Nosik for speaking out, but we would have hoped for better. Some people thought Stalin and Hitler were “absurd” when they first got going, too. Maybe Nosik could have chosen a better word? What’s more, his blog is noticeably quiet on this topic. All bloggers in the world, regardless of their subject matter, should rise in showing solidarity with Terentyev. Because any one of us could be next.

By the way, it appears that the above report isn’t actually the totally correct story. Terentyev’s statement did not even appear as a post on his own blog, which is non-political and artistic, but rather as a mere comment on the blog of another person, a local journalist named Boris Suranov, who wrote about a police raid on a local opposition newspaper in Syktyvkar, Komi Republic, where both reside (about 100 miles north of Nizhny Novgorod). The Russian original of Terentyev’s comment is shown in full below and can be seen here (and has been re-posted by various Russian bloggers, for instance here) having been stripped from the blog where it appeared by government order (in fact, apparently the entire post itself has been removed).

The comment in full (click the image to see full size):

Verbatim translation of Terentyev’s comment on Suranov’s blog by LR’s original translator:

“I hate son-of-a-bitch cops”

I don’t agree with the thesis that “policemen have retained the mindset of being a repressive cudgel in the hands of those in power.” First, that it’s the cops who have retained it. Secondly, it’s not that it has been retained, but more simply that it has not been purged. It is garbage – and in Africa it is garbage – who become cops. The people who become cops are herd animals, rabble – the stupidest, most ignorant representatives of the living world. It would be great if in the in the center of every city in Russia, on the main square (in Syktyvkar, right in the center of Stefanovskaya Square, where the Christmas tree stands – so that everyone could see it) there stood an oven, like in Auschwitz, where ceremonially, every year – or better, twice a day (at noon and midnight, for example) – they incinerated a bad cop. The people would burn him. That would be a first step in cleansing society of cop-rabble trash.

The post below Terentyev’s is from Suvorov himself, and states: “It could be a sort of carnival.” Just to show that Suvorov is not somehow an obsessed anti-establishment fanatic, note his avatar: It’s a picture of a well-known anti-Kremlin dissident — we don’t name her out of respect — doctored with frog-like bugeyes; it’s animated, and shows her tongue popping out to grab a fly that has alighted between her eyes.

Note from the translator: In case any of our readers want an electronic
version of the original, rather than just the image that Kommersant printed which is shown above, it was reproduced on a Live Journal page – although with a couple of minor spelling errors.

The Live Journal blogger who dared to print this text in a manner where it can be searched out and found on an engine is a truly brave individual. Here is the Russian text referred to above:

Не согласен с тезисом “у милиционеров остался менталитет властьимущих”. во-первых у ментов. Во-вторых – не остался а просто неискорением. Мусор – и в африке мусор. Кто идет в менты – быдло, гопота, самые тупые необразованные представители живо(отн)ого мира. Было б хоршое, если бы в центре каждого города россии, в сывтывкаре – прям в центре стефановской – где елка стоит – чтоб всем видно было) , стояла печь, как в освенциме, где церемонимально, ежедневно, а лучше – дважды в сутки (в полдень и в полночь, например), сжигали бы по неверному менту. Народ чтобы сжигал. Это был бы первый шаг к очищению общества от ментовско-гопотской грязи.

Even if you don’t believe in the principle of free speech as a value in and of itself, and even if you choose to believe the speaker was expressing a literal desire rather than a philosophical point of confrontation, before judging this speaker you should remember what it is like to live under the repression of the Russian police. You can’t possibly understand it fully, though, unless you actually have lived under it. They do not labor under any of the protections of civil liberties that exist in America (for instance, they can try a suspect over and over for the same offense, whilst in America a person can only be tried once), are fundamentally corrupt (in part because they are shamelessly underpaid) and routinely harass, beat, torture, arrest and imprison innocent citizens, including many foreigners and including dissidents who are doing nothing more than offering an alternative to the party in power. The horror of being confronted by them when you only earn $3 per hour is difficult to put into words, and Mr. Terentyev has made a stab at doing so. Anyone who knows anything about Russia knows that there are plenty of Russian policemen who deserve prosecution far more than Mr. Terentyev. Anyone who has lived in Russia knows what Mr. Terentyev is talking about.

Remember, too, that there was a time when Russia would have treated Dostoevsky this way — and did so (Pushkin too, for that matter).
Maybe they, too, could have expressed themselves “differently” or “better” so as not to offend the regime. But who among us is to say what words are “acceptable”? Are we willing to live in a world where others control the information we can access? That’s the USSR, and it’s not a world that can sustain itself for long.

Hero journalist Yulia Latynina, writing in the Moscow Times, explains in detail the horror of Russian “law enforcement” (should she too be arrested? would she be lucky in that event, given the fate of Anna Politkovskaya?):

During a traffic jam in downtown St. Petersburg, a police car raced along the wrong side of the road. Pyotr Grigorovsky, who was driving his car in his own lane in the opposite direction, swerved his car to avoid the oncoming police vehicle, struck a pole and died. The police officer never even stopped. Hundreds of witnesses took note of the officer’s license plate number. St. Petersburg drivers later demonstrated their condolences by placing black flags on their cars.

What is the probability that President Vladimir Putin will demand a full report of the investigation and that the police officer responsible for Grigorovsky’s death will be punished? Zero. The police department has already responded by saying that the vehicle in question never left the station’s garage that day. Moreover, the police said they would later settle scores with the “black flag” demonstrators.

Another story: A Moscow driver and immigrant from Tajikistan, Ashur Inoyatov, picked up a drunk FSB officer who had just left a casino. When Inoyatov asked the officer where he wanted to go, the officer for some reason took offense, pulled out his gun and started shooting. He emptied his entire clip but was so intoxicated that he ended up only wounding Inoyatov.

What is the likelihood that Putin will demand a full investigation of this incident, and more importantly, that Muscovites will stage demonstrations in support of the unfortunate Tajik? Zero. On the contrary, Inoyatov was deported.

What has happened in Russia lately? A St. Petersburg police officer caused the wrongful death of an innocent driver and left the scene of the crime; an innocent Tajik was deported for having the bad luck of being the victim of a crime committed by an FSB officer; a Moscow court seized 100 percent of Russneft’s shares after owner Mikhail Gutseriyev publicly stated that the government had been pressuring him; and Russia sent military forces into Ingushetia.

And what have we seen on the news? We have seen that Russian strategic bombers flew over NATO bases, that those nasty Georgians have again slandered us by claiming that a Russian jet fired a rocket on their territory, and that the persecution of Russians in the police state of France has reached such a scale that a 12-year-old Russian boy was forced to leap from his sixth-floor apartment.

Now let’s perform a different experiment. How would it sound if we were to switch the Russian and French news reports around?

“A French police officer caused a fatal accident on the Champs Elysees and then fled the scene. After local drivers staged a protest, police arrested the organizers of the demonstration.”

Is this possible? Of course not.

“In the republic of Bashkortostan a police squad attempted to enter the home of a family of Tajik nationals to check their residency registration. The father escaped through a window; his son attempted a similar escape but was seriously injured when he fell. Local residents waged a demonstration against police brutality. President Putin demanded a full investigation of the incident.”

Possible? No way. Terrible? Yes.


Annals of Russian "Journalism": The Arctic Fraud

The Sunday Mail reports more horrors stories from so-called “journalists” in Russia:

RUSSIAN telly bosses faked footage of their explorers reaching the Arctic Ocean’s floor – with a scene stolen from blockbuster Titanic. State-controlled Rossiya announced mini-submarines had planted the Russian flag on the seabed at the North Pole last week. But part of their report – aired around the world – was sexed up with a shot of two subs from the start of the Kate Winslet and Leonardo DiCaprio movie. The same subs were used on the mission two-and-a-half miles under the Arctic ice. It’s the second time Rossiya, controlled by premier Vladimir Putin, have been caught making up news in a fortnight. They faked a British newspaper report criticising a London-based tycoon allegedly targeted by Russian assassins.

Reuters was duped by the Russian ploy, showing clearly the the world is not yet nearly cynical enough where Russia is concerned.

The Nabucco Pipeline: The 21st Century’s Berlin Airlift

Transitions Online, by way of Business Week, reports on Europe’s vital effort to circumvent Russia in the delivery of natural gas through the construction of a new pipeline. The one benefit of having a ham-handed maniac like Vladimir Putin in charge of Russia is that the world can see in no uncertain terms how dangerous Russia is and how urgent the need to make Russian energy obsolete. A less demonic figure wouldn’t have motivated Europe nearly as well.

Wary of Moscow’s stranglehold on natural gas supplies, the EU hopes several planned pipelines will provide a way out. Russia’s threat in early August to nearly halve the amount of gas it exports to Belarus over unpaid bills must have brought back bad memories for many in Europe. Memories, for instance, of earlier this year, when Russia cut off the gas that flowed through its Druzhba pipeline to Belarus in a dispute over price hikes and tariffs. At that time, a wave of disruption surged down the supply chain. Within days, the Czech Republic and Slovakia (who rely on Russia for around 65 percent of their natural gas) saw their shipments halved. Poland and Germany began tapping reserves, and other countries looked to increase imports from other suppliers like Norway. It was not the first time a row between Russia and one of its neighbors had held some of Europe’s energy supply hostage. A similar drama had played out at the beginning of 2006 with Ukraine.

These moves signaled a new reality for the European Union: Russia leveraging its energy dominance, not afraid to wield its power in localized disputes to get its way. The blows exchanged in those fights were felt throughout the EU, and for the world’s largest importer of energy — one that relies on Russia for a huge amount of gas and oil — it was a wake-up call to just how vulnerable it was if Russia wanted to press its interests beyond its immediate neighbors. Which helps to explain the EU’s push in the past 18 months to back a series of pipeline projects, largely in the south of Europe, that aim to diversify the delivery routes for energy supplies — either by circumventing Russia’s vulnerable neighbors or avoiding the energy giant altogether. “You are seeing an attempt to enhance security by making any single supplier less important to the overall picture,” said André Plourde, president of the International Association for Energy Economics. “If one supplier decides it is not interested in playing by the rules anymore, the impact would be smaller if you have alternatives [in sources or delivery routes] than it might otherwise be.”

Not surprisingly, Russia has been resistant to EU efforts to diversify its energy supply and has not hidden efforts to undermine it: The union’s most touted project, the Nabucco gas pipeline from Central Asia, received a significant blow in May, when Russian President Vladimir Putin traveled to Central Asia himself and closed deals with Turkmenistan and Kazakhstan to build a natural gas pipeline to tap the region of much of its gas and sell it back to Europe at a huge markup. “Russia needs security of demand, that those who are on the other end of their pipelines will definitely buy their gas,” said Friedemann Mueller, an energy expert at the German Institute for International and Security Affairs in Berlin. “This is a power game and Putin is showing every day that he is in a powerful position, and we have to adjust to this new balance.”

THIRSTY FOR GAS

Russia is the world’s second largest exporter of oil, shipping out 7 million barrels per day, and natural gas, selling 216 billion cubic meters annually, and it is natural gas that the EU is most concerned about. Natural gas is the fastest growing fuel source in the EU, with consumption rising by 42.3 percent in the last decade, according to the U.S. Energy Information Administration. Europeans consume 506 billion cubic meters of natural gas a year, with Germany, Italy, and France the top consumers. Germany depends on Russia for 46 percent of its gas supplies, and Italy and France are also major consumers of Russian gas, importing 32 percent and 21 percent respectively of their needs from Russia, according to the EIA.

Overall, the EU gets 25 percent to 40 percent of its natural gas from Russia, with 17 percent coming from Norway and 10 percent from Algeria. At the same time that natural gas consumption has been on the rise, localized production has declined. Experts agree that natural gas will soon replace oil as the EU’s dominant energy source. Energy analysts like Fariborz Ghadar, director of the Center for Global Business Studies at Penn State University in the United States, say that by 2030 Europe could need to import as much a 80 percent of its natural gas. “The reality of the thing is that if you look at where the gas is, the gas is in Russia and it is in Iran. Those are where the largest reserves are. Right now, the Russians basically have a stranglehold on the whole thing,” Ghadar said.

DEFENSIVE DETOURS

The markets for natural gas and oil work differently. There is a real world market for oil, and traders can buy on the spot market in places like Singapore or Rotterdam without being dependent on one source. The EU gets most of its oil from Russia as well, but analysts say Russia plays nicer with its oil — largely because of this market fact. Yet the EU is backing several oil pipeline projects that, while still pumping Russian oil, would at least largely circumvent Ukraine and Belarus and translate into more direct routes to southern Europe, which looks poised to become a new energy gateway for the rest of the EU.

In January, Macedonia, Bulgaria, and Albania agreed to build the Albanian Macedonian Bulgarian Oil Corp. (AMBO) pipeline, which will stretch almost 1,000 kilometers across the Balkans, transporting Russian oil from the Black Sea to the Mediterranean. Next year, ground is expected to break on the Burgas-Alexandroupoli pipeline, a collaboration between Russian and Greek companies. When completed in 2011, it is expected to pump an annual average of 20 million tons of oil from the Bulgarian Black Sea port of Burgas to Greece. In early April, Croatia, Italy, Romania, Serbia, and Slovenia signed an agreement to build what is being called the Pan European Pipeline, expected to stretch 1,400 kilometers between the Black Sea and the Italian port of Trieste, where some estimated 40 million tons of oil a year should flow into existing pipelines that feed Austria, the Czech Republic, and Germany.

THE NABUCCO HOPE

Russia, by and large, is happy with these projects, experts say, since they are simply alternative ways to get Russian oil to European customers. It is the EU’s strong backing for the Nabucco pipeline that is generating tension with Russia. Nabucco is expected to run 3,300 kilometers between the Caspian Sea and Austria, through Turkey, Bulgaria, Romania, and Hungary. It is being overseen by five energy companies (each from one of the countries along the line), and the proposed 4.6-billion-euro pipeline could pump nearly 30 billion cubic meters of natural gas a year to Europe when it is fully operational, according to reports. “Of course, the whole purpose of Nabucco is that this would be the one pipeline that comes out of Central Asia that isn’t controlled by Russia,” said Katinka Barysch, an energy expert and head economist at the Center for European Reform in London. “The Russians are very aware that if the Europeans get their act together this would undermine their strong position, so they’re trying to act on it early.”

Gazprom, Russia’s state-run energy behemoth that produces more than 90 percent of Russia’s natural gas and owns most of its pipelines, has been making steady rounds throughout the EU this year, securing new, long-term supply contracts with European energy distributors and buying into European pipeline networks. Putin has been casting around for support for Gazprom’s alternative to the Nabucco pipeline, a plan to extend its Blue Stream pipeline from Turkey north along the same route as the Nabucco route. He has promised to make Hungary, where the extension would end, Russia’s principal gas gateway to Europe. This spring, Hungarian Prime Minister Ferenc Gyurcsany broke with Brussels and signaled a willingness to support Blue Stream instead of Nabucco. Despite Russia, Nabucco is moving ahead, its managing director, Reinhard Mitschek, said. It is expected to break ground in 2009. “Due to the variety of potential gas sources, single events and done deals between other market players will not jeopardize the project,” he said.

A SECURITY ISSUE

But don’t look for Russia to go quietly. Analysts say the coming months could see more shuttle diplomacy, with Gazprom officials paying more visits to European capitals, Turkey, and Central Asia. Expect European leaders to head to Turkey and Central Asia, too. “That’s what needs to happen,” said Zeyno Baran of the conservative Hudson Institute think tank in Washington. “European leaders need to look at energy not as something that heats the house, but look at it from a security and foreign policy perspective, because Putin uses it as such.” That view could continue to resonate in Brussels as Europe continues to clash with Moscow over things like a U.S. missile defense system in Europe, the fate of Kosovo, and NATO expansion. “You can say Russia will wonder what is better, to supply its friends or its enemies,” said Ivan Safranchuk, director of the Moscow branch of the World Security Institute. “Probably to supply its friends is better.”

The Nabucco Pipeline: The 21st Century’s Berlin Airlift

Transitions Online, by way of Business Week, reports on Europe’s vital effort to circumvent Russia in the delivery of natural gas through the construction of a new pipeline. The one benefit of having a ham-handed maniac like Vladimir Putin in charge of Russia is that the world can see in no uncertain terms how dangerous Russia is and how urgent the need to make Russian energy obsolete. A less demonic figure wouldn’t have motivated Europe nearly as well.

Wary of Moscow’s stranglehold on natural gas supplies, the EU hopes several planned pipelines will provide a way out. Russia’s threat in early August to nearly halve the amount of gas it exports to Belarus over unpaid bills must have brought back bad memories for many in Europe. Memories, for instance, of earlier this year, when Russia cut off the gas that flowed through its Druzhba pipeline to Belarus in a dispute over price hikes and tariffs. At that time, a wave of disruption surged down the supply chain. Within days, the Czech Republic and Slovakia (who rely on Russia for around 65 percent of their natural gas) saw their shipments halved. Poland and Germany began tapping reserves, and other countries looked to increase imports from other suppliers like Norway. It was not the first time a row between Russia and one of its neighbors had held some of Europe’s energy supply hostage. A similar drama had played out at the beginning of 2006 with Ukraine.

These moves signaled a new reality for the European Union: Russia leveraging its energy dominance, not afraid to wield its power in localized disputes to get its way. The blows exchanged in those fights were felt throughout the EU, and for the world’s largest importer of energy — one that relies on Russia for a huge amount of gas and oil — it was a wake-up call to just how vulnerable it was if Russia wanted to press its interests beyond its immediate neighbors. Which helps to explain the EU’s push in the past 18 months to back a series of pipeline projects, largely in the south of Europe, that aim to diversify the delivery routes for energy supplies — either by circumventing Russia’s vulnerable neighbors or avoiding the energy giant altogether. “You are seeing an attempt to enhance security by making any single supplier less important to the overall picture,” said André Plourde, president of the International Association for Energy Economics. “If one supplier decides it is not interested in playing by the rules anymore, the impact would be smaller if you have alternatives [in sources or delivery routes] than it might otherwise be.”

Not surprisingly, Russia has been resistant to EU efforts to diversify its energy supply and has not hidden efforts to undermine it: The union’s most touted project, the Nabucco gas pipeline from Central Asia, received a significant blow in May, when Russian President Vladimir Putin traveled to Central Asia himself and closed deals with Turkmenistan and Kazakhstan to build a natural gas pipeline to tap the region of much of its gas and sell it back to Europe at a huge markup. “Russia needs security of demand, that those who are on the other end of their pipelines will definitely buy their gas,” said Friedemann Mueller, an energy expert at the German Institute for International and Security Affairs in Berlin. “This is a power game and Putin is showing every day that he is in a powerful position, and we have to adjust to this new balance.”

THIRSTY FOR GAS

Russia is the world’s second largest exporter of oil, shipping out 7 million barrels per day, and natural gas, selling 216 billion cubic meters annually, and it is natural gas that the EU is most concerned about. Natural gas is the fastest growing fuel source in the EU, with consumption rising by 42.3 percent in the last decade, according to the U.S. Energy Information Administration. Europeans consume 506 billion cubic meters of natural gas a year, with Germany, Italy, and France the top consumers. Germany depends on Russia for 46 percent of its gas supplies, and Italy and France are also major consumers of Russian gas, importing 32 percent and 21 percent respectively of their needs from Russia, according to the EIA.

Overall, the EU gets 25 percent to 40 percent of its natural gas from Russia, with 17 percent coming from Norway and 10 percent from Algeria. At the same time that natural gas consumption has been on the rise, localized production has declined. Experts agree that natural gas will soon replace oil as the EU’s dominant energy source. Energy analysts like Fariborz Ghadar, director of the Center for Global Business Studies at Penn State University in the United States, say that by 2030 Europe could need to import as much a 80 percent of its natural gas. “The reality of the thing is that if you look at where the gas is, the gas is in Russia and it is in Iran. Those are where the largest reserves are. Right now, the Russians basically have a stranglehold on the whole thing,” Ghadar said.

DEFENSIVE DETOURS

The markets for natural gas and oil work differently. There is a real world market for oil, and traders can buy on the spot market in places like Singapore or Rotterdam without being dependent on one source. The EU gets most of its oil from Russia as well, but analysts say Russia plays nicer with its oil — largely because of this market fact. Yet the EU is backing several oil pipeline projects that, while still pumping Russian oil, would at least largely circumvent Ukraine and Belarus and translate into more direct routes to southern Europe, which looks poised to become a new energy gateway for the rest of the EU.

In January, Macedonia, Bulgaria, and Albania agreed to build the Albanian Macedonian Bulgarian Oil Corp. (AMBO) pipeline, which will stretch almost 1,000 kilometers across the Balkans, transporting Russian oil from the Black Sea to the Mediterranean. Next year, ground is expected to break on the Burgas-Alexandroupoli pipeline, a collaboration between Russian and Greek companies. When completed in 2011, it is expected to pump an annual average of 20 million tons of oil from the Bulgarian Black Sea port of Burgas to Greece. In early April, Croatia, Italy, Romania, Serbia, and Slovenia signed an agreement to build what is being called the Pan European Pipeline, expected to stretch 1,400 kilometers between the Black Sea and the Italian port of Trieste, where some estimated 40 million tons of oil a year should flow into existing pipelines that feed Austria, the Czech Republic, and Germany.

THE NABUCCO HOPE

Russia, by and large, is happy with these projects, experts say, since they are simply alternative ways to get Russian oil to European customers. It is the EU’s strong backing for the Nabucco pipeline that is generating tension with Russia. Nabucco is expected to run 3,300 kilometers between the Caspian Sea and Austria, through Turkey, Bulgaria, Romania, and Hungary. It is being overseen by five energy companies (each from one of the countries along the line), and the proposed 4.6-billion-euro pipeline could pump nearly 30 billion cubic meters of natural gas a year to Europe when it is fully operational, according to reports. “Of course, the whole purpose of Nabucco is that this would be the one pipeline that comes out of Central Asia that isn’t controlled by Russia,” said Katinka Barysch, an energy expert and head economist at the Center for European Reform in London. “The Russians are very aware that if the Europeans get their act together this would undermine their strong position, so they’re trying to act on it early.”

Gazprom, Russia’s state-run energy behemoth that produces more than 90 percent of Russia’s natural gas and owns most of its pipelines, has been making steady rounds throughout the EU this year, securing new, long-term supply contracts with European energy distributors and buying into European pipeline networks. Putin has been casting around for support for Gazprom’s alternative to the Nabucco pipeline, a plan to extend its Blue Stream pipeline from Turkey north along the same route as the Nabucco route. He has promised to make Hungary, where the extension would end, Russia’s principal gas gateway to Europe. This spring, Hungarian Prime Minister Ferenc Gyurcsany broke with Brussels and signaled a willingness to support Blue Stream instead of Nabucco. Despite Russia, Nabucco is moving ahead, its managing director, Reinhard Mitschek, said. It is expected to break ground in 2009. “Due to the variety of potential gas sources, single events and done deals between other market players will not jeopardize the project,” he said.

A SECURITY ISSUE

But don’t look for Russia to go quietly. Analysts say the coming months could see more shuttle diplomacy, with Gazprom officials paying more visits to European capitals, Turkey, and Central Asia. Expect European leaders to head to Turkey and Central Asia, too. “That’s what needs to happen,” said Zeyno Baran of the conservative Hudson Institute think tank in Washington. “European leaders need to look at energy not as something that heats the house, but look at it from a security and foreign policy perspective, because Putin uses it as such.” That view could continue to resonate in Brussels as Europe continues to clash with Moscow over things like a U.S. missile defense system in Europe, the fate of Kosovo, and NATO expansion. “You can say Russia will wonder what is better, to supply its friends or its enemies,” said Ivan Safranchuk, director of the Moscow branch of the World Security Institute. “Probably to supply its friends is better.”

The Nabucco Pipeline: The 21st Century’s Berlin Airlift

Transitions Online, by way of Business Week, reports on Europe’s vital effort to circumvent Russia in the delivery of natural gas through the construction of a new pipeline. The one benefit of having a ham-handed maniac like Vladimir Putin in charge of Russia is that the world can see in no uncertain terms how dangerous Russia is and how urgent the need to make Russian energy obsolete. A less demonic figure wouldn’t have motivated Europe nearly as well.

Wary of Moscow’s stranglehold on natural gas supplies, the EU hopes several planned pipelines will provide a way out. Russia’s threat in early August to nearly halve the amount of gas it exports to Belarus over unpaid bills must have brought back bad memories for many in Europe. Memories, for instance, of earlier this year, when Russia cut off the gas that flowed through its Druzhba pipeline to Belarus in a dispute over price hikes and tariffs. At that time, a wave of disruption surged down the supply chain. Within days, the Czech Republic and Slovakia (who rely on Russia for around 65 percent of their natural gas) saw their shipments halved. Poland and Germany began tapping reserves, and other countries looked to increase imports from other suppliers like Norway. It was not the first time a row between Russia and one of its neighbors had held some of Europe’s energy supply hostage. A similar drama had played out at the beginning of 2006 with Ukraine.

These moves signaled a new reality for the European Union: Russia leveraging its energy dominance, not afraid to wield its power in localized disputes to get its way. The blows exchanged in those fights were felt throughout the EU, and for the world’s largest importer of energy — one that relies on Russia for a huge amount of gas and oil — it was a wake-up call to just how vulnerable it was if Russia wanted to press its interests beyond its immediate neighbors. Which helps to explain the EU’s push in the past 18 months to back a series of pipeline projects, largely in the south of Europe, that aim to diversify the delivery routes for energy supplies — either by circumventing Russia’s vulnerable neighbors or avoiding the energy giant altogether. “You are seeing an attempt to enhance security by making any single supplier less important to the overall picture,” said André Plourde, president of the International Association for Energy Economics. “If one supplier decides it is not interested in playing by the rules anymore, the impact would be smaller if you have alternatives [in sources or delivery routes] than it might otherwise be.”

Not surprisingly, Russia has been resistant to EU efforts to diversify its energy supply and has not hidden efforts to undermine it: The union’s most touted project, the Nabucco gas pipeline from Central Asia, received a significant blow in May, when Russian President Vladimir Putin traveled to Central Asia himself and closed deals with Turkmenistan and Kazakhstan to build a natural gas pipeline to tap the region of much of its gas and sell it back to Europe at a huge markup. “Russia needs security of demand, that those who are on the other end of their pipelines will definitely buy their gas,” said Friedemann Mueller, an energy expert at the German Institute for International and Security Affairs in Berlin. “This is a power game and Putin is showing every day that he is in a powerful position, and we have to adjust to this new balance.”

THIRSTY FOR GAS

Russia is the world’s second largest exporter of oil, shipping out 7 million barrels per day, and natural gas, selling 216 billion cubic meters annually, and it is natural gas that the EU is most concerned about. Natural gas is the fastest growing fuel source in the EU, with consumption rising by 42.3 percent in the last decade, according to the U.S. Energy Information Administration. Europeans consume 506 billion cubic meters of natural gas a year, with Germany, Italy, and France the top consumers. Germany depends on Russia for 46 percent of its gas supplies, and Italy and France are also major consumers of Russian gas, importing 32 percent and 21 percent respectively of their needs from Russia, according to the EIA.

Overall, the EU gets 25 percent to 40 percent of its natural gas from Russia, with 17 percent coming from Norway and 10 percent from Algeria. At the same time that natural gas consumption has been on the rise, localized production has declined. Experts agree that natural gas will soon replace oil as the EU’s dominant energy source. Energy analysts like Fariborz Ghadar, director of the Center for Global Business Studies at Penn State University in the United States, say that by 2030 Europe could need to import as much a 80 percent of its natural gas. “The reality of the thing is that if you look at where the gas is, the gas is in Russia and it is in Iran. Those are where the largest reserves are. Right now, the Russians basically have a stranglehold on the whole thing,” Ghadar said.

DEFENSIVE DETOURS

The markets for natural gas and oil work differently. There is a real world market for oil, and traders can buy on the spot market in places like Singapore or Rotterdam without being dependent on one source. The EU gets most of its oil from Russia as well, but analysts say Russia plays nicer with its oil — largely because of this market fact. Yet the EU is backing several oil pipeline projects that, while still pumping Russian oil, would at least largely circumvent Ukraine and Belarus and translate into more direct routes to southern Europe, which looks poised to become a new energy gateway for the rest of the EU.

In January, Macedonia, Bulgaria, and Albania agreed to build the Albanian Macedonian Bulgarian Oil Corp. (AMBO) pipeline, which will stretch almost 1,000 kilometers across the Balkans, transporting Russian oil from the Black Sea to the Mediterranean. Next year, ground is expected to break on the Burgas-Alexandroupoli pipeline, a collaboration between Russian and Greek companies. When completed in 2011, it is expected to pump an annual average of 20 million tons of oil from the Bulgarian Black Sea port of Burgas to Greece. In early April, Croatia, Italy, Romania, Serbia, and Slovenia signed an agreement to build what is being called the Pan European Pipeline, expected to stretch 1,400 kilometers between the Black Sea and the Italian port of Trieste, where some estimated 40 million tons of oil a year should flow into existing pipelines that feed Austria, the Czech Republic, and Germany.

THE NABUCCO HOPE

Russia, by and large, is happy with these projects, experts say, since they are simply alternative ways to get Russian oil to European customers. It is the EU’s strong backing for the Nabucco pipeline that is generating tension with Russia. Nabucco is expected to run 3,300 kilometers between the Caspian Sea and Austria, through Turkey, Bulgaria, Romania, and Hungary. It is being overseen by five energy companies (each from one of the countries along the line), and the proposed 4.6-billion-euro pipeline could pump nearly 30 billion cubic meters of natural gas a year to Europe when it is fully operational, according to reports. “Of course, the whole purpose of Nabucco is that this would be the one pipeline that comes out of Central Asia that isn’t controlled by Russia,” said Katinka Barysch, an energy expert and head economist at the Center for European Reform in London. “The Russians are very aware that if the Europeans get their act together this would undermine their strong position, so they’re trying to act on it early.”

Gazprom, Russia’s state-run energy behemoth that produces more than 90 percent of Russia’s natural gas and owns most of its pipelines, has been making steady rounds throughout the EU this year, securing new, long-term supply contracts with European energy distributors and buying into European pipeline networks. Putin has been casting around for support for Gazprom’s alternative to the Nabucco pipeline, a plan to extend its Blue Stream pipeline from Turkey north along the same route as the Nabucco route. He has promised to make Hungary, where the extension would end, Russia’s principal gas gateway to Europe. This spring, Hungarian Prime Minister Ferenc Gyurcsany broke with Brussels and signaled a willingness to support Blue Stream instead of Nabucco. Despite Russia, Nabucco is moving ahead, its managing director, Reinhard Mitschek, said. It is expected to break ground in 2009. “Due to the variety of potential gas sources, single events and done deals between other market players will not jeopardize the project,” he said.

A SECURITY ISSUE

But don’t look for Russia to go quietly. Analysts say the coming months could see more shuttle diplomacy, with Gazprom officials paying more visits to European capitals, Turkey, and Central Asia. Expect European leaders to head to Turkey and Central Asia, too. “That’s what needs to happen,” said Zeyno Baran of the conservative Hudson Institute think tank in Washington. “European leaders need to look at energy not as something that heats the house, but look at it from a security and foreign policy perspective, because Putin uses it as such.” That view could continue to resonate in Brussels as Europe continues to clash with Moscow over things like a U.S. missile defense system in Europe, the fate of Kosovo, and NATO expansion. “You can say Russia will wonder what is better, to supply its friends or its enemies,” said Ivan Safranchuk, director of the Moscow branch of the World Security Institute. “Probably to supply its friends is better.”

The Nabucco Pipeline: The 21st Century’s Berlin Airlift

Transitions Online, by way of Business Week, reports on Europe’s vital effort to circumvent Russia in the delivery of natural gas through the construction of a new pipeline. The one benefit of having a ham-handed maniac like Vladimir Putin in charge of Russia is that the world can see in no uncertain terms how dangerous Russia is and how urgent the need to make Russian energy obsolete. A less demonic figure wouldn’t have motivated Europe nearly as well.

Wary of Moscow’s stranglehold on natural gas supplies, the EU hopes several planned pipelines will provide a way out. Russia’s threat in early August to nearly halve the amount of gas it exports to Belarus over unpaid bills must have brought back bad memories for many in Europe. Memories, for instance, of earlier this year, when Russia cut off the gas that flowed through its Druzhba pipeline to Belarus in a dispute over price hikes and tariffs. At that time, a wave of disruption surged down the supply chain. Within days, the Czech Republic and Slovakia (who rely on Russia for around 65 percent of their natural gas) saw their shipments halved. Poland and Germany began tapping reserves, and other countries looked to increase imports from other suppliers like Norway. It was not the first time a row between Russia and one of its neighbors had held some of Europe’s energy supply hostage. A similar drama had played out at the beginning of 2006 with Ukraine.

These moves signaled a new reality for the European Union: Russia leveraging its energy dominance, not afraid to wield its power in localized disputes to get its way. The blows exchanged in those fights were felt throughout the EU, and for the world’s largest importer of energy — one that relies on Russia for a huge amount of gas and oil — it was a wake-up call to just how vulnerable it was if Russia wanted to press its interests beyond its immediate neighbors. Which helps to explain the EU’s push in the past 18 months to back a series of pipeline projects, largely in the south of Europe, that aim to diversify the delivery routes for energy supplies — either by circumventing Russia’s vulnerable neighbors or avoiding the energy giant altogether. “You are seeing an attempt to enhance security by making any single supplier less important to the overall picture,” said André Plourde, president of the International Association for Energy Economics. “If one supplier decides it is not interested in playing by the rules anymore, the impact would be smaller if you have alternatives [in sources or delivery routes] than it might otherwise be.”

Not surprisingly, Russia has been resistant to EU efforts to diversify its energy supply and has not hidden efforts to undermine it: The union’s most touted project, the Nabucco gas pipeline from Central Asia, received a significant blow in May, when Russian President Vladimir Putin traveled to Central Asia himself and closed deals with Turkmenistan and Kazakhstan to build a natural gas pipeline to tap the region of much of its gas and sell it back to Europe at a huge markup. “Russia needs security of demand, that those who are on the other end of their pipelines will definitely buy their gas,” said Friedemann Mueller, an energy expert at the German Institute for International and Security Affairs in Berlin. “This is a power game and Putin is showing every day that he is in a powerful position, and we have to adjust to this new balance.”

THIRSTY FOR GAS

Russia is the world’s second largest exporter of oil, shipping out 7 million barrels per day, and natural gas, selling 216 billion cubic meters annually, and it is natural gas that the EU is most concerned about. Natural gas is the fastest growing fuel source in the EU, with consumption rising by 42.3 percent in the last decade, according to the U.S. Energy Information Administration. Europeans consume 506 billion cubic meters of natural gas a year, with Germany, Italy, and France the top consumers. Germany depends on Russia for 46 percent of its gas supplies, and Italy and France are also major consumers of Russian gas, importing 32 percent and 21 percent respectively of their needs from Russia, according to the EIA.

Overall, the EU gets 25 percent to 40 percent of its natural gas from Russia, with 17 percent coming from Norway and 10 percent from Algeria. At the same time that natural gas consumption has been on the rise, localized production has declined. Experts agree that natural gas will soon replace oil as the EU’s dominant energy source. Energy analysts like Fariborz Ghadar, director of the Center for Global Business Studies at Penn State University in the United States, say that by 2030 Europe could need to import as much a 80 percent of its natural gas. “The reality of the thing is that if you look at where the gas is, the gas is in Russia and it is in Iran. Those are where the largest reserves are. Right now, the Russians basically have a stranglehold on the whole thing,” Ghadar said.

DEFENSIVE DETOURS

The markets for natural gas and oil work differently. There is a real world market for oil, and traders can buy on the spot market in places like Singapore or Rotterdam without being dependent on one source. The EU gets most of its oil from Russia as well, but analysts say Russia plays nicer with its oil — largely because of this market fact. Yet the EU is backing several oil pipeline projects that, while still pumping Russian oil, would at least largely circumvent Ukraine and Belarus and translate into more direct routes to southern Europe, which looks poised to become a new energy gateway for the rest of the EU.

In January, Macedonia, Bulgaria, and Albania agreed to build the Albanian Macedonian Bulgarian Oil Corp. (AMBO) pipeline, which will stretch almost 1,000 kilometers across the Balkans, transporting Russian oil from the Black Sea to the Mediterranean. Next year, ground is expected to break on the Burgas-Alexandroupoli pipeline, a collaboration between Russian and Greek companies. When completed in 2011, it is expected to pump an annual average of 20 million tons of oil from the Bulgarian Black Sea port of Burgas to Greece. In early April, Croatia, Italy, Romania, Serbia, and Slovenia signed an agreement to build what is being called the Pan European Pipeline, expected to stretch 1,400 kilometers between the Black Sea and the Italian port of Trieste, where some estimated 40 million tons of oil a year should flow into existing pipelines that feed Austria, the Czech Republic, and Germany.

THE NABUCCO HOPE

Russia, by and large, is happy with these projects, experts say, since they are simply alternative ways to get Russian oil to European customers. It is the EU’s strong backing for the Nabucco pipeline that is generating tension with Russia. Nabucco is expected to run 3,300 kilometers between the Caspian Sea and Austria, through Turkey, Bulgaria, Romania, and Hungary. It is being overseen by five energy companies (each from one of the countries along the line), and the proposed 4.6-billion-euro pipeline could pump nearly 30 billion cubic meters of natural gas a year to Europe when it is fully operational, according to reports. “Of course, the whole purpose of Nabucco is that this would be the one pipeline that comes out of Central Asia that isn’t controlled by Russia,” said Katinka Barysch, an energy expert and head economist at the Center for European Reform in London. “The Russians are very aware that if the Europeans get their act together this would undermine their strong position, so they’re trying to act on it early.”

Gazprom, Russia’s state-run energy behemoth that produces more than 90 percent of Russia’s natural gas and owns most of its pipelines, has been making steady rounds throughout the EU this year, securing new, long-term supply contracts with European energy distributors and buying into European pipeline networks. Putin has been casting around for support for Gazprom’s alternative to the Nabucco pipeline, a plan to extend its Blue Stream pipeline from Turkey north along the same route as the Nabucco route. He has promised to make Hungary, where the extension would end, Russia’s principal gas gateway to Europe. This spring, Hungarian Prime Minister Ferenc Gyurcsany broke with Brussels and signaled a willingness to support Blue Stream instead of Nabucco. Despite Russia, Nabucco is moving ahead, its managing director, Reinhard Mitschek, said. It is expected to break ground in 2009. “Due to the variety of potential gas sources, single events and done deals between other market players will not jeopardize the project,” he said.

A SECURITY ISSUE

But don’t look for Russia to go quietly. Analysts say the coming months could see more shuttle diplomacy, with Gazprom officials paying more visits to European capitals, Turkey, and Central Asia. Expect European leaders to head to Turkey and Central Asia, too. “That’s what needs to happen,” said Zeyno Baran of the conservative Hudson Institute think tank in Washington. “European leaders need to look at energy not as something that heats the house, but look at it from a security and foreign policy perspective, because Putin uses it as such.” That view could continue to resonate in Brussels as Europe continues to clash with Moscow over things like a U.S. missile defense system in Europe, the fate of Kosovo, and NATO expansion. “You can say Russia will wonder what is better, to supply its friends or its enemies,” said Ivan Safranchuk, director of the Moscow branch of the World Security Institute. “Probably to supply its friends is better.”

The Nabucco Pipeline: The 21st Century’s Berlin Airlift

Transitions Online, by way of Business Week, reports on Europe’s vital effort to circumvent Russia in the delivery of natural gas through the construction of a new pipeline. The one benefit of having a ham-handed maniac like Vladimir Putin in charge of Russia is that the world can see in no uncertain terms how dangerous Russia is and how urgent the need to make Russian energy obsolete. A less demonic figure wouldn’t have motivated Europe nearly as well.

Wary of Moscow’s stranglehold on natural gas supplies, the EU hopes several planned pipelines will provide a way out. Russia’s threat in early August to nearly halve the amount of gas it exports to Belarus over unpaid bills must have brought back bad memories for many in Europe. Memories, for instance, of earlier this year, when Russia cut off the gas that flowed through its Druzhba pipeline to Belarus in a dispute over price hikes and tariffs. At that time, a wave of disruption surged down the supply chain. Within days, the Czech Republic and Slovakia (who rely on Russia for around 65 percent of their natural gas) saw their shipments halved. Poland and Germany began tapping reserves, and other countries looked to increase imports from other suppliers like Norway. It was not the first time a row between Russia and one of its neighbors had held some of Europe’s energy supply hostage. A similar drama had played out at the beginning of 2006 with Ukraine.

These moves signaled a new reality for the European Union: Russia leveraging its energy dominance, not afraid to wield its power in localized disputes to get its way. The blows exchanged in those fights were felt throughout the EU, and for the world’s largest importer of energy — one that relies on Russia for a huge amount of gas and oil — it was a wake-up call to just how vulnerable it was if Russia wanted to press its interests beyond its immediate neighbors. Which helps to explain the EU’s push in the past 18 months to back a series of pipeline projects, largely in the south of Europe, that aim to diversify the delivery routes for energy supplies — either by circumventing Russia’s vulnerable neighbors or avoiding the energy giant altogether. “You are seeing an attempt to enhance security by making any single supplier less important to the overall picture,” said André Plourde, president of the International Association for Energy Economics. “If one supplier decides it is not interested in playing by the rules anymore, the impact would be smaller if you have alternatives [in sources or delivery routes] than it might otherwise be.”

Not surprisingly, Russia has been resistant to EU efforts to diversify its energy supply and has not hidden efforts to undermine it: The union’s most touted project, the Nabucco gas pipeline from Central Asia, received a significant blow in May, when Russian President Vladimir Putin traveled to Central Asia himself and closed deals with Turkmenistan and Kazakhstan to build a natural gas pipeline to tap the region of much of its gas and sell it back to Europe at a huge markup. “Russia needs security of demand, that those who are on the other end of their pipelines will definitely buy their gas,” said Friedemann Mueller, an energy expert at the German Institute for International and Security Affairs in Berlin. “This is a power game and Putin is showing every day that he is in a powerful position, and we have to adjust to this new balance.”

THIRSTY FOR GAS

Russia is the world’s second largest exporter of oil, shipping out 7 million barrels per day, and natural gas, selling 216 billion cubic meters annually, and it is natural gas that the EU is most concerned about. Natural gas is the fastest growing fuel source in the EU, with consumption rising by 42.3 percent in the last decade, according to the U.S. Energy Information Administration. Europeans consume 506 billion cubic meters of natural gas a year, with Germany, Italy, and France the top consumers. Germany depends on Russia for 46 percent of its gas supplies, and Italy and France are also major consumers of Russian gas, importing 32 percent and 21 percent respectively of their needs from Russia, according to the EIA.

Overall, the EU gets 25 percent to 40 percent of its natural gas from Russia, with 17 percent coming from Norway and 10 percent from Algeria. At the same time that natural gas consumption has been on the rise, localized production has declined. Experts agree that natural gas will soon replace oil as the EU’s dominant energy source. Energy analysts like Fariborz Ghadar, director of the Center for Global Business Studies at Penn State University in the United States, say that by 2030 Europe could need to import as much a 80 percent of its natural gas. “The reality of the thing is that if you look at where the gas is, the gas is in Russia and it is in Iran. Those are where the largest reserves are. Right now, the Russians basically have a stranglehold on the whole thing,” Ghadar said.

DEFENSIVE DETOURS

The markets for natural gas and oil work differently. There is a real world market for oil, and traders can buy on the spot market in places like Singapore or Rotterdam without being dependent on one source. The EU gets most of its oil from Russia as well, but analysts say Russia plays nicer with its oil — largely because of this market fact. Yet the EU is backing several oil pipeline projects that, while still pumping Russian oil, would at least largely circumvent Ukraine and Belarus and translate into more direct routes to southern Europe, which looks poised to become a new energy gateway for the rest of the EU.

In January, Macedonia, Bulgaria, and Albania agreed to build the Albanian Macedonian Bulgarian Oil Corp. (AMBO) pipeline, which will stretch almost 1,000 kilometers across the Balkans, transporting Russian oil from the Black Sea to the Mediterranean. Next year, ground is expected to break on the Burgas-Alexandroupoli pipeline, a collaboration between Russian and Greek companies. When completed in 2011, it is expected to pump an annual average of 20 million tons of oil from the Bulgarian Black Sea port of Burgas to Greece. In early April, Croatia, Italy, Romania, Serbia, and Slovenia signed an agreement to build what is being called the Pan European Pipeline, expected to stretch 1,400 kilometers between the Black Sea and the Italian port of Trieste, where some estimated 40 million tons of oil a year should flow into existing pipelines that feed Austria, the Czech Republic, and Germany.

THE NABUCCO HOPE

Russia, by and large, is happy with these projects, experts say, since they are simply alternative ways to get Russian oil to European customers. It is the EU’s strong backing for the Nabucco pipeline that is generating tension with Russia. Nabucco is expected to run 3,300 kilometers between the Caspian Sea and Austria, through Turkey, Bulgaria, Romania, and Hungary. It is being overseen by five energy companies (each from one of the countries along the line), and the proposed 4.6-billion-euro pipeline could pump nearly 30 billion cubic meters of natural gas a year to Europe when it is fully operational, according to reports. “Of course, the whole purpose of Nabucco is that this would be the one pipeline that comes out of Central Asia that isn’t controlled by Russia,” said Katinka Barysch, an energy expert and head economist at the Center for European Reform in London. “The Russians are very aware that if the Europeans get their act together this would undermine their strong position, so they’re trying to act on it early.”

Gazprom, Russia’s state-run energy behemoth that produces more than 90 percent of Russia’s natural gas and owns most of its pipelines, has been making steady rounds throughout the EU this year, securing new, long-term supply contracts with European energy distributors and buying into European pipeline networks. Putin has been casting around for support for Gazprom’s alternative to the Nabucco pipeline, a plan to extend its Blue Stream pipeline from Turkey north along the same route as the Nabucco route. He has promised to make Hungary, where the extension would end, Russia’s principal gas gateway to Europe. This spring, Hungarian Prime Minister Ferenc Gyurcsany broke with Brussels and signaled a willingness to support Blue Stream instead of Nabucco. Despite Russia, Nabucco is moving ahead, its managing director, Reinhard Mitschek, said. It is expected to break ground in 2009. “Due to the variety of potential gas sources, single events and done deals between other market players will not jeopardize the project,” he said.

A SECURITY ISSUE

But don’t look for Russia to go quietly. Analysts say the coming months could see more shuttle diplomacy, with Gazprom officials paying more visits to European capitals, Turkey, and Central Asia. Expect European leaders to head to Turkey and Central Asia, too. “That’s what needs to happen,” said Zeyno Baran of the conservative Hudson Institute think tank in Washington. “European leaders need to look at energy not as something that heats the house, but look at it from a security and foreign policy perspective, because Putin uses it as such.” That view could continue to resonate in Brussels as Europe continues to clash with Moscow over things like a U.S. missile defense system in Europe, the fate of Kosovo, and NATO expansion. “You can say Russia will wonder what is better, to supply its friends or its enemies,” said Ivan Safranchuk, director of the Moscow branch of the World Security Institute. “Probably to supply its friends is better.”

Neo-Soviet Inflation: Lies and the Lying Russian Liars Who Tell Them

FX Street reports that Russian officials are lying brazenly about the country’s inflation picture:

In an interview given to Reuters, first Deputy Chairman of the Russian central bank (CBR) Alexei Ulyukayev says that more rouble appreciation in 2007 is unlikely. He adds that rouble weakening against the dual currency basket consisting of EUR (45%) and USD (55%) cannot be ruled out in the medium term. (Source: Reuters).

These views are, in our opinion, not consistent with recent actions seen from the CBR or with the CBR’s objective of bringing down inflation to no more than 8% y/y by year-end 2007. Just last week the CBR allowed the rouble to appreciate against the currency basket – see Flash Comment – Russia: RUB strengthens versus basket, August 9 – in an attempt, according to Ulyukayev, to bring down inflation. Inflation has inched up over the past couple of months, and preliminary numbers indicate that year-on-year inflation will be around 8.7% y/y in July.

Looking ahead, inflationary pressures will continue to build, and inflation will move above 9% y/y in Au-gust/September. We have already on numerous occasions highlighted that liquidity growth is excessive in Russia and probably fuelling inflation. Other than that, expect a less positive development in food prices this summer, as the harvest forecasts in Russia and the Ukraine continue to be revised down as the impact of the drought becomes clearer. On the fiscal front we note that policy is loosening significantly ahead of parliamentary and presidential elections. As well as fiscal spending increasing rapidly, private spending is also very strong, fuelling pressure on prices and the labour market – real wage growth is close to 20% y/y, which is probably somewhat higher than productivity growth in Russia.

Keeping these issues in mind and remembering that the CBR’s only real instrument to fight inflation in the medium term is to allow for further rouble strengthening, it is very hard to see how Ulyukayev’s comments released today are consistent with the CBR’s medium-term objectives. Russian officials have repeatedly stated that the 2007 inflation target will be met, and we have no reason to believe that the CBR will not take any measure needed to accomplish the objective.

We will thus not change our rouble forecast for the coming 6-12 months, as we believe it will appreciate by 2-3% against the basket over the coming 12 months. In the longer term, deteriorating Russian external balances will reduce the upside potential for the rouble – see Flash Comment – Russia: Trade balance surplus falls sharply, August 10 – but for now we have faith in the currency.

August 14, 2007 — Contents

TUESDAY AUGUST 14 CONTENTS


(1) The Saga of Larisa Arap Continues

(2) Annals of Virulent Russian Anti-Semitism

(3) Uh-Oh: Annals of Russian Nuclear Power

(4) Putin’s Third Reich/Term

(5) More Proof of How “Civilized” Russia Outclasses the USA


NOTE: A passenger train traveling the main route between Moscow and Piter has been blown off its rails, apparently by a bomb.
Publius Pundit has more. So much for Dictator Putin “solving” the Chechnya problem.

NOTE: Over the weekend we recorded profile view #6,000 — over twice as many profile views as are displayed by our nearest challenger. It’s another LR milestone that owes as much to readers like you as to those who generate our content.