Thursday, October 02, 2014


The Power Vertical

Putin's Icarus Moment

Dmitry Medvedev (back) and Vladimir Putin wave to delegates at a United Russia congress in Moscow on November 27.
Dmitry Medvedev (back) and Vladimir Putin wave to delegates at a United Russia congress in Moscow on November 27.
Let's take a brief trip into an parallel universe.
 
At the September 24 United Russia congress, Dmitry Medvedev announces -- with Vladimir Putin's blessing -- that he will seek a second term as president. Putin, for his part, announces that he will step down as prime minister after the 2011-12 election cycle, but cryptically adds that he will remain in politics in some yet-to-be-determined capacity.
 
Just over a month later, in the December 4 State Duma elections, United Russia hangs on to its majority by a thread, but the big story of the day is that the newly configured Right Cause party, under the leadership of billionaire oligarch Mikhail Prokhorov, comes in a very strong third, just behind the Communists. The new Duma would have five parties, United Russia in the center, Right Cause on the center-right, A Just Russia on the center-left, and the Communists and Vladimir Zhirinovsky's LDPR on the flanks. Prokhorov, who enjoyed strong support from the growing urban professional class, is immediately touted as the leading candidate for premier.
 
Medvedev easily wins the March 4 presidential election with about 70 percent of the vote and -- as expected -- nominates Prokhorov for prime minister. Finance Minister Aleksei Kudrin hails the choice. But the big post-election story comes when Medvedev unexpectedly names Putin to serve as secretary of a revamped and beefed-up Security Council. As part of the overhaul, Medvedev also announces that the so-called "power ministries" -- FSB, Interior, Defense, and Foreign Affairs -- will report directly to the Security Council secretary.
 
OK. Thought experiment over. Now back to reality. But ask yourself the following question: From the perspective of Russia's ruling elite hanging on to its power in a stable environment, would they have been better off under this alternative scenario I just described or in the one they find themselves in now?
 
In the last episode of the Power Vertical Podcast, New York University professor  and veteran Russia-watcher Mark Galeotti, author of the blog "In Moscow's Shadows," suggested that the ruling circle -- the so-called "collective Putin" --would have been better off with Medvedev staying on as their formal front-man:
 
There is very little reason to believe that if he had let Medvedev continue for another term that things would have gone bad for him and those around him. It probably would have been a relatively stable continuation of the tandem. He just didn't seem willing to let go.... It's clear that Putin made a phenomenal blunder there. For whatever reason, he just wasn't willing to let go. Maybe it was because he had qualms about whether Medvedev could handle the job. We don't really know. Someday, maybe it will emerge.
 
Regular readers of this blog know that I like to describe the emerging political arrangements in Russia as an embryonic "deep state" -- a permanent super-elite that rules from the shadows, setting the parameters of acceptable politics for the formal institutions of governance. The term was coined to describe the cabal of military officers that de facto ruled Turkey prior to the rise of current Prime Minister Recep Tayyip Erdogan.
 
But as Mark pointed out in the podcast, for a deep state to work, "it has to remain deep." Everyone knows it's there, but everybody pretends that it is not. Putin's mistake was "dragging the deep state into public view" -- a move that broke the spell and inflamed public opinion:
 
The deep state worked when everyone was aware that it existed, if you look at Turkey for example, but it was willing to operate behind a carapace, a facade of politicians. Putin made the presence of the deep state so clear. He rubbed it in Russians' noses and that was a big mistake.
 
Returning to my little parallel universe for a bit, a second Medvedev term with Putin retaining control of the power ministries would not have been without its problems. Big disagreements would have still existed over issues of modernizing and diversifying the economy and the privatization of the energy sector -- issues dear to technocrats who favor reform but deeply threatening to the siloviki who control the commodities sector. There would still be plenty of conflicts between the "shareholders" and "managers" in the elite.
 
But in an environment of relative social and political tranquility, Putin -- who would remain de facto in charge due to his control over the security services -- would have been able to act as "arbiter in chief" and settle them behind the scenes. His authority and clout would still be unchallenged.
 
Now, he looks diminished and the deep state looks vulnerable.
 
So why did Putin take the path he did? As Mark noted, we really don't know yet. But there are some plausible explanations out there.
 
Political analyst and former Kremlin spinmeister Gleb Pavlovsky suggested in a recent interview with "New Times" that Putin's inner circle simply didn't trust Medvedev to protect their wealth and privilege:
 
I think that it was a few cohorts -- who owed their position and wealth to Putin -- who pushed him into it. They asked themselves a simple question: if it were not Putin, would their capital be guaranteed or not? That is why I, like a maniac, since I was close to the presidential staff then, said all the time that Medvedev must find a way to give guarantees to the "collective Putin." But Medvedev thought that the president was above these trivialities.
 
Along similar lines, longtime "Economist" correspondent Edward Lucas, author of "Deception: Spies, Lies, And How Russia Dupes the West," suggested that formal power matters more in Russia than in other countries with similar deep-state arrangements:
 
The way the Russian system works, these formal channels of power are important. It isn't like China where you can have Deng Xiaoping behind the scenes or Singapore where you have Lee Kuan Yew behind the scenes. The paper flow matters, the signature matters, the pechat [stamp] matters. I think that it was a source of some awkwardness and instability for them that Medvedev was theoretically in the top job and so Putin had to have a guy in Medvedev's office managing the paper flow so people didn't run around behind him.
 
In the end, as I blogged here, it appears that the "managers" who opposed Putin's return to formal power were outflanked by the "shareholders" who wanted him back in the Kremlin at all cost.

The September 24 United Russia congress, I believe, was a critical juncture, one of those inflection points in Russian politics that set the stage for the next era. And we are now seeing the results of the choices made in the run-up to that day.
 
-- Brian Whitmore

Tags: Vladimir Putin,Putin-Medvedev tandem,Dmitry Medvedev,Russia's Deep State

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Comment Sorting
Comments
     
by: Ray F. from: Lawrence, KS
May 28, 2012 18:01
Not sure that I agree with the title or the allusion to Icarus. From what I can tell, Putin remains nearly as popular as ever and he doesn’t look to crash anytime soon. Should the price of oil remain at about $100 per barrel, Putin will have no problem in continuing to distribute largesse, and staying above the fray of genuine politics. I think a more apt metaphor for the Russian leader would be Sisyphus. I sense that Putin now firmly believes in his indispensable role in keeping the system moving. Whether it is actually moving anywhere is an altogether different question.
In Response

by: Eugenio from: Vienna
May 29, 2012 06:24
Obviously you are right, RAY, when you say that "Putin remains nearly as popular as ever and he doesn’t look to crash anytime soon". But please do not forget that the "journalists" working for the RFE/RL are getting their salaries paid for doing their best to create in the heads of their readers the impression that such places as Russia, Iran, the DPRK etc etc are just craddles of horror - so that the people in the US would forget about the fact that their own economy is going down the drain and their army is losing the war in Afghanistan.
In Response

by: Steve from: Brisbane
May 29, 2012 15:31
Yes, but who pays you to comment on practically every story on this site?
In Response

by: Eugenio from: Vienna
May 30, 2012 04:41
Hey, Steve from Brisbane, thank you for your timely question! Yes, you know, it all started when Putin, Fidel and Chávez put together a couple of rubbles, pesos and bolivares and paid me to "comment on practically every story on this site". Then it was Ahmadinejad and Kin Jong Un who spent a few dinars and North-Korean wons to pay my salary. And finally Assad allocated a few dinars for me to sing glory to him too.
On the top of that, I am getting food-stamps with which I can any time get a free lunch in the canteen of the Chinese embassy here in Vienna. But you know, eating Chinese food the whole time is not really so healthy - so I just exchanged those food-stamps for a few Credit-Default Swaps on Greek, Spanish, Italian and Portugese sovereign debt. And it means I am going to win big when all these (and other) NATO member states go bankrupt over the next few months :-)).
In Response

by: Konstantin from: Los Angeles
May 30, 2012 07:10
If it is true that Eugenio is indeed an unemployed immigrant in Austria, then I must commend him for his brilliant knowledge of English and express my astonishment at his inability to get a job!! Perhaps during every interview he responds to every question about NATO minions, Frau merkel and greek default.
In Response

by: Oly from: New Mexico
May 31, 2012 17:19
Do you really think that anyone with half a brain pays attention to what you say, Eugenio? Your words are the same as the ones Pravda used to print during the heyday of your Soviet Union. Please get over your anger and get a life....
In Response

by: William from: Aragon
May 31, 2012 22:44
It good to see you have a faithful following on this site, Eugenio :-)
In Response

by: Konstantin from: Los Angeles
June 01, 2012 03:06
Eugenio, Ray is right, not withstanding "popularity" of nazi "salut",
His country going wrong way, simce Russian inheritted desese.
Your point is - it isn't so horrible. Engels was by Lenin usurped
(and Russia was saved by Stalin). Hitler is by Putin usurped -
Who saves Russia now? Me, killed by Russ for its nemesis?

USA almost started Afghanistan war, put-on by aparatchics.
East Europe and CIS manage turn USA to a reconstruction.
Russia does all to turn it to raten wound of "democratchics",
Basted West economy, that you name loose war to Russia.
He salut "Victorious Russia" you salut "Russ Pobedonosik!"



by: Maria L from: Prague, CZ
May 28, 2012 20:02
An interesting take on the situation from the perspective on the ruling elite, but I think Putin had to have done more than just "rub the public's nose" in the reality of the deep state to provoke this kind of reaction. It makes it sound as if people just got angry because the cool kid in class started showing off and it hurt their self-esteem. The length and strength of the protests in Moscow and other bigger cities, that are still going strong, five months after the Duma elections, show that the frustration built up over time. It does seem that well-educated and financial stable Russians just woke up, but I think in reality they've been aware of the problems the whole time, just didn't want to rock the boat. This was just deemed an important enough reason to abandon the fear of loosing stability. Putin didn't just rub in the farce of his rule, he finally showed the full extent of his megalomania, making it clear that if he's not stopped he will take over every morsel of power in Russia.

by: Marko from: USA
May 29, 2012 10:47
A few disagreements.Putin remains quite popular with the majority but a third of the country hates him. Not even half of that third though are liberals. So a Medvedev return and a sharp turn toward policies favored by the West would have alienated Putin's own supporters and not won over all opponents-- without even getting into the matter of what those policies would have produced. Remember the 1990s? There were definitely some drawbacks and complications to what Putin did, but he seems to be through the worst of it now. The problem with your scenario is that, from the point of view of Russian rather than Western interests, Medvedev couldn't do it. Like Yeltsin, he was weak and malleable putty in the hands of the West. Libya proved that-- costing Russia tens of billions in commerce and Medvedev, in all probability, his job.
In Response

by: Regular Joe from: USA
May 29, 2012 20:38
I'm not sure from where you conclude that Libya proved anything about Medvedev. Russia was in no position to do anything about Libya, or frankly, to stop NATO from doing anything about the situation in Libya. I'm not supporting NATO's actions in Libya, but just saying that outside of its "near abroad" (ie. Georgia), Russia is too weak to have much influence if the Western powers feel they really want to take action, regardless of whether Medvedev or Putin might be the titular leader in Moscow. Russia's "tens of billions in commerce" were lost when they backed Ghadaffi, because he was already beaten, not when they yielded to Western pressure in the Security Council. Assad survives in Syria, not from the "protection" of Russia, or even China, but because the West has finally seen that the devil they know may be better than the devil they don't, as in Libya and Egypt.
In Response

by: Marko from: USA
May 31, 2012 21:54
Don't entirely disagree that Russia couldn't have done about Lybia directly-- but it certainly could have not gone along with what happened. Very strange and rather cowardly of Meedvedev to simply go along with Russian interests being removed. It also could have responded asymmetrically in its "near abroad" -- as Putin in fact did in 2008 vis a vis the US creation of Kosovo as an independent state out of the territory of Russia's ally Serbia. Not sure what you mean about Russia backing Khadafy in terms of interests being cleansed from Libya by the US-- that was happening regardless of what policy Russia adopted.

by: rkka from: USA
May 30, 2012 00:12
"But ask yourself the following question: From the perspective of Russia's ruling elite hanging on to its power in a stable environment, would they have been better off under this alternative scenario I just described or in the one they find themselves in now?"

No.

But thanks for the pathetically transparent attempt to stir up dissention amongst the Russian elite.

"Regular readers of this blog know that I like to describe the emerging political arrangements in Russia as an embryonic "deep state" -- a permanent super-elite that rules from the shadows, setting the parameters of acceptable politics for the formal institutions of governance."

You mean, like Goldman Sachs et. al. does here in the US?

No.

Putin kicked the "malefactors of great wealth" out of power in Russia years ago.

by: George from: USA
June 01, 2012 03:19
What I find startaling is not one comment has a "Russian" location.
Althow I am sure some one of the commenters may be a ex-pat Russian. Besides the SVR officer of course.

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LIVE In this space, I will regularly comment on events in Russia, repost content and tweets I find interesting and informative, and shamelessly promote myself (and others, whose work I like). The traditional Power Vertical Blog remains for larger and more developed items. The Podcast, of course, will continue to appear every Friday. I hope you find the new Power Vertical Feed to be a useful resource and welcome your feedback. More

RBK'S LIST OF SOLDIERS KILLED IN UKRAINE

HUMAN SHIELD TACTICS IN DONETSK

PUTIN SAYS HE WON'T INTERFERE IN BASHNEFT CASE

Of course he won't. Everybody already knows how this movie is supposed to end...

AFTERNOON NEWS ROUNDUP

From RFE/RL's News Desk:

PUTIN SEEKS TO CALM INVESTORS' WORRIES OVER SANCTIONS

Russian President Vladimir Putin has told potential investors in Moscow that "unwarranted" Western sanctions won’t stop the economy from developing.

In a bid to calm investors, Putin told an investment conference on October 2 that Russia remains committed to developing an economy that is “strong, flourishing, free, and open to the world."

Prospects for foreign investors in Russia have been dampened by Western sanctions over Moscow's role in the Ukraine crisis.

Putin said Russia aims to “actively” use national currencies in trade deals with China and other countries -- implying a shift away from the U.S. dollar.

He also said Moscow doesn’t plan to introduce restrictions on cross-border capital and currency movements after a dramatic decline of the value of the ruble.

Putin also said the state is prepared to support economic sectors and companies that are being hit by sanctions.

(Based on reporting by Reuters, AFP, TASS, and Interfax)

RUSSIA LANUCHES PROBE AGAINST UKRAINIAN MILITARY LEADERSHIP

Russian authorities say they have launched an investigation against Ukraine's defense minister and other senior military officials. 

The spokesman for the Russian Investigative Committee, Vladimir Markin, announced on October 2 that Ukraine's military leadership, including Defense Minister Valeriy Heletey and General Staff chief Viktor Muzhenko, is facing genocide and war crimes charges.

On September 29, Russia accused top Ukrainian political and military leaders as well as nationalist organizations of committing "genocide" against Russian-speaking people in eastern Ukraine. 

Ukrainian authorities dismissed the accusations and opened a criminal investigation against officials of Russia's Investigative Committee.

Ukrainian forces and pro-Russian separatists have been fighting for six months in eastern Ukraine, leaving at least 3,000 people dead and causing hundreds of thousands to flee their homes.

(Based on reporting by TASS and Interfax)

PRO-RUSSIAN SEPARATISTS PUSH TO SEIZE DONETSK AIRPORT

Rebel forces in eastern Ukraine are pushing to capture the government-held airport in the city of Donetsk. 

The Ukrainian military said on October 2 that pro-Russian separatists continued an offensive begun the previous day, on "a broad front."

Army spokesman Vladyslav Seleznyov said Ukrainian forces repelled four attacks on the airport in the evening of October 1, destroying a tank and killing seven rebels. 

The rebels used tanks, multiple-launch rocket systems, artillery, and mortars, Seleznyov added, resuming their attacks on the morning of October 2. 

Aleksandr Zakharchenko, prime minister of the self-proclaimed Donetsk People's Republic, was quoted as saying on October 1 that separatist forces control “90 percent of the airport's territory” and plan to have it fully under their control “in two or three days at most."

The airport has been a focus of fighting between government forces and the insurgents despite a September 5 cease-fire in the conflict which has killed more than 3,000 people since April.

Meanwhile, shelling has repeatedly been reported in the rebel-held city of Donetsk.

On October 2, Interfax reported that the city became the target of an artillery strike a day after about 10 people were killed in shelling in the rebel-held city.

Three people were reported killed on October 1 when a shell exploded on a school playground, while several others died when a shell hit a minivan on a nearby street.

The blasts occurred as pupils returned to school after the start of the school year was postponed from September 1 due to fighting.

Meanwhile, diplomatic pressure on Russia continued as German Chancellor Angela Merkel told Russian President Vladimir Putin via phone on October 1 that Moscow has a duty to exert influence on the separatists in Ukraine. 

According to a German government spokesman, the two leaders expressed concerned that violence was still being used in Ukraine every day.

Merkel said the border between Ukraine and Russia needed to be monitored and the Organization for Security and Cooperation in Europe (OSCE) had a big role to play in that. 

Earlier, new NATO Secretary-General Jens Stoltenberg said the cease-fire in Ukraine offers an opportunity but Russia still has the power to destabilize the country.

Stoltenberg also had conciliatory words for Russia, saying he saw no contradiction between aspiring for a constructive relationship with Moscow and being in favor of a strong NATO.

(With reporting by Interfax and the BBC)

PUTIN SAYS HE HOPES UKRAINIAN ELECTION WILL BRING STABILITY

Russian President Vladimir Putin has expressed hope that Ukraine's parliamentary election later this month will help bring stability to the country.

Addressing the annual "Russia Calling" investment conference in Moscow on October 2, Putin said economic and political stability in Ukraine was in Russia's interests.

The Russian president said Moscow wants a "predictable" and "reliable" relationship with Ukraine and that he regards the former Soviet republic as Russia's "most brotherly" nation.

The elections to the Ukrainian Verkhovna Rada are scheduled for October 26.

Government forces and Pro-Russian separatist continue to battle in eastern Ukraine despite a September 5 cease-fire in the conflict which has killed more than 3,000 people since April.

(Based on reporting by Reuters and Interfax)

And here are some comments by Putin at the annual VTB Capital investment forum in Moscow.

On Ukraine:
"Russian national interests will be met if Ukraine exits its political and economic crisis -- and this country has indeed plunged into a deep political and economic crisis -- restores its economy, political, social spheres. We are interested in having a reliable and predictable partner and neighbor."


"I hope that both Ukrainian parliamentary election is conducted with dignity and a long awaited political stability sets in. However, I cannot fail to mention that we expect all people living in any part of Ukraine to be able to fully enjoy their rights enshrined both in the international and Ukrainian law, that no one is discriminated either for the language they speak, or ethnicity they belong to, or religion they follow. This is the only way to preserve the country's territorial integrity and the only way to return it its unity."

On charges of money laundering in a deal to acquire a regional oil company against one of Russia's richest businessmen Vladimir Yevtushenkov:
"There will be no review of the results of privatization [in Russia] on a massive scale. At the same time, one case always differs from another both systematically and qualitatively. Thus if law enforcement authorities found either [privatization matters] or asset movements questionable, we have no right to deny them their duty to investigate this particular case and make a decision."

"I hope all pending decisions will be made in the realm of civic laws and arbitration rather than that of the criminal code. In any case, I am not going to interfere and I am not going to issue any policy directives."

 

 

 

 

MORNING NEWS ROUNDUP FOR OCTOBER 2, 2014

Good morning. Here are a few items from RFE/RL's News Desk:

MERKEL URGES PUTIN TO PRESS SEPARATISTS IN UKRAINE

German Chancellor Angela Merkel says Russia has a duty to exert influence on pro-Russian separatists in eastern Ukraine.

Merkel made the remark during a phone call with Russian President Vladimir Putin on October 1.

According to a German government spokesman, the two leaders expressed concerned that violence was still being used in Ukraine every day.

Merkel said the border between Ukraine and Russia needed to be monitored and the Organisation for Security and Cooperation had a big role to play in that. 

She said Germany would continue to support the OSCE mission in Ukraine, adding it could play an important role in planned local elections in the regions around Donetsk and Luhansk. 

Earlier, NATO's new Secretary-General Jens Stoltenberg said the cease-fire in Ukraine offers an opportunity but Russia still has the power to destabilize the country.

(Based on reporting by TASS and Reuters)

MOSCOW LINKS SUSPENSION OF STUDENT EXCHANGES TO GAY U.S. COUPLE

Russia's child-protection ombudsman has linked Moscow's decision to suspend participation in the Future Leaders Exchange Program (FLEX)  to a gay American couple that established guardianship over a Russian high school student who was in the United States for the program.

Pavel Astakhov said on Twitter (https://twitter.com/RFdeti) on October 1 that Washington had violated its obligation to return Russian students to their country when  "a Russian teen stayed behind in the United States."

Astakohov said a homosexual couple established illegal "guardianship" over the boy.

But the U.S. administrator of the program says the events described by Astakhov occurred after the child had completed the exchange program and that the student's host family was not a same-sex couple as Russian officials have implied.

U.S. Ambassador John Tefft expressed regret over Russia's decision to withdraw from next year's FLEX program.

(With reporting by TASS and Interfax)

NATO'S NEW CHIEF SAYS RUSSIA STILL ABLE TO DESTABILIZE UKRAINE

NATO's new Secretary-General Jens Stoltenberg has said that the cease-fire in Ukraine "offers an opportunity" but says Russia still has the power to destabilize the country. 

Stoltenberg, speaking on October 1 in Brussels at his first news conference as NATO leader, said Russia must comply with international law and demonstrate it is respecting its international obligations.

He said: "We see violations of the cease-fire" in Ukraine.

But the new NATO chief said he saw no contradiction between aspiring for a constructive relationship with Russia and being in favor of a strong NATO.

Stoltenberg, a former two-term Norwegian Prime Minister, is NATO's 13th secretary-general in the trans-Atlantic organization's 65-year existence.

He replaced Danish former Prime Minister Anders Fogh Rasmussen. 

(With additional reporting by Reuters and AP)

LAVROV SEES CHANCE TO RESUME TALKS WITH NORTH KOREA

Russian Foreign Minister Sergei Lavrov said after meeting in Moscow with North Korea’s Foreign Minister Ri Su Yong on October 1 that he sees a possibility for six-party talks to resume on Pyongyang’s nuclear program.

But Lavrov said the resumption of the talks "will take a certain amount of time – not immediately."

He said the main conditions are "to achieve from all sides a calm, balanced approach" and to avoid "any abrupt steps that would only polarize positions."

North Korea, South Korea, Japan, China, Russia, and the United States began talks in 2003 with the aim of ridding the Korean peninsula of nuclear weapons.

But Pyongyang withdrew in 2009 and indicated it would not abide by a 2005 pledge to abandon its nuclear programs.

Ri, who is on a 10-day visit to Russia, said a "long tradition of relations" between Moscow and Pyongyang is "bonded with blood."

(Based on reporting by TASS and Interfax)

And this, via Reuters:

RUSSIA GAS DUEL DEEPENS WITH SLOVAKIA SUPPLY CUT

By Michael Kahn and Jan Lopatka

PRAGUE, Oct 1 (Reuters) - The cat and mouse game between Europe and Russia on gas intensified on Wednesday with Slovakia saying its supply from Russia was down by a half and its prime minister calling the move part of a political fight.

Since September, Russia's state-controlled Gazprom has sent less-than-requested deliveries to Poland, Slovakia, Austria and Hungary - after the European Union began sending gas to Ukraine - in a clear warning from Moscow ahead of the winter heating season which officially starts today, when the industry switches to higher pricing.

The 50 percent cut reported by Slovakia, a major transit point for Russian gas exports to Europe, was by far the deepest yet, and Prime Minister Robert Fico said he would call a crisis meeting of his government if the problems persisted.

Fico, who normally has warm relations with Russia and has criticised EU sanctions against it, said he saw political factors behind the cuts.

"The Russian side talks about technical problems, about the necessity of filling up storage for the winter season," Fico said. "I have used this expression and I will use it again: gas has become a tool in a political fight."

There was no immediate comment from Russian gas exporter Gazprom

Slovakia's western neighbour the Czech Republic became the latest former Soviet-bloc nation to experience reductions. RWE Czech Republic, its main gas importer, said it saw unspecified reductions on several days over the past week, although the flow seemed normal on Wednesday.

It was unlikely there will be any impact for now on consumers of gas in the Czech Republic, Slovakia, or the countries further West that receive it via there, because gas storage reservoirs throughout Europe are close to full.

As well as shipping Russian gas west, Slovakia also sends it east into Ukraine. That has irked Russia, which switched off gas deliveries to Ukraine to persuade Kiev to pay its arrears.

"Nobody should be surprised by what Russia does. They want to keep pressure on Ukraine... at the start of the heating season," said Michael LaBelle, a gas expert at the Central European University in Budapest.

Central European spot gas markets rose to over 25 euros ($31.52) per megawatt-hours (MWh), their highest levels since the Ukraine crisis broke out in February/March.

Russia is Europe's biggest supplier of natural gas, meeting almost a third of annual demand and in return, Gazprom receives around $80 billion in annual revenues from its European customers, making up the majority of its income.

Moscow halted gas flows to Ukraine three times in the past decade, in 2006, 2009 and since June this year, although this year gas for the EU via Ukraine has so far continued to flow.

Opening up gas flows eastward was part of the EU's response to Gazprom's decision to cut supplies to Kiev in June. Slovakia, Poland and Hungary can also send gas to Ukraine but so far deliveries have not been without incident.

Poland temporarily stopped deliveries to Ukraine last month after Warsaw said it was getting less gas from Russia than requested. Hungary stopped eastward supplies last week in order to fill its own storage tanks ahead of winter.

Slovakia, with the largest EU capacity to Ukraine, had maintained deliveries.

Analysts agree the moves are a warning to Europe that Russia is ready to retaliate should Brussels impose further sanctions on Moscow over its intervention in Ukraine.

"It (the Russian export reductions) could actually be in the end quite harmless. But the fact that they did not tell anyone in advance, (shows) that nobody should trust any explanation he or she gets, and that in itself is damning," Czech energy security ambassador Vaclav Bartuska told Reuters this week.

He added it would be foolish to expect gas to flow as usual through Ukraine this winter.

DEAL?

Traders have, however, pointed out that Russia's recent reductions to Europe, at least before the latest cuts to Slovakia, were within contractual allowances and came during times that EU gas storage tanks are well filled.

Gas Infrastructure Europe data show that the EU's gas storage sites are filled to an average of over 90 percent, compared to just 68 percent this time last year.

"Most of the EU has its gas tanks filled to the rims, so they don't need more gas at the moment, while Gazprom needs to still fill its domestic reserves ahead of the Russian winter, so I'm not surprised by its flow reductions to the EU, which were all within contractual allowances," one EU utility trader said.

While gas deliveries to Germany, Gazprom's biggest customer, should continue through the Nord Stream pipeline which bypasses Ukraine, the outlook is far less certain for central and southeastern European nations which receive most or all of their imports from Russia and via Ukraine.

To deal with a potential shortfall this winter, the European Union has prepared emergency plans and has also sought a compromise to safeguard winter supplies in a potential deal that would guarantee Kiev at least 5 billion cubic metres of Russian gas for the next six months if Ukraine made pre-payments.

The Russian energy ministry said on Wednesday that there would be not further gas talks with Ukraine and the European Commission this week. (1 US dollar = 0.7933 euro) (Additional reporting by Vera Eckert in Berlin; Writing by Henning Gloystein and Christian Lowe; Editing by William Hardy)

 

WHY COMPROMISE IN UKRAINE MIGHT BE IMPOSSIBLE

The always insightful -- and often provocative -- Alexander Motyl has a piece up at Huffington Post suggesting the Western and Russian positions on Ukraine are irreconcilable.

"Should the West therefore try to understand Russian perceptions even if it knows that they are completely wrong? Obviously, understanding Russian delusions can help the West and Ukraine craft a better response to Putin's expansionism. But it makes little sense to say that the West and Ukraine should try to accommodate these delusions in their search for peace in eastern Ukraine and the Crimea.

Should the democratic world have accommodated Hitler's perceptions of Jews? Or of Germany's need for Lebensraum? Or of the innate superiority of the Aryan race? The questions are rhetorical, but they are exactly the ones we should be asking about Russian perceptions.

The implications for policy are clear. Finding a compromise under such conditions may be impossible. And agreeing to disagree may be the best one can possibly achieve. Russia currently controls the Crimea and one third of the Donbas region in eastern Ukraine. Let it continue to do so. The West has imposed sanctions on the Russian economy and supports Ukraine. Let it also continue to do so. Finally, Ukraine has adopted a defensive position and appears intent on preventing further Russian incursions into its territory. It, too, should continue to do so.

There is no practical solution to the Russo-Ukrainian war. The most one can hope for is to "freeze" it and thereby transform hot war into cold war between Russia and Ukraine and between Russia and the West. That cold war will continue as long as Putin remains in power and continues to promote his delusional views of the world." 

Read the whole piece here.

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The Power Vertical is a blog written especially for Russia wonks and obsessive Kremlin watchers by Brian Whitmore. It covers emerging and developing trends in Russian politics, shining a spotlight on the high-stakes power struggles, machinations, and clashing interests that shape Kremlin policy today. Check out The Power Vertical Facebook page or