BUSINESS

G8 TOUGH GUY

Vladimir Putin will try anything to rebuild his nation’s global clout

PAUL WELLS June 25 2007
BUSINESS

G8 TOUGH GUY

Vladimir Putin will try anything to rebuild his nation’s global clout

PAUL WELLS June 25 2007

G8 TOUGH GUY

BUSINESS

Vladimir Putin will try anything to rebuild his nation’s global clout

PAUL WELLS

He has been president of the Russian Federation for fully 7½ years, ever since Boris Yeltsin appointed him to the post provisionally on New Year’s Eve, 1999. He has won two elections and would handily win a third if his country’s constitution, for which he proclaims his respect, permitted it. He has been scrutinized relentlessly. George W. Bush once claimed to see into his soul, but on this as on a certain number of other matters the American president was mistaken. Vladimir Vladimirovich Putin has never been a man to give up secrets easily; his last and deepest secret is what kind of man he is.

So, during a week in which he threatened to designate European targets for military attack; pulled a radical plan to change the U.S. missile defence system out of the ether; and sat through a series of private lectures from other G8 leaders about the various ways he is, in Tony Blair’s words, making the West “worried and fearful” about Russia’s political direction, one of the many surprises was how much fun Putin seemed to be having.

His playful tone—darkly playful, to be sure—is evident throughout the transcript of the encounter that kicked off the G8 festivities, an interview Putin granted to reporters from several Western newspapers for publication two days before the G8 summit began in Heiligendamm, Germany.

Should Russia be kicked out of the G8? “This is the usual stupidity,” he replied.

Were there circumstances in which Russia would extradite Andrei Lugovoi, whom British authorities suspect in the radiation murder of former KGB agent Alexander Litvinenko? “There are. The constitution of the Russian Federation would have to change. That is the first thing.”

Then there was his response to the repor-

ter for Der Spiegel, who asked whether Putin considered himself a “pure democrat”; Putin laughed aloud at that one, but played along. “Of course I am, absolutely. But do you know what the problem is? Not even a problem but a real tragedy? The problem is that I’m all alone, the only one of my kind in the whole wide world. There is no one to talk to since Mahatma Gandhi died.”

Then Putin left for Heiligendamm, lectured each of his fellow leaders in turn on humanrights abuses in their own countries, and shocked Bush by proposing that the frontline radar equipment for the U.S. missile defence system be installed in Azerbaijan, a Russian client state, instead of in NATO member countries Poland and the Czech Republic. He remains a hard guy to pin down.

Russia’s neighbours continue to be driven to distraction by his actions and antics. Saying

that Russia “must have new targets in Europe” is the sort of thing that “creates such a hostile climate,” Witold Waszczykowski, Poland’s deputy foreign minister, said in an interview. “We don’t fear any kind of Russian attack against us, but we are wondering, why create such a climate? It’s the logic of the past, the rhetoric of the past.” And yet it is more important to understand him now than ever, because Putin continues to repress democratic opposition in his own country; fight a near-forgotten but bloody and endless civil war in Chechnya; harass uncooperative neighbours like the tiny former Soviet satellite Estonia; build up state control over natural resources and heavy industry in a bid to reassert the global clout Russia lost in the decade after the Soviet Union collapsed; and stack the deck so his hand-picked successor, whoever that turns out to be, will probably have no trouble getting elected to replace him and continue running Russia the Putin way.

The sabre-rattling before Heiligendamm was “a kind of concentrated moment” in Putin’s stormy relationship with Europe and North America, says Martin Povesjil, political director at the Czech Ministry of Foreign Affairs. “It’s not a breaking point, it’s

Russia’s neighbours have been driven to distraction. ‘We don’t fear an attack, but why create such a climate?’

Putin has hatched Byzantine schemes to put Russia’s oil wealth at the service of the Russian state

just an evolution. It fits into the increased assertiveness of Russia.”

That assertiveness is driven by Russia’s immense reserves of oil and gas, and by the increasingly Byzantine schemes Putin and his cronies have hatched to put that wealth to the service of the Russian state. As a young man, Putin worked for 15 years in the KGB spy operation and then its post-Soviet successor, the FSB (Federal Security Service). He once ran the KGB shop in the then-desolate East German city of Dresden. In the 1990s he returned to his hometown, St. Petersburg, to work in the mayor’s office and earn a Ph.D. at the St. Petersburg Mining Institute. His thesis dealt with natural resources as a driver for regional economies. Two years after he graduated he wrote an article for the institute’s journal calling for full state control over raw materials and the creation of “national leaders,” big state-supported companies that could compete forcefully in global markets. The privatizations that led to a massive selloff of state companies in the 1990s were a mistake, he said.

Within a year he was Russia’s president. By 2001 Gazprom, the state-owned natural gas company, had a new management team in place and was on its way to becoming the behemoth that today controls nearly one-third of the world’s natural gas, including two-thirds of gas imports to the European Union.

There is nothing necessarily wrong with being a steady supplier of a vital resource to one’s neighbours, but that’s not how Putin has behaved. Russia temporarily cut supplies to Belarus in 2002 and to Ukraine in December 2005 and January 2006. “Russia used its energy supplies as a political tool against its neighbours,” Povesjil said.

The rise of Gazprom and other resource behemoths like Transneft, the Russian state oil-pipeline monopoly, happened during a decade when energy supplies became more fragile—and therefore more important. “The whole world, and especially the European Union, have become extremely vulnerable in the last couple of years,” Lenka Kovacovska, an international relations analyst, writes in a new study for the Association for International Affairs in Prague.

Kovacovska points to rising energy demand

in India and China and continued voracious demand in the United States, at the same time supply lines have become shaky just about everywhere. Iraq is in civil war. Hurricanes threaten the Americans’ domestic supplies every summer. Hugo Chávez is playing his own canny regional politics with Venezuela’s oil wealth. Civil unrest in Nigeria and piracy in the Straits of Malacca complete the grim list.

All of which leaves Europe without a lot of places to get energy, precisely when domestic sources like the North Sea oil reserves are no longer booming. The 25 member states that comprised the European Union for most of the past few years saw their combined energy consumption rise 11 per cent between 1995 and 2004 while their production fell by two per cent, Kovacovska writes. Net imports rose by nearly a third.

There’s one other way in which the timing of Putin’s energy play has been particularly acute. The “old Europe” countries have enough coal, nuclear and hydro resources of their own to ensure that energy insecurity pinches without hurting: France gets barely one-tenth of its oil imports from Russia, Germany less than a third. But Poland gets 77 per cent of its oil from Russia, Slovakia 82 per cent, Hungary 84 per cent. In 2004, all of those countries entered the European Union, making Gazprom and Transneft a European problem. And in 2003 all of them sent troops to help fight Bush’s war in Iraq, making their tense relationship with Putin an American problem.

The rise of the state energy monopolies is also, paradoxically, becoming a problem for Russia. Iwona Wisniewska, a Russia expert at Warsaw’s Centre for Eastern Studies, writes that the very very techniques Putin used to build up the energy monopolies are beginning to expose Russia’s energy sector to corruption and rot.

Wisniewska details all the ways Putin stacked the deck in favour of companies run, in most cases, by old associates from his KGB-FSB days and from St. Petersburg city hall. Preferential procurement and tender rules guaranteed a ready government market for the energy companies as they rose to prominence. Legal regulations were hand-tailored to favour them. Unlike their private-sector competitors, the state companies weren’t bothered with constant inspections. The courts have been consistently gentle.

The results have been striking. Russia is

less of a ffee-market economy today than it was when Putin became president. The private sector’s share of GDP was 65 per cent in 2005, down five points from 2000.

But the very success of Putin’s strategy is poisoning the energy sector he relies on for his clout. Harrassed and henpecked when they are not, like the former Yukos oligarch Mikhail Khordokovsky, simply jailed, Russia’s dwindling private-sector companies are too cowed to do any of the investing that is so vital to staying competitive in the global energy market.

And the Putin crowd? Well, they’re a bit thick, as Wisniewska delicately suggests. “Control over the emerging behemoths always goes to the Kremlin’s trusted people, whose main advantage is their loyalty and submission to the Kremlin, and not their business skills. The low quality of management reduces the efficiency of the changes implemented and the performance of the Russian economy.”

Sky-high global resource prices have masked some of this inefficiency, but it is starting to tell all the same. Growth in extraction from Russia’s resource sector—the increase in the amount of stuff they were able to pull out of the ground—shuddered from 10 per cent to only two per cent in 2005, Wisniewska writes. The state monopolies run by Putin’s old friends were the worst performers. Transneft loses twice as much oil through pipeline leakage in a year as the entire country of Azerbaijan produces.

So the very oil and gas companies that Putin used to build up Russia’s regional clout are now becoming a source of vulnerability. And Putin doesn’t handle vulnerability well. His control over the country’s largest media outlets, exercised either directly or through intimidation, ensures glowing coverage. He would be a popular politician even if he allowed opponents to criticize him freely. But he doesn’t. Garry Kasparov, the former chess champion whose Other Russia opposition coalition has been demonstrating against Putin in Moscow and St. Petersburg, was briefly jailed and has faced constant harassment. (Kasparov will speak to the Empire Club in Toronto on June 19 about his experiences.) Others have fared far worse. Journalist Anna Politkovskaya’s book A Russian Diary is a harrowing account of daily violence and despair in Chechnya and elsewhere. She was one of Putin’s fiercest critics. She was murdered in Moscow last October in an apparent contract killing. Tony Blair and French President Nicolas Sarkozy say they raised the murder with Putin in separate private meetings at Heiligendamm, but he has repeatedly denied any involvement in her death.

Putin’s imprudent management of vital resources, his intolerance for dissent, his

cronyism and his fondness for sabre-rattling would be a less politically effective combination if fate had not given him one more gift of peculiarly apt timing: less than a year after Putin became president of his country, George W. Bush became president of the United States. And the hash Bush has made of foreign policy, even in countries that used to be staunch U.S. allies, has strengthened Putin’s hand.

Two months after 9/11, Bush announced he was fulfilling a campaign pledge to abrogate the Anti-Ballistic Missile Treaty that forbade Russia and the United States from developing technology to shoot down missiles. He took staunchly pro-American Central European countries, many making their first important foreign policy decisions after decades of Soviet domination, into an Iraq war that many have found profoundly disillusioning. Ample evidence points to a concerted CIA program of secret flights to send terror suspects to countries that practise routine torture or to secret prisons in Poland and Romania.

When Bush visited Poland after the Heiligendamm summit, he gave no speech and took no questions from reporters. Criticism of the missile-defence program is widespread in Poland and the Czech Republic. In January, Roman Kuzniar, the director of a government-run foreign-affairs think tank in Poland, was sacked for telling his country’s government that missile defence is “a bad response to a non-existent threat.”

Putin watches such debates closely and incorporates them into his own arguments.

‘We have removed all of our heavy weapons from the European part of Russia and put them behind the Urals,” he told the reporters before the G8. “We have reduced our armed forces by 300,000.” What, he asked, was the response? “Europe is being pumped full of new weapons systems. I was not elected president of the Russian Federation to put my country on the brink of disaster.”

Witold Waszczykowski is his country’s chief negotiator with the Americans on missile defence. He has explained to Russian officials again and again, he says, that antimissile systems in Poland would be useless against Russian missiles even if he believed Russia ever intended to fire any. He can’t decide whether Putin’s offer to host radar stations in Azerbaijan was well-meant, but since the Russian president consulted with nobody before foisting it at a private meeting with Bush in Germany, Waszcsykowski’s hunch is that the offer was “a smart trick to make the situation more messy.”

Waszczykowski used to serve as his country’s ambassador to Iran. He agrees that the Iraq war was a horrible letdown for many Central Europeans. “I think we exaggerated our hope—all of the countries—because we were thinking of the way we transformed ourselves, 15 or 17 years ago. Maybe some countries, Middle Eastern countries, are different.”

So there are countries that can move toward democracy and countries that, perhaps, can’t. Where would Waszczykowski put Russia? “Russia?” He laughed at the cheeky question. “Well, somewhere in the middle.” M

Putin’s techniques to build the monopolies have exposed the energy sector to rot: his cronies are ‘low quality’