October 2007 Archives

Consider the cumulative weight of these facts: A Dutch court rules that Yukos was illegally auctioned, the European Court of Human Rights finds that Russia violated Platon Lebedev's rights, and the Swiss Federal Tribunal denies Russia mutual legal assistance in the Yukos and Khodorkovsky investigations due to political persecution. We are looking at the establishment of consensus in the international legal community that the Russian Federation has lost its claim to legality with regard to its conduct in the Yukos and Mikhail Khodorkovsky affair.

The fact of the matter is that this loss of legality bleeds directly into the succession disputes, and the bitter infighting among the top officials involved in the decision to rob Yukos and its shareholders.

The erosion of legality caused in part by this blowback is best documented in today's article by Vladimir Milov, the former Deputy Energy Minister of the Russian Federation. I fully subscribe to Milov's analysis here, and I believe that his brave article, in combination with the cited legal decisions, puts to great shame the relative silence of observers in this affair.

It is time for the governments of Italy and Germany, who have served as two of the chief participants in the reputation laundering of the Kremlin's conduct, to wake up and recognize the institutional damage being done, before their complicit role in these illegal seizures taint the very democratic values that they were put in office to uphold.

Below is the coverage from Reuters about the Dutch court decision which found the Russian government's forced bankruptcy and liquidation of assets to be illegal. There is also coverage by RIA Novosti and AFP.

Dutch court voids YUKOS bankruptcy in Netherlands

AMSTERDAM, Oct 31 (Reuters) - A Dutch court nullified on Wednesday all decisions taken by the Russian receiver of bankrupt oil firm YUKOS related to the company's Dutch assets.

The court said receiver Eduard Rebgun, who had replaced the management of Dutch-based YUKOS Finance BV and put all assets, worth about $2 billion, up for sale, had no right to do so and all his actions should be reversed.

"Russian bankruptcy of YUKOS was not in line with Dutch principles of law," the court said in its ruling, adding it could not recognise the bankruptcy or Rebgun's rights as a caretaker.

Russia said in August it had sold the assets of YUKOS Finance BV, which included a 49 percent stake in Slovak pipeline operator Transpetrol. YUKOS Finance also had about $1.5 billion in cash.

YUKOS, once Russia's largest oil producer, was founded by Mikhail Khodorkovsky and declared bankrupt after Russia raised huge back-tax demands that it was unable to settle. Khodorkovsky is now serving an eight-year prison term in Siberia on charges of tax evasion.

Russian state-controlled Rosneft became the country's largest oil producer and refiner following a string of state-forced auctions of YUKOS assets.

Former YUKOS owners say its bankruptcy was Kremlin revenge on Khodorkovsky for his political ambitions and criticism of the government.

The Dutch court said on Wednesday YUKOS was denied a fair trial to establish how much back tax it had to pay to the Russian government.

The managers of YUKOS Finance BV moved the assets in 2005 to its unit YUKOS International UK BV, which then transferred its shares to the Dutch Stichting Administratiekantoor YUKOS International in exchange for certificates.

The Dutch-based company's assets include the proceeds of the sale of a 54 percent stake in Lithuanian refinery Mazeikiu (MNF1L.VL: Quote, Profile, Research), for almost $1.5 billion, and a 49 percent stake in Slovak oil pipeline operator Transpetrol, worth between $100 million and $200 million.

Receiver Rebgun sacked Bruce Misamore and David Godfrey, two managers of the foreign YUKOS unit, in August last year, hours after a Dutch court ruled that it was within Rebgun's rights to call for a meeting to discharge the managers.

The ruling was upheld by a higher court, but the judges did not look into the details of the YUKOS bankruptcy.

The managers filed a separate case asking the Dutch court to rule on the bankruptcy of YUKOS in Russia.

Remember when Vladimir Putin compared the current proposed U.S. shield plans to the Cuban missile crisis? Some don't quite agree with the analogy:

Comparing U.S. plans to put defensive missiles in Eastern Europe to Khrushchev's placement of offensive missiles in Cuba 45 years ago is like saying arsonists and firefighters both pour liquids on flames. ... The Soviet placement of offensive nuclear missiles in Cuba was a brazen attempt to establish missile bases in a former Soviet satellite 90 miles from our shores. That would have given Moscow the ability to launch a first strike virtually without warning.

The Kremlin planned and undertook the construction of those bases in secret. And when the bases were discovered, it lied about their existence and purpose to President Kennedy and the world before the United Nations. That forced a U.S. naval blockade that brought the world to the brink of war.

By contrast, the U.S. has been very open about its defensive plans in Europe to deal with a growing Iranian threat aided and abetted by Russia. We have negotiated publicly with our allies and kept Moscow in the loop.

Unlike the Soviet missiles in Cuba, which threatened our existence, our 10 missile interceptors don't threaten Russia or the thousands of warheads in a rapidly growing Russian arsenal.

Full article here.

I recently praised President Putin's success in making Russia an indispensable player in the Middle East vis-à-vis the situation in Iran, but it remains to be seen how Moscow will use its new influence to advance their interests. Running interference on the UN and protecting Tehran from sanctions will likely have a limited shelf life before more urgent political expediencies surface, requiring the Kremlin to finally make some difficult decisions regarding the future of a nuclear Iran.

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Iranian President Mahmoud Ahmadinejad(L) greets Russian Foreign Minister Sergei Lavrov in Tehran on Oct. 30, 2007 (AFP/Behrouz Mehri)

There are already some signs of fatigue in Russia's tango with Tehran. On the surface, the hostile rhetoric continues, but toward what objective? This week, Russian Foreign Minister Sergei Lavrov was dispatched to Iran for a "surprise" visit (Russia loves surprises this year - Rice and Gates certainly weren't expecting the "missiles on the moon" lecture), for a meeting with President Mahmoud Ahmadinejad and Foreign Minister Manouchehr Mottaki to discuss the nuclear issue. In public comments, Lavrov stuck to the official line: Russia sees no evidence that Iran wants to build nuclear weapons, and is passionately opposed to sanctions as a way to address the crisis.

The Iranians, on their behalf, seemed to have crafted their response with a Clinton-esque precision according to U.S. opinion polls. General Mohammad Ali Jafari, speaking before a government organized parade, and identifying the United States by name, said that "If enemies prove to be naïve enough to invade Iran, they will be slapped hard. ... Enemy knows that if it attacks Iran, it will certainly get stuck in a quagmire deeper than Iraq and Afghanistan and will be defeated." It doesn't take a pollster to tell you that "quagmire" is the last word American voters want to hear.

So what do the Russians want to happen here? They often say they are committed to a "peaceful solution" to the Iran nuclear question, but so far no one has put forth suggestions of what this would look like. During Putin's visit, he lashed out at United States aggression, yet refused to speed things up at Bushehr nuclear power plant. Although Lavrov used his visit to Iran to remind the international community that sanctions are the wrong way to go, he did apparently say he wanted the Iranians to continue cooperating closely with the IAEA. Iran may be delighted to have such great friends in front of the press, but privately they probably harbor frustrations over their lover's fear of commitment.

There are other reports that Russia may actually be pressuring Iran behind closed doors, while basking in some delightfully popular America bashing before the television cameras - it is election season after after all. Writing in U.S. News and World Report, Thomas Omestad argues that "Moscow appears to be trying to reformulate its role into that of a mediator or go-between of sorts in the stalemate over Iran's nuclear programs. Such a role could, at times, appear outwardly accommodating, even flattering, to Tehran while it injects quieter pressures of its own on Iran to change course."

Andrew Kuchins has a new interview over at CFR in which he argues that the Russians are actually "working very hard" to convince the Iranians to reach a compromise on the nuclear issue. He said, "My sense is that he was fully briefed on the U.S. and German positions on Iran and, I don’t know precisely what he carried to Khamenei, but I do agree that it’s very significant he met with him. I think the reporting on that trip, as well as the Rice and Gates trip to Moscow, which was so negative and critical, got it wrong. The Russians are really quite close to us on Iran and they are almost as fed up with the failure of the Iranians to be more compliant with the United Nations and the International Atomic Energy Agency (IAEA) on their nuclear program."

So if the Russians actually reluctantly share some mutual geopolitical interests with the United States and Europe in the Middle East, then why run interference? Largely, it is much more about securing a outcome separate from the Iran issue.

Stratfor gets it partly right, in arguing that Putin's historic visit to Iran was largely responsible for a very slight thaw in the Iran-U.S. relationship, when Foreign Minister Mottaki went to Baghdad and said he would consider positive talks with the Americans: "Moscow has been using its warming relationship with Iran as a tool to negotiate with Washington over concessions concerning ballistic missile defense and the Conventional Armed Forces in Europe Treaty. ... Part of Russia's negotiating strategy with the United States involves demonstrating it has enough sway with the Iranians to push Tehran into cooperating with the West on its nuclear program."

Consider the incongruity of what we know so far: 1) Moscow definitely does not want the regional instability posed by Iran possessing nuclear weapons, 2) Moscow must prevent at all costs a U.S. invasion of Iran, which would give them a foothold on the Caspian, 3) Russia is looking to leverage Iran to achieve a different outcome on the proposed missile shield, and 3) we know that for the Kremlin, there is no better situation than the status quo - the last thing they want is peace between the United States and Iran, and a functioning and cooperative alliance to build between them.

Take for example the situation at South Pars, the massive natural gas field which is currently mired in political difficulties. Just yesterday Ali Vakili, managing director of the Pars Oil and Gas Company, announced that Iran is ready to push forward and solve outstanding problems with global energy companies such as Total, Royal Dutch Shell, and Repsol on LNG deals. As the American companies remain forbidden by law to invest in Iranian energy, emerging market companies are lining up. The FT reports the following:

Talks had started with Russia’s Gazprom, which was “very interested” in two or three phases of South Pars, while Turkish Petroleum Corp was planning to come in November “for serious talks”. A contract with China’s CNOOC on development of the offshore North Pars gas field was being “finalised”, said Mr Vakili, who declined to give details.

I'll be the first to agree that Russia's adventures in the Middle East go far beyond the simple analysis that they are "intent" on re-asserting their role as a major global power in virtually all areas (insert your preferred think tank line here - so many phrase it in identical ways). There may very well indeed be a "major deal" in the works by the Kremlin, tying in their influence over Iran in Iraq, the U.S. missile shield, and large stakes in their biggest potential natural gas competitor. This deal, I might dare to suggest with little evidence, could result in Russia gaining a much larger role in jointly developing the missile shield while at the same time securing a tight control over South Pars for Gazprom. There is already talk of an "innovative proposal" set forth by Vladimir Putin to the Iranians on the nuclear issue (perhaps it would be for several Russian-operated nuclear power plants, or some other third way out to get the UN off their backs) but it is far too early to speculate on what this could mean.

With so many different pieces on the chessboard, the options are numerous. What is certain is that Russia will be comfortable to ride the fence for as long as possible, because they are one of the only parties to benefit from the status quo.

Below is an exclusive translation of an important article by Vladimir Milov published in Vedomosti today.

The Legal Results

By Vladimir Milov

Vedomosti, October 31, 2007

One of the important results of the Putin’s presidency is a menacing degradation of legal institutions in Russia, a total loss of any role that law has had in the life of the Russian society. It may sound strange, since Putin and many people from his entourage have a legal educational background and are fond of showing it off. As a colleague from the Council of Europe once told me, “I think Putin is at heart a legalist, since he has an education in law”.

The fact that the leaders of a country have legal educational background does not guaranty that they would be adherents to law. As Putin put it in his first address to the Federal Assembly in 2000, “We insist on the single type of dictatorship – the dictatorship of law”. In his 2002 parliamentary address, he also named “Maturing of the rule of law” as one of his principle aims.

After several years, the phrases related to the creation of the rule of law and the dictatorship of law have disappeared from the official lexicon. The YUKOS case has become the apotheosis of the destruction and discrediting of the Russian legal system. The case has launched the odious “tax terror”, (which, in practice, is based on a replacement of the presumption of a lawful conduct of a taxpayer with the presumption of guilt). The case also showed full dependency of the courts on the executive. As soon as YUKOS assets passed from one owner to the other, the courts at once reconsidered their previous decisions on “tax debts”.

The judicial reform is a total failure. Russia has gained a dubious leadership as far as the number of application to the Strasburg human rights court is concerned. Note that the Russian State has lost to its own citizens more than 90% of cases there.

The role of legal rules as such in the life of the Russian society has diminished. Dependence of judiciary has allowed to interpret vague laws in the interests of the executive. The newly created pro-president majority in the State Duma afforded unlimited possibilities to change laws at whim according to current needs. Laws have lost their fundamental systemic role in favor of informal arrangements. A special law limiting access of foreign investors to strategic areas of economy has still not been adopted. Despite this fact, the authorities have been limiting the foreign access at will. They simply do not need the law, since in reality informal mechanisms determine everything.

It is not that Russia just failed to create a rule of law state. During the Putin presidency, informal institutions totally triumphed over legal ones. In general, the doubts as to constitutionality of Putin’s activities, in my mind, concentrate on his attempt to liquidate the fundamental constitutional principle of division of powers – through liquidation of independence of the parliament and the judiciary. This constitutes a far more serious violation of the letter and the spirit of the Constitution then, for instance, the liquidation of the direct elections of regional governors or a possible prolongation of Putin’s presidential term.

Rarely do we see Moscow's message communicated so clearly as in the article below: Treat us well while you are in office, and we will reward you handsomely in retirement.

Financial Times:

Observer: Table for four: Putin hosts the exes

Published: October 31 2007

Vladimir Putin, Russia's action man, who likes to break new ground at home and abroad, is also the sort to foster old friendships.

Shortly after revealing the machinations that would allow him to hang on to power when his second term as president expires next March, Putin celebrated by holding a private dinner in St Petersburg for three buddies with experience of life after office. France's Jacques Chirac, Germany's Gerhard Schröder and Italy's Silvio Berlusconi shared fireside notes.

The trio are out of office but far from idle. Berlusconi is working hard to get back in as soon as possible. (A frequent visitor to Russia, Italy's wealthiest man was last seen in St Petersburg with actor Jean-Claude Van Damme watching a kick-boxing match just hours after police had clubbed opposition activists marching in Moscow).

Schröder chairs the board of Nord Stream, a lucrative number he lined up while in office, involving the piping of Russian gas under the Baltic straight to Germany. Meanwhile the French ex is busy raising money for the Chirac foundation "for sustainable development and dialogue between cultures".

Representatives confirmed the mid-October dinner but would not comment further. Observer's contacts in the energy world suggested Putin was seeking advice on how the Kremlin should respond to the new order of power in Europe, particularly to EU deliberations over curbing access to its markets by Russia's Gazprom.

Hobbies were almost certainly not discussed.

Oil futures could soon be changing hands at $100 and over

Oil prices are set to top $100 as speculators continue to drive prices higher, say analysts and industry figures.

Daniel Yergin is the latest energy expert to warn that oil prices could exceed $100 a barrel. Chairman of Cambridge Energy Research Associates, a consultancy, Yergin claims prices are being defined less and less by objective assessments of supply and demand and increasingly by concerns about possible supply disruptions.

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These could be trading at $100 or over quite soon

“What we're seeing in the oil market today is rooted more in the cauldrons of geopolitics and the impact of financial markets, expectations, and psychology, than in supply and demand," he told a conference on Russian energy in Washington this week: tougher rhetoric over Iran's nuclear programme and heightened tension between Turkey and Iraq are taking their toll on market sentiment. Oil, he claims, may be “only one or two events away from $100-plus oil”. A weakening dollar is not helping stem the slide.

An economic slow-down would, of course, make a difference – undermining oil demand and taking the heat out of the oil market. But that won’t happen in time to offset the bullish effects of present political developments in the Middle East.

Yergin is not alone. Clarence Cazalot, chief executive of Marathon Oil, a US oil company, made similar comments this week, blaming recent oil-price inflation on speculators. Cazalot believes that $100 oil would not be justified in terms of supply and demand fundamentals, suggesting a $55-60 a barrel is a more reasonable level. Last week, Peter Voser, Royal Dutch Shell’s chief financial officer, was quoted as saying that oil prices were being driven by speculation and political tension, as opposed to supply shortages.

But even though the fundamentals may not warrant it, many analysts – including Kevin Norrish of Barclays Capital -- fear oil futures may have built up unstoppable momentum in the drive towards $100. Stephen Schork, publisher of the industry newsletter the Schork Report, has agreed that $100 now looks realistic.

In any case, prices are only a few dollars off the ton. This week, US light crude futures reached a nominal all-time high of $93.20 a barrel because of renewed geopolitical tension over Iran’s nuclear programme, weakness in the US dollar and news of a big production shut-in in Mexico. Adjusting for inflation, oil prices are now at their highest level since the early 1980s, albeit still shy of the equivalent of about $100-$110 a barrel in today’s money reached in late 1979 after the Iranian revolution.

One way to cool prices down would be to increase supply and Opec officials have indicated that the organisation will use its spare capacity of 3.5 million barrels a day if the market needs it. But Opec -- whose supply increase of 0.5 million barrels a day from 1 November has not had the desired effect on prices -- does not believe that more crude oil is the solution. It continues to blame price rises on speculators, refinery bottlenecks, seasonal maintenance work and geopolitics.

That, though, is a self-interested spin on the situation, some commentators suggest. The Centre for Global Energy Studies (CGES) says the cartel could ease prices by increasing oil supply and offering refiners bigger discounts on its heavy crudes. Opec, argues CGES, seems prepared to blame high oil prices on “almost everything except its own output policy”.

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Russian President Vladimir Putin hugs Russian Orthodox Patriarch Alexy II while visiting Butovo, a site south of Moscow, Tuesday, Oct. 30, 2007. The Butovo firing range was used for executions from 1930 until after Stalin's death in 1953. Some 20,000 people, including priests and artists, were killed there in 1937-38 alone. (AP Photo/Mikhail Metzel, Pool)

Recent demonstrations calling for Vladimir Putin to stand for an illegal third term “were not entirely an expression of free will,” as reportedly “hundreds of students and state railway workers were ordered to attend demonstrations.” United Russia’s refusal to engage in televised debates with other rival parties ahead of the December elections “robs the Communists of their only viable counterpart.” A spokesman for United Russia said, “We are indeed not going to participate in the debates, and we intend to use the time allotted by the law for explaining the main thing to the voters -- Putin's Plan.” The Central Elections Commission plans to increase voter turnout by facilitating the homeless vote. The State Duma has begun sending out invitations to international observers to monitor the upcoming elections less than five weeks before the Dec. 2 elections. The lateness of the invitations has “raised uncertainty among observers, who said any delay made their work more difficult.” Putin has paid tribute to victims of Soviet-era repression, visiting a firing range in Butovo where more than 20,000 people were killed during Stalin’s terror. He used the opportunity to call for political pluralism. “Political disputes, battles and a struggle between opinions are necessary, but this process should be creative rather than destructive.” Grigory Yavlinsky, the leader of the liberal opposition Yabloko party, commented: "When he takes Stalin out of Red Square, then we'll have something to talk about." Putin’s live question-and-answer session earlier this month was mainly about “military rearmament and the country's accession to the WTO; in some respects, the two goals contradict each other.”

Gazprom’s biggest minority holder, the German company E.On, has pressed for changes in procedures for overseas sales. E.On’s proposal has received “no comment” from Gazprom. Unified Energy System aims to raise at least $40 billion from share sales in units by next summer as the state passes power generation into the hands of investors. Troika Dialog has agreed to buy a 7.9% stake in Ursa Bank, one of the country's largest regional lenders. JW Construction, Poland's largest homebuilder, will expand its operations in Russia by investing $23 million in two projects in Sochi. Profits at Russia's largest state-controlled crude producer Rosneft have increased almost 20% in 2007. Sberbank, Russia's largest bank, aims to raise about $1-1.5 billion through the listing of its Global Depositary Receipts on the London stock market next year. Diversified company Sistema, which is largely funded by Russia’s mobile phone operator Mobile TeleSystems, intends to invest $100 million a year for the next four years in expanding its healthcare services. Metals giant RusAl has completed the final phase of a project to build an aluminum plant in south Siberia.

The United States expects to complete a program of security improvements for Russia’s network of strategic nuclear rocket forces this week. The improvements intend to ensure that none of Russia’s nuclear materials fall out of government control. Georgetown University has hosted a conference dedicated to the economy and geopolitics of Russia’s power industry, with a view to determining how US-Russia relations would be affected should Russia turn into an energy superpower. The most unfavorable scenario, the participants of the conference concluded, would be “Russia’s emergence as the second Saudi Arabia.” Iranian President Mahhmoud Ahmadinejad, speaking hours before he was due to meet Foreign Minister Sergei Lavrov in Tehran, said his country would not back down on its nuclear stance. Lavrov said, “We will firmly stick to the resolutions of the UN Security Council” regarding settlement of the issue. During the meeting, he urged Iran to continue working with the International Atomic Energy Agency, the United Nations nuclear watchdog, and to “do it as actively as possible, to clarify all questions that the international community has regarding Iran’s previous nuclear program.” Other sources say that Iran has accepted Russian proposals and is ready to work with Moscow on the details on implementing them. A spokesman for Ahmadinejad quoted the president as saying: "The Islamic Republic of Iran has serious plans to develop cooperation with Russia." Kazakhstan and Russia intend to intensify cooperation on fuel and energy projects. Russia could sign an agreement with India this month to build another four power units for the Kudankulam nuclear power plant.

The British government has refused a parliamentary request for it to publish two official reports about the activities of Russian billionaire Alisher Usmanov. At least seven people have been killed in what is being called a terrorist explosion on a bus in the southern Russian city of Togliatti.

There's an entertaining article on Slate today about the return of price controls in Russia and elsewhere. Surely everyone else already read our interview on this subject with economist Craig Pirrong?

Slate:

Exhibit B: Russia. When you have the visible hand of a former KGB-nik running the government, who needs Adam Smith's invisible hand? As the New York Times noted last week, food prices have been on a tear in Russia. With elections approaching, Vladimir Putin decided pricey potatoes and pierogies just wouldn't do. The solution: Soviet-style price controls. As the Financial Times reported last week: "The country's biggest food retailers and producers have reached an agreement, expected to be signed with the Russian government on Wednesday, to freeze prices at October 15 levels on selected types of bread, cheese, milk, eggs and vegetable oil until the end of the year." According to the New York Times, a "statement on the Web site of the Agriculture Ministry said the producers had signed the agreement 'at their own initiative.' " (Where's Yakov Smirnoff when you need him? In Branson, Mo.—Ed.)

Daniel Gross doesn't appear to know much about Russia. It's all about vareniki, not pierogi, and that Yakoff Smirnoff call is a real reach. But that's Slate for you.

From a column by Alexendros Petersen of CSIS in the Wall Street Journal:

The third combustible state may at first seem surprising, but it presents the greatest threat to U.S. strategic interests in the long term. According to the conventional view, Russian President Vladimir Putin's growing authoritarian grip has brought stability and prosperity -- hence his sky-high approval ratings -- even as vast sections of the economy are effectively nationalized and the opposition and media are quashed. These developments create a stable, if overly confident Russia in the short term. But they are also a sign of Russia's underlying combustibility.

More than any other country in the world, Russia faces a long-term demographic crisis: The population of ethnic Russians declines by more than one million every year. Meanwhile, the number of Muslims in Russia, from the Caucasus, Central Asia and the Middle East, is surging through immigration and high birth rates. The response of many Russians is racist nationalism, in many cases encouraged by the state. The respected human rights group Memorial has linked Kremlin-supported youth group Nashi, which runs summer camps where white, Orthodox, ethnic Russians are encouraged to breed, to numerous hate crimes.

As ethnic and religious minorities become majorities in a number of key neighborhoods, districts and towns, a counter-nationalist backlash brews. President Putin and his possible successors know this, and the strengthening of central power is part of a bid to prevent the biggest potential combustion of all: the Balkanization of Russia's over 160 ethnic groups. Yet their clamp down could also exacerbate the tension. Local government restrictions, limiting the number of Muslim vendors at outdoor markets, for example, only serve to deepen minority frustration. Such an explosion in Eurasia would have profound implications for U.S. and European energy security, transnational crime and migration flows across the continent, not to mention the fate of Russia's poorly secured stockpiles of nuclear materials.

The Bush administration's wariness of failed states is justified, but combustible countries that could destabilize entire regions through their inbuilt instability should be the priority.

Here is an interview with Stratfor's George Friedman on Fox News. No shortage of controversial material here for debate - especially given the strong editorial line taken by Bill O'Reilly, who is able to make the most outspoken guest look reserved.

Isn't it great when you can get a third party to endorse your interests for you? That's exactly what Russia's Gazprom has been perfecting in recent years by creating tight relationships with key national champions such as BP, Total, E.ON, ENI and Enel. Now it's starting to pay off.

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Fulvio Conti, CEO of Enel

Remember Fulvio Conti? The successful CEO of Italian energy company Enel? Enel has worked very hard to get into the good graces of Putin's Kremlin, including participation in the infamously contested Yukos auctions. Despite ample warning, Enel, along with ENI, became one of the first foreign owners of stolen Yukos assets - buying a 20% stake in Gazprom Neft formerly owned by Mikhail Khodorkovsky's destroyed company. Although they denied that they were acting as a proxy for the Russians to launder the assets, Gazprom has already exercised its call option (much earlier than expected) to take back these properties at a knockdown price, according to reports.

Fulvio Conti and Enel were handsomely rewarded for this assistance. It was recently announced that the company would raise its stake in OGK-5 to 37%, becoming the first foreign owner of an electricity generator in Russia. Perhaps as a way of saying thank you, Mr. Conti took time in his interview with the FT to push for Russia's right to control both supply and distribution assets in Europe - which goes up against Neelie Kroes's unbundling proposal:

“The Russians are asking for reciprocity,” Mr Conti said in an interview in his Rome headquarters. “They want a piece of the European downstream market, saying ‘we own and transport the gas, why can’t we be part of the action?’ ”

Enel, which has grown into Europe’s third largest utility by market capitalisation through diversification of markets and energy sources, has been a beneficiary of the calls for reciprocity. Italy last year signed off on a deal to give Gazprom access to Italy’s end users. In return analysts say Italy’s Eni and Enel landed stakes in Gazpromneft, Gazprom’s oil arm, and in two gas fields in the bankruptcy auction of Yukos assets.

Should we really be so surprised? This is the same person who obeyed Kremlin orders to cancel his own speaking engagement at the Russia Economic Forum in London, because Moscow preferred to shift the venue of such business conferences back to Russia.

Certainly there are some in the energy business motivated to defend Russia's energy agenda in Europe out of fear and intimidation. As Jonathan Stern, head of gas research at the Oxford Institute for Energy Studies, warns, "If the EU requires Gazprom to sell assets in Europe because of reciprocity, I have a real concern for European asset holders in Russia."

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Teenagers cheer at rally of the pro-Kremlin youth group Young Guard outside Red Square in the center of Moscow, 03 October 2007. (AFP/File/Dmitry Kostyukov)

The forthcoming State Duma elections, to be held on December 2nd, “are not about political parties. [...] Rather, the elections will be a referendum on President Vladimir Putin's future.” Further measures are being taken to combat inflation, with the government planning to slash an import tariff on soy oil, sunflower oil and rapeseed oil for six months. Is Putin’s popularity with voters due to the success of his “personality cult”? What exactly is “Putin’s Plan”? Information released yesterday about Putin’s salary has surprised some journalists. “Low salaries among officials are often cited as one of the main reasons for the corruption endemic in Russia.” The authorities are reportedly cracking down on debtors, “barring thousands of people from leaving the country” who had not fulfilled court orders to repay debts, according to the Federal Court Marshals Service. Russia’s focus is switching from oil and natural gas to nuclear energy, with Rosatom, the Federal Atomic Energy Agency, calling for a significant increase in the share of nuclear power in electricity generation.

The Russian economy is to become the fifth-biggest in the world by 2010, according to Deutsche Bank. TNK-BP is seeking to buy Moscow and St. Petersburg filling stations to increase control over its retail business and expand in the capital city. The joint venture will spend $500 million over five years in the country. Russia’s United Energy Systems has held an EGM unanimously approving the company’s reorganization ahead of its liquidation next year, saving the company the cost of having to buy out minority holders. Hyperion Resources of the US has urged Russia’s Tatneft to develop joint projects in Iraq. Russia will grant any country in the world the use of an international uranium enrichment center currently being constructed in east Siberia, says the Russian ambassador to the UN. Igor Scherbak, Russia’s UN representative, has opposed plans for a UN budget increase, saying that a significant increase on the previous budget was a “cause for concern”. Putin has announced that Moscow will sign a long-delayed pact to phase out fees charged to airlines flying over Siberia by 2013.

Foreign minister Sergei Lavrov is due to hold talks with Iranian President Mahmoud Ahmadinejad in Tehran today. "A number of issues connected to the situation around Iran's nuclear program, and a number of questions of bilateral cooperation, will be discussed," Lavrov said. Putin’s comparison of US plans to build a missile shield in Eastern Europe with the Cuban missile crisis is “surprising [...]. Putin drew this inappropriate analogy at the exact moment when Washington was making clear steps toward finding a compromise with Moscow.” The US “is prepared” to offer concessions over the Conventional Armed Forces in Europe Treaty to try and persuade Russia to “soften its positions on Kosovo and Iran”. Both Russia and the European Union are said to be ready to make concessions to improve energy relations. A new-generation fighter plane, currently being jointly developed with India, will be ready no later than 2012. Russian and US military experts have begun a two-day command-and-post exercise to practice joint peacekeeping operations. An official for Rosboronexport, the state arms exporting agency, has said that Russia’s weapon sales agreements with Venezuela, currently worth $4 billion, could double or treble in the next few years. Russia has sent two aid trucks to Palestine, and has attacked Israeli sanctions against the Gaza Strip. "The isolation and the reprisals which affect the most basic needs of the civilian population have little chance of being a method for fighting extremism.”

Fed up with excessive and often imprecise criticism of Russia on democracy and human rights, President Vladimir Putin announced that he is setting up an NGO in the heart of Europe to monitor them on rights and civil society issues.

Sergei Markov told the Moscow Times that this institute would be dedicated toward raising awareness of the discrimination faced by ethnic Russians in former Soviet countries like Estonia and Latvia. (This is a legitimate problem, by the way.) Markov said "The European Union sadly closes its eyes on this."

If the Russians were looking to call a bluff, it didn't work. The Europeans reacted quite warmly to the idea. The best twist of this article:

Daniel Cohn-Bendit, co-president of the Greens in the European Parliament, said he welcomed a Russian human rights office in Brussels, if only an office with similar powers could be set up in Russia.

"Let them both have totally free access to prisons and let us set up annual joint meetings to discuss the situation," he said in a telephone interview Sunday, referring to the fact that human rights organizations have been denied access to see former Yukos executive Mikhail Khodorkovsky in his Siberian labor camp.

Will Russia go for the mutual back-scratch and set up two human rights monitoring groups - one in Brussels and one in Moscow? Let's hope so.

Below is a newsclip from EUX.TV reporting on Vladimir Putin's trip to Portugal to meet with representatives from the European Union.

Why would Germany and Russia want to pay twice the cost to route the Nord Stream gas pipeline underwater rather than overland? Politics, of course.

A few weeks after Estonia denied Russia the right to surveys in Estonian waters for the pipeline project, Foreign Minister Urmas Paet asked some tough questions in an interview with Helsingin Sanomat:

Paet has a number of questions concerning the pipeline project. "Why didn't Nordstream want to investigate a real alternative - the overland option? Why do they want a pipeline which could affect the Baltic in an unpredictable manner?"

There are already several pipelines running overland from Russia to Europe, and Paet points out that it would be possible to build a new one to run parallel with the existing pipelines.

The prevailing view in Estonia is that the only reason why the pipeline has been planned to run underwater is to avoid cooperation with certain European countries, such as Poland, Lithuania, and the other Baltic states.

Paet is also critical of the manner in which the pipeline was planned for many years.

"Routing plans were made for so long among few states. The Baltic countries and Poland were kept outside the negotiations for a long time, even though they are coastal states on the Baltic Sea."

Russia's announcement that it plans to use its naval forces to secure the construction of the pipeline is what really turned public opinion in Estonia against the pipeline.

Paet notes that the Russian Navy can move freely in the area in any case, and asks: "Why did Russia have to make such an announcement? Why did the economic project have to be tied down militarily and politically?"

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Russia's President Vladimir Putin is reflected on a glass panel at the Lisbon Oceanareum during his visit October 26, 2007. REUTERS/Pedro Santa Barbara/Lisbon Oceanarium

The Central Election Commission has completed the registration of federal lists of candidates from political parties at the forthcoming elections – eleven parties will run for the State Duma. Three parties, including the Party of Peace and Unity, will appeal their exclusion from the elections in the Supreme Court. President Vladimir Putin is now an official election candidate. The leader has released details of his income as part of the election run-up. Vice Premier Alexei Kudrin has unveiled new data on the “appallingly high” surge in inflation. State grain interventions have begun in order to stabilize farm produce prices.

Putin told leaders at Friday’s European Union-Russia summit that he was planning to set up a think tank for freedom and democracy. The proposal caused some consternation when Sergei Yastrzhembsky, Putin's senior aide, said that the Europeans would not be allowed to play any role in the institution. “This is not going to be a joint venture.” One European official called the move a “fairly predictable Putin ploy.” At the summit, Putin denounced proposals from Brussels that could prevent gas monopoly Gazprom from buying up power grids and pipelines while the 27-nation bloc revamps its gas and electricity markets. "When we hear from some European capitals that 'the Russians are coming with their horrible money to buy everything,' that makes me laugh," he said. He also drew a parallel between US plans for a missile shield in Central Europe and the Cuban missile crisis in 1962. “Threats to our country are being created on our borders,” he said. Senate Armed Services Committee Chairman Carl Levin believes that Russia does not want Iran to have a nuclear weapon and will support global efforts to convince Tehran to end its nuclear research, and Russia has made a joint declaration with the US urging all countries to destroy medium range nuclear-capable missiles. "We believe that renunciation of ground-launched intermediate- and shorter-range missiles and their complete elimination in the world would increase the role of the treaty as a model for strengthening international security." Russian-Kazakh relations makes a stabilizing contribution to the regional and global security, according to Russian Foreign Minister Sergei Lavrov. Russia test-launched an intercontinental ballistic missile from the Kazakhstan Baikonur station this morning, and has begun large-scale military exercises in the Far East to practice interoperability between troops. Funds that lack transparency are “causing alarm” in the West. “Since the Russian state has already chalked up quite a record for using Gazprom as an instrument of Russian foreign policy, the Russian Oil Stability Fund can never be trusted to act as a normal, profit-driven investor.”

Capital flows into Russia have resumed and stand at $6 billion over the last month and at $60 billion for the year to date, said Finance Minister Alexei Kudrin. "We have secured the financial stability of our economy." Gazprom CEO Alexei Miller has been elected chairman of the board of Gazprom-Media, adding to his current responsibilities as chairman of both Gazprombank and Gazprom Neft. There is “no competition” in Russia’s gasoline market. The plan to divide the businesses of Vladimir Potanin and Mikhail Prokhorov by separating EnergoPolus and Norilsk Nickel could face problems as Prokhorov’s ONEXIM Group may vote against the reorganization. Joint venture TNK-BP has signed an oil exploration agreement with Venezuela for the Orinoco oil belt. Russia's largest steel company, Severstal, has “turned up the heat” on Celtic Resources, its bid target, publishing an offer document that seeks to expose the gold miner’s recent "abysmal performance". Novorossiysk, Russia's biggest oil port on the Black Sea, is selling shares in Moscow and London this week at price that will value the company at as much as $4.9 billion. It is thought that Russian Railways will buy up to 20% of the shares. A new report from Standard & Poor’s says that restructuring of the Russian power generation market and moves toward deregulating power prices are likely to support credit quality in the sector.

The recent discord between two of Russia’s security agencies is claimed to be about commerce, rather than politics or prestige. “The fight is primarily over control of smuggling and money-laundering operations, and Putin is merely a referee trying to prevent one group from prevailing over the other.” Fritz Ermarth, a retired Soviet and Russian affairs expert at the CIA, says the long-term trends in Russia favor an eventual democratization. Protesters from various human rights groups attended the "March Against Hatred' rally in St Petersburg this weekend to commemorate the life and work of Nikolay Girenko who was murdered in 2004. Boris Nemtsov, a member of the federal political committee of The Union of Right Forces, has publicly accused Putin of putting his popularity above the safety of the hostages that were killed by Chechen militants at the Dubrovka theatre in 2002.

Tonight the Association of Art in Support of Civil Liberties of Paris is hosting what promises to be a wonderful performance of works by Rachmaninov, Stravinsky, Schnittke, Prokofiev, Shostakovich and others interpreted by Aurélien Pontier (piano), Liana Gourdjia (violin), Marc Coppey (cello), and Alexandra Grot (flute) at the Adyar Concert Hall. The concert, which is dedicated to raising awareness of the plight of Mikhail Khodorkovsky and other political prisoners in Russia, was sold out in record time and is now waiting list only.

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Crossroads

Kenneth Weissberg, attorney at the Paris Bar, and Robert Amsterdam, attorney at the Ontario Bar, have known each other and worked together for many years.

In 1993, attending a concert in New York State at the invitation of Mr. Weissberg, Mr. Amsterdam met and became a friend and admirer of the French pianist Aurélien Pontier.
At the end of a concert in Burgundy during the summer of 2007, Robert Amsterdam talked with Aurélien Pontier and Kenneth Weissberg about civil liberties issues he faces in his legal defense of a Russian citizen.

Aurélien Pontier, who has always felt an attachment to Russia, offered to set up a concert in Paris featuring Russian music, dedicated to those who, paradoxically in that country of culture, suffer from a lack of liberty.

This project has triggered great enthusiasm in a circle of music lovers and musicians who value civil liberties and human rights.

The Association « Art au service des Libertés Publiques » (Art in Support of Civil Liberties) was born from this encounter. It offers to set up first-rate artistic events in France, which will bring together the talent and passion that are found in France to mobilize public opinion and express solidarity with people who lack these freedoms.

The first of these events will be a concert of Russian music at the Adyar Concert Hall, in Paris on October 29, 2007 by the quartet formed by Aurélien Pontier with the French cellist Marc Coppey and two talented Russian musicians: the violinist Liana Gourdjia and the flutist Alexandra Grot.

These two musicians are coming from the United States and Germany to meet the Parisian public and offer the pleasures of Russian music in support of the civil liberties of Russian citizens.

Admission to the concert will be free, and there will be an opportunity to join the Association « Art au service des Libertés publiques ».

In Shankar Vedantam's column in the Washington Post today, he opens up a discussion of how the U.S. effort to build democracy in Iraq has been fundamentally flawed for its failure to engage the dynamic of social capital, and harness the cohesive power of networks and relationships among important community stakeholders.

Social capital, which traces its origins back to French sociologist Pierre Bourdieu in the 1970s, is not exactly a new nor fashionable academic trend, but it is seeing a bit of a revival thanks to a new study by Anirudh Krishna in the Journal of Politics which argues that such a phenomenon can be measured.

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According to Vedantam's interview with political scientist Robert Putnam, the social capital guru, top-down models of governance and resource allocation run counter to everything known about how social capital grows. Putnam argues that "People tend to obey the rules not because they are worried about cops but because they have obligations to other people." For example, "In the U.S., tax compliance is powerfully predicted by the level of social capital in a community."

For this reason, it is stated later in Vedantam's column, Putnam long ago predicted that democracy is "unlikely to flourish" in Russia, for its low levels of social capital.

Is such a broad generalization of Russia's "fertility" for democracy really merited? Or have the well intentioned proponents of community-driven development accidentally cornered themselves into committing to cultural determinism? It would certainly be insulting to the followers of the great democratic traditions of Andrei Sakharov and other brave individuals to say that Russians simply like their czars and somehow lack the social capacity for open societies - however this contention bears remarkable resemblance to the arguments of sovereign democracy.

Christopher Marsh of Baylor University published a study in 2002 on social capital and grassroots democracy in Russia which noted the importance of the impact of individuals above the structural issues: "Individuals not only lead a country to democratize, they also affect the process of democratic consolidation. As the analysis of the gubernatorial elections made clear, the development of grassroots democracy across Russia is largely affected by individuals and elites, not just underlying structural issues. As Huntington points out, the chances of whether a democracy will fail or consolidate "depends primarily on the extent to which political leaders wish to maintain it and are willing to pay the costs of doing so instead of giving priority to other goals." Although those factors may defy quantification, this should not lead us to discount their significance."

So what is the role and impact of social capital in Russia's upcoming elections? Is Putinism causing a deficit in social capital? I do wonder, if we took Anirudh Krishna's measurement technique, and asked ordinary Russians whether they would rather own 15 acres of land alone, or 40 acres in partnership with another person, what kind of results would we see?

I put forward a lot of questions here and few answers - I'd be delighted to hear your thoughts.

Kim Zigfeld has a column up on Pajamas Media exploring the issue of Mikhail Khodorkovsky as a political prisoner - taking the discussion beyond the lawyer arguments commonly found on this blog:

Allegations that the Kremlin jailed Khodorokovsky to keep him from contesting for the presidency have been widely reported. A Google search for his name yields a quarter million hits, including hundreds of articles condemning his mistreatment. But then, criminals always protest their innocence, right?

Those who would defend the Kremlin’s prosecution of Khodorkovsky as an effort to struggle against Russia’s pandemic problem of corruption have received two rather jolting wakeup calls recently.

First, in late August, the Supreme Court of Switzerland rejected a petition by Russian prosecutors seeking the release of bank documents relating to YUKOS executives — ostensibly for purposes of finalizing its liquidation but undoubtedly also in an effort to gather more evidence against Khodorkovsky, who faces a second round of charges and trial. The Kremlin has not been satisfied to merely jail Khodorkovsy and liquidate his firm, but has gone after many members of his executive team as well (this has even included Svetlana Bakhmina, the mother of two who served as YUKOS in-house counsel). The Swiss tribunal ruled that there were “concrete facts that lead to the inference that [Khodorkovsky] is under pursuit for hidden motives, notably in relation to his political opinions” and it refused to participate in what it saw as a fundamentally corrupt process.

Then last week, the European Court for Human Rights ruled that the Kremlin’s prosecution of Khodorkovsky’s right-hand man, Platon Lebedev, violated international human rights laws, and awarded him thousands of dollars in damages and legal fees. The ECHR determined that Lebedev had been held illegally without charges or bail, that he had been denied access to his attorney, that his attorney had been denied access to court proceedings, and that his appeal process had been obstructed. In a press release, Lebedev’s defense team stated: “It should be noted that this is only the first of several applications brought to the European Court by Mr. Lebedev, by Mr. Lebedev’s business partner and close friend Mikhail Khodorkovsky, and by YUKOS itself. While this petition dealt only with issues related to Mr. Lebedev’s pre-trial incarceration, other applications ask the ECHR to rule on the fairness of Mr. Lebedev’s trial and the political nature of the charges brought against him and Mr. Khodorkovsky.”

Read the complete column here.

Remember back when a group of artists demanded that Putin remain in office, claiming to represent the entire cultural community? Here comes the blowback. Echo Moskvy, the last free voice on Russia’s airwaves, reported the following at 22:03 on 25 October 2007:

Russian cultural figures are indignant at an appeal to the president of the RF with a request that he remain for a third term written in their name. They have expressed their position in an open letter to Vladimir Putin, which has come into the possession of the radio station «Echo Moskvy». “Nobody gave Nikita Mikhalkov, Zurab Tsereteli, and the others who signed this appeal the right to represent the entire community of cultural figures”, is noted in the letter. “That they have allowed themselves this is a revolting fact, and indeed just indecent such an appeal casts a shadow not only on those who signed it, but also on you as the president, during the years of whose rule many manifestations of the cult of any Kremlin potentate, so characteristic of soviet times, have unfortunately been restored”, the authors of the letter declared. “But what is more important is that very many people of science and art, and we among them, are convinced that you should not remain head of state under any pretext at all, should not build up devious combinations for the sake of this – this demeans Russia and its citizens.” Among those signing the letter are literary historian Marietta Chudakova, the actors Oleg Basilashvili and Sergey Yursky, the artist Yuri Avvakumov, and the dramatist Alexander Gelman. The gathering of signatures under the appeal continues.

This is also coverage of this story in the Mexican newspaper La Jornada.

Please visit the new website of the Committee to Free Mikhail B. Khodorkovsky and Platon Lebedev, where you can express your support by signing an open letter, see a video and other multimedia, and leave a message.

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This week we interviewed Craig Pirrong for his perspective on Russia's decision to freeze food prices until after the elections. The new Economist is carrying an article on the news as well:

According to a recent poll, almost half of Russia's population believes that food-price increases are the result of a conspiracy between producers and speculators, rather than any global trends. The punishment of supposedly unscrupulous businessmen who profit from people's misfortunes will probably be the next step.

But the price-fixing show is also an alarming symptom of the governing elite's belief in its total administrative power. The Kremlin is so used to being in charge that it feels the best response to rising prices is to tell them to stand still, argues Andrei Illarionov, a former adviser and now a fierce critic of Mr Putin. But such mighty commands will do nothing to solve the structural problems of Russia's economy, including the weakness of the farm sector and the banking system.

Below are the first two parts of the compelling documentary by British station Channel Four, investigating the death of Anna Politkovskaya.

I apologize for my relative absence from the blog over the past couple of days. I have just come to the end of an extremely busy week in Europe, where there has been a noticeable groundswell of support on several of the issues I advocate for in Russia.

In Germany on Wednesday, I appeared on ZDF Morgenmagazin (which can be watched here), and had the opportunity to meet with various political stakeholders to discuss Russia affairs and the Khodorkovsky case. In France, lots of attention is shifting toward Moscow as well, after the publication in Le Monde of what I think is one of the more important articles about this case. André Glucksmann, a French philosopher and frequent political commentator, wrote an impassioned plea entitled "Sakharov-Khodorkovsky: Same Cause" which comments on the media, political, and economic verticals of power that Khodorkovsky challenged and human rights in general. The article is causing quite a furor among commentators here, which has lead to additional coverage and commentary in Le Figaro and other newspapers.

Glucksmann writes: "When threatened, Mikhail Khodorkovsky did not flee. He chose to defend himself in Russia. We underestimate this figure and the importance that he can have in his country. To understand, one should refer to Sakharov. I remember the remark Elena Bonner, his widow and my friend, made about a meeting in the Kremlin where the most powerful oligarchs were assembled around Putin: "When Khodorkovsky appeared, I thought that this one is too intelligent and too relaxed, courageous and reckless, and he's going to pay for it.""

There is also movement on other fronts here. For the fourth anniversary of Khodorkovsky's arrest, there has been a considerable amount of interest from European media and commentators. The judgment against Russia from the European Court of Human Rights in the Platon Lebedev case have also generated significant attention.

I suppose when people read that Khodorkovsky's parole is being denied on the basis of some bizarre technicality like not putting his arms in the right position following a walk, it becomes more and more difficult to believe the government's claim that he isn't being politically persecuted or treated unfairly.

There remains much work to do, but this is one of those weeks where it seems to me that people are beginning to get it, and that momentum is building in Europe behind human rights.

Robert Amsterdam is quoted in today's Wall Street Journal on the Platon Lebedev ruling from the ECHR.

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Russia's President Vladimir Putin and his Portuguese counterpart Anibal Cavaco Silva look at the Hermitage collection of the Russian Empire at the Ajuda palace in Lisbon October 25, 2007. REUTERS/Andre Kosters/Pool (PORTUGAL)

The Kremlin is currently involved in a diplomatic campaignto curtail the activities of election observers from the Organization for Security and Cooperation in Europe,” inviting criticism. Moscow denies that it wants to limit the activities of foreign observers. Russian First Deputy Prime Minister Dmitry Medvedev said the government has accomplished its task to connect all schools in Russia to the Internet.

Russia will develop a large new uranium field in Yakutia, East Siberia, and $722 million in federal budget funds has been allocated this year for the development of the country’s nuclear energy sector. Indian state-run gas utility GAIL and Russia’s Lukoil have formed a panel of senior executives who will explore the possibility of jointly setting up a petrochemicals plant in Russia. The Central Bank of Russia has withdrawn licenses from three banks. The International Social Bank, the Commercial Bank, and the Universal Commercial Bank Era lost their licenses to conduct banking operations over failures to comply with federal banking laws and CBR regulations. It is thought that yesterday’s decision by Gazprom to choose Norway’s StatoilHydro as its partner on the Shtokman oil field is a reflection of Russia’s abortive negotiations over the US' much-debated missile defense system in eastern Europe. Defense Secretary Robert Gates says the US has done as much as it can to appease Russia over plans to deploy the system, and “now I want to see some movement on their part.” Little progress has been made on the issue. “We cannot agree on what was offered to us and are sticking to our position," said Russian Defense Minister Anatoly Serdyukov. Putin has spoken out against the harsh new US sanctions imposed on Iran. ''Why worsen the situation by threatening sanctions and bring it to a dead end?'' Putin said. ''It's not the best way to resolve the situation by running around like a madman with a razor blade in his hand.''

A ban on imports of Polish meat into Russia could be lifted after Moscow indicated it is prepared to send inspectors back to Polish production facilities, most likely to ease tense relations in the European Union over the Russia-EU Parternship and Cooperation Agreement which is currently being vetoed by Poland. The EU-Russia summit being held in Portugal is set to be dominated by disagreements over “trade, energy, human rights and international affairs”. Europe’s current “Big Three” are “all critical of Vladimir Putin.” Economic Development and Trade Minister Elvira Nabiullina says that the EU-Russia relationship is suffering because Russia has still not been allowed to join the World Trade Organization. Brussels has refused to sign off on the WTO bid because it believes Russia has not implemented a 2004 bilateral WTO accession deal, especially by failing to cut export duties on timber. “No other country meets the EU as regularly as Russia does for high-level political dialogue.” An internal EU paper prepared ahead of the summit says that Russia is “a strategic partner in many areas of common interest, notably in the economic field, but in others – such as involvement sin the post-Soviet space – Russia is likely to remain a competitor or even opponent.”

Jailed former Yukos Oil chief executive, Mikhail Khodorkovsky, would have been eligible for parole this week, on the fourth anniversary of his detention, if he had not received a reprimand. “Ten days before it was possible for him to apply he was reprimanded for not having his hands behind his back after returning from a prison walk,” said lawyer Yuri Schmidt. Khodorkovsky’s former business parter, Platon Lebedev, has had his appeal upheld in the European Court of Human Rights. The court ruled Lebedev’s rights to liberty and security were breached during the arrest and pretrial detention and ordered Russia to pay to him €3,000 in damages and €7,000 for legal costs. “It is vital that Strasbourg court has recognized our claims, the fact that the court has actually confirmed the initial unlawfulness of Platon Lebedev’s arrest,” said lawyer Elena Liptser.

Britain's relations with Russia could worsen in light of fresh reports by a Russian newspaper that missing billionaire oligarch Mikhail Gutseriyev, former head of Russneft, has fled to the UK. Vladimir Putin denounced Britain as a haven for "criminals and terrorists" for refusing to send back Boris Berezovsky. The wife of Alexander Litvinenko has publicly urged the EU to “act against Russia”, and the New York-based Human Rights Watch have urged the EU to challenge Moscow on its “worsening” human rights record at this week’s meeting, following damning new reports on Ingushetia from Amnesty International.

The full text of the European Court of Human Rights judgment on case Lebedev vs. Russia (Application no. 4493/04) can be downloaded here.

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Courtroom sketch of Platon Lebedev by Pavel Shevelev

Earlier today the European Court of Human Rights in Strasbourg issued a ruling which found that the Russian government had violated the rights of a Yukos manager on five counts.

Below is a statement from Platon Lebedev's Defense Team:

It is symbolic that the European Court on Human Rights has issued the first of its decisions on the ECHR applications that had been filed in the Khodorkovsky/Yukos case on the fourth anniversary of Mikhail Khodorkovsky’s arrest.

Today’s decision by the European Court on Human Rights is an important victory for rule of law and human rights in Russia, and it is also important for Platon Lebedev personally. It conclusively demonstrates that the Russian authorities have been guilty---from the very beginning---of grave legal misconduct in their prosecution of Mr. Lebedev and others arrested and deprived of justice in connection with the so-called YUKOS Affair.

The scope of today’s judgment is limited to the pre-trial period, and therefore the European Court found that Mr. Lebedev’s rights under Article 5 of the European Convention on Human Rights were systematically violated by the Russian authorities literally from the very first day of his arrest and detention on July 3, 2003. Among other findings of serious misconduct by the Russian authorities, the Court found that Mr. Lebedev had been at various times illegally detained; that his lawyers were improperly denied access to the court hearing on his initial detention; and that there were serious procedural flaws involving delays in judicial reviews of appeals against the extension of his pre-trial detention.

It should be noted that this is only the first of several applications brought to the European Court by Mr. Lebedev, by Mr. Lebedev’s business partner and close friend Mikhail Khodorkovsky, and by YUKOS itself. While this petition dealt only with issues related to Mr. Lebedev’s pre-trial incarceration, other applications ask the ECHR to rule on the fairness of Mr. Lebedev’s trial and the political nature of the charges brought against him and Mr. Khodorkovsky.

We are pleased that the Russian Federation considers the decision in the Lebedev case to be of great importance, raising serious issues of significance for all of Europe, as witnessed by the announcement by the RF that it intends to appeal the decision by invoking Art. 44 of the Convention. By way of explanation, Art. 44 para 2 allows a decision to be appealed only when a serious question concerning the interpretation or application of provisions of the Convention or its Protocols, or another serious question of a general nature, is at issue.

We call on the Russian authorities to respect today’s judgment, which will have far-reaching implications, and to cease the unlawful persecution of innocent people. Fairness demands that both Mr. Lebedev and Mr. Khodorkovsky, who have now served half their sentences and whose basic rights the ECHR has found to have been systematically violated, should be freed from prison immediately and allowed to return to their families and homes in Russia, where they wish to continue to live and work, making their contribution to the economic and political future of the Russian people.

Platon Lebedev’s defence team

Robert Amsterdam was interviewed today for a short radio segment on Marketplace Morning Report for National Public Radio. The report was entitled "Working in Russia is risky business," and coincides with the fourth anniversary of Mikhail Khodorkovsky's arrest. Oleg Deripaska of Rusal and Russneft are also mentioned in the short report.

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Listen to Robert Amsterdam on Marketplace here.

TEXT OF STORY

Doug Krizner: Today is the half-way point in an eight-year prison term for Russian oligarch Mikhail Khodorkovsky. The anniversary was to have made the former oil magnet eligible for parole, but Russian prosecutors have brought new charges against him.

The case illustrates how, to do business in Russia, you've got to play by the rules of Russia's president. Geoff Brumfiel reports.

Geoff Brumfiel: The Russian government says Khodorovsky was jailed for fraud and tax evasion. But ask his lawyer, Robert Amsterdam, and you'll get this answer:

Robert Amsterdam: Khodorkovsky is in jail, in Siberia, at the risk of his life every day, because he wanted the free market to exist in Russia.

To realize that dream, Khodorkovsky bankrolled a major opposition party, and supporters say that landed him in jail. Only those who play by Putin's rules prosper.

Recently, the government let aluminum king Oleg Deripaska, a staunch loyalist, buy RussNeft, a privately-held oil company that was under Russian investigation. In the energy industry, the pressure to cosy up is enormous.

Philip Hanson, an economist at the University of Birmingham:

Philip Hanson: The bosses of companies like that almost certainly keep their lines fairly open to the Kremlin and talk about what their plans are.

He says the bosses might get a call from the Kremlin to invest in an oil field in Khazakhstan, and they'd better be ready to do it.

Khodorkovsky's case serves as a warning not to play the wrong politics.

In London, I'm Geoff Brumfiel for Marketplace.

Today our translator in Germany has provided us with another exclusive English translation of an interesting article from the newspaper Die Welt, which argues that autocrats stick up for other autocrats as a means of survival, among other insights. Over the past year we have had dozens of great translations from the German press, including “Schröder was quite often so embarrassing”, work by Hans-Martin Tillack, and a by-lined article by Robert Amsterdam.

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The original link for the following article is here, and the full text can be found on our German blog.

Europe’s Relations with Russia

Putin’s Geo-strategic Boots

By Clemens Wergin
Lead article from Die Welt, October 25, 2007

The era of rapprochement is over. At the EU-Russia Summit in Portugal on Friday, a great deal may well be said about the partnership with Russia. And the old issues of contention will again be on the table: Polish meat exports to Russia as well as a binding energy charter, which is to define the rules of the game between Europe and Russia in the strategically important energy sector. But amid all the pragmatic individual efforts, one or the other observer may be overcome by the premonition that these are just incantations. Russia has in fact redefined its relationship with the West in general. Talk of good relations is but only in imitation of the hopeful 1990s.

Russia is in the process of re-establishing the old front line vis-à-vis the West. Whether Moscow stand up for Iran in the nuclear issue, destabilizes Georgia, binds the countries along the Caspian Sea states to itself, or blocks Europe’s access to the Central Asian energy reserves – the direction of the thrust is always the same.

The new competition with the West is of a issues of strategy and ideals. Moscow is apparently striving to pull back on the geopolitical boots the Soviet Union used to fill out. This is especially clear in the Middle East, where Moscow has been pursuing clientele politics for some time and is binding the disreputable regimes of Syria and Iran to itself by means of valuable weapons exports. Less attention has been given to the fact that Russia has again taken up an anti-Western position in questions of political philosophy. If in the 1990s one had still been able to hope that Russia would be incorporated into the circle of democracies, this must now be considered a failure under Putin’s managed democracy. Instead, a new conflict of systems is in the offing.

This conflict does not have the ideological edge of the Cold War. But if Russia stand up for autocratic and dictatorial regimes such as in Burma, North Korea, Iran, Sudan, and elsewhere, then such behaviour is not to be traced back to hard geo-strategic interests alone. Instead, there also lies an interest in the self-preservation of such systems. Autocrats stand up for other autocrats, because only by standing together can they guarantee their survival in a world where democracy has won the struggle for minds even if it has not asserted itself everywhere. At any rate, there is hardly an autocrat left in this world who does not see himself forced to give his regime a democratic touch.

Because the pressure on undemocratic rulers to enjoy some kind of legitimacy has grown enormously since the early 1990s, such leaders have developed counter strategies. Thus, there has emerged a camaraderie of autocrats, which stands together and places itself protectively in front of their own kind, just as China and Russia do in the United Nations Security Council. They give one another tips on how one best hems in NGOs or completely forbids them, how one harasses the press, and how one goes on holding elections that allow everything but a choice.

Moscow’s new front line vis-à-vis the West is not irreversible, no less so than Russia’s road to autocracy. The antagonistic tendency of Russian policy is obvious, however. So long as he makes problems, Putin believes he can negotiate with the United States on the same level again. A post-imperial syndrome is being expressed here, which, when coupled with a global price for oil of U.S.$80 per barrel, makes for a dangerous mixture of inferiority complex and need for recognition.

The West is therefore well advised not to provoke Russia unnecessarily. On the other hand, Europe cannot be so naive as to wait for Russia to grow out of this. Everything suggests that Russian policy is following a Grand Design. A country that wants to be a Great Power again cannot bring to bear only its power to obstruct in global politics. It must also offer practicable solutions, in Kosovo as well as in the “frozen conflicts” in the southern Caucasus and in the handling of the Iranian nuclear programme. Europe should not simply allow Putin to get away with just saying nyet. Russia wants to be taken seriously again – for that, however, it has to contribute something.

Breaking news: Lawyers for Platon Lebedev, a former Yukos manager and business partner of Mikhail Khodorkovsky, have announced that the European Court of Human Rights in Strasbourg has ruled in their favor, finding that Russia had violated his rights on five counts during his arrest in 2003. The ECHR found that Russia unlawfully kept Lebedev in pretrial detention after it expired, illegally prevented Lebedev and his lawyer from attending the detention hearing, and that the two appeals proceedings by the defense were too slow.

Stanley A Weiss, founding chairman of Business Executives for National Security, writes about how the United States and Russia can make the most of its less-than-perfect relationship:

Going forward, Moscow and Washington should remember that, in many ways, they are made for each other. As the two largest nuclear powers - both victims of Islamic jihadis - there is no substitute for US-Russia cooperation in reducing nuclear arsenals, preventing the spread of weapons of mass destruction and combating terrorism.

Washington won't succeed in curtailing nuclear programs in North Korea and Iran without Moscow. Russia won't truly succeed in diversifying its oil and gas-dependent economy, or gain membership of the World Trade Organization, without American investment and assistance.

For its part, Washington might win back some Russian hearts with a little empathy for their post-Cold War trauma. After all, how would Americans react if, having lost the Cold War, their country disintegrated, the Warsaw Pact expanded to Mexico and Russia proposed installing a missile defense system in Cuba?

"In the Russian mind, their country was flat on its back after the Cold War, and the US walked all over them," says Brent Scowcroft, the national security advisor to the president George H W Bush. "The facts are almost irrelevant. That's how Russians feel."

To avoid fueling Russian paranoia, the North Atlantic Treaty Organization should proceed slowly - if at all - with eventual membership for former Soviet states like Ukraine and Georgia. To show Moscow that the US welcomes a real economic partnership, Congress should finally repeal a Cold War relic - the Jackson-Vanik amendment, originally designed to promote Russian Jewish emigration - but which continues to block normal trade relations.

For its part, Moscow must resolve its post-communist identity crisis and accept its 21st century post-superpower status rather than cling to illusions of a 19th century empire. This includes recognizing that zero-sum security thinking - including intimidation of smaller neighbors from the Baltic to Georgia - that ultimately leaves Russia more isolated and less secure.

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From The Independent:

Russia jailed Khodorkovsky to silence him, say lawyers

By Anne Penketh, Diplomatic Editor
Published: 25 October 2007

Lawyers for the jailed oligarch, Mikhail Khodorkovsky, accused Russian authorities yesterday of trying to keep the former head of the country's biggest oil company locked up beyond next year's presidential election, four years after he was seized by masked gunmen on a Siberian airfield.

"The four-year anniversary of my client's imprisonment is a day for sober reflection on the deterioration of human rights and the rule of law in Russia," said his lawyer, Robert Amsterdam. "As evidenced by the recent refusal by the Swiss federal court to transfer bank documents to Russia related to my client, Mr Khodorkovsky is a victim of political persecution. The new, politically driven charges are conveniently timed to keep him in prison for the Russian presidential elections in 2008 and beyond."

It is widely held that the former Yukos CEO was jailed as an example to others after President Vladimir Putin declared war on the oligarchs, the hugely wealthy tycoons who were dabbling in opposition politics after making a fortune from the sale of state assets in the early 1990s following the demise of the Soviet Union. Many such tycoons, including Boris Berezovsky who lives in London, are now exiled.

Mr Khodorkovsky's supporters said the trial was held to silence a potential rival of Mr Putin, who is bound to stand down as president in the elections next March. Candidates who do not have Kremlin support to run as a presidential candidate fear they will be unable to overcome the administrative obstacles to register.

Under Russian law, having served half of an eight-year term for fraud and tax evasion in jail in Chita, Siberia, Mr Khodorkovsky should soon qualify for parole. But Mr Amsterdam said: "Spurious new charges announced by the Kremlin negate this eligibility."

The new charges were laid last February, and accuse Mr Khodorkovsky – who was once Russia's wealthiest man – of £15bn worth of money-laundering, a number which, according to Mr Amsterdam, "does not add up". No date has been set for a trial on the additional charges.

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Chinese Foreign Minister Yang Jiechi, his Russian counterpart Sergei Lavrov, and Indian counterpart Pranab Mukherjee pose for photographers during their meeting in Harbin, capital of northeast China's Heilongjiang Province. China, Russia and India will attempt to boost cooperation in regional and global issues at talks in northern China, foreign ministers from the countries said. (AP Photo/Xinhua, Zhou Que)

The Kremlin and the United Russia party deny any influence over the current public rallies, taking place in various regions, supporting the extension of President Vladimir Putin's powers for a third presidential term. Putin is “likely to find a way to continue in office as President Putin.” Support for United Russia has increased sharply since the President decided to head its list of candidates for State Duma elections in December, and is now backed by 68% of voters. Inflation is set to fall next year and match the target outlook, according to ministers. Current anti-inflationary measures include the opening of the domestic market to foreign producers by Russia's animal and plant health watchdog Rosselkhoznadzor.

Putin has welcomed competition for investment between Russian Railways and national utility Unified Energy System. "Constructive competition [is necessary], only we should not forget about the interests of the state," Putin said at a railway conference. The conflict between Oleg Deripaska’s Ingosstrakh insurance company and the Czech company PPF Investments has escalated the after private equity group said it would fight a move to slash its stake in the firm "by every legal means." PPF is claiming that Ingosstrakh's shareholders illegally decided to quadruple the company's authorized capital to $402 million, diluting PPF's stake from 38.5% to about 10%. Deripaska’s Basic Element has applied for anti-monopoly approval to buy Russneft, but Swiss-based commodities trader Glencore has announced that it also bidding for some of the company’s subsidiaries. Analysts suspect that Glencore, which works closely with Deripaska's metals interests, may have been brought in to strengthen his bid for Russneft. Gazprom has chosen Norway's StatoilHydro ASA as its second non-Russian partner in Shtokman, a $20 billion offshore project in the Arctic Ocean. Enel SpA, Italy's biggest utility, raised its stake in Russian power generator OGK-5 to 37% and will make an offer for the rest of the company.

Russian Foreign Minister Sergei Lavrov, Chinese counterpart Yang Jiechi and India's Foreign Minister Pranab Mukherjee have met in China's Heilongjiang province. The meeting’s purpose was to demonstrate that strategic developments within the triangle are gaining momentum, coinciding with a US-Japan missile defence shield in the Pacific Ocean and US “attempts to take root in Middle Asia.” Chinese Prime Minister Wen Jiabao will pay an official visit to Russia in early November. Russia is said to be concerned over a lack of progress in negotiations on a new strategic agreement with the European Union. The current Russia-EU partnership and cooperation agreement, signed in 1994, expires in December 2007. Negotiations on a new deal have been stalled by Poland over Russia's ban on Polish meat products. A draft EU resolution, submitted by liberal and green political groups, which called "authoritarian tendencies" in Russia "part of a worrying trend" that threatened the country's "democratic development and the legitimacy of the Russian leadership," will not be adopted. Czech Chamber of Deputies deputy chairman Lubomir Zaoralek has called the US offer to Moscow of allowing Russian soldiers to be present at the planned US missile defense radar base on Czech soil “unacceptable”. The Bushehr nuclear power plant that Russia is building for Iran will operate under the strict control of the United Nations' nuclear watchdog. Russian First Vice Prime Minister Sergei Ivanov has announced that Russia will "never do anything to the detriment of Israel’s security," but a top Israeli security adviser said that Russia's arms deals with Iran and Syria undermine the Middle East peace process. Russia’s government will raise money to complete the upgrade of an aircraft carrier ordered by India. Putin is currently in Portugal to discuss trade, economic cooperation and international issues with the President and Prime Minister.

The Russian who wanted to “record a murder for every square on a chessboard” has been found guilty of killing 48 people in Moscow. A Russian cockroach named Nadezhda (“Hope”) has given birth to the first creatures ever conceived in space, according to scientists.

Following yesterday's surprising news that Russia is instituting price controls on numerous basic food staples throughout the rest of the elections season, we thought it would be interesting to speak with an economist to get a perspective on what this all means. We're pleased to present an exclusive interview with Dr. Craig Pirrong, Professor of Finance and the Energy Markets Director for Global Energy Management Institute at the Bauer College of Business, University of Houston. Dr. Pirrong maintains the excellent blog Streetwise Professor, which contains lots of great information and analysis on Russia. We're grateful for his contribution.

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Craig Pirrong

Q: First, just the basics: Basic food staples such as bread, eggs, vegetable oil, milk and cheese have risen dramatically in recent years in Russia.

A: It is part of an overall inflationary trend in Russia, traceable directly to the rise in oil prices and the central bank’s response to that.

Q: When it was announced that food manufacturers had been pressured to voluntarily freeze prices, many journalists and observers immediately compared it to “Soviet-style” price controls. Is that a fair comparison or an exaggeration? How do the latest series of price controls differ from similar economic policies during Soviet rule?

A: Right now it appears it appears to be much less formal and more extemporaneous than the rigid and formalized price controls during the Soviet period. Furthermore it should be noted that very similar “voluntary” efforts to control prices and wages have been attempted in the United States in the 1970s with disastrous results. The latest price freeze on food by the Russian government an ad hoc policy, directed toward solving a political problem

However, from there, the question arises: what comes next? Is this a temporary, politically expedient move, or will there be an escalation to more formal restrictions, when, as is likely, these somewhat ad hoc measures don’t have the desired effect?

Q: In your recent blog post on the subject, you write that “the consequences of this move are drearily predictable: shortages, empty shelves, lines in stores, black markets in foodstuffs.” Is that a real possibility in just three months? What do you imagine will happen when the controls are lifted following the elections?

A: It all depends on whether or not the inflationary pressures continue on their current pace. There are plenty of reasons to believe that they will, as the economic factors causing inflation look to stay the same for a while. So if the price controls the Russians are about to institute really have some bite, if they are really going to dragoon the manufacturers into keeping prices artificially low, then yes, there will be shortages; it’s inevitable.

If and when the controls are lifted, you can expect a big spike in prices. Let’s imagine six or nine months down the line, after the political issues have been sorted out, the government will be faced with six months of suppressed food price inflation catching up overnight, which naturally may cause them to hesitate and keep the controls in place a bit longer, making the problem worse. Price controls are like a bad guest – it’s easy to invite them over, but sometimes it can be hard to get them to leave. Look at rent control in New York—it was initiated as a “temporary wartime measure” in the Second World War, but persisted for decades afterwards.

Q: Price controls of course aren’t the only way to try to force down food prices. Some countries also play with tariffs, slashing them for cheaper imports to come in, or raising them domestically to drive down prices. In fact, just a few weeks ago, Vladimir Putin promised to take action on high food prices by slashing tariffs for imported products. Does the fact that Russia is currently negotiating it accession to the WTO have anything to do with their choice of price controls over tariff adjustments?

A. The WTO issue could be part of it, but I have read that Putin has also put forward the idea of a new export tax on grains, so they might be moving in that direction as well. Also, they are still playing various import restriction games with meat imports from Poland, as well as food products from Georgia. Food politics in Russia plays into the larger gamesmanship that is going on in the near abroad. From the Kremlin’s perspective, the food prices issue is a policy trade off; letting in more food imports from Poland, for instance, undercuts the pressure Russia is trying to exert on the Poles to influence their policies on other issues. Also, even if Russia is able to restrict some exports to drive down prices, then those inflationary pressures are going to begin to be felt elsewhere.

Q: Many countries who face similar dilemmas of both inflation and a local currency appreciating against the dollar take on other strategies, generally known as the Sterilisation doctrine. We can see from Russia’s vast sovereign wealth fund, that the state is doing a fine job sucking up dollars, but why hasn’t the central bank taken the route preferred by Brazil, China, and India of issuing short-term paper to absorb rubles instead of freezing prices?

A: Russia is faced with a choice: it can either let the ruble appreciate more, or live with the inflation. What they have chosen is to have inflation in ruble terms, essentially to protect their competitiveness in trade markets for domestic industry. Up until now, they have been willing to let inflation continue. However, now that inflation has become more of a concern, I imagine they will change their policy and let their currency appreciate more.

Q: Price controls are widely acknowledged to cause dangerous distortions to the market, and even worse, they don’t work in the long run. Even Finance Minister Alexei Kudrin told RIA that controlling prices is impossible: “This is a market, and market prices do not freeze. It would be a mistake.” So why has the government selected this mechanism over other alternatives?

A: The food issue is perhaps the most politically sensitive and widespread manifestation of broad inflationary pressures in the Russian economy. Milton Friedman used to say that inflation is always and everywhere a monetary phenomena, so it needs to be addressed through monetary policy. The challenge they face is over the exchange rate. This is an illustration of the kinds of overall adjustments the economy needs to make when you have such an intense resource boom as Russia has experienced with 80 dollar oil. Their choice is inflation or Dutch disease. A large shock like the oil price boom necessarily forces adjustments in the rest of the economy. Some of these adjustments can be painful for large portions of the populace.

Q: Do you think that the price freeze tells part of a larger story of the way things are going for the future of the Russian economy?

A: To me, just in my opinion as an observer, these price controls are part of a broader pattern of interventionism in a wide array of policies with this government, so in some respects, it is really is “back to the future.”

Q: Are there any other considerations or lessons our readers should take away from this?

A: One thing I would say is that we must be aware that price controls have serious ramifications for corruption. What is happening right now in Russia represents another opportunity for those with the political and economic muscle to function above the law, and to thrive as a result. Corruption flourishes when markets are distorted, and Russia’s attempt to freeze food prices represents a potentially big distortion—and hence a potentially big opportunity for the country’s “corruption entrepreneurs.” As if more such opportunities were really needed.

Stephen R. Sestanovich has a new interview up on the Council of Foreign Relations website that is worth a read:

It’s been said by a number of experts lately that one of the problems in the relationship is that Americans kept saying they “won” the Cold War, and Russians don’t like being seen as a loser, and they say they won the Cold War too because they realized that communism wasn’t working. Was Russian pride hurt by the view in the West that they lost the Cold War?

One hears this from members of the Russian elite. And they’ve clearly convinced some people in the administration that this is the case. Secretary of State Condoleezza Rice gave a talk on October 22 at a conference of historians on détente, talking about the end of the Cold War and the collapse of the Soviet Union as a “triumph” for the United States and, she added, “for many in Russia too.”

There is a lot of emotionalism on this subject to this day, and it’s a difficult issue even for many Russian liberals. President Putin said the collapse of the Soviet Union was the greatest geopolitical catastrophe of the twentieth century. He wasn’t speaking for himself alone, that is, for alumni of the KGB and for nationalists. There is still a sort of melancholy that surrounds this issue for many Russians, even those who recognize that the Soviet Union was not a viable state and its internal weakness and disorder and conflict had grown so great that it really collapsed of its own weight.

No complaints – because there’s nobody to complain to?

By Grigory Pasko, journalist

On 25 October 2003 at 5 o’clock in the morning Moscow time, when an airplane flying from Nizhny Novgorod to Irkutsk stopped for refuelling in Novosibirsk, the head of Russia’s largest oil company “YUKOS” and its largest shareholder Mikhail Khodorkovsky was arrested.

Four years have passed since then. Just a few days ago, Yuri Kalinin, the director of the Federal Service for the Execution of Punishments [also known by its Russian acronym FSIN; it is the direct successor of the infamous Stalin-era Main Administration for Corrective Labor Camps and Colonies, better known by its acronym: GULag—Trans.], announced to the public that Khodorkovsky had never once filed a complaint against the conditions of his incarceration.

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FSIN director Yuri Kalinin (photo from the archive of Grigory Pasko)

I think that this tells us more about Mikhail Khodorkovsky’s character than it does about the conditions in Russian camps and jails.

Russia’s chief prison warden also reported that torture had not been applied towards Khodorkovsky. I’ve got my own thoughts on that subject:

I had spent a long time sitting all alone in a cell in the Vladivostok investigative isolator – a grand total of nearly two years. If you ask me what periods in that time were the most difficult for me, I would easily recall two incidents. The first was when I fell ill at the height of the New Year’s holidays, and a doctor saw me only after two weeks, when I had already begun to exhibit chronic symptoms. And the second was when they planted a “brood hen” – an informant – in my “solitary” cell.

This lad was a bit dull, a bit sneaky, a bit impertinent. He didn’t even hide why it was that he had been placed together with me in the cell. He unceremoniously poked around in my papers, asked what people were writing me when I read letters, and listened in on the conversations I had with other zeks through the barred window on the cell door… He was lazy about keeping the “hut” clean, and got up very reluctantly to go get bread and sugar when it was his turn. And finally, he devoured my food parcels, which in the conditions of rare visits and a sick stomach was of no small importance for me, either.

He was irritating, but I could not allow myself to get irritated: if I drive this one out of the cell, they’ll just send another one. And I had been tortured many a time already by these “others”.

I recalled this particular variety of torture when I read the words of FSIN boss Kalinin about how Mikhail Khodorkovsky and Platon Lebedev since the beginning of serving their sentence had not once complained about the conditions of their incarceration. But then, how can you complain about a “brood hen”, if according to the rules for the incarceration of prisoners, the leadership of a jail has the right to allocate zeks any way it deems necessary? And TO WHOM should you complain? To Kalinin, who is JUST FOLLOWING ORDERS? Or to Putin – who gives them?

Of course, Kalinin’s words aren’t worth a hill of beans for those who have experienced the “charms” of the correctional system firsthand. For example, the FSIN director told that Khodorkovsky “has by law two hours of exercise in the fresh air, …he can engage in sport and wash himself…”. And he added: “Even I don’t always manage to spend so much time in the fresh air daily”. “So change places!”, I wanted to shout to the pensioner Kalinin. But he won’t, will he? Because he knows: there are dozens of reasons why the overseers don’t observe either the two hour exercise time period or the frequency of baths in the bathhouse (and I’m not even talking about the condition this bathhouse is in), or ignore the right to visit the exercise facility… In a word, Kalinin isn’t going to enjoy living in one of his prisons. And he will no doubt complain about the conditions.

I know for a fact that Khodorkovsky constantly has a “brood hen” in his cell with him. For a year already he’s got a person breathing down his neck, who was planted there by the same group of people who had put him behind bars in the first place. One of these plants told me that he had been given the task not only of keeping a constant watch on what Khodorkovsky wass doing and how, in what mood he returned from his meetings with lawyers and from the procuracy, what he read and about what he wrote, but even of trying to understand what he’s thinking about. And then to report on everything. But probably not to Kalinin. Because the director of FSIN is just an insignificant little cog in the wheel. Whose task it is to now and then read out some kind of texts, such as this last one about how Khodorkovsky and Lebedev have no complaints.

My favorite Central Asia blog Registan.net has a review of the book "The Oil and the Glory: The Pursuit of Empire and Fortune on the Caspian Sea" by former New York Times and Wall Street Journal reporter Steve LeVine. Steve is a bright guy, and I look forward to reading this one myself.

From Joushua Foust at Registan:

There’s another untold story there, one perhaps worthy of follow up: the unbelievable environmental damage the Soviets wrought, in Central Asia (mostly Kazakhstan, as the Aral Sea, Semipalatinsk, and Tengiz disasters may indicate), but across the entire USSR. Oil is a messay, dangerous industry—that much everyone can agree to (and the battle over preserving the wildlife refuges off Sakhalin speak to some long-overdue push back against reckless exploration). But so is communism, both in the hundred million people sacrificed to its ideology last century and the continued legacy of the scars its land bears. LeVine’s book is an important part of this story, and is so well written it is worth reading even if one has no interest on the subject. But it is only a part of a much grander, and sadder, story.

Now this is crazy news. Reuters is reporting on a new rumor that a competing bid for the recently hijacked oil company Russneft could be backed either by Roman Abramovich or Lakshmi Mittal - putting into question the acquisition plans by Oleg Deripaska's Basic Element.

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Readers of my blog will recall that Russneft, under owner Mikhail Gutseriyev rapidly went from a stellar example of a successful small oil producer to an enemy of the state, including a Yukos-style legal persecution campaign. What inspired the Kremlin's wrath this time? Russneft acquired Yukos assets in an auction supposedly without government permission, as though these properties were available to just anybody. Didn't they know that the government already stole Yukos "fair and square"?

This rumor provokes three possible theories for now: 1) that it is totally bogus, and neither Abramovich nor Mittal have made any such move; 2) Abramovich, a Kremlin loyalist himself, is hedging an aggressive bet to take control of Russneft with the blessing of the anti-Sechin faction of the Kremlin, which marks a further erosion of the president's authority; or 3) Lakshmi Mittal, a competitor of Deripaska, wants to send a firm message to Putin, Alisher Usmanov, and Alexei Mordashov and get Arcelor's foot into Russia's door (something that has proved to be difficult for the steel magnate).

Last month, Yulia Latynina argued that "should either of the first deputy prime ministers, Dmitry Medvedev or Sergei Ivanov, become president, Deripaska might turn around and sell Russneft to a company controlled by Sechin. Preventing Deripaska from selling after the elections could diminish Sechin's political clout."

It doesn't require too much imagination to invent further theories that tie in the Russneft bids with the Cherkesov spy wars, all representing rising and falling political fortunes linked to billion dollar deals, not to mention the cover up of criminal acts related to the break up of Yukos. And you thought the next two managed elections were going to be boring.

Now that I've had my fun speculating, until I see more information I am inclined to believe Theory #1 - Basic Element still looks like it will end up having the honor of holding on to Russneft until the government asks for it to be passed over to them. Sometimes rumors are just rumors, so let's see how this one plays out.

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A Serbian veteran from the Balkan wars of the 1990s rests during a protest in central Belgrade October 9, 2007. (Photo: Reuters)

Janusz Bugajski (a great academic who has been featured on this blog here and here) and Edward Joseph have a column in today's Washington Post entitled "Seize the Opportunity with Russia on Kosovo."

Excerpt:

Three key errors by the Administration have permitted Kosovo to fester to Russia's advantage. First, Washington failed to see how Russian objectives were evolving under Putin. Like many allies in Europe, Washington believed Moscow would bark its objections over plans to grant Kosovo independence, but incorrectly assumed that Russia, as in years past, would eventually fall into line with a few face-saving concessions.

Second, the White House repeated the core mistake of the early 1990s, when the Yugoslav crisis threatened to tear apart trans-Atlantic relations. It allowed disputes in Europe to postpone concerted action.

Instead of seizing on a broad consensus among the major powers that the status quo in Kosovo had to change, and move swiftly toward supervised independence on the basis of the UN plan, persistent delays have actually deepened Europe's divisions. Each postponement signaled to Belgrade and to Moscow that the West lacked resolve, and this has enhanced Russia's assertiveness. As a result, the inevitable reckoning over Kosovo has become even more complex and conflictive.

Third, the Administration continues to participate in utterly fruitless diplomacy. As is clear to all informed observers, there is zero possibility of a negotiated solution between Kosovo's independence-demanding Albanians (who comprise over 90 percent of the population) and Serbia (which continues to claim a territory over which it lost control eight years ago following a NATO intervention provoked by the mass expulsion of Albanians.) Another "deadline" looms, but it is likely that Russia will demand yet another extension for more "negotiations."

The Repentance of Father Sergiy or Whom Will God Judge?

By Grigory Pasko

“For if they do these things in a green tree, what shall be done in the dry?”
(Luke 23:31)

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Sergey Taratukhin – the former Father Sergiy – at a rally in support of Mikhail Khodorkovsky in Chita (photo by Grigory Pasko)

The essence of the story, if we tell it in a dry, dispassionate language, is this:

In November 2005, the priest of the Krasnokamensk parish, Father Sergiy (né Sergey Taratukhin), who in his youth had done time in the Permian camps for anti-Soviet agitation and propaganda, publicly condemned the court verdict whereby the ex-head of YUKOS, Mikhail Khodorkovsky, was supposed to spend eight years in places of deprivation of liberty (including Krasnokamensk), and called the oligarch a political prisoner. At that same time, as a sign of protest, Father Sergiy refused to bless the administration building of correctional institution IK-10, where Khodorkovsky was being held. After this, Father Sergiy was subjected to a “verbal admonition” on the part of Bishop Yevstafiy of Chita and Trans-Baikal and, “for the benefit of the church”, was transferred to a new place of ministry in the village of Krasny Chekoy (Chita Oblast). In March, there followed a new punishment: the bishop prohibited Father Sergiy from performing divine services “for a bad-faith attitude towards his duties”. On 10 April 2006, His Eminence Yevstafiy signed an ukase on defrocking Father Sergiy.

The comment of the press secretary of the Moscow Patriarchate, Vladimir Vigilyansky, was such: “The strict measures of His Eminence Yevstafiy are not political persecution, but bear a disciplinary character. After the first reprimand to him (Father Sergiy—G.P.), an opportunity was given to repent and return to the ministry. But Father Sergiy, apparently, made his choice.”

I have already written about the first time I met Father Sergiy, last year. I had another opportunity to meet with him on my most recent trip to Chita. Father Sergiy told me that he had “written a repentance” to the name of Bishop Yevstafiy of Chita and Trans-Baikal. There has so far been no result from the consideration of this appeal. Father Sergiy earns a small pittance working as a sexton (a glorified janitor/groundskeeper, in other words) in the Kazan Cathedral Church of Chita. He waits, he believes, and he hopes that there will be forgiveness for him, and that he will once again become a clergyman.

Here are the words spoken by Sergey Taratukhin during the time of our meeting in the middle of October in Chita: “My position is clear, there is nothing to hide. I respected Mikhail Khodorkovsky then, and I respect him now. Perhaps this is an impediment to a restoration of the priestly office… But whatever is, is.

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The Kazan Cathedral Church in Chita (photo by Grigory Pasko)

“Khodorkovsky is a shining example of how a person was able to realize himself in the post-Soviet time. I repented not of the fact that I have respect for Mikhail, but of the fact that I had allowed myself impudence towards the ecclesiastical hierarchy f the Russian Orthodox Church and personally towards the Most Holy Patriarch. This is what I asked forgiveness for from the Church and the Most Holy Patriarch.

“I want to wish Mikhail strength of spirit. This too shall pass, and the day will come when he will be freed. I wish him patience…”

Father Sergiy also added that he has not lost hope of regaining his priestly office, that he “toiling as an administrator in the cathedral church”, and that he gave his word to the bishop that he’s through with political activity for good. “Well, and how will it all turn out? However the Lord wills…”, he says at the end.

I think the Lord is merciful. And maybe, this time, the person who will be making the decision about Father Sergiy will be merciful, too.

It is interesting that the topic of repentance had already arisen back in October of last year. Then, in an interview with the radio station «Svoboda» [Radio Liberty—Trans.], Sergey Mikhailovich had told that it had been proposed that he repent, and that His Eminence was constantly “exhorting” him, proposing that he renounce his words.

To the extent that I understand the situation that has developed, it was precisely Father Sergiy’s words about how Khodorkovsky is a political prisoner that had become the motive for the persecution of the clergyman. It was not the ecclesiastical hierarchy that the padre had blasted; rather, as a representative of the church, he had cast doubt on the justice of the actions of the secular power. Well, and just what is today’s Orthodox Church in relation to the prevailing power? Here is the opinion on this account of a famous person, a dissident, a claimant to the presidential chair in March of next year – the writer Vladimir Bukovsky, who was recently in Moscow. In an interview with Grani.ru, he said that today, the church is attempting to occupy the niche of the state ideology, and the power is helping it very much in this, understanding that the Russian Orthodox Church, the Moscow Patriarchate, was a part of the Party apparat in the Soviet time. “Today’s hierarchs of the Russian Orthodox Church”, said Bukovsky, “are former KGB, so for the power this is a convenient instrument, and more than that, an instrument that has not undergone any reforms – after all, reforms are impossible by definition in the church”.

The “case” of Father Sergiy is, in my opinion, further evidence that these reforms are impossible. From the point of view of divine services, the clergyman had acted correctly: he was not about to bless that place where iniquities in relation to a person are taking place. As Father Sergiy himself said, “it would be as if though I were blessing those torments to which Khodorkovsky had been doomed in captivity”. In addition to this, the parson underscored that he was expressing his own personal opinion and was not acting in the name of the entire Church. And he also expressed his position with respect to the conviction of Khodorkovsky quite articulately: “If they would punish everyone, then it would be according to the law. If they select one and start to press him demonstratively, that is already politics. And if this is politics, then it is clear that he is a political prisoner. I called him that, and nobody has persuaded me to this day that I am not right”.

Of course the clergyman was right, when he spoke the truth. But the fact that he repented…

Here it is necessary to know the following. From the words of Sergey Taratukhin himself it is known that after he was defrocked, he began to live in Chita, in a small wooden house, with his wife, daughter, and granddaughter. He is ill himself, no work, no money… They say that His Eminence announced to the clergy at a meeting not to worry about Father Sergey, it is said that Khodorkovsky is supporting him. Taratukhin appraised this as slander and considered that His Eminence had completely compromised himself in his eyes.

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His Eminence, Bishop Yevstafiy of Chita and Trans-Baikal (photo from the internet)

They say that when God sends a person trials and tribulations, He is testing him, checking his tenacity. If he withstands the adversity, the untruths, the persecutions – that means he is worth something in this life. And if he doesn’t… where there’s nothing, there’s nothing to be had.

Father Sergiy made his choice not once: first when he did time in prison for anti-Soviet agitation, and then when he called Khodorkovsky a political prisoner… And we can find an explanation for his conduct today as well. Who dares judge him? “Judge not, that ye be not judged”, it says in the Bible (Matt. 7:1). All the more so because the story with the repentance is not over yet…

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Russian President Vladimir Putin speaks with Regional Development Minister Dmitry Kozak during a congress of Russian local leaders in Moscow, Tuesday, Oct. 23, 2007. Putin urged mayors across Russia to get out the vote in parliamentary elections (AP Photo/Mikhail Metzel)

President Vladimir Putin has urged Russia's mayors to "get out the vote" in the next State Duma elections and promised them more financing. Local government shortcomings are a regular source of frustration due to a system in which mayors have no power to collect taxes, and there are often complaints that they lack the money to provide basic services to citizens. A group of leading Russian artists has reportedly begged Putin not to leave the presidential office. "Russia needs your talents and your wisdom. We plead with you, highly esteemed Vladimir Vladimirovich, to take into consideration our hopes regarding this request," they said in an open letter, angering “ordinary artists”. Russia’s new anti-inflationary measures are being widely referred to as “Soviet-style price controls”.

Washington has offered to delay the "activation" of its proposed missile defence sites in eastern Europe, according to US defence secretary Robert Gates. A Russian official responded, “"We believe that the outcome of the talks is promising. We think a number of ideas the Americans raised in Moscow merit careful consideration. For example, we believe there is a need for a joint discussion of the Iranian missile threat." Conversely, President Bush has strongly defended plans to build the missile defenses, saying yesterday that “the need for missile defense in Europe is real, and I believe it is urgent.” Gates insists that “nobody wants a new Cold War.” A change in Poland's government could help to break the stalemate in Russian-EU relations and could remove some of the obstacles in the way of a new partnership agreement between Moscow and Brussels. "A change in Polish-Russian relations, I think, is the most important task of the future Polish government in foreign relations -- the most important in the sense that it's extremely difficult,” said Donald Tusk, most likely to be Poland’s next PM. A meeting between Russian and Japanese foreign ministers had “a rather unexpected outcome.” Japan said it is ready to increase investment in Siberia, tried to soften Moscow’s irritation over the creation of a regional missile defense system in the Far East, and did not press the territorial issue of the South Kuril islands. The Finance Ministry is set to repay 80% of Russia's $4.4bn debt to the World Bank, Deputy Finance Minister Sergey Storchak has announced, in what could in part be “an attempt to improve the country's credit rating before the presidential election.” According to yesterday’s report by Ernst & Young, of the $27 billion attracted by IPOs in the BRIC countries (Brazil, Russia, India, China) between July and September, almost none of it went to Russia. Russian foreign direct investment surged to more than $40 million in the first nine months of the year, said a Putin aide. Russia is heading for "another showdown" with the EU after failing to invite international election observers to monitor the country's parliamentary elections in December, with the central election committee so far refusing to allow a delegation of foreign observers to visit Russia. The apparent snub follows a report by the Organisation for Security and Cooperation in Europe into Russia's last parliamentary elections in December 2003, which described the poll as "free but not fair". On the energy front, Russia and the EU have agreed to set up an early warning system which will alert them to any disruptions to gas and oil supplies flowing through Russian pipelines.

Russia’s Development Bank, established in May to provide medium and long-term financing for big infrastructure programmes, intends to place 200 billion roubles next month with three banks - VTB, Sberbank and Gazprombank – to boost liquidity. State diamond miner Alrosa is considering whether to pursue an offer to buy a stake in Polyus Gold, the world's fourth-largest gold company by reserves, said Finance Minister Alexei Kudrin, who also heads Alrosa’s supervisory board. Independent ratings agency RusRating said that it would appeal a court ruling last month that comments by one of its analysts harmed the reputation of the Russky Standart bank. Shareholders of Russia’s Unified Energy Systems, 50% owned by the state, will have a vote this week on winding up the holding in the final step towards the liquidation planned for next year.

Russia’s Prosecutor-General’s Office has accused Britain’s Crown Prosecution Service of blocking a Russian inquiry into the death of Alexander Litvinenko by repeatedly ignoring urgent requests for information. The future of the Sochi 2014 Olympic Games is said to be at stake, after a court upheld a lawsuit from the International Social and Ecological Union, and invalidated the order of Russia’s Natural Resource Ministry to allow 10,000 hectares of Sochi’s National Park to be stripped of its protected status.

Last week we announced on this blog the live webcast of congressional hearings held on the Yukos case, featuring testimony by Tim Osborne, Anders Aslund, and others. The archived webcast can still be viewed, and now the transcripts are available for download.

Tim Osborne excerpt:

Let me be clear, the Yukos case is about the improper and illegal persecution and seizure of legitimate individual corporate and private assets for the political and financial benefit of the Russian state.

The past four years have seen a veritable onslaught against GML, its holdings, and its shareholders by Russian authorities, against the backdrop of a profound retreat in democratic developments in Russia. This includes the abandonment of the rule of law, collapse of an independent judiciary as well as a breakdown of corporate governance, investor protections and business transparency.

Beyond the obvious problems faced by the direct targets of the Russian authorities, American minority shareholders in Yukos have lost $6 billion. The Russian government has made clear that the expropriation of their investment is acceptable and permissible collateral damage.

The impact of these events on American investors is dire, and will continue to be going forward if it goes unchecked. It’s a tragic irony that I am testifying virtually on the four year anniversary of the arrest and imprisonment of Mikhail Khodorkovsky, a founding shareholder of GML and the senior executive of Yukos, and his business partner, Platon Lebedev.

I would like to call your attention to four universal principles held dear to free and open markets worldwide, which as illustrated by the conduct of the Russian Government towards Yukos and GML, are being set aside in Russia to the detriment of investors and financial stakeholders in the U.S. and abroad. They are:

- Transparency in capital markets;

- Maximizing shareholder value;

- Protecting investors; and

- Adherence to the rule of law.

Anders Aslund excerpt:

It is difficult to escape the impression that the current US administration has done nothing to establish appropriate legal defenses for American shareholders of Russian companies. Unfortunately, Yukos is not likely to be the single case, because a wave of renationalization is currently under way in Russia.

How can this situation be remedied? To begin with, one would expect US top officials to protest against the confiscation of billions of dollars bona fide investment by American citizens. In several cases, Putin has moderated his actions after loud, public, and concerted Western protests. The easiest legal option is probably to persuade Russia to ratify the bilateral investment treaty of 1992, which should not be that difficult, but it does not appear to be on the U.S. agenda.

In the longer term, adequate legal guarantees can be best accomplished through the conclusion of a bilateral free trade agreement between the United States and Russia, but that presupposes that Russia becomes a member of the World Trade Organization. During President Putin’s first term, Russia’s accession to the WTO was an important goal. In November 2006, Russia concluded a substantial bilateral protocol with the U.S. on Russia’s accession to the WTO. Unfortunately, President Putin has increasingly downplayed the significance of the WTO. Last June, he went as far as to call the WTO “obsolete;” Russia’s progress toward accession has slowed down; and German Gref, the Minister for Economic Development and Trade, who has been Russia’s foremost advocate of WTO membership, was dismissed from the government last month. Russia’s government still professes its aim to join the WTO, but its determination has waned.

The absence of any legal safeguard for American investment in Russia can nothing but harm and hold them back. The Russian state officials that carried out the confiscation of Yukos have by no means been punished but have only had their appetite vetted. This is apparent from the current wave of renationalization in Russia, which further deters Americans from investment in Russia. My conclusion is that the United States has an interest in stronger mutual treaty obligations between the U.S. and Russia safeguarding investments. Also bona fide Russian businessmen have an interest in such treaty obligations. Although a WTO accession does not have direct bearing on investment, it can serve as a useful tool, providing a basis for a bilateral free trade agreement, which would contain guarantees for the protection of investment.

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Photo from the Digital Journalist

As we get closer and closer to the $100 barrel of oil, dutch disease is beginning to dispense havoc upon the Russian economy, driving inflation and causing prices of basic food staples to skyrocket. Today Eugene Rumer of the Institute for National Strategic Studies of the National Defense University had a rather pessimistic opinion article in today's IHT, arguing that the huge influx of petrodollars has failed to "prime the pump" for the economy to diversify. The issue of food prices has been building for some time now in Russia, with frequent expressions of concern from officials. With a shaky series of elections coming up, the government is eager to institute temporary measures to freeze these prices, despite the long-term futility of such controls. We hope to invite an economist to this blog later in the week to comment on how Russia's monetary policy is looking to combat inflation.

From the FT: "Russia to control food prices"

Russia is introducing Soviet-style price controls on some basic foods in an effort to prevent spiralling prices from denting the Putin administration’s popularity ahead of parliamentary polls in December.

The country’s biggest food retailers and producers have reached an agreement, expected to be signed with the Russian government on Wednesday, to freeze prices at October 15 levels on selected types of bread, cheese, milk, eggs and vegetable oil until the end of the year.
...
Russia’s agriculture ministry said the food pricing arrangement was voluntary. But industry insiders said they had come under heavy pressure. “We were told in no uncertain terms that we have to freeze prices on certain products,” said one Russian food industry executive, who asked not to be named. “Everybody understands what the government is doing. It is part of their election campaign.”

Russian food prices rose steeply in September, with vegetable oil up 13.5 per cent, butter up 9.4 per cent and milk 7.2 per cent, thanks to global agricultural price increases. Given a big low-income population and meagre pensions, the price rises are among the few factors capable of deflating President Vladimir Putin’s 80 per cent-plus approval ratings.
...
But, as Izvestia newspaper commented, Moscow has “found its solution in the past”, with price freezes harking back to Soviet times.

“The reaction of the Russian authorities to the recent inflation spike has been even more predictable than the price surge that triggered it,” Dresdner Kleinwort said in a note to investors.

Industry insiders said price freezes might restrain headline inflation but would not reduce the overall rate.

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In a brief departure from my regular blog posts here, I would like to quickly express my gratitude and appreciation for the excellent work of Myron Glaser and his wife, the owners of Glaser Designs of San Francisco, an independent briefcase and luggage designer. I know that many other international lawyers follow this blog, and I cannot recommend highly enough Glaser's products to stand up to the grueling travel demands we face. Myron builds each and every bag with his own hands, and every aspect of the design is well thought through. In the sometimes crushing anonymity of daily professional life, it is comforting to know that there is at least one craftsman out there who cares about making our lives a little easier. If you are in San Francisco, or make an order with Glaser from elsewhere, be sure to let him know that Bob Amsterdam sent you.

As reported last week on our Daily news blast, a peculiar question came up from a live caller (which was totally not arranged and screened by the government censors) during President Putin's unique Q&A session alluding to comments made by Madeline Albright. Now with the full translations of the transcripts posted, we can see what we're dealing with here:

A. SIBERT (Novosibirsk): Mr President, I want to ask a question that is no doubt of interest to many Russians. In an interview not so long ago, former U.S. Secretary of State Albright said that it is not fair that Russia alone should have control over Siberia’s colossal natural wealth. My question is: what consequences can such statements have, and what is your view of such statements?

Thank you.

VLADIMIR PUTIN: This is an unexpected question, but I understand that it is an issue of concern, especially for everyone actually living in Siberia.

I am not acquainted with this particular statement by Mrs Albright, but I know that some politicians do share these ideas. I think such ideas are a sort of political erotic fantasy: they procure a certain pleasure, perhaps, but are unlikely to ever produce positive results. The events in Iraq provide the best illustration. There we have a small country with little ability to defend itself but with enormous oil reserves. And what is happening there now? We can all see with our own eyes that they have learned how to shoot there but have not had such success in bringing order to the country. And it is unlikely that they will be very successful because fighting the local population is always a losing prospect. It is possible to overthrow tyrannical regimes, such as that of Saddam Hussein, for example, but there is no future in waging war against the people.

Russia, fortunately, is not Iraq. Russia has enough means and strength of its own to be able to defend itself and protect its interests both at home and in other parts of the world. These kinds of statements by Western politicians only serve to confirm that the work we are undertaking to improve our defence capability and strengthen our armed forces is the right choice, and we will continue this work.

My question to my readers: can anyone find this Madeline Albright quote in question? The closest I have come to is a speech from October 1998, in the midst of Russia's financial crisis, when Albright lamented that Russia was not more open to foreign investment in its oil and gas sector: "By welcoming long-term, committed capital, Russia is not giving away its national patrimony; it is gaining jobs, growth, and tax revenues."

That's really not the same as saying the control of natural resources is "unfair", and it is certainly far short of saying the United States would ever actually consider invading Russia over oil. Such leaps in logic are irresponsible, provocative and exceedingly effective in frightening the voting population. Not only has the Russian president borrowed Hugo Chavez's television format, but also his paranoid delusions of invasion.

For the record, I don't actually believe that the president nor anybody else in the Kremlin actually believes they face a threat of invasion. It's the political season, and if you don't shoot that fish in the barrel that is Iraq, what good are you? It has however caught my attention that this oddly "improvised" question comes from Novosibirsk, the same place where Mikhail Khodorkovsky was arrested four years ago this week.

Back when former SEC Commissioner Roel Campos scandalously compared the London Stock Exchange's junior AIM market to a lively "casino," his comments were largely dismissed by the monocle-bearing gatekeepers of the British stock markets as jealous Yankee poppycock.

Nobody likes a whiner, but are the Americans right when they point to London's lax corporate governance standards?

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The jury may still out on that one, but London's share of new listings is looking pretty gloomy, despite a strong growth in investor appetite for emerging markets. A new global IPO report from Ernst & Young shows that almost half of the $57 billion in global listings last quarter came from 118 flotations from the BRIC economies of Brazil, Russia, India, and China. John Crompton of Merrill Lynch says "The prospect of an economic slowdown has heightened interest in companies that have genuinely superior growth stories."

So why is London missing the boat on the IPO bonanza? One big disappoint for the LSE was the indefinite delay of the IPO of Oleg Deripaska's aluminum giant Rusal, which was expected to raise upwards of $9 billion. Reports indicated that Rusal executives pointed to "market turmoil" as the reason for the delay, but this doesn't make much sense, as Russia has been one of the most isolated countries from the global liquidity crunch. Other reports indicated investor's reluctance over Russia's poor record of shareholder rights, and their inability to influence the controlling stake of Deripaska, whose unwavering loyalty to President Vladimir Putin may be seen as detrimental with the upcoming elections.

Another reason that the London IPO casino may look like it is cashing out is the disproportionately huge second quarter punctuated by the massive flotations of VTB Bank ($8 billion) and Pik Group ($2 billion). David Wilkinson, UK IPO Leader at Ernst & Young says that "If uncertainties continue around the credit crunch and access to capital remains difficult we are unlikely to see a marked shift in deal activity in the UK until the first half of 2008.

So perhaps London's share of IPOs is falling, or perhaps it is just becoming more high quality.

For example, today's big news is that the investment firm Prosperity Capital Management is planning to raise $200 million in London by offering shares in New Russian Generation, an electricity holding company. Prosperity is headed up by the very talented Matthias Westman, who according to the FT formerly worked in Sweden's security services (so if you have tough questions for him, be forewarned that he knows interrogation techniques). Westman told the press that unlike the share issue of OGK-2, which is controlled by Gazprom, New Russian Generation "would be an alternative to purchasing shares in an individual electricity company with a small free float or where investors faced concerns about control by Gazprom." Now that's a breath of fresh air.

There's more. Another massive IPO is also being prepared by Novorossiysk Commercial Sea Port, Russia's largest commercial sea port operator, which could raise between $3.9 and $4.9 billion with a flotation in London of 20% of its shares. Novorossiysk is partially owned by Alexander Skorobogatko, a Kaliningrad duma member of the Liberal Democratic Party of Russia, and the state only retains a 20% stake. As just a casual observer, I would say that Novorossiysk probably has some strong growth potential as one of the main beneficiaries of increased maritime trade, including oil exports aboard tankers.

London's shares of IPOs may have cooled off in the fourth quarter, but it is good to see them improve in quality. Maybe some are finally beginning to realize that the best investments in Russia lie in the private sector, and that companies with heavy Kremlin participation or owners that are excessively close to the government bear a higher risk premium.

Has everyone checked out this site Fora.tv? I'm hooked. Here's my latest find, which is a video of Lilia Shevstova speaking at the Carnegie Endowment. We highly recommend Shevstova's new book "Lost in Transition."

Here's an interesting piece of news that a reporter friend has pointed me towards: Sergei Storchak has announced the early repayment of an old agricultural loan of $343.25 million to the United States, which was made during the Federation's darkest days of the economic crisis. Speaking to reporters in Washington, my source tells me that Storchak explained the move as such: "From the viewpoint of financial efficiency, it was not particularly economical [to return the loan early], but it is unpleasant to have a loan in our debt portfolio that was obtained at a time when the country was at its lowest point."

Translation: we are willing to throw away several million dollars of public money to wipe an "embarrassing" loan off the books, just to prove a point politically. Understandably, Russia is really not in any mood lately to owe anything to the Americans.

The food industry and the government have agreed to freeze prices on a range of basic foodstuffs in Russia. The freeze is expected to ease discontent over recent sharp increases in prices, caused by inflation. The “Conception for Long-Term Socio-Economic Development to 2020”, developed by the Ministry of Economic Development and Trade, signals that the Ministry is “already planning for a long-range drop in competitiveness.” Russia may spend as much as $500 million a year to help developing nations increase living standards as it seeks to enhance its global influence. Deputy Finance Minister Sergei Storchak said, “This isn't charity, this is development aid.” A new proportional representation electoral system will give a greater voice to Russia’s regional electorate, greatly increasing the significance of the regional party lists in the upcoming State Duma elections.

The Russian real estate market is set for a brief hiatus in the wake of the recent global credit squeeze, but long-term repercussions are unlikely, according to analysts. New Russian Generation, a power-focused fund “well-positioned to take advantage of the liberalization process in Russia’s electricity industry”, will seek to raise at least $200 million this year in a London listing. UralSib, the country's seventh-biggest banking group by assets, is planning an initial public offering for the fall of 2008. According to analysts' estimates, a 25% share float would enable the company to raise $300-400 million. The Irish Quinn Group could buy the Radisson SAS Slavyanskaya in Moscow in a deal estimated to be worth $240-280 million. A study by Ernst & Young showed that Brazil, Russia, India and China - the “Bric” countries - raised $27bn in 118 IPOs in the first quarter of the year. "The record numbers of IPOs in the emerging markets show that it is these countries that are driving global economic growth."

Imperial Energy, a UK-based company operating in west Siberia, which had faced threats of having its operating licenses revoked by Russia's environmental watchdog Rosprirodnadzor, has secured a deal to supply the Transneft national grid with crude oil. Mitsubishi Motors, Japan's fastest growing car exporter, could increase vehicle sales in Russia as much as 40% next year amid steadily increasing demand. Evraz Group, Russia's second-biggest steelmaker, has bought the shares of Italian steel-rolling plant Palini e Bertoli SpA it didn't already own, paying $108 million for the 25% stake. The Chelyabinsk Zinc Plant, which produces about 60% of Russia's zinc, has started direct sales to Ukraine and Belarus. The European Commission’s Moscow Office head, Marc Franco, said that Russian companies do not have energy market access problems. “There are no restrictions in the proposals of the European Commission on the participation of foreign investors in the production and network transmission of gas and electricity.”

Russia and the United States are trying to build newfound trust, according to US Secretary of State Condoleezza Rice. "America’s relationship with Russia will remain large and complex: a mix of cooperation and competition, friendship and friction [...] our future can be brighter than our past.” Rice also, however, “lambasted” Moscow for using its oil and gas wealth as a "political weapon". The foreign ministers of Russia and Japan are discussing disputed claims to four islands off Hokkaido, which were seized by Russia at the end of World War II. The foreign ministers of China, Russia and India will meet this week in northern China to discuss common concerns, fueling speculation that “the consultations are aimed at forming an alliance to counter the inflience of the US in the region.” A shareholder dispute involving Ukraine’s biggest oil refinery has resulted in Russia's Tatneft cutting off oil supplies to UkrTatNafta.

Russian prosecutors have asked a court to hand a nine-year prison term to Boris Berezovsky, the Russian tycoon and Kremlin opponent being tried in absentia on embezzlement and money laundering charges.

More than 100 masterpieces of art from the great Russian museums are being lined up for an exhibition at London’s Royal Academy early next year. The RA has asked the British government to send a letter to the Russian authorities assuring them that the works loaned to the UK will be protected from seizure by companies with a financial claim against the Russian state.

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Gideon Rachman of the FT asks some good questions in his new article "Russia and China’s challenge for the west"

Dmitry Peskov, official spokesman for the Russian president, likes a joke. Visitors to his Kremlin office last week noticed that the screensaver on his computer is a series of revolving quotes from George Orwell’s Nineteen Eighty-Four: “Big Brother is watching you”, “war is peace”, “freedom is slavery”, “ignorance is strength”.

Since Mr Peskov works from the same building from which Stalin operated – and now speaks for Vladimir Putin, who is often accused of establishing a new Russian autocracy – this is all rather daring. Or tasteless. Possibly both.
...
Russian and Chinese nationalism – backed by economic strength – poses obvious foreign policy dilemmas for the west. The issues involved are both practical and philosophical.

On the practical level, western countries have to decide how hard a line to take when China threatens Taiwan, or Russia squeezes Georgia. How much of a fuss should we make about human rights? What should we do when Russian and Chinese “sovereign wealth funds” try to buy western companies? How do we cope with the fact that Russia and China frequently block western efforts at the United Nations Security Council – over Burma, Kosovo and Iran for example? Behind these day-to-day issues are some bigger philosophical questions. Was it wrong to suppose that globalisation and economic growth would eventually mean that Russia and China would become liberal democracies? If that was too glib, are the new China and Russia threatening to western interests?

It is too soon to answer these questions definitively. China and Russia once again pose an ideological challenge to the west. But authoritarian nationalism, backed by massive foreign reserves, may turn out to be simply a phase on the long march to liberal democracy. Or it may turn out to be something more durable – and Orwellian.

Complete article here.

Everyone would agree that Garry Kasparov receives rather kind treatment from the U.S. press - be it for his previous fame as a chess champion, his sense of humor, or even for his integrity in defense of democratic principles. Those are difficult qualities to argue with (despite the hostile reception he receives from many in the blogosphere). That makes it all the more interesting to see him handle some tough interviews - Bill Maher, for example, asks some of the more difficult questions I've ever seen put to Kasparov by the Western media, while Stephen Colbert, well, is Stephen Colbert.

(Hat tip: Chess Base)

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Image: Economist

The BBC Euroblogger Mark Mardell is taking a close look at EU-Russia relations from the perspective of former Soviet states traditionally considered within Moscow's "sphere of influence." The first article in this three-part series has already been posted, focusing on traffic congestion, bureaucracy, and difficult trade politics at the Russia-Latvia border:

“It’s a big neighbour, and we cannot know what the big neighbour will do tomorrow. But it is not a very reliable business partner.”

He tells me later that he is trying to make up for the lost market by expanding into Western Europe and building up trade with other Baltic countries. He says it’s just not worth doing business with the Russians - it is just too uncertain. It’s such a huge market that few companies will take this line as a matter of policy, but it’s not uncommon to hear people say that Russia is just not worth the hassle and potential loss of trade that can follow a political whim.

The foreign minister, Artis Pabriks, wants the European Union to heed the experience of the Baltic states and particular to stand with them when they have such problems, rather than go chasing after individual advantage with Russian business or government.

He told me: “In my view, Russians are led only by one interest, by national interest. While in the EU we frequently have the philosophy of a value-based policy and that sometimes makes it difficult to take a decision, especially because we don’t have a united foreign policy.

“So, looking from the Latvian point of view it is very important that the EU tries to stick to one foreign policy. We joined the EU in order to see this organisation as a strong one, not a weaker one. And if we are not united it’s just like Benjamin Franklin said, either we hang together or we hang separately.”

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Former Soviet leader Mikhail Gorbachev speaks in Moscow. Gorbachev founded a new political movement aimed at fighting democratic abuses in Russia, but not at challenging President Vladimir Putin's rule.(AFP/Alexey Sazonov)

The leader of the former Soviet Union, Mikhail Gorbachev, has founded a new political movement. At the founding congress of the Union of Social-Democrats, which will not take part in Russia's next general elections, Gorbachev said, "We are fighting for power, but only for power over people's minds." The leader of A Just Russia's youth wing has accused the pro-Kremlin party of "stupid cowardice" after being excluded from the party's federal list. The Foreign Intelligence Service must work harder to “protect the interests of Russian companies abroad,'' President Vladimir Putin said. He has appointed former Prime Minister Mikhail Fradkov as head of the spy agency, "underscor[ing] the important place foreign intelligence plays in the system of Russia's state institutions." Putin has meanwhile “waded into a turf war” among the security agencies over the weekend, creating a new state committee to fight illegal drugs and naming Viktor Cherkesov as its chief just a day after publicly criticizing Cherkesov in a Russian newspaper, suggesting that he is “trying to play a balancing act amid the infighting.” Putin’s view is that the media was the wrong arena in which to discuss the problems. The government plans to introduce a prohibitive tariff on wheat exports in a move analysts say could cause an abrupt rise in world prices. "A closure of Russian exports even for one month will keep 1.2 million to 2 million tons of wheat out of the world market," said one. The average salary in Russia has risen 25% since last year.

As global oil prices reached heights of $90 per barrel, Finance Minister Alexei Kudrin said that Russia would not accept restrictions from some Group of Seven countries on how it invested its oil wealth abroad. "Sovereign wealth funds should be subject to the general rules of the free movement of capital," Kudrin said at a meeting with G7 finance ministers in Washington. Concerns have been raised in Europe and the United States that sovereign wealth funds, investment vehicles used by governments to invest their windfall funds into foreign equities, have at times been driven by political, not commercial, motives. Kudrin denied this. “This is ruled out in Russia. We have a transparent mechanism for such investments.” He also said that the global credit crisis and volatility across developed financial markets could still come to hurt Russia and hinder long-term investment, and that US officials are trying to conclude multilateral talks on Russia's accession to the World Trade Organisation as quickly as possible. "I got the feeling that they are ready to push these negotiations forward." Russian Industry and Energy Minister Viktor Khristenko has published his views EU energy investment, saying that plans to prevent investment by companies from countries that do not open up their own power markets could dent bilateral ties. "Will EU efforts to limit 'objectionable' investment have an effect on Russia-EU industrial and energy cooperation? It is difficult to predict." Russia will continue to develop relations with the EU after presidential elections, according to Deputy Chairman of the Federation Council International Affairs Committee Vasily Likhachyov. "The strategic partnership policy will not change when the new president takes the office," he said. "It is important for Brussels to access the Russian potential correctly." Some reports say that Russia will join efforts to write off Liberia's $700 million debt to the World Bank, but Kudrin said Russia's exact contribution to Liberian debt relief has not yet been clarified. Russia dismissed concerns by Group of Seven finance ministers and central bankers over Iran, after the group rebuked the country, calling on banks worldwide to be wary of risks of doing business with the Islamic republic. Russian Foreign Minister Sergei Lavrov is in Japan to “strengthen positive dynamics of bilateral relations, to expand cooperation in practical spheres and interaction on the international scene.”

Russia, already the world's third-biggest coal exporter, plans to spend $34.4 billion expanding output in Kuzbass, its biggest coal-producing area, by about 50% by 2025. Rusal has reached an agreement with state-owned Kazakh Samruk on joint ownership of the major Bogatyr Access Komir coal asset, and is reported to be interested in Belarus’ tender next year for the construction of the country's first nuclear power plant. Russian state railway company RZD has not ruled out the possibility of taking a stake in German state-owned railway Deutsche Bahn AG once the latter is privatised. French company Total and Russian independent natural gas producer Novatek (which is 20% owned by Gazprom) have reached an agreement on joint production. The conflict between Oleg Deripaska’s Ingosstrakh insurance company and the Czech company PPF Investments has taken on “political overtones”. The Czech Embassy in Russia is preparing to contact the Federal Financial Markets Service about the possible dilution of the foreign shareholder's package. Western investors' optimism about Russian markets is “unflagging.” Although the Russian market is currently “lagging behind other developing markets”, an additional $125 million has been put into funds investing in Russia, the second largest amount for the year.

The Russian Soyuz space capsule has landed safely in Kazakhstan. The capsule was launched from Russian facilities in Baikonur, Kazakhstan. Following an increase in hacking, Russia has reportedly “become a leading source of Internet ills.”

The cyber-attack on Estonia during the Bronze Solider fiasco was not an aberration - thanks to a few legal loopholes, much of the world's hackers, spammers, and scammers depend upon front companies in St. Petersburg and Moscow:

PERHAPS the most famous con artist of the Soviet era was a fast-talking, eye-winking, nimble-fingered, double-dealing journeyman named Ostap Bender. He was fictional, the antihero of a satirical novel about a quest for lost jewels called “The 12 Chairs,” but his casual disdain for the law reflected a widely held cynicism here.

“This misdeed, though it does come under the penal code, is as innocent as a children’s game,” Bender says of a scheme to use a purloined document to steal another man’s identity.

Were Bender to ply his trade these days, he would undoubtedly be sitting in front of a computer, spewing out e-mails that slyly ask for credit card information or hawk sexual aids and other flimflam. Russia has become a leading source of Internet ills, home to legions of high-tech rogues who operate with seeming impunity from the anonymous living rooms of Novosibirsk or the shadowy cybercafes of St. Petersburg.

The hackers go by names like ZOMBiE and the Hell Knights Crew, and they inhabit such a robust netherworld that Internet-security firms in places like Silicon Valley have had to acquire an expertise in Russian hacking culture half a world away. The security firms have not received much assistance from the Russian government, which seems to show little interest in a crackdown, as if officials privately take some pleasure in knowing that their compatriots are tormenting millions of people in the West.

From the New York Times, "What’s Russian for ‘Hacker’?"

The Washington Post asks why President Bush has given up on Russia:

But at a White House news conference Wednesday, Mr. Bush questioned "whether or not it's possible to reprogram the kind of basic Russian DNA, which is a centralized authority." In so doing, he echoed the laziest thinking of cultural determinists -- those who said that South Korea could never be democratic because of its Confucian culture, and were proved wrong; who said that Indonesia could never be democratic because of its Muslim faith, and were proved wrong; and who say today that Russia will never escape its czar-serf history. ...

Mr. Bush's musings about Russian DNA serve to vindicate Mr. Putin's own justifications for stifling freedom. Worst, just as Mr. Bush has abandoned the champions of democracy he once encouraged in Egypt, so his dismissal of Russia's genes betrays the Russians who have struggled and sacrificed -- and will, one day, struggle and sacrifice again -- to bring "dignity and freedom" to their homeland.

Full article here.

The Council on Foreign Relations has published an updated backgrounder of the global oil market, which makes mention of Mikhail Khodorkovsky in Russia.

Russia. The world’s second-largest producer and exporter of oil, Russia employs less than 1 percent of its workforce in the oil and gas sector, despite the fact its energy industry comprises roughly a quarter of the country's gross domestic product (GDP). (The official figure of 9 percent is distorted by questionable accounting practices, economists say.) Oil and gas make up roughly two-fifths of all Russian exports, leaving some investors wary of investing in such a resource-dependent market: A $1 per barrel change in the price of oil, for instance, results in a $1.4 billion change in Russian revenues. In its favor, Russia created a cushion for such changes by developing an oil-stabilization fund, worth some $44 billion, which can only be tapped to reduce its deficit or finance pension funds.

The bulk of Russia’s 60 billion barrels of proven oil reserves lie in Western Siberia. A good portion, roughly 14 billion barrels, is also found on Sakhalin Island, a body of land north of Japan that is frozen seven months of the year and formerly housed Soviet prisoners. There are two joint, start-up production projects underway there: Sakhalin-1 and Sakhalin-2, the former led by ExxonMobil, the latter by Royal Dutch/Shell. Both projects are part of what is known as “production-sharing agreements,” where foreign oil firms front the investment capital while the Russian government gets a share of the revenues and retains rights over the oil and gas reserves. In 2007, the Russian government updated the agreement by pressing Shell to give up majority control of Sakhalin-2 to state-owned Gazprom, which some critics said was the first effective attempt to nationalize a foreign oil or gas project in Russia.

The trouble with these projects, including those in Western Siberia, is getting the product to market, experts say. Given Russia’s climate and geography, it is short on deep-sea water ports. Also, Russia’s capacity to transport its oil has not caught up to production. Russia produces roughly seven million barrels of oil per day, but can only ship around four million via major pipelines. The rest must be transported by rail or river.

Another hindrance is politics. The so-called Yukos affair, the government’s October 2003 arrest of Mikhail Khodorkovsky, formerly Russia’s richest man and head of the oil goliath Yukos, shook investor confidence in Russia’s economy. In the year after Khodorkovsky’s arrest, capital flight—only $2.9 billion in 2003—soared to $9 billion. Further, the sight of Khodorkovsky being hauled off to a Siberian penal colony for an eight-year prison term on what most say were politically motivated fraud and tax evasion charges, did not soothe investors’ nerves. “The oil market has been stalemated because of the Yukos affair,” says Anders Aslund, a senior associate with the Carnegie Endowment for International Peace and expert on the Russian economy. “When you’re fighting over property rights, you don’t do big projects.”

Iraqi politics are in a mess and the handling of the oil industry has been a disaster, but there are reasons for optimism, says deputy prime minister Barham Salih

By Tom Nicholls, journalist

“Success is possible in Iraq – difficult, but possible,” Barham Salih, Iraq’s deputy prime minister, said in London this week. “Failure is not an option”: it would be catastrophic for Iraqis, the Middle East and the world. “We must succeed and we will succeed.”

Tempering the fighting talk, Salih -- speaking at international affairs think-tank Chatham House -- gave a brutally honest assessment of Iraq’s situation: its embryonic democracy is “messy, inefficient” and still feeling its way; the handling of the oil industry has been “no less than a disaster”; politicians remain divided on important issues, such as the framework for oil and gas investments; the country is “far” from realising its economic potential; confidence in coalition troops is higher in some areas of Baghdad than in Iraqi troops; and Iraq will need to rely on foreign soldiers, unpopular though their presence on the ground may be, for a long time.

However, Salih prefers to see the glass half-full than half-empty: Iraq’s achievements – and failings – have to be seen in the light of the terrorism that blights the country. “Politics is breaking out in Iraq, but in the context of this very tough terrorist environment.” The UK was traumatised by terrorist attacks in London on 7 July 2005, he said: Iraq faces such atrocities almost on a daily basis.

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Barham Salih: a realist, but an optimist

In addition, while the government still has a mountain to climb, there are reasons for optimism. In the last six months, security has improved significantly, he said. This is partly because of increases in troop numbers: Iraqi police and military personnel now number around 300,000 and there are plans for the addition of further divisions next year. The government has also taken a tougher line against militias. However, the most significant factor in improving security has been a change in the public attitude towards Al Qaida, said Salih: Iraqis perceive terrorist factions as a “serious threat to them … People have come to realise that Al Qaida cannot offer solutions.”

There have also been improvements in the economy and the country’s political framework, Salih claimed. Economic growth has reached 6% and inflation has halved to around 16% since the start of the year. Although politicians are taking time to become accustomed to the accountability democracy demands, an “overwhelming majority” recognises that “there is no way we can go back to the old order”.

Fundamental to prosperity is the establishment of an oil law. The central government agreed on a draft law in February, with control and revenue from Iraq's oil reserves to be shared among Baghdad and the provinces. However, it has since been stalled by political disagreements. This has had adverse economic consequences, given oil’s enormous potential in Iraq. According to Salih, the country has the potential to be producing 6m barrels a day (b/d) within three or four years, assuming the government is able to attract sufficient investment. But it is far below that level at present, producing just 2.2m b/d in September and exporting 1.7m b/d. “We are still falling very, very short of the potential of Iraq in terms of production and export levels,” he said. “Every time the oil prices goes up a dollar, I feel the pain.”

Finalising the oil law would be a big step towards that aim. Yet Salih prefers to see the delay in a positive light: it means care is being taken to achieve a consensus on how to handle the economic sector that dominates Iraq’s economy. “I think most of the elements of the oil law are in place and we can probably can muster a political majority soon.” But the oil law is about “national unity” and forcing legislation through with a 51% vote would be a mistake, he says. “We have to have broad acceptance.”

An area of acute controversy is the Kurdish Regional Government’s (KRG) approval of its own oil law in August and the subsequent signing of several contracts. Iraq's oil minister Hussain al-Shahristani has repeatedly said the contracts are illegal. However, Salih, a Kurd, said that it is up to the constitutional court to decide whether the contracts are legal, not the oil ministry.
Iraq’s struggle to rebuild its damaged oil industry will depend on continuing improvements in the security situation, which will require co-operation from its neighbours and continued support from the US. Salih called for Turkey – at that time debating whether to authorise attacks on Kurdish rebels in Iraq – and Iran to respect Iraqi sovereignty. He also admitted that Iraqi politicians privately recognise that the country will continue to need US military support. “It’s our assessment that an abrupt withdrawal of coalition troops could trigger civil war or proxy war.” Iraq, he said, needs to find a long-term security arrangement with the US that is respectful of Iraq’s sovereignty, but recognises its need for continued support.

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A member of Russia's Interior Ministry Forces watches President Vladimir Putin speak during a live question-and-answer session aired on television in a electronic store in Grozny, the capital of the Caucasus region of Chechnya, October 18, 2007. (Said Tsarnayev/Reuters)

President Vladimir Putin used a live three-hour call-in session, in which he answered questions from the Russian people, to reiterate criticism of the Bush administration’s missile-defense plan and its stance on Iran and the Iraq war. "Direct dialogue with the leaders of states ... is the shortest path to success, rather than a policy of threats, sanctions, and a resolution to use force," he said. He also said that Russia was developing new nuclear complexes as part of a “grandiose but fully realisticplan to boost the country's defences against the United States, signallingthe return of the nuclear arms race.” Higher food prices were a key theme of the call-in. Putin announced that the government had started to sell grain from national reserves to ease domestic prices, and that cuts in import tariffs on milk and other dairy products had been made. He assured his audience that Russia would not see an economic meltdown after his Presidential term is over, and used the term “political erotica” to describe Madeleine Albright’s comment, made years ago, that it was unfair that Russia should have all of Siberia’s resources. Putin's decision to head the federal list of United Russia in the State Duma elections “may one day be seen as the worst bungle in his biography as a statesman.” Prime Minister Viktor Zubkov has ordered that Cabinet meetings should no longer be televised. The Duma has amended the 2007 budget to increase pensions and investments, and Russian pensioners are to receive payments owed to them from the mid-90s. The central bank is “highly unlikely'” to curb inflation by allowing the ruble to strengthen, according to the Duma’s first Deputy Chairman.

Market participants are playing down fears that a gasoline shortage in Moscow and the Moscow region could contribute to a sharp price rise in pump prices in the near future. High mineral extraction taxes and fears of political uncertainty are acting as a drag on Russia’s oil-and-gas-dominated stock market, which has underachieved this year. UK exploration company Timan Oil & Gas said its main exploration and production license for work in Siberia remains valid after a Russian court overturned a government ruling. State-controlled Unified Energy System says that OAO OGK-3, a power generator controlled by Norilsk Nickel, isn't honoring a contract covering an investment program. Austrian company Strabag SE is planning to invest at least $1 billion a year in Russia to expand capacity in the market for construction of roads and buildings.

America has “made progress” towards convincing Russia to co-operate on plans for a missile defence shield in Europe, according to senior US official Daniel Fried, and Washington remains “cautiously optimistic” that a solution can be found. Israeli Prime Minister Ehud Olmert has met with Putin to discuss reported Russian arms deals with Syria and Israel's concerns about Iran's nuclear ambitions. US Defence Secretary Robert Gates has said he believes that Putin is serious about trying to play a constructive role in resolving the crisis over Iran's nuclear program. “President Putin takes Iran seriously as a security concern for Russia, and I think they are prepared to take some actions as befits that.” The Russian Finance Ministry plans to repay a $343 million loan to the US under a 1998 credit agreement for agricultural supplies ahead of schedule, saving $46.7 million in interest. Under a government resolution, Russia will use money from the Stabilization Fund to repay the debt. Russia's Deputy Prime Minister Alexei Kudrin has reiterated that Russia will join the G8 finance conference this week “as an equal”. Putin sent a telegram of condolences to President of the Islamic Republic of Pakistan over a major terrorist attack staged this week, saying the attack confirms “the necessity of further consolidation of efforts of the international community against terrorism.”

From The Guardian’s report on Putin’s call-in: One caller was so stunned to speak directly to the president she forgot her question. "Is it you?" she said. "Yes," Mr Putin said. "Is it really you?" she asked. "Yes," he repeated. "Thank you very much for everything, Vladimir Vladimirovich," she gasped. She then hung up.

Here is a Reuters news clip of President Vladimir Putin's visit to Iran, and his message to the United States.

If Kosovar independence is recognized, could Serbia ditch its efforts to join the EU and look to Russia?

From the Economist:

Marko Jaksic, a member of Serbia's Kosovo negotiating team, helps to run northern Kosovo. He is a deputy leader of the party of Vojislav Kostunica, Serbia's prime minister. If America and many European Union countries recognise a unilateral declaration of independence by Kosovo, he expects Serbia to offer Russia military bases “in Serbia, and especially on the border of Kosovo”. He adds that Serbia should abandon its bid to join the EU, and claims that Mr Kostunica thinks similarly but has less freedom to talk openly. ...

Yet the Russian alternative does not look appetising. The prospect of Russian bases in Serbia is “very unlikely”, says Ivan Vejvoda, who heads the Balkan Trust for Democracy, a big regional donor to good causes. Serbia is surrounded by the EU and NATO. “The Russian thing is a temporary, opportunistic thing, a balloon which will burst once we are over Kosovo,” he says. There is much excitement in Serbia about Russian companies moving in. On the list for privatisations that may interest them are JAT Serbian airlines, Belgrade airport, a mine in Bor and NIS, Serbia's oil company. Alexei Miller, head of Russia's energy giant, Gazprom, met Serbian leaders to discuss potential pipelines on October 9th. But so far Russian companies (except for Lukoil) have been notable by their absence. Russia is only the 18th-biggest investor in Serbia; the country's largest single exporter is owned by US Steel. The EU has poured lots of money into rebuilding Serbia. If Serbia kept on track, a lot more cash could come—and Russia offers little.

Here are some disturbing developments. The president of Russia has indirectly suggested that the United States could potentially be interested in invading the country to capture control of its energy, and for this reason, the federation needs to add more nuclear weapons to its arsenal.

From Reuters:

He also promised new nuclear weapons as part of Moscow’s military build-up, saying the experience of Iraq showed the need for resource-rich countries to keep strong defences. ”Thank God Russia is not Iraq,” Mr Putin told a questioner who asked about supposed U.S. intentions to gain control of Siberia’s vast natural resources. ”It is strong enough to protect its interests within the national territory and, by the way, in other regions of the world.””... What we are doing to increase our defence capability is the correct choice and we will continue to do that,” he added.

Answering a question from a soldier based at the Plesetsk Cosmodrome in the far north, where troops test-fired a long-range missile earlier in the day, President Putin promised new nuclear weapons technology as part of important defence plans. ”We will develop missile technology including completely new strategic (nuclear) complexes, completely new,” he said. ”Work is continuing and continuing successfully.”

Today during Russia's version of "Aló Presidente" (a live broadcast call-in show where regular Russian citizens ask the president questions), Vladimir Putin compared himself to U.S. President Franklin Delano Roosevelt. It isn't the first time he has done it.

Here's a startling picture: Today President Vladimir Putin demanded that the Americans name a pullout date from Iraq, while at the same time President George Bush is fighting to cling to his "political relevance" against a Democrat Congress. What a bizarre world.

Perhaps this is an exaggeration of recent changes, but we should give credit where credit is due. President Vladimir Putin has pulled off a diplomatic masterstroke this week in geopolitical events surrounding Iran, turning Russia into one of the most indispensable Middle East players and making their influence in the region more significant than it has been in decades.

Following all the hubbub of a very mysterious death threat from Islamist extremists, Putin succeeded in looking like some type of brave anti-terror hero by traveling to Tehran for this meeting, where he was greeted warmly by the Iranian leadership. Within the space of one week, the talented Mr. Putin ran circles around Secretary of State Condoleezza Rice and Defense Secretary Robert Gates over the missile shield, embarrassing them with unexpected hostile comments to the media, made fast friends with the increasingly lonely Iranian President Mahmoud Ahmadinejad - promising them nuclear power and the protection of the authoritarian veto from UN sanctions, and, to top it all off, conducted a polite meeting the following day with Israeli PM Ehud Olmert to talk about the Iranian nuclear program and finding a solution to Palestinian settlement process. The ultimate crown of triumph for Putin's efforts came when the United States actually began to barter with him on the missile shield in order to gain Russia's assistance on Iran. Regardless of your views of the Russian president, he played his hand damn well.

What makes Putin's performance this week all the more impressive is that it is all based on a bluff that no one can risk calling.

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How long before Russia and Iran compete in the Caspian basin?

It is a bluff because 1) Russia doesn't really want Iran to possess nuclear weapons - they face far greater exposure to this regional instability as do the Americans, and 2) Russia is terrified of Iran becoming a genuine energy competitor. Last February I wrote a post on this blog arguing that Russia's alliance with Iran was a temporary and artificial relationship, which hurt both American and Iranian national interests. Not too many people, least of all the Ayatollahs (which matter much more than scary bluster of the president), realize that Russia's recalcitrant assistance on the Bushehr nuclear reactor is actually a poison pill, constraining Iranian options in the region. It is extremely important to the Kremlin's interests that Iran remain a pariah state, especially so that its immense natural gas reserves do not become a regional competitor to supply Europe, thereby drastically reducing their leverage in certain relationships. In many respects, Iran is one of the only imaginable Gazprom slayers.

Sooner or later, Russian and Iranian interests are bound to conflict - anti-Americanism may ignite the mutual passions today, but insofar as realpolitik, it is not sufficient to serve as a long term cohesive function. As Iran grows in strength, it will begin to project its interests through the Caucasus in areas that the Russians feel is their turf. Their historical rivalry with Turkey will also come into play, and assuming the United States succeeds in extricating itself from Iraq, Iran will once again have serious concerns on its Western border for which Russia can't offer much support.

The brilliance of Putin's moves vis-a-vis Tehran lie in his ability to perceive a geopolitical opportunity and skillfully exploit it. Iran became exponentially more important in the region following the U.S. invasion of Iraq, yet were in desperate need of a sponsor, especially one that carried weight in international bodies such as the United Nations. As noted above, Russia does not necessarily share any real interests with Iran, other than instrumentalizing that relationship as a leverage point to project its influence. Bret Stephens of the Wall Street Journal wrote some time ago that the current Kremlin leadership has become specialized in creating crises and than extracting concessions to help solve them. In the same vein, a recent analysis on Stratfor by Peter Zeihan (which contains much that I disagree with) argues that there are many more crises that Russia can aggravate to advance its interests:

So crisis-making is about to become Russia's newest growth industry. The Kremlin has a very long list of possibilities, which includes:

* Destabilizing the government of Ukraine: The Sept. 30 elections threaten to result in the re-creation of the Orange Revolution that so terrifies Moscow. With the United States largely out of the picture, the Russians will spare no effort to ensure that Ukraine remains as dysfunctional as possible.

* Azerbaijan is emerging as a critical energy transit state for Central Asian petroleum, as well as an energy producer in its own right. But those exports are wholly dependent upon Moscow's willingness not to cause problems for Baku.

* The extremely anti-Russian policies of the former Soviet state of Georgia continue to be a thorn in Russia's side. Russia has the ability to force a territorial breakup or to outright overturn the Georgian government using anything from a hit squad to an armored division.

* EU states obviously have mixed feelings about Russia's newfound aggression and confidence, but the three Baltic states in league with Poland have successfully hijacked EU foreign policy with regard to Russia, effectively turning a broadly cooperative relationship hostile. A small military crisis with the Balts would not only do much to consolidate popular support for the Kremlin but also would demonstrate U.S. impotence in riding to the aid of American allies.

So why not recognize Putin's deft outmaneuvering of our clod-footed diplomats working on the Iran issue? By and large, this week the American and British press have demonized and disrespected Mr. Putin for his realpolitik in Iran, which is entirely nonconstructive with respect to the ultimate goal of political and economic integration with Russia for Europe and the United States on NAFTA-like terms. It is delusional to say that Putin has not been successful in projecting Russia's interests and capturing political relevance in the Middle East - this is contrasted sharply by his difficulties domestically, where he is challenged on a daily basis by the considerable instability of feuding elites. The causes of democracy and human rights are not served well these distorted and embittered appraisals of a difficult political reality. If the Iran and Middle East crisis issues are to be solved, some pragmatism is needed, and a basic recognition that Russia will now play a role - like it or not.

After 15 years abroad, the Soviet dissident Vladimir Bukovsky has returned to Russia to formerly declare his bid for the presidency. Bukovsky, who spent many years in labor camps and psychiatric institutions, played an instrumental role in alerting the wider world to the Soviet practice of forcing political dissidents to undergo mental health internment, and has more recently been an outspoken advocate against the war in Iraq and torture by the United States.

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Like many other former dissidents, Bukovsky draws comparisons between the current government and the autocracy he spent his life fighting against:

"You must understand my emotional reaction to this," he said. "I was fighting the Communist regime all my life since the age of 16. And after it collapsed, to see it returning back is really painful. Again and again, the same restrictions and the same power over the people. It's really abusive. I'm just trying to help."

He said most Russians have tuned out politics because they know they have no say. "People here are either a boss or a subordinate, either a master or a slave, and nothing in between."

What he'd love to see occur in Russia, and what he hopes to inspire, is a grassroots uprising similar to the peaceful, pro-democracy movements in Georgia and Ukraine.

"If people, in their huge masses want to change something, they can. And they've seen examples of this in neighbouring countries."

Insofar as his government platform, Bukovsky today presented an eight-page manifesto entitled "Russia on the Chekists' Hook" - possibly a reference to the recent Cherkesov open letter which boasted that the seizure of power by Russia's former KGB officers offered the nation a cohesive "hook" to prevent a "freefall" into chaos following the dissolution of the Soviet Union. Bukovsky is unique from other marginal opposition candidates in his promise to initiate a full investigation into the abuses of both the KGB and FSB: "Authority in the country has been fully and wholly usurped by chekists, as in the Bourbon period of the Restoration, and they didn't understand anything and didn't learn anything. They declared the collapse of the Soviet Union a disaster and are methodically and stubbornly restoring the Soviet regime."

Looking noticeably frail in his first day of campaigning (see this video interview by CBS), Bukovsky also sounded out notes of economic populism, remarking on the growing inequality between the wealthy of Moscow's high rises and impoverished of the nation's interior.

Bukovsky's efforts may not amount to much more than a Western journalist's Kasparovian fantasy (it is, after all, a very good story yet not politically realistic). Many point out the Russian Constitution requires any presidential candidate to have lived in Russia in the preceding 10 years - although there are some discrepancies.

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More than a million Russians have applied to quiz Putin in a live question-and-answer session on Thursday that he holds annually to show he is in touch with the nation, the organizers said. (Caren Firouz/Reuters)

President Vladimir Putin today begins his live-air question and answer session with the Russian public, but must ensure that his answers do not contribute to the United Russia campaign. Questions about food prices are expected to dominate the annual session. The official website monitoring the session reports that the most popular query submitted ahead of the event is whether the price hikes signal the start of another financial crisis like the one that crippled Russia in 1998. 1,345,900 questions have been received by phone and by e-mail in the last four days. Russian inflation could exceed 10% by the end of the year as increasing food prices have made the government's original target impossible to meet. A day after arriving in Russia for the first time in 15 years, Soviet dissident and presidential candidate Vladimir Bukovsky said that if elected, he would order the investigation of possible crimes committed by Soviet and Russian security agencies. “At 65, and in poor health, Mr. Bukovsky is the first to concede that he doesn't stand a chance.” Prime Minister Viktor Zubkov said Wednesday that he would soon appoint a candidate to head a federal agency established last week to oversee the development of border-crossing infrastructure. He said the agency would "build and reconstruct facilities related to border protection" and called for all the agencies, including the FSB's Border Service and the Federal Customs Service, to adopt measures to reduce bureaucracy at borders. The government has decided to introduce a seasonal raw cane sugar import tariff of $220 to $270 per ton for six months from Dec. 1. The order is designed to protect the country's burgeoning domestic sugar beet industry from excessive raw sugar imports.

EU trade chief Peter Mandelson says Russia must show a "real political willingness" in order to secure World Trade Organization membership. He also said the country must overhaul its economy to attract foreign investment and bolster trade to strengthen ties with the European Union. "Russia is not really capitalizing on the fact that it is so close to the huge European market. In part because it lacks the stimulus of greater trade, the Russian economy is underdiversified.'' Putin has proposed a new way to help resolve the standoff over Iran’s nuclear program during a meeting with Iran’s supreme leader, Ayatollah Ali Khamenei. Neither side will disclose any details, but Iran is reported to be studying it. Meanwhile US President George Bush has warned that an Iranian nuclear program could lead to “World War III”. Of the Russian President, Bush said, "The thing I'm interested in is whether or not [Putin] continues to harbor the same concerns that I do.” Israeli Prime Minister Ehud Olmert is due to meet with Putin in Moscow this week to discuss Iran's nuclear programme and the Israel-Palestinian peace process. Russia and India have signed an agreement to cooperate on the manufacture of an advanced fifth-generation fighter jet.

Russia's gas company Gazprom and Serbia have agreed, “in principle,” to build a joint gas pipeline project worth more than $800 million. “Serbia is dependant on the import of gas and oil, and certainly a partnership with of such a strength and magnitude of possibilities will mean that Serbia can become an energy centre and an important transit route in this part of Europe,” said Serbia’s energy and mining minister. American Airlines, the world's largest airline, hopes to tap into Russia's booming economy by initiating flights between Moscow and Chicago in June. "The Russian economy is booming, and many of our nation's top 100 corporations are doing business there," said a company spokesman. "So the time is right to begin serving Moscow." German media giant Axel Springer has experienced a tumultuous three years since the rollout of its flagship publications, the Russian editions of Forbes and Newsweek, in 2004 – Forbes' editor was murdered in a contract-style killing, and the company lost a lawsuit against a Russian businesswoman. Springer is now facing further troubles in planning an exit strategy. Eurasia Drilling Co. Ltd., the former oil-services unit of OAO Lukoil, is seeking to raise about $450 million by selling global depositary receipts to trade in London. Billionaires Petr Kellner and Oleg Deripaska are feuding over a capital increase at Russian insurer Ingosstrakh planned by Deripaska which would dilute the stake held by PPF Investments, Kellner’s private equity group. According to a new report from PricewaterhouseCoopers, company employees in Russia are now stealing more from their companies than they did two years ago, contributing to a quadrupled cost of $12.8 million per company -- more than five times the global average.

Russia has launched an inter-continental ballistic missile from its Plesetsk cosmodrome in northern Russia as part of a “reliability evaluation”. Russian prosecutors have charged nine people, including a senior officer in the country’s security service, in connection with the murder of Anna Politkovskaya. Lieutenant-Colonel Pavel Ryaguzov, of the Federal Security Service (FSB), had been charged with abuse of office, and was alleged to have passed details of Politkovskaya’s address to another suspect, who supposedly gave them to the killer.

From the FT story "Russia attacks Estonia over pipeline survey"

Russia yesterday accused Estonia, its small Baltic Sea neighbour, of “rudeness” and violation of a United Nations maritime convention by refusing permission for a seabed survey linked to the construction of a gas pipeline from Russia to western Europe.

“To use such tools, as the Estonian government did, is in my view pure politicisation, and done in a rude way,” Viktor Khristenko, Russia’s energy minister, told the Financial Times in an interview.
...
“It seems to me that the position formulated by the Estonian government is not correct from a legal point of view, since it directly contravenes the Law of the Sea convention,” he added, referring to a UN treaty of 1982 that governs the use of the world’s oceans and seas.

“According to the convention, freedom of implementation for such transit projects is guaranteed, subject to certain conditions,” he said.

Asked if Estonia was jeopardising the Nord Stream pipeline, Mr Khristenko said: “Certainly, it carries a risk for the project, because one has either to change the route and go a little bit beyond our Estonian friends, or come back to the Law of the Sea convention and try to discuss the conditions.”

From the Wall Street Journal:

The Putin Touch October 17, 2007; Page A18

Vladimir Putin paid Mahmoud Ahmadinejad a visit yesterday, the first Russian leader to hit Tehran since Joseph Stalin in 1943. But let's not get too carried away by the comparison.

More telling was the contrast, in both substance and atmospherics, between the Russian president's meeting with his Iranian counterpart and his talks this past weekend with the U.S. Secretaries of State and Defense. In Iran, Mr. Putin pledged that he would not "renounce our obligations" regarding a nuclear power plant Russia is building in the Iranian port city of Bushehr. He insisted that Iran's "main objectives" in seeking nuclear technology "are peaceful." And he underscored Russia's burgeoning economic ties with the Islamic Republic, which "has already reached $2 billion."

Anyone harboring illusions that Russia can be brought aboard for a tougher round of U.N. sanctions against Iran might want to read these statements twice. Similarly, anyone who thought Russia could be won over to the deployment of a limited U.S. missile defense system in Poland and the Czech Republic should have paid closer attention to Mr. Putin's message to Condoleezza Rice and Bob Gates: "Of course, we can some time in the future decide that some antimissile defense should be established somewhere on the moon," said Mr. Putin, with more sarcasm than wit. He offered this observation after keeping his American guests cooling their heels for 40 minutes, a tactic that recalls the habits of the late Syrian strongman Hafez Assad.

Mr. Putin's claim that the deployment of 10 interceptors poses a threat to his country's nuclear deterrence is almost as preposterous as his claim that Iran's nuclear program poses no threat. Or rather, it would be preposterous if his opposition to this modest U.S. defense initiative wasn't Mr. Putin's entire point. In his smiles yesterday with Mr. Ahmadinejad, as in his scowling at Ms. Rice and Mr. Gates, one sees the future of Russian foreign policy -- and it is beginning to look a lot like its 20th-century past.

A proposal to import Central Asian oil into eastern Europe and break the region’s dependence on Russian crude faces the same old problems

Derek Brower, journalist

FOR politicians in Poland and the Baltics, it seems like a wonderful idea. If Russia is no longer willing to export oil to the region, then upgrade an existing pipeline and bring in crude from the Caspian.

At a summit in Vilnius last week, the heads of government of Ukraine, Poland, Lithuania, Georgia and Azerbaijan agreed to do just that. The deal called for an extension of the Odessa-Brody pipeline in Ukraine to be built, stretching to Plock and Gdansk in Poland. President Yushchenko, of Ukraine, says that the pipeline could eventually handle 800,000 b/d, sufficient to meet the bulk of demand in each of the countries, and certainly to diversify their import requirements away from Russia.

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To the right, Europe

With the exception of Azerbaijan, each of the countries has good reason to see diversification of its energy supplies as a political necessity. Lithuania’s imports of Russian crude, for example, have been shut in since last year, when Russia’s state oil transport company, Transneft, ceased exports for “technical reasons”. Lithuania says the supply cut was punishment for allowing a stake in the Mazeikiu Nafta refinery that Yukos once owned to be bought by Poland’s PKN Orlen, and not a Russian firm. Since then, Lithuania has been importing crude by sea.

The latest idea would actually restore the Odessa-Brody pipeline to its original purpose, to import crude into northwest Ukraine. Built in 2001, the pipeline stood empty for three years before the government of Leonid Kuchma, under pressure from Moscow, agreed to reverse the flow of the line and lease capacity to TNK-BP, allowing it to export into the Black Sea.

The good news for the politicians in New Europe who have backed the latest plan is that Baku is willing to export oil to help fill it. The bad news is that Socar, Azerbaijan’s state company, is the only producer in the country likely to be interested, according to analysts, and it won’t have much spare capacity to offer.

The BP-led AIOC consortium, which is producing oil from the Azeri-Chirag-Guneshli fields in the Caspian, has committed its output to the Baku-Tbilisi-Ceyhan export pipeline. Indeed, after that export route came on stream in 2005, a previous export route, from Baku to Supsa on Georgia’s Black Sea coastline, fell into disrepair. It remains out of commission and any exports to Ukraine would require investment to repair it and bring it back on line.

There are other problems with Odessa-Brody-Gdansk. Refineries in eastern Europe process Urals blend crude, so upgrading them to handle Caspian grades would be necessary. But the biggest problems is that Kazakhstan now seems unlikely to support the line, despite saying last year that it would have spare capacity to send to Brody. Kazakhstan’s energy minister, Sauat Mynbayev, was in Vilnius at the summit where the deal was agreed. But his comments there were hardly encouraging. Kazakhstan already has agreements in place with Moscow for the export of its crude, he said, and “any change of route for any volumes would have to be coordinated with Russia”.

The key for Kazakhstan is a new Bosphurus by-pass pipeline being built between Burgas, in Bulgaria, and Alexandroupolis, in Greece. Russian companies own 51% of that pipeline and Moscow, say sources, has told Kazakh companies that unless they agree to export crude through it, Russia will not agree to expand the infrastructure that takes Kazakh crude to Novorossyisk, a port on the east coast of the Black Sea.

That could be decisive for Kazakhstan. With new production from the Kashagan and Tengiz oilfields due on stream in the next few years, Kazakhstan needs the Caspian Pipeline Consortium to increase the capacity of its export system from 700,000 b/d to 1.3m b/d. Resolving that bottleneck, it seems, could have implications for Poland and Ukraine’s plans.

It leaves the Odessa-Brody-Gdansk pipeline “a political project without any commercial basis” says one analyst. “Poland could sink $700m into the extension and be left with the same white elephant that Ukraine had before it reversed Odessa-Brody in the first place.”

Another analyst says that the political imperative could soon weaken, too. “It is the Polish elections next week, so politicians are going to say anything that is even vaguely anti-Russian.” Eastern Europe has a Russian energy problem – but if its politicians are playing games with the issue, it is unlikely to go away soon.

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Russia's President Vladimir Putin, Iran's President Mahmoud Ahmadinejad, Kazakhstan's President Nursultan Nazarbayev, Turkmenistan's President Kurbanguly Berdymukhamedov and Azerbaijan's President Ilham Aliyev (R-L) pose for photographers while attending the Caspian Sea Littoral States summit in Tehran October 16, 2007. (Raheb Homavandi/Reuters)

President Vladimir Putin’s annual call-in show, due to take place this week, has already attracted 700,000 questions, with emphasis on housing programs and benefits. Mayor Yury Luzhkov has demanded that rules governing foreign workers be toughened up. German Gref, the former economic development and trade minister, has been nominated as the next chief executive of Sberbank by the bank's supervisory board. Russia must shed its dependence on commodity sales for the nation to become a global economic “leader, said Russian Deputy Economy Minister Andrei Belousov.

PricewaterhouseCoopers said that Russia could expect robust mergers and acquisitions activity over the next year, as the recent global liquidity squeeze and associated higher costs of borrowing drive down the valuations of potential targets. "The rapid growth [the banks] had will have to slow down because the wholesale funding is not there for them. This will challenge, in the short term, their margins and profitability.” A top Ukrainian official has welcomed statements by Gazprom board chairman Dmitry Medvedev hinting that Gazprom may sell gas directly to the country next year, cutting out gas trader RosUkrEnergo.

One outcome of President Putin’s visit to Iran is that the presidents of the Caspian Sea states (Russia, Iran, Kazakhstan, Turkmenistan, Azerbaijan) have agreed that, should one of them be in armed conflict with a third state, neither their territory nor their armed forces will be used against it, implying that Russia will defend Iran's interests should it come into radical conflict with the United States. The joint statement between Russia and Iran affirmed “the promotion of a fairer and more democratic world order.” Putin had already announced that “We should not even think of making use of force in this region,” and both Putin and Mahmoud Ahmadinejad frequently talk about the need to resist “unipolarism” – a “code for American influence.” Most controversially, Putin also announced that the Caspian Sea states, including Iran, have the right to develop a peaceful nuclear program without limits, although Putin was not clear on when the Russian-built Bushehr nuclear power plant in Iran would be completed, signifying some temperance in his approach, and the project has already been “repeatedly put back”. Russia has proposed holding an economic conference of Caspian Sea states at the level of deputy prime ministers next year in Astrakhan. In Europe, Industry and Energy Minister Viktor Khristenko said that Russia opposed a European Union proposal to prohibit Gazprom from controlling EU natural gas transmission networks as long as the company remains a supplier, highlighting some tensions over the draft legislation. "Regulation of the electricity markets and gas markets does not necessarily have to follow precisely the same pattern." Top energy officials from Russia and the EU at the Brussels meeting agreed to postpone the dispute over investment access in the gas and electricity sector and “showed a united front on gas prices and secure supplies.” Russia is still in talks with Venezuela to develop a new 220,000 barrels per day refinery in the country that would supply US markets.

In its annual Worldwide Press Freedom Index, the media rights group Reporters Without Borders (RSF) has again given Russia a poor ranking. Could Alisher Usmanov become Uzbek president? Russian police are preparing for violence ahead of the Euro 2008 qualifying match between England and Russia, with police forces already reporting a number of attacks ahead of the game.

Tomorrow at 2:00 PM (EST), the House Financial Services Subcommittee on Domestic and International Monetary Policy, Trade, and Technology is holding a hearing on the Yukos affair with my colleague Tim Osborne, Anders Åslund and others.

You can tune in for a live webcast here.

U.S.-Russia Economic Relationship: Implications of the Yukos Affair Wednesday, October 17, 2007, 2:00pm, 2128 Rayburn House Office Building

House Financial Services Subcommittee on Domestic and International Monetary Policy, Trade, and Technology to Hold Hearing to Review U.S.-Russian Economic Relations and the Implications of the Yukos Affair

Washington, DC – U.S. Representative Luis V. Gutierrez (D-IL), Chairman of the Subcommittee on Domestic and International Monetary Policy, Trade and Technology, today announced that the subcommittee will hold a hearing entitled: “U.S.-Russia Economic Relationship: Implications of the Yukos Affair.”

"This hearing will provide the subcommittee with an opportunity to closely examine the Yukos matter, including the losses suffered by U.S. shareholders, and determine what impact this incident will have on future U.S. investment in Russia," Gutierrez said. "U.S and other would-be foreign investors need to know whether the rule of law will be upheld in Russia. Instances like the Yukos situation create an uncertainty among potential investors, which could result in a substantial loss of investment for Russia and impede its integration into the global economy. The subcommittee seeks to determine whether the Yukos affair is an exception or the rule when it comes to Russian investment."

Witness List & Prepared Testimony:

* Mr. Tim Osborne, Wiggin Osborne Fullerlove, London
* Mr. Anders Åslund, Senior Fellow, Peterson Institute for International Economics
* Mr. Clifford Gaddy, Senior Fellow, The Brookings Institution
* Mr. David Satter, Research Fellow, Hoover Institution

This video from the Wall Street Journal accompanies the much-discussed article "As Burgers Boom in Russia, McDonald's Touts Discipline." As this blog has reported in the past, there remain tremendous business opportunities in Russia for retail, advertising, financial services, and consumer and food services. Strategic sectors are a whole other question. There is of course no small irony in the fact that one of the indisputable icons of American capitalism should have its busiest location in Pushkin Square, Moscow (the runner up is the McDonald's in Munich's Karlsplatz square).

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Press freedom watchdog Reporters without Borders has published its 2007 Worldwide Press Freedom Index, which ranked Russia at 144, just below Yemen and Afghanistan and above Tunisia and Egypt. Poland and Bulgaria were among the worst performers in the European Union.

Hats off in congratulations to the bureaucrats sitting atop Rosneft, which just reported strong quarterly sales results of $10.8 billion - up from $8.6 billion from the same period in 2006, thanks to the company's "managerial excellence" (Or, as Vidya Ram of Forbes writes: "The success was largely thanks to the company's acquisition of refineries formerly owned by Yukos. Rosneft was the main beneficiary from the break up of the former Russian oil giant, which was declared bankrupt, while its former chief executive Mikhail Khodorkovsky was thrown in jail for tax evasion and fraud.").

Rosneft President Sergey Bogdanchikov boasted to Reuters that these results don't even fully account for "recently acquired assets while their integration is still ongoing." The Bogdanchikov family must have a lot to celebrate - not only is Rosneft funneling in the profits from what international courts have found was an unlawful seizure of Yukos assets, but Sergey's son Alexei Bogdanchikov gets to head up Rosneft's investor relations department.

But nepotism also has it costs, as demonstrated by the recent open letter on the spy wars from Viktor Chersekov, which prompted one expert to ominously warn that "They stood together as long as they were robbing others of their assets. But after dividing the spoils, they realized that they can only expand their wealth by robbing one another."

The biggest question is whether or not the rest of the powerful members of Putin's elite inner circle are willing to lose it all in order to cover up the crimes of just a handful of people. From today's RFE/RL report "Inside The Corporation: Russia's Power Elite."

Such a concentration of commercial and political might has led to conflicts, despite the group's ideological homogeneity. This has been most visible recently in Cherkesov's long-standing and bitter feud with Patrushev and Sechin, which went public in early October. Cherkesov has long coveted Patrushev's post as FSB chief. Patrushev and Sechin are wary of Cherkesov's rising clout and Sechin and Sergei Ivanov are also fierce rivals for Putin’s ear and influence in the Kremlin.

Sechin's interests as Rosneft chairman have also clashed with those of Medvedev's at Gazprom. A proposed merger between the two state-controlled behemoths was abandoned in 2005 due to rivalries between the two men's power bases in the Kremlin. The two sides also clashed over the division of the bankrupted Yukos oil company's production assets -- the majority of which were eventually acquired by Rosneft.

Sechin's interests also clash with Yakunin's at Russian Railways -- mainly over whether oil will be transported by pipeline or rail.

"They have problems among themselves," says Vladimir Pribylovsky, head of the Moscow-based Panorama think tank. "They are afraid of each other. They are seeking somebody they can trust with the throne. Everybody trusts Putin. They don't know what will happen with his successor," Pribylovsky adds.

So how long will Sechin and Bogdanchikov be able to hold off the likes of Yakunin, Chersekov, Medvedev, and others?

Back on Sept. 20, a deadly firefight broke out in the mountainous breakaway region of Abkhazia - the separatist "frozen conflict" area where Georgia and Russia play an endless game of tug-of-war. When the smoke cleared, there were two dead Abkhazian fighters, two dead Russian soldiers, many wounded, and two differing accounts of the incident.

A investigation was opened by UNOMIG's Fact Finding Team, resulting in a preliminary report which blames the Georgians for the clash.

Russia's Foreign Ministry was quick to fire off some sharp criticism, saying that the Georgian conduct should be viewed as "premeditated murder committed with particular cruelty. ... It is essential that the final results of the ongoing inquiry should identify this outrageous crime's organizers and perpetrators, who must face a deserved punishment."

What did the UN find? That the clash took place within Abkhazian territory, about 300 meters from the administrative border - the critical distance between murder and sovereign defense.

In today's column, Anne Applebaum spends some time in the Skype offices of Tallinn, Estonia to contemplate the difficult dynamic of historical reckoning, sovereignty, and economic growth among Russia's former satellite states:

One Estonian politician told me that a German colleague had instructed him to forget about history and move on, saying that "you're wasting your time."

But nobody ever asks the Germans to forget about history and move on, do they? Walk through the Skype headquarters in Tallinn, look through the big picture windows at the crumbling concrete buildings outside and it becomes clear that the phenomena of economic progress and historical contemplation are actually closely connected. The Central European economies are no longer basket cases, and the Central Europeans are no longer desperately poor neighbors. As the Hungarians, Poles and Balts become more successful and more self-confident, it's natural that they want their stories told, their issues discussed. The Germans only properly came to terms with their history in the 1960s, 20 years after World War II ended. Almost the same amount of time has elapsed since 1989.

There may be other forces at work. Without question, the economic success stories of the region, particularly in the former Soviet republics, pose an ideological challenge to the government of Russia. Estonia and its neighbors have joined Western institutions, expanded Western trade. Russia has chosen a different path: confrontation with the West and an economic model based on oil rather than genuine capitalism. The regional sparring over history is also an argument over whose definition of the past, whose ideology and whose economic rules will prevail: those of the big Russian gas concerns or those of Skype.

Me, I'm rooting for Skype, or at least for its bearded, multilingual employees. Even if their company wasn't worth all those billions after all.

This week a new study was published by the talented Dr. Ariel Cohen and Viacheslav Evseev about the growing importance of the Russian private sector's role in sustaining economic ties with the United States (given that political relations are at such a low). The conclusions of this study are another reminder that it is in the best interests of all parties that Russia join the WTO (a familiar argument coming from me), giving these trade associations the opportunity to grow, and introducing Russia to a functioning international rule-based system.

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From Heritage.org:

The governments of Russia and the U.S. should recognize that trade associations are potential driv­ers for improving and strengthening Russia's foreign economic ties in general and U.S.-Russian business ties in particular. They could become advocates for a more favorable business environment and invest­ment climate in Russia. To support these associa­tions, the U.S. and Russian governments should:

* Encourage the development of Russian trade associations through existing civil society and market reform assistance programs and through educational and professional exchanges. In par­ticular, the U.S. and Russian governments should provide opportunities for Russian busi­ness associations to work in partnership with their U.S. counterparts. Both governments should also encourage Russian trade associations to strengthen their representative and advocacy roles by improving the quality of representation, adopting more effective management and leader­ship practices, expanding their traditional areas of expertise and services, enhancing cooperation among trade associations, and playing a more proactive role in dealing with emerging issues relevant to the industries that they represent.

* Involve Russian trade associations in fighting corruption and intellectual property rights violations. Both governments should support business associations in their efforts to reduce regulation and make business decision making more transparent. Institutionalized representa­tion activity would make lobbying by business interest groups more transparent and accessible and less susceptible to corruption.

* Work together to enhance the dialogue between state agencies and trade associations on bilateral economic issues. U.S. Agency for International Development (USAID) programs in Russian could support relevant educational and exchange programs for future trade associa­tion professionals.

The U.S. should also:

* Encourage the Russian government to recognize that trade associations play an important role in market economies and to create a more favorable operating environment by providing tax exemption to NGOs in general and to trade associations in particular.

Full study here.

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Iranian President Mahmoud Ahmadinejad and his Russian counterpart Vladimir Putin review an honor guard, during an official welcoming ceremony for Putin, who arrived to attend the Caspian Sea leaders summit in Tehran, Iran, Tuesday, Oct. 16, 2007. (AP Photo/Vahid Salemi)

The Other Russia opposition coalition plans to hold rallies in a number of major Russian cities at the end of November. "The radically motivated who are determined to exercise their rights will participate," said Denis Bilunov, one of the organization’s leaders. The Russian State Duma will consider the first reading of an amendment on preparations for the 2014 Olympics. Besides establishing the controversial rules for property seizure in Sochi, the amendment contains a list of tax benefits to be added to the Tax Code, which the government allegedly finds “excessive”. “All those tempted to believe, even fleetingly, that a Russia without Putin would be either safer or better, must be more careful about what they wish for.” Central Elections Commission data show that a number of its State Duma deputies have seen their incomes rise dramatically over the past four years, with that of Vladimir Zhirinovsky of the Liberal Democrat party increasing over five times since 2003.

Political and security analysts suggested that weekend reports of Iranian plots to assassinate President Vladimir Putin might have been part of a foreign intelligence attempt to increase Russia's willingness to back sanctions against Iran for its nuclear program. "Of course I am going to Iran. If I listened to all the various threats and the recommendations of the special services, I would never leave home," Putin said. Ahead of talks in Tehran, Putin has already warned the US that peaceful dialogue is the only way to approach the situation. "Threatening someone, in this case the Iranian leadership and Iranian people, will lead nowhere. They are not afraid, believe me." In Tehran, Putin will hold talks with Iranian President Mahmoud Ahmadinejad and the leaders of Kazakhstan, Turkmenistan and Azerbaijan to try to come to a solution on a Caspian border dispute that has impeded the development of several potentially lucrative offshore energy fields. The issue “has clouded relations among the five countries since the Soviet breakup in 1991.” Putin also emphasized the need for all Caspian nations to prohibit the use of their territory by any outside countries for use of military force against any nation in the region — "a clear reference to long-standing rumors that the United States might be planning to use Azerbaijan, a former Soviet republic, as a staging ground for any possible military action against Iran." Republican White House hopeful John McCain said that Russia should be barred from the G8 group of powerful nations for trying to "bully" its neighbors and cutting political freedoms. German Chancellor Angela Merkel, who fears that Europe could be embroiled in the US-Russia missile row, has again called for the missile shield issue to be resolved within the North Atlantic Treaty Organisation (NATO). "We discussed the dialogue between the United States and Russia and I stressed once again that the relationship between Russia and NATO is the right forum to resolve this issue," she said. During talks with Putin, Merkel made clear for the first time that the Nord Stream pipeline would definitely be constructed. The Indian Defense Minister A. K. Antony will arrive in Moscow this week to attend a session of a Russian-Indian intergovernmental commission on military-technical cooperation.

Mayor Yury Luzhkov said that he would seek action from the Federal Anti-Monopoly Service over concerns that lack of competition in the cement sector was stifling the country's building boom. Singled out for particular criticism were acquisitions made in spring 2005 by leading market player Eurocement, which dramatically raised the company's share of the market. The government has abandoned efforts to pass a new law regulating foreign investment in the strategic natural resources sector in a move that looks set to prolong uncertainty in the country's business climate. "For now, there will be no law. We're going with amendments," said a spokesman for the Natural Resources Ministry. Foreign investors decried the move. "The revised law will fail to attract adequate investment," said the president of ExxonMobil Development. E.ON, the German utility, has completed the €4.1 billion purchase of the generator OGK-4 and taken its first steps into the Russian power market. A $6bn energy development consortium led by U.S. oil producer Chevron in Kazakhstan is facing challenges from the Russian government over a pipeline that runs through Russian territory. OAO Gazprom Neft, the oil arm of Russia's state-run natural-gas producer, has found an additional oil deposit at the Vorgensky license area in Siberia. Lukoil OAO president Vagit Alekperov said his company wants to participate in future oil exploration projects in Russia's Arctic shelf territories.

Travis Katz, head of international operations at MySpace: “We initially launched in countries where we could make money, as they had a developed online advertising market. We are now moving into countries that are at a much earlier stage of development. Russia, for example, does not have a huge online advertising market. But the time to go in is now, when we can capitalise on the growth in these markets."

Both John McCain and Hillary Clinton have new essays in the next edition of Foreign Affairs. McCain, who has spoke out in the past on Russia, uses the opportunity to call for Russia's removal from the G8:

A decade and a half ago, the Russian people threw off the tyranny of communism and seemed determined to build a democracy and a free market and to join the West. Today, we see in Russia diminishing political freedoms, a leadership dominated by a clique of former intelligence officers, efforts to bully democratic neighbors, such as Georgia, and attempts to manipulate Europe's dependence on Russian oil and gas. We need a new Western approach to this revanchist Russia. We should start by ensuring that the G-8, the group of eight highly industrialized states, becomes again a club of leading market democracies: it should include Brazil and India but exclude Russia. Rather than tolerate Russia's nuclear blackmail or cyberattacks, Western nations should make clear that the solidarity of NATO, from the Baltic to the Black Sea, is indivisible and that the organization's doors remain open to all democracies committed to the defense of freedom. We must also increase our programs supporting freedom and the rule of law in Russia and emphasize that genuine partnership remains open to Moscow if it desires it but that such a partnership would involve a commitment to being a responsible actor, internationally and domestically.

Not to be outdone, Sen. Clinton sounds off on Russia as well:

Statesmanship is also necessary to engage countries that are not adversaries but that are challenging the United States on many fronts. Russian President Vladimir Putin has thwarted a carefully crafted UN plan that would have put Kosovo on a belated path to independence, attempted to use energy as a political weapon against Russia's neighbors and beyond, and tested the United States and Europe on a range of nonproliferation and arms reduction issues. Putin has also suppressed many of the freedoms won after the fall of communism, created a new class of oligarchs, and interfered deeply in the internal affairs of former Soviet republics.

It is a mistake, however, to see Russia only as a threat. Putin has used Russia's energy wealth to expand the Russian economy, so that more ordinary Russians are enjoying a rising standard of living. We need to engage Russia selectively on issues of high national importance, such as thwarting Iran's nuclear ambitions, securing loose nuclear weapons in Russia and the former Soviet republics, and reaching a diplomatic solution in Kosovo. At the same time, we must make clear that our ability to view Russia as a genuine partner depends on whether Russia chooses to strengthen democracy or return to authoritarianism and regional interference.

Apparently, when we hear about U.S. policy toward Russia during the debates of the upcoming elections, we can expect candidates to 1) remark upon Russia's energy manipulation, 2) talk about Russian intervention in former satellite states, and lastly 3) reiterate the need for partnership with the Kremlin to solve Kosovo, Iran, or [insert geopolitical crisis here]. It is not difficult to see which constituents the candidates are seeking to please with each of these points. Significant changes to the U.S.-Russia relationship do not feel very close, but at least some of the candidates are beginning to talk about it. Contributions in the same journal from John Edwards and Rudy Giuliani barely mention Russia at all, showing that unlike other more fashionable foreign policy issues that resonate with the American public, talking about policy toward Russia is challenging, unrewarding, and labor intensive.

During the Petersburg Dialogue at Weisbaden, President Vladimir Putin fielded some criticism on Russia's new legislation governing non-governmental organizations, which has been characterized by many as a crackdown on independent voices. The president says he is not aware of any problems:

As far as I understand the situation, none of the disasters that some feared have taken place since Russia passed the law on non-governmental organisations. The organisations that wished to register have done so. Of course, organisations are required to submit documents on their finances and charter, but this is not an insurmountable obstacle for getting registered and continuing work. Perhaps there is bit too much red tape; we would have to look at the situation and make adjustments if needed. But as far as I know, there have been no mass refusals or re-registration procedures. There have been only isolated cases in which organisations have been asked to correct documents presented. That is all. But as I said, we can examine the state of affairs again – I do not see any problems here.

Earlier, during Putin's plenary speech, he declared that "Russia and Germany are probably closer than ever in the way they see the future of Europe."

EU Energy Commissioner Andris Piebalgs struck a more conciliatory tone in regards to Gazprom and competition at a conference today:

"Do we treat Gazprom as we treat Microsoft? Yes we do. The difference is that Microsoft has 100 percent of the market," Piebalgs told a conference in the Latvian capital Riga.

"That is why we do not take measures against Gazprom, there is no need. They do not play a big enough role in the market."

Really? This contrasts with comments Piebalgs made earlier during the unveiling of the new EU energy policy package. In other news, some think that the Putin-Merkel meeting will focus in part on Russia asking Germany to defend Gazprom's interests.

From the Washington Post's coverage of Rice's non-confrontational visit with Putin:

After meeting with Rice on Saturday morning at the U.S. ambassador's residence, Tatyana Lokshina, head of the Demos Center, a Russian human rights group, described the secretary of state as an "impressive and an interesting interlocutor" but said Rice and other officials had lost leverage over democracy in Russia because of Iraq and other issues.

"Whatever criticism the Russian authorities get is wasted to a large extent since the Russians say the U.S. does not have the right to criticize us because of their own record. American criticism alone, the American voice alone, cannot be effective today," she said in an interview afterward.

Lokshina said that when she challenged Rice over the U.S. detention facility for terrorism suspects at Guantanamo Bay, Cuba, Rice responded, "We never lost the high ground."

FRONTLINE/WORLD, the interesting online video site of the popular PBS documentary series, has posted up a short clip of a Grigory Yavlinsky speech in St. Petersburg about the plans to build the Gazprom Tower, a controversial skyscraper that has conservationists and others up in arms to block it.

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Here's an excerpt from the filmmaker's notes on her shoot in Russia:

Earlier on this anniversary day, I filmed a motley procession of government dignitaries, including Yavlinsky, members of Putin's United Russia party, and hardline communists, as they placed flowers at the memorial to victims of the World War II blockade. The staid ceremony was being filmed for the evening news by Russia's federally owned television channels. After the ceremony, I followed Yavlinsky and his entourage into the memorial's underground museum. Though Yavlinsky is an official presidential candidate, none of the television crews followed him. Along with a cameraman hired by Yavlinsky's party to document the event, I filmed alone as Yavlinsky looked at artifacts from the war and a tour guide recounted the horrors of the blockade. Hitler saw no place for the city (then called Leningrad) in his mad plan for Europe, so he commanded the Wehrmacht (Germany's Armed Forces) "to wipe the city off the face of the earth."

No European country in the 20th century has seen more upheaval and bloodshed than Russia, nor has any endured such a long succession of dictators. Despite the hardships caused by Russia's transition to capitalism in the early 1990s, the past two decades have been her most hopeful. But even as the economy booms, political opposition is being stifled. In the summer, Yavlinsky told me, "I know the history of my country very well, and I know what is possible. I'm happy for the freedoms we've had these past 20 years."

As I continue to cover an election this fall whose outcome most think is predetermined, I don't know whether other voices in Russia will find a way to make themselves heard.

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German Chancellor Angela Merkel, right, and Russian President Vladimir Putin review the honour guards at the Kurhaus resort garden in Wiesbaden, Germany, Monday, Oct. 15, 2007. (AP Photo/Anja Niedringhaus)

At least four regional figures from the A Just Russia party have defected to United Russia in recent months in what analysts describe as “a further consolidation of power by the country's dominant pro-Kremlin party.” A survey released by the VTsIOM polling center found that only 3% of respondents were planning to vote for A Just Russia, while 54% favored United Russia. Voters could lose much of their say in the country's affairs under a bill backed by pro-Kremlin party United Russia that would “drastically reduce the range of issues eligible for a national referendum.” President Vladimir Putin has criticized the Agriculture Ministry for “clearly not doing its job” in the crisis situation of rising food prices, and the government will consider cutting import taxes on dairy products to 5% for a period of six months to battle inflation.

Putin is due to be the first Russian leader to visit Iran since Soviet dictator Joseph Stalin went there in 1943, but it has emerged that several groups of terrorists are planning assassination attempts against him during his planned visit this week. The media reports about these attempts have been denounced as “totally groundless” by Iran’s Foreign Ministry’s spokesman, and “could be viewed as a part of the psychological war fought by Iranian enemies to cloud relations between Iran and Russia.” Despite reports to the contrary, it is not certain yet whether the trip will go ahead. "We don't have information on whether he is going or not," Kremlin spokesman Dmitry Peskov said by telephone from Tehran. "The visit is not yet confirmed.

A weekend visit by US Secretary of State Condoleezza Rice and Defense Secretary Robert Gates failed to resolve tensions between Washington and Moscow. At a joint news conference for the participants afterward, Foreign Minister Sergei Lavrov said that if the United States does not freeze its missile defense plans while the issue is still under discussion, Russia would "take measures to neutralize that threat." Defence Minister Anatoly Serdyukov said US plans contained "a strong anti-Russian component." Rice also commented that government under President Putin may undermine Moscow's commitment to democracy. "In any country, if you don't have countervailing institutions, the power of any one president is problematic for democratic development." She has also shown her support for Russian human rights activists in Moscow. Gates said Russian and American officials “agreed to disagree" over their respective arms sales to other countries, but Rice was less neutral. "I think the rapid growth in Russian military spending definitely bears watching," she said. Prime Minister Viktor Zubkov Rice on Russia's bid to join the World Trade Organization, calling for the repeal of the Jackson-Vanik amendment, a Soviet-era piece of legislation that has been a key obstacle to the country's WTO accession, but Poland has just warned that it would block Russia's entrance to the WTO if Moscow did not cancel an embargo on exports of Polish meat and produce. Chancellor Angela Merkel has stressed that Germany and Russia are "bound together by a strategic partnership," ahead of talks with Putin, who believes that the countries are “united by their desire to solve these issues jointly.”

Big business discourages criticism of Russian politics because “criticism is bad for business.” And indeed, despite relatively unproductive meetings between France and Russia last week, the future GDF Suez group, which plans to merge in early 2008, has not ruled out investing in Russia. Norilsk Nickel's board of directors remained intact Friday after Mikhail Prokhorov, dropped his earlier demands for its re-election amid reports that he is ready to sell his 25% stake. State utility Unified Energy System has said that the planned sell-off of OGK-6 had been delayed. Only weeks before, OGK-2’s share sale raised almost $0.5 billion less than expected, after state-controlled Gazprom bought in at the lower end of the price range to keep control. Some argue that the problem is not due to toughening market conditions but the role of Gazprom. "The secondary placement [of OGK-6] will not attract any other strategic buyer except Gazprom," said one analyst. "[Gazprom] is a major problem for attracting any other bidders." OAO Gazprom Neft, the company’s oil arm, has raised its stake in a Russian joint venture with Chevron Corp. to 75%. The company will start a three-day roadshow for a benchmark euro-denominated bond. Russia’s automobile giant AvtoVAZ and FIAT Consortium will seal a strategic partnership memorandum.

Russian Air Force spokesman: "Russian strategic bombers Tu-160, Tu-95 and Tu-22M3, and Il-78 aerial tankers will conduct flights over the Arctic region, the Atlantic and the Pacific oceans, and the Black Sea, with simulated bombing raids and firing of cruise missiles at testing grounds in northern and southern Russia.”

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PwC literally getting iced in Russia (photo from www.pwc.com)

Today's news that Russia has extended its campaign against the accounting group PricewaterhouseCoopers for its work related Yukos is another reminder that pandering with the Russian state simply doesn't work. We learned this same familiar lesson in the case of Russneft, when fallen owner Mikhail Gutseriyev recanted his public comments, yet ended up having to flee the country while his company was delivered to Oleg Deripaska in gift wrapping. For PwC, it seems that the quid pro quo move of withdrawing ten years worth of Yukos audits to satisfy the prosecutors was not sufficient. Clearly they are being persecuted by people who don't stop at a deal.

From the Financial Times: "Russia widens PwC's tax case"


During hearings in a tiny court room in northern Moscow, representatives of the fifth tax inspectorate subpoenaed PwC and the Russian prosecutor-general's office for a list of the global audit firm's 146,000 employees and for a breakdown of its foreign entities.

They demanded information on PwC offices consulting Yukos and affiliated entities on registering firms abroad, on creating trust agreements and "option" schemes to exert control over foreign entities, as well as information on whether they provided services for the "siphoning of assets out of Russia via oil trading firms".

A trio of judges granted their request in spite of the protests of PwC's defence team, who said the request had nothing to do with the appeal case being heard and thus was in breach of procedure.

"This is not a hearing about PwC in general," one defence lawyer objected. "This is absurd."

The Moscow appeal court had convened to hear PwC's appeal against a ruling earlier this year, which found that PwC Moscow had colluded with Yukos to sign off on "false" audits from 2002 to 2004, a ruling that covered a contract between ZAO PwC Audit in Moscow and Yukos.

The ruling had looked to threaten the firm's licence to operate in Russia, where it audits some of the country's biggest blue chips, including Gazprom.

The case has been seen by critics as an attempt by Russian officials to portray the government campaign against Mikhail Khodorkovsky's Yukos as Russia's Enron.

A Cry from a Jar of Spiders

By Grigory Pasko, journalist

Kommersant recently published an article entitled “We must not allow warriors to turn into traders”, written by the head of the Federal Service of the Russian Federation for Control of the Circulation of Narcotics, Viktor Cherkesov (English translation here). This is a kind of response by one of the highly-placed chekists in Putin’s Russia to the recent arrests of several high-ranking officials with the Federal Service of Narcocontrol, as the agency is popularly known. In the Russian media, these arrests have already been called a “war of the special services”. In the opinion of Cherkesov himself, this is the result of the non-independence of the Investigative Committee.

It is noteworthy that Cherkesov, the brave warrior, never did write just exactly who the Investigative Committee recently created by Putin is dependent on.

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Pasko: Cherkesov's article is like Yaroslavna's lament

In my opinion, all this – both the arrests of the Narcocontrol generals and Cherkesov’s exercises in letter-writing – are the essence of the manifestation of the degradation of Putin’s style of running the country. The infamous “vertical of power” has shown its rotten core. The whole problem is that the “KGB hook”, about which Cherkesov writes, and which, in his opinion, is what saved Russian society from total disintegration, and which was the prototype for this “vertical”, was also rotten right from the start. It goes without saying that Cherkesov never admits this. It’s all fine and dandy to muse on how the corporation of chekists are God’s chosen people, while forgetting about one’s own personal involvement in the hounding of innocent people. Or has Cherkesov forgotten about his role in the persecution – just as one example – of the ecologist Alexander Nikitin?

Mr. Cherkesov is offering us – Russian society – not a restoration of democratic principles of state-building, but his own, as he writes, “not the best, but ‘compatible with life’, scenario”. It consists, according to Cherkesov, of “completing construction the corporation and providing, with its help, for long-term stability and gradual escape from deep socio-cultural depression”.

As near as I can guess, he’s referring precisely to the corporation of Chekists, of whom in today’s Russia around 80% are found in power. Completing construction of the corporation? Hasn’t its construction already been completed in the form of the “vertical of power”? Or is this “battle of the spiders in a jar” the uncompleted construction of the corporation that he means? Thus will such battles always be in the system of universal secrecy that has become the style in which the country is run. Because there is no openness in power, there is no competition in the naming of officials, there is no real role for an opposition, there are no independent media and courts that could serve as a counterbalance to the uncontrolled special services and at least as some kind of arbiters in the “battles of the spiders”.

Mr. Cherkesov writes that he understands that “in this scenario there are huge risks. Including the danger of transforming a great country into a quagmire on the model of the worst Latin American dictatorships with their social closedness and neo-feudalism… Besides negative, corporatism can also be positive.”

Of course it can. But not here and not now. Not with Putin and not with Cherkesov. They have already demonstrated to us enough their commitment precisely to “a quagmire on the model of the worst Latin American dictatorships”.

Mr. Cherkesov also writes that any corporation (including a chekist one), in order to be healthy, has to “be a keeper of norms”. Moreover, in the opinion of the chekist Cherkesov, “it is preferable that these norms be not only internal, but also nationwide”.

In my day, I had the experience of studying these very norms of chekist legality, morals, etc. that they continue to boast about to this day. No thanks, spare me the prospect of the transformation of chekist norms into nationwide ones. Rampant unprofessionalism; a “laws don’t apply to us” attitude; total disregard for the fates of people, not to mention their lives; masquerading as democrats; a desire to line their own pockets with riches at the expense of the resources of the whole country – there’s their corporate norms for you.

But Cherkesov’s article, that’s a “Yaroslavna's lament”. A cry from the jar in which the spiders are kept.

Below is an exclusive translation of the important open letter published in Kommersant by a high level security official exposing the bitter infighting amongst the Kremlin's various factions. Cherkesov, who is believed to be an opponent of Igor Sechin, argues that too many former KGB officers have gotten involved in business.

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"We must not allow warriors to turn into traders"

On the “war of the groups” within the special services

By Viktor Cherkesov , Kommersant, Oct. 9, 2007

Last week, there took place the detention, followed by the arrest as well, of high-ranking officials of the Federal service of narcocontrol (see Kommersant from 4, 5 and 6 October). An evaluation to these events, to the societal resonance brought about by them and the possible consequences – not only for his own agency, but also for all the Russian special services – is given by the head of the Federal service of the Russian Federation for control of the circulation of narcotics, VIKTOR CHERKESOV.

The acute events that have unfolded now around a series of employees of the Federal service of narcocontrol can not and should not leave me indifferent. But something else worries to a much greater extent – the scale and the type of the discussion of what is taking place. There are too many reactions. They are too disturbing. And they confirm my worst fears. It is not the reactions themselves that worry, nor the acuity and the activeness of the discussion. On the contrary, we are grateful to everyone who so ardently reacted to what is taking place. What disquiets is the emergence of a new and unhealthy theme. The theme of a feud among the special services.

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The events around the FSKN [Federal service for control of narcotics] will eventually get into some kind of track. I personally am convinced that the law and fairness will triumph, while the guilty will be punished. But the raised topic of the feud will already not be taken off the agenda. And this means that it needs to be reacted to without delay. Right now, while the trail is hot. Because, left without attention, it will become a virus destroying the public consciousness. This is why I am starting from the main theme. And particular subjects I will examine as they should be. As particularities.

"We are the children of frightful years of Russia”, said a great Russian poet. Any generation is a child of its time. Our time just recently stopped being a dark time of troubles. Now it is necessary to scour it of the dark sediment. But this is exceedingly complex.

If any of the officers of narcocontrol has succumbed to specific temptations of the criminal milieu – they ought to be punished. Even more sternly that an ordinary run-of-the-mill bad-apple government official. The narcomafia manages trillions of dollars and controls thousands of professional hit-men. The FSKN has united in its ranks those who are prepared to fight with the truly global “dark empire”. Impurity is absolutely unacceptable in our ranks. I have never put much stock into the falsely understood honor of the uniform. And least of all do I intend to do this now, when the struggle with corruption is turning into the highest human priority for everyone who is not indifferent to the fate of Russia.

All who can help the organs of narcocontrol uncover and cleanse itself of the “werewolves in epaulets” will find in me an active and reliable ally. But everyone who will attempt to transform the noble cause of the struggle with corruption into a turbid and ambiguous quarrel will get a categorical rebuff. And not only because the duty of any manager is to chastise the guilty and protect the besmirched. But also because it is impossible to fight with international and domestic criminal structures in conditions when the warriors do not feel that they are protected. From everything! Including also from the practice when “dirty” narcoincomes are used against them in the regime of the so-called contract. There have already been such instances.

Traitors who have been incriminated in corruption know that we are not acting on the basis of the famous principle of “a son of a bitch, but our son of a bitch”. But honest people, our comrades in arms, who have found themselves in trouble, must be confident that we will stick up for them to the end. The spirit of an army waging war is more important than all the rest. If such protection is not going to be provided for – the spirit will be broken. And, ipso facto, the war is lost. It may be, somebody needs just this?

We are ready for war with corruption. We do battle with narcobusiness. And we are against another “war”. The one about which it has already been loudly spoken for the whole country to hear in connection with the excesses around the FSKN. But they, these excesses, are truly not devoid of strangeness.

The war about which too many have now begun to speak with perplexity and anxiety – this is a feud within the so-called chekist community.

While I do not claim the laurels for having discovered this lamentable theme, I nevertheless want to remind that I was the first to start discussing it already three years ago. The article was called “The KGB in fashion?” (published in the newspaper “Komsomolskaya Pravda” on 29 December of the year 2004.—Kommersant) I proceeded from the premise that any painful problem must be discussed. That there is nothing worse than keeping silent in such questions. That the pus will accumulate nevertheless. And it is better to open the abscess right away than to wait for gangrene to set in.

Being discussed in that time was the conflict between the “liberals” and the “chekists”. The “chekists” were being accused of a certain reactionary conservatism, a desire to restore Stalinism and the complete sovereignty of “the organs”. The truth about the real situation had disappeared from the discussion, and I had attempted to figure out just exactly what this same “chekism” is. The essence of my evaluations consisted of the following.

The country at the beginning of the 1990s had lived through a full-scale catastrophe. It is known that after a catastrophe, a system sooner or later begins to gather anew around those of its parts that had known how to preserve certain systemic features.

It is precisely in such a sense that “chekism” can be accepted for consideration. The cohesionless, heterogeneous, internally contradictory and far from monolithic community of people who had chosen protection of state security in the capacity of a profession in the Soviet epoch turned out in the social respect to be the most consolidated. Or, if we are to speak more precisely, the least cohesionless. All of the catastrophic effects were required in order for it to be able to tighten itself up. Some quickly fell by the wayside, left the professional community. Some betrayed. Some went over to the other side as fast as they could. But some part of the community nevertheless managed to hold on.

I will not discuss anew what kind of part this is and why it managed to survive. Least of all do I intend to idealize what has happened. What happened, happened. Recovery after a near-fatal blow has nothing in common with romanticism.

Falling into an abyss, post-Soviet society latched on to this same “chekist” hook. And held on to it. But there were some who wanted for it to crash into the sea bed and get smashed to pieces. And those who were waiting for this were horribly offended. And began to express outrage, talking about the nasty features of the “chekist” hook, which society had managed to latch on to.

Unconditionally, I do not consider that the criticism of the “chekist flaws” was absolutely groundless. First, only angels are without blemish. Second, the real laws of our profession give rise to a multitude of costs. Only children of elementary and secondary school age can blindly sing the praises of such a craft. Third, a catastrophe really is a catastrophe.

And yet, when it comes right down to it, we really did help to keep the country from a final downfall. In this is one of the meanings of the epoch of Putin, in this is the historical merit of the president of Russia. And this places a huge responsibility on our professional community, one that has nothing whatsoever in common with conceited self-righteousness.

It was not we who formed the social corporativeness that has survived the collapse of the country. It evolved spontaneously in the bowels of the collapse itself and of the chaos brought about by it. And it created some kind of minimal order out of the chaos.

It arose – what next?

Here, in my view, there are three scenarios.

The first and the most favorable: surmounting corporatism, clambering upwards, transforming into a normal civil society. The faster a full-fledged civil society forms itself in Russia, the better it will be for all. Including for my professional colleagues. One must not – foolishly and without any prospects – latch on to corporate acquisitions. It is comical after all that has happened to stand up in a pose and speak of oneself as “the salt of the earth”, as “the elite of the elites”. Personally I will never exchange my rights as a citizen for some kind of “elite preferences”. And I firmly know – I am not the only one.

The second scenario, already not the best, but “compatible with life”, consists, probably, of completing construction of the corporation and providing with its help for long-term stability and gradual escape from deep socio-cultural depression.

I understand full well that in this scenario there are huge risks. Including the danger of transforming a great country into a quagmire on the model of the worst Latin American dictatorships with their social closedness and neo-feudalism. But this is not a foregone conclusion. Besides negative, corporatism can also be positive.

The third scenario, not compatible with life, consists of repeating all the catastrophic mistakes that had led to the collapse of the USSR. Starting to blindly criticize the “chekist” hook and, in the end, having broken it, dragging society down into a new socio-political crisis.

I realize just how many-faced are the forces for whom this scenario seems good.

This is our enemies, who simply need for us, as a country, to fall off the face of the earth. And as a people – to be erased from history.

This is also some kind of systemic competitors, who are hoping that, having torn down the Russian system yet again, they will conquer control over it and will get the economic and other opportunities that flow from this.
This is also moral people, who consider themselves as having the right to criticize the present in the same way as they once criticized the past. Such people honestly and passionately point to certain imperfections of the system. Unfortunately forgetting yet again that these imperfections have grown in many ways precisely from their criticism of the former system.

Having specified the three scenarios, I will perforce focus on the second. Not because it is the best one. But because the worst one is just way too unacceptable. A closed society is always worse than an open one. And everyone who tries to imagine these my reflections as propagandizing a closed society is deeply mistaken, believe me. But even within closed societies there is a certain gradation. They can be relatively healthy and capable of accumulating potential for transition to openness. Or they can be sources of systemic self-destruction. Or, as a minimum, social and political mutation.

In order for any corporation (including a chekist one) to be healthy, it must be a keeper of norms. It is preferable that these norms be not only internal, but also nationwide. But first and foremost, they must be norms. If norms disappear and arbitrariness sets in, the corporation falls apart. Already now, experts and journalists are speaking of a “war of the groups” within the special services.

There can be no victors in this war. Such a war of “everyone against everyone” will end in the complete disintegration of the corporation. The hook will rot away, will crumble away once and for all from internal rust. The entire social construction will start to fall apart. Someone will say: “We saved the country from chekism!” In actuality, they will not have saved the country, they will have ruined it.

Publishing my article then, I wanted for my opinion to attract public attention. But, of course, I was also addressing that corporation, a part of which I am for many years. To my professional estate, to my comrades and colleagues. Someone later jeered: “To the chekist caste”. I fundamentally disagree, but I will note that even a caste is not arbitrariness. It is its own norms and its own rules. A caste gets destroyed from within when warriors start to become traders.

No matter what the chekists might want to be – a force that leads the country out to new wide-open horizons, or a system that provides for some kind of variant of social stabilization through closedness, we must safeguard norms in our milieu. And those who discover that his true vocation is business must leave and go into another milieu. Not attempting to remain concurrently both a trader and a warrior. It doesn’t work that way. It’s either-or. You can not call for overcoming this same war of “everybody against everybody” and at the same time be a participant in it.

And therein is the essence… The excess with the arrests of the employees of narcocontrol has brought about a flurry of publications and reactions, in which only one thing is discussed – that same “war”, its development and connection with the general political process. Suspiciousness is very strong in our society today. But I hope that it will not yet transform into maniacality. And this mass of competent and independent publications will not be interpreted as the intrigues of the FSKN. He who does not believe in our ethical restraints, let him at least soberly assess our capabilities.

No, this is not about us. We are behaving ourselves with the utmost restraint. We will deal with what is taking place on the merits. And separate the wheat from the chaff. The traitors, who disgrace us, from our slandered comrades. The truth from false accusations. For now the picture of the latest dramatic events appears extremely ambiguous.

There are many questions.

Why is one of the arrested FSKN employees alleged to have committed a crime while at his post in a period when he not only was not at this post, but the agency with respect to which this post was established did not even exist in nature?

Does not the existence in one and the same document in the given criminal case of an assertion of the intent of the suspect to abscond from the investigation and the court beyond the border and of a detailed description of this same person’s telephone conversation with wife in the moment when a search was already being commenced in their Moscow apartment, while he was still found far beyond the border with a foreign-travel passport in hand, look contradictory?

By what else, if not by an attempt to compromise the evidence gathered in the case of the “Three whales”, can the fact of the carrying out of a search in the apartment of an investigator, whose only service occupation in the past few years was participation in the work of the brigade of the Procuracy-General of Russia under the leadership of V. Loskutov, be explained?

With what aim are “black marks” with promises of new arrests of FSKN employees being sent out and even their surnames named through a state information agency and the internet? Let us leave aside questions of morality, let us think a moment about the absurdity of a professionally inexplicable “leak” of plans with respect to the detaining of potentially dangerous criminals.

Why have the arrested employees of narcocontrol been aggregated from the number of those who on a legal basis, upon the instructions of the Procuracy-General participated in an inquiry into resonant criminal cases about the so-called “Three whales” and “Chinese” contraband? Are they guilty of having inquired, that is carrying out their duty? And when the need arises for new inquiries, what are the new executors going to have to do? Fight crime or waste time doing nothing, understanding how an appropriate performance of service duties might turn out for them?

For me personally, having 15-years of experience in investigative work, there is yet another difficult question with respect to what is taking place. If the country truly does need an independent investigative committee, then this investigative committee can be successful only under three fundamental conditions.

First, independence.

Second, independence.

And, third, independence.

Alas, the October events have laid bare quite the opposite. And I would say, with overabundant mercilessness.

Here, I suppose, is all with respect to those particularities to which public attention is attracted. Speaking from the conscience, I would like to switch it over to something else. As concerns current events, I am confident, everything will be fine. The main thing is that there not be a tilting, from which the line towards cleansing of corruption will be turned by the fuss of inter-clan conflicts. Because the struggle with corruption is not campaignism and is not pre-election PR. The fate of the Russian state depends in many ways on its outcome.

But in a no lesser degree this future is determining today the state of affairs within our corporate milieu. We must not allow a scandal and a fight. We must not transform norms into arbitrariness. We must not allow warriors to become traders. As a member of the corporation, it is dear to me as such. I think also to everyone who has truly placed himself to such a profession [sic].

Having become focused only on itself and having rejected rules, our community will not simply fall apart, but will change the nature of society. After this it will be difficult to explain to people why they must submit to and treat with reverence those who do not observe norms and are wrapped up in feuding.

Today our corporation is important not in an of itself. It must withstand and survive the burdens of the transition period. After that it can transform itself into a locomotive and lead society into a new quality. And after that – switch from being a corporation into a normal professional group, no different, in essence, from others.

As long as the stability of society to a significant degree relies on this force, the question of its quality is a question of the fate of the country. The cost of the question is thereby too high. And that is why either hiding the problem or transforming it into a great squabble are absolutely unacceptable. Such a process within the Soviet nomenklatura has already turned into a social and geopolitical catastrophe.

Viktor Cherkesov, director of the Federal service of the Russian Federation for control of the circulation of narcotics

Last month we featured an exclusive translation from the German press by investigative journalist Hans-Martin Tillack about Gazprom and the "Gazoviki." Now we're posting a translation of the second article by the same journalist.

The public authorities in Vaduz are investigating a company related to Gazprom. Who are the mysterious profiteers of the gas deals engineered by a management colleague of Gerhard Schröder? Stern reports again on Gazprom’s business conduct. The original text is over on our German blog, and the article link is here.

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Financial Review: Liechtenstein v. Gazprom

By Hans-Martin Tillack

Stern Magazine, Germany, October 10, 2007

Authorities in Vaduz are targeting a company with ties to Gazprom. Who are the mysterious profiteers of these gas dealings, which one of Gerhard Schröder’s manager colleagues engineered?

The Russian energy giant Gazprom is having problems with the authorities – and namely in the little Principality of Liechtenstein of all places. The Financial Markets Supervisory Board (FMA) in Vaduz has launched an audit due to possible problems at the IDF investment trust, which has ties to Gazprom. FMA head Stephan Ochsner confirmed for stern.de that “at present an audit is underway.”

The FMA is apparently concerned about a possible lack of transparency at Gazprom subsidiary Siritia Ventures Limited, which partly owns IDF. The regulatory authority is interested in allegations that the Cypriot-based Gazprom subsidiary has violated local law. As der stern revealed four weeks ago, Siritia – which belongs to Gazprombank – failed to present audited annual reports for 2005 and 2006 to the appropriate authorities at its seat in Cypriot Nikosia by mid-August. If a important shareholder of a “Liechtenstein-based participant in financial markets has violated the law, then that is relevant for the FMA,” said the head of the Liechtenstein supervisory agency.

Silence concerning internal affairs

Even the auditors Deloitte & Touche – which Saritia itself appointed – complained of departures from “business law and accounting rules” in Siritia’s 2004 annual report. A “consolidated financial statement” containing the subsidiary’s results was missing. In 2004, Siritia owned 100-percent of the Liechtenstein subsidiary. At present, company shares are split with the Russische Kommerzial Bank in Zürich. However, Gazprombank will soon take over the latter.

IDF did not want to answer any questions from stern.de regarding the FMA audit. This concerns internal affairs, said manager Klaus Eberhard. The company, however, has not engaged in any “unlawful”, “dishonourable” or “immoral behaviour”.

20-fold return on investment

Beforehand, however, IDF publicly confirmed that the Liechtenstein regulators were examining the “depth of diversification” of one of the company’s funds. This fund, Gas I, holds all of the shares in the Cypriot-Austrian gas distributor Centrex. The question was whether the fund was too dependent on the business developments of one company alone. In Liechtenstein financial circles, however, it is said that the supervisory body is concerned about more. It also wants to learn the identities of the mysterious owners of the fund’s shares in Gas I.

The question of these shareholders is so explosive, because they have been made spectacular profits since 2004 – not least because Gazprom supplied Centrix (which Gazprom even originally co-founded) with lucrative gas contracts. However, primarily the secret owners of the IDF shares profit from Centrix’s commercial success. They may have had to invest at least U.S.$ 1 million. But the value of their shares has gone up more than 20-fold since April 2004.

Gerhard Schröder’s colleague in play

The gas delivery contracts with Centrix were signed by a man who is a close colleague of former Chancellor Gerhard Schröder: Alexander Medvedev, who is deputy chairman of the board of executive directors at Gazprom and sits together with Schröder in the Shareholder Committee of pipeline company Nord Stream. Gazprom and Gazprombank have so far reacted only evasively or not at all to the question why several anonymous fund owners in Liechtenstein of all places are benefiting from Centrex’s commercial success.

According to research by stern.de, Andrei Akimov, the present head of Gazprombank, had already attracted attention in Austria due to irregularities similar to those Gazprombank subsidiary Siritia is now accused of. For years, Akimov had run Imag GmbH (later renamed Dehel GmbH) in Vienna. Because Dehel did not hand in its annual reports on time, the Vienna Commercial Court issued several subpoenas – most recently to Akimov himself as well in March 2006– and ultimately even imposed fines.

Address unknown

However, the letters to the company at Kohlmarkt 11, Vienna, as well as Akimov’s Vienna address came back regularly: The addressees had moved, address unknown. Michael Hason, an employee of Dehel’s tax consultant, wrote the Vienna Commercial Court on 15 February 2007 that Akimov was “oversees” and was “at present not reachable”. The letter did not mention that the former Dehel boss would most likely be reachable as director of the Gazprombank in Moscow. Hason must have known this, because he also sits on the supervisory board of Centrex, which is partly controlled by Akimov’s bank. Confronted by stern.de with these contradictions, Hason has now invoked his “obligation to maintain secrecy” as a “chartered public accountant and tax consultant”. That Akimov’s company Dehel was able to elude authorities was due also to the change of name, which was engineered just in time.

Originally, the company operated under the name Imag (Investment Management and Advisory Group). When Akimov registered liquidation on behalf of Imag in August 2003, he changed the name to Dehel. At the same time, however, the company apparently continued to maintain an office under its old name Imag at Kohlmarkt 11 – in any event, it had still had a doorbell sign there until at least August of this year. Due to the change of name, the letters from the authorities to the Imag successor Dehel nonetheless were all returned to sender.

“Trade in goods of all kinds”

Akimov, who has run Gazprombank since 2002, was at the same time Imag’s business manager until 21 August 2003. In the 12 years of its legal existence, from 1991 until 2003, oddities did arise at the small business and its subsidiaries. As is the case today with Gazprom’s and Gazprombank’s subsidiaries, there were also bafflingly convoluted company structures and accounting problems at Imag.

Akimov had its purpose of business recorded in Vienna’s trade registry as “trade in goods of all kinds”. At least intermittently, the company seems to have been considerably active. In 1997, it operated an imposing motor pool with seven cars, among them a BMW 323 and an Audi 100.

Conspiciuous behaviour at Imag as well

In the Swiss tax haven of Zug, there was an Imag AG operating parallel. Together with Akimov, it owned the shares in Vienna Imag. Here, too, it repeatedly came to conspicuous behaviour. In 1998, auditors demanded “a consolidated financial statement” – even adding “urgently”. A consolidated financial statement would have also meant taking into account the results from subsidiaries. The company managers – among them Akimov – rejected this at a meeting in Moscow on 21 October 1998. They were of the “opinion that the operating ratios had not been reached and therefore a consolidated financial statement is not urgently necessary”, it was said in the protocol, for which Akimov was responsible. According to the protocol, the business reports for 1995 and 1996, which were in fact necessary, had not at all been prepared as of October 1998.

Due to the strange business conduct of Akimov’s Swiss companies, managers and auditors have resigned repeatedly from their posts. On 4 August 1998, the auditing company Revisuisse gave up its mandate for Imag AG – namely retroactively “starting with the fiscal year 1997”.

Missing auditor’s reports

Also within Imag’s orbit were several companies by the name of Wibro: a Wibro AG in Zug, a Wibro B.V. in Amsterdam and a branch office of Wibro B.V., which was in turn registered as an autonomous company in Zug. Wibro Amsterdam was controlled by a company called Granz N.V. in Curaçao in the Netherlands Antilles. Among the purposes of business of the Amsterdam companies – which were already founded in March 1989 – were also trade in the rights to “secret procedures or formulae”. They were last run by a Russian woman who gave as her residence the “Hawaii Suntan Complex” in Cypriot Limassol.

At Wibro as well, there were repeated problems. With a letter to Akimov dated 17 July 1997, the company’s Swiss proconsul Franz-Xaver Camenzind resigned "with immediate effect" from his posts as administrative council at Imag AG and Wibro AG. The reason: Statutory, regular general meetings had not taken place. The “necessary auditor’s reports”, said Camenzind, had also not been prepared.

Buchhaltungs- und Revisions AG Zug withdrew as auditing agency from Wibro AG on 18 August 1997 “with immediate effect”. Justification: "To this day," it had not received “the auditing documents for the fiscal year 1996”. A copy of this letter also went to Akimov in Vienna.

Russian sloppiness

A former Akimov employee excuses these failures retrospectively as allegedly typical Russian “sloppiness”. In any event, the massive failures have hampered neither Akimov’s career, nor that of Alexander Medvedev, his partner of many years. From 1991 until 1996 and again from 1998 until 2002, Medvedev was director of Imag in Wien under Akimov as well as an associate. As the head of “Gazprom export”, Medvedev today controls billions of dollars of gas deals with Western Europe. And he is active at Nord Stream with former Chancellor Gerhard Schröder.

When Medvedev was appointed Gazprom export boss in 2002, the Russian business newspaper Vedomosti quoted astonished insiders as saying nobody at Gazprom or the export subsidiary had ever “heard anything about Medvedev before”. Apparently – such is the reasoning – the appointment of the former Imag man was co-ordinated “with the presidential administration” of Vladimir Putin.

Putin’s buddies – from the KGB?

In doing so, did the former KGB officer Putin draw on his old secret service colleagues? There is no proof for this speculation. It is certain, however, that the now 54-year-old Akimov long before the fall of the Berlin Wall represented Soviet interests in Western Europe. He was born in Leningrad, now St. Petersburg, Putin’s hometown. From 1985 to 1987, he was deputy general director of the Russian Vneshtorgbank in Zürich. Immediately thereafter, he ran the Russian controlled Donau-Bank in Vienna until 1990 and his founding of Imag in January 1991. Vienna has always been considered a stronghold of Soviet secret service activities.

It is also certain: A KGB past at Gazprombank is not considered scurrilous. According to information previously available on the bank’s homepage, Viktor Korytov, the bank’s deputy chief executive officer, served with the KGB from 1979 to 1992 – that is to say, for 13 years. Sergei Ivanov, a son of the deputy prime minister of the same name, is, at age 26, today vice president of Gazprombank. His father, like Putin, served in the KGB in Leningrad and is considered one of the favourites to succeed Putin as Russian president.

Joint venture with Dresdner Bank

The oddities surrounding Gazprombank should also be of interest to several financial managers in Frankfurt. For last year, Gazprombank almost came under the control of Dresdner Bank. It had announced in December 2005 that it was taking over a third of Akimov’s bank. The Russians let the already done deal collapse in June 2006. In January 2007, Dresdner Bank and Gazprombank announced instead the founding of a joint venture for emission trading.

Even if President Vladimir Putin is catching some flak for his decision to stay in power as prime minister, or is starting to sweat the spy war opening up underneath his feet, he certainly hasn't lost his sense of humor.

According to reports, he kept US Defense Secretary Robert Gates and Secretary of State Condoleezza Rice waiting for 40 minutes before their meeting - perhaps to remind them of their importance. When he did emerge, it wasn't for the private discussion they expected, but rather to receive a lecture:

The one point I would like to make is that we hope that you will not push ahead with your prior agreements with Eastern European countries while this complex negotiating process continues.

After all, we could decide some day to put missile defence systems on the Moon, but if we concentrate solely on carrying out our own plans we could end up losing the opportunity for reaching an agreement. But we see that our American partners are showing a constructive desire to continue the dialogue and we think this is a very positive signal.

Well played, Sir. Well played.

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US Secretary of State Condoleezza Rice and Russia's President Vladimir Putin meet in the presidential residence in Novo-Ogaryovo outside Moscow October 12, 2007. REUTERS/RIA Novosti/KREMLIN (RUSSIA)

A bill to put the country's nuclear industry under a tightly controlled state corporation, labelled “dangerous” by the Communist party, has received overwhelming backing in its first reading in the State Duma. The corporation will help control a national champion, Atomenergoprom, that will incorporate 86 other state companies and run all stages of nuclear power generation. Control over money supply and demand must become a "major instrument in the fight against the sharp increase in consumer prices", said Alexei Kudrin, the finance minister. Tensions are currently high in the Duma due to a sharp surge of inflation. Measures have been approved to tighten rules protecting consumers' rights and regulate the retail sector. Prime Minister Viktor Zubkov appears to have “won few friends” at the White House due to his “brusque style and tough demeanor”.

Increasingly close relations between Russia and China draw attention to the fact that the US is out of the loop. “Sino-Russian rapprochement has reached such a point that the two huge countries' relations with each other are far warmer than either US-Russian or US-Chinese relations.” Ahead of talks with Russia, Condoleezza Rice said that the US will go ahead with its missile defence program as planned. ''We've been very clear that we need the Czech and Polish sites,'' but she wants to seek Russian suggestions for cooperation to address Moscow's opposition to the program. "I think we ought to look at all the possible elements of what President [Bush] and President Putin called a kind of regional architecture for missile defense. […] There is considerable interest in both Azerbaijan and some of the possibilities in Russia itself." The US could offer to bring Russia into the proposed system. "I don't think this is a good time for progress," commented one analyst. "The relations between the two countries are at an all-time low, and going down, at times more slowly, at times faster. But I don't think we've reached the bottom yet." At the outset of the talks, President Putin said Russia may have to withdraw from a treaty with the US limiting short-range nuclear weapons in Europe if it is not extended to include other countries. Ukrainian President Viktor Yushchenko has assured Europe that his government would meet its obligations to ensure Russian oil and gas exports flow across its soil on schedule and in full. But how did Ukraine manage to amass such a large debt on gas supplies? Russian newspapers allegedly poked fun at French President Nicolas Sarkozy following the French-Russian summit that “offered plenty of smiles but little in the way of progress on serious issues.” The CIS Electric Energy Council will consider establishing in three stages a common electricity market at its 32nd session in Tajikistan. Putin will travel to Germany for his last official visit before he steps down as president next year.

Luxadvor, the company controlled by billionaire Sergei Pugachyov, a banker and Federation Council member close to the Kremlin, has bought French luxury food chain Hediard. A block stake in Inter RAO UES will be probably sold to a foreign investor, and is reportedly being eyed by Electricite de France. Analysts value the company from $2 billion to $3.5 billion. Russia's Uralkali, a potash fertiliser producing giant, has priced a secondary offering of shares at the upper end of the price range. Oil & Natural Gas Corp, India's biggest explorer, will seek a stake in an exploration area in Russia's Sakhalin Island.

A work of art by a Russian art collective depicting two policemen kissing has proved too much for Russia's culture minister, Alexander Sokolov, who has pulled the work from a planned exhibition in Paris. "If this exhibition appears, it will bring shame on Russia.”

The Economist makes a long-overdue call to jettison the language of the democracy debate, and come up with new, more accurate terms to talk about freedom and governance.

A good shorthand term for the free, law-governed and public-spirited countries of the world is badly needed, to replace the misleading and off-putting “West”, with its echoes of colonialism, self-satisfaction and cultural supremacism.

The best candidate so far is “open” societies—the term coined by Karl Popper and promoted so energetically by the philanthropist George Soros. That has the advantage of a natural antonym: closed societies.

Better terminology means clearer thinking, but it does not guarantee victory. Nearly 20 years on, the gains of the heady and happy late 1980s are looking troublingly fragile and temporary. Closed societies are riding high; open ones are rattled and demoralised. Rather than asking when the values of “open Europe” will finally triumph, it might be better to ponder if they will survive.

One of the more memorable Russia energy quotes I heard over the past year comes from the leader of Hungary's opposition party, Viktor Orbán, who on the party's 19th anniversary declared that "Those young people following us should not allow Hungary to become Gazprom's most cheerful barracks after we freed ourselves from the fate of being the Soviet system's most cheerful barracks."

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Viktor Orbán claims that he wouldn't get too close to Gazprom, but reality would likely prove otherwise

With no shortage of drama, political grandstanding, and perhaps hyperbole, Mr. Orbán sought to attack his incumbent opponent Prime Minister Ferenc Gyurcsány where he felt he had the most leverage - the government's decision to back the pipeline to bring Russian gas under the Black Sea through to Turkey (the Blue Stream extension) - a move which dealt a lethal blow to the rival Nabucco project which would ease energy dependence on Russia. For countries that have only recently escaped the clutches of Soviet rule (the last Russian soldiers left Hungary in 1991), their hard-earned sovereignty is highly treasured, and for this reason Mr. Orban's exaggerated characterization of Gyurcsány's energy policy decisions as a renewed surrender to communism gained so much traction.

But did Gyurcsány's strategy to earn favor with the Kremlin get Hungary any relief? Or is the country headed toward a new version of Goulash State Corporatism no matter what?

Indications point to the latter, as the latest protectionist move by the Hungarian government to allow its largest energy firm, MOL, to block unwelcome foreign bids via "Lex MOL" legislation is raising some eyebrows - illustrating at once a failed energy strategy and Gazprom's tactics of disaggregation.

There are many opponents to the Lex MOL law, and it is uncertain whether or not the state can hold out on this tenuous legislation. Protectionism like this makes Brussels uncomfortable, and Andris Piebalgs has already said that the EC will be able to rule very quickly and possibly overturn the law, hoping to stop a domino effect of similar M&A barriers across Europe. Lajos Bokros, a former finance minister and now deputy chief of Budapest's Central European University, told the FT that he didn't think Lex MOL is about protecting against a Gazprom takeover, but rather the protection of certain oligarchs: "It is a brutal attempt by the state to protect private interests. It is not about the public interest."

The leading suitor for MOL is Austria's OMV - a company that the Hungarians fear is acting as a Trojan horse for Russia's Gazprom, which raises significant geopolitical concerns. Gazprom has spent years cultivating close relations with both OMV and the Austria. During Putin's visit to Vienna last spring, he declared Austria to be "a model partner" and later Gazprom purchased a stake the Central European Gas Hub and talked up plans to build additional storage facilities.

Piebalgs himself likely feels as conflicted as anyone in this matter, as he is aware that a green light for OMV to buy MOL may bury the EU's favorite energy project.

Dieter Helm of Oxford University characterized Gazprom's relations with OMV as follows: "It's part and parcel of a very clear strategy that Gazprom is pursuing, which is to strike bilateral deals with individual member countries and to avoid having to discuss, negotiate gas contracts and gas security with the European Union Commission as a whole. ... Gazprom has been remarkably successful in each and every component of the strategy it has been pursuing."

On his behalf, Prime Minister Gyurcsány had clear objectives in his decision to make friends with the Kremlin and side with Gazprom over those who favor the Nabucco project - despite the reputation damage he may suffer in domestic politics from the likes Mr. Orbán. The Russian government's politically activist management of Gazprom poses an incredibly difficult reality for Eastern European sovereign states - it is impossible not to be in some type of partnership with the region's largest energy supplier, however the terms of that relationship are being negotiated in radically different ways.

The Hungarian government and MOL are desperately competing with OMV to become Gazprom's partner, not property, and that is an extremely difficult line to walk, as Paul Betts comments in today's FT:

The problem for Hungary is that it must continue to balance the risks of openly provoking Russia, which supplies about 80 per cent of its natural gas needs, with the desire of many Hungarians to stay independent of Russian influence.

They have so far managed to keep Mol out of Gazprom's clutches. But the Russians are consummate chess players and their recent moves in Austria show they have not given up on the game.

So perhaps Goulash State Corporatism has not quite yet arrived to Hungary, but the clock is ticking. Back in May, Time coined a memorable phrase in their profile article of Alexander Medvedev: "Gazprom always wins." So long as the Russian energy strategy is successful playing companies like OMV and MOL off against each other, and able to maintain its track record in bilateral energy negotiations, this will continue to be the case.

Yesterday Robert Amsterdam gave a speech followed by a Q and A session at the World Affairs Council in San Francisco, California. An audio recording of the event can be heard here.

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Serena Williams of the US hits a return against Ukraine's Tatiana Perebiynis during their Kremlin Cup tennis match in Moscow, October 11, 2007. (REUTERS/Sergei Karpukhin (RUSSIA))

Russia’s Economic Development and Trade Ministry has suggested establishing a state agency whose sole purpose would be the worldwide promotion of Russia. Prime Minister Viktor Zubkov has appointed Vasily Yakemenko, leader of pro-Kremlin youth movement Nashi, to head the newly established State Committee for Youth Affairs. Government control over the nuclear weapons and power sector will increase if the State Duma approves a bill to create a state nuclear energy corporation, called for by President Vladimir Putin in his state-of-the-nation address in April. The open letter from Russian law enforcement official Viktor Cherkesov regarding in-fighting and power struggles in the Kremlin has “confirmed fears that the Russian elites […] are engaged in private turf wars.” One analyst commented, “this is the reason behind Putin wanting to keep control after next year. He is the only person who has the authority to carry out a balancing act between these forces.” Putin's future plans are still a hot topic for discussion. “Every Russian or Soviet leader changes the structure of government to serve his own tactical interests.”

French President Nicolas Sarkozy has met with “some of Vladimir Putin's fiercest critics” during his current visit to Russia, “risk[ing] the anger of the Kremlin.” Regarding relations with Iran, the issue most carefully followed by the global press during the two-day talks between the presidents, Sarkozy said, “I was told [by Putin] that the Iranians are ready to cooperate. [...] Maybe we have the wrong analysis of matters in Iran.” The two “gave only minor indications that they had found common ground on the issue of Iran's nuclear program,” and optimism over the meeting has dissipated somewhat, with Putin reportedly saying, “We do not have information that Iran is trying to create a nuclear weapon. We operate on the principle that Iran does not have those plans.” But, he said, the Kremlin shared the West's concern that Tehran's nuclear programme should be “transparent”. In contrast to his evasive comments over Iran made during the French President's visit, Putin said elsewhere that the two countries most threatened by Iran are Israel and Russia, and that two are “complete partners in this matter.” Putin has also accused the European Union of ignoring moves by the bloc's members Estonia and Latvia to glorify Nazism. “Some facts we come up against in several countries of Eastern Europe provoke surprise and incomprehension,” he said, although it is Poland that apparently “remains Russia's most staunch enemy in the Central European region.” The British embassy in Moscow has denied the allegations, made by Russian spy chief Nikolai Patrushev, that MI6 is hatching a plot to “dismember” Russia. “We don't interfere in internal politics.” The British press has not taken kindly to the allegations, which one newspaper referred to as “an outburst of passive-aggressive paranoia”.

Russia’s leading banks have become more transparent over the past year, but progress has been uneven, according to a new report by Standard & Poor's. “There is a general trend toward transparency,” said one of the report’s authors, but the report itself says that “this positive trend is inconsistent across the individual banks.” Sakhalin Energy, the operator of the Sakhalin II oil and gas project in Russia’s Far East, has already signed $10 billion worth of contracts with Russian companies under the project. Former electricity monopoly Unified Energy System will delay the sale of its OGK-6 subsidiary until market conditions improve. UES’s former executives, Leonid Melamed and Dmitry Zhurba, plan to raise as much as $10 billion to invest in Russian electricity assets by 2010, with plans to invest $2.5 billion this year alone. Regarding Putin’s comment this week that Russian businesses need to rely more on Russian managers, one analyst responded that Putin is “playing up pre-election patriotism and reiterating his nationalist stance toward the natural resources sector.” A Shell executive, speaking at an investment forum this week, said that Russia “must work with foreign oil majors if it wishes to keep pace as a leading energy supplier on global markets”. Officials from the Belarusian Energy Ministry and state-owned gas transit company Beltransgaz will negotiate 2008 natural gas prices with Russia's Gazprom in Moscow. LSR Group, a Russian real estate and building materials group, is planning to raise up to $1.5bn (£750m) from a dual listing in London and Moscow.

Russian President Vladimir Putin has approved a set of goals for the country's demographic policy up to 2025. Russia’s population, currently at about 142 million, may fall by one third by the middle of the century. The country plans to invest almost 500 billion rubles ($19.3 billion) in socio-demographic programs to 2010. New data reveals that 96% of all immigrants to Russia in 2007 were natives of the CIS, with migrants mostly from Uzbek nations and Ukraine. A new crew bound for the International Space Station, including Malaysia’s first astronaut and the first woman assigned to command the station, has blasted off aboard a Russian Soyuz spacecraft.

This week I am in San Francisco, California for some meetings and speaking engagements on Russia-related issues. Among the people I have had the pleasure of meeting during this trip is Mr. John Kamm of the Dui Hua Foundation, an NGO dedicated toward improving dialogue between the United States and China, and helping to secure sentence reductions and early releases for dissidents and political prisoners.

Mr. Kamm has a fascinating personal story of his unorthodox conversion from the president of Hong Kong’s American Chamber of Commerce into a human rights advocate for Chinese political prisoners, and possesses a keen geopolitical insight into international relations.

During our discussions, I was particularly struck by one story that John related to me – a 2005 meeting between Vladimir Putin and Hu Jintao in which the Russian president directly warned his counterpart of the “threat” of color revolutions. No one knows to what extent President Putin discussed color revolutions with Chinese officials, but the meeting was shortly followed by a number of measures seemingly directed at preventing a grassroots anti-authoritarian uprising.

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A 2005 article in Foreign Policy by an anonymous graduate student at USC, writing under the pseudonym “Yongding,” detailed this counter-revolution offensive by the People’s Republic, which included a crackdown on NGOs, stricter press freedom laws, tighter monitoring of the internet, and a concentrated effort on behalf of the state to study color revolutions and how to prevent them. Yongding writes that “Beijing believes that international organizations, especially advocacy NGOs, have acted as Washington's ‘black hands’ behind the recent regime changes in Central Asia.” He also cites an article by the Communist Party Propaganda Department’s biweekly journal which reported that NGOs with international ties seek to “brainwash” people and train political oppositions.

When asked recently why Beijing had halted plans to let foreign newspapers print in China, the press regulator Shi Zongyuan is reported to have answeredWhen I think of color revolutions, I feel afraid.

But who is training who? It is easy to let our imaginations run wild thinking about what happened during the Putin-Jintao meetings, (which may have been the world’s first anti-democracy seminar on the best practices of repression) but I think such drama goes too far. What we are witnessing in these parallel developments in China, Russia and far beyond, even including the United States, is the so-called “securitizing” of domestic politics – how terrorism, immigration, economic competition and other public security issues are instrumentalized by political leaders to justify reductions in civil liberties and increases in state power.

In regards to Russia, this phenomenon is examined in depth in a new book entitled “Securitising Russia: The Domestic Politics of Vladimir Putin” by Edwin Bacon, Bettina Renz and Julian Cooper, which explains how the influence of the security services has grown immensely under Putin's watch.

I would furthermore argue that the Kremlin capitalized on the terror tragedy at Beslan to orchestrate an aggressive expansion of the FSB into nearly every public sphere, capitalizing upon the predominant culture of fear and paranoia. (The obvious corollary in the United States following 9/11 is the abomination of rule of law at Guatanamo).

This heavy emphasis on “the foreign threat,” experienced both in China and in Russia to explain natural domestic political movements, is alive and well today. Look no further than the new interview with FSB chief Nikolai Patrushev published this week in Argumenty i Fakty in which he says that foreign spies are “hatching plans aimed at dismembering Russia,” and spoke at length about the “danger of foreign NGOs being used to finance activities to undermine Russia.” Patrushev said the CIA and MI6 were actively relying on the special services of Poland, Georgia and the Baltics to spy on Russia in an attempt to create “an instrument for having a hidden influence over political processes,” while also making reference to the color revolutions in Ukraine and Georgia.

It is very disturbing to see the head of Russia’s security service preemptively laying the groundwork for further crackdowns on the political opposition during the upcoming parliamentary and presidential elections. Such pronouncements do not bode well for optimists and pro-Putin advocates in the West who were hoping that confidence in the president’s popularity would allow the state to loosen its grip (and thereby prove its critics wrong) by winning an election the old-fashioned way – now it seems that things could potentially get ugly.

China and Russia’s mutual concerns over civil society movements is also showing signs of growing into a coordinated set of activities in the international sphere – most recently illustrated by their use of the “authoritarian veto” to protect the military junta in Myanmar in its brutal suppression of the Saffron Revolution.

The backlash against civil society movements and democracy assistance programs is becoming more formalized and incorporated into state ideology. Many will recall Vladimir Putin’s bold and in many ways compelling speech on the emergence of a “New Multipolar World” – but can such a vision for international relations really stand on the foundations of such antiquated isolationism? The political leadership of China and Russia certainly hope so, and issued a statement from the Shanghai Cooperation Organization (SCO) which said that “the right of every people to its own path of development must be fully guaranteed” pursuant to the principle of “non-intervention in internal affairs of sovereign states.”

As an indication of how much things have changed for China and Russia since the color revolutions, let's a look back on a joint statement from Hu Jintao and Vladimir Putin from 2003: "Russia and China stand for a multipolar, just and democratic world order based on the commonly recognized principles of international law." It seems that their joint commitments have undergone a slight revision.

The implications of these developments require no exaggeration from me, and all those concerned with the promotion of human rights and rule of law internationally should follow this situation very closely.

I plan to explore the “securitizing” issue more in depth in future posts to this blog, and I urge all those interested to learn more about the work of the Dui Hua Foundation.

A critical article published in yesterday's Kommersant by Viktor Cherkesov, head of Russia's Drug Enforcement Agency, is making some waves, exposing like never before the hostilities and turf wars between different state security factions which threaten to collapse Putin's supposed stability. Once again at the center of all the turmoil, Putin's chief of staff and head of Rosneft, Igor Sechin, the man believed by many to have engineered the state theft of Yukos.

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Cherkesov is believed to have gone public with this manifesto following a series of tit-for-tat arrests, culminating last week with the detention of his second-in-command, General Alexander Bulbov. Bulbov was one of the chief officers overseeing an investigation into a huge fraud case at the Moscow furniture store "Tri Kita" (Tree Whales), a scheme which allegedly involved several high ranking members of the FSB. Sechin and others are apparently fed up with Cherkesov's ambition, and oppose his efforts to create a consolidated "Investigative Committee" that would "deprive the interior ministry of its investigative machinery and would leave only counter-intelligence and anti-terrorist functions for FSB." Cherkesov also took aim at his fellow Chekists who had become overly enthusiastic with their new business privileges: "You cannot try to be a trader and a warrior at the same time. It does not work."

Calling for restraint, Cherkesov's open letter declared that "A 'war of all on all' will result in a complete disintegration of the network ... We must prevent a scandal and all-out fighting."

Here are some initial reactions that I have collected.

AP:

Commentators described the infighting as a struggle for control over money flows and markets.

"They stood together as long as they were robbing others of their assets," a commentator, Alexander Golts, wrote in the online Yezhednevny Zhurnal. "But after dividing the spoils, they realized that they can only expand their wealth by robbing one another."

Andrei Illarionov, Putin's former economic adviser, compared the infighting to battles between feudal lords and warned that it could foment instability and "palace coups."

"Russia's law enforcement agencies are going through a quick degradation," he said.

Los Angeles Times:

"I don't know what happened at the very top of the country to provoke this volcanic eruption, but it must have been something like a nuclear explosion deep in the basements of the Kremlin," said Olga Kryshtanovskaya, director of the Institute for Applied Politics, a Moscow think tank.

"Passions must really be boiling up inside Putin's great team to compel Cherkesov to speak up publicly like that," she said. "Cherkesov really did a disservice to Putin because he proved by his article that there is a serious war being waged between various Kremlin clans and groups."

Wall Street Journal:

"The wars between the elites have come to the surface," said Stanislav Belkovsky, a Moscow political analyst. "Not everyone is convinced that Putin can stay in power."
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Der Spiegel has an interesting interview today with Vladimir Yakunin, a close ally of Vladimir Putin and head of Russian Railways, who strikes a rather defensive posture vis-à-vis relations with the West, squarely placing the blame for the deterioration of the relationship on the United States and Europe:

SPIEGEL: What should the West do?

Yakunin: It should not humiliate us. You can throw a bucket of cold water on Russians, and we can take it. But one shouldn't humiliate us! The political scientist Hans Morgenthau said that countries should not forget the national interests of other countries when defining their own. The current American government becomes irritated over every attempt on the part of a country to go its own way -- especially when it is as big and wealthy as Russia. That's political arrogance.

SPIEGEL: So America is at fault for the stagnating dialogue?

Yakunin: America and Europe make a big mistake when they interpret Russia's strength as aggression. Our people sense the injustice of this criticism, and it leads to a collective rejection of the West. Putin has approval ratings of over 70 percent. Where else in the world does that exist? People like his ideas.

Inasmuch as Der Spiegel may like to pitch Yakunin as a possible presidential candidate, these comments fall short of the wry, diplomatic elegance normally expected. This allegation that the West is actively "humiliating" Russia doesn't seem in line with friendly lobster dinners at the Bush family home in Maine or even Nicholas Sarkozy's recent visit to Putin's dacha to proclaim 2010 as "Year of Russia" in France, and vice versa. Sarkozy praised Putin as "a pragmatic person who loves his country, is not a show-off or dogmatic," and said that "France understands Russia's determination to return to the international scene and regain its position. Disagreeing with this would be senseless."

Is that really so humiliating? One must assume that Yakunin is instructed to make comments like these from the top, so I wonder what he is gaming at...

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Russian President Vladimir Putin shakes hands with his French counterpart Nicolas Sarkozy in his Datcha at Novo-Ogarievo near Moscow. Sarkozy urged Russia to build democracy ahead of talks with Putin on resolving East-West tensions over Iran and Kosovo. (AFP/Eric Feferberg)

The State Duma has summoned Prime Minister Viktor Zubkov to report on rising consumer prices amid reports of rising inflation, asking him "to inform the Duma about the reasons for such growth in prices for basic food products and measures being taken by the government." A front page article in Izvestia, the newspaper owned by state-controlled Gazprom, said "Our wallets are emptying, and the government does not intend to do anything about it." The United Russia faction representative in the State Duma, Andrey Vorobyev, has announced that a law “On Foodstuffs Security” has been drafted which will provide compensation to low-income citizens for rising food prices caused by inflation, to take effect at the beginning of next year. Support among Russian voters for United Russia rose to a record high after President Vladimir Putin announced he would run on the party's ticket in this year's parliamentary election. An opinion poll by VTsIOM which showed that 54% of voters plan to vote for the party. Nikolai Tokarev, the former mining engineer thought to be the next to lead state-run pipeline monopoly Transneft has “a mysterious background that suggests a stint in the KGB”.

Prime Minister Zubkov said Ukraine will repay its debt of $1.2 billion by transferring gas from underground storage facilities in Ukraine owned by RosUkrEnergo to Gazprom for further export, and that the remaining debt of $929 million is to be paid by Ukrainian energy suppliers UkrGazEnergo and Naftohaz Ukrayiny. Top executives from Gazprom Neft visited Belgrade to convince Serbian leaders to sell it a majority stake in state-owned oil monopoly NIS. Bank St. Petersburg, one of the country's leading regional banks, has announced plans for an initial public offering to boost its capital base and allow it "to further strengthen [its] capital base and support [its] ongoing expansion." Putin has declared that there should be fewer foreigners in high-level positions at Russian companies. "In our big, leading and today already global companies, mostly in the raw materials sector, you know that the thin layer of top management is mostly made up of foreign specialists," he said. Trade between Russia and the UK may reach an all-time high in 2007, according to Yury Fedotov, Russia's Ambassador to the UK. Cadbury Schweppes, the world's biggest confectionery company, has commented on Russia’s retail boom, saying it “won't fade for years.” Rautaruukki Oyj, Finland's biggest producer of carbon steel, is stepping up output in Russia due to the current construction boom extending to cities beyond Moscow and St. Petersburg.

Putin and French President Nicolas Sarkozy have completed the first stage of talks in Moscow, with initially positive results. Some are suggesting that Sarkozy’s “tough-talking” has turned relations around, although Sarkozy’s comments indicate mutual efforts towards compromise. Regarding Iran, “our positions with Russia have come a lot closer,'' and there is a “convergence of views on the status of Iranian research,'' he said. Sarkozy told Putin that “France wants to be Russia's friend,” and Putin supposedly responded with a line of Russian poetry: "One cannot understand Russia with the mind. ... One can only believe in it." The two are also expected to discuss possible collaboration between the European aerospace firm, EADS, and its Russian counterpart, UAC, on the construction of a new passenger jet, as well as the partnership between the energy giants, France's Total and Russia's Gazprom. US relations with Russia are looking less promising, particularly over the issues of Iran and missile defence. “We have tried to convey that our instructions from our senior leadership are to try and do everything we can to establish some basis for a cooperative approach with Russia,” said a senior US administration official involved in planning the talks this week. One analyst pointed to “Russia’s distrust of American intentions,” saying that the US “feeds Russia’s paranoia.” Ahead of high-level Russian-US talks in Moscow later this week, analysts on both sides are predicting that “upcoming presidential elections in [both] countries” will prevent much from being achieved. The leader of the Lebanese parliamentary majority has asked Russia and China to help mend a domestic political rift that could derail upcoming presidential elections. "We are asking the Russian ambassador and the Chinese ambassador to intervene in the situation to stop those who are interfering," Saad Hariri said in an apparent reference to Syria.

Russia's chief intelligence officer, Nikolay Patrushev, says that highly trained British agents are “putting their noses into Russian politics” in a bid to influence the outcome of parliamentary and presidential elections, and that there has been an “an alarming rise in British spying activity across the Russian Federation.”

Russian Prosecutor-General Yuri Chaika says that the case of Anna Politkovskaya’s murder has been solved, but that the details “remain to be seen when the trial begins.”

Vladimir Kozhin, who looks after the Kremlin’s property portfolio, has called for Russia to move the embalmed body of revolutionary leader Vladimir Lenin from Moscow's Red Square and bury him as an act of closure on Russia's turbulent past. "We have only just moved away from revolutions, from turbulent political battles, the country wants to live normally, to work, to be rich." Aras Agalarov, a billionaire property developer, has created a housing project for Russia’s moneyed elite – “a kind of utopian social experiment - but without poor people.”

Below are several interviews from experts at last month's Reuters Russia Investment Summit. Naturally, many of these business and investment figures featured in these interviews feel quite sanguine about the way things are going in Russia. However, these bullish outlooks contrast sharply with Putin's new call to reduce the foreign presence in the economy, the regulatory attack on Barrick Gold and Highland Gold Mining, and the anti-trust authorities blocking a Siemens acquisition. Then again, capital inflow to Russia has already exceeded $70 billion from the beginning of the year, so it may in fact be irrelevant that there isn't a welcome mat put out for investors.

Rosneft CFO Peter O'Brien says the company is not looking for more acquisitions right now, and is "very focused on integrating and optimizing the asset base that we currently have."
Oleg Vyugin of MDM Bank talks about political risk
Pyotr Kazakevich, Deputy Director, Russian Finance Ministry talks about the healthy status of the state's massive stabilization fund.
Patricia Cloherty, Chairman and CEO, Delta Private Equity Partners, says "the capitalist genie appears to be out of the bottle and stability seems to be the desirable order of the day" in Russia.
Igor Artemyev, the head of Russia's Antitrust Service, does not like Siemen's making a move on Power Machines.

The good news: the Ukraine and Gazprom have reached an agreement on gas debt, thereby preventing another standoff like last year. The bad news: all of a sudden Gazprom says that they are owed $700 million more than the $1.3 billion debt they claimed just last week, while Ukrainian officials say that the debt is not held by the state, but rather by the notoriously opaque monopoly trading intermediaries Rosukrenergo and Ukrgazenergo.

Is the shakedown political or commercial this time around? One analyst interviewed by the FT says that it really wouldn't matter in the long term whether or not the Ukrainians elect a pro-Russian government - the squeeze is coming regardless:

James Sherr of the UK’s Defence Academy, a research and educational institute for defence staff, described the Ukraine-Russia energy relationship as ”a museum of contradictory truths.”

”Gazprom is squeezing Ukraine and other post-Soviet states to get out of a trap of its own making: underinvestment in new production. [This] is the only way to meet rising demand in the EU and in Russia itself,” he says. ”Whoever runs Ukraine, however pro-Russian the government, the squeeze will continue, and the spasms between stability and crisis will grow shorter and sharper.”

It is widely assumed that the grand prize is the eyes of Gazprom is the Ukraine's underground gas storage facilities, which may at some point be offered up as an asset swap for the gas debts. To resolve the current debt dispute, the Ukraine has agreed to send back gas from these storage facilities, which will limit Kiev's ability to withstand a future supply cut.

Last week we posted a quick blurb about an interview in the German press with Russian satirist Viktor Shenderovich. Below is the complete translation of the article; the original can be read here.

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“A Stage Production from the Stalin Era”

Since Putin has governed Russia, Russian politics has been as lively as a morgue. Now Putin wants to become premier. And to this end, he has had his party celebrate him as a healer. A conversation with the satirist Viktor Shenderovich.

Die Tageszeitung

taz: Mr. Shenderovich, President Putin is taking part in the Duma election and does not exclude becoming prime minister. Is a Putin dynasty following the Romanov dynasty?

Viktor Shenderovich: We now know with 100-percent certainty that Putin is staying on. The details concerning the technicalities of ruling have probably not been completely resolved.

This stage production has entertainment value. But are Russian citizens not angry that they are so obviously being led around by the nose?

I cannot speak for the majority of citizens. Among those around me, people are shocked. They are downright ashamed that the Kremlin party congress was such a retro-event. The dramatization was not content with falling back on the symbolic forms of the Brezhnev era. It went right back to Stalin: standing ovations lasting for minutes; a weaver as representative of workers who asks the Kremlin boss to remain in office; a delegate from the provinces who suggests to the president that he do the people a favour and become minister president. This script hails from the Stalin era. It was never before so clear. One just has to be ashamed.

Is that typically Russian?

No. Tolstoy and Tschaikovsky are typically Russian. Politicians who seek to remain in power their entire life exist elsewhere as well: in North Korea and Belarus, in Cuba and Zimbabwe. There is nothing peerless nor special about Vladimir Putin. He is a banal authoritarian politician who would prefer not to step down.

For eight years, Vladimir Putin has worked for stability. That was his key word, the central justification for his policies. For that reason as well, he cannot step down, for he has to see to stability. What does this stability mean?

There are various forms of stability. A tree is stable: It lives; parts of it die; others grow back. This is stability through change. By contrast, our stability is that of a morgue in which the dead always lie in the same place with yellow tags on their toes. Nothing happens; everything is lifeless. For all that, however, everybody knows where to find these tags and where the corpses belong. Stability in Russian means that there are no politics, and that the atmosphere of a freezer reigns.

The new state party United Russia presents itself in the style of the Communist Party of the Soviet Union. Compared to this Kremlin party was the CPSU of the Gorbachev era not almost transparent and pluralistic?

Well, let’s not exaggerate. The CPSU had different phases, but there was never any talk of pluralism there. Nonetheless, the current system resembles the former one. Also, there were no alternative sources of information earlier. The vertical orientation of power and the aggressive submission of subordinates have not changed either. An essential difference, however, is that it was clear to homo sovieticus in the waning days of the Soviet era how idiotic and stupid the system was. He had deciphered everything. This still lies before us. We are just at the start.

At least the Kremlin stage production has a certain entertainment value...

Yes, and the people take pleasure in it. That belongs to our tradition and corresponds to the Russian idea of politics. Here democratic rules are treated with contempt. That’s the way it was, and that’s the way it is.

The elite is falling back on Communist stage production of rule. Perhaps a longing for lost youth lies behind this?

No, I don’t believe that. They just can’t do it differently.

A re-organisation of government has taken place. Ministers are leaving; others are coming. Does that mean anything?

No, absolutely nothing. The cabinet is re-organised elsewhere when policy is supposed to change, but not here. It is a purely technocratic procedure that serves the preservation of power.

In December, Russia is electing a new Duma. After the president has led the Kremlin party, will this election become a plebiscite for Putin...

From the start, free elections were not planned. Now, everything is being reduced to a procedure that is to legitimise the power structure legally.

Since Putin has been in power, you have disappeared from television. How do you stand this?

As a satirist and commentator, I have allowed myself a lot of insolence – admittedly. If the state is so intrusive, this simply happens. When Putin surfaced, it was immediately clear that he and I, that we both did not fit in this kind of television. Now I am writing again. That’s not bad either.

INTERVIEW: KLAUS-HELGE DONATH