The Oil and The Glory by Steve LeVine

The iPhonization of Central Asia

noreply@blogger.com (Steve) — Mon, 18 Jan 2010 11:58:00 +0000

Some six months ago, this blog discussed the possibility that mobile broadband could alter the discourse in Central Asia by creating a level playing field between independent and state-controlled news media. O&G contributor Sasha Meyer sees events moving faster in that direction. His report:

By Sasha Meyer

Since the fall, analysts have been describing the advent of a mobile internet revolution, with some predicting 1 billion devices to be online by 2013. Central Asia will be part of the trend, with the down-drift of prices persuading more consumers to replace their conventional cell phones with Internet-capable, PC-like smartphones and smartbooks.

Competition is helping. Facing strong competition from iPhones and Blackberrys, the big cellphone makers are rolling out their own models: Nokia, the world’s biggest handset maker, has introduced its N97 and E72, and started offering netbooks. No. 2 Samsung has launched a smartphone platform. Meanwhile, newcomers are piling in. Google has shipped Nexus One, Lenovo plans to buy a handset maker and has just unveiled a smartbook; and chipmaker Freescale has introduced prototype smartbooks that it says will reach stores by the summer. Apple’s eagerly anticipated tablet will give the whole mobile product category a further boost.

Importantly, iPhone and Blackberry are being introduced to China, the world's biggest and fastest-growing market. Chinese telecoms are signing up some 10 million customers per month and the biggest – China Mobile – has 508 million users, more than the entire population of the European Union. (By comparison, Verizon, the largest U.S. mobile operator, has 89 million subscribers.)

When these phones take hold in Central Asia, they will create new opportunities and challenges, both for the governments and the societies.

The governments will face their typical conundrum: how to gain from global progress without surrendering control. That even North Korea has set up a 3G network shows that new technology will be allowed and deployed, if after some foot dragging, simply because technological compatibility with the rest of the world is increasingly essential today.

Internet access will probably be fairly open. Online censorship is often trivial to bypass and generally ineffective. China, the world’s most sophisticated censor, “is losing a war over the Internet” even though it “has prevailed in battles,” report Loretta Chao and Jason Dean in The Wall Street Journal. The governments can and will literally pull the plug on Internet access; but they will do so only in critical moments, and then still be compelled to turn it back on, as happened in Burma after the 2007 monks' protests and in China following last year’s riots in the western province of Xinjiang.

Internet hasn’t realized the expectation that it would usher in democracy anywhere. But ubiquitous wireless access to the Web is likely to have other effects, including economic benefits and the isolation of an older, Soviet-era generation that tends to cling to the old ways.

But probably the most important effect will be in allowing the society to better understand itself: Online behavior reveals a society’s mood and preferences; this is more the case with untethered web access, which allows for more spontaneous behavior since people don't have to wait in line at an Internet café, or until they get in front of their home or office computer. As Michael Lewis writes in Next: The Future Just Happened, the Internet allows people to pick any identity; our choices are “telling us what we want to become.”

In addition, everyone turns into kind of a reporter, with the ability to send description and images of events they encounter. Everyone is pushed – government-controlled media outlets, opposition and independent news organizations – to improve their own reporting.

The overall impact could be the expansion of Central Asia’s version of the “parallel society.” Sabrina P. Ramet, professor at the Norwegian University of Science and Technology, describes it well in another context in her 1994 book Social Currents in Eastern Europe: The Sources and Consequences of the Great Transformation:

Parallel society “is a living part of any society. Its breadth varies in inverse proportion to the breadth of allowable open activity: Where the political authorities let society organize itself, parallel society inhabits the narrow ravines of subculture, deviance, and crime; where the political authorities seek to impede society's self-organization, parallel society encompasses a much wider array of socially organic processes.

Parallel society “cannot completely ignore the official structures, the legal codes, and official economy: it cannot be fully "independent" or create a full-blown "alternative," though it self-consciously tends in that direction."

There is "the possibility of interaction, interference, mutual influence, and exchange with official society. It also leaves open the possibility of an eventual merger of the two, or as advocates of parallel society envisioned, the swallowing up of official society by the freely self-organized structures of parallel society. This is, in effect, what came to pass in Hungary, Poland, Czechoslovakia, and East Germany, as well as in Slovenia and Croatia by mid-1990."

A Future For Citizen Journalism in Central Asia

noreply@blogger.com (Steve) — Tue, 12 Jan 2010 11:03:00 +0000

In the early 2000s, the Ketebayev brothers – Bakhytzhan and Muratbek – ran Central Asia’s most interesting journalistic enterprises. They were Kazakhstan’s Tan TV and the weekly newspaper Respublika. They provided open coverage of the fascinatingly public political warfare among President Nursultan Nazarbayev, his son-in-law Rakhat Aliyev, and a group of businessmen-politicians. It all ended unhappily as a couple of the businessmen went to prison, Aliyev was exiled to Austria, and Tan was turned into an entertainment channel; since then, Respublika has limped along with continued trouble. For the last couple of years, Bakhytzhan Ketebayev has been back with a new venture. Sasha Meyer thinks that Kanal Plus, Ketbayev’s new enterprise, may be Central Asia’s answer to Al-Jazeera. Meyer’s report:

By Sasha Meyer

A group of Kazakh journalists says it wants to radically alter the landscape for news media in Central Asia. Much of their success hinges on how far their deep-pocketed anonymous backers will be willing to go.

Kanal Plus (K+) is a private Kazakh satellite TV company that attracted attention in September when it broadcast a series of interviews with former first son-in-law Rakhat Aliev into Central Asia, thus snapping the hitherto taboo subject on the Kazakhstan airwaves.

In an interview with Radio Liberty's Bruce Pannier, company president Bakhytzhan Ketebayev said his ambition is to become region's public broadcaster. To reach that goal, he’s preparing to diversify away from Russian into the local languages. Ketebayev also plans a citizen journalism component, in which Kanal Plus would air videos shot on cell phones by ordinary viewers and submitted via the Internet.

Such a social component would help increase the TV channel's popularity. It would also reduce its vulnerability. Kanal Plus doesn't have its own network of correspondents, and instead relies on local partners who provide videos. These local associates are often pressured by state officials not to collaborate with Kanal Plus. (The company itself operates from an undisclosed location outside the region and is thus beyond the direct reach of the authorities.)

The participatory journalism effort would also help alleviate a weakness: The company has no partners in Turkmenistan and Uzbekistan, so one might find local citizens in both countries filling the gap.

Last but not least, the use of public journalism would ensure that the reporting is harder hitting and resonates more strongly with ordinary people.

If done right, Kanal Plus could achieve in Central Asia what Al Jazeera accomplished in the Arab world. Within three years of its 1996 launch, the Qatari channel became, in the words of journalist and author Thomas Friedman, “the freest, most widely watched TV network in the Arab world,” because it had eliminated the state monopoly on news and analysis. In 1999, John Burns of The New York Times said Al Jazeera gave the Arab viewers “newscasts without censorship” and “explores issues long suppressed by the region's rulers, including the lack of democracy, the persecution of political dissidents and the repression of women.”

A feat like that is more affordable today than then. There are more satellites, and their transponders can squeeze in more channels because of advances in data compression and multiplexing. On the ground, dish antennae and TV receivers are now within the budgets of many more Central Asians. And the scale favors Central Asia: Unlike the Arab world, with its 25 countries and territories, 358 million people and 14 million square kilometers, Central Asia is just five countries, 60 million people, and four million square kilometers.

Obviously, much depends on the priorities of Kanal Plus's sponsors. Ketebayev says the channel is funded by rich Kazakhs. He won’t identify them, but says they believe they can preserve their wealth only if the justice system is more law-based. In their view, Kazakhstan’s system and that of the rest of Central Asia protects neither the poor nor the rich, but only the ruling families.

How far these backers are willing to support Kanal Plus’s journalists is anyone's guess. But they could turn Kanal Plus into a typical Russian news outlet circa 1996. Independent of the government, Russian TV channels were free to criticize officials and politicians. However, they were often used by the oligarchs who owned them as tools in mud slinging campaigns in their own struggle for more money and power. As a result, the journalistic quality was rather low.

Alternatively, Kanal Plus' funders could emulate the style practiced by Alexandr Lebedev. The billionaire former KGB officer supports Novaya Gazeta, Russia’s most daring newspaper, but doesn't interfere in its reporting. The latter approach would give Ketebaev and his band of journalists a chance to realize their ambitions and have an Al Jazeera-like impact on Central Asia.

There is still the matter of harassment, intimidation and murder. Novaya Gazeta, after all, has had four of its reporters murdered since 2001, including Anna Politkovskaya. Just last month, Kyrgyzstani journalist Gennady Pavlyuk was thrown out of a window and killed. Yet, even in Russia, President Dmitry Medvedev appears far less willing than Prime Minister Vladimir Putin to countenance the murder of journalists. If properly carried out, citizen journalism could actually favor those who become Central Asian reporters: It would be hard to silence several hundred reporters; none of the Central Asian republics might be prepared to absorb the negative image of violence against the staff of such a high-profile organization.

Guest Column: U.S. Media Turbulence Points to New Day in Central Asian Journalism

noreply@blogger.com (Steve) — Sun, 03 Jan 2010 05:27:00 +0000

Central Asia remains dangerous for independent journalists. In the latest case, Gennadi Pavlyuk, a 40-year-old Kyrgyzstani reporter who was highly critical of the Kyrgyz government, was tied up with duct tape in neighboring Kazakhstan, thrown from a six-floor Almaty apartment balcony, and died Dec. 22d; a Kazakhstan report implicates the Kyrgyz special services. In Uzbekistan, photojournalist Umida Ahmedova faces up to two years in a labor camp for defamation because of a set of 110 portraits called “Women and Men: Sunrise to Sunset,” depicting the lives of ordinary Uzbeks. On the other side of the Caspian, Azerbaijani bloggers Adnan Hajizade and Emin Milli say they have little faith in overturning their 2½-year sentences for hooliganism. The Azeri pair gained attention last July for a video spoof in which Hajizade appeared at a mock press conference wearing a donkey costume.

Nonetheless, Sasha Meyer sees a reason for optimism on the Caspian. It lies, Meyer writes, in the technology that is transforming journalism in the West. His report:

By Sasha Meyer

Typically, the U.S. comes up with new Internet-related innovations, and later the new products, services and trends are used and emulated elsewhere. If this pattern can serve as a rule of thumb, then what's happening in American journalism hints at new ways to support independent news reporting in Central Asia.

Earlier this year, the Project for Excellence in Journalism, reported, ”Power is shifting to the individual journalist and away, by degrees, from journalistic institutions. ... Through search, e-mail, blogs, social media and more, consumers are gravitating to the work of individual writers and voices, and away somewhat from institutional brand. Journalists who have left legacy news organizations are attracting funding to create their own websites.” At least some reporters now enjoy “a new prospect: individual journalists, funded by a mix of sources, offering expert coverage to many places.”

This is similar to what happened in the Silicon Valley in the 1990s, when power shifted from investment firms to engineers, which itself echoed the experience of the movie industry a few decades earlier. As Michael Lewis wrote in The New New Thing, ”Once the studios lost their clout, the stars seized power. And once they'd seized power they raised their price and demanded the right to direct their own pictures.”

This trend is painful for Western journalists. Reforming institutions such as newspapers that have not seen any change since the invention of the telegraph means a lot of jobs will be lost before a renewed industry emerges.

However, for those who support independent news reporting in places like Central Asia, this is good news. A free press and its institutions never took root in the region, thus there is no need to reform anything. Instead, these supporters can focus on new ways to fund local journalists. Again, Westerners offer interesting models to experiment with.

One example is Christopher Allbritton's approach to covering the Iraq war. Here is how BusinessWeek’s Spencer Ante described it: “Albritton didn't have a juicy contract with The Washington Post or CNN. Rather, his trip was funded by 320 people who donated $14,334 through his Web site, Back-to-Iraq.com. Months before the conflict began, the former Associated Press reporter posted a notice on his site: He wanted to cover the war and asked for readers' financial support for ‘independent journalism.’ As the cash rolled in, Allbritton hit the road with his laptop computer, filing via a satellite phone or Internet café. Donors were put on a premium e-mail list, so they received stories early and got extra reports and pictures. They also passed along story ideas and occasionally berated him for overheated metaphors. ‘Readers were my editors,’ he says." Albritton’s website had a peak daily readership of 50,000.

Another example is GlobalPost, an online for-profit startup launched this year, whose stated mission is "to redefine international news for the digital age." Instead of sending reporters abroad, the publication relies on the network of 65 part-time correspondents who are already there. Its subscription service called Passport seeks to make the journalist the central figure, Elizabeth Jensen reported in The New York Times. "It offers access to GlobalPost correspondents, including exclusive reports on business topics of less interest to general audiences, conference calls and meetings with reporters, and breaking news e-mail messages from those journalists," Jensen wrote. Miriam Elder has written on Central Asia for the GlobalPost.

This expansion of the reporters' role, coupled with the trend among U.S. newspapers to outsource foreign coverage, offers new opportunities for journalists in Central Asia. Foundations and NGOs that support independent media in the region can help them to take advantage of these opportunities by providing two missing ingredients: training and marketing.

Strong journalistic skills are still scarce in the region. Oleg Panfilov, director of the Center for Journalism in Extreme Situations, said in an interview that the quality of reporting has much room for improvement. American and European journalism schools could play a role here by doing for journalists in places like Central Asia what MIT has done for engineers worldwide: make course contents available online for anyone to use. The MIT effort called OpenCourseWare has been popular with geeks across the planet and led to similar projects at other schools, helping create an international consortium and a global movement.

Once trained, the local reporters would still need help making themselves known to international news media and gaining credibility and trust, another challenge their Western supporters could help to overcome.

The domestic audience in the region would also benefit, thanks to a form of a cross-subsidy. Working part-time for a foreign publication like GlobalPost would provide the journalist with time and money to research and report for news sites whose audience is ordinary people in the region. Furthermore, the reporter's work published abroad would still reach the region as such content typically gets picked up by local bloggers.

Two Decades Later in Central Asia, Still Awaiting the Revolution

noreply@blogger.com (Steve) — Thu, 31 Dec 2009 12:47:00 +0000

By Sasha Meyer

Western news reports on the revolutions of 1989 have been celebratory. But in Russia the mood has been somber. Russian writers want to know what went wrong. Among them, Sergey Kovalev, a Soviet-era dissident, laments that Soviet dissidents by and large failed to form into an effective political opposition once the Soviet collapse was under way. That thought has been echoed by Aleksandr Podrabinek, who argues that power simply shifted from one group of former apparatchiks to another. Lev Ponomarev distinguishes between two types of dissidents – those who started out the era outside the system, and those who were insiders – and decides that the latter had managerial experience, and it was they who came to power; he cites Aleksandr Yakovlev, Boris Yeltsin and Anatoly Sobchak among them. It is from the confluence of factors raised by all these writers that Russia gets its largely Soviet flavor of governance.

Central Asia, too, has been run the last two decades by such figures – Islam Karimov in Uzbekistan, Nursultan Nazarbaev in Kazakhstan, and so on. The only exception has been Askar Akayev, Kyrgyzstan’s former president. Taking stock of their performance, it’s useful to consider the achievements of what other originally backwater nations achieved in similar two-decade periods of time.

In 1968, South Korea was still a poor country, with a per-capita GDP equal to that of North Korea. Twenty years later, its car makers were selling upscale vehicles in the U.S., the world's most competitive market, and its economy had overtaken Belgium's. Most recently, its Korea Electric Power this week beat out marquee French, Japanese and U.S. consortia to win a contract to build four nuclear power plants in the United Arab Emirates.

In 1986, Vietnam was still reeling from the impact of the wars with China, France, and the U.S. Food shortages were common. A little over two decades later, Vietnam has one of the world's fastest-growing economies. It doesn't just export the usual paraphernalia of international trade: clothing, shoes and appliances. The country is turning into a high-tech hub, hosting IBM's cloud computing facilities and Intel's $1 billion chip-making plant, among others.

In the early 1980s, Turkey had an anemic and quasi-statist economy. Again, a little over 20 years later, Turkish companies make more than half of all TVs sold in Europe. Its apparel such as Mavi jeans are sold at upmarket stores like Nordstrom. Elsewhere, as Hugh Pope writes in Sons of the Conquerors, ”Turkish manufacturers' reputation had grown enough, in fact, that some Chinese clothing designers imitated higher-quality Turkish styles and brands.” The strength goes beyond consumer goods – Turkey has contracted to supply parts for America's F-35, the world’s most advanced jet fighter.

In the meantime, Central Asia has followed a trajectory that resembles Africa's in the years after gaining independence. Passages from Ryszard Kapuscinski's Shadow of the Sun read like today's Central Asia. The gaining of independence, he writes,

“was characterized by a universal optimism, enthusiasm, euphoria. People were convinced that freedom meant a better roof over their heads, a large bowl of rice, a first pair of shoes. A miracle would take place – the multiplying of loaves, fishes, and wine.”

“[But] nothing of the sort occurred. On the contrary. optimism quickly turned to disenchantment and pessimism. The people's bitterness, fury, hatred was now directed against their own elites, who were rapidly and greedily stuffing their pockets.”

“[And] in the years since independence, fundamental human rights were brutally violated by the government. People were denied the right to live in freedom and with mutual respect. They were not allowed to have their own opinions. Organized political gangsterism and the politics of falsehood turned all elections into a farce. Instead of serving the nation, politicians were busy stealing.”

The recent obituary of Omar Bongo, president for life of Gabon, could be a résumé of his Central Asian peers:

Mr Bongo made no distinction between Gabon and his private property. He had ruled there so long, 42 years, that they had become one. It was therefore perfectly natural that an oil company, granted a large concession for coastal drilling, should slip him regular suitcases stuffed with cash. It was natural that $2.6 million in aid money should be used to decorate his private jet, that government funds should pay for the Italian marble cladding his palace, and that his wife Edith's sea-blue Maybach, in which she was driven round Paris, should be paid for with a cheque drawn on the Gabonese treasury. Of the $130 million in his personal accounts at Citibank in New York, it was probable – though Citibank never asked, and nobody ever managed to pin a charge on him – that much of it was derived from the GDP of his country.

The suggestion of fiddling public finances flummoxed and infuriated him. Corruption, he once explained to a reporter, was not an African word. No more was nepotism: He simply looked after his family, supplying them with villas in Nice as well as the ministries of defense and foreign affairs. When French judges in 2009 froze nine of his 70 bank accounts, he was outraged. An attack on him was obviously an attempt to destabilize his country. He was equally indignant when in 2004, after a "Miss Humanity" pageant was held in Libreville, Miss Peru charged him with sexual harassment for summoning her to the palace and, he hoped, to his nifty behind-the-paneling bed. If something was in Gabon, by nature or chance, he evidently had first dibs on it.

To alter the course would be simple. Consider what China did in 1979 – land reform that, by freeing peasants in a largely agricultural society, instantly improved the lot of many, and generated the cash needed to modernize the industry. Not incidentally, it also generated broad public support for the government, and helped to strengthen political stability.

Uzbekistan would achieve a big advance by halting the production of its biggest current crop – cotton – and planting native fruit in its place. Uzbekistan grows cotton – a subtropical, water-thirsty crop – on some 1.5 million hectares in this arid region, earning about $1 billion from exports. On the cost side of the ledger is a massive loss of land to salt, polluted river water unfit even for agricultural use, growing international criticism of child labor during harvest time, and tension with neighbors over water rights from the Amu Darya and Syr Darya. Cotton simply doesn’t pay. As a comparison, Chile earns $1.26 billion from the export of grapes harvested on just 182,000 hectares; it causes no environmental damage, and brings in an additional $1.37 billion from wine exports. All in all, the South American country makes $3.34 billion selling various fruit. Emulating its success in Central Asia should be simple given that the region is home to many varieties of fruit and walnuts. Agribusiness is a serious source of cash even in more advanced economies like Portugal and New Zealand, as well as in high-tech powerhouses like South Korea, which is a top-ten producer of onions. So, far the only place in the neighborhood to adopt this strategy is the neighboring Chinese province of Xinjiang, which exports apples to Kazakhstan and pears to the United States. Xinjiang also exports its products to Mongolia, Japan and Malaysia.

The stumbling block is probably the prevailing mindset among officials in the region. Russian researcher Olga Kryshtanovskaka has found that up to 83% of government positions in Russia are held by former members of the Soviet nomenklatura. The figure for Central Asia is probably higher as its bureaucracy survived the Soviet collapse intact.

Soviet-era writers have been scathing about this upper layer of society, which comprises just 0.1% of the population. Soviet-era writer Michail Voslensky called the nomeklatura “an invisible aristocracy whose reign is more oppressive than that of the czars.” Hungarian essayist György Konrád caustically writes that the nomenklatura often fail economically, trained as they are in a Communist system in which "the more stupid lead the more intelligent, because it has made political reliability a more important job requirement than ability." There is traction to this thinking. For instance, a Western diplomat based in Tajikistan says of local officials in a report by the International Crisis Group, "We are not just dealing with selfishness and greed, but incredible incompetence at all levels.”

The question then is whether there will be new faces in the political elites, and whether they will make a break with Soviet-era attitudes, as has happened in Georgia and to a lesser degree in Ukraine.

Or whether the region will continue to be like Gabon and Egypt – in the former, the new president is the son of the late Omar Bongo; in the latter, the combination of a youthful population bulge and governmental economic incompetence is creating an increasingly religious and conservative society, possibly opening the door to the Pakistani outcome in the longer term.

Book Review: In 1989, Economics, Not Dissidents, Ruled the Day

noreply@blogger.com (Steve) — Tue, 22 Dec 2009 14:52:00 +0000

By Sasha Meyer

A region ruled by dictators who came to power with promises of a great and prosperous future. A cultivated nationalism characterizes governance. Dissidents are small in number, disparate and isolated from society. And political opposition, where it exists, is reluctant to claim political power.

That sounds like a profile of Central Asia today. But in fact, it's Eastern Europe in 1989, as described in Uncivil Society, a new book co-authored by Princeton professors Stephen Kotkin and Jan T. Gross. Both are the authors of previous, excellent works set in the former Soviet space in 2001 – Kotkin’s Armageddon Averted and Gross’s Neighbors (the latter a finalist for the National Book Award) – and they again soar in this slim format.

Again, the strength of Kotkin’s and Gross’ narrative is that it stakes interesting new ground, but does so on the basis of facts and figures, and not philosophy or theory. The authors’ premise is that the 1989 revolutions in Eastern Europe were accidents, triggered by small, random events. Contrary to conventional wisdom, they argue, dissidents were marginal in the march of events – indeed, the idea that there was any significant opposition to communism “falls into the realm of fiction.” Instead, energized by the poor economic performance of the communist governments, each country’s population spontaneously self-mobilized. As for “the opposition,” such individuals were reluctant to take power, and were pushed into it by the people, the authors conclude. As much as anyone, the Communist regimes themselves were responsible for what happened: They ignored the public mood and belatedly replaced an odious leader with a newer face (Germany); they negotiated an exit (Poland); they bolstered the opposition in order to have a negotiating partner (Hungary); or they were the victim of an internal coup (Romania).

These events are a good illustration of Mohandas Gandhi’s belief that the obstacle to freedom is not coercion by the ruling order (always a tiny minority), but cooperation on the part of the ruled (always a vast majority). In 1989, widespread and deepening economic dissatisfaction removed this obstacle.

Uncivil Society offers up a rich picture of what happened and why: Dissidents were heroic and the governments not so. But it was when the economic fiasco became undeniably obvious to the man on the street that the regimes came down.

But what does all of this mean for other regions, in particular Central Asia? For dissident bloggers, opposition websites and broadcasters like Radio Liberty that wish to see greater political openness, getting out the word of a governments' dismal economic record erodes its public legitimacy.

Russian President Dmitry Medvedev inadvertently captured the situation in Central Asia in his much-reported Nov. 12 speech on Russia’s economy. As the Economist put it:”His diagnosis is relentless: a primitive, commodity-based economy that cannot create prosperity; the lack of reforms; and all-pervasive corruption.”

This dreadful performance is particularly evident when compared with the achievements of others. Starkly, former comrades Hanoi and Beijing have produced growing and sustainable prosperity through manufacturing-led exports. Meanwhile, while the Central Asian leaders insist that freer politics will produce deadly instability, Ukraine and Georgia have demonstrated the self-interested hollowness of the claim – in both, competitive if chaotic politics accompany robust economic growth. Georgia’s Mikheil Saakashvili, though branded by some as reckless, irrational, and megalomaniacal, has proven that a bloated Soviet-style bureaucracy and endemic corruption – two ills that afflict Central Asia – can be sharply curtailed within just a couple of years. Elsewhere, Turkey and Indonesia illustrate that being Turkic or Muslim and having an accountable government are not mutually exclusive.

Micro-economics resonate. Unlike political issues such as civil liberties and democracy – abstractions to many, and confused with the chaos of the post-perestroika years – economics are understood from Peoria to Khojand. As Kotkin and Gross suggest, authorities learn to shrug off negative press on civil liberties. But economic malperformance and malfeasance aren’t as easily ignored. For example, it's difficult to explain why the Kyrgyz government won’t get out of the way of Aidai Asangulova, a young designer who employs eleven women, and whose hand-made scarves are a huge success at the Takashimaya department store in New York. Her customers want more. Yet Ms. Asangulova is unable to expand because the local financial police keep auditing her in order to squeeze out “a share.”

Andrey Illarionov is showing the way. On his blog, this former adviser to Vladimir Putin draws on facts and statistics, eschewing emotions or a sense of desperation, in harsh and brutal analyses of Russia’s economic performance. The result is an effective and popular critique of Kremlin policy.

The Internet, of course, makes his job easier. As Vladimir Bukovsky, a Soviet-era dissident, has said: ”I think, had we had the Internet in the 1960s, the Soviet power would have collapsed in the 1970!”

The Oil and Glory Interview: Charles Clover on the Siloviki's Possibly Lesser Role

noreply@blogger.com (Steve) — Sun, 20 Dec 2009 15:15:00 +0000

The conventional wisdom is that the foundation of Russian Prime Minister Vladimir Putin's power is the siloviki, the current and former intelligence and military officers who have been drawn into powerful political and commercial positions over the last decade. That's why I was surprised by a long piece last week by Charles Clover, the Financial Times' Moscow bureau chief and one of the clearest reporters on Russia. In it, Clover -- my former roommate in Almaty and Tashkent during the 1990s -- reports finding a diminishment in the siloviki's influence. Clover agreed to flesh out his conclusions for O&G. Here is the interview:

O&G: Charles, your latest long piece is decidedly contrarian. You report that Russia's siloviki – who others routinely describe as the ascendant power – actually hit their apex in 2007, and appear to be on the wane. Is that your takeaway? And if so, why do you think that's the case?

Clover: I should probably say in the spirit of full disclosure that I set out to write about how the siloviki are getting stronger – but when I started asking people who keep track of these things, some quoted, some anonymous, most said that actually things have reversed a bit. Now, whether this is a temporary or a permanent trend is of course an open question – I don’t know the answer, and I hope I put enough caveats to that effect in the piece! But I do think the siloviki may have gotten too powerful for their own good, and other groups are trying to cut them down to size. Putin, in appointing [President Dmitry] Medvedev as president, seems to have intended perhaps to rein in the siloviki a bit – his attitude is unclear. It’s useful to remember that in the 1990s, everyone thought the oligarchs were the ascendant power in the land – of course they are still very powerful, but they did not take over the state.

Q: Even so, you do not seem convinced that the siloviki's retrenchment necessarily equates to a greater responsiveness to the public at large, what you call "civil society." Why is that the case?

A: Russia's liberals are not a whole lot more liberal than the siloviki, and I think any 'thaw' will not be a very ambitious one. Nonetheless, there is a sense that things might have gone too far in the direction of autocracy, and Russians by and large want to live in a more normal country.

Q: President Medvedev has made what, compared with the government's previous attitude, are some bold decisions in the Sergei Magnitsky case. Do you yourself regard these as surprising or bold decisions? Do they signal anything larger? What's the context?

A: I think all we can do is wait and see where things go. Yes the developments are surprising, and seem to indicate a shift in the mentality at the Kremlin. There also does seem to be a struggle within law enforcement agencies over this case in particular – though it’s a bit inside baseball to write about this yet. The context is useful to keep in mind though – Russia for the first time in years needs to borrow abroad and is trying to attract foreign investment, so it needs to be seen to be doing something about this case involving a huge portfolio investor, Hermitage Capital. I'm not sure if all they are doing is trying to be seen to do something, or actually doing something though.

Q: Ultimately is this shift significant in terms of how Russians live, and how foreign governments interact with Russia? For instance, are we likely to see a soft-and-cuddly Gazprom? Or friendship break out with Georgia?

A: As I said, I don’t see Russia's "liberals" as much more liberal than the conservatives, though that is a whole different article to write. And I don’t think the siloviki are going to be entirely pushed out of course, just reduced a bit. I doubt Gazprom will start giving out free gas and I don’t expect to see [Georgian President Mikheil] Saakashvili getting invited to the Kremlin any time soon.

Q: You describe Putin's circle of "Orthodox Chekists," referring to their regular audiences with a conservative Russian Orthodox monk named Archimandrite Tikhon Shevkunov. What's the takeaway from this relationship?

A: Kind of like the Bush White House and the religious right – It’s hard to tell how much of this is PR and spin, and how much is genuine ideological sympathy. Archimandrite Tikhon leads a very conservative wing of the Orthodox church, and I think the church generally supports conservative political figures on ideological grounds.

Q: You also say that Igor Sechin – who has seemed fairly influential in a lot of matters including politics and oil – as assuming less influence in his role as a deputy prime minister. Is title so important? Has Sechin's influence truly waned? After all, he still runs Rosneft.

A: I totally agree with your premise – I don't think title is so important. What is important, however, is access to Putin, which Sechin in his previous incarnation had every day – he controlled access to the president and that was his main "resource,” as a former senior Kremlin official put it in a conversation with me. Today, he doesn't have such access, as his position requires a lot of travel, and he has other responsibilities. He remains immensely powerful, but in a more limited sphere – energy. He is not the universal figure he was in the Kremlin.

Q: What does this phenomenon signal about Putinism, the long projected arc of Putin's influence into the next couple of decades?

A: I think I talked about this in the piece (I hope that part didn’t get cut). I think Putin certainly continues to play the hegemonic role in Russian politics. But equally he is a skilled politician who knows that he cannot allow any one faction in government to get too big, as this would threaten his own ability to play the most powerful role. I think if the siloviki see a decline, it is likely Putin's own decision.

The Oil and Glory Interview: Hugh Pope on the Armenia-Turkey Rapprochment

noreply@blogger.com (Steve) — Wed, 02 Dec 2009 17:25:00 +0000

In October, Armenia and Turkey signed protocols that -- if ratified by their respective parliaments -- will open their shared border and in multiple ways normalize relations between the two traditional antagonists. Given the region's numerous nationalist rivalries, the move has triggered much thinking on what it means, and what else is possible. Hugh Pope, a friend and former colleague at The Wall Street Journal and now director of the Turkish project for the International Crisis Group, is one of the best authorities on the greater Turkic world. Hugh has a new book coming out -- Dining With al-Qaeda -- that sounds like a keeper. In exchange for dinner at my home last week, he kindly agreed to address some of the burning questions on the Armenia-Turkey accord.

O&G: Will the Turkish and Armenian parliaments ratify the agreement?

Pope: The parliaments will ratify the agreement on the protocols (normalization of diplomatic relations and opening the border) if Turkish Prime Minister Erdogan and Armenian President Sargsyan recommend them to. The most interesting aspect of the protocols is in fact how little dispute there is between the two governments about the actual contents. The main problem is domestic, mainly from political opposition (on both sides to different extents), the diaspora reaction (for Armenia) and the Azerbaijani factor (for Turkey, which has a shared ethnic relationship with Azeris and cheap gas from Baku). All these three problems can be overcome if the two leaders can demonstrate the same firm political will that they have done in the past.

Turkey must also look to its own needs, delinking its policy from full association with Azerbaijan's own perception of its short-term interests. In fact, the protocols are a good way to help spread stability in the region, which will be in Azerbaijan's long term interest, and Turkey’s keeping the border closed since 1993 has done nothing to solve Nagorno-Karabakh. Similarly, Armenia must distance itself from the nostalgic desires of members of the diaspora and some of its own population, who seek to keep alive territorial claims on Turkey by not recognizing the international border. Outside support is also vital, and continues, and this is also a source of hope that ratification will go ahead.

Q: Step back, Hugh. What is the significance of the agreement regionally, historically and so on, whether or not it is ratified? Are you surprised?

A: The protocols represent the best chance for two traumatized peoples to achieve closure on the politicized debate whether to recognize as genocide the destruction of much of the Ottoman Armenian population and the trauma of the collapse of the Ottoman Empire and its accompanying displacement and massacres. Both sides have tried the all-out nationalist narrative, and it has not healed the wounds of history.

The second significance is the positive example being set by the Turkish government since 2002 to grapple with subjects that until recently were completely taboo and to overcome historical problems. They’ve gone a long way to fixing their problems with Syria, Iraq and the Iraqi Kurds, and are also working on an opening to Turkey’s own Kurds and on finding a settlement for the divided island of Cyprus.

The dynamics supporting Turkey-Armenia convergence are strong, I believe. The agreement on the protocols is the latest and broadest indication of a process that started in 2000 with the first meeting of Turkish and Armenian academics in the US. This was followed by meetings by retired officials and senior academics in the Turkish-Armenian Reconciliation Commission, and then in years of secret talks between Turkish and Armenian diplomats.

In Turkey, this bilateral process has been accompanied and even led by the great 2005 meeting of Turkish academics rejecting the old denialist narrative about the Ottoman-era massacres of Armenians in the First World War, and the wave of regret and awareness in Turkey that followed the murder of Turkish-Armenian journalist Hrant Dink in 2007. In Armenia and the diaspora, there has been some reaching out to Turkey too, as increasingly more people believe that dialogue can bring greater Turkish appreciation of the pain suffered by Ottoman Armenians during the World War I, an apology, and perhaps some compensation.

Opening the issues of the pre-1923 period is a Pandora’s box for Turkey, however. A significant portion of the population of modern Turkey is descended from Muslims driven bloodily out of the Balkans, the Caucasus and the Middle East as the Ottoman Empire collapsed, resulting in family dramas that up to now have rarely been discussed. Although often only tangentially related to the Armenian question, it make some Turks ask, what about our own traumas?

Q: Does the agreement say anything about the times in which we live? For instance, could we expect other stubborn animosities to cool for the sake of pragmatism?

A: The agreement on the protocols do show unfortunately that it takes a long time to heal the wounds of conflict and massacre, especially when one side is much weaker, when territory is contested and when the two sides have no joint project with which to help the healing process (impossible between Turkey and Armenia as states during the Soviet period, of course).

Perhaps the most interesting aspect of the agreement was the beneficial effect of Russia, France and the U.S. working together. Of course, Moscow and Washington have different objectives, but they both support Turkey-Armenian normalization, and if their foreign ministers hadn’t been in Zurich on Aug. 30, the signing of the protocols may never have happened.

Q: What type of reaction do you expect from Azerbaijan? If a military one, would its performance on the battlefield be better than in the early 1990s? And whatever the case, wouldn't such an Azeri reaction scuttle the deal?

A: Great powers must make it very clear to all sides that any renewal of hostilities to try to derail the ratification of the protocols is unacceptable. Azerbaijan is currently working hard to legitimize its right to territorial integrity, while its president is frequently talking about the use of force to regain lost territories. Clearly, the Azerbaijani army is better armed and better trained than in the early 1990s, when it only had barely-coordinated militias. But Armenian and Karabakh Armenian forces control the high ground, they have had nearly two decades to dig in, and have everything to lose.

Any military offensive would be risky for the Azerbaijani government. Firstly, it might not succeed, and any reversal would be politically disastrous. Any attempt to reclaim territory by force is likely to be met by a massive military response and lead to a rapid extension of the conflict throughout the region. Secondly, the world would identify Azerbaijan as the initiator of hostilities, whereas it currently has some sympathy as the loser from the 1992-1994 Nagorno-Karabakh conflict -- that is, defending its territory integrity according to international law.

The worst problem is that a military flare-up could happen without anyone actually deliberately choosing the time. Some 3,000 people have been killed in and around Nagorno-Karabakh since the 1994 ceasefire. Bored, armed young men are within 20 meters of each other in places, snipers are active, and the international observer mission is tiny and weak. Bellicose rhetoric influences people’s minds, and raises the risk of a renewed outbreak of violence.

Q: Do you expect a deal settling Nagorno-Karabakh, and if so what will it look like? If not, why not?

A: The Madrid principles laid down by the Organization of Security and Cooperation in Europe (OSCE) Minsk Group, co-chaired by the U.S., Russia and France, are still the best roadmap anyone has for settling the Nagorno-Karabakh conflict. These foresee the return of occupied territories around Nagorno-Karabakh; interim status for Nagorno-Karabakh itself; a mechanism to decide the final status of Nagorno-Karabakh; a secure corridor between Armenia and Nagorno-Karabakh; the return of displaced persons; and international peacekeepers and security guarantees.

The Turkish activism of this year has energized the Minsk process somewhat, and at times it seemed as though a deal might be possible. Unfortunately, the core issue – the future status of Nagorno-Karabakh, the procedure leading up to that final status, and whether it will have the right to secede from Azerbaijan even in a distant future – has proved just too raw and political a subject for either government to make compromises on.

Magnitsky and Toting Up the Deadly Price of Legal Defense

noreply@blogger.com (Steve) — Sat, 21 Nov 2009 13:32:00 +0000

The last several years have proven dangerous for Russian lawyers. Vasily Aleksanyan, lawyer for fallen oligarch Mikhail Khodorkovsky, was jailed for two years before being released last year, stricken with AIDS and cancer. Stanislav Markelov, a lawyer who robustly challenged a Russian military officer who raped a teen-ager, was shot dead on a Moscow street early this year.

Given this playing board, why do Russian lawyers continue to involve themselves in politically charged cases in the country? And in the same vein, why do Western managers employ them rather than sticking with Western lawyers who, in a fix, at least have a foreign passport and thus a chance at protection?

The latest victim of this set of circumstances is Sergei Magnitsky, a lawyer for American investor William Browder, who was buried yesterday in Moscow after dying in a Russian prison. Browder, the head of Hermitage Capital Management and once Russia's most prominent foreign investor, has been persona non grata in the country for three years. Magnitsky, a partner with the firm Firestone Duncan, was helping Browder to build a $230 million tax fraud case.

I asked Browder for the background on how Magnitsky happened to get stuck in Russia when other associates fled, and about the wisdom of employing Russian lawyers in such cases. His emailed response:

We hired four different law firms to help us untangle the complicated fraud that we were victims of in 2007. After much investigative work by the lawyers, it became clear that the main purpose of the theft of our investment companies by interior ministry officers was to use those companies to fraudulently reclaim $230 million of taxes that we paid a year earlier. The fraudulent tax refund requests for $230m were processed in two days. After that, two of the four law firms wrote and filed criminal complaints about the theft of budget money. The interior ministry immediately opened criminal charges against those lawyers. We got those lawyers out of Russia and safely to the UK. Then the Interior Ministry started going after Magnitsky. He wasn't scared because he had never done anything wrong and he believed that the law protected him. Even after much discussion from our side to leave, he insisted on staying. His life was in Russia and he didn't want to be uprooted. He testified in October 2008 against Lieutenant Colonel Artoum Kuznetov for his involvement in the stolen $230 million and a month later, Kuznetzov arrested him and put him in pre-trial detention on spurious tax charges. Over the course of the year, the investigators kept pushing Sergey to sign papers admitting to various crimes and implicating me as his accomplice. He always refused, and they kept moving him to worse and worse conditions to try to break him. He developed medical problems and they refused him treatment unless he confessed to the false crimes. He continued to refuse, but at the same time, in October 2009, Sergey gave even more incriminating testimony on Kuznetzov to the State Investigative committee. A month later he was dead.

Magnitsky apparently somehow felt himself bullet-proof. But he wasn't. The playing board is fairly clear -- there is a mortal risk not just for lawyers, but for executives of companies that end up crossing local or federal authorities, or politically powerful businessmen.

So one poses the question: Regardless of whether Russian lawyers themselves are willing to work on such matters, should foreigners employ them?

Radio Appearance

noreply@blogger.com (Steve) — Sat, 21 Nov 2009 13:28:00 +0000

I was interviewed about murder and death in Russia on My Technology Lawyer, a radio show hosted by Andrew Kreig and Scott Draughton.

Gazprom Comes to the U.S.

noreply@blogger.com (Steve) — Sat, 14 Nov 2009 18:54:00 +0000

For several years, Gazprom has had surpassingly bad PR -- worse even than Exxon, which since the 19th century heyday of John D. Rockefeller has almost proudly disdained the opinion of the world at large. The main problem has been Gazprom's intrusion into the lives of its neighbors -- its routine shutoff of gas to Georgia in the 1990s, for example, and its long reluctance to lease pipeline space for the export of natural gas from land-locked Kazakhstan, both actions that happen to coincide with the desire of Moscow to keep a foot on the throat of these former Soviet republics. But this blog has also noted Gazprom's distinction of being the only energy company on the planet with a record of elevating utility disputes to geopolitical events -- its legendary natural gas rows with Russian neighbor Ukraine have shut off the winter heat to Europe three times since 2006. Though Ukraine has paid its latest Gazprom bill in full, one would be a fool to bet against the prospect of a fourth cutoff this winter, as Jerome a Paris notes over at the European Tribune; indeed, Michael Kahn and Anna Mudeva at Reuters report that central Europe is carrying out actual infrastructure changes in case the yearly dustup recurs. Recently, Gazprom has been attempting to spruce up its image with a $250,000-a-month contract with Ketchum, a skilled PR agency with offices in London and Washington.

But this isn't the news. Instead, it is an ingenious Gazprom strategy of parlaying its market power in Europe -- the company supplies 25% of Europe's natural gas -- into a beachhead in the hyper-competitive U.S. Gazprom's goal: to supply 10% of the U.S. market within a decade.

It's an audacious play, but not outlandish. Take a look at the details in a story I wrote for this week's BusinessWeek. Last month, the company's Houston office opened with the main aim of marketing liquid natural gas from Sakhalin II (recall that Gazprom strong-armed its way into a controlling share of the project in 2007), on Russia's East Coast, in California. This goal hasn't gone off so well as yet, and probably won't soon -- U.S. gas prices are simply too low, and because of a glut of shale gas, prices aren't likely to rise much at least in the medium term. So Gazprom has sold all its LNG so far in Asia.

But a companion component of the strategy has succeeded remarkably. It's in pure gas trading. Though the trading side of the U.S. market is crowded with sophisticated actors stepping on one another to find and sell the fuel, Gazprom managed to corral and sell 350 million cubic feet a day in its first month of operation. That's a fraction of its goal -- the sale of 6 billion cubic feet a day. But it's a respectable start.

How did it do so? Gazprom says it's swapping gas with companies that are long in the U.S. -- meaning they have a comparable surplus of gas here -- and want to sell it in Europe, where Gazprom is long. It's a matter of convenience, Gazprom suggests -- it has excess gas in Europe, other companies have excess gas in the U.S., and the two effectively just swap supplies.

But consider the one deal that Gazprom has disclosed -- with the French utility Electricite de France (EDF). Under the deal, Gazprom will deliver 50 million cubic feet a day of gas to an EDF operation in Britain, and in exchange Gazprom will take possession of the same volume of EDF gas in the U.S. Simple, right?

But there's a wrinkle: EDF, hungry to secure long-term supplies, is also seeking to secure a percentage in Russia's planned South Stream, a natural gas pipeline that would bypass nettlesome Russian neighbors and carry gas directly to European customers. The U.S. and some Europeans have vigorously opposed South Stream, which they say will further cement what they regard as excessive existing Russian clout in Europe. But EDF is among those that not only approve of South Stream, but want a piece of it.

So, as others have done before it with different degrees of success -- including BP and Italy's Eni -- EDF is making nice with Gazprom. As EDF CEO John Rittenhouse told Reuters, "We are looking forward to expanding our relationship with Gazprom."

Real-Estate Bubbles and Optimism on the Caspian

noreply@blogger.com (Steve) — Sat, 14 Nov 2009 15:33:00 +0000

Oil and gas were go-go drivers of the former Soviet economy for years -- until the U.S. subprime catastrophe cut off the flow of easy Western loans. Businesspeople in Russia, Kazakhstan and elsewhere socked away their personal profits and skimmings, while relying on Western loans often coursed through local banks to finance easy loans for investment. To call the resulting real estate bubble huge would be a gross understatement.

According to an index quoted by Symbat Abilkhassimova in the Caspian Business Journal, the price of real estate in Almaty rose 10-fold in the four-year period after 2003, from $360 a square meter for residential real estate to $3,700 a square meter in 2007. That index is exaggerated, but prices definitely exploded. As a personal example, in 2002 our landlord was asking $80,000 for our five-room apartment in the Samal II complex overlooking Ramstore; we didn't buy, but two years later learned that the same apartment was going for $250,000. I saw the same phenomenon around the country -- in Astana, in Atyrau and in Aktau, all of it fueled by the same hot money from abroad. As it has around the world, the asset bubble has popped in Kazakhstan and elsewhere in the region. Clare Nuttall at Business New Europe reports that it could take two or three years for the Kazakhstan market to recover.

Optimism dies hard. The other day, two young American businessmen -- Kenyon Weaver and Mike Druckman -- stopped by the office to talk about the Caspian Business Journal, an on-line magazine venture they are launching despite the downturn. Their first issue is this month. The pair -- both of them former Peace Corps volunteers in Turkmenistan -- aims mainly to chronicle business outside the energy sector in the Caucasus and Central Asia.

That's one contrarian bet. Another is that readers must pay $30 a month from the outset -- unlike the mantra of writers like Chris Anderson, Weaver and Druckman don't believe that the wave of the future is free.

I saw Druckman again the other day at a Russia event. He said the venture is getting a good initial reception.

Oil Prices Are Not Going to Spike Again Just Yet

noreply@blogger.com (Steve) — Wed, 28 Oct 2009 21:07:00 +0000

The party isn't over -- at least not yet.

For the last year, relatively low oil prices have helped us all cope with the economic collapse. We've paid less for gasoline than we have for years. And businesses have paid less for running their factories, planes and product transportation.

But last week we began hearing the music die down and waiters moving guests out the door. The trigger was crude oil surging through the $80-a-barrel barrier for the first time since September 2008. Goldman Sachs, among others, said the hike is a signal of even higher prices going forward. Goldman predicts an average of $110-a-barrel oil next year.

Here's one big reason why the bulls so predict: Global oil exploration and production have dropped, and when economies rebound there will be a shortage. Hence prices are bound to rise. In the U.S., for instance, exploration is down 27.8% from a year ago, with 309 rigs actively drilling, compared with 428 at this time in 2008, according to the Baker Hughes Rig Count. Abroad, there are 8% fewer rigs drilling than there were a year ago—764, down from 831.

Of course, at some point these fellows will be correct -- global economics will gradually improve, and oil and gasoline prices will rise. But as numerous other analysts tell me, there are numerous reasons to expect oil prices to stay where they are, or even drop, for the next year or two.

When oil prices rocketed past $140 last year, the cause lay mostly with speculative dollars capitalizing on the supply-demand balance: There was virtually no spare production capacity anywhere in the world, so that any supply disruption, such as hurricanes in the Gulf of Mexico and the routine militant attacks in Nigeria, pushed prices up. Taking advantage of the tight market, a wide swath of investors including university endowments, investment funds and small investors piled in to funds holding oil futures, driving the price up.

But the situation is different now. Saudi Arabia has added a huge volume of fresh production capacity since last year. Globally, oil producers can produce 6.7 million more barrels a day than they actually sell, according to the International Energy Agency; Saudi Arabia accounts for 3.8 million barrels, or 56%, of the total.

And why aren't the Saudis and others running their oil rigs at full-capacity? Because there's a huge volume of crude already sloshing around the world. New U.S. government data shows that the U.S. stockpile of oil rose by 800,000 barrels in the latest week, and stored gasoline by 1.6 million barrels. All in all, U.S. crude inventories stand at around 340 million barrels, up 27% from a year ago, reports the U.S. Energy Information Administration. In addition, since mid-September the Strategic Petroleum Reserve has exceeded 725 million barrels, a 27-year record. Together, that's about 118 days of U.S. oil imports.

In fact, there's such a global glut that there's almost no place on land to put all the oil. An estimated 125 million barrels' worth are floating around on tankers scattered over the globe, according to the Organization for Petroleum Exporting Countries. Normally, a negligible amount of oil is being stored offshore in ships.

Much of that oil would have to be drawn down before any big price spike takes place.

The main driver of last week's price runup was the weak dollar -- since March, the dollar has fallen 15% in inflation-adjusted value compared with a basket of currencies of its major trading partners. Traders have sought to cushion the fall in the value of the dollars they are holding by buying futures in traditional safe havens. While oil prices have surged by 71% since March, gold has also soared this year by more than 20%, to more than $1,000 an ounce.

But for the last few days, the dollar has hardened up. And oil prices are back down. Today, they fell to $77.46 a barrel.

Maestro, more music please.

Marc Rich on the Art of Boycott Evasion

noreply@blogger.com (Steve) — Fri, 16 Oct 2009 13:06:00 +0000

John Deuss lived a heady 1980s. This Dutchman of proverbial humble roots in the eastern Netherlands city of Nijmegen became worth hundreds of millions of dollars by ignoring a United Nations boycott and shipping Middle East oil to South Africa. On the strength of those dollars, Deuss bought and raced thoroughbreds, bought estates in Florida, Bermuda, Connecticut, Jackson Hole and of course Nijmegen. He sailed on a huge yacht, stayed at the Ritz in Paris, owned a high-end magazine, and of course -- as readers of O&G know -- became a thorn in Chevron's side in Kazakhstan. Today, Deuss is submerged in legal problems associated with a British investigation of a tax fraud scheme that channeled millions of dollars to accounts in the Dutchman's Caribbean bank.

What isn't discussed much is that Deuss wasn't the only one enriching himself on the South Africa oil trade. There actually were two main oil dealers to the pariah government. The other was Marc Rich, the infamous former owner of Marc Rich & Co., a commodities firm that, among other places including Iran, cornered the market for numerous categories of fabulously valuable metals in the former Soviet Union. Rich was charged with tax evasion in the U.S., and fled to Switzerland before then-President Bill Clinton pardoned him on his last day in office.

In a new book by Swiss journalist Daniel Ammann, Rich apparently spills the beans on much of his career. It's called The King of Oil: The Secret Lives of Marc Rich. The New York Times' Jad Mouawad rang up Ammann and asked why Rich opened up. Ammann replied: “There is a funny word in German for this — altersmilder — which means the kindness of old age. Marc Rich is now 74, and maybe he realized that if he didn’t talk, no one would see his side of the story.”

Perhaps Deuss -- and even James Giffen -- will do the same some day?

China, Russia and the Eastern Shift of Energy

noreply@blogger.com (Steve) — Mon, 12 Oct 2009 11:08:00 +0000

The 800-pound gorilla in former Soviet energy is China. Since the late-mid 1990s, Beijing has steadily racked up oil and natural gas deals that draw more and more of Russia's and Central Asia's supplies to China. Cash-rich in a region struggling with the financial crisis, Beijing earlier this year agreed to a $25 billion loan to Moscow in exchange for a 20-year supply of oil. And later this year, a still hard-to-fathom 4,375-mile pipeline will supposedly begin pumping natural gas from Turkmenistan into China.

Now, Russian Prime Minister Vladimir Putin is on his way to Beijing, and a host of fresh energy deals are in the works. Chief among them is continued work on an important natural gas alliance between the countries that -- if completed -- would end up shipping a large portion of Russia's gas to China. It would come from the Kovykta gas field. The two countries have been working on the pact for three years but have yet to reach pricing agreement. But when they do, pressure will increase on Europe to figure out how it will satisfy its growing appetite natural gas. (Will the gas go off in Europe in the beginning of January in the annual flareup of tensions between Ukraine and Russia? The short answer is yes)

Listen this morning as my friend Jim Falk, president of the World Affairs Council in Dallas, interviews James Miles, the Economist's Beijing correspondent, who provides among the best coverage of the country out there. Sign up for it here, then listen in on this link to the live audio feed starting at 11 a.m. EST.

Russia: Nobel, Browder, and the Annals of the Pull to Gamble

noreply@blogger.com (Steve) — Fri, 09 Oct 2009 12:18:00 +0000

Some nine decades ago, Emanuel Nobel, a nephew of Alfred Nobel -- founder of the prizes being awarded this week in Oslo -- fled Baku disguised as a peasant in order to escape the Bolshevik Revolution. As O&G readers know, Alfred Nobels' brothers were the biggest oil barons of all in Baku's 19th-century heyday. In the end, for the Nobels all was lost.

It wasn't a huge surprise. The story of Western investment in Russia is that of a crapshoot. Pockets laden with cash, all say they are entering with a realistic grasp of the country's perils. All say they are therefore taking precautions. Yet the outcome is always the same -- on the way out, some are wealthier than anyone could dream; others, no longer cash-laden, are wearing no shirt. The trick has been to avoid being the latter.

So the narrative continues. Hermitage kingpin Bill Browder had been on a soapbox about Russian investment even before Moscow kicked him out of the country three years ago. Now, he is out with a glossy new, 10-minute video detailing his fall as Russia's biggest foreign investor, to his current status as victim of Russia's unpredictable winds.

The release of the video coincides with a story in yesterday's Kommersant that the Russians intend to issue an international arrest warrant against him. Over at the Reuters blog, my former Business Week colleague Jason Bush notes that Kommersant claimed the very same thing last year, only for the Moscow police to repudiate the report. Still, the public brinksmanship well illustrates the stakes at play in the country.

Update: Jason Bush has just emailed me an MVD report -- Browder is indeed on Russia's international warrant list for arrest.

This is a big news week for foreign investors in Russia. On Monday, Norway's Telenor aped the throw-up-your-arms strategy of BP, and caved in to Alfa Group's Mikhail Fridman. After a prolonged court battle in which Telenor initially seemed ultra-confident that it would prevail, it has changed its mind and will embrace the original peace agreement offered by Alfa, its business partner, which will now run the show. As regards BP, the following day, Reuters' Dmitry Zhdannikov reported that the British oil company is resigned to letting Alfa run their partnership as well -- the oil company TNP-BP. Over at aptly named Seeking Alpha, Craig Pirrong calls this a "marriage made in hell," but corporate honeymoons are usually quite short in Russia.

One thing is for sure -- Moscow is certain that foreign investors will keep returning. On Sunday, Prime Minister Vladimir Putin signaled that Russia would embark on yet another bout of privatization next year. Get out the champagne.

The indicators are that Putin's confidence is well-placed. In Business Week, Carol Matlack writes that western companies continue to flock to Russia despite the perils. Their rationale is similar to what drives gamblers to Vegas: the excitement (never underestimate the appetite of brio-seeking westerners to seek street cred by working in Russia; as a corollary, do not underestimate the Russians' capacity to notice) , and the long-shot prospect of big, big wealth.

Take a look at Business Week's "How to Play It" feature in the same issue as the Matlack story. I hadn't noticed this myself, but after last year's breathtaking nosedive, Russian markets are -- at least of now -- doing extremely well in 2009.

Craps anyone?

Credit: BusinessWeek

Turkish and Armenian Rapprochement: A Region Grows Up

noreply@blogger.com (Steve) — Wed, 07 Oct 2009 13:17:00 +0000

Given the players and the history, a deal is still a long shot. But that traditional antagonists Armenia and Turkey have continued their talks this far -- at least by appearances, they are within three days of an accord re-establishing diplomatic relations and opening their borders -- is already a sign of an until-now missing maturity in the deeply suspicious region.

The main flashpoint between the two countries has been Turkey's 1915 massacre of hundreds of thousands of Armenians. Turkey refuses to acknowledge responsibility for the carnage, and permits pseudo-scholarly denials of the well-established history itself. A second issue is the two-decade-long dispute between Armenia and Azerbaijan over the status of the enclave of Nagorno-Karabakh. Turkey, which supports Azerbaijan in the dispute, has insisted that the issue be settled as part of the rapprochement with Armenia.

Yet, if the pact proceeds and the countries' parliaments go on to ratify it -- not a certainty by any means -- one is led to wonder what else is possible in the region. Could Georgia and Abkhazia lower their voices? Could Georgia and Russia lower theirs? For that matter, could Russia concede that Georgia are Ukraine are independent countries?

All right, I've gone a bit too far. But you get the thrust -- the political courage displayed by Armenian President Serge Sarkisian is notable; I myself witnessed the 1998 coup that brought down then-Armenian President Levon Ter-Petrossian when he was close to a peace deal with Azerbaijan over Nagorno-Karabakh.

Ter-Petrossian's enemies at that time -- the ultra-nationalist Dashnak party -- are leading the domestic Armenian protests against Sarkisian now. Abroad, too, Eurasianet.org reports, Sarkisian faced 3,000 demonstrators outside his hotel in Los Angeles, where he visited Sunday as part of a tour to sell his plan to emigre Armenians. A similar demonstration in Paris turned violent last Friday when emigre Armenians accused Sarkisian of treason and clashed with riot police, Eurasianet.org wrote. In Beirut yesterday, Sarkisian faced an unhappy crowd of Armenians insisting that Turkey first agree to use the term genocide to describe the World War I-era massacre, according to the BBC's Jim Muir.

So the deal isn't quite in the bag. And even if it is, the political fallout is unpredictable.

Which makes the progress all the more remarkable. In the Wall Street Journal today, Marc Champion and Nicholas Birchin report that Turkey has dropped a key condition and will sign Saturday even without settlement of Nagorno-Karabakh.

How Kazakhstan's Uranium Was Won, and Why Gorbachev Did Not Match SDI

noreply@blogger.com (Steve) — Tue, 22 Sep 2009 17:14:00 +0000

David Hoffman -- the Washington Post writer on Russia's oligarchs -- has a new book out today. The Dead Hand is serialized in a couple of pieces in the Post. One of the excerpts is on the famous Project Sapphire, in which, as O&G readers know, the U.S. spirited out more than have a ton of highly enriched uranium from Kazakhstan to Oak Ridge, Tennessee. The second excerpt is Hoffman's take-down of the stubborn fiction that Ronald Reagan's Strategic Defense Initiative was responsible for Mikhail Gorbachev's decision to call a halt to the arms race.

The Sapphire story is the first inside account of the 1993 event, and is riveting, as evidenced by the 372 Diggs (at last count) it's accumulated. It's also accurate "with a few errors," according to then-U.S. Ambassador Bill Courtney, with whom I exchanged emails this morning. That's a high mark in Courtney's lexicon.

The missile defense piece is interesting, too. As those of us who write on Russia today know, this isn't the 1990s -- it's extremely difficult any longer to access archived records of official Soviet meetings, and participants are also nowhere near as easy to speak with. Hoffman managed both to piece together his account of Gorbachev's decision not to match SDI, but instead to let the U.S. spend its billions while seeking a deep cut in nuclear arms.

Religiosity and the Meaning of the Shift on Missile Defense

noreply@blogger.com (Steve) — Sun, 20 Sep 2009 14:15:00 +0000

One is pressed to name a technology attached to as much religious-like fervor as missile defense. We of course are not talking the type of fanaticism seen in the lines around the block to buy the latest iPod, but truly mob-like anger resembling the debate over evolution. It's been that way ever since Ronald Reagan gave missile defense national prominence in 1983. A quarter century later, while the defense industry continues to work toward a breakthrough that would make the technology reliable, the news in Eastern Europe and Russia brings missile defense back front and center in all its passion and vitriol -- Obama has canceled George W. Bush's planned missile defense components in Poland and the Czech Republic, and to the technology's advocates, that means heresy.

As we have discussed previously at O&G, Obama has been bound to make just this move simply because of the irrationality of attempting to persuade Iran or anyone else that Europe is held safe by a non-working technology. In a column today in The New York times, here's how Defense Secretary Robert Gates himself describes the attacks against him since the decision: "I have found since taking this post that when it comes to missile defense, some hold a view bordering on theology that regards any change of plans or any cancellation of a program as abandonment or even breaking faith."

So what is this lathered-up debate genuinely about? It is whether or not there will be any resulting dividends from Moscow as a result. Naturally, the Obama Administration denies any link to Russia, and technically that assertion is correct -- the cancellation I think would have taken place regardless of the friction with Russia.

But payback is nevertheless an issue -- Russia remains an outlier on extremely important matters, including the troubling arc of developments in Iran. Looked through that lens, Obama can be expected to act to eliminate other irritants, too, that have no legitimate U.S. strategic value.

Hence, look next for a trade opening with Moscow -- there's no valid reason to block Russia from the World Trade Organization if it meets the criteria. But don't expect the U.S. to back down in Georgia -- among other factors, the Baku-Ceyhan pipeline continues to link Georgia strategically to the West. The U.S. will probably also continue to pursue the strategic Nabucco natural gas pipeline despite the lack of enough fuel to make it work.

While both of Russia's leaders -- President Dmitry Medvedev and Prime Minister Vladimir Putin -- suggest that they will be more attentive now to U.S. concerns, my friend Masha Lipman at Carnegie in Moscow remarks that "anything that looks like a concession can be viewed by the Russian side as a sign of weakness."

Generally speaking, Lipman is right. But the reduction in the points of friction between Washington and Moscow is still arguably a valid approach to getting Russia on side.

Russian History and the Passing of the Utility of Pipeline Politics

noreply@blogger.com (Steve) — Sun, 23 Aug 2009 15:13:00 +0000

The Harvard historian Richard Pipes has triggered an interesting debate on the Internet with a long piece that leads the Weekend section of The Wall Street Journal. The piece lays out familiar Russian history -- how and why Moscow is so vexed by independent-minded neighbors; why its people go along with political repression; and its dogged pursuit of a status as "a force to be reckoned with, a country to be respected and feared." Pipes goes on to suggest policy prescriptions, including a recognition that Russians are likely to react badly to a feeling of encirclement, and a renewed attempt to persuade Moscow to adopt western political and economic values.

The piece is important not because it's perfectly presented -- I'm puzzled for example by the continued notion that somehow Russians are going to become like the West -- but because we get someone of Pipes' stature laying out once again the historical record. I myself hear dismay from Russia watchers get up in arms over the suggestion that some recent events there -- the impunity of murderers, and the public acquiescence to it all -- follow an arc going back several centuries. To them, I suggest a fresh read of Pipes. Below, I'm posting a video from a speech I just delivered at the World Affairs Council in San Francisco, arguing that time has perhaps passed by the utility of current U.S. oil policy on Russia, specifically that of pipeline politics.

At the American Conservative, Daniel Larison argues inaccurately that Pipes is merely advocating a continuation of two-decade-long U.S. policy. For instance, Larison takes Pipes to task for failing to insist on a break in NATO expansion, when the piece in fact suggests the opposite.

At the Squirrel's Nest, we get an attempt at the long view from Terry McGarty, a Massachusetts startup investor and one of Pipes' former Cambridge colleagues. McGarty quotes a well-known criticism of NATO expansion by George Kennan, one of the best diplomats the U.S. ever turned out. Kennan asserted that, among other things, NATO expansion would restore the atmosphere of the Cold War, and impale Duma ratification of Start II. Today, no one can project backward with certainty how events would have unfolded absent NATO expansion, but, in the context of Russian history, as Pipes well lays out in his piece, even in the most optimistic of circumstances there would have been at minimum the danger of Moscow creeping back into the vacuum of its former Eastern European satellites. And in a more pessimistic turn of events, eastern and central Europe could have been in similar circumstances to Ukraine and Georgia today, confronting an angry, assertive Russia at their border. Finally, Kennan wholly misjudges the Russian position on nuclear arms. Russian politics could change down the road, but since Mikhail Gorbachev the country has favored almost any nuclear arms control deal; none of the serious nuclear arms accords discussed in the post-Soviet era was ever imperiled as far as Moscow's signature was concerned. Kennan had that backwards -- they were upended in the U.S., by the Bush administration.

Cyber-Attack Strategy: Part of Russian Attack on Georgian Pipelines, Report Finds

noreply@blogger.com (Steve) — Thu, 20 Aug 2009 14:30:00 +0000

John Bumgarner, a former cyber-security expert for the CIA and other U.S. intelligence agencies, is attracting much attention for his report concluding that Russia's military offensive in Georgia last year was coordinated with a pre-arranged civilian cyber-attack on the country. What appears to have gone unreported is Bumgarner's conclusion that the region's oil apparatus was a strategic target of the overall conventional-and-cyber offensive.

The 100-page report, conducted for the U.S. Cyber-Consequences Unit, where Bumgarner is director of research, was distributed to U.S. officials and security experts. Bumgarner and I chatted by phone, and he emailed me the nine-page executive summary (thanks to Josh Foust for agreeing to post it at Registan.net. Incidentally, Foust has a good piece on the media war between Russia and Georgia at CJR).

Bumgarner says the report is the result of an examination of hundreds of public Internet forums, sharing of data with sources at home and abroad, and his own reporting on the attack from almost the instant it began. Others have reported that much of the findings were already known; but Bumgarner's findings appear to be the difference between barstool talk and authentic data. Nor is the report the kid-stuff such as carried out last week against 45 million Twitter users along with Facebook members, apparently by a Georgian blogger calling himself Syxymu (the blogger's attempt to Latinize the name of the Abkhazian capital, Sukhumi.).

Its chief takeaway is that the Russian cyberattack -- which disabled 54 Georgian websites in banking, communications and media with the apparent aim of reducing Georgia's capability of responding to the Russian offensive -- was prepared well in advance. Bumgarner writes:

Many of the cyber attacks were so close in time to the corresponding military operations that there had to be close cooperation between people in the Russian military and the civilian cyber attackers. When the cyber attacks began, they did not involve any reconnaissance or mapping stage, but jumped directly to the sort of packets that were best suited to jamming the websites under attack. This indicates that the necessary reconnaissance and the writing of attack scripts had to have been done in advance. Many of the actions the attackers carried out, such as registering new domain names and putting up new Web sites, were accomplished so quickly that all of the steps had to be prepared earlier.

The Russian Embassy in Washington denies any official Russian or military role in the cyber attacks. And in fact Bumgarner writes that he found no sign of official Russian participation, and concluded that no military personnel, with their distinctive fingerprints, could have carried out the attack. But he adds that there had to be complicity. "The organizers of the cyber attacks had advance notice of Russian military intentions, and they were tipped off about the timing of the Russian military operations while these operations were being carried out," Bumgarner writes.

Yet, the cyber attackers did not go in for the kill, Bumgarner told me -- they didn't attempt to cripple sites that could have caused chaos or injury, such as those linked to power stations or oil-delivery facilities, but merely those that could trigger comparative "inconvenience." "There was a political decision not to attack those critical infrastructures directly. They made the point that they could launch these attacks. They showed they have the capability to do more," Bumgarner said.

This mirrors Russian action against Georgia's paramount strategic installation -- the Baku-Ceyhan oil pipeline, by far the biggest reason why the U.S. and the West as a whole are interested in Georgia. We've discussed here how Russia bombed all around the pipeline without actually hitting it -- a clear message that it could do so if it wished, but would refrain for the moment.

Indeed the cyber attack fit into an overall Russian strategy centered on Georgia's oil infrastructure, Bumgarner concludes. It succeeded, in Bumgarner's view. "Unstable ground conditions, augmented by cyber attacks, soon made all of the Georgian pipelines seem unreliable," he writes.

Certainly that was the impact for the first weeks and months -- Russia demonstrated that the pipeline was vulnerable, not to mention dispelling the illusion that Georgia enjoyed special Western protection.

To a large degree, that remains the fact on the ground -- Georgia and the other former Soviet states of the Caucasus and Central Asia are far more deferential toward Russian wishes. Yet the oil and gas continues to flow.

As for the larger picture, most recently Russia has gotten push-back. This week, Georgia announced that it has officially withdrawn from the Commonwealth of Independent States, the grouping formed as a substitute for the Soviet Union at the same time as its 1991 collapse. (In the 1990s, Georgia's refusal to join the CIS infuriated Russia; in 1993, as Russian-backed Abkhaz troops closed in on Sukhumi, then-Georgian President Eduard Shevardnadze, standing alongside his troops, reportedly shouted, Okay, we will join the CIS! Suing for peace with Moscow, Shevardnadze did so soon after.)

And last week, it was reported that the Obama administration has decided to ignore strenuous Russian opinion and revive its training program for Georgian troops. Matthew Yglesias appears to be shocked that Washington would help Georgia through a ruse -- the U.S. claims the Georgian troops are being trained only for action in Afghanistan. Yglesias says this transparently false form of foreign policy -- obviously Georgia will use the training to rebuild its defense capability against Russia -- is "very, very, very silly."

As reasoning, Yglesias trots out the usual -- that the U.S. would blanch if China trained Mexican troops and formed a military alliance with America's southern neighbor. Therefore, Russia's furious opposition to the U.S. assistance -- and to Georgia's interest in joining NATO -- is understandable. The main weakness of this specious-but-much-used argument is that the U.S. and Mexico aren't military antagonists. More to the point, as benjamin81 comments over at The Plank, "A better analogy would be China or Russia training troops in Guatemala or Cuba. We wouldn't like it, but we probably wouldn't lose too much sleep over it either."

This summer, Russia and Georgia have resumed their usual bellicose relationship. Does this portend more war? After the drubbing he has taken since his adventurism last summer, Georgian President Mikheil Saakashvili is unlikely soon to fall for Russian bait. But Georgia will remain a flashpoint, with or without U.S. involvement.

O&G Vacation

noreply@blogger.com (Steve) — Wed, 05 Aug 2009 13:42:00 +0000

Steve is on vacation Aug. 1-17. Please return for more then.

Bill Browder, Russia, and More in the Annals of Personal and Corporate Safety

noreply@blogger.com (Steve) — Mon, 03 Aug 2009 07:33:00 +0000

We've discussed the failure to identify and prosecute those who ordered and paid for the murders of Russian journalist Anna Politkovskaya, Forbes' Paul Klebnikov and others. But what about that of Valery Kazakov, a Russian man slain on the way to testify against the former mayor of the town of Pushkino?

It's the subtext of a piece by Megan Stack of the L.A. Times, whose reporting suggests a couple of principal reasons why such cases don't get solved. One of course is official corruption. But another is that, even when cases have moved through the system in reasonably good order, Russians are hesitant to testify for reasons of personal safety. There's effective impunity not just for killers, but for those who murder witnesses intending to testify against the low-ranking triggermen who typically take the hit for everyone up the food chain.

That's one stubborn reality about Russia. Of a different order are the foreign firms and companies -- lawyers, bankers, investors -- who get fleeced, their local employees jailed, then indignantly scream for justice as though not pre-warned.

Over the last several days, this victim's slot has been filled by American Bill Browder, the once high-flying defender of investment in Russia as head of a $4 billion Russian fund called Hermitage Capital Management. In 2005, Russia effectively expelled the 45-year-old Browder, whose grandfather Earl headed the U.S. Communist Party in the 1930s and early 1940s, and since then he has had to run his fund from a distance in London.

As my colleagues at Business Week and others are writing, Browder now has hired former U.S. Attorney General John Ashcroft to run an unusual case stemming from a subsequent assault on Hermitage in which a couple of subsidiaries were seized. It's a tax fraud and money-laundering case against a group of officials who he says conspired to defraud the Russian government of $230 million.

(Yawn)

We've seen this movie before. For instance, BP keeps returning for more despite its own experience with the rough-and-tumble Russian system.

To his credit, Browder's stratagem at least in part is meant to free one of his Moscow lawyers, Sergei Magnitsky, who was jailed after filing a court statement alleging official corruption in the seizure of the subsidiaries.

Yet BP and Browder stuck around because of the money -- in BP's case, despite it all Russia remains one of its main profit centers. As for outsiders, there's the entertainment value of gaping at the road wreck.

Obama Administration Adding Oil (and Caspian) Balance to Energy Team

noreply@blogger.com (Steve) — Sat, 01 Aug 2009 06:49:00 +0000

One persistent knock against the Obama administration's energy team is that it is one-dimensional -- everyone has a clean-tech background, the mirror image of the oil industry bent of the Bush White House. At the top, climate and energy czar Carol Browner is a former administrator of the Environmental Protection Agency, and Energy Secretary Steven Chu ran, among other things, an alternative energy development program while director at Lawrence Berkeley National Labs. The criticism has been that, even if you want to accelerate non-fossil fuel research and controls on greenhouse gases, you still need a balance in terms of expertise since, according to most forecasts, it's going to be a long time before oil and natural gas vanish from our fuel mix. No policy can be serious unless it takes shrewd account of everything.

All the while, however, word was that the administration intended, but simply hadn't gotten around yet, to name senior global energy officials both in the National Security Council (the president's foreign policy think tank) and the State Department. Now, it looks like Frank Verrastro, one of the Caspian era's steadiest hands, will be taking the NSC job. David Goldwyn, who doesn't have the same oil industry experience but does possess a long biography in senior government energy jobs, will take the State Department position.

Verrastro, currently director of energy and national security at the Center for Strategic and International Studies in Washington, seems likely to be named senior NSC director for energy and the environment.

I first met Verrastro a decade ago when he was Pennzoil's Washington representative and a key player in the negotiation of the pivotal offshore Baku contract between the world's largest oil companies and Azerbaijan President Heydar Aliyev. He was also in the center of the mix on making the Baku-Ceyhan oil pipeline happen.

One main truth I found while researching The Oil and the Glory was that at most a handful of the players -- diplomats, oilmen, local officials, and so on -- truly understood the complex events taking place on the Caspian. Meaning not just being able to recite events, but instinctively grasping them so as to accurately and trenchantly forecast what came next.

Verrastro gets the global oil and natural gas game, and at the same time is conversant on clean energy. I'd say he'll be an effective player.

I don't know Goldwyn at all. He was an assistant secretary for energy during the Clinton administration, and is said to be a former protege of New Mexico Gov. Bill Richardson. Since Dick Morningstar, Eurasian energy czar under Secretary of State Hillary Clinton, already has the former Soviet Union, Turkey and parts of Europe, it looks like Goldwyn will handle the rest of the world. Morningstar is another former Caspian hand from the 1990s.

While we are on the subject of names, Jon Elkind, a former NSC director for Central Asia whom I first met on a plane in Turkmenistan back in 1995, is the new principal deputy assistant secretary of energy for policy and international affairs. Elkind is a no-nonsense kind of guy. The Caspian will be getting smart attention all around.

Nabucco and Trans-Caspian: Times Change, Pipeline Politics Goes On

noreply@blogger.com (Steve) — Fri, 31 Jul 2009 03:43:00 +0000

On one hand, Turkmenistan is in the catbird seat. Exxon, Chevron, BP and ConocoPhillips are salivating over the country's onshore natural gas fields, in particular South Yolotan-Osman, the fifth-largest natural gas field in the world. It's fawned over by the U.S., in particular Richard Morningstar, the special U.S. czar for Eurasian energy.

Yet all is not well in Ashgabad. Four months ago, there was an explosion at a natural gas line connecting the country to Russia, effectively Turkmenistan's sole natural gas customer. Since then, the line has been fixed, yet the natural gas flow has failed to resume. Why? The global financial crisis. Natural gas demand in Europe -- which had been buying up the Turkmen gas through Russia's good offices -- has plummeted. So have prices. Moscow has told the Turkmen that it wants to renegotiate the volume-and-dollar terms for the gas. The Turkmen have protested that a contract is a contract -- a favorite expression that the Turkmen perhaps have learned from Western oilmen over the years -- and so the flow remains halted. With it, Turkmenistan is losing an estimated $1 billion a month in revenue, or about $4 billion to date. That's a lot for a place like Turkmenistan.

There's another problem. It's the pipeline politics in which Turkmenistan is a player, voluntarily or not, by dint of its location in great game territory.

Since the mid-1990s, Washington has pressed Turkmenistan to agree to an extension of the region's new East-West natural gas network that would connect the country with Azerbaijan, and onward with Europe. The rationale was that, in the same way that Azerbaijan and Georgia have ostensibly won some political breathing space from Russia because of the construction of the Baku-Ceyhan oil line, Central Asia and in particular Turkmenistan and Kazakhstan would benefit through the proposed trans-Caspian natural gas line.

Demands for bribes, Russian protests, war in Afghanistan, and gaffes of various sorts have confounded the trans-Caspian. But now it turns out that events may have wholly overtaken the linkup of Central Asia to the balleyhooed East-West Corridor in any case.

First, in its latest iteration, the trans-Caspian was ultimately supposed to feed Nabucco, a natural gas pipeline to Europe, which has ended up at the butt end of continued utility bill spats between Russia and Ukraine. But now it seems that Europe may very well become awash in natural gas from shale deposits within Europe itself, and liquified natural gas shipments from Qatar and elsewhere. In other words, the need for Nabucco -- and natural gas supplies all the way from Central Asia -- has diminished.

But what of Turkmenistan's gas? In terms of Russia's rivals, it turns out that the Chinese have gotten there first. I personally thought the notion was far-fetched, but the Chinese are actually on the verge of finishing the first phase of the Turkmen-China natural gas pipeline, which looks like it will begin flowing by the beginning of next year. Since South Yolotan-Osman are situated in far eastern Turkmenistan, even if one of the western Big Oil companies gets a piece of these fields -- still only a remote possibility -- they will ship east, not west.

In other words, there appears to be little reason for the U.S. to focus on the trans-Caspian any longer, either, except for its own, parochial sake, and not for any larger policy reason, such as how Baku-Ceyhan broke Russia's monopoly over energy transport in the Caucasus.

We'll keep hearing about these lines. And we'll write about them in this space. But their time has passed.

As for Turkmenistan -- it will find its own way.

Pakistan: A Taliban Train the Populace May Climb Aboard

noreply@blogger.com (Steve) — Wed, 29 Jul 2009 11:08:00 +0000

We return to Pakistan and the Army's effort to push back the tide of the Taliban. Over the last two months, it has seemed that the Army -- though long itself a pillar of the country's militant Islamic movement -- finally recognized that its creation now threatened the country's integrity. It has been fighting back against the Taliban. The news is that the Taliban appear to be adapting in a way that could seriously shift the tide in their favor. That adaptation? It is enacting by fiat the land reform promised by self-proclaimed liberals for three decades.

This news, buried in a startling piece by The New York Times' Jane Perlez and Pir Zubair Shah, is important because of the danger that the country's current leadership -- however flawed -- is swept away in favor of one decidedly favorable to the Taliban. David Ruccio rightly calls this powerful turn of events Taliban land reform.

For those like myself who covered the late Benazir Bhutto in her first campaign for prime minister in 1988, this point was paramount -- coming off of eight years of education at Harvard and Oxford, Bhutto vowed to change Pakistan's feudal landscape, in which most of its 170 million people live as virtual serfs under a stubbornly Raj-style landowning class.

A few years earlier, in my time as a reporter in the Philippines, I had been informed by a wise hand that a feudal never betrays her roots. This person was referring to then-President Cory Aquino, but the rule held in Pakistan as well: Bhutto, the scion of Sindh aristocracy and the daughter of revered former Prime Minister Zulfikar Ali Bhutto, never came close to fulfilling her promise.

The Times piece is about Swat, the pristine northern Pakistan region that has been a principal battleground between the Taliban and the Army. The story is set within the context of landowners refusing to return to Swat after the Army swept much of the Taliban out of the area; they don't think it's safe, so many are staying in the capital of Islamabad. In the vaccuum, remaining Taliban "are spreading the spoils among the landless," Perlez and Shah write.

Then go on to quote Vali Nasr, the smart Islamic hand now serving as a senior adviser to U.S. diplomat Richard Holbrooke:

If the large landowners are kept out by the Taliban, the result will in
effect be property redistribution. That will create a vested community of
support for the Taliban that will see benefit in the absence of landlords.

There we have it. Pakistan's political system is wholly founded on the rule of the country's narrow, landowning and industrial class. That includes Bhutto's husband, Pakistan President Asif Zardari, opposition leader Nawaz Sharif, and virtually members of Parliament.

The article further paraphrases Nasr's thinking:

If [the land redistribution] continues, the landlords' absence will have
lasting ramifications not only for Swat, but also for Pakistan's most populated
province, Punjab, where the landholdings are vast, and the militants are gaining
power.

This is the point. The consequence of the Taliban's capture of Swat last year, and their subsequent shift into neighboring Buner, was always the danger of a tipping point, similar to how the Taliban's 1996 capture of Jalalabad tipped the balance and catapulted the group into Kabul, and rule of Afghanistan.

The political survivors in Pakistan's Parliament may want to think about getting in front of this moving train.