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Russia: More Dangerous Now Than Ever

Posted: Wed Dec 20, 2006 10:29 pm
by Corlyss_D
Don't mess with Russia
Dec 13th 2006
From The Economist print edition

Russia's habitual abuse of its energy muscle is bad for its citizens, its neighbourhood and the world


FOR over a decade Royal Dutch Shell, along with its Japanese partners, Mitsui and Mitsubishi, has been struggling to coax oil and gas out of the frozen seas off Sakhalin Island, in Russia's far east. Over the years the scheme has run into environmental protests, its projected cost has doubled to $20 billion and its completion date has receded. But it is now nearly finished. With oil and gas prices high and a flood of revenue imminent, it is an odd time for the three owners to reduce their shareholding. Yet that is exactly what they offered to do this week, by selling a majority stake in the project to Gazprom, Russia's state-owned gas giant (see article).

Gazprom's masters in the Kremlin have made no bones of their desire to keep big energy projects in the family, so to speak. Russian officials had been making life difficult for the Sakhalin project by threatening dire consequences for minor environmental lapses. The shareholders, perhaps mindful of the fate of Yukos, a big Russian oil firm bankrupted by over-zealous tax inspectors, presumably concluded that Gazprom was making them an offer they could not refuse.

Neighbourhood bully

When it comes to energy, Vladimir Putin's Russia seems prone to loutish behaviour—despite constant claims that Russia is a reliable partner. In addition to mugging Yukos, it has often intimidated its neighbours with threats to cut off their oil or gas supplies. Earlier this year, when Lithuania had the temerity to sell an oil refinery to a Polish firm instead of a Russian one, the pipeline that supplies the refinery with Russian oil suddenly succumbed to a mysterious technical fault. Last winter Gazprom appeared to blackmail Ukraine's new pro-Western government by cutting off the country's gas amid a dispute over prices. The episode sent a chill throughout Europe, which relies on Gazprom for about a quarter of its gas. Japan, the future recipient of most of the gas from Sakhalin, will now also find itself at Gazprom's mercy.

Russia's government, of course, is not the only one to try to grab a bigger share of the takings as oil and gas prices go up. Britain recently raised taxes on production from the North Sea. And Russia has a strong incentive to rewrite the rules, since it agreed to generous terms for projects like Sakhalin back in the 1990s, when it had no money to develop its resources itself and was desperate to attract foreign investment. But its brutish behaviour will probably backfire. The next time the oil price falls or money runs short, it might end up having to offer even more munificent terms to lure the oilmen back. Russia risks scaring off investors of all stripes, as well as potential customers for its oil and gas.

Moreover, Russia still needs the expertise of foreign firms. Gazprom and its state-controlled counterpart in the oil business, Rosneft, are hopeless at increasing their output—except by buying up other firms' assets on the cheap. So the Russian state's insistence on developing its oil and gas by itself is not just bad news for the shareholders of Shell, Mitsubishi and Mitsui. It is also bad news for ordinary Russians, who will not see as much oil wealth as they otherwise might.

What explains these self-defeating tactics? Mainly Mr Putin's belief that energy is a weapon with which to restore the lost greatness of the Soviet Union. No longer need Russia go to the West cap-in-hand for money, as it did in Boris Yeltsin's day. Now it can stand tall once more, not least in the neighbouring ex-Soviet countries that many in Moscow have never reconciled themselves to losing. Whenever these places seem to look to the West, still more aspire to join such Western clubs as NATO or the European Union, the Russians have reacted petulantly, as they did earlier this year by imposing trade embargoes on Georgia and Moldova.

From Russia with polonium

Mr Putin's use of energy as a weapon is only one instance of a Russian assertiveness that nowadays seems to border on gangsterism. Perhaps the most spectacular recent example is the murder in London of a former Russian agent, Alexander Litvinenko. Though it is not clear whether the Kremlin ordered the killing, that this even seems possible says something about the internal state of Russia (see article). With the parliament largely emasculated, television under state control, the press muzzled and once-autonomous regions shackled, the presidency has acquired enormous clout. It is increasingly the Kremlin that decides who runs Russian business and finance. Although an election is due in March 2008, Mr Putin will in practice choose his own successor.

Such authoritarianism, like the muscular use of energy, is driven partly by weakness. Russia's army is chaotic, its population is shrinking and its economy is dangerously dependent on natural resources. That is why Mr Putin is so keen to keep a firm grip on power at home; it is also why he is so anxious to keep Russia's seat at the top table, not just in the UN Security Council but also the G8 club of rich countries.

If Russia continues on this course—and especially if Mr Putin meddles with the constitution to grab a third term—it does not deserve to stay in the G8. But it is also worth noting that Russians, Russia's put-upon neighbours and the shareholders in the Sakhalin project are not the only people who stand to suffer as a result of the Russian economy and political system being mismanaged this way. The Russian state's insistence on developing its oil and gas by itself is bad news for almost anyone in the world who consumes power or fuel.

In the early part of the decade new production from the former Soviet Union accounted for most of the growth in the world's supply of oil and gas. But when Mr Putin began his campaign to take control of Russia's resources, that growth stalled, just as China's demand for energy was taking off. The present high prices for oil and gas are the result. With exploration prospects drying up in much of the Western world, and with the countries of the Organisation of the Petroleum Exporting Countries unwilling to open the taps, Russia is one of the few countries that could produce more oil—if only Mr Putin changed his thuggish ways. ... E1_RQTPDQR

Posted: Wed Dec 20, 2006 10:31 pm
by Corlyss_D
Russia deserves pity as well as fear
Nov 30th 2006
From The Economist print edition

The cold war has not restarted—but the West should still worry about Russia


THERE is a prickly KGB officer in the Kremlin. He suppresses dissent at home and—if one believes allegations that he ordered the radioactive poisoning of Alexander Litvinenko, a former Russian agent who died in London last week—abroad. He obstructs America's foreign policy, sells arms to its enemies and cosies up to its rivals. He was a spectral presence at this week's NATO summit, where Russia seemed almost as pressing a concern as it was in the days of the Soviet Union. He uses his country's vast hydrocarbon reserves to bully the neighbours. Prepare, conclude many Western commentators, for a new cold war against Vladimir Putin's resurgent Russia.

The doomsayers are half right: Mr Putin's Russia is dangerous. However, this is as yet very far from being a new cold war. It is mostly Russians who are endangered. And for the West, Russia's enduring weakness should be at least as troubling as its much-advertised new strength.

Compared with the late 1990s, when it was ruled by a drunk and its currency collapsed, Russia has grown stronger under Mr Putin. But only relatively. Although its economy has recovered and its diplomacy is more assertive, Russia has an awesome array of problems, any one of which would be seen as cataclysmic in most rich countries. Booze and inadequate health services have helped to create a looming demographic catastrophe: the population is shrinking fast even before the full impact of a gathering AIDS epidemic is felt. Russia's robust growth is precarious, based on high prices for oil and gas that may not last and rising production that may not prove sustainable. Inequality is perilously wide. Rampant corruption hampers business and helps terrorism. The Kremlin has dealt with a separatist insurgency in Chechnya by fostering rule by a thuggish strongman, whose men terrorise and kill opponents not only in the region but also in Moscow. The north Caucasus is combustible; the army is crippled by graft.

This Russia certainly can and does threaten neighbours such as Georgia or Ukraine, which many Russian politicians still treat as wayward colonies (see article). But the threat it poses to the rest of the world has been overstated. Russia is neither exporting a defunct ideology nor fighting proxy wars with America, as it did during the cold war. Its hints at disruptions to Europeans' gas supplies are mostly bluff. Indeed, the biggest dangers Russia poses to the West may be as an incubator of assorted diseases and of Islamist extremism.

After Putin

The dangers to Russians, however, are real and daunting. The country is run largely in the interests of a ruling clique. Whoever killed Mr Litvinenko, it is a fact that the lives of Mr Putin's critics are often made uncomfortable and sometimes cut short. Many other Russians, not specially targeted, have fallen victim to his policies: ordinary people harassed by corrupt police; those who are kidnapped by Caucasian militias; entrepreneurs whose businesses are stolen by state-backed racketeers; teenaged conscripts hired out as slave labour by officers. That life has improved for many Russians under Mr Putin is undeniable, as is his continuing popularity. But it is impossible to know how popular he would be without the Kremlin's stranglehold on television, which peddles the traditional myth of the good tsar (responsible for everything that goes right) and his bad advisers (blamed for everything that doesn't). Both parliament and the courts have been neutered.

These depredations should concern the West too. For the biggest risk of all is that Russia's weakness and instability will at some point produce a regime much nastier even than Mr Putin's, which will inherit Russia's strengths: oil and gas pipelines and nuclear weapons. There are already clues as to the sort of government that could emerge from, say, a sharp economic downturn or a political crisis. Ethnic nationalism is on the rise, tolerated if not inspired by the Kremlin, most visibly in several racist murders: another sign that, for all the neon and imported cars that impress visitors to Moscow, Russia remains a profoundly sick society. The Kremlin's grip on the country relies mainly on Mr Putin himself—and he is due to step down in 2008. One popular Moscow view of the Litvinenko case is that it is just part of a murky factional infight ahead of Mr Putin's departure.

Outsiders should try to avert the risk that Russia's simultaneous strength and weakness will produce something even more terrifying than Mr Putin, but at the same time be ready to criticise his misdemeanours. It is a hard trick to pull off. Boris Yeltsin, Mr Putin's erratic predecessor, was adept at deflecting international scepticism about his rule by portraying himself as a bulwark against a communist revival. Mr Putin also relies on such better-the-devil-you-know thinking. But like most Russians, he remains sensitive to criticism by the West, which should not shrink from dishing it out—even if it ought also to avoid loose talk of a new cold war. ... E1_RPVPPDD

Posted: Wed Dec 20, 2006 10:58 pm
by burnitdown
Patton was right :)

Posted: Fri Dec 22, 2006 7:05 pm
by rasputin
Drop nuke bombs at Moscow, St.Petersbourg and every other russian big cities. Kill all of them, men,women and child.
At the same time do that on Iran,Iraq,Korea,Afhganistan,Cuba,Venezuela,
China, Siria, Colombia, Bolivia, Ecuador and any other not white and
extreme right that you can think on.
Maybe half of the planet will be uninhabitable, but,what can you do?. It's
your sacred duty,after all.

Posted: Fri Dec 22, 2006 7:58 pm
by living_stradivarius
Be sure not to make the same mistake Nicholas did with mr. rasputin.


Posted: Fri Dec 22, 2006 9:52 pm
by Agnes Selby
It is much cheaper to kill dissidents than to send them to Siberia.
You don't have to feed them. Burials are cheaper too when
they are disposed off in another country. Don't you agree? :wink:

And as for oil, why not make it a substitute for vodka? :lol:


Posted: Fri Dec 22, 2006 10:39 pm
by Corlyss_D
Worry About OPEC, Not China
If a stronger dollar is what you want.
by Irwin M. Stelzer
12/25/2006, Volume 012, Issue 15

Mission impossible. That's the best way to describe Secretary of the Treasury Hank Paulson's just-concluded trip to Beijing, ostensibly to persuade the Chinese to do something to whittle down their huge trade surplus with the United States. Paulson and his colleagues--the delegation included the commerce, labor, health and human services, and energy secretaries in addition to the U.S. trade representative, the administrator of the Environmental Protection Agency, and the chairman of the Federal Reserve Board--don't have much of substance to show for their 13,000-mile round trip. Indeed, if their aim really was to pursue that oft-stated goal of U.S. policy, a "strong dollar," the delegation that the Wall Street Journal derisively labeled "the biggest economic expedition since Marco Polo's" should have been rerouted to Riyadh.

While the Chinese have been accumulating dollars at the rate of about $200 billion per year, high oil prices have driven oil exporters' trade surplus with America to $500 billion annually. These oil producers, members or fellow travelers of the oil cartel that is keeping prices above competitive levels, are feeling put upon because the dollars they are getting for their oil now buy fewer pounds to spend in Harrods, and fewer euros to spend on the necessities of life in the south of France. Worse still, the dollars they have already accumulated are declining in value.

To protect against further declines, the oil producers are diversifying out of dollars and into other currencies, most prominently euros and Japanese yen. The central banks of the members of the OPEC cartel cut their dollar-holdings from 75 percent of total reserves in 2001, to 67 percent at the end of the first quarter of this year, and again to 65 percent at the end of the second quarter. That increased the downward pressure on the dollar, pressure that was alleviated a bit at week's end by two developments: It became clear that the American economy is sufficiently strong to make it unlikely that the Fed will soon cut interest rates, and it was announced that the trade deficit for October fell by over $5 billion.

The problem created for U.S. policy by the oil producers' dollar-holding is that many of these countries are outright hostile to America--Venezuela, Russia, Iran--and others might wreak havoc with the dollar should the Palestinian-Israeli crisis flare up, putting pressure on Arab regimes to inflict pain on the United States. The fact that any dollar-dumping would also harm the Arab states is irrelevant: The Middle East is not a region in which economically rational behavior consistently trumps self-inflicted wounding.*

The problem with China is of a different sort. To the consternation of many politicians, its policy of pegging the yuan to the dollar undervalues the Chinese currency. This gives Chinese exporters a de facto subsidy, and makes made-in-the-USA goods, as well as those produced in Europe and Britain, more expensive in China. China has allowed the yuan to rise in value by almost 6 percent since mid-2005, but with no discernible effect on its huge trade surplus.

Paulson's mission is impossible for two reasons. First, the Chinese regime's overwhelming priority is to stay in power. That means providing jobs for the 300 million farmers expected to move to the cities in the next 20 years, which in turn means the government will under no circumstances allow the yuan to rise to a level that cuts sharply into exports.

Second, even if Paulson could persuade the Chinese to allow their currency to appreciate to a point where made-in-China merchandise became more expensive in America, the effect on the trade deficit would be trivial. American consumers would simply shift to goods manufactured in other countries in which labor costs are far lower than they are in the United States.

Still, Paulson's trip probably was worthwhile, although the exaggerated importance it took on as a consequence of the Bush administration's decision to bloat the delegation with cabinet members and to enhance its prestige by persuading Fed chairman Ben Bernanke to join the junket probably created expectations for success that were unattainable. My guess is that some bright blade in the White House thought it would appease the president's congressional critics if Bush sent a large delegation to prove he feels the pain of those who have lost jobs because of imports. Still, the 61-strong team of cabinet members-plus-aides was outnumbered by the 86 Chinese accompanying their lead negotiator, the tough, well-regarded vice premier, Wu Yi.

Paulson is clever enough to distinguish the practically attainable from a political wish list, which is why he put the word out that his trip was designed to open a two-year "Strategic Economic Dialogue" with China, not to produce a floating yuan. The Chinese are well aware that their mercantilist policy of accumulating foreign currency creates problems for them, and that their standard of living would be better if domestic demand grew so as to reduce their need to export. Wu Yi--after a diatribe about past grievances, starting with the opium wars (a traditional Chinese opening gambit beautifully described by Margaret MacMillan in her new book Nixon and Mao: The Week That Changed the World)--said that the regime is in the long run seeking a "rough balance" between imports and exports. But the Chinese authorities can't figure out how to get from here to there--how to achieve that goal without creating huge unemployment during the transition from an export-led to a more balanced economy.

Paulson hopes to change the conversation from a shouting match over the undervalued yuan to a "dialogue" ranging over joint interests in increasing world oil output, reducing the environmental degradation incident to China's inadequately green policies, improving labor standards in Chinese factories, protecting intellectual property rights, and opening markets to U.S. imports. Apparently unaware that previous "road maps" drawn up by the administration have not led anywhere, Commerce secretary Carlos Gutierrez called for still another "road map," this one to direct China to a more market-oriented economic model. If that's the destination China's rulers have in mind, Paulson is the man to help them find the way. Of course, they knew that before he and his entourage came calling last week on a mission designed more to quiet protectionist Democrats than to have a real impact on America's trade deficit.

Irwin M. Stelzer is a contributing editor to THE WEEKLY STANDARD, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).

*As some wag observed, the Arabs never miss an opportunity to miss an opportunity.