Daily Archives: May 16, 2008

May 16, 2008 — Contents


(1) Another Original LR Translation: Q&A with Vladmir Milov

(2) EDITORIAL: Putin’s Neo-Soviet Wet Dreams

(3) Annals of Rewriting Russian History

(4) The NYT Condemns Russia Today

(5) The EU Sides with Georgia against Russia

(6) China is the New Russia

(7) Annals of Russian Oil, Running Dry

Another Original LR Translation: Q & A With Vladimir Milov, Via Essel

Q & A with Vladimir Milov

Translated from the Russian by Dave Essel

NOTE from LR: Vladimir Milov is the co-author of the Nemtsov White Paper previously translated by Dave Essel exclusively for this blog. This post is based on blog entries from Mr. Milov’s personal website and is the second installment from that source provided by Dave. Read the first here.

NOTE from Dave Essel: I like Milov. He’s our sort of guy – I mean he appears to have the character traits that LR approves of. I move that we nominate him as one of the presidential candidates for Russia after the forthcoming third/fourth collapse of Russia currently being engineered by Prostitutin and his Teddy Bear (1 – 1905 Revolution; 2/3 – February Revolution & Great October Disaster of 1917; 4 – Bankruptcy & Collapse of the USSR).

Aren’t you afraid of criticising the authorities?

This is fair question to ask, especially after recent events such as the vile murder of Anna Politkovskaya and the repression of the the independent media, politicians, and so on.

My answer: no, I’m not afraid. It’s my job to inform people about what the authorities are hiding from them, to provide the truth to people. And I will continue to do so. It’s of vital importance for our society.

Furthermore – who are we talking about fearing here? Yes, in today’s Russia one can be be imprisoned, beaten up, or even killed for going up against the authorities. However, I know – perhaps better than most – what utterly despicable nonentities they all are – both the people so much noise is made about in Russia today (the powerful, the popular, and so on) and the people who produce this hysterical ass-licking propaganda.

And I should be afraid of these motherf***ers? Some people may be, but I’m sorry, I refuse.

Are you disturbed by the cooling of relations with the USA?

Russia has recently been revving up anti-American hysteria. A confrontational line with the USA in the international arena is becoming the official stance. This is a very sad state of affairs which is not in the long-term interests of Russia and could quite possibly lead to some highly undesirable consequences that we could and should avoid.

This anti-American line derives from a combination of things – the need of the Russian authorities to have an “external enemy” as a way of securing internal positions plus a “post-imperial syndrome” that is suffocating Russian society as it strives wildly and at any price to demonstrate its national greatness by a growing hatred of rich and powerful states which it views as “competitors” on the greatness front. That many Russians are fundamentally ignorant of what the USA’s policies and political & economic system are about is another factor in this – and one for which active anti-American propaganda in the Russian state-controlled media is largely to blame.

I am completely and utterly against vilification of the USA and attempts to present that country as an “enemy of Russia”.

Firstly, the USA is not an enemy of Russia. The USA was an enemy of communism and the USSR and did a great deal to help the rest of the world to become more free and to flourish. The USA and its Marshall Plan contributed over 120 billion dollars in today’s money to the restoration of post-war Europe. It is to the USA that we in many ways owe the successful construction of a peaceful Europe that for the first time was not a military threat to Russia. The USA was firmly opposed to the erection of anti-human barriers in post-war Europe and made it clear that it would defend its Western European allies from events such as befell countries in Eastern Europe – e.g. Hungary in 1956, Czechoslovakia in 1968. J.F. Kennedy’s famous phrase “Ich bin ein Berliner” in his speech to hundreds of thousands of Berlin’s citizens in July 1963 in four words symbolises the USA’s freely taken resolution to defend its allies.

People who try to depict the USA as a “coloniser” would do well to recall the history of modern Europe and remind themselves who paid for the restoration of the war-ravaged continent and who, when that job was completed, withdrew its troops from the place. The USA has never planned to annex foreign territory, to the extent that it still today has not incorporated Puerto Rico into the union.

Secondly, the USA is a natural foreign policy ally for Russia. I am wholeheartedly in agreement with the views of the former governor of the Central Bank of Russia, Sergey Dubinin, so I will just repeat what he said: that we should not quarrel with, but, on the contrary, build a genuine alliance with the USA as the only possible ally of stature for us in the world.

Thirdly, the USA can and does make mistakes. One such mistake was the invasion of Iraq in 2003. Bear in mind, however, that all politicians make mistakes. Russian politicians do too. For those who have forgotten how Russia makes mistakes, let me just recall the years 1956, 1968, 1979, and 1994. Furthermore, large numbers of Americans openly protest against the war in Iraq. The slogan “No War for Oil” was invented in America and not somewhere else. Despite currently having a less than desirable administration, the USA remains as ever a free and healthy society.

The mistakes of the USA’s leaders are a reason for increasing dialogue with that country, for seeking greater access to those leaders in order to prevent repetitions of such mistakes in the future. They are not a reason for being hysterical, for boycotts, for boorishness or for spoiling relations – that is the way of the stupid and the unprofessional.

Making a conflict out of the deployment by the US of some anti-ballistic missile systems in Poland and the Czech Republic was another silly mistake. It is worth remembering that the original reason for the problem was the USA’s withdrawal from the ABM Treaty. Unlike such hardcore Soviet leaders as Brezhnev and Gromyko who got the USA to sign up to the ABM Treaty in 1972, today’s Russian rulers did not make the slightest attempt to get a continuation of the diplomatic process on anti-missile systems and helplessly declared about the USA’s leaving the treaty that “this does not come as a surprise”. Okay – so then do something about it! The deployment of American anti-missile systems in Eastern Europe – neither an easily understood nor a very pleasant thing – is the direct result of complete diplomatic inaction on our part, of the systemic degradation of our diplomacy.

We would not be having these problems if people other than today’s leaders had been ruling Russia. Alas, as I have frequently emphasised, the people in power in Russia today are grossly unprofessional. While yapping at the USA, they are completely unable to do anything about either the increasing militarisation of China and its growing influence in Central Asia or the Iranian and North Korean nuclear programmes. Yet that is where the real threats to Russia’s security reside.

Disagreeing with the USA on military matters, is not a reason for strained relations. For example, for many years Japan and the USA have been in serious disagreement over the American base in Okinawa but this has not prevented or stopped the two countries from being firm military and political allies. Thank God that in the case of our two countries we are only talking about the relatively minor matter of the deployment of some anti-missiles systems in other European countries and not about American bases or troops on our territory!

Any disagreements between Russia and America on the deployment of anti-missile systems are not insurmountable and should in any event be resolved quietly, at the negotiating table, without outbreaks of hysterics or the application of foreign policy blackmail. The USA is not the kind of country one should try to blackmail in any event. The deployment of the systems is the direct consequence of the fact that today’s Russian rulers stood by like stage extras when the USA left the ABM Treaty in 2002 and made not the slightest effort to conclude a new agreement. And it’s rather late in the day now to hope for anything.

As for the actions of the USA, they are aimed above all at defending the country’s interests. Which is exactly how things are supposed to be in international politics. Cooperation runs side-by-side with competition, sometimes very fierce. In international relations it is very important, while always seeking partnerships, not for all that to lose sight of one’s own interests. That is what makes diplomacy an art: knowing how not to quarrel or lose track of reality at the slightest difficulty and still to move things forward towards increasing cooperation. In hockey, when you go out onto the ice, only a stupid player gets upset and complains that he’s been bashed against the sides and knocked in the teeth. The right thing to do is to play on and keep to the rules or else end up in the penalty box as well.

These simple truths regrettably appear to be unknown to today’s Russian leaders.

Sad to say, the reason for the difficulties in our relations with the USA is mainly due to the lack of professionalism of our own side. The next step is to try to conceal this amateurishness by aggressive anti-American rhetoric and by drawing us normal Russians into a conflict with the USA. I object vigourously to this. It will not do our country anything except harm. The USA is our strategic ally and partner. It’s high time a stop is put to the anti-American yapping all around us.

What do you think about Khodorkovsky’s sentence?

I have a very slight acquaintance with the man and that contact was not of the friendly kind. However, I am firmly against the sentence and the whole way the Yukos case was managed.

Way back when I was working at the Ministry of Energy, I was seriously pressured by Yukos and Menatep people. Not that I was trying to do anything concrete against them. It was simply a matter that suddenly this sleepy Ministry had acquired a deputy minister who was proposing new ideas about oil industry taxation, production sharing agreements (Yukos was at that time waging an aggressive campaign against PSAs using the media, lobbyists in the Duma and so on) while for my part I was and remain in favour of PSAs. Yukos of course considered that I was taking “unacceptable liberties”.

For example, I was against the building of the Datsin oil pipeline because of the threat to Lake Baikal and because it risked creating a single-consumer market. I did not come out against the project as such but just said that Yukos should take all the risks connected with China as a market upon itself and not ask for state support and that the pipeline should be run further from Lake Baikal.

As a result, I soon came under pressure from lobbyists, including some open Yukos lobbyists from within the government (who today are doing nicely in high government positions). In 2002 Mikhail Khodorkovsky publicly made a number of heavy-handed remarks clearly aimed at people like myself. (Since there were not that many of us, I like to think that some of them were directed against me personally.)

From this it may be seen that I am by no means a natural supporter of Khodorkovsky. On the contrary, if there are any feelings at all, they are mostly bad.

However, I consider the ways and means used by the authorities against Khodorkovsky, Platon Lebedev and others to be barbaric. I have read the sentence against Khodorkovsky and Lebedev and consider that the prosecution totally failed to prove any of its charges, especially in the matter of the Apatit accusations [TN – that Khodorkovsky’s Menatep Group had failed to invest $280 million, which it had promised in return for a 20% stake in the 1994 privatisation of fertiliser manufacturer Apatit]. Everything is based on interpretations of and twisting the meaning of the words “knowingly and wittingly”. So the company had accumulated debt. So the fact that the company paid off this debt with money transferred to it as investments required in the terms of a tender. This is a company matter. I can’t see how parts of a financial report on the movement of funds can be interpreted as a failure to make an investment.

I consider the sentence to be unjust. I think that Khodorkovsky and Lebedev should be released immediately before a fair and unprejudiced review of their case. And actually, I think that as soon as there is a change of power in Russia, the need for the charges against them will vanish.

This is a clear case of warfare between clans seeking power and riches. For my part, I don’t support any of them. It is my certain opinion, however, that the authorities were the first to exceed the bounds of legality in this matter.

EDITORIAL: Putin’s Neo-Soviet Wet Dreams


Putin’s Neo-Soviet Wet Dreams

In the lead-up to Russia’s obscene parade of obsolete, creaking Soviet-made military hardware through Red Square last week, the dictator Vladimir Putin declared that his nation would soon surpass the United Kingdom in terms of GDP. Putin stated: “Russia is currently standing in seventh place in the world. According to international experts, it can climb another step as early as this year and overtake Britain.”

It’s possible this is the most obscene and ridiculous falsehood Putin has ever told, and that’s really saying something. A statement misleading on so many levels could only come from a proudly ignorant and fundamentally dishonest KGB spy like Mr. Putin.

First, Putin “accidentally” failed to include the term “purchasing power parity” in his claim. It’s a necessary term, because the UK has the fifth largest economy in the world, while Russia is in 10th place, when judged in terms of the pure monetary value of their respective GDP. And that’s based on nothing more than an educated guess about the levels of Russian production, because Russian data is notoriously unreliable.

Second, the use of “purchasing power parity” to artificially inflate the value of Russian GDP is fundamentally fraudulent. It assumes, for instance, that if you visit a doctor in the UK or Russia you will get the same quality treatment. Since a Russian doctor is paid only a few hundred dollars per month as a salary, it’s assumed that a Russian doesn’t have to be as rich as a Briton to get the same quality of life. That’s pure nonsense, and anyone who’s ever seen a Russian doctor or simply knows something about the law of supply and demand as influenced by wages knows that.

Third, and by far worst of all, Putin chooses to focus on nominal GDP, the total value for Russia as a country, while completely ignoring the per capita data. Even if we assume that Russia’s annual national income is roughly the same as Britain’s, Russia has three times more people dividing that income than Britain has. This means that Russians are three times poorer.

Even including purchasing power parity numbers, Russia only ranks #52 in the world when judged for per capita GDP. The UK ranks #22. To put it mildly, the people of Russia won’t be catching up to the people of the UK any time soon.

All through the Soviet era, ignorant nasty little men in the Kremlin repeatedly humiliated the people of Russia by broadcasting exactly this kind of ridiculous nonsense before the world, making Russia look every bit as ludicrous as the infamous Emperor with his New Clothes. Totally isolated from criticism and real-world information, the Soviet leaders lived in world of their own illusions where lies became true. Then, one day, their world imploded.

Russia is barreling once again down exactly the same course. All through the Soviet era, the regime was prepared to deny the people of the country the basic standard of living to which they were entitled. Things that were routine in other countries, like blue jeans and chewing gum, became fantastic, unimaginable luxuries in Soviet Russia as the regime spent the nation’s paltry income on outrageous levels of military confrontation with the West. Now, with the disgusting parade of military hardware through Red Square just as in Soviet times, Russia’s government is going to do it all over again.

Annals of Rewriting Russian History

In yet another horrifying attempt to rewrite and sanitize Russian history, the KGB is now seeking a do-over on the Hitler-Stalin pact that stabbed the West in the back. Soon, for Russians, no such thing will ever have occurred. Paul Goble reports:

The Federal Security Service (FSB) is working with Russian historians trained in Soviet times to rehabilitate the Molotov-Ribbentrop Pact, not only by selectively releasing hitherto classified documents but also by directly appealing to the Duma to overturn the denunciation of that pact by the Soviet Congress of Peoples’ Deputies in 1989.

On April 22, the FSB hosted a roundtable on “Problems of the Publication of Sources about the Great Fatherland War. Criticism of Attempts at the Falsification of History.” Immediately after the meeting, the FSB put out an anodyne press release about the session, but now more details about what took place are coming to light. Colonel Sergei Ignatenko, the head of the FSB’s Center for Public Affairs, told the meeting, which included archivists, historians and representatives of the Russian Orthodox Church, that the FSB wants to release any document it has “if this does not involve a state secret.” The reason for that, he said, is the increasing tendency by Russian and foreign historians, novelists, and filmmakers to “falsify” the history of the second world war and the Soviet Union’s role in it. “That which we see on movie screens today,” he continued, “is to a great extent falsification in a pure form.”

“With rare exceptions,” there are no serious historical investigations of this subject. One reason for that is the efforts of “our Western opponents” who “distribute money” in order to denigrate Russia, its people and its history. But yet another is the impact of the market economy on domestic filmmakers and writers. Ignatenko said that when he asked Russian filmmakers why they were distorting the history of the war, he said that they responded by saying that they were doing so “in order to increase ratings.” They do not think, he said, how harmful this is, but only “about ratings and high pay.”

“We beyond any doubt must be responsible for what we bring to the masses,” the FSB colonel said.

Another speaker, Vasiliy Khristoforov, the chief of the registration administration and archives of the FSB, said that many have written that archives, after having been opened in the early 1990s, were now being closed, but “this is not so and any investigator has the opportunity to work in Russian archives.” But it was a third speaker at the meeting who provided the clearest indication of why the session occurred and what both Soviet-trained historians and the Russian security service hope to achieve in this area. Oleg Rzheshevskiy, a senior scholar at the Academy of Sciences Institute of General History and the president of the Russian Association of Historians of the Second World War, called for the Russian parliament to overturn the 1989 condemnation of the so-called “secret protocol” of the Molotov-Ribbentrop Pact. “When this protocol was condemned,” he said, “did anyone think about the fact that this agreement was concluded in the interests of security? Because no one raised the question about the circumstances in which it was concluded,” circumstances which gave the USSR “no other way out.” Consequently, he continued, “if the parliament of Russia will reverse this decision,” that step alone will permit a more effective struggle with the falsifiers of history.” Because then it will be seen that Stalin’s decision in this case was “perhaps the only possible decision” that a responsible leader could have taken. (In an aside, Rzheshevskiy said that he “does not have official data, however it is precisely known that in Chechnya alone at the time [of the second world war] there were 18,000 armed fighters who struggled against the Red Army,” actions that would have led to “a Civil War” if they had not been deported as Stalin later did.)

Rzheshevskiy concluded his remarks to the FSB meeting by acknowledging that “our history is very complicated but at the same time we must always remember that the USSR defeated fascism,” a contribution that he suggested puts everything else that happened in those times in the proper perspective.

Now, in an essay posted on the Grani.ru portal, Moscow historian and commentator Irina Pavlova has put this meeting and Rzheshevskiy’s remarks in context. She argues that it constituted the long-awaited “revenge” of Soviet-era historians on those who spoke the truth about Stalin in the late 1980s and early 1990s. And tragically, in the current political climate, there is every reason for them to think that “victory will be theirs.” These historians “preserve all the posts in Russian historical science and they also control the preparation of new cadres” in history. Consequently, they are likely to cast their shadow far into the future. These historians have as their credo the programmatic document adopted at the time of a 1997 meeting of the association of historians that Rzheshevskiy heads. They argued then that “history is a political science” and that in writing it, historians must “always think about the interests of their state and be concerned about the healthy though of the [rising] generations.”

In her current article, Pavlova cites what she said at the time about that attitude: “The processes which are taking place in post-Soviet historical scholarship are connected with the general political processes in the country,” processes which are defeating efforts to tell the truth about the past. And what is especially unfortunate, she wrote at that time, is that Western historians are helping these survivals of the Soviet past. “Western historians not only formally continue to maintain ties with pro-communists historians but even support them conceptually,” leaving Russian historians “of the democratic direction” out in the cold. Some of them for reasons of career or otherwise are thus forced to make their peace with their earlier opponents, Pavlova writes today. One example of that is to be found in the evolution of perhaps the greatest Russian specialist on the history of the Molotov-Ribbentrop Pact itself, Tatyana Bushuyeva.

In the November 1994 issue of “Noviy mir,” Bushuyeva produced the first honest account in the Russian media of the pact and how it opened the way for World War II. Indeed, Pavlova writes, that article was for historians what the publication of Solzhenitsyn’s “One Day in the Life of Ivan Denisovich” in 1962 was for the Russian intelligentsia more generally. But now, Bushuyeva not only appeared at this FSB meeting but said that “in the 1990s there appeared attempts at the falsification of history, including by means of the invention of facts, the fabrication of documents, and so on.” For herself, Pavlova said, “this sounded like the [notorious] repentance of Dmitry Dudko.” Nonetheless, the Grani.ru writer ended on a hopeful note. “The current powers that be,” she said, can give directions and the historians who serve them can write about the Second World War however they like. They can lie as much as they want, praising Stalin and his policies to the skies, and slandering again as much as possible those” who don’t agree. “But the truth about the war, which at the end of the 1980s and the beginning of the 1990s began to emerge out from under the rubble, can’t be pushed back. It lives. And the greater the effort to impose the pro-Stalinist conception on society, the more people will be drawn [not to it but] to the truth.”

The New York Times Condemns Russia Today

We hope this is a sign of further investigative journalism into the malignant propaganda exercise that is Russia Today Kremlin-controlled TV. The New York Times reports:

Viewers outside Russia who tuned in this morning to watch the inauguration of Russia’s new president, Dmitri Medvedev, on the Kremlin-backed, English-language, 24-hour television news channel Russia Today heard a man recite the oath of office in deep, rich tones that evoke power and authority, but it wasn’t the new president — it was a voice-over artist, dubbing Mr. Medvedev’s remarks into English.

What was odd, and striking, about the voice chosen by what is billed as “Russia’s answer to CNN,” is that it was obviously the same man who records all the station-identification and upcoming program announcements for Russia Today.

In American TV terms, it was like tuning in to CNN for the inauguration of a new U.S. president, seeing his (or her) mouth open and then hearing the words spoken in the voice of James Earl Jones, in the same tones he uses to remind us that “this is CNN.”

Perhaps it should not have been a great surprise, given how close Russia Today veers at times to seeming like an official mouthpiece of the Kremlin, despite mission statements about “western-style narration … allowing viewers space for consideration and independent conclusions.”

But a quick look at the talent behind the channel reveals that the “Voice of Russia Today” belongs to a man named George Watts, a Canadian-born announcer who emigrated to the Soviet Union in 1952 with his parents. Before the fall of communism, Mr. Watts worked for Radio Moscow’s Foreign Broadcasting Service and did some simultaneous-translation work, according to his official Russia Today biography, including serving as the English-language voice of Nikita Khrushchev and Leonid Brezhnev at official party congresses.

Any doubts that Russia Today easily crosses the line into promoting rather than simply reporting on Russia’s leaders ought to be resolved by an item now featured on Russia Today’s YouTube channel, just below the full video of this morning’s inauguration ceremony. In a look at Mr. Medvedev’s hobbies, the reporter informs us that the new president is “a veritable Renaissance man,” based solely on his love of Deep Purple, weight-lifting, yoga and his cat.

Russia Today plays this sort of adoring coverage so straight that it manages to make even the 21st century version of Pravda look subversive. Pravda’s report on Mr. Medvedev’s cat taking over as first pet from former president Vladimir Putin’s dog noted that Mr. Medvedev’s pet is a “a castrated tomcat” named Dorofei, and featured the story of his defeat in claw-to-claw combat by a cat owned by the former Soviet leader Mikhail Gorbachev.

EU Sides with Georgia against Russia

The BBC reports:

EU backs Georgians in Russia row

Georgian President Mikhail Saakashvili

Five EU foreign ministers have voiced their support for Georgia in its continuing dispute with separatist regions backed by Russia.

Slovenian Foreign Minister Dmitrij Rupel said the EU was reiterating its backing for Georgia’s sovereignty.

In a separate development, the breakaway region of Abkhazia said it had shot down two more Georgian spy drones – a claim rejected by Tbilisi.

Georgia accuses Russia of trying to stoke up separatist hostility.

In April, it accused Moscow of shooting down one of its spy planes but it has denied recent claims of drones being hit.

Abkhazia claims a total of seven have been brought down since March.

BBC map

After talks with the five EU foreign ministers in Tbilisi, Georgian President Mikhail Saakashvili said Russia was preparing to take over Abkhazia.

“What is being carried out is indisputably an act of annexation and a prelude to occupation,” he said.

Mr Rupel, whose country holds the EU presidency, was accompanied to Tbilisi by the foreign ministers of Latvia, Lithuania, Poland and Sweden.

The presidents of Lithuania and Ukraine issued a joint statement on Monday urging Moscow to reconsider its recent decision to strengthen relations with Abkhazia and another separatist region, South Ossetia.

“Such a decision questions Georgia’s territorial integrity and increases tension in the region,” they said.

China is the New Russia

At last Russia, for so many years childishly thumbing its nose at copyright protection, is now getting a brutal taste of its own medicine. The Weekly Standard reports:

RUSSIA AND THE PEOPLE’S REPUBLIC of China are about to go head-to-head on issue of significant national security and strategic importance to both nations. Believe it or not, it is not about the placement of a gas pipeline, nuclear weapons development, or the rapidly rising price per barrel of Russian oil. What it concerns is the age-old Chinese penchant for making illegal copies of almost anything imaginable.

“You wouldn’t steal a car!” is the warning that flashes across the screen almost every time you put a movie in your DVD player. What usually follows is a series of messages about the evils of pirating movies, including the obligatory warning from the US Federal Bureau of Investigation about how video piracy is punishable by up to 5 years in a federal penitentiary and/or $250,000 in fines.

One country where these warnings have had little or no effect is the People’s Republic of China, no matter where you are in this vast country. As you move through various regions of the country one, the people look different, the food tastes different, the Putonghua (Mandarin) Chinese that is spoken in Beijing and other parts of northern and southwestern China is replaced by Guangdonghua (Standard Cantonese) or other local dialects. What does not change in any city is that almost every DVD and CD shop behind a hidden panel or bookcase that contains a mammoth selection of pirated films and music–all of which are supposedly illegal. The last such hideaway room I visited this past month was offering 10 DVDs for 100 Chinese Yuan (RMB), with an 11th disk thrown in for free, which works out to about $1.30 per disk. This may be one of the few places in the world where the US dollar still buys something. (I do not want to say which city, lest the local gendarmeries decide they need to make a symbolic crackdown on these entrepreneurs to create some positive pre-Olympic games publicity and take everyone’s attention off the debacle of the torch relay and the recent exposure of a secret Chinese Navy submarine base.)

But, Hollywood and the trade associations that represent the famous entertainers trying to stamp out video and music pirating have comparatively little to complain about when you look at the situation that Russia’s military aircraft industry finds itself in. As the Russian newspaper Pravda reports, “Chinese pirates have entered a new level of activity.”

In the early 1980s and before the collapse of the USSR, Soviet aircraft industry turned out two extremely capable, twin-engined, twin-tailed fighter designs: The Mikoyan MiG-29 and the Sukhoi Su-27. The latter aircraft was considerably larger than the smaller and more nimble MiG. It was in the same weight class as the Boeing F-15, and like its US analogue it was designed to be a long-range interceptor that could give its operators the long reach needed by nations with a plethora of air space to defend.

In the early 1990s, the PRC was desperate for just such an airplane. Chinese industry had tried to produce one for years, but had seen its efforts at design innovation stalled for more than a decade. At the same time orders and funding to Russian industry from its own military had dropped to nothing. The only way the makers of Russian weapon systems were going to survive was from export sales to China, India, and other nations.

Several years after their first purchase of Su-27SK export variants, China signed an agreement with Russia’s state arms export agency, Rosvooruzheniye, for the licensed production at the Shenyang Aircraft Works of 200 additional Su-27SKs, as well as subsequent orders of Su-30MKK two-seat, multirole versions of the aircraft. Russian industry breathed a sigh of relief as billions of Chinese dollars began to fill their coffers.

But, in 2004 China’s military told Moscow that the airplanes it was licence-producing were no longer needed because–according to the Chinese military–“the combat performance of these aircraft is far too limited.” The 200-aircraft production run was truncated at 95 units of the J-11, which was the designation given by Shenyang for the Su-27SKs assembled in China, with only 180 of the twin-engined aircraft’s Saturn/Lyulka AL-31F jet engines delivered as well.
Three years later in 2007, it was easy to see why the Shenyang plant had cut off the licensed production of the Su-27SK at the halfway mark. Chinese industry had learned all it needed to know in order to copy this airplane and soon presented their “indigenously developed” J-11B fighter, which from all external appearances appeared to be an analogue of the Su-27SK. Russian officials were less than diplomatic in their reaction. Another Moscow paper, Nezavisimaya Gazeta, reports Russian sources stating “the J-11B is an absolute imitation of the Su-27SK.”

Beijing making its own copies of Sukhoi airplanes, or “Sushki” as they are sometimes referred to in Russian slang, has Moscow worried. A copy of the Su-27SK has the potential to do to Russia’s defense market abroad what Chinese industry has done to the US consumer electronics industry. Just as Wal-Mart contains almost an entirely Chinese-made selection of products, the future world fighter market could be crowded with cheap, Chinese copies of the Su-27. Some of the more dire Russian predictions are that the Shenyang plant could flood the export market with as many as 5000 J-11Bs, which would eliminate many of the Western and even Russian alternative choices for numerous nations looking to upgrade their air forces.

Nezavisimaya Gazeta reports that as a consequence, “Russia has officially informed China that it considers the J-11B to be an absolute copy of the Su-27SK and that this is a direct violation of the two nations’ contractual agreement. Moscow has further promised that it will initiate legal proceedings in order to protect its intellectual property rights.”

However, it is hard to see in what legal forum Moscow can address these grievances. China belongs to the World Trade Organisation (WTO), but Russia does not. Even if there was a clear-cut path to make a legal case against China they would be on questionable legal grounds–pirating of software and other copyrighted products in Russia is as widespread as anywhere in the world.

But the larger problem that Moscow has is its dependence on China for export orders of other defense products. Currently most of the military jet engines produced in Russia are exported to China. Beijing is also one of the only prospective customers for a slew of new-generation Russian weapon systems. Taking legal action against their Asian fellow travellers can only mean that that the drop in defense exports to China, which has fallen by more than 60 percent in recent years, will become even more pronounced.

During a lending crisis one will hear that “if you borrow $5,000 the bank owns you, but if you borrow $5 million you own the bank.” Transposed to the situation in Russia’s defense industry, this means that there is little Moscow can do to reverse the situation it now finds itself in. Having invested so much in its defense business with China, Moscow would find it almost impossible to cut these ties and give up this market entirely.

At the same time, the price for staying in the Chinese market is like a high-stakes poker game. Giving up what you have already thrown into the pot on the bet that you can get Beijing to finance a next generation of military technology. The risks are high for Russian industry–and even higher for the rest of the world. The question now is where will the market for Russian weaponry on the international market end–and that for products made in China (based on what they have learned from Russia) begin? The answer will depend on who is more clever–the Russians or the pirates–in this next round.

Annals of Russian Oil, Running Dry

Forbes reports:

Russia’s oil output decline is likely to continue as its tax policy prevents oil firms from investing enough in new greenfield production, a magazine quoted the head of Russian oil major LUKOIL as saying on Monday. Vagit Alekperov, president of LUKOIL, Russia’s second-largest oil producer and biggest private oil company, said investment is also not sufficient for maintaining output at mature fields with their hard-to-extract resources. “Unfortunately, because of the tax policy, we have entered the phase of declining oil production because investment is not enough for launching new deposits and maintaining the existing fields,” Alekperov told Smart Money business magazine in an interview.

Russian oil companies have long urged the government to change the tax system, which has not been amended for several years despite rising costs and inflation that have squeezed profit margins. Firms want a cut in mineral extraction tax as well as expanding tax breaks to new oil-producing regions. East Siberia is the only region where companies can apply for tax breaks. Former president Vladimir Putin, who took over as Russia’s prime minister last week, has said the state has been withdrawing around 75-80 percent of oil companies’ profits in taxes and pledged to cut the burden to support economic growth. Russia’s overall output grew by just 2 percent in 2007 and has moved into negative territory in the first quarter of this year. Impressive spikes in previous years made it the world’s second largest exporter after Saudi Arabia. Production is expected to plateau at the current level of 10 million barrels per day as new production in East Siberia offsets declining output in West Siberia. But Alekperov said LUKOIL’s own prospects are brighter than those for the rest of Russia’s oil industry. “We are convinced that progressive development will continue during the next 10 years. Our reserves allow us to look into the future with confidence,” he said.

LUKOIL, in which U.S. ConocoPhillips (nyse: COP – news – people ) has 20 percent, last month cut its oil production growth forecast for this year to 1.8-2.0 percent from the previous estimate of five percent. It produced 91.4 million tonnes (1.8 million bpd) last year.

The Economist reports:

WHEN the price of oil reached another record on May 6th, of over $122 a barrel, analysts pointed to attacks on pipelines in Nigeria and turmoil in Iraq as the immediate causes. Even small disruptions to supplies from such places can cause the price to jump, since only Saudi Arabia has the capacity to replace the lost production, and it does not seem inclined to do so. But to understand how supplies became so scarce in the first place, one must look at the state of the oil industry in Russia, the world’s second-biggest producer.

Over the past seven years, according to Citibank, Russia accounted for 80% of the growth in oil production outside the Organisation of the Petroleum Exporting Countries. The increase in its output in the early part of the decade matched the growth in demand from China and India almost barrel for barrel. Yet in April, production fell for the fourth month in a row. It is now over 2% below the peak of 9.9m barrels a day (b/d) reached in October last year. Before that, the growth in Russia’s output had been slowing steadily, suggesting that the drop is not a blip. Leonid Fedun, a vice-president of Lukoil, a local oil firm, says Russia’s production will never top 10m b/d. The discovery that Russia can no longer be relied upon to cater to the world’s ever-increasing appetite for oil is naturally helping to propel prices to record levels.

Oil and gas have been the foundation of the regime of Vladimir Putin, Russia’s outgoing president, and are also a preoccupation of his successor, Dmitry Medvedev, who was chairman of Gazprom, the state-controlled gas giant. The flow of petrodollars has created a sense of stability, masked economic woes and given Russia more clout on the world stage. Yet the malaise afflicting its most important industry is almost entirely man-made. “Geologically, there is no problem,” says Anisa Redman, an analyst at HSBC, a bank.

In principle, Russia’s bonanza could continue for years: it has the world’s seventh-biggest oil reserves, at 80 billion barrels, according to BP, a British oil firm. And oilmen reckon there are 100 billion more barrels to find—“the biggest exploration prize in the world”, in the words of Robert Dudley, the boss of TNK-BP, BP‘s Russian joint venture. But Russia has regulated the industry so poorly that production is falling despite the soaring oil price.

“Tax is the major impediment,” says Ms Redman. The government levies an export duty of 65% at prices over $25 a barrel. Add to that various corporate, payroll and production taxes, oilmen complain, and the state creams off as much as 92% of profits. Executives at TNK-BP have argued that rising costs across the oil industry will make many investments in Russia unprofitable unless the tax regime is changed. As it is, TNK-BP accounts for a fifth of BP‘s production, but only a tenth of its profits.

The government does offer tax breaks on production from older fields. So oil firms, naturally, have been concentrating on squeezing as much oil as they can out of those. Until recently, that was an obvious priority anyway, since fields that had fallen into ruin after the collapse of the Soviet Union in the early 1990s could be revived relatively easily and cheaply. By mapping existing fields more precisely, installing new pumps and injecting water and chemicals into wells to maintain pressure, private oil firms were able to raise Russia’s production from 6m b/d to almost 10m b/d, mainly from western Siberia. In 2003 alone, output jumped by 12%.

But this strategy is now yielding diminishing returns. Mr Fedun says the western Siberian fields have reached their natural limit. To keep production at today’s levels requires ever more investment. To get Russia’s output growing again, firms must make huge investments to develop new fields in remote provinces such as eastern Siberia and the Sakhalin region.

There has been some growth in these areas, mainly thanks to the less heavily taxed projects, called “production-sharing agreements”, that the government offered briefly in the late 1990s but has since curtailed. Strip out the production from these projects, and Russia’s output has been in fitful decline since August 2006, according to analysts at Citibank. Worse, the output from these projects declined last month too. The government’s ill concealed expropriation of various prize assets over the past few years has only added to the reluctance to embark upon big new projects.

Lukoil, for example, is investing $10 billion a year, but roughly 30% of that goes into gas production, which is now more lucrative than oil, given rising domestic prices for gas and lower taxation, says Mr Fedun. It has also been investing in refining, since the export tax on petrol and diesel is lower than that on crude oil. It is still projecting 4% annual growth in its output over the next 15 years, but the figure would be much higher if the government eased the tax burden, says Mr Fedun. Rosneft, the state-controlled oil champion, took on so much debt buying the plum divisions of Yukos, a private firm bankrupted by the Kremlin’s zealous tax collectors, that it has little leeway for expensive new projects. Other firms are hoarding their profits and waiting for the tax regime to change.

The government did provide some $4.5 billion in tax breaks last year. But this, the oil companies argue, is barely enough to keep production stable. In his inaugural speech to the Duma as prime minister on May 8th, Mr Putin said that taxes on the industry must be reduced. However, new fields can take a decade to develop. The Kremlin has also failed to hand out exploration rights in the Arctic—the region oilmen consider most promising. And it says that in future the foreign firms with the expertise to tap offshore fields beneath frozen seas will be limited to minority shareholdings in big projects. “Oil production will be whatever the government decides it to be,” says Mr Fedun.

Meanwhile, Russia today is more dependent on oil and gas than it has ever been, argues Chris Weafer, a long-time Russia watcher and chief strategist at Uralsib, a bank. The share of oil and gas in Russia’s gross domestic product has more than doubled since 1999 and now stands at above 30%, according to the Institute of Economic Analysis, a think-tank. Oil and gas account for 50% of Russian budget revenues and 65% of its exports. Yet the government has put at risk the goose that lays these golden eggs.

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