Special Report: Russia's Tectonic Shift
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Part II: Washington's Moves To Influence Putin's Success
Oct 31, 2003
Summary
Russia is at a crossroads, with President Vladimir Putin moving to strengthen his control and take the country in a new, pro-Western direction. In this two-part special report, Stratfor will examine the shift in Russia's geopolitical course and whether Putin will accomplish his goals. Part II analyzes Putin's chances at successfully revitalizing and inviting foreign investment into Russia and how U.S. policy might interfere with his plans.
Analysis
Seeing a close relationship with the United States as crucial for Russia's success on the path toward Westernization and modernization, Russian President Vladimir Putin has maneuvered to gain Washington's support in his struggle against the oligarchs.
During his visit to Camp David in September 2003, Putin asked U.S. President George W. Bush to choose between supporting him and supporting the oligarchs. Putin argued that supporting him -- and by extension the Russian state -- would greatly benefit the U.S. economy. Putin indicated that if the oligarchs fell, it would be easier for him to allow U.S. majors to dominate the field of Russian energy. Thus far, Bush has not responded to Putin's request.
Washington is sending Moscow mixed signals about its Russia policy. The Russian understanding of the situation is that two powerful groups in the United States have distinct and competing views about how to treat the former Soviet state.
One group -- sometimes referred to as "neoconservatives" -- believes Russia should be weak and that Washington should support the oligarchs. To this end, U.S. Vice President Dick Cheney met with YukosSibneft CEO Mikhail Khodorkovsky in July 2003 to promise him support. Also, U.S. Pentagon adviser Richard Perle said Oct. 29 that Russia should be excluded from the G8 for detaining Khodorkovsky.
The other group comprises politicians and business elites close to the Carlisle Group of U.S. investors. This camp believes that a strong, Westernized Russia would be to the United States' advantage because it would give American corporations broad access to Russian resources. They favor supporting Putin.
Putin wants Washington to make a decision. To push Washington toward choosing closer and more equal relations with Russia, Moscow has signaled that it is keeping its options open. It is in this context that we view Russian Defense Minister Sergei Ivanov's statement that Russia and the United States are neither friends nor foes, hinting that Moscow is keeping its powder dry in case the U.S. administration opts for another confrontation with the former Soviet state.
Other recent news from Moscow gives the same impression. For instance, the Russian Defense Ministry recently said that Russia is keeping its stock of several thousand multi-head strategic nuclear missiles operational. Russia dismantled the warheads according to the requirements of strategic arms treaties, but a provision has allowed them to be kept in arsenals. This statement came on the heels of another Defense Ministry statement that currently deployed Russian single-head nuclear missiles will be operational until 2030 -- and in the meantime, Russia will work to develop new generations of missiles.
Putin's Strategy: Initial Success Likely
Putin's strategy to strengthen Russia by Westernizing the country and putting down the oligarchs is certainly risky, and many factors will converge to interfere with his plans.
We expect that Putin will succeed initially. Despite resistance from some oligarchs -- other oligarchs will be absorbed into the new system -- the Russian populace and significant parts of the elite will support Putin. Though some would prefer to see Russia remain at arm's length from the West, if they must choose between the rule of oligarchs and Putin's Westernized but prospectively stronger Russia, they will opt for Putin's plan as the lesser of two evils.
We expect that Putin eventually will defeat the oligarchs as a class, including putting down the Yeltsin Family. It will be more difficult for Putin to overcome the resistance of Russian liberals, many of whom are in the government and belong to the St. Petersburg clan -- of which Putin is also a member. Liberals once criticized the oligarchs but now strongly support them, inviting U.S. interference. They view Putin's plan as a way for him to establish overt state influence over the economy, and they envision a sort of political dictatorship in Russia's future if Putin succeeds.
However, there is another camp among the St. Petersburg clan. The idea of a Russia rich in foreign investment meshes with the world view of a number of St. Petersburg's liberal members; some of them therefore will stand by Putin.
We expect a strong anti-Putin campaign to emerge in the Russian media -- which oligarchs and liberals mostly control -- as well as the foreign press. Putin will be able to largely brush away this pressure because the Russian masses dislike the liberals, believing that they are selling their country to Washington. Popular support therefore should help Putin carry out the first stage of his plan: crushing the oligarchs.
Washington for the Oligarchs, U.S. Business for Putin?
It is unclear which path the Bush administration will take. Washington, fearing a Russian resurgence, most likely will pressure Putin to stop attacking pro-U.S. oligarchs and liberals. Eventually, however, such a policy will push Moscow closer to Europe -- and possibly even China.
Such a drift would not fit into Washington's plans, so the pressure likely will be rather short-lived. The geopolitical paradox is that the world's only superpower needs Russia more than Russia needs the United States. Washington depends upon Russian oil and Moscow's cooperation within the United Nations on issues concerning North Korea, Iraq and Iran. It is not out of the realm of possibility that U.S. big business might try to help convince Bush that befriending Russia would be more beneficial than quarreling with it.
It is important for Putin that American big business, particularly energy majors, does not seem to share the Bush administration's negative perception of his government. Western corporations appear eager to accept Putin's offer and follow the path of BP, which recently acquired a controlling stake in Russian oil major TNK. Western business leaders know it is in their interest to at least tacitly support Putin's campaign against the oligarchs, their main competitors in the Russian market.
BP CEO Lord John Browne, for instance, has said that his company will continue operations in Russia for the foreseeable future and that Khodorkovsky's arrest neither relates to nor influences BP's decision-making process.
A prominent ExxonMobil shareholder also publicly announced support for Putin's moves. "The sooner such types as Khodorkovsky leave the scene the better for Russia. If it happens, investments in Russia will appear a much more attractive option to such companies as Exxon, Shell and ChevronTexaco," he said, according to Rusenergy.com, an independent Russian energy Web site.
Nationalists To Challenge Westernization -- Later
The real trouble for Moscow could start after Putin defeats the oligarchs. First, it is uncertain whether the Russian government will be able to prevent the United States from asserting a dominant influence in the Russian economy after U.S. businesses establish a foothold in Russia. Sharing control of its strategic natural resources with foreign companies might prove dangerous for Russia's energy security and sovereignty.
Ironically for Putin, some who support him against the oligarchs likely will turn against him the moment Western corporations begin to dominate Russian natural resources. Stratfor sources close to Putin's inner circle say he plans to sell major -- in some cases, controlling -- stakes in many Russian energy firms to foreign majors between 2004 and 2007, including privatizing Russian state-owned oil and gas company Gazprom. He also reportedly plans to invite further foreign participation in the company; German gas giant Ruhrgas already holds 6.8 percent of Gazprom's outstanding shares.
A strong foreign influence likely will result in an equally strong backlash from many camps in Russia. The opposition nationalists likely will combine forces with some of Putin's current associates, such as some former KGB officers and current military leaders, to lead the resistance against the president. Being nation-minded, his former allies likely will say that Putin has crossed the line between Russia benefiting from Western investment and being harmed by it.
So, though we are forecasting that Putin will rein in the oligarchs, we also expect opposition to Putin to intensify later. By mid-2004, when Western capital begins to enter Russia on a large scale, Putin's re-election might be called into question because of that opposition. At this point, it is impossible to say who will win the election and whether a post-Putin nationalistic Russia with an anti-Western agenda will emerge as the result of this struggle -- but it is not inconceivable.
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