#2
Asia Times
October 10, 2002
The price of Russian support
By Sergei Blagov

MOSCOW - In the wake of September 11, the reinvented US-Russian partnership has been heralded as an end to the Cold War era. However, Moscow’s recent overtures towards the axis of evil serves as an indication that Russia still faces immense challenges on the path toward integration with the West.

In recent years, the concept of a "multi-polar world" has been Moscow’s favorite mantra, encapsulating the argument that the US should not be allowed to dominate the world as a single superpower. However, in the wake of September 11, the Kremlin presumably came to realize that building a multi-polar world as a counterweight to US dominance has not really worked, while Iraqi or North Korean endorsements did little to sustain Russia's role as a world power.

In the wake of September 11, Russia has undertaken a series of friendly gestures towards the US. Last October, the Kremlin announced a shutdown of its Cold War era military facilities, a spy radar station in Lourdes, Cuba, and a naval base in Cam Ranh Bay, Vietnam, to free up money for the Russian armed forces.

Russia's initial opposition to the stationing of American military forces close to its borders in Central Asia made its neighboring Central Asian states reject the idea of letting American forces use their territories for the operation in Afghanistan. However, Russia eventually changed its position due to its interest in seeing the Taliban regime fall, as well as in expanding its ties with the US.

Russia’s pro-Western course after September 11 quickly reaped major benefits for Russia. Notably, last May Russia and the US signed a legally binding treaty to reduce the two countries' long-range nuclear weapons by two-thirds and "liquidate the legacy of the Cold War". In recognition of President Vladimir Putin's help in the war on terror, the new NATO-Russia Council gave Moscow a role in drafting and implementing a number of joint policies. Russia's new cooperative face secured US backing for Moscow’s efforts to join the World Trade Organization, and Russia received full membership in the G8 group of the industrialized nations.

As well, the US administration has visibly toned down its criticism of Russia's use of force in Chechnya. There has even been talk of revoking the main economic sanction against Russia remaining from the Cold War, the 1974 Jackson-Vanik Amendment.

But the Kremlin’s recent series of advances toward Iraq, Iran and North Korea, could be interpreted as an indication that Russia’s perceived drift towards the West is far from irreversible. For instance, on September 2, Russian Foreign Minister Igor Ivanov, after conferring with his Iraqi counterpart Naji Sabri, warned that military action by the United States could entail further troubles in the volatile Middle East.

Moscow's involvement in Iraq dates back to the Cold War, when the Soviet Union cultivated client states in the Middle East. Thousands of Soviet experts worked in Iraq, and Moscow used to be Baghdad’s top arms supplier. Russia is still the largest trading partner of Iraq, which owes Moscow some US$7 billion in Soviet-era debt. Some inflation-adjusted estimates put the figure at $11-12 billion. Russian oil companies are doing business in Iraq and expect more lucrative deals in the future.

Moreover, Russia and Iraq are now negotiating a 10-year trade agreement, including 67 cooperation agreements in oil, agriculture, transportation, railroads and energy. Iraq's ambassador to Russia, Abbas Khalaf, has said the deal is worth $40 billion. However, neither Sabri nor Ivanov mentioned the proposed agreement, which was seen by analysts as a "Potyomkin deal". Presumably, Baghdad attempted to use the $40 billion figure as a bite to press for more Russian support, while Moscow - by publicizing the figure - might be indicating that it wants to be compensated for lost profits following Saddam's demise.

Obviously, Russia is keen to safeguard its economic interests. Russia is Iraq's largest supplier in the UN oil-for-food program. Of the $18.3 billion in oil-for-food contracts approved by the Security Council since the program began in late 1996, some $4.2 billion has gone to Russia.

Iraq possesses the world’s second-largest proven oil reserves, currently estimated at 112.5 billion barrels, or 11 percent of the world's total. It is seen as the ultimate bounty by Russia's oil firms. Baghdad offered Russian oil companies billions of dollars in concessions during the 1990s as it sought to build support in the United Nations. LUKoil, Russia's biggest oil company, signed a 23-year $20 billion contract in 1997 to develop part of the West Qurna field in southern Iraq with estimated reserves of some 700 million metric tons. However, the project has remained frozen under UN sanctions, and subsequent ties between Iraq and LUKoil deteriorated because the Russian firm was reluctant to begin work at West Qurna with sanctions in place. As a result, LUKoil was excluded from the oil-for-food schemes.

These days Zarubezhneft, a state-owned oil company that has worked in the Middle East since the 1970s, has emerged as Russia’s leading oil player in Iraq. Zarubezhneft has received UN permission to drill 45 exploratory wells in northern Iraq's Kirkuk oil field. Zarubezhneft also had a contract to drill some 100 wells in the North Rumaila field. Now Iraq is reportedly mulling plans to grant Zarubezhneft the rights to develop the Bin Umar oil field with estimated reserves of 3.3 billion barrels. Another Russian company, Tatneft, is to drill on behalf of Zarubezhneft at West Qurna after sanctions are lifted. Additionally, in 2001, state-controlled Slavneft clinched a deal to develop the Luhais oilfield in southern Iraq with estimated reserves of some 500 million barrels.

Moreover, Russia is understood not only to fear losses of the oil concessions that have been signed off by Saddam. Analysts argue that although threats of the US military action against Iraq has kept crude oil prices high - a victorious US war could presumably entail skyrocketing Iraqi crude exports, pushing oil prices down. Such a scenario could entail annual losses of billions of dollars in Russian oil-export revenues.

It is understood that by flirting with Saddam’s regime and other "rough states", Russia is probably signaling the West that its post-September 11 policy of backing the US has certain limits, and comes at a certain price, notably when Russia’s vital oil interests are concerned.

As recently as July 2002, Russia announced that it intended to build five more nuclear power reactors in Iran over the next decade, which was, indeed, a pointed broadening of the scope of its persistent cooperation with Tehran in defiance of US pressure to the contrary.

Last August, Putin agreed to a trip by President Kim Jong-il of North Korea. Officially, the visit of North Korea's "Dear Leader" was supposed to boost sluggish bilateral trade as well as discuss Pyongyang's plans to opens its part of the railway as a means to funnel South Korean goods into Europe across Russia.

These actions, combined with long-standing Russian fears and suspicions over Western intentions, demonstrate that Moscow still faces a long path towards full-scale partnership with its Cold War era foes.

Sergei Blagov is a contributing writer to the KWR International Advisor KWR International, Inc (KWR) is a consulting firm specializing in the delivery of research, communications and advisory services.

BACK TO THE TOP    #226 CONTENTS    NEXT ARTICLE