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Friday, January 30, 2009

The Arctic in NATO's Crosshairs

January 26, 2009 - The Voice of Russia by David Brian - The endless desert of snow and ice has always been a subject for dispute among politicians, diplomats and scientists. The Arctic territory has now become a subject of a military dispute. NATO has declared it a strategically important region. The announcement was made by NATO spokesman James Appathurai who also said a meeting with the participation of high-ranking NATO officials is to take place January 28-29 in Reykjavik, Iceland. The list of participants leaves no doubt about NATO’s real goals in the region. The decision of the Western defense alliance to declare the northern territories as strategically important will create a tense international situation in the region. The struggle for the Arctic is becoming the subject of long-term military games. Chances are very high, therefore, that they will send military units to the Arctic sooner or later. Those, who keep an eye on the developments around the Arctic territories, will hardly fail to see that Mr. Appathurai’s remarks come hard on the heels of the initiatives outlined in the US national security directive. The document says that Washington has fundamental national interests in the Arctic region. These interests are crystal clear: missile defense, strategic deterrence, marine security operations. There are no references to terrorists or pirates, who obviously feel themselves way more comfortable in the warm waters off the coast of Somali than among the polar bears of the Far North. The US, Canada and NATO make no secret of why they need a military group deployed in the Arctic region. Their ice-breakers will arrive in the region to defend national interests of those members of the alliance who claim their right to the natural wealth of this part of the planet. The Arctic contains about 90 billion barrels of unexplored crude and enormous reserves of natural gas, which could be comparable to those of Russia making up about 30 percent of global gas reserves. Experts say that by 2030 Russia will be using many of its Arctic gas deposits to extract about 50 percent of its natural gas. For example, the Shtokman deposit in the Barents Sea contains 4 trillion cubic meters of gas. Fully aware of the Arctic’s strategic importance, Russia is ready to respond adequately to NATO’s claims. That is why NATO is in such a rush to stake out these claims in the region. Russia’s marine doctrine, which was signed during Vladimir Putin’s presidency, singles out the Arctic territory as one of the major directions of the country’s naval policy. Russia’s Security Council is to unveil a new strategy of Arctic development at the end of January. The key message of the document will be as follows: “Russia is not going to give the Arctic away.” Moscow also wants to considerably intensify the freight traffic activity along the Northern Seaway during the upcoming years and plans to build for this purpose six new powerful nuclear icebreakers before 2020. About a year from now Russia will submit to the UN documents substantiating its claim to the Arctic shelf. Five countries of the Arctic Ocean – Russia, Canada, the US, Norway and Denmark – made a reasonable decision last year to carve up the Arctic region on the basis of existent conventions only. However, NATO’s plans to add a military dimension to the Arctic dialogue may lead to drastic changes in the approach to the current issues. All this may result in a new flare point of tension on the global map…

Thursday, January 29, 2009

Russia's Putin to open Davos forum

MOSCOW, January 28 (RIA Novosti) - Russian Prime Minister Vladimir Putin will give the keynote address at the opening of the annual World Economic Forum in Davos, Switzerland on Wednesday. The forum, which will last until February 1 and involve over 40 leaders, will focus on ways to overcome the global financial crisis and anticipate its implications for further economic development. "Putin will speak about the crisis, and outline his ideas on the post-crisis period, the necessity of reviewing the current economic situation in order to protect us from new crisis in future," press secretary Dmitry Peskov said. "No doubt, he will mention measures being take by the Russian government on the national level to minimize consequences of the crisis. Perhaps he will briefly fix on the international situation," the official added. He said the forum would be a good opportunity for Putin to explain Russia's position on many problems, including the gas crisis earlier this month, when Russian gas transit to Europe via Ukraine was halted. Peskov said encouraging foreign investment in Russia was one of the goals of Putin's trip to the forum, and the premier would try to bring it home to world leaders that Russia "remains attractive for international investment and retains great potential for further growth." The participants of the forum, tentatively more than 2,500 people from 96 countries, are expected to discuss financial system stability, global economic recovery and problems of global, national and regional management in the long-term outlook among other issues. "Although no decisions are taken at the forum, discussions are subsequently considered when taking collective decisions as well as in decisions by certain countries and international organizations," said Yury Ushakov, a deputy chief of staff in the Russian government. The Russian delegation will number some 50 people, representing such companies as LUKoil, Bazel, RusAl, Novatek, Severstal, AFK-Sistema, VimpelCom, Wimm-Bill-Dann as well as the Development Bank and VTB. In an interview with the Bloomberg financial news agency on Sunday, Putin said the Russian delegation at the Davos forum intended to confirm its commitment to developing common standards for the world economy, as well as unified principles for international financial markets. According to Putin, the European Union has elaborated some agreements and Euro-zone countries are trying to comply with them, but there are no similar rules on a global scale. "They in general would play a stabilizing role. Secondly, now, in the conditions of globalization, inter-dependence is so great that all the countries would be interested in that," Putin said. "For example, Russia holds almost 50% of its gold and foreign currency reserves in the U.S. economy and it is important for us what the U.S. budget deficit in 2009 is," he added.

Rights court to hear Yukos case

01-29-2009 - Upstream OnLine - The European Court of Human Rights has ruled that a case brought against Russia by shareholders in collapsed oil company Yukos is admissible and will be examined, a spokesman said. The decision paves the way for a trial of the case, in which shareholders argue that they were stripped of their possessions. "The admissibility decision has been pronounced and communicated to both parties," a spokesman for the Strasbourg-based court said. Once Russia's largest oil company, Yukos was brought to its knees under a multibillion-dollar back-tax claim that led to its bankruptcy and asset sales at state-forced auctions, most of which were snatched up by state-owned Rosneft. Yukos founder Mikhail Khodorkovsky is serving a nine-year prison sentence in Siberia. The company's former chief financial officer, Bruce Misamore, welcomed the decision in which he said the court had ruled that "aspects of the complaint" were admissible. "The decision by the European Court of Human Rights to investigate elements of our claim is excellent news for all of Yukos Oil Company's stakeholders," he said. "This is an important step towards the vindication of the company's belief in the rule of law - something it never secured in Russia," he said. Earlier today, Russia's ambassador to rights body the Council of Europe denounced what he called the "politicisation" of the court, which has repeatedly ruled against Russia for rights abuses in Chechnya, Russian prisons and elsewhere. Russia's lower house of parliament has refused for two years to ratify a protocol of the European Convention on Human Rights that would speed up the court's work. "The main reason is due to the political context and a certain politicisation of the court's work we have observed recently," Russian ambassador Alexander Alekseev told Reuters.

Thursday, January 22, 2009

EU cannot trust Russia or Ukraine, Barroso says

This very peculiar episode is over. Let's hope it's over, - Mr Barroso20.01.2009 - EUObserver by Philippa Runner - BRUSSELS - The leaders of Russia and Ukraine are less trustworthy than some African countries, European Commission President Jose Manuel Barroso said on Tuesday (20 January), as Russian gas finally began to arrive in EU states after a 13-day freeze. "I was very disappointed in these past few days by the way the leadership in those countries negotiates," the commission chief said, after making more than 30 personal telephone calls to Moscow and Kiev during the gas dispute. "I've been involved in mediation processes since I was young, including in African matters. It's the first time I saw agreements that were systematically not respected," he added. "Gas coming from Russia is not secure. Gas coming through Ukraine is not secure. This is an objective fact." The withering remarks come after Russia's Gazprom on Tuesday morning began pumping the normal amount of gas - 424 million cubic metres a day - to Ukraine and initial deliveries arrived in Hungary and Slovakia hours later. The resolution of the gas crisis will see Kiev pay double for gas in 2009 compared to 2008, with Brussels hoping the deal does not fall apart amid mounting political and economic turbulence in Ukraine. "This very peculiar episode is over. Let's hope it's over," Mr Barroso said. Apart from pushing for new pipelines and EU energy solidarity investments, the commission indicated the gas dispute could provoke legal action against Russia and Ukraine under the Energy Charter Treaty (ECT), a 1994 multilateral pact. "There is an Energy Charter Treaty that was signed but not ratified by Russia [and] a charter treaty signed and ratified by Ukraine. So here we have ...some public responsibilities in terms of international law," Mr Barroso explained. "We were preparing [legal] action for today, in case the gas was not coming back."
Russia not bound by treaty -- The Russian ambassador to the EU, Vladimir Chizhov, rejected Mr Barroso's analysis and questioned the value of the ECT, however. "We follow the principles of the treaty, but we are not bound by the obligations," he told EUobserver. "After hearing for months and years of the need for Russia to ratify the treaty, we have seen that Ukraine, which has signed and ratified it, did not adhere to it in the crisis." The diplomat said the gas dispute is unlikely to influence EU-Russia talks on a new strategic partnership treaty, with business as usual going on despite Mr Barroso's harsh words. "We will have our next working group on economic aspects in about 10 days' time and we'll see. We had one working group on different issues [justice and home affairs] this morning and it went well." "The EU has no reason to distrust Russia," Mr Chizhov explained. "As far as the EU-Russia relationship goes, I think the pattern of dialogue on energy issues has survived and has withstood the challenge."

Wednesday, January 21, 2009

Gazprom's $1Bln Gift to Tymoshenko

Yulia Tymoshenko21 January 2009 - The Moscow Times by Yulia Latynina - Prime Minister Vladimir Putin made it clear that he would never forgive Ukrainian President Viktor Yushchenko for his role in sending arms to Tbilisi to help Georgian President Mikheil Saakashvili fight in the August war -- although the conflict between the two goes back much further, to 2004, when Yushchenko beat out Moscow's preferred candidate in the presidential election. After this, many wondered if Russia would really start a war against Ukraine. On Jan. 1, Russia started a war, using the single most effective weapon in its arsenal -- energy. This was not a war between Russia and Ukraine but one between Putin and Yushchenko. The clear winner in this conflict is Ukrainian Prime Minister Yulia Tymoshenko, and the biggest loser is Yushchenko. The Kremlin was also a loser, but the losses were offset by its success in exposing Yushchenko's incompetence in managing the gas dispute. But what price did Moscow pay for its supposed victory? Tymoshenko, the indisputable winner in the conflict, is a brilliant politician who set her former enemy, the Kremlin, against Yushchenko, her former comrade-in-arms in the Orange Revolution. In the three-week gas war, Gazprom incurred more than $1 billion in lost profits, but this can be written off as a campaign contribution to Tymoshenko's 2009 presidential election campaign. If, in the war between Putin and Saakashvili, it was really South Ossetian leader Eduard Kokoity who emerged as the winner, then in the war between Putin and Yushchenko the clear winner is Tymoshenko. But the Kremlin will pay a huge price for defeating Yushchenko. The European Union's energy commissioner, Andris Piebalgs, has already confirmed that on the same day Putin and President Dmitry Medvedev accused Ukraine of refusing to transport Russian gas, the pumping stations at Orlovka and Sudzhu could not have possibly sent the gas to Europe for technical reasons. Thus, Piebalgs was implying that this was a deliberate, underhanded attempt by Moscow to frame Ukraine as the main culprit in the conflict. It is safe to say that the EU views Russia as an unreliable gas supplier, and I am sure many European politicians are now asking themselves: "Today, the Kremlin is trying to topple Yushchenko --what if tomorrow it uses the same energy weapon to bring down German Chancellor Angela Merkel or French President Nicolas Sarkozy?" There are three planned pipeline projects to supply gas to Europe. The first is the Nabucco pipeline, which is intended to supply Caspian gas to southeastern Europe via Turkey. Nabucco, which is backed by the United States and the EU, is meant to undermine Gazprom's South Stream pipeline, which would also deliver gas to southeastern Europe, but via the Black Sea. The third project is Nord Stream, a Russian-German pipeline that would bypass Ukraine to bring Russian gas directly to Germany via the Baltic Sea. But if as a result of the latest round of the Moscow-Kiev gas conflict the EU decides to build Nabucco and kill the Nord Stream project, this would mean a crushing defeat for the Kremlin's entire European gas strategy. Such a dramatic turn of events is unlikely given that the EU has little resolve to stand up to Russia's blackmail attempts. Moreover, European steel producers, who are in dire financial trouble, are in desperate need of securing the pipeline construction contracts. When a country is able to get anything it wants from its partners because they are weak, I wouldn't call it hooliganism. It is a rational business and political strategy.

The 18-Day Gas War – Why was it fought? Who Won?

January 20, 2009 - Eurasia Daily Monitor by Roman Kupchinsky - A preliminary, and possibly premature, report of the 18-day Russian-Ukrainian “Gas War” of January 2009 might read as follows: This war should never have taken place. The conflict had little to do with “commercial disagreements” between Gazprom and Naftohaz Ukrainy—these were resolved by the “Memorandum of Agreement” signed on October 2, 2008, by Russian Prime Minister Vladimir Putin and his Ukrainian counterpart Yulia Tymoshenko. For unknown reasons this agreement was never allowed to enter into force until January 19, when Putin and Tymoshenko essentially agreed to abide once again by its provisions. The new contract between Gazprom and Naftohaz Ukrainy is for 10 years; and the price for Russian gas, or more precisely Central Asian gas sold by Gazprom to Ukraine, will be based on the generally accepted formula used throughout Europe which links the price of gas to the price of diesel fuel plus transportation costs. Ukraine will receive a 20 percent discount on this price in 2009 and will pay the full European price in 2010. Russia will continue to pay a discounted price for the transit of gas to Europe until 2010, at which time it will begin paying European gas transit prices (Ukrayinska Pravda, January 18). The War was instigated by Putin and Russian President Dmitry Medvedev who decided that the time was ripe to discredit Ukraine in the eyes of European leaders by launching a huge public relations and disinformation campaign to convince the EU that Ukraine was an “unreliable transit country.” By turning off the gas spigot to Europe on January7 and blaming this on the Ukrainians, Moscow began systematically blackmailing Europe into supporting Russia’s plans to build the North Stream and South Stream pipelines. This argument became the central theme at press conferences by Putin and Deputy CEO of Gazprom Alexander Medvedev during the Gas War (see www.gazpromukrainefacts.com, the Gazprom website designed to discredit Ukraine). One major goal of the Russian leadership during the conflict was to discredit and denigrate the freely elected, pro-Western Ukrainian leadership and provide a measure of support for the pro-Russian opposition “Party of the Regions.” The greater gamble was an attempt by Russia to cut off gas supplies to the Eastern and Southern regions of Ukraine by attempting to manipulate the “re-opening of gas supplies to Europe,” using the Potemkin village ploy of opening only one gas entry station to Ukraine. Had the Ukrainian government agreed to this, it would have been forced to stop supplying gas to the highly industrialized and heavily pro-Russian Eastern and Southern regions of the country, thereby leaving itself open to mass discontent (EDM, January 16). Putin’s outlandishly abusive statements about the Ukrainian leadership throughout the conflict were not overlooked by the European Union. His off-the-cuff derogatory remarks calling Yushchenko a “thief” (Kommersant, October 2, 2008) and his liberal use of disinformation did more to bury the Russian public relations effort than anything else. Putin showed himself to be a vindictive and arrogant leader which forced the EU to unite in its response to the crisis. The War finally compelled the EU to do what its critics have been urging the organization to do for years—to speak to Moscow with one voice and not allow itself to be outmaneuvered by the Kremlin-Gazprom (“Kremlingaz”) team. In the early stages of the War, the EU made one large mistake—it agreed with Kremlingaz’s version that the dispute was merely “commercial.” Once Gazprom’s spokesmen took to the microphones in London and Brussels and Putin began his “Ukraineophobic” libel campaign, it became abundantly clear that commerce had little to do with the dispute. In a last ditch effort, Kremlingaz believed that by calling a summit of gas consuming countries in Moscow on January 18, it could once again impose its version of events and continue playing the Europeans off one against the other. This time the EU told its members not to attend and that the EU commission would handle all the talks with Kremlingaz. This stance, along with powerful reprimands of Russian behavior by Angela Merkel and other European leaders made the Russians not only lose face but realize that their game plan was a losing one. Putin and Medvedev had suffered a major blow. Not only did Kremlingaz lose almost $2 billion in revenue (Vedomosti, January 19), Gazprom’s highly touted reputation as a “reliable supplier” vanished in 18 days. The War once again showed that the Ukrainian leadership had dismally failed to take any steps to improve the country’s enormous energy inefficiency. Moreover, its standard backroom deals with Kremlingaz on gas prices were bizarre and opaque. The Ukrainian leadership had always insisted on buying gas at a set price not linked to the fluctuations of oil prices or to the laws of supply and demand. When Tymoshenko agreed to sign a gas contract based on real prices on January 19, the shock for Ukraine’s oligarchs must have been overwhelming. Their subsidized profiteering had come to an end. The only winner in the War was RosUkrEnergo (RUE), the Swiss middleman firm created by Putin and former Ukrainian president Leonid Kuchma in 2004. The January 19 contract removed RUE as the intermediary, but this will not lead to its demise. After years of swearing that RUE was absolutely clean, the Kremlin suddenly began denouncing its own creation as a “corrupt” entity, despite the fact that Gazprom owned 50 percent of the company. In fact, by early 2008 Gazprom, the 50 percent owner of RUE, knew that Turkmenistan would begin selling its gas at European prices in 2009 and this would destroy RUE’s profit margin for resale of the gas to its European clients. As a result there was no reason to maintain RUE as a middleman. In anticipation of this, RUE began buying up lucrative Ukrainian domestic gas distribution companies in 2008. On January 11 RUE co-owner, Dmytro Firtash, told Vedomosti that RUE controlled 75 percent of Ukraine’s highly lucrative domestic gas distribution network, which would make up for the loss of their sales to the EU. Thus the sun kept shining on RUE and it should be able to thrive for years if the Ukrainian and Russian authorities allow it to.

Tuesday, January 20, 2009

Medvedev takes apparent swipe at Putin

Putin & Medvedev/January 11, 2009 - Financial Times by Isabel Gorst - Dmitry Medvedev, the Russian president, on Sunday took another apparent swipe at Vladimir Putin, rebuking the prime minister’s government for moving too slowly to alleviate the country’s economic crisis. Mr Medvedev said only 30 per cent of the government’s anti-crisis programme drafted last October had been fulfilled. “We have to acknowledge that at the present moment planned measures are being fulfilled more slowly than expected and, most important, more slowly than the current situation demands,” Mr Medvedev said at a meeting at the Salyut engine plant outside Moscow. Most Russians had believed Mr Medvedev would play second fiddle to Mr Putin, who named him as his chosen successor ahead of presidential elections last year. Although several attempts by Mr Medvedev to pursue independent policies have been thwarted, Kremlin watchers have noted a new assertiveness in the president of late. In comments last month that were seen as a signal to Mr Putin, the president said: “The final responsibility for what happens in the country and for the important decisions taken would rest on my shoulders alone and I would not be able to share this responsibility with anyone.” Mr Medvedev used Sunday’s meeting to cite a series of dismal economic indicators, including a 6 per cent drop in Russian industrial output in the final quarter of last year and a sharp drop in global commodities prices, which has hit the resource-based economy hard. He was speaking after Russia’s central bank allowed the rouble to depreciate against the dollar/euro basket and published data revealing that it had almost doubled currency market interventions in December to stem a slide in the rouble. The rouble fell 1.1 per cent to 30.5 to the dollar at the start of trading on Sunday, in the 13th mini-depreciation since November 11. However, the rouble rose slightly against the euro, to 41.2 from its close at 41.4 on December 30. The central bank sold $57.4bn and €12.6bn to buoy the rouble in December, compared with $30.1bn and €2.9bn in November. In all the rouble has lost more than 20 per cent of its value since reaching a peak last August, before the war with Georgia and the onset of the financial crisis, which triggered capital flight from Russia. Aleksey Ulyukaev, the deputy head of the Russian central bank, admitted he was under pressure from Russian bankers to sanction a one-off sharp devaluation to restore the balance of payments and halt the drain on reserves. But he defended the central bank’s slow depreciation policy on Sunday, saying a one-off devaluation would destroy confidence. “If we allowed ourselves to do such a thing we would have to start rebuilding our credit history all over again,” he told the Russian business daily Vedomosti.

Rouble eases further, with prospect of more to come

Rouble eases further, with prospect of more to come12 January 2009 - Russia Today - The Russian Rouble fell to its lowest level in six years against the dollar after the central bank devalued the currency for a second day. The government seems set to continue its policy of a controlled devaluation. Russia's Central Bank has again widened the trading band of the Rouble against the dollar-euro bicurrency basket. The Bank let the Rouble slide nearly 4% to 30 Roubles 53 kopecks per dollar on Monday. That's a fall of 1 Rouble 66 kopecks compared to the fixed rate for the holiday period from the 1st of January. The Euro, meanwhile, declined 30 kopecks or less than a percent. It's the 14th drop since controlled devaluation began on November 11th. Vladimir Tikhomirov, Chief Economist at UralSib, is expecting further easing. "The Central Bank wants to bring the Rouble rate closer to the current state of Russia's trade balance, and the balance of inflows and outflows of capital from the country. The underlying reason here is obviously we have seen quite significant drops in commodity prices." The Central Bank plans to continue its policy of gradual devaluation of the Rouble - which cost it $70 Billion in reserves in December alone. It has also led to decreased confidence in the currency, and a squeeze on lending, according to Oleg Zamulin, Professor, at the New Economic School, in Moscow "It creates expectations of further devaluation and people expect the Rouble to fall. Therefore, they flee from the Rouble and start buying other currency. The banks don't give out loans in Roubles, and therefore this credit activity is pretty much shut out." In real terms, the Rouble strengthened about 4.5% against Russia's major trading partners currencies in 2008. It fell 0.2% against the dollar, but rose 5.3% against the euro. In the first month of 2009 - with credit markets in the U.S. and Europe sliding into recession - analysts predict the currency could dive 10% against the Euro-dollar currency basket.

Oil price collapse wreaks havoc on forecasts and budgeting

Oil price collapse wreaks havoc on forecasts and budgeting31 December 2008 - Russia Today - The global economic slowdown which unfolded in the second half of 2008, hit Russia hardest through the collapse in oil prices. They have fallen more than 70% in 6 months, making a mockery of predictions earlier in 2008 and undermining the entire Russian economy. After rising steadily over the past five years, 2008 saw oil start the year by powering through the $100 dollar per barrel mark. It continued to climb through the first half, reaching $147 dollars per barrel in the second week of July, amidst claims of speculation and ‘peak oil’ driving prices, and Gazprom CEO Aleksey Miller, speaking in June, tipping even higher prices to come. “We believe speculation is influencing the oil price, but isn’t a determining factor. We are facing a large jump in hydrocarbon prices and they are approaching a new high level. We expect the price to reach $250 per barrel in the foreseeable future.” That "foreseeable future" didn’t arrive with crude prices crashing in the second half of the year - to $35 in late December - as oil exporters were forced to manage a dramatically changed outlook. Russian President Dmitry Medvedev, flagging an increasingly close relationship with OPEC, said the move was needed to protect Russia. “We must protect ourselves. This is our income base in both oil and gas. These protective measures may be associated with decreasing oil production, as well as with the participation as well as with the participation of certain suppliers in certain organizations, and with participation with new organizations if we manage to come to an agreement.” To stem the slide, OPEC has unveiled 3 production cuts since September, with Russian announcing it will join in. OPEC President, Chakhib Khelil, said he is expecting the cuts to put a floor under prices in the short term, and then enable a moderate rebound. “The OPEC decision was made at the right time, and we think also that as soon as the cuts will be effective in January then the market will stabilize around $45 to $55.” Oil managed to edge higher on Middle East tensions in late December. In the longer term prices are hesitantly forecast to rise, although a deepening global economic crisis will continue to play havoc with short term demand. This leaves Russia - about to face its first budget deficit in a decade - and other producers, preparing for the worst, while trying to finance the capital expenditure needed for the longer term.

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