Showdown in Bucharest

After the spectacle and fireworks of recent years, we're about to see the latest picture of the balance of power in Russia-West relations. The venue will be the NATO summit that begins tomorrow in Bucharest. The issue is whether to advance Georgia and Ukraine's applications to join the military alliance.

The two former Soviet countries want to push forward their status to what’s called MAP – a Membership Action Plan. True membership would come down the road, once they meet the various necessary qualifications. France and Germany oppose moving to a MAP for the two. "France will not give its green light to the entry of Ukraine and Georgia," French Prime Minister Francois Fillon told France-Inter radio. "We are opposed to Georgia and Ukraine's entry because we think that it is not the correct response to the balance of power in Europe, and between Europe and Russia."

Stephen Fidler and Stefan Wagstyl of the Financial Times rang up Georgia's Mikheil Saakashvili, who has a reputation as a hothead, but sounds eminently sensible on this issue. "No matter what some Europeans might be thinking, it's basically giving [Russia] direct veto rights, because that's how they'll perceive it," Saakashvili told the FT.

Saakashvili has that right. Russia’s foreign minister, Sergei Lavrov, suggests that Georgia will use NATO membership to force the breakaway regions of Abkhazia and South Ossetia back into the Georgian fold. This is a red herring – it’s absurd to suggest that NATO would commit troops to crushing Abkhazian or South Ossetian politics. It can't even raise sufficient troops for Afghanistan.

Instead, the issue is simple -- Vladimir Putin wishing to demonstrate Russia’s influence now, and to retain its pressure points on its former colonies in the future.

Saakashvili has done smart political spadework. He has offered power-sharing to Abkhazia, and 500 Georgian troops to Afghanistan. The latter move at minimum could quiet France’s objections.

The ultimate decision will indicate whether Putin has at last succeeded in shifting the balance of power more toward Russia's direction.

Photo: neurmadic aesthetic
Rights: Creative Commons

The Why's of Pipeline Politics

One thing highly unlikely to change under Dmitri Medvedev is Moscow's hard-line energy policy. Indeed, one sometimes gets the impression that Russia wants the West to build pipelines that go around it.

As evidence, take a look at two disputes: Chevron's long-frustrated efforts to ship more oil through a pipeline that technically was built exclusively for its use; and Gazprom's cutoff of natural gas today to Ukraine.

The California company is nothing if not patient and persistent. It's hard to believe that its travails with Moscow have gone on for almost two decades, but it was 1989 when the California-based company first laid eyes on the Tengiz oilfield. The western Kazakhstan field, right next to the Caspian, contains 10 billion barrels of recoverable oil reserves or more, a considerable volume in an industry that regards a 1-billion-barrel field as a supergiant. The final contract awarding Chevron 50% of the field was signed in 1993.

Since then, it's been one stumbling block after another from Russia, which has seen it in its interest to keep Tengiz bottled up. It took eight years before a long-planned dedicated pipeline from the field -- known as CPC -- finally was running. But, while CPC has been producing 320,000 barrels of oil a day, Chevron has always seen Tengiz as at minimum a 700,000-barrel-a-day field, and more reasonably capable of 1 million barrels a day of exports. As of later this year, Chevron is ready for a mid-range production increase to 540,000 barrels a day.

Only, that would require an expansion of CPC, and Russia has blocked it. As the years have gone by, Transneft, which does the negotiating for the Kremlin, has seemed always to have a new demand. When that's met, there's been another. This time, it seems to want Chevron and its partners to finance another pipeline -- a line connecting the Black and Mediterranean seas overland from Bulgaria to Greece.

This isn't public, but Transneft is currently circulating a compromise. People who have received the Transneft memo tell me that Russia is willing to allow Chevron and its partners to raise exports through a process called "de-bottlenecking," which basically means getting the kinks out. The companies could modernize existing pumping stations, but add no new ones. Exports would rise from the current 28 million tons a year to around 38 million tons; that's far less than the 67 million tons a year that the companies seek.

There's no word on whether Chevron and its partners will accept -- they have 30 days to answer -- but it seems unlikely they'll reject it. But what is the ultimate impact of Russia's intransigence? Well, what happens when water is blocked from one drain? It seeks an outlet elsewhere. So look for a greater push for a trans-Caspian oil pipeline from Central Asia to Baku.

Meanwhile, Russia's Gazprom today cut off some 35% of its natural gas supplies for Ukraine. It says its neighbor owes some $600 million for exports this year. Ukraine Prime Minister Yulia Timoshenko disputes the figures. Given that the accounting books are closed to the public, and are disputed by those to whom they are open, there's no way of knowing for sure.

But, while they talk, both Gazprom and Ukraine say their dispute won't again disrupt supplies to Europe (Europe receives more than 30% of its natural gas from Russia, and most of that flows through Ukraine), as they did in 2006. I wouldn't bet on that. Jitteriness in Europe is Ukraine's best leverage over Gazprom.

That's the point of a current natural gas pipeline competition between Russia and the West. Because of its repeated conflicts with Ukraine and others, Russia wants to build a completely new set of natural gas pipelines to supply Europe. But such deepened reliance on Russia makes Europe and the U.S. nervous. So they have mounted a plan to diversify the European supply by going completely around Russia.

Gazprom's latest cutoff will only redouble the European-U.S. effort.

Putin, Utility Bills and Missiles

One still marvels at the notion of the president of a country announcing the successful settlement of a utility bill.

But that’s the way it is in the former Soviet Union, where the failure to pay one’s heating bill is regarded so seriously that the cutoff of service to entire other countries can result. Such as to much of Europe.

With minutes to spare before Russia planned to sever a quarter of the natural gas supply to Ukraine, Russia’s Vladimir Putin and Ukraine’s Yuri Yushchenko today announced that they had resolved their differences. Ukraine would begin to pay off somewhere over $1 billion in overdue bills to the Russian behemoth Gazprom. So, unlike in Russia's 2006 cutoff of gas to Ukraine, Ukraine's and Europe's winter heat will be spared.

That dialogue between nations at the highest levels can be disrupted over such matters is notable to say the least. It’s even more so when one looks just underneath the surface and finds the interest of a shadowy middleman company that, at least so far, Russia is highly resistant to push out of the picture.

This company, called Rosukrenergo (for Russia-Ukraine Energy company), is the official supplier of Turkmenistan’s natural gas to Ukraine. It’s half-owned by Gazprom and only partly unidentified private Ukrainian businessmen.

Who are these men? One has come forward -- a billionaire named Dmitry Firtash. But neither he nor anyone else will confirm who his partners are. One name that appears frequently is mobster Semyon Mogilevich, who before his recent arrest in Moscow was on the FBI’s Most Wanted List, and sought by other countries as well.

It can only be conjectured why actually two layers of middlemen – Gazprom and Rosukrenergo – are required to sell Turkmen gas to Ukraine. It’s also a mystery why Ukraine and Gazprom won’t identify who specifically is controlling – and earning the profit from – half of Ukraine’s natural gas supply.

The mystery is broader because Rosukrenergo also sells Turkmen gas on to Hungary, Poland and Slovakia.

Gazprom has said that, sure, you can cut out Rosukrenergo, but if you do, your gas bill is going to go up. Despite that warning, Yushchenko said today that a committee has been formed to unwind Rosukrenergo’s involvement. He expects it to be completed within a year. Having Putin at his side, he could speak with confidence on the full settlement of this utility issue.

For an excellent backgrounder on this company and its personalities, read pages 49-57 in this 2006 report by Global Witness.

More Missile Diplomacy: In the same news conference, Putin also raised the specter of a fresh missile dispute with the West. He said that, if Ukraine proceeds with the idea of joining NATO, and that if as part of that agreement an anti-missile shield goes up in Ukraine, “This would prompt Russia to take retaliatory action." Specifically, he said that Russia might point its missiles at Ukraine.

I have not heard of a public proposal to make Ukraine a part of the U.S.-proposed missile shield -- which has not yet been proven to work -- but according to a BBC report, Putin said, "I am not only terrified to utter this, it is scary even to think that Russia, in response to a possible deployment of... [parts of the] missile shield in Ukraine... would have to target its offensive rocket systems at Ukraine."

Photo: JeffK
Rights: Creative Commons

The Shadowy Game of Natural Gas

Russia is again threatening to cut off natural gas supplies to Ukraine. It says the reason is accumulated debt on the part of its neighbor. Gazprom, the Kremlin’s stalking horse, says Tuesday morning is the deadline – pay $1.5 billion, or lose a quarter of your supply. Talks are supposed to be going on in Moscow.

No one is opening up his accounting books, so we don’t know the true state of affairs on the two countries’ balance sheet. But there are enough dribs and drabs to get a picture of what’s at least partly going on.

This partial answer is Rosurkenergo. An entirely opaque go-between company – half-owned by Gazprom, and the other half by Ukrainian businessmen – Rosurkenergo buys natural gas from Turkmenistan sells it on to Ukraine.

Ukraine says it will pay off whatever debt it owes if the deal with Rosurkenergo is severed. But last week, a Gazprom official named Ilya Kochevrin told the Financial Times that, if that happens, Ukraine should expect a steep hike in its bill.

That line is probably not straight out of Mario Puzo, but it could be. One might rationally ask why a joint Gazprom-Ukrainian company is more capable of negotiating cheap gas than Gazprom and Ukraine directly.

One thing to note is that it has seemed that the Kremlin is attempting to get a lot of its financial house in order before the ascension of Dmitri Medvedev to the Russian presidency in next month’s elections.

Vladimir Putin, for example, has been peripatetic in his efforts to get Gazprom's pipeline deals with Central Asia and Europe sealed fast.

It’s also been a principal suspicion in the recent arrest of Russian mobster Semyon Mogilevich, an internationally hunted fugitive who lived for years in plain sight in Moscow before Russian authorities miraculously charged him last month with tax evasion. Mogilevich has been linked as a possible shareholder in Rosurkenergo, which if true could mean that his arrest was related to the company, and how and with whom the proceeds are shared.

This is all Kreminology. At the intersection of commerce, crime and geopolitics, such questions in the end get resolved. But what of the collateral victims, such as Europe? Gazprom claims this is just between Russia and Ukraine, and has assured Europe – which receives 80% of its Russian gas through Ukraine – that its supply won’t be affected.

Does anyone really believe that Ukraine won’t pass on the crunch to Europe in order to build up leverage?

Photo: dbking
Rights: Creative Commons

How to Tarnish A Hard-Won Reputation

It's not a household name in the United States, but in the former Soviet Union the Organization for Security and Cooperation in Europe is a source both of irritation and solace. The distinction depends on whether you are one of the region's autocrats or one of its independent thinkers.

Whichever the case, the OSCE -- financed in large part by the U.S. -- has played a hard-fought, 16-year role as Europe's official conscience.

Until now. The OSCE has bafflingly jeopardized its reputation as Europe's premier human rights watchdog in order to satisfy an understandable if misguided campaign by Kazakhstan for the prized chair of the organization.

Last Friday, the OSCE for publicly unknown reasons succumbed to Kazakhstan's full-court press on the issue, and announced that the Central Asian republic will take over the one-year chair a little over two years from now, in 2010.

Kazakhstan is hardly the region's worst human-rights violator. But neither is its record worthy of holding up as an example, which is what the chair represents. This is a country that has never held a fair election; although President Nursultan Nazarbayev has led the country since 1989, there's no way to know for sure that he actually ever won a contested election.

Nazarbayev has never permitted a genuine opponent to run against him, and like his neighbor to the north, Vladimir Putin, he has routinely beefed up the election results to show swelled support. He recently signed a law allowing him to serve as president for life. And there's no evidence that, short of his own death, Nazarbayev will ever agree to give up the post; to the contrary, the probability is that he'll stay on the job for years to come.

If the OSCE states wished an example from the former Soviet Union, why not choose Ukraine? For all its flaws, it has been holding truly competitive presidential elections for some 13 years. Or better yet, how about Georgia? There, Mikheil Saakashvili has actually stepped down from the presidency in order to run in a snap election next month.

Kazakhstan ran its OSCE campaign through its own offices and the paid help of lobbying groups like APCO in Washington. It's not clear to me what precisely turned the tide, but the OSCE decision is appalling, in my opinion. It will be hard-pressed to recover its reputation.

4 Leaders Try to Offset Russia's Clout

BAKU, Azerbaijan (AP) – Leaders of four former Soviet republics discussed ways to counterbalance Russia's wide influence in the Caspian and Black Sea basins at a summit of their regional grouping.

The summit is the first for the organization, called GUAM, the Organization for Democracy and Economic Development, since its four member countries – Georgia, Ukraine, Azerbaijan and Moldova – agreed last year to deepen ties and cooperation.
Read the rest of story

From Steve: On the other side of the Caspian, Kazakhstan and Turkmenistan still have no concrete link into the Baku-based oil-and-natural gas pipelines to the Mediterranean.

Instead they recently agreed to build another natural gas pipeline through Russia. To the degree that they are seeking leverage against Russian influence of their energy markets, they are doing so by building up transportation with China, and organizing barge traffic to Baku.

But one wonders if this will be sufficient for their long-term economic independence.