Russia's Achilles Heel

Over the last couple of days, the post-mortems have begun to roll in from big-thinkers on Russia. The prescriptions advised in order to bring about status-quo ante in Georgia -- ejecting Russia from G-8, distancing Moscow further from global trade treaties -- add up to a consensus of "Oh Dear, Oh My." Non-membership in G-8 and WTO no doubt is provoking snickers in the Kremlin.

Contrary to these views, however, the West and the U.S. in particular do have one very real lever, one that Karl Rove might recognize -- Russia's very strength.

Russia's Achilles Heel is its petro-power. It's a message that both senators Barack Obama (and his running mate Joe Biden) and John McCain should keep in mind as they prepare to deal with Russia.

For more than a year, O and G has been describing progressive U.S. setbacks in what I've called the Pipeline War, the struggle with Russia for energy-driven political influence in Europe. We've also been writing here during that period about the growing tensions between Russia and Georgia.

In a nutshell, Russia understands that power in a large swath of the world -- Europe, the former Soviet Union and parts of the Middle East -- can be exerted from control of oil and natural gas pipelines. That's how the U.S. has inserted its power into Russia's backyard -- through the Baku-Ceyhan oil pipeline that crosses the country of today's conflict, Georgia. Now, Vladimir Putin intends to build on Russia's restored power by erecting two gigantic new natural gas pipelines into Europe, which already relies on Russia for almost a third of its gas.

Here's where the Achilles Heel comes in. One of these pipelines -- South Stream -- would pass through nations like Bulgaria, Hungary, Serbia and Austria. These are countries in which the U.S. has influence.

If the U.S. wants Russia's attention, persuade these countries and others -- for instance Germany, the main European partner on the second pipeline, called Nord Stream -- to freeze their support for the lines until it's satisfied that Georgia's sovereignty is no longer compromised.

Energy, and specifically Nord Stream and South Stream, are a Russian strength, and a genuine vulnerability.

While You Were Involved in War

In the midst of Vladimir Putin's land grab in Georgia, BP suffered another blow in its oilfield tussle in Russia. Last week, a Russian court barred Robert Dudley, the CEO of BP's joint venture in Russia, from running the company for two years. Now BP is trying to figure out how to secure its Russian assets, which account for a quarter of the company's global production.

BP and its partners at TNK-BP -- four Russian oligarchs who are mainly financiers and bankers -- have been in a dispute since spring. In a nutshell, the Russians value the company for the dividends it pays out; BP sees the company as more of a growth play, and wants to plow as much of the oil profit as possible back into the company. While that sounds like a balancing act managed at almost all companies around the world, it's turned ugly in this case.

As O and G readers know, I see this brawl ending badly for BP. Given the pressure the Russians have brought to bear, with the obvious collusion of the Kremlin (it's absurd to claim, as the Russian partners have, that an army of inspectors could have a free-for-all at the company unless the Kremlin were okay with it), I don't see how BP comes out with anywhere near its current 50% share of TNK-BP.

Indeed I think it's entirely possible that the British company is forced out entirely. In that case, BP itself -- meaning the global oil company -- is at risk; Wall Street will pummel its share price, and that would make it a vulnerable target for takeover. Some predict that Shell is the likeliest suitor, and I agree.

The partners are scheduled to meet to brawl again face to face on Sept. 25.

Dima's Moment

Dmitri Medvedev is trying desperately to recover from failing his first test as Russia's president: After suffering a severe case of deer-in-the-headlights 11 days ago, and leaving it to Vladimir Putin to blow the trumpet of war against Georgia from the Olympics in Beijing, Medvedev now is practicing a swagger, a sneer, and presidential gutter talk.

When Medvedev was with French President Nicolas Sarkozy a few days ago, he managed to form his lawyerly mouth into the words "bastards" and "hoodlums." In another setting, he threatened a "crushing response" to any future uprising such as the Georgians displayed. After all, the Georgians were people who got "idiotic ideas in their heads."

I have been predicting that Medvedev's performance will lead to his replacement on the 2012 presidential ticket. Putin surely won't tolerate a leader indecisive at the moment of truth, and will find someone else to run (I'm among those who believe that Putin wants to rule from the prime minister's seat so as not to have to keep leaving the seat of power every eight years, which under the constitution he would have to do as president).

But Medvedev has clearly seen the error of his ways. Perhaps he's still working himself into the role, and will yet emerge as the type of naturally tough leader that Russians have come to expect.

If his heart fails again, however, he clearly will be one-term Dima, another loser from the 2008 war in Georgia.

After Georgia, A Day of Reckoning For Washington

Russia says it will start withdrawing its troops from Georgia tomorrow. If that truly happens -- and there are contrary signs -- a new, probably far more important stage of the Georgian crisis will begin. That's the assessment of the affair by the arc of countries -- from Europe, swinging south and east to the edge of western China -- that are directly affected by what Russia does.

How these countries perceive the U.S. response to the war in Georgia will determine whether Russia has effectively crippled a hard-fought, 15-year-old American effort to inject itself as a power in Russia's backyard.

So far, much ink has been spilled over whether the U.S. and Russia are in a new Cold War. In Washington, we hear that the era of a post-Soviet U.S.-Russia alliance is over. The Kremlin counters that the West is intent on provoking it, and thwarting its natural rights as a great power.

The truth is that Moscow's presumptions are essentially correct -- the U.S. has conducted a definitively anti-Moscow policy on Russia's western and southern rims, one dressed up as reformist- and energy-minded, but nonetheless centrally designed to contain Russia within its borders.

But this policy well-suits American security aims, and those of the West as a whole. Conceived in the Clinton administration, it foresaw this very day, when then-forlorn Russia would regain its feet and possibly threaten the independence of its traditional colonial backyard.

One thing to keep in mind is that Russian disgruntlement with Georgia didn't originate with NATO expansion, Kosovo independence, Russia's resurgent petro-power, or Georgian President Mikheil Saakashvili's alleged jokes about Vladimir Putin's height.

Russia's first military attack on Georgia was not ten days ago but in 1993, when Moscow backed Abkhazia in its military separation from Georgia. In the subsequent years, then-Georgian President Eduard Shevardnadze was twice nearly assassinated, attacks that, in interviews with me and others, he blamed on Russia and his insistence on Georgia becoming the strategic transit route for the Baku-Ceyhan pipeline.

In other words, there's strong reason to believe that nothing Saakashvili did, short of capitulation to Russian domination of Georgia, would have satisfied Moscow. Friends tell me that Shevardnadze finally found an accommodation with Russia. If so, it was an accommodation that included the threat of assassination if he went too far.

Georgia wasn't the rationale behind American policy. But the Caspian Sea policy, conceived, as O and G readers know, by a today-forgotten National Security Council officer named Sheila Heslin, did attempt to get Russia accustomed to living within its own borders, and not threatening its neighbors.

The policy was dual. It involved a continuation of the expansion of NATO initiated by President George H.W. Bush, in order to prevent a future, resurgent Russia from gobbling up pieces of the former Soviet bloc in eastern and central Europe. And, on the Caspian, to the south of Russia, the U.S. promoted the construction of energy pipelines to link the Caucasus and Central Asia to the West, and provide them the financial wherewithal to withstand any Russian economic pressure. As a transit point for three of the new pipelines, otherwise-isolated Georgia, situated right on Russia's border, became a U.S. strategic partner.

After 9/11, the Bush administration -- carrying the policy further -- established military bases in Central Asia for the assault on Afghanistan, and then left them in place after the Taliban were dispersed.

The policy made sense considering U.S. interests. The West had a stake in making sure that Russia did not again become a threatening power; by encouraging Russia not to expand back into its former Soviet lands, it might express its nationhood in other ways, such as in business. (For those who see all policy as oil-generated, remember that there was no oil shortage in the 1990s; oil was much-discussed, but it was an instrument of policy -- how to give the Caucasus and Central Asia some breathing room from Russia -- rather than the rationale for it.)

Many of the eight presidents of the region embraced the U.S. agenda. At once, there was a lever against centuries-old Russian dominance.

But ten days ago, Russia put that declaration to the test. With its assault on Georgia, it seemed to expose the U.S. policy as a superpower vanity.

And it seemed true that Washington was caught off-guard. It seemed either to have forgotten the rationale behind its Caspian Sea policy, or, more probable, to have staked its policy on the hope that by now Russia had changed, and would not rotely use its military in the face of a perceived challenge.

Whichever the case, Russia's invasion of Georgia threatens the very real gains of these 15 years. If Russia is seen to have come out ahead, the U.S. may retain its influence in Europe, where Moscow could even suffer a backlash -- Europe could decide after all to build new pipelines to diversify away from Russian natural gas. But America's carefully built role as a great power in Russia's south would be in jeopardy.

The Central Asian and Caucasus leaders are watching.

I myself wonder now whether it matters if Russia in fact does withdraw all the way into Abkhazia and South Ossetia (which I doubt. I think Russia will maintain at least some troops outside the territories. It seems improbable that Russia will entirely give up the ground it gained within Georgia proper.).

Russia has demonstrated that it can and might cross borders of its former Soviet colonies when it sees fit. In Russia's view, these are not international borders; they are Georgia, they are Kazakhstan, they are Azerbaijan -- not real independent states, but former Russian territories.

Ultimately, Azerbaijan's Ilham Aliyev, Kazakhstan's Nursultan Nazarbayev and Turkmenistan's Gurbanguly Berdymukhamedov -- the stewards of the region's great energy wealth -- understand the language of power.

They understood when a parade of American officials visited and argued that it was wise to cultivate a relationship with the most powerful nation on Earth.

The trouble is that, these days, it's not clear any longer that the U.S. is very powerful in its declared zones of strategic interest.

The Georgian Conflict on Podcast

I spoke with Chris Power, international editor of BusinessWeek. Listen to this recording, which is also downloadable as a podcast.

The Genocide in South Ossetia

The death toll is in for South Ossetia, where Russia accused Georgia of genocide, citing the murder of more than 1,500 civilians for a humanitarian invasion of Georgia.

The figure appears to be about four dozen. Quoting a hospital where virtually all the dead appear to have been taken, since the morgue was without electricity, The Wall Street Journal's Andrew Osborn puts the figure at 45; and Human Rights Watch says it was about 44. There may have been an additional few victims whose bodies did not reach the hospital.

O and G readers from the State Department and elsewhere have written me privately that they regard Georgian President Mikheil Saakashvili as reckless, irrational, and megalomaniacal. They and others I trust regard Saakashvili with opprobrium for bringing on Russia's wrath.

That Russia would defend South Ossetia was certain. But increasing evidence makes the attack look well pre-planned, not spontaneous. And the authentic death toll makes the justification appear to be a pretext for that attack.

I had a Skype call from Tbilisi tonight from Lawrence Sheets, with whom I reported from the Caucasus from 1992 through 2003. He was then with Reuters; now he's the regional representative for the International Crisis Group.

Sheets says that he's pored over the events leading up to the fighting, and says that Saakashvili was left with a choice on August 7th -- allow a devastating South Ossetian attack on Georgian villages adjacent to the regional capital of Tskhinvali, or stop it. And Saakashvili decided to stop it. Sheets doesn't regard that as reckless.

The course of events make it appear that the West may countenance both effective Russian annexation of both South Ossetia and Abkhazia, under the guise of a form of independence, and occupation of swaths of Georgia proper. The best scenario seems to be only temporary occupation before a permanent imposition of the former -- the annexation part.

We got a picture of what that occupation could look like, at least for now, in the Georgian city of Gori today. Under the watchful eyes of Russian soldiers sitting on tanks, a paramilitary soldier stole two new SUVs belonging to United Nations officials, then dispersed them and journalists by firing into the air. As described by Yaroslav Trofimov, my former Wall Street Journal colleague, three of the U.N. officials escaped by jumping into his car, which then sped away.

Targeting the Pipeline

Until now, the notion that the battle in Georgia had an oil component was an educated conclusion, in my case based on the 11 years I spent living in the region, including in Tbilisi during the 1990s. Now we have two independent reports, including one this morning by my former Wall Street Journal colleague Guy Chazan, confirming that Russia took advantage of its assault to tell the West that the Baku-Ceyhan pipeline isn't necessarily safe.

(Credit where credit is due: Damien McElroy of The Daily Telegraph actually had the story first. But the WSJ had the foresight to publish an actual photograph, so that there is no parsing the facts now.)

The WSJ report says that the attack, coming within 10 feet of the Baku-Ceyhan line, occurred last Saturday. Here is Chazan's description:

"The line of craters left by the alleged Russian attacks runs through the middle of a hilly, mostly uninhabited plain some 15 miles south of Tbilisi, near the town of Rustavi. The area lacks military or even human targets. The only sign of civilization is a small farm surrounded by haystacks and grazing herds of cows and sheep. The 45 craters -- each some 60 feet across -- scar the hillside like footprints left by a giant."

On Tuesday, a jet returned and appeared to bomb a nearby smaller oil pipeline that terminates at Supsa, a port on Georgia's Black Sea coast.

The goal? As Chazan states well: "Russia wasn't only aiming to humiliate its neighbor militarily but also to damage its reputation as an energy corridor."

Georgia has no appreciable oil or natural gas. But the U.S. got behind it under the Clinton administration as a corridor for 1 million barrels a day of oil, plus considerable volumes of natural gas.

The United States originally intended the corridor as a way to weaken Russia's hold on its traditional colonial south. The strategy has been to take away the countries into which it normally expands: Eastern Europe, the Caucasus and Central Asia. That explains the U.S. support for NATO expansion. And it explains the so-called East-West Energy Corridor, of which Georgia is part.

The bombings did not strike the actual lines. But they demonstrated that Russia can, and might, do so.

Photo: Guy Chazan, The Wall Street Journal

Not So Fast

George Bush, egged on by his own domestic politics, is attempting to recover his footing after Vladimir Putin pulled the rug out from under him.

Putin's surge into Georgia was intended to show Georgia and its western supporters who is in charge. It's the impulse with which O and G readers are familiar -- we won't be pushed around, and anything goes in terms of making that clear.

The assault has been a significant blow to American prestige and long-cultivated strategic interests. Most leaders in the 'Stans knew that all the American demonstrations of an ability and will to project its military might into Russia's back yard -- going back more than a decade, when the U.S. first parachuted men into Kyrgyzstan just to show that it could -- were basically theater. But Georgia's Mikheil Saakashvili appears not to have. Now he does.

The region's leaders now know that they must rethink how to accommodate Russia in their economic and political plans. The same goes for the major oil companies.

Ed Chow, a senior fellow at the Center for Strategic and International Studies in Washington, told me that the companies must now reconsider the security of an oil route that until now seemed completely safe. And, whether they are operating in Kazakhstan, Azerbaijan or Turkmenistan, they have to think about whether they are prepared to expand their oil shipments through the East-West Corridor. If they do decided to proceed, as Chow says, they'll have to consider whether they have to accommodate Russia somehow.

As for Bush, he's attempting to show that the U.S. is still a force to reckon with in the region. Putin's response bears watching.

Arranged Marriage

The next worse thing to a politician deciding for you that he's going to be your leader is your neighbor deciding who is going to be your leader.

That's the situation in Georgia, and why I think, unlike some other commentators, that Russia won't likely succeed -- now that the actual shooting has been halted -- in ousting President Mikheil Saakashvili.

Across the former Soviet Union, ordinary people don't decide who is president. Cabals of powerful people -- regional strongmen, spy agencies, billionaire businessmen, old Soviet apparachiks -- decide among themselves. They say, "Hey Dima, you be president. It's good for the gang." When the voters go to the polls, Dima magically receives 88%.

That method of selection would include Vladimir Putin, his successor Dmitri Medvedev, plus almost all the presidents of the Caucasus and Central Asia. The exception is Ukraine and the Baltics, which have reasonably authentic elections, and do kick out the rascals when so moved.

Lots of times the majority of voters actually favor the winner, but that's besides the point.

The leaders of the two breakaway regions of Georgia that are currently in the news are in power specifically because they are favored by Moscow. In other words, at home in South Ossetia and Abkhazia, it's no shame to be a stooge of Moscow. It's the same in Chechnya, as we've
discussed previously on O and G -- President Ramzan Kadyrov is a delighted instrument of Russian power.

Putin tried to choose Ukraine's leader, but it backfired, which is how Viktor Yushchenko was elected. It's similar in Georgia. The contempt of the Kremlin toward Georgians is equalled by the Georgians toward the Kremlin.

So that, even if Saakashvili is despised by some other Georgian politicians, none would get anywhere near Russia. It would be the kiss of political death.

If Saakaskvili is removed prematurely, for whatever reason -- which as I say I do not expect -- look for the rise of an equally nationalist Georgian leader, perhaps quieter, less egotistical, but still anti-Russian.

Those are Georgian politics.

The Call of Past Regrets

Iraq is an interesting prism through which to look at Georgia. After the 1990 Gulf War, certain intellectual quarters in the U.S. regarded Iraq as undone business -- neo-cons and others wanted to go back and remove Saddam Hussain as a priority.

One wonders whether just this sort of thinking is at least partly a motivation for Vladimir Putin's relentless push on Georgia.

The antecedent in this case would be 1993, when Russian-backed separatists in Abkhazia seized power, and triggered a drive by other anti-government forces onto the capital of Tbilisi. I was reporting for Newsweek there when the drive was halted about an hour and a half west of Tbilisi, ironically by Russian forces sent to keep the country from outright disintegrating.

In Moscow, some may regret that moment, which saved then-President Eduard Shevardnadze. Perhaps they wish that the rebels had captured power, and installed a perhaps more pro-Russian leader.

The main thing I learned about Russia while researching Putin's Labyrinth is that, in pursuit of its aims, Russia practices a policy of bespredel, or anything goes. By way of example, one case I used was the 2006 murder of KGB defector Alexander Litvinenko with a nuclear isotope, which seemed about as stark as one might get.

But the current Russian assault is another dramatic case of bespredel. If Russia's aim were to secure the lives of repressed peoples, as Putin claims, that was accomplished early with the Georgian flight from South Ossetia.

But the Russian push out of Abkhazia and into the town of Senaki, and the reported occupation of police buildings next door in Zugdidi, demonstrates a broader objective.

The Georgians have announced that the country is effectively cut in half now; it previously had said that its troops had withdrawn to protect Tbilisi. I wonder whether all the soldiers made it since Georgian troops stationed in the West might be trapped on the other side of Gori, which is now in Russian hands.

If in fact Putin is seeking a return to unfinished business, he may be disappointed.

Georgia isn't Chechnya, where President Ramzan Kadyrov was installed by Putin and is happy to do his bidding. No Georgian politician would allow himself/herself to be injected into power; and if one did, he/she would last about five minutes. Any replacement for the reviled Mikheil Saakashvili might not be as ascerbic, but would be just as pro-Georgian and anti-Russian.

Georgian Update: A Different War

Russian envoys say that one of Russia's objectives in attacking Georgia is to remove its president, Mikheil Saakashvili.

Russian Foreign Minister Sergei Lavrov made the statement in a phone conversation with Condoleeza Rice, the American secretary of state, saying that Saakashvili "must go." And Russia's envoy to the United Nations, Vitaly Churkin, confirmed the gist of it publicly afterward in a conversation with Zalmay Khalilzad, the U.S. envoy to the U.N.

If they are representing Moscow's true intentions -- they could simply be floating a trial balloon, or engaging in traditional local bombast -- the West is facing an entirely different foreign policy crisis. That is, the forcible change of a Western-backed, democratically elected leader hosting highly strategic Western economic assets.

Other reports: The New York Times reports that Russian ground troops have left South Ossetia proper, and are marching on the Georgian-held town of Gori. Another (Russian language) report is that -- in the western part of the country near Abkhazia, Georgia has agreed to allow Russian peacekeepers to conduct joint patrols with the United Nations and Georgia of the town of Zugdidi. Both reports also suggest an important shift in this two-day old conflict.

Georgia, Russia and Rethinking China

Years after his humiliating knockout by Muhammad Ali, the boxer George Foreman returned to the ring to a string of triumphs and the world championship despite being in his 40s. It was more marketing than sport. When asked about his choice of opponents, Foreman famously remarked that he didn't fight anyone his mama couldn't whup.

That's one way of looking at Russia's effective annexation of South Ossetia and Abkhazia over the last 24 hours. With apologies to my Georgian friends, Georgia simply isn't a serious military actor; with the exception of the Chechens and Armenians, none of the Caucasus peoples is (which is why the Abkhazians and Ossetians are relying on Russia to fight their battles).

Where Foreman was smart is that he never got back in the ring with Ali. Fifteen years after its near dismemberment by Russian-backed forces, however, Georgia wasn't so wise. It doesn't mean a return to 1993, which ushered in a literally dark decade, when Georgia often lacked even electricity to light itself. But Russia's military demonstration does show that Georgia isn't an independent actor at the moment.

Vladimir Putin (for it's clear now who is truly in charge in Moscow) has also shown that Russia doesn't intend for Georgia to join NATO. And NATO has shown that it doesn't have the gumption or inclination to stand up to Russia.

The question for the U.S. and the West as a whole is fundamental, and goes back to the original objective of the Western energy corridor: As O and G readers know, Washington's rationale was not sending a million barrels of oil a day to the West, but turning the Russian-dominated Caucasus and Central Asia into a financially independent, pro-Western region.

Georgia is a key component of the strategy, as a crossover point for the Baku-Ceyhan oil pipeline, its companion natural gas line, and the smaller Baku-Supsa Early Oil line.

Georgian absorption into NATO is effectively off the table. But does that mean an end to the West's challenge to Russia's regional energy power?

The short answer is no -- all these lines will continue to operate. Russia won't interfere with them. Why? Because its larger economic-political strategy in Europe depends on not spooking the Europeans, who could then be encouraged to back the construction of more non-Russian energy pipelines to Europe, and thus dilute Russian power there.

(I just received reliable confirmation that, contrary to a statement by Georgia, Russia did not bomb near the Baku-Ceyhan line. Bombs were dropped near the smaller Baku-Supsa line, which leads to Georgia's Black Sea, but caused no damage. The Supsa line passes near South Ossetia so it's possible that this was a fog of war situation.)

So Russia will let the Baku lines be. But it seems to me that an expansion -- the proposed trans-Caspian oil and natural gas lines, and the proposed Nabucco line to Europe -- are now effectively dead. No Caspian president would gamble his survival by embracing such a project, and that's precisely how they would calibrate such a decision.

The West simply has too few levers with Russia.

But there is one, and it's China. Since the goal of U.S. policy is energy independence for the Caucasus and Central Asian states, why does the oil and natural gas have to go West?

China is building oil and natural gas lines from Turkmenistan and Kazakhstan to Xinjiang and beyond. Washington has already quietly gotten behind these efforts, but it might be the wisest course to turn up the volume by offering actually to help to build such lines.

The next U.S. president would have make such a shift part of a larger, well-considered China strategy. Russia would hate such a U.S.-China energy tandem, but that is what leverage in this region is all about.

Huffing and Puffing in Georgia

With so much hyperbole flowing in the conflict in Georgia -- on numbers of casualties, on the aims of the opposing sides -- where should one focus one's attention?

I remain tuned to Georgia proper, and not South Ossetia itself, or even the town of Gori to the south that has been bombed by Russian jets.

Specifically, Georgia claims that Russian naval carriers are in position off Georgia's Black Sea coast, and are readying to offload troops. If accurate -- I've seen no confirmation -- and these troops do occupy ground in Georgia itself, and not simply within the pro-Moscow separatist enclave of Abkhazia, this will be a different war. This would be Russia declaring who is in charge, a message that would be intended not just for Georgia, but for the West, which has been considering absorbing Georgia into NATO.

It would be the same were the scores of Russian troop carriers reported to have poured into South Ossetia to cross into Georgia proper.

A far more remote possibility would be Russian bombing of the trans-Georgian oil or natural gas pipelines. Georgia claims that Russia has already targeted -- but missed hitting -- the 1,000-mile Baku-Ceyhan oil pipeline, but I doubt the account. Such an attack would be regarded in the West as a direct assault on Western interests.

As long as the conflict remains in and around South Ossetia, the fighting can be seen as a bloody uptick in the Caucasus version of huffing and puffing. But it is containable.

Following Oil's Descent: Half-way There

O and G readers will recall that on July 17 -- with oil at $133 a barrel -- this site predicted that crude prices were on a descent that would end below $100.

We are now about half-way there. Today oil dropped below $116 a barrel.

Why is this the case? First, as stated previously, there is no global shortage of oil itself. There is plenty to meet current demand. The problem has always been the "what if" crowd -- as in, What if there is another Katrina? What if there is war with Iran, and the Strait of Hormuz gets shut down?

These are reasonable fears. But traders are looking at a deep drop in consumer demand for gasoline, at a decline in China's industrial demand for oil, and a hike in the value of the dollar, and deciding both to bet on lower oil, and otherwise to take their speculative bets elsewhere.

In short: the air is going out of the commodity bubble.

Georgia and Russia: Itching for a Fight, Now They Have One

At O and G, we usually ignore the crude language, or errantly fired shot, of the various hotheads in the Caucasus and Central Asia. The forecasts of possible calamity are almost always alarmist.

Today's flareup of direct combat between Russian and Georgian forces is not one of these cases. Remember the events and language that preceded Vladimir Putin's 1999 burn-the-fields, raze-the-cities offensive on Chechnya, and read this quote today from Russian President Dmitri Medvedev: “I am obligated to defend the lives and dignity of Russian citizens, wherever they are located. We will not allow the unpunished killing of our fellow citizens. Those who are guilty will suffer the punishment they deserve.”

Georgia and the South Ossetians had already been fighting for a year or more when I moved to Tbilisi in 1992, and the hostilities never really halted. The Ossetians rightly bristled at Georgia's misplaced nationalism, and broke away. Then, Moscow -- forever looking for a pretext to express its contempt for Georgia -- glommed onto the South Ossetian cause, granting them Russian passports and citizenship.

Times have changed. Current Georgian President Mikhail Saakashvili is not one with Zviad Gamsakhurdia, the early-1990s Georgian supremist whose rantings helped to trigger Georgia's loss of South Ossetia and Abkhazia. Yet the fighting goes on. Recent back-and-forth shooting between the Georgians and the Ossetians escalated today in a Georgian offensive on the Ossetian capital of Tskhinvali. Now Russian troops have crossed the border into South Ossetia.

In the past, Georgian troops have proven incapable of standing up to the Russians. In 1993, I watched as the Russians rolled over the Georgians in Abkhazia. The result was the near-dismemberment of Georgia itself.

That is the possible consequence of today's events. Only this time Georgia is far more important to the West -- in 1993, there were no trans-Georgian oil pipelines.

If the conflict escalates into Georgia itself, look for oil prices to escalate. And look for NATO to decide how to respond.

It's Official: The Caspian is a Terrorist Target

The surprise isn't that terrorists appear to be responsible for an explosion that has shut down the Baku-Ceyhan oil pipeline, and sent world oil prices up. It's that no such attack occurred earlier in the Caspian Sea region.

On Tuesday, a pump near the eastern Turkish town of Refahiye blew up. The thousand-mile pipeline, which connects the Caspian and Mediterranean seas and ships a million barrels of oil a day, could be shut for two weeks.

A Kurdish rebel group known as the PKK says it's responsible for the explosion.

If accurate, the attack underlines the vast target presented by the energy infrastructure that's gone up on both sides of the Caspian, and on into Turkey, since the 1991 Soviet collapse.

During the 11 years I lived on the Caspian, I frequently asked oilmen and diplomats about any precautions being undertaken to prevent terrorism, say, at the Tengiz and Kashagan oilfields in Kazakhstan, and the offshore Baku fields in Azerbaijan. After all, the Caspian is just north of Afghanistan and Pakistan, with all that implies. These fields currently export about 1.3 million barrels of oil a day, and the volume will increase to about 4 million barrels a day in about a decade or so.

I never got back anything but blank stares. I assumed that meant the threat was understood, but that no one was going to discuss preventive measures in place.

But this week's blast makes me wonder. BP deliberately built the pipeline underground, mostly to prevent the siphoning off of oil by thieves, and to forestall attacks by the various militant groups that populate the Caucasus and Turkey.

The vulnerable spots were always the eight pump stations along the route -- they are completely in the open. NATO and the U.S. had sent trainers to help assemble a strong protective force for the entire infrastructure, and I had assumed they were particularly concentrated at the pump stations.

Security may be particularly tight at the stations. But the apparent attack shows that the infrastructure remains vulnerable.

Anything Goes In Russia: What a President Obama or McCain Should Do

John McCain said it best the other day, quoted by The Washington Post's David Broder: "We have to deal with them, negotiate with them, especially in light of their hoard of petrodollars. But we can't sit by and watch a country murder people in England."

McCain was referring to the 2006 murder of KGB defector Alexander Litvinenko. As you recall, someone slipped a nuclear isotope into Litvinenko's tea at a London hotel, and Britain has filed murder charges against another former Russian intelligent agent who's now a member of the country's Parliament. Moscow refuses to extradite the man, whose name is Andrei Lugovoi.

Much is made of Russia's muscular attitude surrounding its oil. As McCain suggested, the rise of oil prices has given Russian leaders Vladimir Putin and Dmitri Medvedev a megaphone abroad -- where the world largely ignored Russia when it was down economically through the 1990s, it now feels almost obligated to give Moscow an ear because of the petro-leverage it exerts, especially in Europe. That the Russians appear again to be pushing a Western oil company out the door -- this time BP -- seems somewhat troubling to the market. But, since other oil companies have had their assets squeezed previously, no one is shocked. It seems more like, Well, there the Russians go again. That reaction is appropriate. But using the leverage of its energy resources for political gain in Europe is another matter.

I am often asked who I think would handle Russia better starting next year -- Obama or McCain. I reply that both would do well. Whether one comes from right of center or left of center, one will reach the same place, which is that Russia is going to pursue interests that are contrary to the West's. That is especially the case in oil.

One thing I learned over again during the last 18 months or so in researching Putin's Labyrinth is that, when Russia pursues its interests, its approach is "anything goes." That is, Russia will go to any length to achieve its aims. That's why, when someone decided to murder Alexander Litvinenko, he or she did not order him pushed off a subway platform or shot with a pistol; it was decided that he would be poisoned with a nuclear isotope.

When the next president is sitting in front of Russian interlocutors, he cannot underestimate Moscow. Because in its view, anything goes.

Labyrinth with The American Entrepreneur

I spoke with Ron Morris -- "The American Entrepreneur." Here is the recording. (Ignore the Moody Blues at the beginning.)

Listening to Iowa, India and China

The West has made it so difficult for Russia to join the 153-member global trade group called the WTO that, under Vladimir Putin, Moscow adopted the Groucho Marx dictum, "I refuse to belong to any club that will have me." After the performance of the leading trading nations in Geneva this week, one might be tempted to have sympathy for that sentiment. Freer trade is important -- if done right, poorer nations can spread the wealth beyond the corrupt elite. But the emphasis is on the execution.

The prevailing wisdom after this week's unprecedented collapse of talks for a freshened, global trade deal is that the world may have become too complex for such grand deals now. Better to turn to smaller, piecemeal pacts among nations and regions, and curb one's ambitions.

From such smaller agreements, according to this line of thinking, those antagonistic toward freer trade will be more comfortable with it. Or, say some people, such limited accords may be the wave of the future – it may no longer be possible to strike a global trade agreement, not with so many competing interests.

It seems to me that that's at best a limited reading of what happened to the so-called Doha trade agreement. My BusinessWeek colleagues Bruce Einhorn and Mehul Srivastava go a ways in explaining why India and China, for instance, dug in their heels at the last moment:

The field has changed around the world. Just as politics has led the U.S. Congress in June to renew subsidies of its cotton and sugar farmers, China and especially India are responding to domestic unease with more open trade borders.

Look at the trouble getting the Columbia trade deal through the U.S. Congress. Are the Democrats going to be more amenable if they see Canada, for instance, do bilateral deals? It seems absurd on its face. Extend that out to the rest of the world, and you get the picture.

Instead, free-traders need to start over with roll-up-the-sleeve politicking. Quite apart from increasingly hostile domestic opinion, a President Obama or McCain will - far more than previous U.S. leaders -- have to satisfy emerging economic states.

India's trade minister, Kamal Nath, used humor to make just this point. At the last moment, it seemed that U.S. Trade Representative Susan Schwab understood that the West could no longer ram through its agenda, and tried to finesse India. But it was to no avail. "Susan Schwab said that she loved me," Nath said in Geneva. "I said that I loved her too. But probably she didn't love me enough."

One of the most striking aspects of the final hours of the talks was the decidedly undiplomatic language used by China's trade representative, Chen Deming, in complaining that the West simply didn't take the rest of the world seriously. "There were no serious efforts to convince the Third World to accept the developed world's package." Deming said. He said, "Once their interests were guaranteed, the Americans demanded a sky-high price" of developing nations.

After the way he has talked down Nafta, Sen. Barack Obama not surprisingly may not be in an enormous hurry to find a way to resurrect Doha. In statements after the collapse, the campaign issued soft support for Doha, but said that the Bush administration was "right to walk away" from China's and India's last-minute demands. Asked what precisely would be needed to move Doha forward, Dan Tarullo, a Georgetown law professor who advises the Obama campaign, told me that it's too early to know. It is also too early to know whether one should use the building-block approach suggested by the McCain campaign. Talking to the Obama camp, the feeling is of a campaign punting what it probably regards as a back-burner issue.

I also spoke with Colin Bradford, a scholar at the Brookings Institution in Washington. He said that the collapse isn't necessarily a bad thing. All the major economies involved – the U.S., China, India, Japan, Brazil and so on – are listening more closely to their domestic constituencies than they ever have, he says. Agriculture subsidies are a sensitive issue in all the major economies. "Are we ourselves going to say we are not going to listen to our Iowa farmers?" Bradford said.

Photo: Eurritimia

Rights: Creative Commons