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Russia Report: May 12, 2006


12 May 2006, Volume 6, Number 10
PLANE CRASH REVEALS CRACKS IN MOSCOW-YEREVAN TIES.
The fatal crash of an Armenian airliner near the Russian resort town of Sochi on May 3 has revealed tensions in the usually warm relations between Yerevan and Moscow.

Many in Armenia believe the crash -- the worst in Armenia's history, with 113 deaths -- was the result of poor recommendations by Russian air-traffic controllers. But such claims may only be the cover for deeper concerns about the impending advance of the Russian gas giant Gazprom and growing racism in Russia directed in part at natives of the Caucasus.

Hmayak Hovhanisian, the chairman of the Armenian Association of Political Scientists, says it is too early to tell if the controversy will have a lasting impact on relations between the two countries.

"It depends on how the investigation proceeds," he notes. "If the black boxes aren't recovered and the real causes of the disaster aren't explained in a way that is clear for everyone, it will have a negative effect on Russian-Armenian relations."

Recovery work is continuing following the May 3 crash of the Armenian Airbus A320. So far divers have located fewer than half of the 113 victims, the vast majority of whom were Armenians.

The concurrent investigation into the crash is ongoing as well, under the joint supervision of Russian Transport Minister Igor Levitin and Armenian Defense Minister Serzh Sarkisian.

But so far few clues have been revealed about the probable cause of the crash. Without the black-box flight recorders, investigators lack critical information about the flight crew's actions in the moments before the plane nose-dived into the Black Sea off the Sochi coast.

The lack of information has angered Armenians, who believe the pilot may have crashed after being told by Russian air-traffic controllers to resume preparation for landing despite poor weather conditions. Georgian air officials had earlier recommended the plane turn back.

While observers like Hovhanisian note that the responsibility for final decisions ultimately rests with the pilot, and not the air-traffic controllers, many Armenians -- including those in the political opposition -- are concerned by Russia's role in the crash. They have also expressed doubt that an investigation led in part by Russia will be fully honest.

Russia and Armenia have long enjoyed strong strategic ties. Russia maintains a military base on Armenian soil, and the two countries are partner to a landmark treaty in which Moscow has committed itself to defend Armenia militarily in the event it is attacked from outside -- an apparent reference to its historic enemy, Turkey.

It has also helped to prevent further outbreaks of violence between Armenia and Azerbaijan over the Nagorno-Karabakh enclave.

Armenia has also remained a loyal member of both the Commonwealth of Independent States (CIS) and the CIS Collective Security Treaty. This is something that sets Armenia apart from its disgruntled South Caucasus neighbor Georgia, which has tense relations with Moscow and has threatened to withdraw from the CIS.

But many Armenians remain resentful of Russia. This is due in part to what is viewed as mounting racism in Russia. Skinheads were believed to be behind the killing in April of a 17-year-old Armenian in Moscow.

Many Armenians also accuse Russia of seeking to monopolize the country's energy industry. Eduard Aghajanov, an independent political analyst in Yerevan, says Russia is not treating Armenia like an equal partner.

"Many already don't believe that [Russia] is a ally, because the way Russia deals with Armenia in its foreign policy is not the way a strategic partner would behave," Aghajanov says. "It's the way it would treat a vassal."

Armenia recently agreed to hand over a portion of its state energy assets to Russia's state-run gas giant Gazprom, in order to prevent a threat to double gas prices. Gazprom has raised natural-gas prices for nearly all of its CIS clients this year, but Armenia, due to its compliance, saw a hike of just 10 percent.

Gazprom is now set to assume control of a major Armenian power plant, and may also obtain a controlling share of a planned Armenian-Iranian gas pipeline. The deal is expected to give Moscow near-total control over the Armenian energy sector.

Observers in Russia are more sanguine about the deal. Boris Makarenko, deputy director of the Moscow-based Center for Political Technologies, says Gazprom's policy in Armenia is no different than those in other countries.

Makarenko says anti-Russian sentiment has recently become more "fashionable" in Yerevan. But on the whole, he adds, relations between Moscow and Yerevan can be held up as an ideal in the CIS neighborhood. "Speaking objectively, Russia has fewer problems in relations with Armenia than with any other post-Soviet state," he says. (Valentinas Mite)

EU MAINTAINS CODEPENDENT ENERGY RELATIONSHIP WITH RUSSIA.
The European Union's apparent dependence on Russian oil and gas imports has been the source of much debate in recent months, as Moscow has shown its willingness to wield its influence as an energy supplier for political gain. But at a high-level conference on energy security held in Brussels on May 10, senior European officials noted that Russia will need massive injections of foreign capital to retain its dominant position as a supplier to Europe's energy market.

BRUSSELS, May 11, 2006 (RFE/RL) -- It is clear that when it comes to the energy trade, Russia and the EU are mutually dependent on each other.

The EU looks to Russia for 30 percent of its oil imports and about half of its imported gas. Russia's economy, meanwhile, is fueled to a great extent by the revenue it generates by exporting energy to Europe's massive energy market.

Likewise, while recent threats by Russia to look east for future gas and oil exports have made EU legislators nervous, some attending yesterday's conference on energy security noted that Russia will require foreign investment to keep up with rising EU energy needs.

Among those in attendance was former Russian Prime Minister Mikhail Kasyanov, who said Russia must take "urgent action" to avoid a sharp decline in its output of natural gas. However, he said, Russia's recent efforts to establish greater central control over "strategic" assets have damaged the country's investment climate.

"That creates a big problem for [the] overall investment process, [for] those investments which [are] badly needed in Russia right now, so [as to] raise the production of energy to satisfy our internal and general European demand," Kasyanov said. "[The] lack of different foreign investment is much more risky for Russia since it badly needs capital to be invested in the national energy sector."

Senior European Commission official Christian Cleutinx estimated that by 2020, the EU's energy needs will rise by 200 million metric tons of gas per year. But he says that according to Russia's most recent energy strategy, the country envisions expanding its total level of gas exports by just 50 million metric tons by that time.

Cleutinx says that amount would meet only a quarter of Europe's future needs, not taking into account Russia's other export markets.

"So, you see immediately the big difference there is between the exports that Russia on the basis of the current plan can deliver into the world markets -- because we're not talking about 50 [million] tonnes of oil equivalent [going only] to Europe, it's to the CIS, to Turkey, it be might the United States, and we need an increase of 200 [million tonnes]," Cleutinx said.

Cleutinx estimates that Russia would need $200 billion to meet its export targets. Overall, the European Commission says Russia would need $735 billion to modernize its energy sector by 2020. (Ahto Lobjakas)

THE RECURRING FEAR OF RUSSIAN GAS DEPENDENCY.
U.S. Vice President Dick Cheney's recent criticism of Russia for using natural gas as a political weapon is by no means new. Similar charges leveled 24 years ago during the Cold War resulted in an embargo on the sale of gas-extracting equipment to the Soviet Union and to the U.S. Central Intelligence Agency's (CIA) purported destruction of a Soviet gas pipeline.

In 1982, as the Soviet Union was beginning construction of a $22 billion, 4,650-kilometer gas pipeline from Urengoi in northwest Siberia to Uzhhorod in Ukraine with the intention of supplying Western Europe, the CIA issued a National Intelligence Estimate (NIE) titled "The Soviet Gas Pipeline in Perspective."

The NIE, regarded as the definitive product of the U.S. intelligence community, reached several conclusions, among them that the Soviet Union "calculates that the increased future dependence of the West Europeans on Soviet gas deliveries will make them more vulnerable to Soviet coercion and will become a permanent factor in their decision making on East-West issues."

In addition, according to the NIE, the Soviets "have used the pipeline issue to create and exploit divisions between Western Europe and the United States. In the past, the Soviets have used West European interest in expanding East-West commerce to undercut U.S. sanctions, and they believe successful pipeline deals will reduce European willingness to support future U.S. economic actions against the USSR."

The Urengoi gas field, located in northwest Siberia's Yamalo-Nenets Autonomous Okrug, was one of the largest Soviet gas fields. The main customers for Urengoi gas were West Germany, France, and Italy.

The initial volume of the pipeline was to be 40 billion cubic meters per year, which would mean that Soviet gas could account for 30 percent of German and French gas imports, and 40 percent of Italy's. Such figures were approaching a dependency level too great for the White House to accept.

Washington apparently dealt with these concerns in a direct manner initially. In January 1982, U.S. President Ronald Reagan purportedly approved a CIA plan to sabotage a second, unidentified gas pipeline in Siberia by turning the Soviet Union's desire for Western technology against it. The operation was first disclosed in the memoirs of Thomas C. Reed, a former Air Force secretary who was serving in the National Security Council at the time. In "At the Abyss: An Insider's History of the Cold War," Reed wrote:

"In order to disrupt the Soviet gas supply, its hard-currency earnings from the West, and the internal Russian economy, the pipeline software that was to run the pumps, turbines, and valves was programmed to go haywire, after a decent interval, to reset pump speeds and valve settings to produce pressures far beyond those acceptable to pipeline joints and welds.

"The result was the most monumental non-nuclear explosion and fire ever seen from space," he recalled, adding that U.S. satellites picked up the explosion. Reed said in an interview that the blast occurred in the summer of 1982.

The sabotage operation, however, did not halt the construction of the Urengoi pipeline. The CIA was forced to revise its tactics.

Responding to the Soviet leadership's support for the 1981 crackdown on Poland's Solidarity movement, Reagan announced a program of sanctions on companies selling gas-drilling equipment and turbines for gas-compressor stations to the Soviet Union while urging European states not to buy Soviet gas.

Officially it was declared that this was in retaliation for Soviet support for martial law in Poland. But it is also plausible that the strategy was meant to ease U.S. concerns about the construction of the Urengoi-Uzhhorod gas pipeline.

The embargo, however, was easier to declare than to implement.

Norwegian scholar Ole Gunnar Austvik wrote in an article titled "The U.S. Embargo of Soviet Gas in 1982" that a delegation under the auspices of the U.S. State Department sought to induce the Western Europeans not to buy Soviet gas and to choose alternative sources of energy.

"The arguments in favor of such diversion were close to our notion of economic warfare, even though the whole range of arguments was actually used. An economically strong Soviet Union is more dangerous than a weak one," Austvik wrote. "The U.S. compensation package contained two main components; American coal and Norwegian gas were presented as alternatives to Soviet gas."

Neither alternative, however, existed. The United States did not produce enough coal to meet Europe's needs and even if it did, the logistics of transporting it there were overwhelming. Furthermore, at the time Norway's gas production was not sufficient to replace Soviet gas. By November 1982, after the United States increased its grain sales to the USSR, the gas sanctions were terminated.

Originally, the Urengoi pipeline was projected to go through East Germany, but the West German government protested and it was rerouted through Soviet Ukraine. The West Germans were concerned that in the event of a crisis, the East Germans could turn off the valves and stop supplies. Soviet Ukraine was seen as the more reliable transit route.

The 1982 NIE states that the West Europeans' prime energy goal at the time was to "reduce their dependence on OPEC," at the time a significant Western concern arising from the Organization of Petroleum Exporting Countries (OPEC) oil boycott of 1973. The oil crisis that ensued from that boycott may have fueled U.S. concerns regarding Soviet gas, lest the Soviet Union someday copy OPEC's tactic.

In November 1983, the CIA issued another NIE, titled "Soviet Energy Prospects Into the 1990s," which, in many ways, foresaw the current predicament.

"If Moscow lands contracts to supply even half of the West European gas-demand gap now foreseen for the 1990s, an additional pipeline...would be required...and dependence on Soviet gas could approach 50 percent of gas consumption for major West European countries, far in excess of the 30 percent share that we and some West European governments regard as a critical threshold for political risk" the NIE stated. (Roman Kupchinsky)

INTERVIEW: WILL RUSSIA'S OIL WINDFALL GO TO MILITARY?
WASHINGTON May 11, 2006 (RFE/RL) -- While Russian President Vladimir Putin focused on domestic political issues in his annual state-of-the-nation address to the Federal Assembly on May 10, he did mention making new purchases of nuclear submarines and boosting the "procurement of modern aircraft, submarines, and strategic missiles for the armed forces."

RFE/RL correspondent Julie A. Corwin asked Brian D. Taylor, an expert on the Russian military at Syracuse University's Maxwell School and author of "Politics and the Russian Army: Civil-Military Relations, 1689-2000," to put Putin's remarks in context.

RFE/RL: In his annual address, Putin talked about commissioning two strategic nuclear submarines among other military expenditures. Is this how Russia is going to spend its new oil wealth? Does this represent a real commitment to higher military spending or is this a just bone thrown to the military?

Brian Taylor: He obviously [has been] flush with oil and gas money over the last few years, and it has shown up in defense expenditures really starting around 2002 or so. But at the same time he himself notes in the annual address this year that they shouldn't expect to match the U.S. or even countries like France and Britain in terms of how much they're outlaying on defense.

There is some need for certain investments in strategic nuclear forces given that there was very little investment in those in the 1990s, but it doesn't mean that we are looking at a new nuclear arms race. You know, I think it's probably real that they are going to be spending more money in this area but it's nothing that from the U.S. perspective that should be seen as alarming or worrying.

RFE/RL: So the procurement budget has already been going up?

Taylor: The procurement budget has been going up -- that is certainly true, but we shouldn't overestimate the extent to which things have really sort of taken off. And we also shouldn't overestimate what impact that will have on military performance, because military performance depends on a lot of other things other than weapons systems.

And he [Putin] didn't have anything really to say -- or he didn't have much to say in the speech about that. He talked a bit about some of the changes in personnel policy in short term of the draft and getting more NCOs [noncommissioned officers] and sergeants and that sort of thing.

But that's been something they have been talking about for quite some time, too, and it doesn't seem to have had a big impact in terms of reducing certain dysfunctional elements of serving in the Russian military, like hazing and death from suicide and death from accidents and the fact that most people don't want to send their kids to serve in the military.

RFE/RL: Why not use some of the oil money to recruit soldiers and make the army fully professional? Perhaps with the right recruitment bonus, young men wouldn't try so hard to avoid the draft?

Taylor: I think people would come for certain amounts of money. I mean there are people particularly in rural areas and certain working-class families who see it as a viable option. So they have increased the so-called professional component of their armed forces over time and they're reducing -- in fact they've eliminated in terms of the armed forces sending draftees to Chechnya. And there is this sort of long-term trajectory towards creating more professional forces.

But again, this is old rhetoric. I mean if you go back to [former President Boris] Yeltsin and when he ran for president the second time in 1996, he was going to end the draft and create a professional military.

RFE/RL: So what's the U.S. reaction to this speech likely to be?

Taylor: I don't really think the U.S. will respond in any sort of serious way, rhetorical or otherwise, and I really don't think the U.S. should or needs to. If you just look at the trajectory in terms of nuclear forces, which is the one area in which he made some specific commitments today, the U.S. is well out ahead of Russia in terms of developing new systems -- in deploying new systems, and the number of warheads available.

And really we're in a situation in which the U.S. probably has a much larger nuclear arsenal than it needs and the trends are sort of down, over time, and somewhat consistent with certain arms-control treaties, although those don't have a lot of teeth. And Russia is going to continue over time to let the size of its nuclear force reduce, too, as older systems go offline.

RFE/RL: So in conclusion it sounds like you don't think the Russian military will be the recipient of the "oil dividend"?

Taylor: They're going to be one of the beneficiaries of an oil-and-gas dividend, but there are other things that Putin wants to spend the money on, too, He's got his whole national projects in terms of education, agriculture, housing, and those sorts of things. And in terms of delivering voters to his anointed successor in 2008, if that's the plan, spending the money on the national projects seems like a better way to try and attract voters, assuming that elections matter, than spending it on nuclear submarines.

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