Join Mailing List
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
02-24-2004
Georgian President Mikheil Saakashvili is in Washington for talks with top-level Bush administration officials on expanding strategic and economic cooperation. The Georgian leader’s US visit is coming at a time of geopolitical uncertainty in the Caucasus, with Moscow and Washington potentially on a collision course.
Georgia is shaping up as a key venue in the building US-Russian competition for regional influence, a fact that is forcing Saakashvili into a delicate balancing act in the foreign policy sphere, while at the same time trying to restore order on the domestic front. [For additional information see the Eurasia Insight archive]. Georgian-Russian relations have long been marked by tension, but during an early February visit to Moscow, Saakashvili appeared to stabilize Tbilisi’s relationship with the Kremlin. [For background see the Eurasia Insight archive].
Saakashvili arrived in Washington on February 22 and is expected to seek stronger US security cooperation, along with an expansion of economic assistance. In addition to meeting with Bush administration officials, Saakashvili is scheduled to meet with representatives of the World Bank and International Monetary Fund, as well as US business executives.
Since Saakashvili led the protest movement last November that succeeded in forcing former president Eduard Shevardnadze’s resignation, the United States has strongly backed his stated desire to place Georgia on a fast track towards integration with Western security and economic structures. [For background see Eurasia Insight archive].
At the same time, Russian leaders are loathe to lose any influence in what they consider to be their strategic backyard. Despite Saakashvili’s widely praised performance in Moscow, many in Russia’s policy-making community remain suspicious of his intentions. Specifically, there is still strong doubt about Saakashvili’s pledge that he would not permit the United States to establish a military base in Georgia after Russian forces pull out from the country. [For additional information see the Eurasia Insight archive].
By all appearances Russia is preparing to wage a vigorous struggle to keep Georgia within its sphere of influence. An indication that Russian President Vladimir Putin is planning to get tough on CIS states came February 24, when, in a televised address, he announced that he was firing his cabinet. Putin stressed that his decision was not driven by dissatisfaction with the government’s performance. "It is dictated by a wish once again to set down a position on how policy will develop in the country after [Russia’s presidential election] on March 14," Putin said. Putin’s re-election is considered a virtual certainty.
Putin provided some insight into his thinking during a February 12 televised speech, in which he characterized the 1991 collapse of the Soviet Union as a "national tragedy on an enormous scale" in which "only the elites and nationalists of the republics gained." The underlying assertion of Putin’s comments was that the Kremlin needed to do more to defend Russia’s national interests, and, accordingly, would be justified in adopting tougher policies towards other CIS states.
Dmitry Sidorov, Kommersant bureau chief in Washington, said that Putin really believes what he says. "His popularity allows him not to make any statements and win handily in March," he said.
Putin’s statements sent ripples around CIS capitals and beyond. "What does this mean – that Russia is going to correct the ‘mistakes of the past?" a senior Central Asian leader visiting Washington asked rhetorically.
Already, Russian rhetoric is toughening. At an early February security conference in Munich, Germany, Defense Minister Sergei Ivanov announced that Russia might opt out of the Conventional Forces in Europe Treaty, alleging that the pact is an outdated "legacy of the Cold War." Such an argument is mimics the US contention that the ABM treaty is outdated, and thus should no longer be binding.
Russia’s potential withdrawal from the CFE pact could have significant ramifications for Tbilisi. Moscow’s obligations under the CFE treaty are perhaps the most significant source of pressure on Russia to pull out from its two remaining bases in Georgia.
In his speech at the Munich conference, Ivanov complained that Western leaders were ignoring Russian security needs. "NATO should -- in deed, not only in words -- take into account Russian concerns," Ivanov said.
The Russian threat to withdraw from CFE comes at a time when the United States is planning a wide-ranging re-deployment of its forces in Europe, much of it related to the ongoing war on terrorism. For example, the United States is planning to deploy more troops in Romania and Bulgaria to enhance its ability to project power in the Middle East and Central Asia. Small-scale forward bases in the Caucasus and Central Asia are also under consideration by Pentagon planners, although US diplomats have stressed that Washington has no firm plans to establish bases in the region.
Ivanov attacked Georgia twice in his Munich policy speech. Georgia allows terrorists from the Middle East to enter Chechnya from its territory, Ivanov claimed. He also stated that Georgia has been lax in controlling terrorists along its borders with Russia. Georgi Baramidze, the Georgian Interior Minister, has rejected Russian claims. "The Interior Ministry has written to the Acting Interior Minister of Russia and suggested a number of concrete cooperation projects, and so far received no response," he told EurasiaNet.
US Senator John McCain, speaking at the same panel as Ivanov, provided a ringing rebuttal. The Arizona Republican said, that "undemocratic behavior and threats to the sovereignty and liberty of her neighbors will not profit Russia -- but will exclude her from the company of Western democracies."
In a message to President Bush published February 11, Putin tried to smooth over tension. "I think by practical actions we shall be able convincingly to show everyone that the partner foundations of our relations remain immutable and that any speculations about a ’cooling-off’ between Russia and the United States are far removed from reality," Putin said. "Russia will remain a stable, reliable and predictable partner."
A majority in Washington policy-making circles believe that Russia will ratchet up its involvement in the Caucasus and Central Asia after presidential elections. This may include further acquisitions of energy, transportation, and other industrial assets. It may also take the form of pressure on CIS states for more favorable trade conditions, and more military and security cooperation under the umbrella of the war on terrorism.
Regardless of any Russian policy shift, Washington will remain intent on supporting Georgian democratization efforts and pushing for the completion of the Baku-Tbilisi-Ceyhan pipeline. [For additional information see the Eurasia Insight archive].
US officials privately doubt that Russia would formally pull out of the CFE Treaty. Both Russia and the NATO members are well below CFE ceilings along the Western and Southern flanks, and Baltic states are unlikely to deploy significant NATO or own forces. Many in Washington also do not expect a massive Russian campaign to destabilize Georgia, as Russia has no alternative candidate who could assume control of the country’s government. One American official characterized the prognosis for the Caucasus as a "status quo plus".
While Georgia is firmly in the US and Western camp, Azerbaijan is a more difficult case. According to a senior CIS official who spoke on condition of anonymity, President Ilham Aliyev has been stung by criticism in Washington of his human rights record, and may be gravitating towards the Russia. [For additional information see the Eurasia Insight archive]. Nevertheless, US officials are not concerned about "losing" Azerbaijan, citing the fact that Baku will always require a diplomatic partner to balance its relations with Russia and Iran.
Whether Putin will remain a reliable partner for Bush, who is proving increasingly vulnerable in an election year, remains to be seen, Washington insiders say. As the Bush Administration is facing escalating violence in Iraq, a power hand-over in Baghdad on June 30, and a hotly contested presidential elections campaign, it can only hope for no additional foreign policy surprises.
01-23-2004
On January 25, US Secretary of State Colin Powell will attend Mikhail Saakashvili’s inauguration as president of Georgia. The transition of power there has some Washington strategists imagining ways to export Georgia’s "revolution" to other post-Soviet states. It has also led to consternation in Moscow which could further erode the spirit of partnership that the Kremlin forged with US President George W. Bush in late 2001.
From Tbilisi, Powell will go to Moscow for meetings with Russian president Vladimir Putin and other key officials. Insiders expect that Powell will not mince words in expression of support for Saakashvili, whom the Kremlin considers (according to a Moscow political scientist) "too pro-American and too unknown." This is delicate geopolitical territory. Russia commands four military bases in Georgia.
During a December 2003 visit to Georgia, US Defense Secretary Donald Rumsfeld called for Moscow to withdraw its troops from Georgia in line with agreements signed at the 1999 Organization for Security and Cooperation in Europe Istanbul summit. [For background see the Eurasia Insight archive]. This call prompted concern in Russia’s Foreign and Defense Ministries that the Bush administration seeks to use Saakashvili’s ascent to extend its own military presence in Georgia. [See the Eurasia Insight archive].
Saakashvili marked his campaign with promises to tackle Georgia’s internal corruption and its endemic poverty. He has tried to placate Russia in speeches but has been firm about his insistence on keeping breakaway provinces from seceding to Russia. Powell’s spokesman has said that the secretary will deliver an unstinting message to Putin on this issue. Powell also seems likely to demand that Russia expedite its troop withdrawal.
Why would Powell be so firm? In the past he has negotiated more gently with Uzbekistan’s Islam Karimov and Kazakhstan’s Nursultan Nazarbayev, both of whom have invoked antiterrorist rhetoric to blanket their misdeeds. [For background see the EurasiaNet Insight archive]. The answer may have to do with the fact that Saakashvili represents something new in post-Soviet politics: the leader of a massive, well-organized effort to peacefully render a sitting president illegitimate.
The Bush administration cannot afford to let Russia undermine Saakashvili’s story. A confident Georgia can deliver many benefits. It could stabilize the South Caucasus, shielding American access to the Baku-Tbilisi-Ceyhan oil pipeline and other valves on the Caspian Sea. It could weaken separatist rhetoric in Abkhazia and South Ossetia, which might discourage Russian intervention. And it could become a more effective partner in tracking, stopping and punishing terrorists. [For background on these issues, see EurasiaNet’s package on the Pankisi Gorge].
Indeed, some in the Bush administration doubt that Saakashvili’s "rose revolution," so dubbed because celebrants clutched roses after Shevardnadze stepped aside, will necessarily foster stability. Proponents of the Realpolitik school, primarily at the State Department, point out that a rush to overhaul Georgia could weaken Russia’s membership in Bush’s antiterrorist coalition and jeopardize American access to Caspian energy sources.
Analysts at the National Security Council and the United States Agency for International Development (US AID) understand that Georgia’s entrenched corruption is just one of the symptoms keeping the country poor. It also lacks competitive industries and sound models for capitalist ethics. Moreover, Russian interests control critical chunks of Georgia’s economy.
During 2003, state-controlled Russian companies RAO UES and Gazprom acquired the vital electric and natural gas grids in Georgia. [For background, see the Eurasia Insight archive]. Migrants sending money home from Russia contribute meaningfully to Georgia’s annual output. In this context, if Russia encourages the breakaway provinces of Abkhazia, South Ossetia and Ajaria to fully secede, it could sap Georgia’s already anemic economy.
Washington understands how many challenges the untested Georgian leadership faces. These include conducting legitimate parliamentary elections in the spring, battling organized crime, and rebuilding public institutions that became sinecures under Shevardnadze. Temur Yakobashvili of the Georgian Foundation for Strategic and International Studies www.gfsis.com suggests that Saakashvili will have to scale down unrealistic expectations, generated in November’s rush of events, in order to thrive. The president’s inaugural address may try to cool the popular mood.
According to Yakobashvili, the new regime will struggle to attract honest, competent and educated people to the government, deliver pensions, salaries and other social safety payments on time and restarting economic growth and foreign investment amid deep economic crisis. Finally, Mr. Saakashvili will face a difficult relationship with Russia while attempting territorial reintegration in the face of Moscow-supported separatist opposition. Because conditions in Georgia are so fragile, Russia could swiftly claim that the country needs Russian troops.
Powell and his colleagues will have to advance Washington’s goals while staying friendly to a Kremlin that balks at the idea of Georgian initiative. Especially after nationalists made strong gains in Russia’s parliament in December, the idea that Georgia can act against the Kremlin’s wishes is growing especially sensitive. While the Bush administration and European Union figure to encourage institutional development through privatization in Georgia, they will also have to manage Russia’s concerns about security and hegemony.
In this context, Powell might be wise to press Saakashvili to make conciliatory gestures to Moscow. The State Department should foster Tbilisi’s official contacts with the leaderships of Abkhazia and South Ossetia to develop a jointly workable political model. This could federalize Georgia or otherwise protect minority rights. At the same time, since Ajaria’s Abashidze is likely to play provocateur, Powell should manage a dialogue between Tbilisi and Moscow on the withdrawal of Russian troops and the end of Russian support to South Ossetian and Abakhzian separatists. In addition to the regular diplomatic channels, such dialogue should include the two countries’ National Security Councils and departments of defense.
Saakashvili’s country is as fragile as his victory was emphatic. If Georgia grows violent, or poorer, or darker, it could deteriorate to bloody anarchy. That prospect should keep Powell somber at the inauguration and careful in Moscow.
01-09-2004
US official are warily monitoring a policy debate in Russia over how Moscow should deal with its former Soviet neighbors. Many in Washington believe that the strong showing by nationalists in the recent Russian parliamentary election could prompt the Kremlin to toughen its stance towards states in the Caucasus and Central Asia.
Developments in Georgia – where a pro-Western administration has come to power -- has prompted policy makers in Moscow to reexamine Russian foreign policy towards its neighbors. The fact that nationalists will exert considerable influence in the Russian legislature appears to sharply reduce the chances of a softening of Russian policy.
In all, four political parties gained sufficient electoral support to win seats in the Russian parliament, led by United Russia, which serves as President Vladimir Putin’s powerbase. The other three – the Communist Party, Vladimir Zhirinovsky’s Liberal Democrats and Rodina, (Motherland) – all embrace nationalist-oriented foreign policy views.
There are two competing policy viewpoints in Moscow today. The first, articulated by the Chairman of the Federation Council’s Foreign Affairs Committee, Mikhail Margelov, maintains that Russia does not stand to benefit from the geopolitical competition with the United States in the Caucasus and Central Asia. This faction wants Russia to be more accommodating towards its neighbors.
In Georgia’s specific case, Russia’s confrontational stance risks causing renewed conflict between Tbilisi and Georgia’s separatist-minded regions of Abkhazia, Ajaria and South Ossetia. Such tumult could create "another Chechnya," some believe. It would thus be better for Moscow’s own security aims to use its influence to promote rapprochement among the Georgia government and the three autonomous regions.
The other approach, as described by a senior policy expert with close ties to the Kremlin, holds that Georgian President-elect Mikhail Saakashvili is an implacable opponent of Russia. Accordingly, Moscow should do nothing that helps to stabilize his administration.
"Saakashvili is an unknown quantum in Moscow, and he’s not made efforts to build relations here. There is no way Abkhazia and South Ossetia will return to Tbilisi’s fold," the expert said.
While on a visit to Armenia on January 8, Saakashvili repeated his call for improved Russian-Georgian ties. At the same time, he said a new approach was needed in Moscow. Bilateral relations "should not be based on previous relations when Russia itself instigated conflicts, tried to resolve them and never succeeded," the Arminfo news agency quoted Saakashvili as saying.
For the United States, the implications of a rise in instability in Georgia are clear. Tumult could easily spill over Georgia’s border into neighboring states, and threaten to delay, or even prevent completion of the Baku-Tbilisi-Ceyhan Pipeline.
A senior U.S. diplomat in Moscow believes that the "reservoir of imperial nostalgia" will lead to a "more muscular approach" in Russian policy towards Central Asia and the Caucasus.
If Russian policy makes a right turn, a key political figure will be Dmitri Rogozin, one of the leaders of the Rodina party. Rogozin’s nationalist rhetoric has repeatedly sparked controversy. Most recently, he called for the creation of a Russian land corridor across Lithuanian territory linking Russia proper to the exclave of Kaliningrad, which Rogozin represents in parliament. Rogozin has also called for the expansion of Russia’s borders to include areas – such as northern Kazakhstan – that have heavy concentrations of ethnic Russians.
US analysts do not expect Russia to make any significant moves in the Caucasus or Central Asia until after the Russian presidential election, which is scheduled for May.
At the same time, the rhetoric of some Russian MPs indicates that an influential policy-making segment is disinclined to adopt a more cooperative tone with Russia’s neighbors, in particular Georgia.
Georgia’s "over-reliance on Western countries in the solution of these issues [the separatist struggles of the country’s autonomous regions] was the previous Georgian leadership’s [i.e. former president Eduard Shevardnadze’s] great mistake," Andrei Kokoshin, current chairman of the Russian Duma Committee on CIS Affairs, told the NTV television channel on January 8.
In a separate interview with Ekho Moskvy news agency, Kokoshin insisted Russia needed to maintain military bases in neighboring states. Georgia and Russia have long haggled over a timetable for the withdrawal of Russian forces still housed at two bases in Georgia.
"To win its place under the sun, Russia must not only speed up its economic development, but also show military muscle," Ekho Moskvy quoted Kokoshin as saying. "In a number of post-Soviet areas, we need either permanent bases, or agreements enabling us to deploy our military contingents rapidly."
12-23-2003
Russia and Israel have formally agreed to ship oil from the Russian oil terminals in the Black Sea via the Israeli Eilat-Ashkelon pipeline, to Asian markets. This pipeline has the potential to greatly decrease the transit time for oil exports from the Mediterranean to the Far East. This development signals a new level of cooperation between Russia and Israel in the energy field, and emergence of the Jewish state as a player in Russian and Eurasian pipeline politics.
BACKGROUND: During November 3-5 summit in Russia, Israeli Prime Minister Ariel Sharon and Russian president Vladimir Putin have signed a historic agreement making Israel the first Middle Eastern transit country for Russian oil. The 158-mile (254 km) pipeline from the Red Sea port of Eilat on the Gulf of Aqaba to Ashkelon was constructed in the 1960s, to ship Iranian oil to European and U.S. markets. Thus, the direction of the pipeline was South-North. After the collapse of the Shah regime in 1979, the pipeline was used to ship small amounts of Egyptian oil from Abu Rudeis field to Israel. According to the Director General of the Ashkelon pipeline company Emmanuel Sakal, Israel has accomplished improvements to reverse the flow of the pipeline over the last two years, to accommodate shipping of the Russian and Eurasian oil to Asian markets.
Meanwhile, Russia has been experiencing an important infrastructure bottleneck while shipping its oil to the fast-growing and highly lucrative Asian markets. Russian energy officials have realized that the plans for pipelines from Siberia to China and the pacific port of Nakhodka may be years and billions of dollars away. After YUKOS oil company ran afoul of the Kremlin in Spring and summer of 2003, the Russian government has decided not to pursue a pipeline to the Northern Chinese city of Daiking – the YUKOS-preferred route. Instead, Moscow has opted for a much more expensive project – the pipeline to the Russian Pacific port of Nakhodka, from which Russian companies can ship oil not just to China, but also to Japan, Korea and the West Coast of the U.S.
IMPLICATIONS: As Russian oil exports to Europe have stagnated due to slow rates of economic growth there, Russian companies have decided that an alternative root to ship oil to China and India must be found. The oil major LUKoil, and the government-controlled Rosneft are prime candidates to ship oil via Israel as they control pipelines and terminals along the Black Sea Coast. From the ports of Novorossiisk and Tuapse, Russian tankers will pass via the Bosphorus-Straits and unload at the slip dock at the port of Ashkelon, from which it will be pumped across the Negev desert to Eilat. Mosst importantly, this significantly shortens the shipping time and decreases costs: a Very Large Tanker (VLT) with 300,000 tonnage travels for 35-30 days from the Mediterranean to China, and only around 10-14 days from Eilat to Shanghai.
The Israeli ports can accommodate tankers larger than those capable of passing through the Suez Canal. And while the tariffs in the Israeli pipeline amount to $.40 a barrel, Egyptians are charging higher rates for transit through the canal, which is a major target of terrorism.
The Israelis, as well, may worry about threats to pipeline security from radical Islamist organizations, such as Al Qaeda, Hamas, and Islamic Jihad. Today, oil routes are no longer safe. The attack on the French supertanker the Limbourg in October 2003, and the Al Qaeda attempts to penetrate the information technology department of Saudi Aramco, the national oil company, demonstrate that terrorists are targeting high ‘emotional value’ economic targets. Moreover, while Hamas and Jihad go after human-rich targets, such as buses and restaurants, they so far targeted Israeli infrastructure only occasionally and unsuccessfully. Al Qaeda does not seem to care about Israel enough to endanger its somewhat depleted force. Moreover, oil burns, but does not explode, and pipelines can be patched up relatively easily.
In this sense, the Israeli North-South pipeline from the Mediterranean to the Red Sea with a capacity of 1.1 million barrel a day offers a significant shortcut for Russian and Eurasian oil, which targets fast-growing Asian markets. It will be an ideal outlet also for the Kazakh and Azerbaijani fields, which are coming online. The pipeline’s capability may be boosted to 1.6 mbd by installing additional pumping stations. As it is aiming to provide Very Sweet Light Crude (VSLC) from the Caspian, additional supply may come from the Baku-Supsa and from Baku-Tbilisi-Ceyhan pipelines when the latter is completed around 2005-2006.
Israel has excellent relations with Azerbaijan and the administration of President Ilham Aliyev, as well as with the Government of Georgia, so that political pressure from Arab countries is unlikely to undermine Israel’s oil transit role. While the immediate economic impact is modest (about $140 million a year), an increase in volume of shipping, more demand for Israel’s own needs, and provision of stock for Israel’s petrochemical industry are additional benefits. As a result, the project is likely to be sustainable and profitable.
CONCLUSIONS: Israel is likely to increase its profile in the Caspian area, and the energy politics of Russia and the Caucasus. It is likely, as it did in the past, to play a mediator’s role in conflicts between Moscow and Washington. Ariel Sharon in particular, together with the leader of Russian-speaking Israel Our Home Party Avigdor Lieberman are keen to see the project implemented. Sharon has taken time to cultivate Putin and try to balance the Russian foreign policy and security elite’s traditional tilt towards the Arab world. Moreover, Sharon has championed in the past a spur to Israel of the Russian Gazprom natural gas pipeline Blue Stream to Turkey. That project was derailed in favor of an Egyptian gas pipeline which never happened. At this point, however, the Eilat-Ashkelon pipeline shows that Israel is becoming an actor in the regional energy field as well.
11-26-2003
Eduard Shevardnadze has done his country of Georgia one last, important service—resigning as president. While the resignation avoided the bloodshed of the use of force against demonstrators in the streets, it leaves the country in a volatile situation, which the United States can help to stabilize.
Brewing Unrest
Besieged by his handpicked successors-turned-opposition leaders, abandoned by his soldiers and policemen, Shevardnadze resigned the Georgian presidency rather than giving an order to shoot his own people.
Shevardnadze rose in the ranks of the Soviet Communist Party since joining in 1948 at the height of Stalin’s rule and then played a key role in the dissolution of the Soviet Union. The question now is, what’s next?
Georgia conducted badly flawed parliamentary elections on November 2, 2003. International observers reported massive fraud, and the U.S. State Department issued a stern rebuke of the vote counting procedures. The 1999 parliamentary elections had been equally faulty. The team that eased Shevardnadze out of power used the populace’s frustration with that election fraud and the accumulated dissatisfaction with the old regime as a fulcrum to topple Shevardnadze.
The first post-post-Soviet transition team in Georgia is decidedly pro-Western:
The most popular politician in Georgia is Columbia-educated former Justice Minister Mikhail Saakashvili (35);
The current President pro-tem (until the elections, which will take place in early January 2004) is the former Speaker of the Parliament Nino Burdjanadze (39);
Former Parliamentary Speaker Zurab Zhvania (40).
All of these leaders are well-known faces in Washington: they are bright, English speaking, and pro-American. However, the economic and security challenges before the new leadership are more difficult to surmount than the 18,000 feet mountain snow-capped peaks of the Caucasus.
Crucial Challenges
Shevardnadze leaves behind a number of tough problems that will be difficult for his young successors to solve. The economic and security situation is depressing, and the population is falling. Three autonomous republics—coastal Abkhazia and Adjara and the mountainous South Ossetia—are in various stages of secession from the central government in Tbilisi. The separatists are supported by the Russian government and military, who still have not evacuated four Georgian military bases, despite a 1999 decision by Organization for Security and Cooperation in Europe (OSCE) summit that they do so.
Georgia’s economic performance remains anemic, with GDP growth around 2 percent per year from 1997-2002, official unemployment over 17 percent, and underemployment even higher. Hundreds of thousands have left the country for neighboring Russia or greener pastures in the West. Corruption is rampant, and Shevardnadze’s relatives and cronies control the choicest morsels of the economy. Saakashvili’s earlier efforts to fight corruption and to reform the judiciary and the State Prosecutor’s office were stalled.
Armed militias, who in the past contributed to the country’s chaos and fought Shevardnadze, as well as the autocratic and pro-Russian leader of Adjara, Aslan Abashidze (a former nemesis of Shevardnadze), have already voiced opposition to the new leadership. And while the Russian Foreign Minister Igor Ivanov mediated between Shevardnadze and the opposition, Russia is cautious about the emerging government, which many in Moscow view as pro-American. The geopolitics of Georgia’s future will be tough for Washington to manage.
Geopolitical Importance
Georgia, with its Christian, largely pro-Western population, was an independent kingdom in the Middle Ages and has dreamt of freedom ever since losing it to a succession of imperial masters, including the Ottomans, Persians and Russians. The country wants to be part of the Euro-Atlantic zone and is located between Russia and Turkey and in proximity to Armenia, Azerbaijan, and Iran. Georgia controls land access to the oil riches of the Caspian, and is a transit country for the Main Export Baku-Ceyhan Pipeline from Azerbaijan to Turkey, which will be completed by 2005.
What the United States Should Do
U.S. support of Georgian independence is bipartisan. Since 1992, the Clinton and Bush Administrations expended as much as $1 billion in assistance. Georgia also received IMF and World Bank credits, loans, and technical assistance. To keep Georgia free and democratic, and to ensure the stability of the Southern Caucasus, the United States should:
Ensure that Eduard Shevardnadze and his family are treated with dignity and that he is allowed an honorable retirement. He should be guaranteed immunity from criminal prosecution.
Enhance democratic development and the rule of law, including the provision of technical assistance for anti-corruption measures and the development of institutions of the law and law enforcement.
Support new parliamentary and presidential elections, including sending U.S. observers for OSCE missions.
Boost thetrain-and-equip program, administered by the Pentagon, to institutionalize Georgian anti-terrorist capabilities.
Help restore the territorial integrity of Georgia by maintaining dialogue with all local parties and Moscow and promote the reintegration of Abkhazia and South Ossetia, by assisting in the development of cultural autonomy models for them, as well as the return of Adjara back under Tbilisi’s full control.
The United States should acknowledge the historic role Eduard Shevardnadze played in the dissolution of the Soviet Union, while supporting the new Georgian democratic leadership. Beyond that, it should renew efforts to ensure Georgia that it can open a new page in its history by strengthening democracy, sovereignty, territorial integrity, rule of law, and economic reforms.
11-14-2003
Al Qaeda’s massive November 8 attack in Riyadh, Saudi Arabia, killed 17 and wounded over 120. This attack targeted the Saudi royal family as well as foreign presence in this kingdom, which is vital to the oil economy. It also gave a boost to the ultimate goals of Osama bin Laden: driving the “infidels” from the Land of Two Mosques and toppling the monarchy. As the result, Western oil supply is at risk.
Three devastating scenarios may endanger the flow of oil:
In any such event, oil prices are likely to skyrocket.
Terror Economics
Bin Laden and his henchmen understand well political economy of terror. They aim for maximum ripple effect: banking and insurance losses for the 9/11 attacks have exceeded $55-60 billion. Bin Laden has proclaimed that if he takes over his native land, the oil price will hit $125 a barrel, while his deputy, Ayman Al Zawahiri stated that U.S. economic targets are high on the Al Qaeda’s hit list.
In October 2002, the Limbourg, a French super-tanker, was hit by a suicide Zodiac boat in the Persian Gulf – just like USS Cole was in 2000. Four incidents of “pirates” taking over large tankers and piloting them for four hours have been reported in South East Asia. Tim Spicer, the British terrorism expert has called this a maritime equivalent of a pre-9/11 flight school. Blown up tankers can paralyze vital waterways, such as the Panama and Suez canal, or the Bosphorus Straits. A tanker full of Liquified Natural Gas (LNG) blown up at port can devastate an oil terminal in the Gulf.
Bin Laden’s engineering and managerial skills and his familiarity with his country’s infrastructure will serve him well in staging a mega -attack on the Kingdom’s oil fields. For example, a radiological weapon (dirty nuke) could paralyze vital nodes of the Gulf oil infrastructure. Such an attack may neutralize the Saudi two million barrel a day surplus oil producing capacity vital for price stability. If this occurs, gas price may hit $6 a gallon for several months, and a deep economic recession will be then triggered by expensive energy, which may be worse than the 1973 and 1979 oil embargoes. This may have devastating results to President Bush’s economic recovery strategy.
Boosting Anti-Terror Cooperation
Since May 2003, Saudi government has improved its anti-terrorism efforts. However, according to Secretary of State Colin Powell, it must do more to fight terrorism and halt funding to Al Qaeda and other terrorists. Many in Washington remain critical of the 1996 investigation of the Khobar Towers attack on U.S. soldiers, which was stalled by the Saudi Interior Ministry. In May 2003, Saudis ignored pleas for additional security before the first attack from Deputy National Security Advisor Stephnen J. Hadley and U.S. Ambassador’s Robert W. Jordan.
Oil is a highly emotional and political issue in the Middle East. In many monarchies, transparency and accountability are lacking. Opulent lifestyles of rulers are becoming unsustainable as the population explodes. Today, the Jihadi chickens are coming home to roost. It was Saudi-sponsored foundation, supervised by members of the Saudi royal family, which funded terrorism from Miami to Manila. The oil bonanza funded the largest expansion of the radical Wahhabi Islam, which bred Al Qaeda, the Taliban, Hamas and Yasir Arafat’s Al Aqsa Martyrs Brigades, which have blown up the Oslo process and the Roadmap.
Israel, however, is just a target of opportunity, a substitute for the Great Satan, which is the U.S. The “root cause” of violence against America is not the Arab-Israeli confrontation, but the ideology of Jihad, which allows the blood of the “infidels.” For the Islamists, born and bred in Arabia, however, it is also permitted to murder “apostate” rulers, such as the Saudi royal family.
What the Bush Administration Should Do
It is only the matter of time when the blow against the oil fields’ Saudi royal guardians – or the fields themselves -- may come. As the oil is endangered, the U.S. needs to prepare comprehensive energy and security responses. Specifically, it should:
The threat today is not just to America and the West, but to the very survival of the Saudi regime and its blood supply -- oil. The United States should be ready to counter it.
11-07-2003
The Kremlin’s attack on YUKOS, the major Russian oil company--including the arrest of Chairman and Chief Executive Officer Mikhail Khodorkovsky, seizure of his shares of YUKOS, and his subsequent resignation--is a watershed event in post-communist Russia. This development has negative implications on several levels, and its ripple effects are far from over. Obviously, President Vladimir Putin has been listening to those who do not care about Russian integration into the global economy and who are undermining his stated goal of doubling Russian gross domestic product by 2008.
The Kremlin’s attempt to dismantle YUKOS will have several long-range consequences:
Drying up domestic and foreign investment,
Undermining the rule of law,
Increasing the power of unelected bureaucrats from secret police and law enforcement,
Withering sources of funding to democratic parties and charities, and
Weakening civil society.
Seizing Complete Control
Through an orchestrated campaign of leaks and accusations, the Kremlin has accused Khodorkovsky of preparing for a constitutional coup by inundating the Duma with his loyalists, financially supporting opposition political parties, and harboring presidential aspirations for 2008. The Kremlin was miffed that YUKOS supported several political parties but did not support the pro-Putin United Russia party. Furthermore, Khodorkovsky was considered a part of the Yeltsin-era "crony capitalism"--a freewheeling combination of politically active billionaire "oligarchs" and Boris Yeltsin’s family members, who are now being purged. Alexander Voloshin, Yeltsin’s chief of staff, whom Putin retained until his resignation on October 30, 2003, was a political leader of the Yeltsin "family."
The St. Petersburg KGB men with whom Putin is siding ("chekists" or siloviki--men of force) and their associates from the business world differ with the Yeltsin "family" in their view of politics. While wrapping themselves in the flag and patriotic rhetoric, they do not hesitate to misuse law enforcement and the courts to achieve their goals. Their main goal is to translate power into wealth. To that end, some in the St. Petersburg faction want to chop up YUKOS.
YUKOS has become Russia’s most successful oil company. Just a month ago, it merged with Sibneft to form the world’s fourth largest oil company. It introduced Western accounting standards and management, pioneered shipping Russian oil to the U.S. market, and launched a private consortium to build a pipeline from western Siberia to the arctic port of Murmansk. It has also bought hundreds of millions of dollars worth of U.S. oil equipment. Over the years, YUKOS paid billions of dollars in taxes and gave hundreds of millions to charity. It was also the company most independent from the government, and the attack on YUKOS suggests that other companies may soon be on the chopping block.
Abuse of the Legal System
Politically well-connected businessmen, associated with government-dominated oil companies and banks, have conspired to dismantle YUKOS by bringing apparently trumped-up charges of past irregularities against YUKOS’s principal shareholders. In the 1990s, the Russian economy was plagued with lawlessness, and any consistent retroactive application of today’s law would threaten a majority of Russia’s current politicians, bureaucrats, and businesspeople with long jail terms. Such abuse of the law, however, causes irreparable damage to the Russian economy, its court system, and Western and Russian investors.
The attack on YUKOS has already done multibillion-dollar damage to the Russian stock market, causing the Moscow RTS index to plunge by over 20 percent and triggering a massive capital flight. YUKOS shares plunged 10 percent on the news of Khodorkovsky’s arrest alone. Moreover, by jailing Khodorkovsky and his partner Platon Lebedev, Putin is sending a clear signal that the Russian state can be hijacked and its legal system subverted by unscrupulous bureaucrats, businessmen, prosecutors, and law enforcement officers. The positive investment climate that Russia had enjoyed since 1998 has evaporated overnight.
What the U.S. Should Do
The Bush Administration is facing a dilemma: It wants to keep Russia as a strategic partner in the war on terrorism and an alternative source of oil. However, as Russia is moving toward the destruction of independent centers of power and increasing authoritarianism, and as the future of economic reform is at stake, decisive measures may be necessary. Specifically, the Bush Administration should:
Re-evaluate its energy dialogue with Russia until Khodorkovsky is released and an impartial investigation examines the charges. U.S. companies should not endanger their stockholders by investing in an unstable Russia.
Temporarily suspend U.S. Export-Import Bank and Overseas Private Investment Corporation financing of Russian oil and gas projects with state-owned entities, such as the oil monopoly Gazprom. This will send a signal that the state cannot abuse its power when dealing with private-sector competitors.
Issue a joint statement by the U.S. Secretaries of Commerce, Energy, and State expressing concern over the crackdown on the private sector and abuse of the legal system.
Provide U.S. government funding for democracy, free media, and rule of law projects through National Endowment for Democracy and U.S. Agency for International Development contractors--activities supported by YUKOS charities until now--and encourage private charitable giving to these programs. Support of democracy and an open society in Russia should not be allowed to die.
Conclusion
With the attack on YUKOS, the ex-KGB faction in the Kremlin has reverted to state-led repression against private capital and independent power centers. A crackdown on the independent media has been going on for three years. The U.S. should send a strong signal to President Putin that such policies may cost Moscow America’s good will and cause damage in tens of billions of dollars.
Restarting the Flow: Restoring Iraqi Oil Production
10-01-2003
The Iraqi people desperately need to have their oil flowing again to the global market. Restarting the flow of Iraqi oil would be a win-win proposition, as not only the Iraqis, but also consumers around the world would benefit from bringing the Iraqi oil supply back on line.
The main impediment to increasing Iraqi oil production at this point is lack of security--terrorist sabotage and looting. The recent attacks on pipelines and power stations are disrupting the flow of Iraqi oil and are clearly aimed at further impoverishing the Iraqis and even further disrupting their lives.
Since the end of major hostilities, saboteurs have bombed Iraqi pipelines more than eight times, causing $7 million per day in lost revenue.1 The culprits, including the remnants of Saddam Hussein’s Ba’ath party and Islamic radicals, are following the old Leninist adage, "the worse, the better." They are betting on an upsurge in resistance to the U.S. presence in Iraq if they can severely disrupt the country’s gasoline, electricity, and cooking gas supply. Saddam loyalists, local Islamist militants, and foreign jihadis who come to Iraq to fight the "infidels" believe that by escalating Iraq’s suffering they can drive the Americans back across the ocean.
It is also true that the lack of security, the scarcity of gasoline and other fuels, and the intermittent supply of electricity are impeding the post-war reconstruction. Today, Iraq is producing less than half as much oil as it pumped before the war.
Saving Iraqi Oil Production
The attacks on the oil infrastructure are part of a premeditated campaign by the remnants of Saddam’s regime and radical Islamist mujahideen organizations to stop the flow of Iraqi oil, harm the people of Iraq, and disrupt global oil markets. A secret memo dated January 23, 2003, reportedly issued by Saddam’s security services, found in Iraq after the war, and published in the London-based Saudi daily Al-Hayat, directs pro-regime elements to destroy power generating stations and the water supply.2 It is likely that Saddam supporters and other terrorists are applying the same tactics to the oil industry.
Iraq is pumping 900,000 barrels per day--considerably less than the pre-war production level of 2.2 million-2.4 million barrels per day. The target of achieving pre-war production by the end of 2003 is in jeopardy, with further increases also in question. While Halliburton subsidiary Kellog, Brown and Root (KBR) and the U.S. Army Corps of Engineers are rehabilitating the Iraqi oil infrastructure, their mandate does not include providing pipeline security.3
The Iraqi oil ministry has begun paying tribal leaders in the south to keep saboteurs and thieves away from the pipelines.4 However, in at least one case, Sheikh Hatem Al Obeidi, an influential tribal leader who was on the government payroll to prevent attacks, instead abetted sabotage and was arrested by U.S. troops.5 Without security, neither the U.S. nor the Iraqis can repair the damage caused to Iraq’s oil industry by the war or rehabilitate Iraq’s infrastructure, which had fallen into a state of grave disrepair under Saddam.6
Meanwhile, the continued attacks are hurting both the Iraqi and Western economies. The West is still suffering from relatively high oil prices, as the economic recovery remains tenuous, and the Organization of Petroleum Exporting Countries has cut production by 900,000 barrels a day.7 As a result of the drop in Iraqi oil production and the Iraqi fiscal shortfall, U.S. taxpayers will need to subsidize 50 percent of the $6 billion Iraqi budget for fiscal year (FY) 2004.
On September 7, President Bush announced that he would request $87 billion for assistance to Iraq and Afghanistan for FY 2004, with the lion’s share going to Iraq.8 A boost in oil production would remedy the Iraqi economic crisis, give the Iraqi people hope, and decrease levels of needed U.S. assistance funding.
Sabotage and Looting
The key impediments to reconstructing the Iraqi oil industry and raising its oil revenues are attacks on the 4,350-mile-long pipeline system and the 11,184-mile-long electric grid.9 The northern pipeline, which runs from Kirkuk to the Turkish port of Ceyhan, was attacked twice in June,10 twice in August, and twice again in September. After an attack on August 16, the pipeline burned for more than 48 hours. The pipeline from the giant Rumeila field in the south has also been bombed twice.
Security analysts divide these attacks into two distinct categories. The first is looting and plunder of the oil infrastructure, including fields, pumping stations, pipelines, and refineries. Organized crime is also raising its head, as demonstrated by the recent interception of a barge with 1,000 tons of stolen Iraqi oil.11 Smugglers usually ship oil to Iran, which reflags and re-exports it.
A much more serious threat, however, comes from groups opposing the U.S. and coalition presence, U.N. involvement, and the elements of Iraqi society participating in the Governing Council.
Thus far, senior U.S. officials, the Coalition Provisional Authority (CPA), and the the U.S. military have not publicly identified the main culprits in the pipeline attacks, which suggests that intelligence is insufficient.12 The ferocious terrorist bombings against personnel and the infrastructure continue.
The main threat comes from three types of groups:
Networks of the old regime operating underground, such as Ba’ath party officials, Iraqi intelligence officers, and Fedayeen Saddam militia.
Radical Sunni groups, such as the predominantly Kurdish Ansar al-Islam; Vanguard of Muhammad’s Army; and others whom President Bush has characterized as "Al-Qaeda type fighters" and who are part of the international jihad movement.13 In his September 7 address to the nation, President Bush called Iraq "the central front of the war against terrorism."14 Anti-Western fighters are crossing into Iraq from Syria and the adjacent Gulf states, including Saudi Arabia.15 Funding for their movements comes from rich individuals and foundations in these same Gulf states and from the global radical Islamic community.
Extremist Shi’a groups, affiliated with Mullah Muqtada Sadr, suspected of attacks on leading Shi’a clerics.16 As the result of the assassinations, a militia called the Badr Brigade--the armed wing of the Supreme Council for the Islamic Revolution in Iraq--was allowed to operate after attempts to ban it by the coalition. Elements of the Lebanon-based Hizballah, an organization on the U.S. terrorism list, and other radical pro-Iranian groups and agents are also present in Iraq.
Key Iraqi pipelines have been paralyzed repeatedly by terrorism. On August 13, the day Iraq started pumping oil to the Turkish port of Ceyhan, terrorists attacked the Northern Kirkuk-Ceyhan pipeline. The same pipeline was attacked again on August 30.17 The pipeline, with a throughput capacity of 1 million barrels of crude per day, was attacked four times between May and September.18 Attacks occurred near the towns of Haditha and Hawja, which are close to the largest Iraqi oil refinery at Bayji.
Iraqi oil production is also suffering from years of centralized, state-run management of the oil sector, long-term lack of investment, and inadequate technical maintenance of the oil fields under Saddam. The absence of hard currency reserves to repair and restart the oil industry is slowing production. However, no investment and expansion are possible unless the physical security of the vast Iraqi oil infrastructure can be assured.
Pipeline Security: Planning and Execution
The military component of seizing Iraq’s oil infrastructure during the war was brilliantly planned and executed. Unlike during the Gulf War, when Saddam succeeded in setting hundreds of Kuwaiti oil wells on fire, fewer than 10 wells were ignited in Iraq. U.S. and British troops seized and secured the oil fields, refineries, and pipeline infrastructure with minimal casualties and material damage. The final draft of an internal post-war report for the Joint Chiefs of Staff gave high marks for pre-war gaming and combined operations during the time of combat.
However, the post-war planning received the lowest grade, with "capabilities that fell short of expectations or needs, and need to be readdressed through new initiatives."19 CPA Administrator Paul Bremer has admitted that the U.S. forces are "stretched thin."20 Securing the oil infrastructure was an important part of post-war objectives, but the plans for post-war occupation of Iraq were not ready when the war started, and the Pentagon was forced to alter its original plan as the post-war violence escalated.21 Thus, it is not surprising that 80 percent of the damage to Iraq’s oil infrastructure occurred after the war ended.22
Five months after the war, the U.S.-led coalition force in Iraq consists of 140,000 American troops and 20,000 international troops, including one British division and one Polish-led division. They are aided by over 54,000 Iraqi security personnel, including 37,000 police, 12,000 facility guards, and 5,000 border police and civil defense corps.
On September 4, in Baghdad, Secretary of Defense Donald Rumsfeld called for putting up to 75,000-100,000 former Iraqi officers and soldiers back in uniform to protect their country and fight its enemies. He also criticized Saudi Arabia and Syria for not doing enough to seal Iraq’s borders.23
Faced with attacks on oil pipelines, the CPA is working to expand the Iraqi force charged with infrastructure protection. During this past summer, it discussed the provision of training to this security force with Kroll Associates and other private U.S. companies.24 With more international troops coming to Iraq, they can also assume responsibility for guarding the pipelines and infrastructure and training the Iraqi security forces, which will be tasked with protecting the pipelines in the future. As long as security is not restored, however, the American taxpayer will pay for this security force.
Criticism on the Hill and Beyond
Senators and Representatives, including prominent Republicans, as well as retired senior military officers have criticized the planning, numbers, and troop deployments in Iraq. Senator Richard Lugar (R-IN), chairman of the Senate Foreign Relations Committee, stressed his criticism of the planning done for post-war deployment but called on his colleagues to "rejoice" that the plan has been corrected. Representative Curt Weldon (R-PA), vice chairman of the House Armed Services Committee, expressed reservations about the planning for the war last winter.25
Senator Kay Bailey Hutchison (R-TX), Senator John McCain (R-AZ), columnist George Will, and Weekly Standard editor William Kristol--all outspoken proponents of Saddam’s removal--have criticized the Administration for post-war mishaps.26 It is less surprising that Democrats, including Senators Joseph Biden (D-DE), ranking Democrat on the Senate Foreign Relations Committee, and Jack Reed (D-RI), a West Point graduate who served with the 82nd Airborne, are also criticizing the Administration for mistakes in post-war planning and deployment.
Among senior generals critical of the post-war performance in Iraq is General Anthony Zinni, the former head of the U.S. Central Command who has extensive experience in the Middle East and serves as a consultant to the U.S. State Department.27 The most prominent proponent of a bigger Army and a greater deployment in Iraq is General Eric Shinseki, the recently retired Army Chief of Staff, who called for "several hundreds of thousands of soldiers on the ground" and warned against a "twelve division strategy for the ten division army."28
Even if the actual size of the U.S. Iraqi deployment is not increased, it has to be refocused on intelligence and training of the Iraqi forces, while the number of coalition troops from other countries must go up, according to General John Abizaid, the current head of Central Command.29 This is also the opinion of the pre-eminent British military historian, John Keegan.30 Increased intelligence collection, anti-terrorist operations, and training should become the focus of the U.S.-led force in Iraq.
Protecting Iraqi Oil Revenue
The Bush Administration has issued an executive order barring claims in U.S. courts against Iraqi oil or proceeds from it.31 It has also coordinated with other permanent U.S. Security Council members--the United Kingdom, France, China, and Russia--on the imposition of a moratorium on Iraq’s national debt.
The U.S. should further coordinate its actions with companies and sovereign claimants (states) to delay reparations for Gulf War damages and other claims. Iraq needs breathing space in order to restart its cash flow and get its oil industry up and running again.
Providing Security for the
Iraqi Oil Infrastructure
Iraq’s oil reserves are the third largest in the world after Russia and Saudi Arabia. However, only 15 of its 73 discovered giant and large fields have been developed.32 Vast parts of the country remain unexplored.
According to current estimates, the investment needed to bring Iraqi production to about 3 million barrels a day will exceed $3 billion over the next two to three years. Over the next 10 years, $35 billion-$40 billion will be needed to boost production from the current 1.2 million-1.4 million barrels per day (MBD) to the pre-1979 production level of 5-6 MBD.
Before serious reconstruction work can begin, however, the physical security of the infrastructure needs to be achieved. To this end, the Bush Administration, including the CPA, and the Iraqi Cabinet should:
Conduct an assessment of security needs to provide for infrastructure protection in conjunction with the Iraqi oil ministry. Before serious reconstruction of the oil industry can begin, the coalition and the Iraqi cabinet must be able to assure physical security of Iraqi energy infrastructure.
Increase the number of Iraqi guards as needed to provide security. However, the rank-and-file and all officers must be adequately screened to root out Saddam’s hard-core supporters and Islamic radicals.
Utilize coalition forces, especially the British, to train Iraqi security forces, including pipeline security units. British instructors have earned high marks the world over providing security and military training.
Hire an international security company to administer pipeline security and train the Iraqi security forces tasked with protecting the pipelines to complement military training.
Train the guards for the task at hand; deployment without training is self-defeating. The CPA has cut the training time for Iraqi police from 12 weeks to eight, and the quality of this force leaves much to be desired.33 Similar shortcuts in training for pipeline protection forces could lead to undesirable results.
Develop and conduct a public information campaign explaining to the Iraqis the importance of pipeline security and the resultant oil revenue. Such a campaign should emphasize the direct link between oil revenue and the provision of basic services and the growth in living standards.
Design a technological package to enhance infrastructure security, using satellite imaging, unmanned aerial vehicles/drones, video cameras, and sensors. This package would be integrated with the security provider (state or private).
Provide additional funding to repair the oil infrastructure. The rundown state of the oil infrastructure will require significant investment: up to $3 billion per year to get it up and running again. These funds can be provided on credit to the Iraqi Governing Council or the oil ministry, to be repaid from future oil revenues.
Work with the Iraqi oil ministry leadership appointed by the Coalition Provisional Authority and the Council to intensify the purge of former Ba’ath officials from the oil ministry and the oil industry.
Conclusion
Without adequate security, Iraqi oil will not reach global markets. Rebuilding the Iraqi oil sector through Western investment will not work as long as terrorists and looters are able to target technical personnel, pipelines, power lines, and other assets necessary for restarting oil production.
By liberating Iraq, the U.S. undertook an immense responsibility. Without Iraqi oil, the U.S. taxpayer will have to foot the bill for the occupation and reconstruction of Iraq. U.S. consumers will pay higher prices at the pump, and the U.S. and global economies will endure an indirect tax by paying higher energy prices. The alternative to restoring Iraqi oil production--misery for the Iraqi people and victory for the terrorists--is not an option.34
1. Radio Free Europe/Radio Liberty, "Iraq: Pipeline Fire Costing $7 Million a Day," August 18, 2003, at www.rferl.org/nca/features/2003/08/18082003075830.asp. See also Walter Rodgers, Nic Robertson, and Jason Bellini, "3 U.S. soldiers killed in ambush near Tikrit," CNN.com, September 18, 2003, at www.cnn.com/2003/WORLD/meast/09/18/sprj.irq.main. The most recent explosions occurred on September 8 and 18.
2. This document was translated by the Middle East Media Research Institute in its Special Dispatch Series No. 538, July 17, 2003. Available at http://memri.org/bin/articles.cgi?Page=archives&Area=sd&ID=SP53803
3. Energy Intelligence Group, "Oil Flows at Kirkuk as KBR Begins Damage Assessment," Eye on Iraq, May 1, 2003, at www.energyintel.com/EyeOnIraq.asp (subscription required).
4. Bassem Mroue, "Oil Ministry and U.S. Troops Take Measures to Protect Iraq’s Main Pipeline from Thieves and Saboteurs," Associated Press, July 4, 2003, at www.enn.com/news/2003-07-04/s_6207.asp.
5. "Iraq Tribal Sheikh Arrested Over Oil Blasts," Agence France-Presse, August 31, 2003, at www.ptd.net/webnews/wed/cs/Qiraq-oil-blast-sheikh.RMbd_DaU.html.
6. Energy Intelligence Group, "Oil Flows at Kirkuk as KBR Begins Damage Assessment." War damage included the bombing of the K3 pumping station at Haditha and a number of pipelines that crossed the Tigris around Tikrit.
7. John W. Schoen, "OPEC Cuts May Crimp Economy," MSNBC, September 24, 2003, at www.msnbc.com/news/
971120.asp?0sl=-23.
8. George W. Bush, "President Addresses the Nation," September 7, 2003, at www.whitehouse.gov/news/releases/2003/09/
20030907-1.html.
9. Pamela Hess, "CPA Speeding Police Training in Iraq," The Washington Times, September 2, 2003, at www.washtimes.com/
upi-breaking/20030902-012831-9370r.htm.
10. Lamia Radi, "Fires Blaze on Iraq Oil Pipeline After Twin Bomb Attacks: Residents," Agence France-Presse, June 13, 2003, at iafrica.com/news/worldnews/244870.htm.
11. Pacific Disaster Management Information Network, "Iraq Humanitarian Assistance Report," August 11, 2003, p. 3, at www.who.int/disasters/repo/10470.pdf.
12. Douglas Jehl and Dexter Filkins, "Rumsfeld Eager for More Iraqis to Keep Peace," The New York Times, September 5, 2003, at www.nytimes.com/2003/09/05/international/middleeast/05RUMS.html.
13. See also Genaro C. Armas, "Troops Called Not an Answer," Associated Press, August 25, 2003.
14. George W. Bush, "President Addresses the Nation."
15. Secretary Donald H. Rumsfeld and General John Abizaid, "DoD News Briefing," August 21, 2003, at www.defenselink.mil/
transcripts/2003, /tr20030821-secdef0604.html. See also Stephen Schwartz, "Reading Najaf," The Weekly Standard, September 3, 2003.
16. Aparisim Ghosh, "Terror at a Shrine," Time, September 8, 2003, p. 30. See also Tarek Al-Issawi, "Previously Banned Militia Patrols Iraqi Holy City, with Coalition’s Blessing," Canadian Press, September 6, 2003, at www.canada.com/news/world/story.asp?id=517B3E75-E27D-42A2-BD33-E47782C941A6. The Badr Brigade was previously disbanded by the coalition, but after the murder of Ayatollah Muhammad Bakr al-Hakim and an earlier attack on his uncle, it is now being allowed to function again.
17. "Iraqi Oil Pipeline Ablaze," News24, at www.news24.com/News24/World/Iraq/0,,2-10-1460_1409548,00.html, and "Iraq Council Makes Security Demands," MSNBC News, August 30, 2003, at www.msnbcnews.com/news/959639.asp?cp1=1.
18. "Iraqi Oil Pipeline Sabotaged," Agence France-Press, August 13, 2003; see also Joseph Logan, "Bomb, Tech Problems Hit Iraq Pipeline," Reuters, August 16, 2003, and Celcan Hacaoglu and Bruce Stanley, "Iraq Resumes Pumping Oil from Northern Oil Fields through Turkish Pipeline," Canadian Press, August 13, 2003, at www.canada.com.
19. Rowan Scarborough, "Joint Chiefs Report: U.S. Rushed Post-Saddam Planning," The Washington Times, September 3, 2003,
p. 1.
20. Armas, "Troops Called Not an Answer."
21. Ibid.
22. Bruce Stanley, "Security the Top Priority for Iraqi Oil Industry As Looting Continues," Oil and Gas Reporter, May 27, 2003, at www.oilandgasreporter.com/stories/052703/ind_20030527006.shtml.
23. Douglas Jehl and Dexter Filkins, "Rumsfeld Eager for More Iraqis to Keep Peace," The New York Times, September 5, 2003.
24. Douglas Jehl, "U.S. Considers Private Iraqi Force to Guard Sites," The New York Times, July 18, 2003, at query.nytimes.com/gst/abstract.html?res=F30C17FC3B580C7B8DDDAE0894DB404482.
25. Amy Fagan and Rowan Scarborough, "Post-Saddam Planning Failures `Unforgivable,’ Democrats Say," The Washington Times, September 4, 2003, at washingtontimes.com/national/20030903-115853-1572r.htm.
26. Sig Chrstenson, "Some Republicans Doubt Progress on Iraq," San Antonio Express-News, August 31, 2003, at
news.mysanantonio.com/story.cfm?xla=saen&xlb=180&xlc=1048090.
27. Thomas E. Ricks, "Ex-Envoy Criticizes Bush’s Postwar Policy," The Washington Post, September 4, 2003, at
www.washingtonpost.com/wp-dyn/articles/A27846-2003Sep4.html.
28. Mark Thompson and Michael Duffy, "Is the Army Stretched Too Thin?" Time, August 24, 2003, at www.time.com/time/magazine/printout/0,8816,477891,00.html.
29. Rumsfeld and Abizaid, "DoD News Briefing."
30. Jack Kelley, "Troop Strength Debate Ranging," Pittsburgh Post-Gazette, August 23, 2003, at www.post-gazette.com/pg/03235/214252.stm.
31. George W. Bush, "Executive Order Protecting the Development Fund for Iraq and Certain Other Property in Which Iraq Has an Interest," May 22, 2003, at www.whitehouse.gov/news/releases/2003/05/20030522-15.html.
32. Emma Clark, "Iraq `Needs Foreign Oil Companies,’" BBC News, July 24, 2003, at news.bbc.co.uk/2/hi/business/3075521.stm.
33. Pamela Hess, "CPA Speeding Police Training in Iraq," The Washington Times, September 3, 2003, at www.washtimes.com/
upi-breaking/20030902-012831-9370r.htm.
34. The author would like to thank William Schirano, Research Assistant in the Kathryn and Shelby Cullom Davis Institute for International Studies, and Anita Greco and Irene Gorelik, interns at The Heritage Foundation, for their assistance with researching this paper. The author also wishes to thank Heritage Foundation colleagues Peter Brookes, James Phillips, and Jack Spencer, as well as Ed Badolato, Executive Vice President of the Shaw Group, and Dr. Gal Luft, Director of the Institute for Analysis of Global Security, for discussing concepts contained herein and commenting on the paper.
09-26-2003
At the Camp David summit which started on September 25, Presidents George W. Bush and Vladimir Putin should put the recent U.S.-Russian differences over the Iraq war behind them and close ranks on rebuilding Iraq and defeating al Qaeda. The senior leadership of both countries recognize that global terrorism is a strategic threat to their countries and to the West in general, whether in New York, the Caucasus, Moscow, or Baghdad.
At his August 30 press conference in Sardinia, Italy, Putin signaled a willingness to put past differences aside and negotiate an acceptable formula for Moscow’s support of a U.N. Security Council resolution on sending U.N. peacekeepers to Iraq under U.S. command. Progress in such negotiations — and in the overall U.S.-Russian strategic relationship — will depend on the quid pro quo that the U.S. offers.
Restoring the U.S.-Russian antiterrorism alliance may also spur other major powers, such as Germany, India, and possibly Turkey, to support U.S.-led efforts to shore up security in Iraq and restore the Iraqi economy.
Improving the Balance of Interests. Two years after the September 11 attacks, disagreements over Iraq — combined with the perception of the Moscow elite that Russia has little to show for its unprecedented cooperation with Washington — have marred U.S.-Russian solidarity in the war on terrorism. This resulted in Russia’s siding with France and Germany in opposition to the U.S.-led war in Iraq. As early as the fall of 2001, high-level officials in Moscow had signaled that recognition of Russian economic interests in Iraq could secure Moscow’s support of the war, but the U.S. ignored their overtures.
Russian policymakers have also criticized the relationship as skewed against Moscow. Russia’s acquiescence in the U.S. withdrawal from the ABM Treaty, to NATO enlargement, and to the U.S. deployment of forces in the Southern Caucasus and Central Asia are often cited as examples of the United States taking advantage of Russia. There is also dissatisfaction in Moscow because Congress has not lifted the obsolete 1974 Jackson-Vanick Amendment, which continues on a symbolic level to restrict U.S. Permanent Normal Trade Relations with Russia — despite Bush administration pledges that the amendment would be repealed.
The Russian criticism that the U.S.-Russian relationship is a one-way street may have some validity. But to be fair, since September 11, the United States has taken steps toward Moscow by declaring some Chechen extremists international terrorists and by pursuing cooperation with Russian companies on ballistic-missile defense.
Some of Putin’s political allies, especially from the secret police, nuclear power, and defense circles, still harbor anti-American sentiments and insist on Russia’s "special path." This path includes building military presence and political influence in the former Soviet republics and coordinating Moscow’s policies with China and Iran, and selling arms to them.
Russian nuclear-technology transfer to Tehran is particularly dangerous and destabilizing. The new Russian overtures to Saudi Arabia are also a signal that Russia is keeping open the option of cutting a "separate deal" with the Islamic world, to attract massive investment and prevent the financing of terrorist operations on Russian soil.
While all politics are local, all foreign policy is domestic: Future Russian foreign policy will be influenced by the continuing political struggle in Moscow between the Westernizers and authoritarians.
What Should the Bush administration Do? Improving antiterrorism cooperation and pulling Russia closer to the U.S. side on Iraq may trigger competition between other powers to offer peacekeepers and support for the U.S. on Iraq, Iran, and the war on terrorism. At Camp David, President Bush should request Russian support for the U.S. draft of the U.N. resolution authorizing U.N. peacekeepers for Iraq under U.S. military command while rejecting the French demands for a hasty transfer of power to the Iraqis. Putin and Foreign Minister Igor Ivanov have signaled that Russia will support U.N. peacekeepers under U.S. command in Iraq.
Bush should also invite Russian participation in the U.N. peacekeeping force for Iraq. While Russian U.N. Ambassador Sergey Lavrov has ruled out Russian troops in Iraq, peacekeepers could provide training, emergency relief, and oil-pipeline security. Russia currently has up to 10,000 experienced peacekeepers, who adequately cooperated with American troops in Bosnia and Kosovo.
Bush should offer expansion of Russian participation in the reconstruction of Iraq. Russian companies have up to $1 billion in contracts to rebuild Iraq. The USSR constructed the Iraqi power grid, which is in need of major refurbishing. Russian oil companies have contracts to increase production in the depleted Iraqi oilfields. Doubling the value of contracts for Russian participation in the reconstruction of Iraq would provide Moscow with an incentive to cooperate.
Bush should request Russian cooperation in preventing further development of the Iranian uranium-enrichment and nuclear-weapons program. On August 26, the International Atomic Energy Agency (IAEA) announced that it had found traces of weapons-grade uranium in Iran. Russia has expressed support for intrusive inspections under the IAEA’s "additional protocol" and expects to conclude a spent-fuel repatriation agreement with Tehran. However, as Iran is threatening to follow North Korea and withdraw from the Nuclear Non-proliferation Treaty, President Bush should encourage Russia to coordinate its position with Washington and stress that a nuclear-armed Iran will pose a strategic threat to Russia.
Finally, Bush should explore further cooperation on missile defense. The president has signed a policy directive calling for missile defense cooperation with Russia, and he should use this summit to further this policy. Boeing and a major Russian military-electronics manufacturer have recently signed a contract to build a sophisticated radar for a joint missile-defense program.
The Camp David summit is a strategic opportunity to put U.S.-Russian relations back on track. If successful, Presidents Bush and Putin will contribute to achieving security and peace in Iraq and strengthening struggle against international terrorism.
09-18-2003
A US corruption case that has implicated top Azerbaijani officials is not expected to substantively alter Bush administration policy towards Baku, experts in Washington believe. At the same time, the case stands to deepen Washington’s conundrum over its short- and longer-term interests in resource-rich Azerbaijan.
An early September indictment unsealed in a New York federal court alleges that Swiss lawyer Hans Bodmer "paid bribes and authorized the payment of bribes" to four unnamed "senior officials" in Azerbaijan in a scheme to influence the privatization of the state oil company, SOCAR.
Western media, including the Financial Times, have reported that two of Azerbaijani officials involved in the scheme were President Heidar Aliyev, and his son, Ilham, who is a former deputy head of SOCAR and is currently the ruling New Azerbaijan Party’s candidate for president in the upcoming October 15 election. Azerbaijani government officials have vigorously denied that either Aliyev received illicit payments from Bodmer.
Opposition media outlets in Azerbaijan have seized on the indictment, hoping the bribery probe can boost the electoral chances of opposition presidential candidates. So far, though, the response to the case in Azerbaijan has been somewhat muted. State-run media has largely ignored news about the indictment. Meanwhile, the limited reach of opposition-controlled media hampers their ability to spread their message.
In Washington, the indictment hasn’t generated much concern over the near-term policy implications. Zeyno Baran, Director of International Security and Energy Programs at the Nixon Center and a Caucasus expert, indicated the corruption allegations cannot be considered a shocking development. "The United States knows that Azeri officials are corrupt." Indeed, the group Transparency International ranks Azerbaijan as among the most corrupt countries in the world in its 2002 Corruption Perceptions Index.
Realpolitik ensures that the Bush administration will largely maintain its current policy course. Azerbaijan has emerged as a key ally in the strategically important Caucasus region. More importantly, the country is the central player in US-backed efforts to export Caspian Basin energy via the Baku-Tbilisi-Ceyhan pipeline. Washington built a close working relationship with President Heidar Aliyev, and top Bush administration officials have sought to foster similar ties with Ilham, who is widely perceived as the likely presidential election winner.
The main consequence of the indictment could be that US-Azerbaijani relations, while remaining strong, will assume a lower profile. Some observers in Washington dub this phenomenon as "Nazarbayevization," a reference to Kazakhstani President Nursultan Nazarbayev, who is reputedly linked to an ongoing corruption probe involving New York merchant banker James Giffen. Under Nazarbayevization, US leaders effectively maintain a policy status quo while distancing themselves from a leader tainted by allegations of impropriety.
An indicator that US-Azerbaijani relations may be undergoing Nazarbayevization is that while Ilham Aliyev received a warm reception from Bush administration officials during a recent visit to Washington, both President George W. Bush and Vice President Dick Cheney refrained from meeting with the Azerbaijani heir apparent. According to a source familiar with the Bodmer investigation, the White House had advance knowledge of the pending indictment against the Swiss lawyer.
As is the case in the US corruption probe reportedly involving Nazarbayev, legal and political experts in Washington expressed doubt that prosecutors in New York would seek to reveal the identities of the bribe-taking Azerbaijani officials. David Rivkin, a former White House and Justice Department official during the former Reagan and first Bush administrations, said there was no legal basis to prosecute Azerbaijani officials for accepting illicit payments. "As they cannot be prosecuted, they should not be named," he said. "That’s why we have a category of un-indicted co-conspirators."
In general, US officials would prefer that the Bodmer case not receive wide publicity. The mere allegations of corruption have the potential to alienate Azerbaijani leaders, prompting them to downgrade US relations. Such a trend is noticeable in Kazakhstan, where Nazarbayev in recent months has taken steps to improve relations with Russia and China in what he has described as a "multi-vectored" policy.
Ultimately, the Bodmer indictment brings into sharper profile a conundrum that surrounds US policy towards Azerbaijan. Washington’s immediate interests appear to clash with its long-term preferences.
Over the near term, Bush administration officials are convinced that maintaining strong ties with the Aliyevs is in the best interests of the United States – both in strategic and economic terms. The Aliyevs are widely seen in Washington as offering the best option for the maintenance of stability in Azerbaijan in the coming months and years.
Over the longer haul, however, the Aliyevs association with corruption, which has been enhanced by the Bodmer indictment, can prove a liability for US goals. The United States remains interested to promoting the democratization of the countries of the former Soviet Union, and many American observers believe civil society, the development of which can be painstakingly slow, is the best guarantor of stability in any given country. Ongoing Bush administration support for the Aliyevs may be undermining Azerbaijan’s gradual democratization process, some policy analysts believe.
Opposition leaders in Baku have sharply criticized recent US behavior, saying that the overt Bush administration preference for Ilham Aliyev is tantamount to meddling in the election outcome. Some observers believe that such a perception could prompt the opposition to embrace confrontational methods if they feel the presidential election is rigged. Others suggest that Washington’s embrace of Ilham could encourage vote rigging by conveying the impression that the United States is not prepared to take punitive action in response to a falsified election tally.
While visiting Baku to monitor election preparations, Andreas Gross, the head of a Council of Europe Parliamentary Assembly (PACE) delegation, expressed concern about the possibility of fraud. At the same time, Gross expressed hope that authorities would take action to rectify current electoral shortcomings.
"Azerbaijan needs strong leaders and a strong president," Gross was quoted as saying by the Ekho newspaper on September 17. "However, the strength of the president lies not in his authoritarianism, but in his legitimacy. It is the legitimacy of power that makes the statesman strong."
09-17-2003
Geopolitical tectonic plates have shifted as the de-facto ruler of Saudi Arabia, Crown Prince Abdullah, completed his recent visit to Russia.
No longer sure of its prior close relationship with Washington, the Saudi monarchy is reaching out to the former empire it helped America to defeat in Afghanistan only 15 years ago.
In the aftermath of the Iraq war, Riyadh is looking to balance U.S. influence in the Persian Gulf. It also hopes to diversify its sources of weapons and signal to Washington that it keeps all geopolitical options open.
Russia is the third largest weapons exporter after U.S. and Great Britain. It leads the world in selling large weapons systems like tanks and aircraft. Its military sales topped $6 billion in 2002, according to the Stockholm-based International Peace Research Institute.
In the 1990s, Russia sold a $4 billion state-of-the-art, multi-layer air defense system to the United Arab Emirates, and would like to open the large and lucrative Saudi weapons market to its rusting but once-formidable arms industry.
The Saudis also recognize that Russia -- as the largest producer of oil outside of Organization of Petroleum Exporting Countries (OPEC) and the largest producer of natural gas -- packs a lot of punch in the global energy markets. While the U.S. is interested in diversifying its energy supply to include Russia, Saudi Arabia wants its own direct energy dialogue with Moscow.
Russian oil exports have grown 8-10 percent a year since 1998. Its increasing oil market share started to worry the Saudi kingdom. Riyadh traditionally considers itself the market-maker of energy and wants others to follow. It is also worried that the more efficient Russian private sector oil model may become contagious. The Saudi royal family would like to keep controls of the "spice."
The five-year oil-and-gas cooperation agreement signed in Moscow by the energy ministers will allow the two fuel giants to coordinate supply of oil to the global markets. Russia will not even need to join OPEC, although the U.S. State Department sources told TCS that Washington "will not be excited" if Moscow consider joining the cartel.
Moscow is driven towards a partnership with Saudi Arabia for a combination of geopolitical and geo-economic reasons. It is looking to compensate itself for the loss of influence in the Gulf with the demise of Saddam Hussein, the old Soviet client.
Russia’s traditionally warm relations with other secular Arab countries, Syria and Libya, have stagnated for years. While Damascus has no cash to pay for Russian weapons, Riyadh has plenty. And Russian energy companies, flush with cash, are looking for joint ventures in the Middle East, including in Saudi Arabia.
The desert kingdom is a perfect partner for giant natural gas development schemes under the umbrella of Prince Abdullah’s much-touted "gas initiative," which would include power generation, liquid natural gas (LNG) production for export, and gas-powered desalination.
Most importantly, though, Moscow believes that Saudis and other rich Gulf states hold the keys to the 9-year-old war in Chechnya. One of the most radical and audacious Islamist commanders in Chechnya, known by Nome-de-guerre Hattab, was a Saudi. The Russian special forces killed him after a long hunt. Another top commander, Shamil Basaev, on the U.S. Department of State terrorism list, is known to have military and financial support from the Gulf, as well as a flow of jihadi recruits.
In October of last year, the Russian security services alleged in the media that the Chechen suicide bombers who took 1,000 people hostage in a Moscow theater made phone calls to the Gulf. Their commander, they said, has negotiated to make a "snuff movie" featuring hostage executions for a rich Gulf sponsor -- for US $1 million.
The Kremlin was livid. In the last summit with President Bush in St. Petersburg in June, President Putin stressed that 15 out of 19 hijackers were Saudi. President Bush nodded in agreement. This was an intentional jab to signal to Saudi Arabia that Russia is willing to join forces with the United States in prosecuting the war against terrorism if the Saudis don’t reign the radical Chechens in.
Al Qaeda’s terrorist attacks in Riyadh, in which over 30 Saudis died, seemed to have changed the tone in the desert kingdom. Now Saudi leaders claim that they view Chechen separatism as an internal Russian affair, and that their assistance was always exclusively humanitarian. While nobody in Moscow believes that, the Putin Administration, which is facing parliamentary elections in December and presidential elections in March 2004, is hoping for drying up of financing to terrorism, and significant decrease in hostilities.
Russian-Saudi relations have known their share ups and downs. The Soviet Union was the first state to recognize the desert Kingdom of Hijaz in 1926, hoping to upset the British. In the great purge of 1937, however, Stalin recalled the Soviet Ambassador and had him shot.
Saudi Arabia paid billions of dollars and thousands of mujahideen to fight the Soviet Union in Afghanistan in the 1980s. It also crashed the oil prices down, denying Leonid Brezhnev, the Soviet General Secretary, his principal source of foreign cash. The conflict that brought Riyadh and Washington to the pinnacle of their friendship, allowed the Saudis to propagate the Wahhabi school of Islam worldwide, and hastened the demise of the Soviet Union. Saudi foundations and rich individuals have poured over $100 million to support Chechen separatism. According to George Engelhardt, a Moscow-based expert on radical Islam, the Saudis are spending up to $100 million a year to support Wahhabi indoctrination and anti-Western lobbying. This amount is likely to increase if more Saudi companies will become engaged in Russia.
Dr. Sergey Karaganov, the Chairman of the Russian Council on Foreign and Defense Policy and a consultant to the Russian government and to energy companies, was instrumental in bringing Prince Abdullah to Moscow. Karaganov says that the visit was "very productive." This means Saudi-Russian cooperation both on energy and on Chechnya.
As Moscow and Riyadh discover their newfound common agenda, and pursue cooperation, the bear-and-camel rapprochement demonstrates the old adage: countries do not have permanent friends. They only have permanent interests.
09-12-2003
The Bush Administration needs to monitor a new geopolitical shift that is taking place following the visit of de-facto ruler of Saudi Arabia, Crown Prince Abullah to Russia on September 1-2. Moscow and Riyadh, old rivals, now claim to have found a common agenda, which spans oil, terrorism, and arms sales.
Moscow wants to intercept money flowing to the Chechen rebels from the Persian Gulf, sell arms and attract Saudi investment. No longer sure of their close relationship with Washington, the Saudis are reaching out to the Russians. In the aftermath of the Iraq War, Riyadh is looking to balance U.S. influence in the Persian Gulf. The Saudis also hope to diversify their sources of imported weapons. They have signaled to Washington that they want to keep all geopolitical options open.
Weapons and Oil
Russia is the world’s third largest weapons exporter after the United States and Great Britain, with military sales topping $6 billion in 2002. In 1997, Russia sold $4 billion, SA-10 air defense system to the United Arab Emirates, and would like to open the lucrative Saudi weapons market to its formidable arms industry.
Saudis also recognize that Russia, as the largest producer of oil outside of Organization of Petroleum Exporting Countries (OPEC) and the largest producer of natural gas, packs a lot of punch in the global energy markets. Saudi Arabia, like the United States, wants its own “energy dialogue” with Moscow.
Russian oil exports grew 8-10 percent a year since 1998. The Saudis are concerned that the more efficient Russian private sector-driven oil industry development model may spread to the Middle East.
The five-year oil-and-gas cooperation agreement signed between Russian and Saudi Arabia will allow the two fuel giants to coordinate supply of oil to the global markets. Russia will not even need to join Organization of Petroleum Exporter Countries (OPEC) to do so, although the U.S. State Department sources believe that Washington “will not be exited” if Moscow considers joining the cartel.
The Kremlin Agenda
Moscow, for its part, is driven towards a partnership with Saudi Arabia for a combination of geopolitical and geo-economic reasons. It is looking to compensate itself for the loss of influence in the Gulf with the demise of Saddam Hussein, the old Soviet client.
Russia’s traditional influence and markets in secular Arab countries: Iraq, Syria and Libya, have been in decline.
Russian energy companies, flush with cash, are looking for joint ventures in the Middle East, including in Saudi Arabia, while Saudis may invest in the Russian natural resources sector, including energy, in real estate and aerospace. The desert kingdom is a perfect partner for giant natural gas development schemes under the umbrella of Prince Abdullah’s “gas initiative” that includes power generation, liquid natural gas (LNG) export facilities, and gas-powered desalination of seawater.
The Chechen Connection
Most importantly, though, Moscow believes that Saudis and other rich Gulf states keep the keys to the 9-year-old war in Chechnya. One audacious Islamist commander in Chechnya, now dead, Hattab, was a Saudi. Another top commander, Shamil Basaev, on the U.S. Department of State terrorism list, receives financial support and a flow of jihadi recruits from the Gulf. Saudi foundations and rich individuals have out poured over $100 million to support Chechen separatism between 1997-1999 alone, according to a State Department official who requested anonymity. Radical Chechen leaders, such as Movladi Udugov and Zelimkhan Yandarbiev, found asylum in Saudi Arabia.
However, Al Qaeda’s May 12 terrorist attacks in Riyadh, in which over 35 people died, seemed to change the tone. The Putin Administration is now hoping to stem the financing, and decrease hostilities in and around Chechnya.
Russian-Saudi relations knew its ups and downs. The kingdom paid billions of dollars and sent thousands of moujahedeen to fight the Soviet Union in Afghanistan in the 1980s. It also crashed the oil prices down, denying the USSR its principal source of foreign cash. That conflict has provided the Saudis with U.S. acquiescence to spreading the Salafi (Wahhabi) school of radical Islam worldwide.
What to do
The Bush Administration should be aware that Russian-Saudi rapprochement may affect U.S. energy security and may diminish Russia’s enthusiasm in support of U.S. war on terrorism. If successful, these ties may lessen U.S. clout in the Middle East and boost Moscow’s impact.
The National Security Council should instruct the U.S. Department of State and the intelligence community to monitor and analyze the possible new developments between Moscow and Riyadh, including:
As Moscow and Riyadh discover their newfound common agenda, and pursue cooperation, the Bush Administration should remember the old adage: countries do not have permanent friends. They only have permanent interests.
09-10-2003
Geopolitical tectonic plates have shifted as the de-facto ruler of Saudi Arabia, Crown Prince Abullah completed his visit to Russia last week. Oil-exporting Caspian states should watch with concern how the two largest energy producers are beginning their elephantine dance. In the process, smaller oil exporters on Russia’s periphery, such as Kazakhstan and Azerbaijan, may suffer if collusion between the major players results in pressure to limit oil production in order to keep global supply down.
BACKGROUND: The apparent rapprochement between Russia and Saudi Arabia during Crown Prince Abdullah’s visit to Moscow is likely to have large implications for global energy markets, and especially for Caspian producers. There are significant forces which push Saudi Arabia and Russia into each other’s embrace. Oil, weapons and geopolitics drive their newly found common agenda. Moscow, on its part, is driven towards a partnership with Saudi Arabia for a combination of geopolitical and geo-economic reasons. It is looking to compensate itself for the loss of influence in the Gulf with the demise of Saddam Hussein, the old Soviet client. Russian companies connected to Moscow high-flying insiders used to do brisk business – up to $1 billion a year -- in Iraqi oil under the U.N.-sponsored oil-for-food programs. Most importantly, though, Moscow believes that Saudis and other rich Gulf states keep the keys to the 9-year-old war in Chechnya.
One of the most radical and audacious Islamist commanders in Chechnya, known by Nom de guerre Khattab, was a Saudi. The Russian special forces killed him after a long hunt. Another top commander, Shamil Basaev, on the U.S. Department of State terrorism list, is known to have military and financial support from the Gulf, as well as a number of foreign Jihadi recruits.
Moscow has consistently blamed Saudi Arabia for sponsoring extremism and terrorism in Chechnya and, thereby, keeping the conflict alive. During the horrific hostage taking in October of last year, the Russian security services alleged in the media that the Chechen suicide bombers who took 1,000 people hostage in a Moscow theater made phone calls to the Gulf. The Kremlin was livid. In the last summit with President Bush in St. Petersburg in June, President Putin stressed that 15 out of 19 hijackers were Saudi. President Bush nodded in agreement. This was an intentional jab to signal to Saudi Arabia that Russia is willing to join forces with the United States in prosecuting the war against terrorism if the Saudis don’t reign the radical Chechens in.
Al Qaeda’s terrorist attacks in Riyadh, in which over 30 Saudis died, seemed to have change the tone in the desert kingdom. Now Saudi leaders claim that they view Chechen separatism as an internal Russian affair, and that their assistance was always exclusively humanitarian. While nobody in Moscow believes that, the Putin Administration, which is facing parliamentary elections in December and presidential elections in March 2004, is hoping for drying up of financing to the Chechen rebels, and thereby achieve a significant decrease in hostilities.
Putin also wants Saudi Arabia to assist Russia to join Organization of Islamic Conference (OIC), as an observer. The OIC is an assembly of such Muslim stalwarts as Iran, Indonesia, and Saudi Arabia, and the Russian foreign policy establishment believes that an open channel of communication to these countries after 9/11 is in Russia’s national interest.
Saudi Arabia, meanwhile, recognizes that Russia, as the largest producer of oil, the second largest exporter of oil, as well the largest producer of natural gas outside of the Organization of Petroleum Exporting Countries (OPEC), packs a lot of punch in the global energy markets.
While the U.S. is interested in diversifying its energy supply to include Russia, Kazakhstan and Azerbaijan, Saudi Arabia wants its own direct energy dialogue with Moscow. And, as this author’s experience with Gulf oil industry experts demonstrates, Gulf States traditionally viewed the Caspian states, with their ample oil reserves and free of restraints of the Organization of Petroleum Exporter Countries (OPEC), as potential competitors to their cheap, but politically unstable, oil.
Russian oil exports have grown at a rate of 8-10 percent a year since the financial crisis of 1998. Its increasing oil market share has in recent years begun to worry the Saudi monarchy, which saw signs of Moscow emerging as a rival on the horizon. Riyadh has traditionally considered itself the market-maker of energy and wants others to follow – and wants to keep it that way.
IMPLICATIONS: The five-year oil-and-gas cooperation agreement signed in Moscow by the two energy ministers, Igor Yusufov and Ali al Naimi, will allow the two fuel giants to coordinate the supply of oil to the global markets. This will doubtless help them keep the oil price at a level desirable to both. But in addition to obvious mutual interests in the energy sector, there are reasons beyond influence in energy markets, which drive the Russo-Saudi relations.
No longer sure of its prior close relationship with Washington, the Saudi monarchy is reaching out to the former empire it helped America to defeat in Afghanistan only 15 years ago. In the aftermath of the Iraq war, Riyadh is looking to balance U.S. influence in the Persian Gulf. It also hopes to diversify its sources of weapons, and signals to Washington that it keeps all geopolitical options open.
Russia, the world’s third largest weapons exporter after the U.S. and Great Britain, leads the word in the number of large weapons systems, like tanks and aircraft, sold. Its military sales topped $6 billion in 2002, according to the Stockholm-based International Peace Research Institute. In the 1990s, Russia sold $4 billion worth of state-of-the-art multi-layer air defense systems to the United Arab Emirates, and would like to open the large and lucrative Saudi weapons market to its rusting, but once-formidable arms industry.
CONCLUSIONS: Russia’s improved ties with Saudi Arabia and other Islamic states will give Moscow ever-increasing freedom of maneuver in the Caucasus and Central Asia. If the Islamic world mutes its criticism of Moscow’s policy in Chechnya, some in the Kremlin may interpret it as an implicit green light to neo-imperial behavior in the former imperial space. Dr. Sergey Karaganov, the Chairman of the Russian Council on Foreign and Defense Policy, and a consultant to the Russian government, was instrumental in bringing Prince Abdullah to Moscow. Karaganov says that the visit was “very productive”. This means Saudi-Russian cooperation both on energy and on Chechnya.
Karaganov, however, is known as an advocate of a more robust Russian policies toward Georgia and Azerbaijan. His buoyancy on the Saudi-Russian ties may indicate a “new thinking” in the Kremlin: to make Russia indispensable to the U.S., Iran, as well as to Saudi Arabia, and in turn demanding their acquiescence to Russia’s assertive policies in the “near abroad.”
07-14-2003
The September 11 terrorist attack taught the United States government a painful lesson — it must be alert to emerging threats, including terrorism against its military assets, citizens and allies. Some of these emerging threats, combined with the actions of terrorist Jihadi organizations, such as al Qaeda, may also generate political instability in key geographic areas and threaten pro-American regimes, such as in Central Asia.
U.S. government should be taking a close look at Hizb ut-Tahrir al-Islami (Islamic Party of Liberation). A clandestine, cadre-operated, global radical Sunni political organization that operates in 40 countries around the world, with headquarters apparently in London, Hizb was in the headlines recently, when Germany banned its activities and Russian Federal Security Service (FSB) arrested 55 alleged members and over 60 "supporters."
Is Hizb ut-Tahrir an emerging threat to American interests in Central and South Asia and the Middle East? Analysts note the increasingly militant rhetoric, participation of Hizb fighters in the coups in the Arab world and on the side of the Taliban in Afghanistan, and explosives and weapons found when Hizb members are arrested.
Hizb’s proclaimed goal is Jihad against America and the overthrow of existing political regimes and their replacement with a Califate (Khilafah in Arabic), a theocratic dictatorship based on the Sharia (religious Islamic law). The model for Hizb is the "righteous" Califate, an Islamic state that existed in the seventh and eighth centuries under the Prophet Mohammed and his first four successors, known as the "righteous Califs."
Hizbut-Tahrir’s spread around the globe over the last five decades, in Western Europe and often in authoritarian states with strong secret police organizations, is an impressive feat of beating security. It could only be accomplished by applying 20th century totalitarian political "technology" melded with Islamic notions of the seventh and eighth centuries, as interpreted by medieval Islamic scholars. Only a cell commander knows the next level of leadership, ensuring operational security. "Representatives" in Great Britain and Pakistan claim to speak for the organization, but have no official address or legal office. Its leadership for large regions (e.g., the former Soviet Union), countries, and local areas is kept secret. The achievement of Hizb founder Tariquddin an-Nabhani was marrying Orthodox Islamist ideology to Leninist strategy and tactics.
Hizb ut-Tahrir is a totalitarian organization, akin to a disciplined, Marxist-Leninist party, in which internal dissent is neither encouraged nor tolerated. Because its goal is global revolution, Hizb is similar to the Trotskyite wing of the international communist movement. Its candidate members become well-versed in party literature during a two-year indoctrination course in a study circle, supervised by a party member. Women are organized in cells supervised by a woman cadre or a male relative. When a critical mass of cells is achieved, according to its doctrine, Hizb may move to take over a country to establish the Califate. Such a takeover would likely be bloody and violent. Moreover, its strategy and tactics show that, while the party is currently circumspect in preaching violence, it is already justifying its use — just as Lenin and the Bolsheviks did — when "circumstances" dictate that.
Hizb’s platform and action fits in with "Islamist globalization" — an alternative mode of globalization based on radical Islam. This ideology poses a direct challenge to the Western model of a secular, market-driven, tolerant, multicultural globalization. Where radicalization has taken hold in the Islamic world, Hizb gains new supporters in droves.
Hizb’s primary characteristics include the fiery rhetoric of Jihad, the murky funding sources, rejection of existing political regimes, and shared outlook and goals with al Qaeda and other organizations of the global jihadi movement.
Hizb has called for a Jihad against the U.S., its allies, and moderate Muslim states. Hizb claimed that the U.S. accused Osama bin Laden of being responsible for the September 11 attacks "without any evidence or proof." The party attempted to use its influence by calling upon all Muslim governments to reject the U.S. appeal for cooperation in the war against terrorism.
To prevent Hizb ut-Tahrir from destabilizing Central Asia and other areas, the Bush administration may pursue a number of policy options. U.S. is considering expanding intelligence collection on the organization. This is likely to be done both in Western Europe and in outlying areas, such as Central Asia, Pakistan and Indonesia. A recent visit to Washington of the German Interior Minister Otto Schile may be a step in this direction.
Washington is also getting irritated with the glacial pace of economic reform in Central Asia, particularly in Uzbekistan. U.S. may condition security assistance to Central Asia on economic reform. Hizb is growing in Central Asia due to the "revolution of diminishing expectations," increasing despair, and the lack of secular political space and economic opportunity in the region.
To jump-start economic development, the Bush administration may condition security assistance provided by the Pentagon on the adoption of free market policies, strengthening property rights and the rule of law, encouraging transparency, and fighting corruption.
U.S. will further encourage democracy and popular participation. The scarcity of secular and moderate Islamic democratic politics and credible nongovernmental organization (NGO) activities and the lack of freedom of expression may be driving thousands of young recruits to join Hizb in Central Asia.
U.S. will expand cooperation with moderate and secular governments in the Muslim world to discredit radicals and encourage moderates. The U.S. should encourage local governments to not only crack down on radical Islam (as they already do), but also encourage alternatives.
The United States has important national security interests at stake in Central Asia, Indonesia and Pakistan, including access to the military bases used to support operations in Afghanistan, preventing the proliferation of weapons of mass destruction and technologies for their production, and securing access to natural resources, including oil and gas. A Hizb takeover of any key state could provide the global radical Islamist movement with a geographic base and access to the expertise and technology to manufacture weapons of mass destruction. The U.S. and its allies will do everything possible to avoid such an outcome.
07-02-2003
In the aftermath of the Iraqi war, leaders and countries in the Caspian littoral are competing to obtain maximum geopolitical and economic advantage by attracting investors through lower bureaucratic barriers and reduced political risk. The Iraq war has generated rethinking on the part of regional governments, who now have to adapt to a more competitive situation. Iran’s stance is still ambiguous with contradicting hard and soft lines, while some Balkan operators are beginning to involve in the pipeline discussion.
BACKGROUND: The Iraq war has raised concerns regarding the political environment and profitability of Caspian oil, with some arguing that it fundamentally changes the situation there. Fear are that large multinational companies will shift resources for Iraqi exploration, thus slowing down Caspian development and transit projects, and delaying the flow of the Caspian oil to the international markets. Question that arise are what role the U.S. is planning to play in the region in view of continuing instability in Iraq, while the Iranian regime is pursuing development of weapons of mass destruction and may be coming under increasing U.S. pressure to stop its nuclear program? These concerns, among other, reverberated through a number of conferences which took place in Turkey recently.
On the one hand, Iran’s stance is, at least outwardly, moderating. Mehdi Safari, Iranian Deputy Minister of Foreign Affairs, expressed a relatively moderate position on the Caspian boundary delineation issue, putting his country’s claims in the context of international law. While Iranians have in the past demanded an equal share of all Caspian oil, today their claims are being scaled down. Iranian representatives also made a pitch to become a transit country for abundant Kazakhstani oil through a proposed North-South oil pipeline – a suggestion supported by a number of participants, from the French TotalFinaElf, to a small Georgian company which currently specializes in rail transport of Kazakh oil to Iran. However, in less official settings Iranian contradict their message with accusations and claims against the U.S. The Iranian rhetoric, articulated among other by senior officials of the Energy Ministry, stick out as a sore thumb in a generally cooperative atmosphere, justifying suicide bombers and claiming that U.S. policy is ruled by a two percent minority of the population, which includes the international Zionist conspiracy and arms manufacturers. Iranian officials’ statements that Bin Laden is a tool of American intelligence agencies have not helped, either. French and Russian sympathy for the Iranian views are also a problematic element.
Meanwhile, Kazakhstan is stepping up efforts to work with TotalFinaElf, Phillips and ENI to develop a pipeline which will allow the export of oil from the giant Kashagan field to the CPC pipeline, as noted by Uzakbay Karabalin, president of the government-owned KazMunaiGaz. A trunk to Baku-Tbilisi-Ceyhan (BTC) is also under consideration. Kazakhs representatives have, however, warned that a decline in Western investments could force Kazakhstan to “turn to the East”, giving a priority to a pipeline to China. It may also increase oil swaps with Iran, already underway.
While BP is moving aggressively to finalize the construction plans for BTC pipeline, the Balkan countries and Ukraine are only beginning to lay down the framework for transit pipelines which will bypass the congested Bosphorus straits. Presentations of the Burgas-Vlore (Albania) pipeline by Albanian-Macedonian-Bulgarian (AMBO) corporation, which claimed to offer at some future point a considerably cheaper transit price due to the ability of the deep water port in Vlore to accommodate large tankers, have caused some interest. So has a Romanian scheme called Constanta-Pancevo-Omisalj-Trieste to build a pipeline via Romania, Yugoslavia and Croatia, presented by Andrei Razvan Grigorescu, Romanian Secretary of State.
Dr. Mejid Kerimov, Minister of energy of Azerbaijan, in the concluding keynote speech focused on expanding natural gas exports to already gas-inundated Turkey, which currently receives gas from Russia and Iran. The Shah-Deniz giant field, one of the largest in Eurasia, is planned to supply 6.6 billion cubic meters. A Shah Deniz-Erzurum pipeline with its 14 wells will be constructed with financing of $3.2 billion, good part of it coming from the European Bank for Reconstruction and Development.
IMPLICATIONS: Policy makers and oil companies in the region are concerned that the opening of Iraq to new oil and gas development will make the investment climate and geopolitical reality for pipeline transit more competitive, possibly taking a bite at profitability and available financing. U.S. policy is grounded on the goal of helping the Caspian countries use their oil resources to develop their economies and societies; that is a long-term strategy that will not change because of Iraq. A senior U.S. diplomat, however, has recently called on Caspian countries to liberalize their economies and fight corruption, warning that unless that takes place, the flow of Western investment may diminish.
Private investors and financing institutions face political risks, such as a potential flare-up of Nagorno-Karabakh or other local conflicts, but they clearly have sufficient comfort that projects such as the Baku-Ceyhan pipeline will not be disturbed. On the other hand, there is no question that Iraq will compete with the Caspian for western financial resources. The U.S. policy is likely to increasingly focus on encouraging Caspian governments to develop a more favorable investment climate. But oil companies view projects such as AIOC and BTC as designed with a long time horizon, which includes price scenarios far below the current levels.
Financing for the BTC pipeline has been delayed by about three months. According to some observers, this is time well spent as it has been used by the developers to ensure that the project meets the most stringent environmental and social standards. International Financial Institutions now seem more than comfortable with these aspects of the project.
CONCLUSIONS: The Iraq war and its aftermath is changing the geopolitical and geo-economic outlook in Iran, Turkey, Russia and the Caspian states. Interviews with officials and experts from the region indicated that policy adjustments are taking place across the region to integrate into the new reality. The new post-war environment is characterized by the need for greater competitiveness for oil and gas projects in terms of both profitability and available financing. Another elements is the need to make both green field extraction projects and pipelines more attractive for foreign investors through deregulation and lower tariff and taxation regimes. Most importantly, however, there has been a change in the regional thinking on U.S. policy. In fact, an understanding that American power is here to stay in the region for the foreseeable future has developed into a consensus in recent months.
06-23-2003
While student demonstrations continue growing in Iran, Tehran is relentless in defiance of the Great Satan -- America. The mullahs are betting on a blend of nationalism and military technology that will secure the regime’s survival. Nuclear weapons and missiles technology from Russia, North Korea, and Pakistan are supposed to shore up the 24 year old Shari’a rule and protect it from a U.S.-led regime-change operation. However, Tehran is coming under geopolitical pressure from the increased U.S. presence in the Persian Gulf and Iraq. As such, the hard-liners may be miscalculating: American technological superiority in military and intelligence fields, and the spread of global communications may be the trends that will overpower the Islamic regime in the near future.
In a recent conversation at an energy conference in Istanbul, Turkey, a senior Iranian official offered this author no excuses for the Iranian support of Hizbollah, the Lebanon-based radical Muslim movement. Moreover, the Iranian claimed that U.S. has supported Al Qaeda, and that Usama bin Laden is a tool of American intelligence services. "The U.S.", the Iranian official said, "went to war in Iraq for oil... America is run by a small, two percent minority of arms merchants and Zionists," the official claimed. Ironically, two representatives of TotalFinaElf, a French oil company, and a Russian journalist, also present, mostly agreed with the Iranian.
Despite this, the tone of official Iranian statements has been changing. U.S. technological superiority and proliferation of satellite TV and radio broadcasts beamed into Iran are scaring decision-makers in Tehran. In an interview to the national news agency IRNA on May 1, Foreign Minister Kamal Kharrazi announced that Teheran wants to promote a regional defense system in the Caucasus, to include all three Caucasian countries, as well as Iran, Russia and Turkey. Kharrazi further declared that "the Caucasus is an integral part of Iran’s national interests."
On Saturday, May 10, M. Javad Zarif, Iranian Ambassador to the United Nations, in an op-ed in The New York Times ("A Neighbor’s Vision of the New Iraq") revived the mid-1980s idea of a regional security and cooperation framework for the Gulf. The idea, later endorsed by the U.N. Security Council resolution brought the 1980-1988 Iran-Iraq war to the end, but the regional security provisions foundered. If implemented, Zarif argued, the region would be spared the Iraqi invasion of Kuwait, a decade of sanctions, and the second Gulf War.
What is this newly found Iranian penchant for regional security? It is a part of a new defensive strategy most comprehensively outlined in a recent interview by the Iranian Defense Minister Ali Shamkhani to the conservative Iranian newspaper Siaset-e Rouz.
The Iranian Defense Minister called the current period a "turning point" in the Middle East. After the 1979 victory of the Islamic revolution, Iran came under a broad spectrum of threats, including espionage, terrorism, low intensity conflict, and outright conventional attack by Iraq. Some threats, Shamkhani said, had domestic roots, such as left-wing movements which came to oppose the Islamic Republic, while others had "regional" causes, such as Iraqi and Saudi hostility. Iran views the U.S., which supported Saddam Hussein in his attack against Iran, as the main hostile superpower over the last two decades.
The strategic answer of Iran to this array of threats was to create a "deterrent defense", which does not mean Iran will take offensive measures, Shamkhani said, in a language eerily reminding of mutually assured destruction rhetoric of the 1950s Cold War between the U.S. and the Soviet Union. "We are in struggle to sustain the enemy’s first strike. The first strike will not lead to surrender, but it should be seen as a warning… If there is the capability to sustain a first strike, there is a basis for Iranian second strike against the threats. Thus, Iran’s objectives are of a defensive nature… Defensive deterrence causes the enemy to relinquish the threats. Because under such circumstances every country must take into consideration the risk it runs if it takes offensive measures against Iran," Shamkhani said. The Defense Minister’s rhetoric indicates that Iran already possesses or is close to obtaining nuclear weapons and it is betting its future on building and maintaining a nuclear arsenal.
Shamkhani was proud of the Iranian policy of self-reliance, which boosted conventional military-industrial capabilities. Today Iran is manufacturing helicopters, submarines, warships and Shihab missiles. The Iranian Defense Minister, however, did not expand on the nuclear program the Bush administration believes Tehran is pursuing.
Secretary of Energy Spencer Abraham stated in Moscow on August 1, 2002, that Iran is aggressively pursuing nuclear weapons as well as other weapons of mass destruction. On February 9, 2003, Iranian President Mohammad Khatami announced that Iran was mining its own uranium and would process its own spent fuel, raising concerns of a robust Iranian nuclear weapons program.
Last December 13, CNN published commercial satellite imagery of two secret Iranian uranium enrichment installations in Arak and Natanz. State Department spokesman Richard Boucher stated that "Iran is actively working to develop nuclear weapons capability" and declared, in the CNN interview on December 13, that Iran’s energy needs do not justify these nuclear facilities. Moreover, Boucher said that Iran flares more natural gas annually than the equivalent energy its future reactor could produce. Thus, the alleged power-generation applications of the$800-million Bushehr nuclear plant and the two follow-up nuclear reactors seem neither economically justified nor truthful.
According to U.S. intelligence and defense officials quoted in The New York Times on December 16, Iran is actively working on a nuclear weapons program -- with Russian help -- and like North Korea, Iran seems to be pursuing both enriched uranium and plutonium options for its nuclear weapons.
In an interview with CNN’s Christiane Amanpour, International Atomic Energy Agency (IAEA) Chairman Mohammed ElBaradei said late last year that the alleged uranium enrichment plant could produce highly enriched uranium for nuclear bombs and the heavy water plant could be used in the production of weapons-grade plutonium. Most recently, ElBaradei said that Iran has violated the IAEA regime by hiding Chinese-supplied uranium. Moreover, Iranians paid for lessons from North Korean experts on how to hide from international inspectors, Korean newspapers reported.
Henry Sokolski, former Deputy for Nonproliferation Policy at the Department of Defense during the first Bush administration, suggested at an American Enterprise Institute panel that IAEA safety measures are not sufficient to prevent Iran from building nuclear weapons.
Iranian rhetoric about collective security while apparently building nuclear weapons and a ballistic missile arsenal indicates that the supreme leadership in Tehran has analyzed "correlation of forces" and understands futility of frontal confrontation with Washington. Tehran is also trying to split Europe and the United States by promising Europeans lucrative energy deals.
Unlike North Korea, which is escalating both rhetoric and posture, Iran is playing for time while keeping a low profile. Its trump card is operational nuclear weapons deployed on ballistic missiles. Washington, however, understands that a combination of military, intelligence and mass communication technological superiority may bring the Iranian regime down. If not, a nuclear-armed, terrorism-exporting Iran may drop collective security rhetoric overnight.
05-23-2003
Al Qaeda’s recent attacks in Riyadh, Saudi Arabia, and the closure of the U.S. Embassy there, have exposed the weaknesses of the kingdom’s security apparatus. These developments also further one of Osama bin Laden’s goals — to drive the "infidels" from the "Land of the Two Mosques" and topple the monarchy.
Clearly, the global economy and the United States are at risk. If the Saudi regime falters, if the kingdom’s vast oil infrastructure is damaged, or if a prolonged civil war erupts, oil prices are likely to skyrocket.
A deep economic recession would be triggered by the high cost of energy, with devastating consequences, particularly in an election season. The United States must draw the obvious conclusions and take precautions, and it has to act now.
Thus far, Saudi security cooperation has been unimpressive. The FBI investigation of the 1996 Khobar Towers attack by Iranian-sponsored Hezbollah, which killed 19 U.S. servicemen, was stalled by the Saudi Interior Ministry, requiring multiple interventions by then-FBI Director Louis Freeh and phone calls from President George H.W. Bush to Crown Prince Abdallah. This time, U.S Deputy National Security Adviser Stephen J. Hadley’s and U.S. Ambassador Robert W. Jordan’s desperate pleas for extra security went unheeded, as was reported in the media. This must change.
Oil is a highly emotional and political issue in the Middle East. In many monarchies, state budgets are opaque, and the population often has no idea how the petrodollars are spent. The opulent — and sometimes distinctly "un-Islamic" — lifestyles of the rulers are becoming increasingly unsustainable as the populations explode. It is not just the welfare economics of the Middle Eastern oil-producing states, but their demographics, corruption, incompetence and democratic deficit that are undermining the regimes’ legitimacy. And there is more.
The oil bonanza funded the worldwide export of radical Wahhabi Islam, the ideological breeding ground of al Qaeda and the Taliban, over the last three decades. Government-sponsored foundations, supervised by members of the Saudi royal family, fueled Jihad from New York to Kabul, and from Miami to Manila, by funding brainwashing for violence in Wahhabi academies (madrassahs), and terrorism training under the guise of charity.
Hamas and Yasser Arafat’s Al Aqsa Martyrs Brigades, which undermined the Oslo process and now are busily blowing the roadmap to bits with their weapon of choice — brainwashed Palestinian suicide bombers — are partially funded through Saudi telethons and hailed by preachers in Saudi government-supported mosques worldwide.
The "root cause" of violence against the United States is not the Arab-Israeli conflict, but the ideology of jihad against the West, which exhorts the "faithful" to shed the blood of "infidels." Israel is just a target of opportunity, a substitute for the Great Satan. For Islamist radicals, born and bred in Arabia, however, it is also quite permissible to murder "apostate" rulers, including the Saudi royal family. Hence the attacks in Riyadh. The jihad chickens have come home to roost.
Bin Laden understands both economics and the politics of terrorism. He has proclaimed that if he takes over his native land, he will drive oil to $125 a barrel, while his deputy, Ayman al Zawahiri, stated that U.S. economic targets are high on al Qaeda’s hit list. In October 2002, the Limbourg, a French super-tanker, was hit by a suicide Zodiac boat in the Persian Gulf — just as the USS Cole was in 2000. And bin Laden’s engineering and managerial skills can conceivably suffice to stage a super-attack on the kingdom’s oil infrastructure, one that could neutralize Saudi Arabia’s 2 million barrel a day surplus oil producing capacity, vital for price stability.
The sand in the hourglass is running out for U.S. energy security in the Persian Gulf. Bin Laden is riding high, claiming successes in striking at the heart of the "infidels" in the United States; taking credit for the announced withdrawal of U.S. troops from Saudi bases; and now, shutting down the embassy. His allies are striking almost daily from Morocco to Jerusalem. It is only a matter of time before a blow comes against the oil fields — or their Saudi royal guardians.
As Saudi oil is endangered, the United States needs to prepare comprehensive military and energy responses. It is important to diversify the U.S. supply, bringing more oil from such sources as West Africa and Eurasia. The energy basket must be more diverse, and should include more domestic oil and gas, coal, liquid natural gas and renewables.
It is vital to "get Iraq right." Iraq has reserves second only to those of Saudi Arabia — and a great need to rebuild after Saddam’s misrule and three wars. It needs law and order, and rapid economic reform, including privatization and attraction of foreign investment. Securing Iraq must also include deterring Iran from destabilizing it.
The U.S. military must have contingency plans to rapidly secure the Persian Gulf oil infrastructure if al Qaeda attempts to severely disrupt it. Top U.S. policy-makers must ensure that the intelligence community and law enforcement agencies receive full cooperation from their Saudi colleagues in tracking down terrorist organizations, their financiers and supporters.
Saudi Arabia must become a force for peace in the Middle East, cutting funding to any and all jihad organizations around the world. Most importantly, the kingdom must dismantle its homegrown jihad infrastructure, with its anti-American clergy, anti-Western academies and hostile state-run media. This apparatus breeds terror, a terror that today threatens not just the United States and the West, but the very survival of the Saudi regime and its very blood — oil. President Bush said that Saudi Arabia is a friend. Friends don’t let friends commit suicide through terrorism.
04-01-2003
The Bush Administration has accused Moscow of selling sensitive military equipment to Saddam Hussein in violation of U.N. Security Council sanctions. During a March 24th telephone conversation, President George W. Bush discussed the sales of night vision goggles, anti-tank Kornet missiles, and Global Positioning System (GPS) jamming equipment with Russian President Vladimir Putin. All information regarding Russian sales was based on U.S. intelligence reports.
Putin not only denied sales to Iraq, but also went on to accuse the U.S. of selling deadly military equipment to countries that may support international terrorism. The Associated Press and other media reports described the exchange as “tense.” These accusations are just a symptom of the state of U.S.-Russian relations, which have been deteriorating since Moscow sided with Paris in the U.N. Security Council, opposing a resolution that would have authorized use of force to disarm Saddam.
Secretary of State Colin Powell and his Russian counterpart, Igor Ivanov, also exchanged tough words, but stated that both countries have a broader agenda to pursue. Before the matter became public, U.S. officials repeatedly raised the issue with their Russian colleagues, who typically stonewalled, often with the most ridiculous explanations. In some cases, they claimed that the company in question did not exist.
There was little new in the fact that Russian companies were accused of selling high tech equipment to Iraq. FOX News reports, coming as early as January 2003, indicated that Russia had sold GPS jammers, and that Saddam would use the civilian casualties, which could mount as a result of stray bombs or missiles, for his own propaganda purposes. And, according to Paul J. Saunders and Nikolas K. Gvosdev, writing In the National Interest, a Kuwaiti newspaper disclosed a sale of this type by the Russian military equipment company Aviakonversiya as far back as 2000. Night goggles, which are readily available for sale in Russia, are even more dangerous, as they give the Iraqi military the ability to operate at night.
U.S. officials are careful to point out that they do not view the sales under dispute as officially authorized by the Russian government. The question is, did the Kremlin give the sale a wink and a nod, or just shut its eyes and look elsewhere?
As the U.S. provided the Russian authorities with names, addresses, telephone numbers and even shipping details, and went to a great lengths to declassify its intelligence information in a good-faith effort to gain Russian cooperation to stop the sales, the Kremlin cannot feign surprise.
The dispute highlights the bag of tricks military hardware companies and the Iraqi government use to acquire forbidden technology and circumvent the U.N. sanctions. According to the Los Angeles Times, by exporting “components” --not finished goods -- and their assembly in Iraq, Aviankonversia President Oleg Antonov claimed, his company circumvented both the U.N. sanctions and Russian government regulations. If this is the case with Iraq, what about Iran, North Korea, or even terrorist organizations, which may be interested in military systems from the former Soviet Union or even Western Europe?
The case demonstrates how a Russian company can be penny-wise (the whole transaction, which involved six GPS jammers was under $500,000) but the Russian state can become pound-foolish, losing the goodwill of the U.S. government, which could translate into in the loss of billions of dollars in Overseas Private Investment Corporation (OPIC) and Export-Import (ExIm) bank credits.
This flap over arms sales demonstrates how fragile the relationship between Moscow and Washington has really become after Moscow sided with Paris, Berlin, and most of the Arab world, in opposition to the war against Saddam. Three small and shady arms deals are threatening a broad, multi-faceted matrix of ties, repeatedly termed “strategic” by Presidents Bush and Putin. Numerous security, diplomatic, and business relationships, from multibillion dollar Cooperative Threat Reduction programs, which deal with non-proliferation of weapons of mass destruction, to abrogation of the Jackson-Vanick Amendment, which denied Normal Permanent Trade Relations (NPTR), currently under consideration by the U.S. Congress, to billions of energy investment dollars may be jeopardized if U.S.-Russian relations go south.
It is in the interest of both countries to stop acrimony over Iraq and focus on the future. To achieve this, the Putin Administration must “clean house” and take the culprits who sold banned weapons to Saddam to task. Moscow should expand cooperation with the United States on prevention of sales of dual-use and military technologies to countries on the U.S. State Department terrorism watch list.
Moscow should also reflect on how breaching the U.N. Security Council sanctions banning weapons sales to Iraq make its own accusations of violating “international law,” heaped on the United States by the Russian Foreign Ministry, ring hollow.
Most importantly, the two countries should not lose sight of the strategic imperative of fighting global radical Islamist terrorist networks. In that struggle, the survival of tens of thousands of Russians and Americans is at stake.
03-25-2003
The future of Iraq depends not only on the ouster of the repressive regime of Saddam Hussein but also on the ability of the new Iraqi leaders to develop policies that will spur real economic growth and reverse the damage to the economy caused by 40 years of gross mismanagement.
The Bush Administration should help Iraqi opposition leaders to develop an economic reform package for their country. A double strategy of ensuring security and enabling economic growth will need international support.
For the Iraqi people, structural economic reform and comprehensive privatization of government assets is necessary to stimulate recovery and provide stability. The winning strategy of structural reform and privatization would also benefit the industrial world, the United States and its allies, countries of the Middle East, and the developing world.
Iraq’s return to global markets would allow for a more abundant and stable energy supply, a higher cash flow for the Iraqi people, and numerous business opportunities for the region and the world. Iraq’s restructuring and privatization of its oil and gas sector could become a model for oil industry privatizations in other OPEC states as well, weakening the cartel’s influence over global energy markets.
What the New Iraqi Government Should Do
Specifically, the new post-Saddam Iraqi government should:
Develop a modern legal system that recognizes property rights and is conducive to privatization;
Create a public information campaign that prepares the people for structural reform and privatization;
Hire expatriates and Western-educated Arabic speakers with financial, legal, and business expertise for key economic positions;
Deregulate prices, including prices in the utility and energy sectors;
Prepare state assets in the utility, transportation, pipeline, energy, and other sectors for privatization;
Keep the budget balanced and inflation, taxes and tariffs low;
Liberalize and expand trade and initiate an effort to join the World Trade Organization.
How the United States Can Help
The Bush Administration should provide leadership and guidance.
U.S. political commitment will be needed to motivate international organizations to provide appropriate expertise and technical assistance. Inter alia, these organizations could include international financial institutions, such as the International Monetary Fund and the World Bank, and would likely encompass such diverse non-governmental organizations such as the National Endowment for Democracy, the Center for International Private Enterprise, the American Bar Association, and the AFL-CIO. Such groups should begin to advise the future leaders of Iraq’s three primary ethnic groups to establish policies that will lead to a thriving, modern economy.
In particular, the Bush Administration should convince the future federal government of Iraq to come to an agreement on how oil revenues will be taxed and proceeds will be distributed to the country’s three ethnic regions—Shiite Arabs, the Kurds, and the Sunni Arabs. Successfully privatizing the country’s oil fields, refining capacity, and pipeline infrastructure will mean greater efficiency and higher tax revenues in the oil sector.
Though the costs of rebuilding the country will be high, if proper structural economic reforms are undertaken, Iraq’s vast oil reserves are more than ample to provide the funds needed to rebuild and boost economic growth.
Outlook for Iraq and World Energy Markets
Following the demise of Saddam Hussein, it is unlikely that the Saudi kingdom would transfer a fraction of its production quota under the Organization of Petroleum Exporting Countries (OPEC) regime to Iraq to compensate for lost profits and facilitate its rebuilding. Iraq will need to ensure cash flow for reconstruction regardless of OPEC supply limitations. Combined with the potential privatization of the oil industry, such measures could provide incentive for Iraq to leave the OPEC cartel in the future, which would have long-term, positive implications for global oil supply.
An Iraq outside of OPEC would find available from its oil trade an ample cash flow for the country’s rehabilitation. Its reserves currently stand at 112 billion barrels, but according to the U.S. Energy Information Administration, it may have as much as 200 billion barrels in reserve. Estimates by Iraqi oil officials are even higher: According to Oil Minister Amir Muhammad Rashad and Senior Deputy Oil Minister Taha Hmud, the reserves could be as high as 270 billion to 300 billion barrels, making them equal to Saudi Arabia’s.
Iraq’s 1990 output prior to the beginning of the Gulf War stood at 3.5 million barrels a day, while oil discovery rates on a few new projects in the 1990s were among the highest in the world: between 50 percent and 75 percent. Given Iraq’s own output projections, it may be capable of pumping as much as 6 million barrels (by 2010) to 7 million barrels (by 2020) a day, more than doubling current production levels.
Such a surge in production may be opposed by OPEC countries, which would like to keep its quota around the current 2.8 million barrels per day, while historic market share is taken by the Kingdom of Saudi Arabia, which currently is pumping close to 8 million barrels per day. Depending on the dynamics of global economic growth and world oil output, Iraq’s increase in oil production capacity could bring lower oil prices in the long term.
An unencumbered flow of Iraqi oil would be likely to provide a more constant supply of oil to the global market, which would dampen price fluctuations, ensuring stable oil prices in the world market in a price range lower than the current $25 to $30 a barrel. Eventually, this will be a win--win game: Iraq will emerge with a more viable oil industry, while the world will benefit from a more stable and abundant oil supply.
This WebMemo is excerpted from the authors’ Backgrounder: The Road to Economic Prosperity for a Post-Saddam Iraq, full footnotes and analysis are available there.
03-19-2003
The resignation of Charlotte Beers, undersecretary of state for public diplomacy, calls for a reexamination of how the U.S. is waging a war of ideas against Islamist terrorism. Beers’s resignation comes as the State Department is facing increasing difficulty marshalling international public opinion in support of the coming war against Iraq. The battle for hearts and minds is not a short-term campaign but a protracted conflict that will last decades, if not generations. It should be guided by an integrated strategy of public diplomacy and political covert action, something that the United States has not attempted for half a century, since the early stages of the Cold War.
The concept of the war of ideas should not be confused with psychological operations (psyops), which are a tactical instrument deployed on the battlefield specifically to undermine the morale of an enemy fighting force. Plenty of psyops will be launched against Saddam’s troops.
The campaign in the information and media battlefields is another story; it will be fought not so much against another superpower (as was the case with the USSR), as against an array of radical organizations and the governments that support them.
Since 9/11, the U.S. has found itself engaged in an ideological war against those who wish to destroy American society and its core values. Terrorism has deep roots in the modern radical - indeed totalitarian - interpretations of Islam that gave birth to al Qaeda and other Islamist terrorist organizations.
Secular regimes, such as Iraq, Syria, and Libya, also create terrorist groups and use them to further their political ends. Totalitarian ideologies of terrorism - both the Islamist and secular varieties - have to be discredited and eventually destroyed. This is one war that our country cannot afford to lose.
The nature of the enemy, the spectrum of the threats, and the environment in which the conflict is waged makes the battle overt where possible, and covert where necessary. Al Qaeda and other terrorist organizations operate by stealth. So do funders who subsidize radical Islamic brainwashing in the guise of religious "education." Persian Gulf moneybags, Iranian ayatollahs, and jihadi fundraisers from mosques in Brooklyn, N.Y. to Finsbury Park, London, and from Florida to the Philippines, have poured hundreds of millions of dollars into this war.
Today, most Westerners are not allowed into religious seminaries in Pakistan and the Gulf. Thus, penetration by U.S. and friendly agents is required. And, regimes in Iran, Iraq, Libya, and Syria do not welcome U.S. foreign service officers on public-diplomacy missions. Thus, the Central Intelligence Agency’s political-action capabilities, eviscerated in the 1970s, need to be rebuilt.
The key to victory in the battle of ideas will be leadership from the top - clear policy guidance and perseverance from the White House, as well as support from the American people.
The main American weapon in the battle of ideas should be the truth - truth about the societies, their rulers, and terrorist leaders. The truth should be disseminated through open channels where possible, and covertly where necessary, but the promotion of individual freedom and respect for others’ life, faith, and property must remain at the heart of any strategy. Other countries want to join the U.S.-led effort, as participants in a conference organized with U.S. support at the parliament of Finland have recently declared. Their participation should be welcomed: In the Cold War, U.S., British, and German international broadcasters coordinated their activities. A similar cooperation should be developed today.
The mixed successes, and in some cases the outright failure, of recent attempts to engage in the battle of ideas - such as State’s international media initiatives, featuring religious tolerance and a sunny attitude towards Islam in America; the Pentagon’s short-lived Office of Strategic Influence; and the newly-launched Radio Farda in Farsi and Radio Sawa in Arabic - demonstrate how difficult it is to regain massive public-diplomacy capabilities in a new theater only twelve years after the end of the Cold War. These efforts will require humility, patience, and realism: Changing the way people think is hard.
Victory in the war of ideas will require developing and mobilizing cultural, geographic, and linguistic expertise, all of which in turn require a long-term commitment of resources and stamina. This is a battle in which it is necessary to understand audiences and engage them, including women, youth, the business community, artists, academics, intellectuals, and ethnic minorities.
To win, Washington and its allies should pursue the following policies:
Initiate diplomatic action against the state-supported incitement to violence prevalent in mosques, education systems, and Islamist media. Develop and maintain databases tracking violent preachers and madrassa principals. Monitor school and university curricula, demanding reform of countries’ educational systems where necessary. Radical mosques and madrassas have become, in some places, little more than Jihad factories indoctrinating hundreds of thousands of potential terrorists. Often, weapons training is provided alongside the Koranic studies.
Expand the capability for political covert action at the CIA, not just against terrorist cells, but also against the mass movements and political parties that spawn them, and regimes that support them.
Identify and recruit talent for the new war of ideas. Utilize the talents of people from the Islamic world residing in the U.S., Europe, and Asia. This war can and should be fought primarily for Muslims, by Muslims.
Prepare managers and experts to administer public information operations. The best Cold War-era operations, such as Radio Liberty-Radio Free Europe, and today’s global broadcasting, demonstrate that mixing teams of Westerners and locals has proven most effective.
Reform and reexamine funding for Middle Eastern studies programs at Western universities, some of which are hijacked by the Left, as Michael Kramer’s recent book, Ivory Towers on Sand: The Failure of Middle Eastern Studies in America, amply demonstrates. Some Middle Eastern academics busy themselves with "explaining," if not outright justifying, the "root causes" of terrorism. Politically mobilized sympathizers and fellow travelers often claim expertise in the area, and oppose a robust effort against international terrorism.
Pursue inter- and intra-confessional religious dialogue. It is necessary to identify and support moderate Islamic clergy and lay leaders - to initiate and encourage debate within Islam about the corroding and dangerous role of terror and fostering or harboring terrorists.
Further develop Radio Farda and Radio Sawa as surrogate broadcasting, similar to Radio Liberty-Radio Free Europe; carefully monitor feedback from their target audiences. Begin a feasibility study for Western satellite TV channels in Arabic, Pashtu, and Farsi.
Expand the publication of books, journals, and newspapers that promote views opposing radical Islam and provide the truth about America and the West. The Middle East is one of the most Internet-starved regions of the earth. Thus, the population has to have access to printed materials. State’s Bureau of Public Diplomacy should revive the book-translation program formerly run by the U.S. Information Agency.
Reevaluate and restructure cultural-exchange programs. It is necessary, but expensive, to expose a larger number of Middle Eastern and Islamic current and future leaders to the United States and the West.
Only twelve years after the end of the Cold War, the U.S., the West, and a large number of allies are facing a new threat to their ultimate survival. The military successes in the war in Afghanistan and the coming war against Saddam should not distract policymakers from the ideological nature of the conflict.
This is not a war against Islam, but against vicious militants who are trying to hijack Islam and topple moderate governments throughout the Islamic world. Ideas have consequences, and this battle has to be joined through words, symbols, and pictures, not just bullets and missiles. The creation of effective institutions and mechanisms, and the formulation of key messages to fight this war of ideas has become one of the greatest foreign policy challenges for the Bush administration.
As in wars against 20th-century totalitarians, this struggle must be fought as a war of ideas, not just a battle of military tactics and equipment. As many a world leader said, the swamp has to be drained.
03-17-2003
As the threat of the war in the Middle East is driving the oil prices up, and the demand for energy is growing due to the Asian economic recovery and a cold winter, Eurasia is flush with oil and gas revenue. However, absent active government policy, long term economic consequences of the Eurasian oil bonanza may lead to crowding out investment in the non-petroleum sectors and appreciation of currencies, known in the economic circles as the Dutch disease. Moreover, lack of the "trickle down effect" may lead to increase in poverty and underdevelopment, and, especially in the case of the poorest Eurasian states, such as Kyrgyzstan, Tajikistan, and possibly in Turkmenistan, result in political instability due to inflation of expectations. So far, governments in the region are doing little to prevent the Dutch disease, which strikes oil economies around the world with uncanny regularity.
Russia, the largest oil exporter, is less likely to become the hardest-hit victim due to its size and diversity of its economy. Russian companies are planning to export more oil in 2003, though the export volume will be limited by the current state-run pipeline throughput. According to the Interfax Oil and Gas Report, Russia will export 43 million tons of oil in the first quarter of this year, while Deputy Prime Minister Victor Khristenko promised further expansion of the Russian pipeline capability.
This may include the government decision in March whether to build the first pipeline in Eastern Siberia. The options include a 2, 247 km pipeline to China, which will export 20 million ton crude a year, or a more expensive and lengthy pipeline to the port of Nakhodka, which has attracted interest from Japan. That pipeline would export up to 50 million ton a year, would be 3, 884 km in length, and cost over $5 billion. The China option may be built by late 2005, while the Nakhodka pipeline will take until 2008 to complete.
Kazakhstan may be interested in working with the Italian state-owned ENI, the operator of Agip-led consortium in the Kazakh sector of Northern Caspian, and of the giant Karachanganak field, to export oil via Iran.
Oil revenues are projected to remain in record territory for 2003. LUKoil is planning that, for 2003, oil prices will be in the range of $21 a barrel; Sibneft is forecasting $16.5 a barrel, while TNK is envisaging $18.5 for Brent crude. Western estimates are higher: so far the prices floated in the $35-39 range for January-March, and Goldman-Sachs is forecasting oil prices in the $30 range for 2004. With prices this attractive, Russian companies are planning to increase production between 6.8 percent a year for the government-owned Rosneft, to 12-13 percent a year for aggressively growing private companies.
Other regional exporters, such as Kazakhstan, have boosted oil production by 16.6 percent in 2002, to 42 million tons, while Azerbaijan’s overall production grew more modestly - in single digits.
Natural gas production and downstream production will also grow: Kazakhstan has increased natural gas exports by 13.2 percent to 13. 136 cubic meters, and produced 30 percent more of gas condensate. Kazakhstan will be developing the Phase Three of the Karachaganak gas condensate field, which will require a $2 billion investment. The Amangeldy field in southern Kazakhstan will be expanded, and ChevronTexaco will open a polyethylene plant in April 2003.
Russian gas exports grew only by 2.4 percent in 2002, because Russian state-owned gas monopolist, GAZPROM, is subject to artificially low prices at home; suffers from opaque and politicized management; and is not effectively attracting Western investment in order to revamp its aging infrastructure.
The oil and gas revenue bonanza is the strategic window of opportunity to address four structural defects of energy-driven economies of Eurasia: the value-subtracting (money losing) nature of the non-natural resources sectors of the economy; corruption and capital flight; dysfunctional social safety net; and manpower inefficiencies.
First, it is time for Eurasian governments to bring internal energy prices, including natural gas and coal, to the world levels. High oil prices will allow to provide subsidies to retired or laid off workers, while closing down inefficient, energy-guzzling enterprises and hiking railroad tariffs. The energy, especially artificially cheap natural gas, which is used today by the state as a hidden subsidy, can be exported to increase revenue. Some of the workers in remote "company towns" can be relocated to more livable venues.
Second, corruption and capital flight may be the most difficult to resolve. Most often perpetrated or aided and abetted by the top government officials, it is a net loss to regional economies. Police measures by themselves are not efficient, while local economies remain too inhospitable - and bureaucracies too corrupt - to make investment in non-energy sector attractive. Governments need to crack down on organized crime and corruption which plague the economy, while prosecuting most odious "exporters" of capital, even if they are politically connected insiders.
Third, social sector reform is long overdue. While salaries are higher in the energy sector -- by a factor of two in Kazakhstan - most of the gigantic profits are not invested back home to create jobs outside of the oil and gas sector, nor tax proceeds are efficiently distributed to support the elderly, sick and poor. Governments can battle the Dutch disease by stimulating non-energy business development and job creation by simplifying registration for new business and reducing corporate taxes and employment payments for these newly created entities. Finally, as USAID and a number of NGOs repeatedly demonstrated around the world, micro-lending to boost entrepreneurship is yet another way to decrease unemployment and poverty.
Finally, regional cooperation is likely to alleviate some of the structural asymmetries and stimulate growth, as Johannes F. Linn, Vice President of the World Bank has suggested in his Situation and Outlook in Russia and Central Asia - a 2001 keynote address to the Berlin Financing Conference. Clearly, cooperation on water utilization, pipelines, transport, and commerce is the most logical. In addition, some of the structural unemployment (20 percent in Kazakhstan, even higher in energy-poor Kyrgyzstan and Tajikistan) can be alleviated by opening the doors of the oil and gas sectors to workers from the areas with particularly high unemployment. This can be achieved by loosening severe interior ministry residence registration rules, which are a hick-up of the old Soviet era "propiska" system, and by providing better living conditions in the company towns owned by the extracting industries.
A three tier structure of income distribution in Eurasia, with Russia close to $4,000 a year per person; Kazakhstan, with over $1,000 and Kyrgyzstan and Tajikistan with only $200-$300 per capita per annum, may lead to economic dislocation, social conflict, and uncontrolled migration. Government leaders and international financial institutions will do well if they address these challenges while the energy windfall lasts.
03-14-2003
With the winds of war blowing over the Middle East and Venezuela’s oil production down by over 30 percent due to labor protests against President Hugo Chбvez, the United States is considering diversifying its sources of oil away from politically unstable regions. To achieve this, the U.S. should support development of a privately owned oil pipeline from Western Siberia to Murmansk, Russia. The U.S. government should make this project a top priority in bilateral security, economic policy, and business frameworks.
A Top Priority
In their November 2002 Joint Statement on Development of U.S.-Russian Energy Dialogue, Presidents George W. Bush and Vladimir Putin designated energy cooperation as a major bilateral priority. They launched the Energy Dialogue--a forum run by energy industry leaders from the two countries with their respective governmental energy and trade counterparts--to "strengthen the overall relationship" between the U.S. and Russia and "enhance global energy security, international strategic stability, and regional cooperation." As part of this effort, President Putin has agreed in principle to supply the U.S. with Russian oil.
Russia, which produces over 7 million barrels of oil per day, could easily supply 10-13 percent of U.S. oil imports, approximately the amount imported from Saudi Arabia. However, Russian infrastructure, including ports and pipelines, must be upgraded and expanded. First, a private pipeline should be built from the oil fields in Western Siberia to Murmansk--an Arctic port that is ice-free year-round--along with a deepwater oil terminal in Murmansk capable of servicing tankers with deadweight capacities of 500,000 tons. Through the Murmansk terminal alone, Russia could export 1-2 million barrels per day. Russia could also export oil to the U.S. through several Baltic Sea terminals or from Sakhalin Island (near Japan) via Nakhodka, a port on the Pacific Ocean.
A private consortium could build a Siberia-Murmansk pipeline and oil terminal faster--within three to four years--and would serve U.S. and Russian interests better than pipelines developed by the government. The pipeline would also be far from hot spots of ethnic and religious conflict, and the ocean route from Murmansk to Houston is half the length of the route from the Persian Gulf, making transport less expensive.
Industry Leaders Threatened by the State
In an unprecedented display of unity, four private Russian oil companies--LUKoil, Yukos, Sibneft, and TNK-Sidanko (half of which was acquired by British Petroleum-Amoco in December 2002)--have agreed to form a consortium to build a private Siberia-Murmansk pipeline. However, to maintain government control of the lucrative oil infrastructure, the Russian Cabinet, including Prime Minister Mikhail Kasyanov and the powerful state bureaucracy, have opposed private ownership of the pipeline. The state-owned Transneft pipeline monopoly will likely interfere--as it has with the pipeline from the Tengiz oil field in Kazakhstan to the Russian port of Novorossiysk, owned and operated by the private Caspian Pipeline Consortium, which includes Chevron-Texaco and LUKoil--by attempting to impose harsh regulations and tariffs. Transneft has also attempted to repudiate contracts signed before the Tengiz-Novorossiysk pipeline became operational.
The U.S. has a strategic interest in maintaining a robust Russian private sector, especially in energy. The private sector both disperses political power and drives economic growth. Private oil companies represent the most dynamic sector of Russia’s economy, with annual growth rates of 7-12 percent for the past four years. They enjoy high capitalization growth and have infused Russia with state-of-the-art technology and imported Western expertise. The post-communist state ownership and management is incapable of providing the necessary investment and growth rates in capital-intensive sectors, such as the energy infrastructure.
There are broader strategic implications as well: If Russia successfully implements a large, privately driven pipeline project, it will demonstrate yet again that the OPEC model of state-owned oil production is anachronistic and should be replaced by private ownership.
U.S. Energy Policy and a Russian Oil Pipeline
As President Bush declared in his State of the Union address, the U.S. government has an interest in increasing energy independence. This includes diversifying sources of oil and securing the oil supply. Top U.S. and Russian trade and energy officials and bilateral business councils should cooperate with the Russian oil company consortium to secure government authorization and expedite construction of the pipeline. Specifically, they should:
Conclusion
Russia should become a major exporter of oil to the U.S. The political commitment is already in place. The best way to accomplish this goal is by harnessing private-sector expertise and financing to build the Siberia-Murmansk pipeline and the oil terminal in Murmansk.
02-20-2003
With the United States and Iraq moving closer to war, America is finding out who its friends really are.
Dozens of countries have lined up alongside the United States, including Great Britain, Spain and the Czech Republic. More can be expected to get on board if war breaks out.
The case of Russia is particularly fascinating. Recently, Russia’s been more a pain in the neck than a friend at the United Nations, opposing U.S. efforts to use force against Saddam Hussein. But our long-time Cold War enemy has the potential to be a great ally in a post-Saddam Middle East and the continuing global war on terror.
Mind you, Russia could be a great friend. Its recent track record of cooperation with the United States is mixed. On one hand, Russia sided with Germany and France to block military action against Iraq, continues to build a nuclear reactor in Iran and recently held talks with North Korean dictator Kim Jong Il.
On the other hand, it is allied with America in the war on terrorism. After the Sept. 11th attacks, Russian President Vladimir Putin supported the United States against al-Qaeda and the Taliban in Afghanistan. He overruled his defense minister and let the U.S. military deploy troops and fly over Russian territory. Russia also supplied and trained forces for the Northern Alliance, which overthrew the Taliban. Finally, it permitted the re-supply of U.S. forces in Afghanistan through its ports and railways, greatly cutting U.S. costs.
There are many reasons why Putin did this, but here’s the main one: Osama bin Laden’s taped remark that the attack on civilians at a Moscow theater last October was part of his jihad against the West. This proved Putin’s belief that Russia is also a terrorist target and is vulnerable to Sept. 11-style attack. And Putin, a former KGB chief, doesn’t like being vulnerable.
It’s true that Moscow and Washington differ fundamentally on Russia’s relations with Iraq, Iran and North Korea. In the debates over the U.N. Security Council resolution on weapons inspections in Iraq, for example, Russia opposed language that would have explicitly authorized the use of force.
But Moscow’s ties to rogue states are driven primarily by economic motives. Russia seeks to profit from multi-billion-dollar oil, gas and nuclear power deals -- and arms sales -- to pay off billions in Soviet-era Iraqi debt. As the resolution was being crafted, Baghdad disingenuously claimed that it might sign a $40 billion, 10-year trade agreement with Russia.
The Bush administration should work closely with Russia to develop alternative policies for dealing with rogue states -- policies that would threaten neither country’s security interests. As noted in The Heritage Foundation policy guidebook, (Agenda 2003) the United States should:
Russia and America were allies in World War II. Now, in this new world war against terrorism, we have an opportunity to be allies again, but with a twist -- friends not only because we have common enemies, but because we have basic, common democratic and economic values that include a world free of terrorism. To borrow a line from Hollywood, this could be the start of a beautiful friendship.
02-10-2003
In the wake of the wave of global instability generated by the U.S.-North Korean nuclear weapons disagreement, and beyond Iraq and the war on terrorism, a future crisis is looming which may derail U.S.-Russian relations and upset an uneasy geopolitical equilibrium in Eurasia between Russia, the U.S., Iran and Turkey. This is the Iranian nuclear weapons program, which will undoubtedly strain U.S.-Russian relations and may escalate friction in the Caucasus and Central Asia. In view of pending successions and state weakness in Georgia and Azerbaijan, and brittle regimes from Ashgabat to Bishkek, escalation of tensions between regional and international powers may be fraught with destabilizing consequences.
BACKGROUND: Last December, international media uncovered satellite imagery, which is interpreted to be two secret Iranian installations involved in uranium enrichment. According to senior U.S. State Department officials, Iran is actively working on a nuclear weapons program. State Department spokesman Richard Boucher stated that Iran’s energy needs do not justify the nuclear facilities in Arak and Natanz. International Atomic Energy Agency (IAEA) Chairman Mohammed El-Baradei said in an interview that the alleged uranium enrichment plant is likely to produce highly enriched uranium for nuclear bombs while the heavy water plant is likely to be used in a reactor to produce weapons grade plutonium. Moreover, Boucher said, Iran flares more natural gas annually than the equivalent energy its future reactor may produce. Iran indeed has more natural gas than it knows what to do with. Since the deal to sell natural gas to Turkey has not been particularly successful, Tehran is now planning to build a giant natural gas pipeline to Pakistan and possibly India. The gas pipeline project, however, will remain on a drawing board as long as relations between Islamabad and New Delhi will remain as tense as they are today. In addition, Turkmenistan has recently signed a memorandum for constructing a pipeline through Afghanistan and Pakistan. Such a project is more likely to be supported by the United States than an Iranian pipeline, U.S. officials said. Thus, the power generation applications of the Russian-built, $800 million Bushehr nuclear plant, and follow-up nuclear projects, do not seem either economically justified or truthful. Iranian spokesmen vehemently denied military applications of the secret nuclear facilities and claimed that the secret projects were declared to IAEA (after they were identified through satellite imagery). Iran claimed that IAEA representatives would be invited to visit the facilities in February. Gholamreza Aghazadeh, the chief of Iranian atomic energy program, told El-Baradei that the construction is for a 6,000-megawatt reactor. Mohammed Javad Zarif, Iran’s ambassador to the United Nations, parsed his words very carefully. He refused to explain what the large new facilities are, that experts have identified as having military applications, but claimed that the Nuclear Non-Proliferation Treaty (NPT) covers all Iranian nuclear activities. Russian nuclear industry minister Alexander Rumyantsev, who visited Iran in December of last year, found himself in the role of acting as Tehran’s mouthpiece, elaborating Iranian peaceful intentions to the media: "Iran is using nuclear energy exclusively for peaceful purposes...There are no programs to create nuclear weapons or develop sensitive nuclear technologies." Mr. Rumyantsev, however, failed to explain why Iran still did not sign an agreement to return used fuel to Russia for reprocessing. Perhaps, as American officials suggested, it is because Moscow already sold Iran uranium enrichment technology which has military applications.
IMPLICATIONS: The North Korean example demonstrates how quickly a country can pull out of the NPT and kick out international inspectors, leaving great powers to grasp for a solution. Intelligence experts have suggested for a long time that this may be a path that the Iranian leadership could choose to follow. This will not be the first time Russian and Western business people supply what Madeleine Albright used to call "states of concern" with technologies necessary to produce weapons of mass destruction - with a nod and a wink, while officials look the other way. This is clearly the case with Russia. While declaring its support for the United States in the war on terrorism, Moscow intends to pocket hundreds of millions of dollars in supplying nuclear weapons to Iran. The Bush Administration is not likely to stand idle while the regime in Tehran builds its nuclear arsenal, just as Washington did not acquiesce to Saddam Hussein’s buildup of Weapons of Mass Destruction. Russian-American cooperation in the war on terrorism, however, is likely to become a victim of the new confrontation. Another victim may be the current - and uneasy - geopolitical modus vivendi in the Caucasus. Today, Washington and Moscow are in agreement, at least outwardly, on fighting possibly Al Qaeda-related elements in the Pankisi gorge; Georgia’s sovereignty and territorial inviolability; peaceful development of Caspian oil; and NATO troop deployment in Central Asia. The U.S. and Russia also share their disgust with excesses of Turkmenbashi, and would like to limit radical movements in Central Asia, such as the Islamic Movement of Uzbekistan (IMU) and Hizb-ut Tahrir. A new spat over the Iranian nuclear program, however, is likely to bring Russia and Iran into a cooperative framework which is moreover anti-American. Moscow and Tehran are likely to boost Armenian intransigence in seeking a solution over Karabakh, and enhance Russian support of Abkhaz separatists in Georgia and Ajaria’s intransigence.
CONCLUSIONS: A new U.S.-Russian confrontation, if it occurs, will make a new, more aggressive Russian intervention in succession struggles in Georgia and Azerbaijan more likely. Moscow may attempt to place, with Iranian support, anti-American candidates after Eduard Shevardnadze and Heydar Aliyev leave the scene. It is necessary, therefore, for the United States to get the Korean cooperative crisis resolution model right, in order to tackle a far more difficult Iranian nuclear weapons dilemma in the future. Developing a productive relationship between Washington and Moscow over the North Korean crisis, however, may contribute to preventing a grave confrontation, which would be caused by Russian proliferation policies towards Iran.
01-07-2003
As China continues its impressive economic growth, access to natural resources and raw materials is becoming increasingly vital, and will feature more prominently on the policy agenda of the decision makers in Beijing. If China seeks to maintain its economic growth rate of 1985-2000, it will face a major raw materials shortage and will be forced to focus on Eurasia as a source of major energy resources, water and food. This is likely to lead to growing economic and political involvement in Russia and Central Asia.
BACKGROUND: The Chinese government has designated oil, grain and water as strategic commodities with maximum influence on economic development. While China is the world’s fifth largest oil producer, demand is outgrowing economic production. By 2020, China will not be able to supply itself with oil, iron, steel, aluminum, sulfur, and other minerals. Official Chinese statistics show China’s oil production growing at the rate of 1.7% a year, while demand is growing at 5.8%. China is a net importer of oil since 1993. The current deficit is about one third of its total consumption of 300 million tons a year. Imports totaled 30 million tons in 1999, growing to 65 million tons by 2001 and likely to continue growing. A third of imports will come from Russia, some from the Caspian and Central Asia, and the rest from the Middle East, Indonesia, Vietnam, and the South China Sea. Economic cooperation is already a high priority in the Sino-Russian partnership, and is increasingly important in Beijing’s relations with Central Asia. Neighboring Siberia boasts the large oil fields in Kovykta in the Irkutsk oblast; natural gas fields in Yakutia (Sakha); and coal basins and millions of acres of pristine forests. YUKOS, the fastest growing Russian oil company, has championed plans to build a gas pipeline to Daiqin in North-Eastern China. Kazakhstan, with 2.2 billion tons of oil and 1,8 trillion cubic meters of natural gas on land (not counting Kazakhstan’s Caspian reserves), is planning to produce 49 million tons of oil and 12 billion cubic meters of gas in 203. By 2010, its production of oil will double and its production of natural gas may triple. Already in 1997, the China National Petroleum Co. (CNPC) acquired development rights for two oil fields in Kazakhstan, outbidding European and U.S. competitors, and is conducting a feasibility study for a 3,000 km gas pipeline from Turkmenistan. From the purely economic point of view, these projects looked unviable in the late 1990s when oil was cheap, but calculations may change with oil remaining above $30 a barrel, especially if the full financial muscle of the Chinese government is put behind the projects. Looking even further into the future, these East-West pipelines may be connected with the pipeline grids of Russia and Iran, creating the "Pan Asian Global Energy Bridge."
IMPLICATIONS: Trade between China and its Eurasian neighbors is developing at a high pace, primarily involving Eurasian raw materials and Russian weapons in exchange for Chinese low-quality consumer goods and food. Some aspects of this trade are off the books and unregulated, as the illegal cutting of forests in Siberia. It is energy resources, however, which are going to dominate China’s trade with Eurasia in the foreseeable future. In May of last year, the Kazakhstani energy company Kazmunaigas and CNPC have started to develop a gas pipeline from Keniak to Atyrau, which may become a part of the future Kazakhstan-China main gas export pipeline. China itself is prospecting for oil and natural gas in the Tarim basin in Xinjiang, and constructing a 2,600 mile long East-West oil and gas pipeline which may cost as much as $18 billion. By 2005, these pipelines will supply up to 25 million tons of oil and 25 billion cubic meters of gas to Eastern China. Both the Tarim pipeline. A possible Central Asian follow-up will contribute to the viability of the gigantic project. CNPC has also acquired a 50-percent stake in the Salyan Oil operating company in Azerbaijan, previously owned by Delta-Hess company, which, in turn, was recently acquired by CNPC. Salyan, which is 50 percent owned by the State Oil Co. of Azerbaijan (SOCAR), is planning to invest $80 million into rehabilitation of old oil wells in the Kursangi-Qarabagli field. This is likely to be the first step in the expansion of Chinese oil interests in the Caspian area. CNPC’s plan of a major breakthrough into the Russian oil sector was blocked, at least temporarily, on December 28, 2002, when the Russian government declined a higher Chinese bid for the state-owned Slavneft company in favor of politically connected Sibneft. This appetite for natural resources will open doors for major capital projects aimed at supplying China, such as oil, gas and water pipelines. China and other Pacific industrial powers such as Japan and Korea, form the largest oil-consuming region in the world. It is likely to boost domestic prospecting, develop its own (particularly offshore) reserves, but will increasingly have to rely on imports. Chinese experts predict that Russia will be able to export annually 25 to 30 billion cubic meters of natural gas to China annually; 15 to 18 billion kilowatts of electricity from hydroelectric power stations in Siberia, and 25 to 30 million tons of oil from the Kovykta oil field in Eastern Siberia. In addition, Russia can pump oil produced in Kazakhstan to Irkutsk and then supply it to China. Furthermore, Russia is willing to build six nuclear reactors in China to generate up to 1.5 trillion kilowatts. In addition, there are numerous projects for developing free economic zones along the Chinese-Russian border, and an international port in the mouth of the Tuman river (Tumangan), where the Russian, Chinese, and Korean borders meet. That port has been on the drawing boards for 15 years, but renewed tensions over the North Korean nuclear weapons program are likely to delay it again.
CONCLUSIONS: Russia and China are planning to cooperate in developing a network of railroads and pipelines in Central Asia, building a pan-Asian transportation corridor (the Silk Road) from the Far East to Europe and the Middle East. Ambitious Chinese plans, however, to build the longest pipeline in the world - from Western Kazakhstan to China at a cost of $10 billion - are running into financing difficulties. Thus far, the target of $20 billion in trade established by Presidents Jiang Zemin and Yeltsin in 1997 has not been reached. For the foreseeable future, the West will remain China’s leading investment and manufactured goods trading partner - while Eurasia will become an important source of raw materials. The race for resources - and for capital investment to develop them - is also likely to put Chinese energy corporations and their Western allies into competition with their Japanese and Korean counterparts. The ability of Eurasian governments and transnational corporations to work cooperatively to develop resources and operate energy markets will greatly influence the pace of economic development in Asia in this century.
