SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : Investment in Russia and Eastern Europe -- Ignore unavailable to you. Want to Upgrade?


To: Rob Shilling who wrote (1080)1/8/2000 12:39:00 AM
From: Real Man  Read Replies (8) | Respond to of 1301
 
Yeah, busy with some other stuff.
Apparently the rouble collapse has helped domestic industries
a lot. Compare a Russian car for $2000-$3000 (new) on
the market to expensive imports. Also, oil prices are quite a bit
higher now.... We'll see how the presidential elections go.
I'm optimistic, but you never know....



To: Rob Shilling who wrote (1080)1/17/2000 1:22:00 AM
From: CIMA  Respond to of 1301
 
The Putin Doctrine: Nuclear Threats and Russia's Place in the World

Summary

Russia's acting president, Vladimir Putin, last week reversed his
country's vow never to use nuclear weapons first. The announcement
sent shock waves around the world. And it should have. Russian
nuclear warheads are not about to rain down on the United States
but Putin is doing more than rattling sabers. A new Russian
national security doctrine has emerged over the last few months and
Putin's announcement is intended to round out that doctrine,
affecting the war in Chechnya, and re-ordering relations both with
Russia's neighbors and the United States.

Analysis

Until a few months ago, Russia had no clear-cut national security
policy. Since the end of the Cold War, Russian security doctrine
had devolved into Russian economic policy. Russian economic policy
consisted of intensifying relations with the advanced industrial,
capitalist world in order to create the financial structures and
relationships needed to jump-start the economy. Russian national
security doctrine consisted primarily of doing nothing to disrupt
those economic relationships while, within the framework of the
first imperative, maintaining the territorial and institutional
integrity of the Russian Federation.

Thus, the most important aspect of the new Russian national
security doctrine is that it exists at all. Putin's announcement on
first strike has as its primary purpose the elevation of national
security issues to the same level as national economic issues. In
other words, Putin's announcement on nuclear weapons represents the
death of the preceding national strategy, which relegated national
security issues to a distant second place behind national economic
concerns. It was intended to stun a number of audiences into
realizing that the post-Cold War world is gone.

The choice of the nuclear issue served a number of purposes and
spoke to a number of audiences. The first audience was the United
States and its allies. As our readers know, it has been our view
that the West's decision to bomb Iraq in December of 1998 -
followed by the war in Kosovo, both in direct opposition to Russian
wishes - generated a revolution in Russian policy. Those two
actions convinced the Russians that the United States intended to
reduce Russia to the status of a tertiary power. Washington's
systematic indifference to Russian wishes convinced the Russian
national security community that without leverage against the
United States, Russia would have no traction whatsoever. Economic
relations with the West had effectively collapsed in the financial
crisis of August 1998, so the Russians felt they had little to
lose.

Putin's announcement is perfectly designed to drive home the price
and risks of U.S. economic and strategic policy. It systematically
accomplishes what Yeltsin tried spasmodically when he reminded
Washington that Russia had nuclear weapons and was prepared to use
them. First, the Putin doctrine reminds the United States that
Russia is the only nation in the world with sufficient nuclear
weapons of sufficient range to conduct an annihilating attack on
the United States. To put it bluntly, Russia could choose to kill a
large percentage of the American public if it is prepared to endure
the same.

Second, Moscow's new stance poses a practical problem for the
United States, which must now at least consider Russian responses.
No matter how unlikely a Russian first strike is, there is a huge
difference between a negligible threat and a non-existent one,
particularly at the orders of magnitude involved. During the Cold
War, the threat of a Soviet nuclear response was in the back of
every policy maker's mind when dealing with issues from Nicaragua
to Angola to India. That threat disappeared with Glasnost. Putin
intends to resurrect it.

Third, this is a meaningful threat because of the relative weakness
of Russia's conventional forces. Consider Western nuclear strategy,
particularly during the Cold War. The United States and NATO never
renounced a possible first strike; indeed, it was explicitly
understood that a massive Soviet attack on Western Europe would
trigger the use of tactical nuclear weapons and, if necessary,
higher levels of nuclear response. Russia, on the other hand, had
long called for a no-first-strike commitment by the West and in
fact adopted that stance in 1997. Russia, with a conventional
weapons advantage, was always more interested in exploiting that
advantage and saw the use of nuclear weapons as undermining it.
Nuclear weapons were the critical equalizer to the superior numbers
of Russian conventional forces.

But to create strategic parity beyond the battlefield, doctrine had
to be married to unpredictability. It was never clear to anyone
that the United States would in fact launch a first strike against
the Soviet Union upon the invasion of Germany. No one knew what the
U.S. president would order at the critical moment. That was
precisely the advantage. The very uncertainty of the American
response limited the Soviets' room for maneuver and imposed severe
limits on Moscow's willingness to take risks. Putin is now trying
to reverse the equation. Russia now has a substantial disadvantage
in conventional forces. By renouncing the no-first strike rule,
Putin has placed Russia in the position of the United States during
the Cold War.

In turn, the threat will force the United States and Europe to
reconsider the risk of adventures like Kosovo. Obviously, the
Russians are unlikely to use nuclear weapons. but the term
"unlikely" does not mean impossible. It means low probability, or
possibility. The mere possibility that another Kosovo could trigger
a nuclear response changes the calculus of Western intervention.
Since the direct benefit to the intervening powers is minimal, the
corollary must be equally low cost and low risk. Since no nation is
entirely predictable, the risk of a nuclear response can easily
shift the decision from "go" to "no-go."

This is particularly true for European members of NATO and for
Japan, whose proximity to Russia and appetite for risk-taking is
substantially less than that of the United States. At the very
least, the mere threat of a nuclear reaction makes it impossible to
treat Russia with the contemptuous indifference shown during the
Iraq and Kosovo affairs. With this announcement, Putin has bought
himself not only a seat at the table, but, in all likelihood, the
demand by U.S. allies that Russia buy into future military
intervention.

There is a second audience: the other members of the former Soviet
Union, many of whom are members of the Commonwealth of Independent
States (CIS), which, not coincidentally, is holding a summit one
week from today. One of the outcomes of the collapse of the Soviet
Union was that, with intense U.S. urging, all nations other than
Russia gave up their nuclear weapons. Whatever the wisdom of that
policy, the result was that Russia is the only former Soviet
republic with nuclear weapons.

Russia has always been first among equals in the CIS, but Putin's
announcement will immediately help Moscow re-order its
relationships closer to home. First, the war in Chechnya will be
affected. With some reason, Russians are convinced that outside
forces - backed by the United States - are supplying Chechen rebels
through neighboring Georgia. The situation in Chechnya reminds many
Russian military men of Afghanistan, where a great power created
logistical support systems and sanctuaries in a neighboring
country, bleeding Moscow's forces. Putin is now reminding the
United States that the survival of the Russian Federation - intact
- is a fundamental national interest. Therefore, any aid to the
Chechens threatens an interest so profound that the use of nuclear
weapons might be rational. This must trigger a re-evaluation of
U.S. policy.

Second, the Georgians themselves, who have felt relatively secure
as an American partner, are being reminded that forces are at play
beyond their control. If the Georgians' entire calculus has been
that the war would be one of conventional force on conventional
force, the Georgians should guess again. The willingness of the
Russians to use tactical nuclear weapons to disrupt lines of supply
into Chechnya cannot be discounted. By doing this, the Russians are
transforming the war, putting Georgia's security - instead of
Russia's territorial integrity - in jeopardy.

Third, the Russians are delivering a message to the Chechens. The
Chechens are seeing this conflict just as they did during the
1994-1996 war. They are fighting on their terrain and are prepared
to take serious losses for national independence. Russian
conventional forces cannot seal off the lines of supply from
Georgia, nor can they occupy the mountainous terrain south of
Grozny. Indeed, given the costs of urban warfare, they cannot
easily take Grozny itself. Therefore, the theory goes, extended
warfare favors the insurgent nationalist group. Time is on the side
of the Chechens. Putin just indicated, however, that he has the
means to sharply increase Chechen casualties without increasing
Russian ones. That is a sobering thought, to say the least.

This is a matter of general concern for all the countries
surrounding Russia. So long as the security equation is stated in
purely conventional terms, the West can help neighboring nations,
from the Baltic Sea to Central Asia, pose a serious problem to the
Russians. Once nuclear weapons are introduced into the equation, a
very different outcome occurs. First, the conventional supplies
provided become unimportant. Second, the risks involved in
providing or accepting conventional weapons soar.

The final audience for this announcement is perhaps the most
important: the Russian public. Putin has been enormously popular
for taking vigorous action to end his country's declining world
status. The announcement intrinsically satisfies Russians and helps
boost Putin's popularity on the verge of his campaign for the
presidency. As winter grips Chechnya and large-scale military
operations, particularly air operations, become more difficult, the
emergence of the nuclear threat suggests an end to the war even if
conventional forces fail.
.
Putin's announcement on nuclear weapons is therefore an attempt to
re-order Russia's relationship with the United States, the rest of
the West, the former republics of the Soviet Union and ultimately,
to reconcile Russia's own self-image. It is a clever move similar
to the U.S. strategy of using nuclear threats to limit the
maneuvering room of other players. But it must be remembered that
the United States was primarily fighting for the global balance of
power. The Russians today are fighting for the very survival of
their federation. That means that the threat to use nuclear
weapons, an element of war games in the United States, has some
very serious possibilities when used by the Russians.

It is not inconceivable that the Russians, frustrated by their
inability to seal their frontier with Georgia and by Georgia's
inability or unwillingness to work with them, would use tactical
nuclear weapons. Putin remembers Afghanistan well. He is not going
to be drawn into another Afghanistan, nor is he going to withdraw
from Chechnya. In the extreme case, anything is possible. And that
is precisely the ambiguous situation Putin wants to create. He
wants Russia's antagonists to peer into the abyss and see the
worst. He is calculating, quite rightly we think, that this will
dramatically increase the caution and respect with which Russia is
treated. That will yield an international payoff for Russia - and a
massive domestic payoff for Putin.

(c) 1999, Stratfor, Inc. stratfor.com

__________________________________________________

SUBSCRIBE to FREE, DAILY GLOBAL INTELLIGENCE UPDATES by clicking on
stratfor.com

UNSUBSCRIBE FROM THE GLOBAL INTELLIGENCE UPDATES (GIU)
stratfor.com

or send your name, title, organization, address, phone number, and
e-mail to alert@stratfor.com
___________________________________________________

STRATFOR.COM 504 Lavaca, Suite 1100 Austin, TX 78701
Phone: 512-583-5000 Fax: 512-583-5025
Internet: stratfor.com
Email: info@stratfor.com
___________________________________________________




To: Rob Shilling who wrote (1080)1/21/2000 2:03:00 AM
From: CIMA  Respond to of 1301
 
Reinventing the CIS: Putin Takes the Helm

Summary

Commonwealth of Independent States (CIS) Executive Committee Chair
Yuri Yarov stated on Jan. 14 that the Jan. 24-25 CIS Moscow summit
"will be a notable event in the life of the Commonwealth." Acting
Russian President Vladimir Putin will redefine the meaning of CIS
membership, in an attempt to make a more functional supra-national
organization. Such action will likely induce Georgia, Azerbaijan
and Uzbekistan to withdraw.

Analysis

Since the formation of the CIS after the 1991 collapse of the
Soviet Union, member states with differing visions of that
organization's purpose have engaged in a continual tug-of-war. This
fractured view of the region's premier supra-national organization
cannot last. At the Jan. 24-25 CIS summit in Moscow, Putin will
change all that.

Up until now, Russia and Belarus have viewed the CIS as a mechanism
to recreate a version of the Soviet Empire. Kyrgyzstan, Armenia and
Tajikistan have valued the CIS as a method to garner Russian
military assistance. Moldova, Kazakstan, Turkmenistan and Ukraine,
forced to affiliate with Russia for economic reasons, have often
seen the CIS as a necessary evil to be endured. Georgia and
Azerbaijan - which were forced into the organization - have
doggedly tried to dilute the CIS's institutions whenever possible
in order to lessen Russian influence. CIS members all have had
different priorities, oftentimes siding against Russia. The
Georgia-Ukraine-Uzbekistan-Armenia-Moldova (GUUAM) group,
specifically formed to counter Russian hegemony, is the most
flagrant example of this.

According to the CIS's packed summit agenda, Putin will hold no
fewer than five sideline meetings. Ukraine and Kyrgyzstan want to
hammer together a free trade agreement. Azerbaijan and Turkmenistan
are interested in petroleum export routes. Armenia and Tajikistan
are concerned with security issues. With only a day-and-a-half to
cover an aggressive 17-point agenda, Putin's sincerity is suspect.
With so much to cover in so little time, the official agenda will
probably not be adhered to at all.

Instead, Putin will use the summit to transform the CIS from a weak
organization filled with near-warring members into a coherent
organization. He will not tolerate member states actively
undermining the CIS or Russia's hegemonic role. States with
aspirations to join NATO or the European Union (EU) will be firmly
reminded that Western alignment is not a sustainable choice for a
CIS member. Putin sees that such double-dealing would erode any
possibility of the CIS being a cohesive organization. Putin wants
to reinvigorate the CIS and ensure that its members are committed
to working with, not against, Russia.

At the summit Putin will force all 11 of Russia's CIS co-members to
determine their future relationships with Russia. Putin knows that
most CIS member states will stay with Russia. Belarusian President
Alexander Lukashenko, although vocal and short-tempered, will
remain Moscow's pet. Kazakstan has nowhere to go except to Russia.
While tiny Kyrgyzstan doesn't feel particularly threatened by
Moscow, it is dependent upon Russia for access to the wider world.
Tajikistan is not prepared to snub Moscow for fear of losing the
Russian military support it needs to counter Islamic militants.
Armenia, despite its desire to strengthen its independence, is
still wholly dependent upon Russia for military support against
Azerbaijan in their conflict over Nagorno-Karabakh. These five
states will willingly keep themselves hitched to the Russian star.

Three other states will likely join with Russia, but will try to
delay this for as long as possible. After Jan. 20 talks among
Turkmenistan, Iran and Azerbaijan collapsed over a trans-Caspian
pipeline, even neutral Turkmenistan will need to look to Russia for
petroleum export routes. Ukraine and Moldova, having failed in
gaining significant EU attention, are now forced to again look
eastward. Thus, Ukraine, Moldova and Turkmenistan will be the
wafflers, not particularly wanting membership in the CIS, but not
having much of a choice.

This leaves three states that will more than likely decide to
withdraw from the CIS: Uzbekistan, Azerbaijan and Georgia.
Uzbekistan still desires to be part of a weak and fragmented CIS.
Once it becomes clear that Putin will demand a functional CIS,
Uzbek President Islam Karimov will drag his country completely out
of the CIS and become Russia's Central Asian spoiler.

In the Caucasus, Putin faces a far more serious challenge.
Azerbaijan and Georgia have held a half-dozen mini-summits and
bilateral meetings in recent weeks with a resurgent Turkey. Topics
ranged from oil-pipelines to the proposed Caucasus Stability Pact
to their quiet support for the Chechens. In Putin's mind, these are
excellent examples of what CIS members should not be doing. Both
Azerbaijan and Georgia feel that the United States will support
them in the face of an angry Russia, yet the United States probably
has no intention of providing any direct military assistance.

The CIS summit will consolidate the organization's membership, with
Georgia, Azerbaijan and Uzbekistan increasingly going their own
way. Depending upon how tightly Putin seeks to rein in the former
Soviet states, these three states would likely withdraw. Such a
withdrawal would deal a diplomatic blow to Russia, but then Putin
will have confirmed that the three are indeed not allies. The
question will then be whether the three who jumped ship should be
considered Russia's enemies. Continuing to support the Chechens
would clearly establish them as enemies. Russia would then no
longer categorize these states as disrespectful neighbors to be
manipulated, but as insolent foes to be crushed.

(c) 2000, Stratfor, Inc. stratfor.com

__________________________________________________

SUBSCRIBE to FREE, DAILY GLOBAL INTELLIGENCE UPDATES by clicking on
stratfor.com

UNSUBSCRIBE FROM THE GLOBAL INTELLIGENCE UPDATES (GIU)
stratfor.com

or send your name, title, organization, address, phone number, and
e-mail to alert@stratfor.com
___________________________________________________

STRATFOR.COM 504 Lavaca, Suite 1100 Austin, TX 78701
Phone: 512-583-5000 Fax: 512-583-5025
Internet: stratfor.com
Email: info@stratfor.com
___________________________________________________




To: Rob Shilling who wrote (1080)3/23/2000 1:19:00 AM
From: CIMA  Read Replies (1) | Respond to of 1301
 
The Consequences of Russia's Looming Food Shortage

Summary

In the coming weeks, the Russian government will likely take
extreme measures to head off the prospects of a significant food
shortage for its 146 million people. Across the spectrum there are
signs that Russia will not produce enough grain and meat to feed
the country in the coming year. Unwilling to allow hunger, the
government in Moscow will most likely tap into its currency
reserves to import food from abroad. The looming food shortage
will, in turn, destabilize the Russian economy and make it more
difficult for Russia to service its already staggering load of
foreign debt.

Analysis

On March 21, the U.S. Agriculture Department released a report
forecasting that Russia's chronic problems in producing animal feed
will continue into 2001. The Washington report is only one of many
indications that Russia will have extreme problems feeding its
people in the coming year. Russian analysts are openly pessimistic
about the country's ability to increase its production
dramatically, as the government has hoped. And Russian farmers are
behind in their planting of wheat, as well.

The shortage in food for livestock has been a reliable leading
indicator of Russia's escalating struggle to feed its people. Every
year, feed stocks fall and so does the human food supply. In 1998,
Russia suffered its worst harvest in 40 years and had to turn to
the outside world for help. Last year, imported grain for animals
was 9 percent of the country's total animal feed supply; this year
it will exceed 20 percent. At the current rate, it appears the
country will produce 10 million metric tons of grain less than the
population will require in the coming year.

The Russian government has announced lofty ambitions for boosting
food production but it is battling a grossly inefficient
agricultural sector. The government has planned to boost production
by "boosting farmers' incomes," according to acting President
Vladimir Putin, as well as intervening on the domestic grain market
and boosting agricultural exports. Russian agriculture, however,
remains based on cooperative farms; boosting individual incomes
will have no effect.

Government intervention in the market to date has led to cut-rate
sales that drive farmers out of business. Last year Russia sold the
food aid that the international community had sent on the open
market, for $68 per metric ton of grain, far below the market price
of domestic grain, $124 per metric ton. Increasing exports would
only make domestic scarcity worse. And the government's own ham-
handedness was illustrated on March 15, when acting President
Vladimir Putin scolded senior officials for their tardiness in
getting agriculture subsidies - for equipment and seed supplies -
to farmers in Chechnya. The planting of wheat will likely be
delayed, as a result.

In recent years, the international community has shipped vast
amounts of food; the United States alone sent 3.1 million metric
tons last year. But that much aid is unlikely. The war in Chechnya
has hardened the hearts of Western officials and the misuse of
previous aid further discourages generosity. In January the Russian
Audit Chamber revealed that several aspects of agreement regulating
American and European food shipments had been violated. To date,
the United States has announced plans to send just 500 million tons
of food through the spring months. The European Union has not
merely frozen $29 million in food aid credits. It has rejected any
more long-term aid.

To prevent food lines from forming, the government is preparing to
intervene - mainly by drawing down its currency reserves and,
subsequently, tinkering with the value of the ruble. Most nations
staring hunger in the face would take out loans from international
lending institutions to pay for food from abroad. For Russia -
having defaulted on payments and refused reforms - this is no
longer an option. Without a credit card, the government must turn
to its wallet: $15 billion in hard currency reserves and gold.
Indeed, Deputy Prime Minister Kasyanov has said throughout March
that Russia will borrow from these funds to deal with another
problem, a pending government budget shortfall of $4.5 billion.

In turn, the value of the ruble will fall, from 28.36 to the U.S.
dollar, the rate at which it currently trades. The government will
likely use some of its currency reserves to artificially raise the
value of the ruble. A stronger ruble will help Russia make large-
scale food purchases on the open market. It will also give the
Central Bank greater room to print money to solve other problems,
like the country's budgetary shortfall. Such printing will cause
the value of the country's currency to fall.

A predictable timetable of events is now set to unfold in the
coming months. Large-scale food purchases should occur in April
once the Kremlin has an idea of how the planting season fared.
Barring an outpouring of international goodwill and loans, Russia
by then will be drawing from its currency reserves. This mass
draining of the country's reserves will cause confidence in the
Russian economy - such as it is - to plummet. In May and June,
Russia will likely print a large amount of currency to pay off its
internal debts and overdue wages. Inflation will creep upwards and
the ruble will slide. Another poor harvest will complicate Russia's
already dire situation.

(c) 2000, Stratfor, Inc. stratfor.com

__________________________________________________

SUBSCRIBE to FREE, DAILY GLOBAL INTELLIGENCE UPDATES by clicking on
stratfor.com

UNSUBSCRIBE FROM THE GLOBAL INTELLIGENCE UPDATES (GIU)
stratfor.com

or send your name, title, organization, address, phone number, and
e-mail to alert@stratfor.com
___________________________________________________

STRATFOR.COM 504 Lavaca, Suite 1100 Austin, TX 78701
Phone: 512-583-5000 Fax: 512-583-5025
Internet: stratfor.com
Email: info@stratfor.com
___________________________________________________



To: Rob Shilling who wrote (1080)4/23/2000 11:32:00 PM
From: CIMA  Respond to of 1301
 
The Opening Moves in Putin's Game of Chess

Summary

Russia's new president, Vladimir Putin, launched his foreign policy
last week. At first blush it appears conciliatory toward the West
in general and the United States in particular. But the new
president is in fact pursuing a more complex, dual-track foreign
policy. As his government moves nuclear arms control measures
forward, it also signals the development of next generation nuclear
weapons and helps set the diplomatic stage for deploying large
Russian forces near Poland. Putin is playing a complex game of
chess: making conciliatory gestures while setting the stage for
confrontation if conciliation should fail.

Analysis

Last week, Vladimir Putin launched Russia's post-election foreign
policy. Now president in his own right, Putin set in motion a
series of policies, signals and gestures that were simultaneously
blatant, subtle, contradictory and, above all, centralized.

Amidst the complex, mixed signals sent out last week, one fact was
clear: the new president is moving to have his government speak
with one coordinated voice on foreign policy, with that voice
controlled by Putin himself. Inconsistencies in former president
Boris Yeltsin's foreign policy could best be ascribed to lack of
coordination and a multiplicity of forces competing to shape
policy. Putin's policy is, we think, coherent, if deliberately
subtle and ambiguous.

Dominating the news out of Moscow last week was the Duma's vote on
two arms control treaties. By wide margins, the Duma approved the
START II arms reduction agreement as well as the Comprehensive Test
Ban Treaty (CTBT). Together, these events were generally seen as a
comforting sign that Putin intended to follow a conciliatory policy
toward the West in general and the United States in particular.
Putin certainly intended that it be seen this way. From his point
of view, nothing would be better than to have the United States
reciprocate a more accommodating line from Russia.

The need for reciprocation is the kicker that Putin buried within
arms control ratification. The United States wants to deploy an
anti-ballistic missile (ABM) system. An expanded ABM system is
banned under a U.S.-Soviet treaty signed in 1972. The American
justification for the new system is that it is not directed against
the Russian arsenal, which is too large to stop. Rather, it is
directed against "rogue" states, like North Korea or Libya, which
might acquire a few missiles with nuclear warheads and launch them
against the United States.

In no position financially or technically to deploy an equivalent
system, Russia has consistently opposed an American national
missile defense. Moreover, the Russian leadership fears that
deployment would tilt an already lopsided balance of power even
further in the American direction. Such a system would likely close
off the possibility of limited nuclear exchanges; the United
States, if it chose, could strike a few targets in Russia and leave
Moscow with the choice of doing nothing or initiating total nuclear
war.

But the most important reason for Russian opposition is rooted in
symbolism. Moscow needs Washington to acknowledge some degree of
equality. The only area in which any sort of equality exists is in
the arena of nuclear weapons. In this sphere the two nations can
continue to negotiate as equals. But if that equality slips away,
if the United States simply ignores its treaties with the Soviet
successor state, then Russia will have lost all equality across the
board.

Putin can't afford to let that happen. He has therefore made it
consistently clear that he will not renegotiate the ABM treaty.
More important, he has made it clear that if the United States
deploys its system in violation of that treaty, all arms control
agreements will be in jeopardy. The United Nations will begin
debate over the extension of the Nuclear Non-Proliferation Treaty
next week, and a high-level Russian delegation will be in the
United States for that discussion.

This series of ratifications on longstanding arms control measures
now puts Russia in a perfect position to confront the United States
- both on the ABM treaty and on the test ban treaty, which the U.S.
Senate rejected last October. Thus, the ratifications are
simultaneously conciliatory moves and traps for the United States.
If the United States proceeds with a missile defense in the face of
the Duma vote, Putin will have created precisely the record he
wants: he reaches out to the United States and is rebuffed.

Putin's shrewd ratification of the two arms control treaties
coincides with the formalization of a new Russian defense policy.
Already widely discussed in Russia, the new policy was made
official last Friday, the same day Russia ratified the test ban
treaty. While the president's security council has not yet released
the document to the public, Putin on various occasions has made
clear the premise and the consequence of the policy. The premise
lies in NATO's willingness last year to take military action
without prior approval by the U.N. Security Council, where Russia
wields a veto. For Russia, this creates a dangerous new situation
in which NATO's unpredictable behavior cannot be controlled by
international organizations. Therefore the consequence - and this
is the critical point - that Russia is prepared for the first use
of nuclear weapons in defending fundamental national interests.

Russia is also signaling that it is pressing forward with a new
generation of nuclear and conventionally-tipped munitions. The
Russian media has reported that the air force began testing a new
missile, designated X-55. The X-55 was originally designed to be
launched from Russian bombers and to be armed with a nuclear
warhead. In new tests, however, the X-55 will be used as a
precision guided munitions using conventional warheads. The point,
however, is not lost. Russia is carefully letting everyone know
that it continues its weapons development program and is capable of
fielding new generations of nuclear and non-nuclear munitions.

The approval of arms control treaties coincides, therefore, with
the implementation of a new nuclear policy that explicitly permits
a Russian first strike. This duality was repeated elsewhere. For
example, Russia made very public overtures toward Chechnya last
week, while other reports said that the Russians were sending in
more troops. Putin, meanwhile, said last week that Russia has
fundamental interests in the Caspian region and that Western
interests seemed ready to pounce on the area.

Putin's views seemed coordinated with the Communist speaker of the
Duma, Gennady Seleznyov. U.S. Secretary of State Madeleine Albright
visited several Central Asian countries last week and Seleznyov
blasted the visit, saying, "As soon as links weaken, they (the
Americans) show up. Their principle is to divide and rule. And
that's how it will be in the 21st century." In Moscow, as well,
interior ministers of the Shanghai Five - Russia, China,
Kazakhstan, Kyrgyzstan and Tajikistan - met on Friday. ITAR-TASS
reported that the meeting focused on suppressing terrorists and
separatists. Both Russia and China have an interest in suppressing
militant Islamic movements in the region and the Friday meetings
were intended to set the stage for a summit of the Shanghai Five in
May. Thus, at the same time that Moscow made a gesture toward
Chechnya, it is gearing up to assert itself in Central Asia.

Similarly ambivalent behavior could be seen to the west, in
Russia's relationship with Belarus. Belarusian President Alyaksandr
Lukashenka announced last week that an agreement had been struck to
create a joint military organization between Belarus and Russia.
Lukashenka said he expected the agreement to be signed by early
June and that it would rate a joint force of about 300,000 troops.
The agreement would place Russian troops directly on the Polish
border in large numbers. The Russians did not deny that the
agreement had been reached, though they tried to downplay the size
of the force or its strategic significance.

The Western media has chosen to focus on Moscow's conciliatory
gestures and is missing the wild crosscurrents in Russian foreign
policy. Those crosscurrents are far from random. To the contrary,
they make a great deal of sense. Putin would certainly like to
achieve some sort of solid reconciliation with the United States.
He understands two things. First, he understands that he will get
nothing from the United States unless he positions himself to
bargain. Yeltsin could not deal effectively with the United States
because he neither controlled his negotiating apparatus nor created
levers for effective negotiation. Yeltsin's successor does not plan
to repeat that error.

Second, Putin understands that no reconciliation may be possible
with the United States; American interests and Russian ones might
simply be too far apart. The United States does not want to have
its military operations limited by the U.N. Security Council.
Russia does not want to be frozen out of decisions. The United
States has major financial stakes in the Caspian region and wants a
degree of political influence to guarantee those interests. Russia
does not want to see U.S. client states created within what it
regards as its sphere of influence. Russia does not want an
American national missile defense deployed.

Therefore, if Putin's first priority is to create a firm
relationship with the United States, his second goal - if his first
fails - is to position Russia effectively in the event of a
collapse of relations. Putin does not want to recreate the
situation from 1946-49 in which the United States was able to
portray the Soviet Union as the prime culprit for the Cold War and
use that perception of Soviet aggression and duplicity to create a
hostile alliance. If U.S.-Russian relations collapse, Putin wants
to create a clear record of American responsibility.

Putin is trying to reach three audiences. First, domestically, he
will be in a position to further undercut liberal, pro-American
elements. Second, and more important, he will position himself for
the inevitable attempt to drive a wedge between Europe and the
United States, by showing that Washington, in pursuing its narrow
strategic interest, jeopardizes Europe's interest in good relations
with Russia. Finally, Putin is addressing an American audience,
which to the extent that it is cognizant of foreign policy at all,
does not want to see a return to the Cold War.

From the Russian point of view, the same policy must be pursued
whether the goal is reconciliation with the Americans or
preparation for a breach. The best hope of reconciliation - on
terms acceptable to the Russians - is to convince the United States
that Russia is capable of threatening American interests.
Therefore, it is necessary to make conciliatory gestures while
simultaneously undertaking diplomatic initiatives that lay the
groundwork for challenging the Americans. This may persuade the
United States to be conciliatory. Should that fail, it positions
the Russians to pursue their national interest.

The ultimate audience is in Europe and, to a lesser extent, Japan.
Leaders there do not want to see a return to even a mini-Cold War.
The Germans in particular, with their heavy financial exposure in
Russia, do not want to see this happen. More than anyone, Putin
understands the Germans. He is now carefully laying out, very
publicly, both his willingness to work with the United States, and
the consequences should that fail. Putin wants to have a neutral
Europe or, at the very least, a neutral Germany. The new
president's conciliatory moves are quite real. They are also
crafting the structure of the world, if conciliation fails.

(c) 2000, Stratfor, Inc. stratfor.com

SUBSCRIBE to FREE, DAILY GLOBAL INTELLIGENCE UPDATES by clicking on
stratfor.com

UNSUBSCRIBE FROM THE GLOBAL INTELLIGENCE UPDATES (GIU)
stratfor.com

or send your name, title, organization, address, phone number, and
e-mail to alert@stratfor.com
___________________________________________________

STRATFOR.COM 504 Lavaca, Suite 1100 Austin, TX 78701
Phone: 512-583-5000 Fax: 512-583-5025
Internet: stratfor.com
Email: info@stratfor.com
___________________________________________________



To: Rob Shilling who wrote (1080)5/16/2000 12:27:00 AM
From: CIMA  Respond to of 1301
 
Russia Formulates a Hybrid Economy

Summary

Over the past week the Kremlin has announced a series of impending
privatizations across the Russian oil industry, including a 4
percent share in Russia's largest oil firm, Lukoil. On the surface,
it seems that Russia under President Vladimir Putin is moving
boldly in the direction of Western style economic reforms, but this
is a misconception. While Putin's economic reform plans indeed call
for liberalizing and reducing central control over large sections
of the Russian economy, the petroleum industry will experience a
different type of reform. Market forces will be allowed to play a
greater role in Russia's petroleum industry, but Moscow will
maintain firm central control. Paradoxically, Russia's move to
"privatize" conceals steps toward nationalization, steps that will
create a hybrid economy.

Analysis

Market analysts are hailing Russia's new oil industry privatization
scheme as a Western oriented reform. The privatization plans should
raise $0.9 billion to $1.4 billion for the federal government -
more than triple last year's total - and include sales of stakes in
Russia's largest oil firm, Lukoil. But this is not the pro-market
action many Western observers believe. Moscow is not giving up
control. Foreign investors will be allowed to invest cash and
technology in Russia's petroleum infrastructure, increasing its
viability and productivity. But Moscow will maintain a chokehold on
the political decisions of which company will export what oil to
what market.

For example, Moscow plans to sell the entirety of its 85 percent
stake in the small oil firm Onako. But the Russian oil firms that
have expressed an interest in purchasing it - Lukoil, Yukos and
Sibneft - are partially government owned. Onako's most valuable
holding is a refinery on the border with Kazakstan - far too
strategically valuable to be allowed into foreign hands.
___________________________________________________________________
Would you like to see full text, graphics and accompanying
articles?
stratfor.com
___________________________________________________________________

Other privatizations, while allowing the possibility of foreign
ownership, are not nearly as comprehensive as the Onako sale.
Russia plans to privatize 19.68 percent of Slavneft, and 25 percent
of Rosneft - both oil firms. The sales still leave the government
with majority control. These partial privatizations will bring in
needed capital and perhaps even some new technology, but Moscow has
no intention of giving up its grasp on its lucrative petroleum
sector. In fact, decisions regarding the rumored privatizations of
Russia's single largest company - and source of tax income -
Gazprom, have been delayed until next year, according to State
Property Minister Farit Gazizullin.

In fact, rather than relaxing its grip on the petroleum industry,
Russia is consolidating the industry under a firmer hand. All of
Russia's oil must reach Russia's oil pipeline network before it can
be exported. Putin recently transferred the power from the oil
companies to the Fuel and Energy Ministry to coordinate exports on
these pipelines. This grants the federal government direct control
over the amount of oil each firm can export; thus the government
controls the income of each firm. Once completed, the Fuel and
Energy Ministry can easily funnel foreign investors to the handful
of firms it dominates.
___________________________________________________________________
For more information on Russia, see:
stratfor.com

For more information on Kazakstan, see:
stratfor.com
_______________________________________________________________

This is part of a coordinated effort to lock down control of the
energy sector. On May 11 the Russian Tax Ministry initiated
proceedings against 27 smaller Russian oil firms for tax arrears.
If the Tax Ministry - which is cooperating with the Fuel and Energy
Ministry - gets its way, those firms will lose the ability to
export until the back taxes are paid.

But Russia's oil companies - especially those with no foreign
connections - are cash-poor. Most of the boom from the recent high
oil prices has flowed directly into the Kremlin's coffers as export
taxes. Many of these smaller firms will be unable to come up with
approximately $125 million they collectively owe the government.
Like Onako, they will be snapped up by the larger oil concerns
bound by an increasingly tight government leash. This manipulation
of tax policy and export quotas casts the government in a gate-
keeping role. Market forces and investors handle the industry's
day-to-day operation, but Moscow keeps the hammer poised.

This wave of privatization and nationalization is coming at an
opportune time for Russia. Kazak Prime Minsiter Kasymzhomart
Tokayev announced May 10 that his country located a new oil field
in the Caspian, reported Reuters. This east Kashagan field could
hold as many as 30 billion barrels of oil - by far the largest
discovery of the post-Soviet period. Currently, almost all Kazak
oil is transported through Russia. Once the massive export pipeline
from Tengiz, Kazakstan, to Novorossiysk, Russia, is completed next
year - a pipeline that Russian interests dominate - this trend will
be further entrenched.

Beyond the oil industry, the Russian government will have a more
market-oriented approach - but not totally. Privatizations will
sweep through most of the 30,000 state-run companies as the
government partially withdraws from the economy, but there is
little danger of them ever being fully privatized. According to
Igor Shuvalov, head of the Federal Property Fund that oversees
privatization efforts, "We propose selling small packages of shares
in those companies while keeping control in the state's hands,"
reported the Moscow Times. However, Russia has no such plans to
relinquish its grip on the oil industry.

_______________________________________________
Would you like to know more about Russia/CIS/Eastern Europe?
stratfor.com
_____________________________________
(c) 2000 WNI, Inc.
__________________________________________________
SUBSCRIBE to the free, daily Global Intelligence Update. Click on
stratfor.com
UNSUBSCRIBE by clicking on
stratfor.com
___________________________________________________
Stratfor.com
504 Lavaca, Suite 1100 Austin, TX 78701
Phone: 512-583-5000 Fax: 512-583-5025
Internet: stratfor.com
Email: info@stratfor.com



To: Rob Shilling who wrote (1080)6/5/2000 1:23:00 AM
From: CIMA  Respond to of 1301
 
Retrieving the Irretrievable: The Clinton Foreign Policy Legacy

Summary

In the final months of his presidency, President Clinton has
launched vigorous efforts to establish his foreign policy legacy,
primarily in China and Russia. The president has battled for an
inherited foreign policy - one that insists that free markets and
democracy are mutually reinforcing concepts that in turn can bring
former adversaries into an American-engineered economic and
political system. After a decade, this view has been proven
empirically false. And yet this president continues to pursue it -
just as his successor likely will.

Analysis

Two recent events have caused us to consider President Clinton's
foreign policy legacy. In the waning days of his presidency,
Clinton has faced massive challenges in foreign policy. In both
China and Russia we have seen substantial political shifts and
reversals over the past year; neither has been to the advantage of
the United States. There can be little question but that relations
with both have deteriorated dramatically since 1995.

The president has spent the last two weeks trying to salvage
relations with both countries. The summit with Russian President
Vladimir Putin and the desperate struggle to get permanent
normalized trade status for China through the House of
Representatives have been different strands of a single fabric.
Clinton's foreign policy has aimed at containing both Chinese and
Russian aspirations within the context of the global trade regime
that the United States has presided over since the end of the Cold
War.

This foreign policy is not original; it evolved directly and
naturally from George Bush's response to the collapse of communism.
Behind that was the worldview contained in Ronald Reagan's
conservatism. This is a critical point: the policy pursued by the
United States following the Cold War has not been some random or
idiosyncratic response.
________________________________________________________________
Would you like to see full text?
stratfor.com
___________________________________________________________________

Rather, American foreign policy has been based on a perspective
that has run deep in American thinking and has transcended
ideology. This perspective has consisted of four parts:

1. The free market is universally attractive because it inevitably
yields greater economic benefits. Except for tyrannical regimes
whose power might be threatened by the free markets, nations tend
to gravitate toward the free market.

2. Even inherently tyrannical regimes will tend to adopt the free
market in order to maintain a position within the international
system. When encouraged with investment and trade, these regimes
will liberalize and increase democratic tendencies.

3. In a corollary assumption, societies that are democratized will
tend to defend both market reforms and human rights. Democracy,
market reforms and human rights are mutually reinforcing concepts.

4. Countries that are democratic and have free markets will not be
political and military competitors with other democratic, market-
oriented countries because the risks outweigh the benefits.

In this view, the primary interest of the United States is to
facilitate the growth of the free market in both Russia and China.
If the free market grows, political liberalization and
democratization would follow. In due course, domestic political
forces would arise that have a vested interest in defending the
free market and democracy. These forces would be natural allies of
the United States. As they grow more powerful, the threat of national conflict between them and the United States would decline.
Therefore, maintaining economic engagement with both countries was
the foundation of U.S. foreign policy.

This policy has substantially benefited economic interests in the
United States. Indeed, as we saw during the recent debate over
China, momentum for economic engagement came less from ideologues
than from corporations. This is, of course, as it should be. A
robust foreign policy requires both principle and interest. The
fact that American interests profited from the policy does not
repudiate it - but neither does it validate it.
_______________________________________________________________
For more on China, see:
stratfor.com

For more on Russia, see:
stratfor.com
__________________________________________________________________

A great debate could be waged on the connection between capitalism
and democracy. In fact, one has gone on for the past 150 years.
While it may be true in the long run that one reinforces the other,
it is clear that in the short run this theory has now been proved
false in both Russia and China.

The case is clearest in Russia where the free market has proven an
economic calamity of unparalleled proportions. In fairness, a free
market requires a legal system that defends property rights, a
condition that has never existed in Russia. The democratic system
has been discredited by the economic system. Former President Boris
Yeltsin's economic reforms created an oligarchy of unearned wealth
and his political reforms were seen as part of a system of
corruption. The net result: the basic premise of U.S. foreign
policy in Russia has been proven false and the rest of the
assumptions have unraveled.

The case is similar, though more complex, in China. China did
indeed introduce market reforms. Market reforms did generate a
strong democratic movement favoring human rights; the movement was
crushed at Tiananmen Square 11 years ago while the market reforms
remained.

The assumption that the free market will yield political
liberalization was falsified, almost from the start. Economic
growth continued through the 1990s. But it was an economic growth
that diverted the benefits of the market economy to a different set
of oligarchs, those in the party and in the military. Then the
meager economic benefits were smashed when the region's economic
crisis hit China's economy, which has never recovered.

The fundamental assumptions of American policy have been proven
false in both countries. Neither regime is what Washington had
hoped for. Neither economy is developing market-oriented democracy.

The final test is one that both countries are failing: In various
ways, Beijing and Moscow are challenging U.S. interests in the
political and military arena, and both will intensify that
challenge.

In immediate retrospect, the president's struggles on these fronts
- including the summit with Putin - are desperate attempts to
retrieve the irretrievable. Though begun before the current
administration, these policies have now reached bankruptcy. What
two administrations have now missed, or ignored, is that:

1. Creating a market economy out of tyranny is extraordinarily
difficult. If it can be done at all, it will take generations.
Economic theory can be conceived in terms of generations. Political
reality cannot.

2. The introduction of market reforms does not necessarily reform
regimes. It frequently corrupts them. It is possible to confuse
corruption with reform, which is what happened in China in the
1990s. A resilient regime can recover from corruption by
circumscribing market reforms. In so doing, the regime becomes more
- not less - repressive.

3. If economic reforms don't succeed and don't create political
reforms, economic downturns intensify nationalist feeling and
increase pressure to compensate for economic failures with poltico-
military successes. Now the consequences of failed market reforms
will be equal to the effects of productive market reforms.

In other words, assumptions that began in the 1990s have proven
false a decade later and can create the exact opposite effect than
was expected.

There is good reason that U.S. defense planners are thinking about
Chinese blockades of Taiwan and of Russian pressure along the
periphery. It is also understandable why Clinton believes that
engagement on an economic level would alleviate these problems.

But it is impossible to engage with Russia economically because it
cannot possibly introduce a market system. Yeltsin could not do it
by law. Putin cannot do it by fiat. Appointing regional czars
cannot create property rights. It can only change the
beneficiaries. Similarly, it is impossible to reform China through
economics. A decade after market reforms yielded the first
benefits, the assumption that this will turn into political reform
has proven empirically false.

There has been a fundamental assumption at work here, shared by
economists as diverse as Karl Marx and Milton Friedman: that
capital has no country. This means that money moves where profits
go and borders lose meaning. That is the premise of Clinton's
foreign policy. The problem is not that the premise is false, but
that it is true only under very specialized circumstances: where
there are free markets, where the markets work, where the regime
subordinates itself to profit.

The problem here is that the president and his advisors have
continued to act as if the theory were true, long after empirical
evidence proved it was false. Too many academics and too many
businessmen have wanted to believe. The facts are otherwise. Russia
and China will not integrate into the American free trade regime
except where these regimes directly benefit, given their
circumstances.

Rather than seducing Russia and China, the United States has
seduced itself. Clinton has spent the last weeks trying to pump
life into an illusion. It is his good fortune that he will make it
to the end of his term without seeing the full consequences of this
miscalculation. But the presumptive Republican and Democratic
nominees share in the illusion every bit as much as their
predecessors.

And this will be the central problem facing U.S. foreign policy:
Why would what failed in the past succeed in the future?
Overthrowing a failed orthodoxy is never easy or painless. It is
not clear how great the pain will have to be.
__________________________________________________________________
For more Weekly Analyses, see:
stratfor.com
___________________________________________________________________

(c) 2000 WNI, Inc.
_______________________________________________
SUBSCRIBE to the free, daily Global Intelligence Update. Click on
stratfor.com
UNSUBSCRIBE by clicking on
stratfor.com
_______________________________________________
Stratfor.com
504 Lavaca, Suite 1100 Austin, TX 78701
Phone: 512-583-5000 Fax: 512-583-5025
Internet: stratfor.com
Email: info@stratfor.com



To: Rob Shilling who wrote (1080)7/19/2000 1:59:18 AM
From: CIMA  Respond to of 1301
 
The Tip of the Iceberg: Energy in the Arctic

Analysis

Beneath the frigid seas of the Arctic, a once isolated natural gas
field is increasingly within the grasp of Russian companies. If
they can tap this resource - and the steady retreat of the polar
ice pack suggests that they can - Russia can dominate the natural
gas markets of Europe for decades to come.

Summary

By most accounts ice in the Kara Sea, just beyond the Yamal
Peninsula, is retreating. According to satellite photos, the
average coverage of sea ice in the Arctic has shrunk by 6 percent
since 1978. Furthermore to sonar measurements taken by U.S.
submarines report that ice is thinning from 10 feet in the 1950s to
5.9 feet today.

But the peninsula, so to speak, is only the tip of the iceberg.
Until now, the giant Russian gas concern, Gazprom has been unable
to prospect, much less exploit, the Arctic Ocean. Currently,
icebreakers can navigate the Kara Sea only 10 months of the year.
But with the pack ice in retreat, the opportunity arises for
Gazprom, and other Russian petroleum firms, to drill in the
relatively shallow - and increasingly ice-free - waters. If the
Russians succeed here and in finishing a network of pipelines, they
can dominate European energy markets for decades.

The diminution of Arctic ice is being greeted in some quarters as
environmental disaster. But Russia, victim of many environmental
disasters, ironically stands to benefit. With its vast Arctic
coast, Russia stands to add new fisheries and short the time to
ship goods between Asia and Europe.
________________________________________________________________
Would you like to see full text?
stratfor.com
___________________________________________________________________

But the feature that holds the most promise is petroleum. In 1998,
The Economist reported that Russia's Arctic shelf could hold as
much as 65 trillion cubic meters of gas - more than the Russian
mainland. If the ice continues to recede, Russia will have
thousands of square miles of potentially petroleum rich seabed to
explore.

The probability of independent offshore fields is high; many of
Russia's 25 Yamal Peninsula gas fields have offshore sections. The
massive Rusanovskaya field in the Kara Sea may hold as many as 8
trillion cubic meters by itself. Already Russia is planning to
drill for gas in the adjacent Barents Sea.

Collectively, the confirmed onshore Yamal fields hold more than 10
trillion cubic meters of natural gas. That's enough to fulfill all
of Europe's and Turkey's natural gas needs, 450 billion cubic
meters a year, for 20 years - or Russia's current share of those
needs for half a century.

But how will the Russians transport this gas, thousands of miles to
market? Gazprom, Russia's natural gas monopoly, has been building a
pipeline between the Yamal and Europe for several years. The six
trunk line system, when completely finished sometime around 2010,
will have an annual capacity of 65 billion cubic meters (bcm), at a
total cost of $50 billion.
_______________________________________________________________

For more on Russia, see:
stratfor.com
__________________________________________________________________

Gazprom's problem has been cost, but even here it has made steady
progress. Using a number of joint venture agreements, Gazprom has
already built the German, Polish and Belarussian sections of the
Yamal-Europe line. Consequently, the line already functions and
links to existing Russian fields as well as Russia's vast
distribution network. Parallel sections to handle additional
capacity are already under consideration.

In order to maximize its profits, Gazprom is taking Western loans
- but not Western partnerships - to develop the Russian sections
of the line. Russia may be forced to seek foreign technical
assistance to exploit the ice-choked Kara Sea, but if the ice
continues to recede, Russia can likely handle development on its
own.

Once developed, the Yamal project will shift Europe's energy
politics decidedly in Russia's favor. Poland will be forced to drop
its opposition to a Russian export route that marginalizes Ukraine,
trading it for the Yamal line and a fat annual windfall of $900
million in transit fees. Otherwise Gazprom will simply dust off a
Baltic Sea route that bypasses Poland as well. Ukraine, for its
part, will no longer be able to exploit its position as a transit
state for Russian gas exports. The new Yamal bypasses Ukraine
altogether.

This will also weaken the long-term export prospects of Central
Asia - especially Kazakstan, Turkmenistan and Uzbekistan. While
they could still conceivably supply Turkey and Iran directly,
Russia's control of their other export routes will limit their
access to Europe - especially if Yamal gas grabs an ever increasing
share of the European market.

Closer to home, Gazprom maintains its potential to provide a large
source of tax revenues. Demand for gas use is expected to slowly
increase throughout Europe over the next 50 years as individual
states attempt to curb their carbon emissions; natural gas is more
efficient than coal or oil. The Yamal line should bring in revenues
of $5 billion annually.
_______________________________________________________________

For more on Russia & the CIS, see:
stratfor.com
__________________________________________________________________

(c) 2000 Stratfor, Inc.
_______________________________________________
SUBSCRIBE to the free, daily Global Intelligence Update. Click on
stratfor.com
UNSUBSCRIBE by clicking on
stratfor.com
_______________________________________________
Stratfor.com
504 Lavaca, Suite 1100 Austin, TX 78701
Phone: 512-583-5000 Fax: 512-583-5025
Internet: stratfor.com
Email: info@stratfor.com



To: Rob Shilling who wrote (1080)7/28/2000 5:00:10 PM
From: CIMA  Respond to of 1301
 
Putin and the North Korean Missile Offer

Summary

The G-8 talks used to rivet international attention, as they dealt
with major economic issues. Today, neither the G-8 nor economics
are nearly as important as various geopolitical and military issues
- U.S. President Bill Clinton could barely wait to get back to Camp
David. The major news out of Okinawa was an offer by North Korea,
floated by Russian President Vladimir Putin, to abandon its missile
program in return for "civilian" space technology. The key here is
not North Korea but Russia. Putin is busy repositioning Russia as a
power broker in the world and is using the U.S. anti-missile
deployment as a means of driving a wedge between the United States
and its allies. The latest move, on the eve of U.S.-North Korean
talks, is designed to drive a wedge between the United States and
Japan. North Korea, delighted to have a major power as patron
again, is happy to play. It's the U.S. move, with Russia trying to
shut down its room for maneuver.

Analysis

During the past decade or so, the G-7 (later G-8) meetings were the
main forum for discussing pressing global economic issues. For
example, they provided an arena for major showdowns between the
United States and Japan over trade issues. This week's meeting in
Okinawa not only seemed to have no meaningful economic content, but
it interfered with the major item on the international agenda, the
Israeli-Palestinian negotiations at Camp David. Whatever substance
this G-8 meeting had, it had nothing to do with economic issues.
Instead, it had to do with a politico-military matter. Russia's
President Vladimir Putin carried a cryptic message from North Korea
offering to shut down its missile program in return for missile
technology.

This was not trivial news, although the message had less to do with
North Korean missiles than it had to do with Putin's decision to
use the missile issue and North Korea as a lever against the United
States. That is an affair that requires careful consideration.
However, before moving on to that, we should pause for a moment to
measure the distance traveled by the world in the last few years.
Economic issues, once king, now don't even register. We have
returned to a more traditional world, where politico-military
issues increasingly dominate. If we think about the fantastic
predictions of worlds without borders, that is the most significant
news of the week.

Not that the other news was insignificant. Putin went to China for
a summit with Chinese President Jiang Zemin, where little of public
substance was achieved. In fact the atmosphere was quite chilly.
Clearly, the expected Russian-Chinese entente has run into
problems. The main problem is American power. Neither Russia nor
China wants to enter into a confrontation with the United States in
particular or the West in general until each has explored all
opportunities for extracting concessions. They are both prepared to
flirt with each other in order to do so, but neither is prepared to
burn any bridges. Moreover, there are some sticky issues developing
between China and Russia, particularly over south and southwest
Asia. So, the Russian-Chinese entente waits while each explores its
opportunities with the United States.

The one issue that both countries agreed upon is that neither wants
the United States to deploy a missile defense system. There is an
element of irony here, of course. On the one hand, U.S. opponents
of ballistic missile defense have focused on the fact that it can't
possibly work. If that is the case, it seems hard to understand why
either Moscow or Beijing would care about it. They should be
delighted to see the system soak up U.S. resources in a futile
effort. The domestic and foreign opponents of missile defense are
therefore in complete opposition to each other. The former argue it
won't work; the latter fear that it will.
________________________________________________________________
Would you like to see full text?
stratfor.com
___________________________________________________________________

The real issue is, of course, that it might work. Neither China nor
Russia believes that the United States will stop at the minimalist
system currently envisioned. If the United States can defend
against five incoming missiles, it will be able to defend against
500 or 5,000. If it can defend against 5,000, then Russia and
China's lever against the United States will disappear. The last
claim that Russia has to being a superpower is its nuclear arsenal.
The first claim that China has for having become a superpower is
its nuclear arsenal. If a working U.S. missile defense system is
deployed, both China and Russia face a United States freed from the
limiting factor of nuclear weapons.

Neither Russia nor China is certain that the United States can pull
this off. Their problem is that they have seen too many impossible
technologies become real after the United States decided to do it.
Nuclear parity is too important to Moscow and Beijing to risk being
wrong. Moreover, if they are wrong, the resources required by each
to build similar systems would cripple their other defense spending
- if not simply beyond their economic or technical capabilities.
There are too many chips on the table for them to take their
gamble. Therefore, they cannot accept the complacent view of U.S.
critics who argue that ballistic missile defense is impossible.
They have to act.

For both Russians and Chinese, there is a diplomatic opening
provided by the missile defense issue. During the 1980s, the Soviet
Union mounted a massive campaign directed toward a nuclear freeze.
The United States was deploying Pershing missiles in Europe,
something the U.S.S.R. did not want to see happen. Although the
probability of nuclear war during the 1980s was extremely remote,
the Soviets mounted a campaign designed to convince the Europeans
that U.S. missile deployments were dramatically increasing the risk
of nuclear war. The point was not the missiles. The point was to
convince U.S. allies that the United States was an irresponsible
cowboy. The campaign ultimately failed, but it was effective in
creating an atmosphere of tension between the European public, pro-
U.S. governments and the United States. Putin was in Germany during
this period and had a front row seat.

Both Putin and China have not only opposed the deployment of the
anti-missile system, but have worked very hard to create an
atmosphere of crisis among U.S. allies. They have had fertile
ground with which to work. France does not want to see the United
States get any stronger than it already is. Germany, eager to avoid
a U.S.-Russian confrontation, has also decided to oppose the
deployment. China, not wanting to see Taiwan get the technology,
has also hammered Japan over the issue. Japan has pointed to the
North Korean threat as necessitating some sort of missile system.

Getting Japan to join France and Germany in opposing anti-missile
defense is therefore a critical move. Given that, it is not
surprising that Putin showed up in Okinawa carrying an offer from
North Korea. According to Putin, North Korea was prepared to
abandon its ballistic missile program in return for technology to
help it develop a civilian space program. Proving that the
technology can't be deployed for military uses is a major
challenge. More important is that Moscow is signaling that it holds
the keys to the Northwest Pacific logjam.
_______________________________________________________________

For more on Russia, see:
stratfor.com

For more on North Korea, see:
stratfor.com
__________________________________________________________________

Russia has publicly told Japan that it does not have to deploy a
U.S. built anti-missile defense in order to protect itself from
North Korean missiles. The North Koreans, according to the
Russians, are prepared to abandon their missile program in exchange
for civilian technology. This is a strategy considered before with
North Korea's nuclear reactors, but this time, a great power is
prepared to underwrite and guarantee the agreement. If Japan
refuses the North Korean offer, it not only alienates Russia, but
it increases rather than decreases risks. If Japan is worried about
North Korean missiles, this is the most secure path to follow.
Russia has therefore put Japan in a position where it can adopt a
low cost, high security solution to its problems.

From North Korea's point of view, this is the best possible thing.
As we have argued for a while, the essence of North Korea's
strategy has been to hang on until it becomes valuable to some
regional power. Through most of the last decade, both China and
Russia regarded North Korea as an irritant on the way to good
relations with the West. North Korea devised a strategy intended to
make it appear too unstable to bother with and too dangerous too
mess with. That was the point of their missile program. Now, to
Pyongyang's delight, North Korea is no longer an irritant, but has
become a genuine asset to a great power, Russia. That is the
ultimate guarantee of the survival of the North Korean regime. So
Pyongyang is happy to be forthcoming, as long as Russia brokers for
it and quietly guarantees the regime's survival.

China is also pleased to see Russia in this role. Beijing has
developed good relations with Seoul. The economic ties with South
Korea outweigh any benefits of close North Korean ties. At the same
time, China does not want to see North Korea collapse. Most
important, China does not want Taiwan or Japan deploying anti-
missile systems, nor does it want the United States deploying them.
If Russia is prepared to carry the water in using North Korea as a
lever against U.S. deployment, then China will certainly cooperate.

The United States is put in a quandary. North Korea is only one of
the threats the worrying Washington. Iran and Iraq could also pose
problems and, in the long run, the threat can come from anywhere.
The Russians are trying to drive a wedge into the U.S. alliance
system. If Japan were to join the U.S. allies that have lined up
against the missile defense system, deploying it would become
extremely difficult. That is exactly what Putin wants. He does not
like missile defense, but he also loves the opportunity to disrupt
the U.S. alliance system.

Madeleine Albright is meeting with her North Korean counterpart
this Wednesday. The Washington is quite baffled by Pyongyang's
offer, since it does not know what North Korea means when it speaks
of non-military technology. That ambiguity can be a deal killer.
Putin has probably anticipated this and will be prepared to offer
on-site inspection including China, France, Japan, the United
States - and above all, led by Russia. This will back the United
States into a corner.

Putin learned during the closing days of the Kosovo crisis that the
West depended upon Russia to solve critical problems. He also
learned that the United States in particular had limited gratitude
and was prepared to isolate Russia once it had done the heavy
lifting. Putin also learned that if Russia had not allowed itself
to be excluded, its influence in the Balkans would be substantial,
and that that influence can be traded for U.S. economic and
political concessions.

Putin is using the anti-missile issue to disrupt normal U.S.
alliance processes, draw closer to China without burning bridges to
the United States, and help gather a group of client states with
which to harass and manipulate Washington. Albright is moving
toward a negotiation with a North Korea that can no longer be
defined as an isolated hermit kingdom. It is, instead, the cat's
paw of a Russian strategy designed to resurrect some measure of
Russian power. North Korea is happy to be in this role. America's
allies are happy to have alternatives. The United States, on the
other hand, is heading into a diplomatic buzz saw.

_______________________________________________________________

For more on Russia & the CIS, see:
stratfor.com

For more on Asia, see:
stratfor.com
__________________________________________________________________

(c) 2000 Stratfor, Inc.
_______________________________________________
SUBSCRIBE to the free, daily Global Intelligence Update. Click on
stratfor.com
UNSUBSCRIBE by clicking on
stratfor.com
_______________________________________________
Stratfor.com
504 Lavaca, Suite 1100 Austin, TX 78701
Phone: 512-583-5000 Fax: 512-583-5025
Internet: stratfor.com
Email: info@stratfor.com



To: Rob Shilling who wrote (1080)8/29/2000 10:06:09 AM
From: CIMA  Respond to of 1301
 
Russia: Putin's Coming Concession to the Oligarchs

Summary

On Sept. 19, the Russian government will put up for auction
majority control of the ONAKO oil company, one of the country's
most profitable energy companies. Because foreigners are barred
from holding more than a fraction of any Russian oil company, the
government will likely be forced to hand over control to the
powerful businessmen once known as oligarchs, the men that Putin
has publicly campaigned against.

Analysis

After months of trying to rein in Russia's oligarchs, Russian
President Vladimir Putin will soon have to hand over to them a
piece of the country's most profitable industry: oil production.
The government plans to privatize the ONAKO oil company, the 11th
largest oil company in the country, selling off 85 percent of its
shares.

The only true contenders for buying up control of the company - to
be auctioned off Sept. 19 with bids starting at $425 million - are
members of the wealthy, but allegedly corrupt, oligarchy. The
president has staked much of his presidency on diminishing the
power of these men, holdovers from the Yeltsin era. The Putin
government will soon be forced to pick one group of oligarchs over
another, to control ONAKO. The ONAKO auction may also set a
precedent: It is the first of four energy companies to be
privatized.
________________________________________________________________
Would you like to see full text?
stratfor.com
___________________________________________________________________

Russian law limits the amount of equity that foreign investors can
control in the country's oil companies, capping ownership at no
more than 15 percent, according to a June edition of the St.
Petersburg Times. The shares in ONAKO will be auctioned off to the
highest bidder.

More than 20 groups have submitted an offer, but only two are true
contenders: LUKoil, the largest oil producer in Russia, and an
alliance of three smaller companies, Yukos, Sibneft and
Surgutneftgaz. Two oligarchs direct LUKoil, Rem Vyakhirev and Vagit
Alekperov, although these two men are largely under Kremlin
control.

In contrast, the three oligarchs behind the alliance behind the
other companies - Yukos, Sibneft and Surgutneftgaz - are Mikhail
Khodorkovsky, Boris Berezovsky and Roman Abramovich. Putin has
publicly sought their power since taking office. They largely
bought their way into power under former President Boris Yeltsin,
amassing fortunes and increasing their political influence.
Abramovich, widely considered Berezovsky's protege, is a Duma
member, as Berezovsky himself was until recently.
_____________________________________________________________

For more on Russia, see:
stratfor.com
_____________________________________________________________

Though not Russia's largest companies, ONAKO is one of the most
profitable. The average Russian oil company makes less than 30
percent of its profits from exports; ONAKO exports 40 percent of
its product, enabling it to reap the benefits of the higher oil
prices outside Russia. Last year ONAKO earned as much money as some
other companies by pumping less oil, according to Russica
Information on Aug. 16.

Allowing Berezovsky or Khodorkovsky to control the company would be
a dangerous risk for the Kremlin, considering the pasts of the two.
Both oligarchs were linked to the 1998 IMF money laundering
scandal; both have been targets of tax police raids or
investigations in the past three months according to articles in
The Moscow Times in late August. Berezovsky was notably absent from
the late-July summit between Putin and the oligarchs, while
Khodorkovsky has links to businessmen recently expelled from
Bulgaria on corruption and money laundering allegations.

For ONAKO to remain profitable so that the government can take its
share of revenues and taxes, the government needs LUKoil to win the
bid for ONAKO. Putin has already won a battle with Gazprom's Rem
Vyakirev. Second, the government owns 15 percent of LUKoil's stock
and plays a controlling role behind the scenes of the company.

But the fact is that former oligarchs remain the only ones
financially stable enough to contend in the bidding. Unless Putin
can get laws passed that favor foreign investment in strategically
important industries, he will be stuck doing business with the
oligarchs.
_____________________________________________________________

For more on Russia and the CIS, see:
stratfor.com
_____________________________________________________________

(c) 2000 Stratfor, Inc.
_______________________________________________

SUBSCRIBE to the free, daily Global Intelligence Update. Click on
stratfor.com
UNSUBSCRIBE by clicking on
stratfor.com
_______________________________________________
Stratfor.com
504 Lavaca, Suite 1100 Austin, TX 78701
Phone: 512-583-5000 Fax: 512-583-5025
Internet: stratfor.com
Email: info@stratfor.com



To: Rob Shilling who wrote (1080)11/24/2000 1:29:09 PM
From: Z Analyzer  Respond to of 1301
 
Rob, Am not finding much good info on ROS. Curious how much of what was contemplated in the following link has come to pass and whether you believe the recent ROS weakness has to do with any major share sales by a given entity. Thanks, -Z



To: Rob Shilling who wrote (1080)11/24/2000 1:29:35 PM
From: Z Analyzer  Read Replies (8) | Respond to of 1301
 
Rob, Am not finding much good info on ROS. Curious how much of what was contemplated in the following link has come to pass and whether you believe the recent ROS weakness has to do with any major share sales by a given entity.

messages.yahoo.com

Thanks, -Z