Russia's Double Nelson

When the Czech Republic signed a deal this week to host U.S. anti-missile radar, Russia's Dmitri Medvedev said he was "extremely upset." He added, “We will not be hysterical about this, but we will think of retaliatory steps.”

Yesterday the Czechs -- like the Ukrainians, the Balts and the Georgians before them -- learned what that means. The Czechs say that the flow of oil from Russia -- their main supplier -- has suddenly slowed. Instead of about 120,000 barrels of oil a day, the Czechs are receiving about 70,000 barrels a day, and apparently will do so through all of July, according to an Interfax report quoting Euro Online, a Czech publication.

The development undercuts recent efforts by both Medvedev and his predecessor, Vladimir Putin, to assuage the West about Gazprom's growing market power in Europe. Both they and Gazprom chairman Alexei Miller have said that Russia is a reliable partner, and dismissed critics who say the country uses oil as an economic and political lever.

As Andrew Kramer at the New York Times notes, Moscow cut supplies to Ukraine in January 2006 in a dispute over prices, and later in the year stopped shipping oil to Lithuania when it sold an important refinery to a Polish buyer rather than Russia. In addition, Georgia, which has had a long, acrimonious relationship with Moscow -- has suffered numerous cutoffs of natural gas from Gazprom over the years.

This is nothing new. Such cutoffs seemed coincidentally to spring up during the Soviet period too.

Photo: crotchsplay

Rights: Creative Commons

The Pirate of Prague's Newly Restored Grin

Incredible as it seems, Viktor Kozeny could indeed ride again.

Accused of bribing Azerbaijan leaders, the Harvard-educated, lavish-living Kozeny has sat for almost two years in a Bahamas jail fighting extradition to the U.S. But now a U.S. prosecutor says the government may have to drop most charges against him. The reason -- the statute of limitations.

If it does, and Kozeny is freed or lightly sentenced, it will put a bow around the charmed life that he has led the last 17 or so years, in which he masterminded two of the most controversial investment schemes of the Gorbachev and post-Soviet era.

This story actually broke last month, but appears to have been largely overlooked. Tip to Paul Sampson for pointing it out to me. Here is the first paragraph of an AP story: NEW YORK — The government is seeking to resurrect its case against three men accused of offering hundreds of millions of dollars to top officials in the former Soviet republic of Azerbaijan to get favorable treatment in oil deals. Read story

Steve's comment: The 43-year-old Kozeny is famous for investment schemes in which lots of people lose most of their money.

He first attracted attention in the early 1990s when he swooped into his native Prague and persuaded hundreds of thousands of Czechs to invest their state-issued privatization vouchers with him, and become fabulously wealthy. Almost all lost most or all of their money, but Kozeny left the country worth tens of millions of dollars and never returned. For that Fortune magazine dubbed him "The Pirate of Prague."

Kozeny bought lavish homes in London, the Bahamas and elsewhere with the money.

Next, he turned up on the Caspian Sea. He decided that there were even greater earnings to be had, particularly in Baku. In 1997, he threw a now-famous party in Aspen, Colorado, where he persuaded some of America's most savvy investors and their friends that they could own, then flip, the state oil company of Azerbaijan, or Socar.

Those who tossed in a bundle totalling more than $200 million included Wall Street hedge fund doyen Lee Cooperman, former Senate Majority leader George Mitchell and Frederic Bourke of the Dooney & Bourke luxury handbag company.

The problem, as (almost) anyone who has set foot in Azerbaijan knows, is that there is no way the Azerbaijan government would part with its cash cow.

In October 2005, U.S. prosecutors charged Kozeny and two of the investors with bribery and money laundering. Specifically, the government said that the defendants provided financial incentives to a "senior Azeri official" (the late President Heydar Aliyev) in order to privatize Socar.

In June of this year, a U.S. district judge said the statute of limitations had passed on charges against Kozeny's two co-defendants, and dismissed most of them. And in an appeal last month, prosecutors said that, if the decision holds, most charges will also have to be dropped against Kozeny.

The appeal hasn't been decided yet. But those who follow the Azerbaijan case always wondered -- why, given Kozeny's history, did so many smart people entrust so many millions with him? To a person, his investors replied that they felt they had done their due diligence.

That rang hollow. The truth was that Kozeny dangled the prospect of an enormous windfall before Aspen's and Wall Street's moneyed crowd -- in addition to great fun and adventure -- and they simply grabbed for it.

Ten years later, there is the prospect of Kozeny going onto his next adventure.

Moscow's Red Lines: Kosovo, Missiles and Berezovsky

Russian Foreign Minister Sergei Lavrov has used the occasion of a university speech to lay down an implacable position on some of the most divisive issues between Moscow and the West. It was another indication that Moscow is engaged as much in policy as in image-building as someone no longer to be trifled with.

Here is the first paragraph of the Agence France Press story: Russia will not back down on "red line" issues including the future of Kosovo and opposition to US plans for an anti-missile defence system in central Europe, Foreign Minister Sergei Lavrov said Monday. Read story

And an important quote from the piece: Lavrov said that some were worried by "the rapid rebirth of our country as one of the leading countries of the world. However, this does not mean that it's necessary to think up yet another myth about the Russian threat."

Steve's comment: Lavrov made the remarks today at Moscow State Institute of International Affairs. For those accustomed to negotiating with Moscow, whether during the Soviet or post-Soviet period, it is nothing new for it to "stick to our position until the end," as Lavrov put it.

Its immovable positions, he said, include a refusal to hand over Andrei Lugovoi to Britain in the case of the Alexander Litvinenko murder, rejecting Kosovo independence unless Belgrade itself agrees, and opposing Washington's plans to install an anti-missile shield in Poland and the Czech Republic (on the last item, one wonders about the hulabaloo on either side over an as-yet unproven system).

Lavrov also resurrected Moscow's chagrin over Britain's sheltering of oligarch Boris Berezovsky, whom he called one of several "odious characters" from Russia living there.

As a whole, these do not differ fundamentally from postures Russia has taken previously during the post-Soviet period. What is different is that it appears unlikely this time to shift position. And that appears to be as much show as principle.

Russia's Just Complaint

The Globe and Mail of Toronto's Eric Reguly has a good read on the fight for who will next lead the International Monetary Fund. The upshot: The West may have to stand aside on this battle with Moscow.

Reguly's piece begins: Russia is throwing its newfound weight around and the rest of Europe doesn't like it. The most recent Economist magazine called Russia a "neo-KGB state." The European Commission wants to restrict foreign companies' (read: Russian) access to the European Union's natural gas and electricity networks. Their businessmen are regarded as feral capitalists who will stop at nothing to fulfill their desires. Russia is throwing its weight around global - that is, American and European - institutions too. It doesn't like what's happening at the International Monetary Fund. In this case, Russia is not to be feared. It doesn't think the next IMF boss should automatically be a Western European and it has a point. Read story

Steve's comment: As a last negotiating stance, the Europeans are offering a fig leaf: If the Russians and the rest of the world go along this time with their nomination (of Frenchman Dominique Strauss-Kahn), a non-European can be chosen next time around.

That's a false concession -- a feint. Russia makes the strong point that Washington and Europe need to understand that the rest of the world -- growing economically in a far different way from the mid-1940s -- isn't going to, and shouldn't, go along with second-class status forever. Moscow has nominated former Czech prime minister Josef Tosovsky.

The West is going to have to explain why Strauss-Kahn should get the unquestioned nod.