Robert Amsterdam

On New Year's Day in Russia, there were reports of a sudden shortage of pet rats, a new law banning fireworks, and popular adulation of foreign football coaches.

Although 2007 closed with political relations between Russia and the West at a particularly low point, East-West trade has flourished - once again with the Skoda automobile as the unlikely trade ambassador. “The quality of the goods have improved markedly,” one expert told the New York Times. “The Russian consumers knows they are buying quality goods. They know that Skoda, for example, really is made by Volkswagen.”

The Moscow Times has a pretty entertaining version of the obligatory year end retrospective:

The outgoing year began with plans by Zenit, the St. Petersburg football club funded by gas giant Gazprom, to build a beer pipeline at its stadium to fuel fans and ended with cult followers holed up in a cave awaiting the end of the world.

What came in between made about as much sense.

Read the full article here for other gems, such as Ramzan Kadyrov's banning of firearms at weddings.

From Fouad Ajami in U.S. News and World Report:

Beyond the great economic questions posed by this transfer of wealth lies a political matter of increasing importance: the connection between petroleum and autocracy. Oil is the dictators' dream and their weapon, their means of escape from accountability and from the limits societies have drawn for their rulers. ...

Serbia is deeply divided by Gazprom's $590 million bid to take over the state petroleum monopoly NIS, a deal which is strongly leveraged upon a connection to the planned South Stream pipeline.

The improving profitability of Russia's domestic market is leading oil companies like Rosneft and TNK-BP to increase capital investment for refining.

Kazakh President Nursultan Nazarbayev has summoned representatives from Eni, Exxon Mobil, Total, Royal Dutch Shell and others to hold discussions on Jan.11 on the renegotiation of oil contracts at the Kashagan field, who are hoping to settle the deadlock.

From Tom Keane in the Boston Globe:

TIME MAGAZINE named Vladimir Putin its "Person of the Year." Time Inc. officials said they were surprised at the choice, since the Russian president hadn't been nominated for the honor and no company staffers would admit to having voted for the man. "But an election is an election," said a Time Inc. spokesperson. "The guys we hired from Little Odessa to count the vote said there was no doubt - Putin got 98 percent."

A valuable article by Ray Takeyh and Nikolas Gvosdev is running in today's IHT, which examines Russia's motives in the Iran nuclear question: The incongruity of providing sensitive nuclear resources to a country that is actively sanctioned for its nuclear malfeasance is not lost on Iran's clerical elite. A similar pattern is continuing in other areas, whereby Russia's complaints about Iran's nuclear activities has not deter it from signing additional commercial contracts with Iran.

There are strong economic motives guiding the Russian designs, as Moscow and Tehran together control roughly 20 percent of world's oil reserves and close to half of the world's gas reserves. The two powers could do much to dilute their respective leverage over the global energy markets. Moreover, in addition to atomic power projects, Iran's oil and gas sector offer many opportunities to Russian firms looking for new investments. Keeping Iranian energy from becoming attractive for European consumers, while financing projects that will tie ever-hungrier South Asia and China into even greater dependence on Iran benefits a number of Russian objectives.

Gazprom has offered to purchase state-owned Petroleum Industry of Serbia, having reportedly offered the Serb government €400 million for a 51% stake.

Russia is reportedly looking to cooperate with Uruguay on nuclear energy.

Gazprom has announced that Russia's natural gas will be supplied to Belarus in the first quarter of 2008 at the price of $119 per 1,000 cubic meters.

The chairman of the Russia-Vietnam Business Council says that Russian private firms have begun looking at investment opportunities in Vietnam. Russia’s investment banks are launching online brokerages to encourage investment. "Although Russia in the aggregate may not appear as the cheapest market in global emerging markets because of energy, valuations in most other sectors are very attractive," said one analyst, supporting the increasingly popular view that the Russian market will remain strong for 2008. Business According to the Economics Ministry, foreign investment in car production in Russia will exceed $1.8 billion in 2007.

PHOTO: Fireworks explode above Federation Tower in the city's business district as Moscow celebrates New Year's Day January 1, 2008. REUTERS/Thomas Peter (RUSSIA)

Dmitri Medvedev “looks like someone who might sell you a flat-screen TV in John Lewis” according to one UK reporter, who nonetheless predicts that Medvedev’s presidency will herald “a new Russia”. The Swedish Foreign Minister says that Russia cannot continue its recent “authoritarian” trend if it is to develop a modern society and economy. Russian artist Alexander Rodchenko’s work is to appear in Britain at an exhibition funded by Roman Abramovich. Russian pet shops are reporting a shortage of domestic rats, as shoppers are buying them in preparation for the Chinese New Year - the Year of the Rat.

PHOTO: A woman walks past the print "2007" during an open museum night in the Winzavod art centre in Moscow May 18, 2007. (REUTERS/Denis Sinyakov)

What follows is an exclusive translation of a short article from the German publication "FOCUS," which reports on Vladimir Putin's ordering of additional security to protect Dmitri Medvedev - a sign of the heightened concerns among competing factions within the Kremlin as the elections approach. According to sources consulted by this journalist, Putin is attempting to completely sideline Igor Sechin.

FOCUS, 31 December 2007

Boris Reitschuster

Cabal in the Kremlin: Putin increases protection for crown prince Medvedev

Behind the scenes there seem to be power struggles over Vladimir Putin succession plans: Due to security concerns related to his "crown prince" Dimitri Medvedev, the current head of state – according to information from Kremlin insiders – has assigned his own personal body guards (assigned by the KGB successor FSB). Now the president's security service is responsible for Medvedev's protection – even though he is not entitled to these protections as vice prime minister.

Obviously Putin distrusts FSB head Nikolai Patruschev. He is associated with the "Siloviki", a powerful security service clan within the Kremlin. The former KGB agents resent Putin's decision to nominate their antagonist Medvedev as his successor.

In fear of sabotage, Putin obviously put his previous confidant and head of the secretary Igor Sechin, a powerful decision maker of the "Siloviki", on leave and banned him de facto from Moscow. It is said that Sechin however tried to undermine Putin's decision and to position prime minister Viktor Zubkov as candidate for president against Putin's will. This "attempted coup" failed.

Piquant: In his side job the hardliner Sechin is head of the board of directors of the oil company Rosneft and a personal adversary of Medvedev. Medvedev namely is the chairman of the board of the Rosneft competitor Gazprom, and is associated with the moderate wing within the Kremlin.

From Lionel Beehner, a journalist formerly with the Council on Foreign Relations, in the Huffington Post: Why do we suddenly care so much about Russia? Its economy is still smaller than Portugal's, its nuclear stockpile is no match for our own (not to mention its Soviet-era early warning radars barely work), and its foreign ambitions, as George Kennan predicted generations ago, have been mostly contained. Plus, given its current demographic trends, some analysts predict Russia's population could sink below 100 million by 2050, making it smaller than Mexico.

Yet for some reason, Washington has worked itself into a lather worrying about Russia. It shouldn't.

Read the rest about why Russia is not a nuclear Wal-Mart, and why their growing relations with China and Iran may not be as worrying as some may think.

Giles Whittell at the Times says "Dmitri Medvedev is no stooge, as everyone seems to think."

Is that really what everyone thinks? Not from what I have been reading. I've always had the impression that Medvedev has a very positive, well guarded, and expertly crafted public reputation, even among the normally hostile Western press. I don't think that anyone reading all the positive news coverage following his political debut, as it were, way back when during the World Economic Forum at Davos, would ever think him to be just a "stooge." Take a look at Medvedev's terrific English skills, which most certainly aren't shown on Russian TV.

The most typical descriptions I recall reading in the popular press include words like "soft-spoken", "intelligent", "polite", "deferential", "modest" - and plenty of other disarming qualities that seem sure to please even the coldest critics. But perhaps Giles Whittell is just putting forth this false negative as a rhetorical device to deliver one of the better lines I've seen during this dead news week: "Dmitri Medvedev looks like someone who might sell you a flat-screen TV in John Lewis."

That's about the most interesting contribution from the article...

[This special guest columnist is a long-time colleague of mine writing under the pen name Dee Prince. He is a Nigerian-born international petroleum consultant who works out of offices in Beijing, Lagos, Toronto and London. He is an Associate Professor of China's leading post-graduate School of Business and Economics, and his current professional focus is on Chinese energy requirements and strategies, and how these impact Africa, Europe and Russia in particular. Read his previous articles on this blog here, here, and here. - Robert Amsterdam]

CHINA, MORGAN STANLEY AND INTRIGUING CAPITAL FLOWS

By Dee Prince

You couldn’t make it up if you tried.

My last class in the just-concluded Corporate Training course on Banking Risk and Basel II Accord for Chinese Banking examiners fell on the same day that Morgan Stanley announced its China-related mega-deal.

You know the one I’m referring to - China’s China Investment Corporation – which is sometimes cutely referred to as the nation’s “Sovereign Wealth Fund – and its $5 billion capital injection into Wall Street’s venerable institution and also the second largest US investment bank.

Azerbaijan’s state oil company is set to auction off 605,000 barrels of Russian oil that will be delivered to Russia’s Novorossiysk port.

World Energy

The Indian government “must allow prices to be market driven” says oil retailer Indian Oil Corp after it emerged that the company is losing $43.1 million a day from selling cheap fuels.

The US is sending a chief negotiator to North Korea, after admitting that it is “skeptical” about the region disclosing its nuclear programs.

The dispute over the British Council’s activities in Russia continues, with a spokesman for the Foreign Ministry saying that the Council’s continued presence in the country constitutes “unlawful activity”. Amid protests that native Russian workers are being outnumbered by foreigners, the Russian government say it intends to cut the number of foreign migrant workers the in the country by two thirds in 2008. Last year saw an influx of roughly six million workers without visas. Russia has admitted that customs officials thwarted more than 120 attempts to smuggle "highly radioactive" material out of the country last year, “fuel[ing] concern about how many illegal exports were not halted”.

The UK's Daily Telegraph is running a story today on a new twist to the Yukos case. The article says that investors who lost money in the company when it was taken over by the Russian government are now accusing the Russian Federation of unlawfully expropriating their investments. Up to $100 billion could be claimed.

The article reads: "Later this year, three arbitrators will begin to consider the largest compensation claim ever launched outside the normal court process. At face value, it is worth £16 billion. According to the claimants, though, not even that eye-watering sum would be enough to cover their losses. The figure they may eventually be seeking could be as much as £50 billion, or more than $100,000,000,000.

At the heart of this fascinating tale is Russia's attempt to open its oil industry to western investment in the 1990s, followed a decade later by President Putin's decision to bring his country's energy resources back under state control."

Gotta love their ability to deliver clever headlines, no? From the Economist: The audible but mostly invisible feuds inside the Kremlin, and the total secrecy about political decision-making, make even the stability so praised by Time look precarious. Even Mr Putin’s biggest fans would find it hard to argue that he enjoys a robust debate with critics, or promotes a fastidious separation of business and political interests.

He has also a troubling habit of dissembling when faced with awkward facts—claiming, for example, that the state had nothing to do with the onslaught on Yukos, the energy company owned by Mikhail Khodorkovsky, an anti-Kremlin tycoon. Mr Aslund says of this episode that Mr Putin, Soviet-style, “re-established the public lie” as an official standard.

With all the hubbub in Russia's online community regarding LiveJournal and increased internet watchdogs, another frightening development has been added to the mix, this time involving Russia's campaign to establish a new Cyrillic internet. According to a report in the Guardian, the government is lobbying hard to change the DNS from ".ru" to ".rf", which could possibly involve a new root server based in Russia, requiring all people to register. Needless to say, this raises some concerns that the Kremlin may be seeking a greater level of control over internet content. Guillaume Lovet of Fortinet says "Russia has a very strong academic tradition of technical universities, which form very sharp and competent computer scientists. At the same time, the average income per head is extremely low. This combination creates an explosive cocktail. Any attempt to confine Russian hackers inside some kind of Russian cyberspace is bound to fail."

Finance Minister Alexei Kudrin says that Russia will not be affected by changes in oil prices, as it has “prepared” for fluctuations with a strong reserve.

Lukoil and Gazprom have established a Regional Development joint venture to focus on a number of development and implementation aspects, including exploration and production of hydrocarbons.

Gazprom says it wants to claim 10% of the French gas market within four to five years.

Today: Russia's relations wtih UK and Ukraine in trouble; Greenpeace Russia to focus on Kyoto Protocol and possibly sue the IOC; Moscow's building boom; movie-going culture on the up.

The British Council says that its legal position in Russia is “rock solid” despite facing pressure and accusations that its continued activities are “illegal”. The council’s offices are due to reopen on January 14, after holiday closure, but Foreign Ministry spokesman Mikhail Kamynin said in a statement that Russia expects the operations to be permanently closed and “any other actions would be provocative and build up bilateral tensions.” Ukraine's government is asking the United Nations to recognize the 1932 famine as an act of genocide, “worsening already frosty relations with Russia”.

Today, and hopefully over the next several months, we are planning to do a significant amount of blogging about Russia from a comparative perspective - focusing often on the commonalities of the Russian experience and the Latin American experience. I would argue that those who study Russia can learn a lot by looking at popular movements across this distant continent.

Case in point, there is a terrific column by Enrique Krauze, the editor of the excellent Mexican magazine Letras Libres, in the IHT today about the Venezuelan student movements which makes mention of the Russian student idealist "Sashka Zhegulyov" (a character from a 1911 novel by Leonid Andreyev).

What can we learn about Vladimir Putin and Russia from the experiences of Alberto Fujimori, Hugo Chavez, Lazaro Cárdenas, and other populist authoritarians of Latin America?

The Daily Telegraph continues its reporting on the Belkovsky rumor over Vladimir Putin's secret fortune, this time featuring some terrific quotes from Andrei Illarionov: Illarionov, president of the Moscow-based Institute of Economic Analysis and a fellow of the Washington-based Cato Institute, claimed that the circle around Putin and his chosen successor Dmitry Medvedev, were increasingly adopting "the aggression of the street rabble" to stay in power.

"At the moment for many of the people who are in power, there is almost no other means left to them but to escalate violence and aggression in order to remain in power.

RFE/RL is reporting that Russia is cutting back on its contributions to the OSCE budget:

Russia's decision to reduce its payments, in a sense, fits into the ongoing debate over the OSCE's budget for 2008, which has yet to be adopted due to a lack of consensus among the 56 participating states. Individual countries are also in separate negotiations over the size of their contribution to this year's budget.

But the Russian Foreign Ministry's latest note, in which it accuses the OSCE of bias toward certain member states, leaves little doubt about the issue's political undertones.

"This is connected chiefly with the OSCE's election-monitoring activities, both in Russia and other former Soviet countries," says Yevgeny Volk, a Russian political analyst. "By reducing its contribution, I think Russia is seeking to voice its opposition to the OSCE's activities and to exert pressure on the organization."

There's an interesting post over at SRB about the Nashi's 3rd Congress, which of course featured Vladislav Surkov as the keynote speaker, and the creeping "bureaucratization" of the movement: The Nashisty argue that Russia despite its success and supposed stability is besieged from within and without. Within by what Borovikov calls “fascists in disguise”–a Nashi metonym for liberals, Other Russiaists, National Bolsheviks and other “radicals”–and shadowy forces emanating from the US State Department and British Foreign Office. If the myth of a “new Cold War” serves American pundits as fodder for proclaiming Putin’s Russia as “neo-Soviet,” Cold War rhetoric allows Nashi use “fascism” as political venom against the Russian state’s real or imagined enemies. “We’re here to protect the sovereignty of our country,” said Zaur Aminov, a 20-year-old economics student and Nashi Commissar told the LA Times as if that sovereignty is under threat. And who is the source of this threat the LA Times wondered? “The American State Department,” Aminov answered.

Special thanks to Fora.tv for this short clip of Estonian PM Ansip addressing the Hoover Institution about the impressive growth of the Estonian economy.

Just this evening the FT has broken a story of considerable importance: According to an unnamed, high ranking official in Nigeria's energy sector, Gazprom has made an aggressive offer to make major investments in the African nation's energy infrastructure in exchange for shares in key gas fields - a move which already has critics crying foul. Described by Matthew Green as "one of the boldest forays in the global fight for African energy assets," this move by the Russians shows in no uncertain terms the Kremlin's determination to preemptively co-opt alternative natural gas sources - a familiar pattern we have seen in practice everywhere from Turkmenistan to Iran to Algeria to Bolivia.

At least now people are beginning to pay attention to the real motives behind these actions.

What is particularly interesting is how this unnamed official gives us an inside view into Gazprom's negotiating tactics: “What Gazprom is proposing is mind-boggling,” he told the FT. “They’re talking tough and saying the west has taken advantage of us in the last 50 years and they’re offering us a better deal ... They are ready to beat the Chinese, the Indians and the Americans. ... Gazprom is saying, ‘We’re better than Shell or any other company that has exploited you for the past 50 years’"

Hearing Gazprom give lectures on the evil exploitation of big oil in Nigeria must have seemed richly ironic to the petroleum ministers, who won't be buying into this paternalistic "exploitation narrative", at least privately. Anyone who has worked in Nigeria knows that the various groups and clans in control of the petroleum sector are far more sophisticated and savvy energy experts than one may expect, and most certainly know how to cut a favorable deal. However there is also good reason to think that Russia could succeed with these plans in Nigeria, especially given the attractive political incentives Mr. Putin can attach to any Gazprom offer - making competition with any normal non-state owned company laughable. President Umaru Yar’Adua (pictured) has previously made bold declarations about his plans to develop the natural gas sector in Nigeria (most of which is currently wasted by flaring - which oddly Russia recently surpassed Nigeria in this regard), and having Putin come along offering billions might just be irresistible.

However there are also several reasons for us not to jump the gun yet. We have seen other cases of Gazprom's strategic "premature contractualization" - whereby the greatest impact of a proposed deal is not the acquisition itself but rather the conduct it forces upon other parties. Some may recall how terrified the Italians were when Gazprom signed an MoU with Algeria's Sonatrach, yet after Scaroni subsequently made Eni Russia's largest gas customer and after the Kremlin somehow convinced him to purchase stolen Yukos assets that no other company would touch with a ten-foot pole, the MoU with Algeria totally dissolved into nothing. Will these promises to take over Nigeria's gas actually materialize, or is Gazprom looking for more leverage over the Europeans in other areas?

Given that I have worked in Nigeria on and off for more than 25 years, I will be following this story closely, and will offer some more comprehensive thoughts in the near future. More details after the jump.

Last summer when Vladimir Putin boldly declared his interest in building a new global economic “architecture,” eschewing the influence of institutions such as the World Bank and Bretton Woods system, few in the West could predict how exactly Russia would go about doing this. The rapid rise of a new, powerful energy alliance, including countries like Iran, Venezuela, Nigeria, and Bolivia, appears to be the central instrument by which Moscow hopes to accomplish their lofty goal, and already we have seen the potential for damage posed by closer relationships between authoritarian states.

Hugo Banzer Suárez (right), an authoritarian populist president of Bolivia photographed with Chilean dictator Augusto Pinochet in 1975. What leads voters in nominally democratic countries like Russia and Bolivia to support authoritarians?

A few days ago Charles Krauthammer had a column discussing the rather imperfect democratic legacy of the recently assassinated Pakistani opposition figure Benazir Bhutto. The core question, the columnist argues, is whether or not democratic forms of government can be effectively instituted in societies that remain for the most part feudal, whereby divine right to succession or simple clan power decides who leads, rather than popular sovereignty? Krauthammer furthermore points to many examples proving that economic liberalization and growth are not axiomatic to political liberalization, including of course Russia, which "acquiesces cravenly as its nascent democracy is systematically dismantled in return for a bit of great-power posturing and a measure of oil-fueled pottage doled out by Czar Vladimir."

Ouch.

It was a fantasy come true for the Kremlin apologists. Distracted for just a moment from their diligent yet nutty work debunking the supposedly anti-Putin agenda/conspiracy in the international press (how these people reconcile that position with the Time nomination is beyond all logic), they took notice of Georgian President Mikheil Saakashvili's terrifying brutal crackdown against opposition protesters last November - the consequences of which have led to today's disputed snap election.

The scary scenes of jackboot riot police beating the peaceful marching crowds seemed like it was pulled directly from Moscow, Myanmar, or even Kenya (apart from Georgia's innovation of the Mickey Mouse gas mask for the riot police (pictured)). What exquisite hypocrisy!, exclaimed the apologists - here we have the golden boy of the West, a man who holds diplomas from Columbia, George Washington, and the International Institute of Human Rights, behaving like a tin-pot despot! Now no one can complain about a few imperfections in Russia, they concluded, and declared the so-called "color revolutions" to have been officially and definitively defeated.

Vladimir Putin is certainly not the first Russian to nab the cover of Time Magazine. In addition to Yeltsin, Gorbachev, Sakharov, Brezhnev and many others, if we go all the way back to Dec. 16, 1935, the cover was graced by the legendary Alexei Stakhanov - the iconic Soviet worker of the Stalin era. Stakhanov, as I'm sure many of you are aware, was a miner who became an international celebrity after extracting 14 times his quota of coal single handedly in under six hours, and later set a new record by mining 227 tons of coal in a single shift. His extraordinary feats inspired the Shakhanovite movement which sought to improve productivity and bolster national pride and unity - a name synonymous with Joseph Stalin's ambitious five-year plans.

(Although a largely irrelevant detail now, in 1985 the New York Times reporter Serge Schmemann, now an editor at the International Herald Tribune, first broke the story that Stakhanov's achievement was a propaganda ploy, as he was helped by numerous other workers to break the record.)

If we were to look for the Stakhanov reincarnation in today's Russia, symbolizing in larger than life terms Russia's resurgence, strength, confidence, and national unity, we would look no further than Gazprom - an impossibly overachieving corporate behemoth that is not only the central instrument for the Kremlin to leverage its power abroad, but also a Titan-like national symbol of the new reality of Putinist Russia. But like the superhuman Ukrainian miner, are Gazprom's achievements over-emphasized to serve this purpose?

A new report from the Financial Times on the potential Gazprom natural gas deal in Nigeria reveals that the company aims to control the country's LNG export market to Europe and the United States, but Russia still hasn't provided any details of their proposal:

“The Russian government wants Gazprom to anchor the expanding relationship between Nigeria and the Russian Federation,” a Nigerian oil official said. “They now have to come down to the detail of what they want to do. We are waiting for them.”

Analysts praising Russia’s strong performance “ignore the fact that Russia's inflation demons are rearing their ugly heads and showing every sign of getting worse.” Oligarchs Vladimir Potanin and Mikhail Prokhorov, previously joint owners of Norilsk Nickel, are parting ways in a saga being dubbed as “the divorce of the century”. The Russian entrepreneur Alexander Mamut has bought the US blogging website LiveJournal. Its Russian users, who comprise 28% of the site’s global use, are worried that the “Kremlin loyalist” will use his ownership to censor the blog. Japanese carmaker Nissan Motors may join in a partnership with the French Renault and Russian AvtoVAZ, although the latter has yet to approve the move. UK Brewer Scottish & Newcastle “could accrue £1bn in benefits” from taking full ownership of its BBH Russian joint venture with Carlsberg. The UK’s Financial Services Authority could tighten listing requirements. One report links the change with the claim that listings from Russia and other countries from the former Soviet Union, “have frequently raised concerns over corporate governance.”

PHOTO: Mikhail Prokhorov and Vladimir Potanin, previously joint owners of Norilsk Nickel. (Source: http://russia-ic.com/)

TODAY: Russian Christmas; Clinton on Putin; Georgian elections - Russia doubts democracy; Poland signals stronger position on missile defense shield; Russia and the Middle East; could Russia give the OSCE a hard time this year?

It is Christmas Day in Russia today. President Vladimir Putin issued Christmas greetings to Orthodox Christians and all Russian citizens, saying, “this is a holiday that has borne the light of faith, hope and love for centuries. It draws us to the true spiritual values that unite millions of people.” US presidential candidate Hillary Clinton reportedly declared, in response to a voter's question, that Putin “doesn't have a soul.”

UK gas bills could rise 17% this year, with the price increase reportedly being “blamed on Russian supplier Gazprom”.

Gazprom’s moves to tap Nigeria’s huge energy reserves “will send shivers through western governments already concerned about a shortage of global gas supplies.”

Two key Russian export projects, the East Siberia-Pacific Ocean oil pipeline controlled by Transneft and Gazprom’s Nord Stream pipeline, are facing delays and increased costs.

Russia, “the country that defaulted on its